<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 9, 2000
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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DEAN & DELUCA, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 5999 52-2222998
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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560 BROADWAY
NEW YORK, NY 10012
(212) 226-6800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
DANE J. NELLER
CHIEF EXECUTIVE OFFICER
DEAN & DELUCA, INC.
560 BROADWAY
NEW YORK, NY 10012
(212) 226-6800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPY OF COMMUNICATIONS TO:
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JOEL I. GREENBERG, ESQ. ELLEN B. CORENSWET, ESQ.
STEVEN G. CANNER, ESQ. BROBECK, PHLEGER & HARRISON LLP
KAYE, SCHOLER, FIERMAN, HAYS & HANDLER, 1633 BROADWAY, 47TH FLOOR
LLP NEW YORK, NY 10019
425 PARK AVENUE (212) 581-1600
NEW YORK, NY 10022
(212) 836-8000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
possible after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / __________________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / __________________________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / __________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.01 par value per share..................... $69,000,000 $18,216
</TABLE>
(1) Estimated, pursuant to Rule 457(o) under the Securities Act of 1933, solely
for purposes of calculating the registration fee.
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 SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MAY , 2000
[LOGO]
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SHARES
COMMON STOCK
Dean & DeLuca is offering shares of its common stock. This is our
initial public offering, and no public market currently exists for our shares.
We have applied to have our common stock approved for quotation on the Nasdaq
National Market under the symbol "DEAN." We anticipate that the initial public
offering price will be between $ and $ per share.
------------------------
Investing in our common stock involves a high degree of risk.
See "Risk Factors" beginning on page 5.
------------------------
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Per Share Total
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Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Dean & DeLuca................................... $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
Dean & DeLuca has granted the underwriters a 30-day option to purchase up to
an additional shares of common stock to cover over-allotments.
------------------------
ROBERTSON STEPHENS CHASE H&Q
DAIN RAUSCHER WESSELS
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE>
[INSIDE FRONT COVER]
[COLOR ARTWORK TO BE DESCRIBED IN AMENDMENT]
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF OUR COMMON STOCK ONLY IN THOSE JURISDICTIONS WHERE OFFERS AND
SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF
THIS PROSPECTUS OR ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, WE MEAN
DEAN & DELUCA, INC. AND ITS SUBSIDIARIES WHEN WE USE THE TERMS "WE," "OUR,"
"OURS," "OUR COMPANY," "US" AND "DEAN & DELUCA."
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
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PAGE
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Summary..................................................... 1
Risk Factors................................................ 5
Forward-Looking Statements.................................. 21
Use of Proceeds............................................. 22
Dividend Policy............................................. 22
Capitalization.............................................. 23
Dilution.................................................... 25
Selected Financial Data..................................... 26
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 28
Business.................................................... 34
Management.................................................. 50
Transactions with Related Parties........................... 63
Principal Stockholders...................................... 68
Description of Capital Stock................................ 71
Shares Eligible for Future Sale............................. 75
Underwriting................................................ 77
Legal Matters............................................... 80
Experts..................................................... 80
Where You Can Find More Information......................... 80
Index to Financial Statements............................... F-1
</TABLE>
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Dean & DeLuca-Registered Trademark-, Dean & DeLuca
Selections-Registered Trademark-, St. Helena Kitchens-Registered Trademark-,
Premiata-TM- (applied for) and our stylized logos are registered trademarks and
servicemarks of Dean & DeLuca. This prospectus also includes other trademarks,
tradenames and servicemarks owned by other parties.
i
<PAGE>
SUMMARY
THIS SUMMARY ONLY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE
INFORMATION UNDER THE SECTION ENTITLED "RISK FACTORS" AND THE FINANCIAL
STATEMENTS AND RELATED NOTES INCLUDED IN THIS PROSPECTUS, BEFORE MAKING A
DECISION TO INVEST IN OUR COMMON STOCK. WHEN WE REFER TO FISCAL YEARS IN THIS
PROSPECTUS, FISCAL 1999 MEANS THE ELEVEN-MONTH PERIOD ENDED JANUARY 30, 2000,
FISCAL 1998 MEANS THE YEAR ENDED FEBRUARY 28, 1999, FISCAL 1997 MEANS THE YEAR
ENDED MARCH 1, 1998, FISCAL 1996 MEANS THE YEAR ENDED MARCH 2, 1997 AND FISCAL
1995 MEANS THE YEAR ENDED MARCH 3, 1996.
OUR COMPANY
Dean & DeLuca, founded in 1977, is an established multi-channel retailer of
gourmet and specialty foods, high premium wines and upscale kitchenware. We
believe that we are recognized internationally for having enhanced consumers'
access to and appreciation of American and international specialty products. We
also believe that our brand awareness and appeal, which are larger than our
physical presence, create a franchise with significant growth potential.
Our merchandising and design are distinctive and elegant, and are based on
the minimalist design principle of form following function. Our stores are
designed to re-create a European marketplace environment, featuring displays of
abundant and overflowing specialty foods and other premium products. Our staff
of trained experts carefully select our gourmet and specialty foods and wines
based on taste, quality and uniqueness, and they screen all of our kitchenware
for performance and style. Our premium specialty products are sold through
multiple distribution channels consisting of our:
- retail operations--comprised of five specialty markets, one wine store and
eight cafes in selected markets throughout the United States;
- Internet/Direct operations--comprised of our Web site at
WWW.DEANDELUCA.COM and our mail-order catalogues; and
- business-to-business sales--comprised of sales through selected premium
retailers and sales to corporate customers.
We compete on the basis of offering "best-in-class" and "hard-to-find"
products, rather than on price, which has enabled us to realize high gross
margins on our products. Our operating model is strengthened by our ability to
realize economies of scale in purchasing inventories and by distribution
efficiencies. Furthermore, we believe that the combination of our traditional
retailing operations with our Internet/Direct operations has allowed us to
cross-promote our brand nationally with lower customer acquisition costs. We
also believe that the selective and strategic locations of our stores have
allowed us to realize incremental sales through our Internet/Direct operations
without significantly reducing store sales.
MARKET OVERVIEW
The gourmet and specialty foods, premium wines and upscale kitchenware
markets in which we compete had aggregate U.S. sales of approximately
$65.8 billion in 1997, the most recent year for which multiple market sales data
is available. We believe that these premium and luxury sectors have experienced
higher rates of growth than the broader general markets for each of these types
of products because consumers have increasingly moved towards products of higher
quality and sophistication. We also believe that current demographic trends,
which indicate an overlap between our target consumer audience and Internet
users, represent a growing opportunity for the sale of our premium products.
According to SIMMONS MARKET RESEARCH BUREAU, approximately 40% of gourmet and
specialty foods shoppers in the U.S. during 1997 were between the ages of 35 and
49. Additionally,
1
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MEDIA METRIX estimates that individuals in this age category represent 35% of
all Internet users in the United States.
Despite the existence of a significant market opportunity in these sectors,
we believe that no dominant multi-channel specialty retailer has emerged. We
believe that the combination of the size of the markets for our products,
projected growth of these markets, industry fragmentation, favorable demographic
trends and the emergence of the Internet as a distribution channel presents us
with the opportunity to enhance our position as an established multi-channel
retailer of gourmet and specialty foods, high premium wines and upscale
kitchenware.
OUR COMPETITIVE STRENGTHS
We intend to enhance our position as an established multi-channel retailer
of gourmet and specialty foods, high premium wines and upscale kitchenware by
continuing to capitalize on our competitive strengths, which we believe include:
- the internationally-recognized Dean & DeLuca brand;
- the enjoyable and memorable Dean & DeLuca customer shopping experience;
- the advantages of being an integrated multi-channel retailer;
- our established call, distribution and fulfillment infrastructure; and
- our strong operating model, which provides a foundation for continued
growth.
OUR STRATEGY
We intend to leverage our brand across our multiple distribution channels to
grow our business. The key elements of our strategy are:
PURSUING MULTI-CHANNEL GROWTH INITIATIVES.
- RETAIL STORES. We plan to open one or two specialty markets during
calendar 2001 and three or four specialty markets in each of the five
calendar years thereafter. The new specialty markets will be located in
strategically-selected affluent, densely populated urban markets. We will
also consider opening three or four cafes near each of our new specialty
markets.
- INTERNET/DIRECT OPERATIONS. We expect to dedicate a substantial portion of
our financial and management resources to grow our Internet/Direct
operations. Specifically, we intend to attract customers to our Web site
by mailing approximately 13 million catalogues this calendar year,
engaging in significant online and traditional advertising efforts,
cross-marketing our Internet/ Direct operations at our retail stores and
continuing to develop strategic alliances.
- BUSINESS-TO-BUSINESS SALES. We actively promote our business-to-business
sales through our Web site and business-to-business sales catalogues. In
order to expand these sales, we intend to increase the sale of our branded
products domestically and internationally through selected premium
traditional and online retailers, expand our dedicated
business-to-business sales and customer service organization, and develop
direct links to our Web site from our business customers' Intranet
networks.
ENHANCING THE WEB SITE EXPERIENCE. We are currently making significant
improvements to our Web site to make its design more attractive, increase the
number of products offered, continue to provide meaningful content and increase
the speed and improve the navigability of our Web site.
EXPANDING OUR INFRASTRUCTURE. We are currently constructing a 58,000 square-foot
expansion of our existing 32,100 square-foot distribution and fulfillment
facility and have leased an additional
2
<PAGE>
15,000 square feet of space for our new call center, each of which is located in
Wichita, Kansas. Once the construction of the new warehouse and the build-out of
our new call center are complete, our total call, distribution and fulfillment
capacity will be approximately 105,100 square feet. We have also leased a
separate 55,000 square foot warehouse facility through the end of calendar year
2000, with options to renew in our favor. We are also in the process of
developing an enterprise-wide operating system that link and centrally monitor
each of our distribution channels.
CORPORATE INFORMATION
Dean & DeLuca, Inc. was incorporated in Delaware in July 1999. Our principal
executive offices are located at 560 Broadway, New York, New York 10012, and our
telephone number is (212) 226-6800. Our Web site address is WWW.DEANDELUCA.COM.
Information contained on our Web site and in our catalogues should not be
considered a part of, nor incorporated into, this prospectus.
THE OFFERING
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Common stock offered........................................ shares
Common stock to be outstanding after this offering.......... shares
Use of proceeds............................................. To fund the build-out of new
stores, market and advertise
our Internet/Direct
operations, further develop
our technology, expand our
call, distribution and
fulfillment facilities, expand
human resources and for
general corporate purposes.
Proposed Nasdaq National Market symbol...................... "DEAN"
</TABLE>
------------------------
The above information is based on the shares outstanding as of the date of
this prospectus. The total number of shares of common stock that we assume will
be outstanding after the offering excludes:
- 1,159,887 shares of common stock issuable upon exercise of outstanding
options, at a weighted average exercise price of $3.50 per share;
- 473,602 additional shares of common stock issuable upon exercise of
options that we could issue under our 1999 stock option plan;
- 200,000 additional shares of common stock issuable upon exercise of
options that we could issue under our 2000 non-employee directors' stock
option plan; and
- 1,377,223 shares of common stock issuable upon exercise of outstanding
warrants, each with an exercise price of $2.94 per share.
Except as otherwise noted, all information in this prospectus is based on
the following assumptions:
- all of our outstanding shares of series A convertible preferred stock are
converted into an aggregate of 3,669,760 shares of our common stock upon
the consummation of this offering;
- a for stock split of our outstanding shares of common stock, which
will be effected before the consummation of this offering;
- the underwriters' over-allotment option will not be exercised; and
- the filing of our second restated certificate of incorporation and the
approval and adoption of our restated bylaws, immediately before the
consummation of this offering.
3
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Listed below is a summary of our statement of operations data for fiscal
1997, fiscal 1998 and fiscal 1999. Commencing with the period beginning
March 1, 1999, our fiscal year ends on the Sunday nearest to January 31.
Previously, our fiscal year ended on the Sunday nearest to February 28.
Accordingly, fiscal 1999 is an eleven-month period. You will also find our
consolidated balance sheet as of January 30, 2000 both on an actual basis and
pro forma as adjusted basis, assuming completion of this offering. To calculate
the "pro forma as adjusted" data, we have assumed the following:
- all of our outstanding shares of series A convertible preferred stock are
converted into an aggregate of 3,669,760 shares of our common stock upon
the consummation of this offering; and
- the sale by us of shares of common stock at an assumed initial
public offering price of $ per share, after deducting underwriting
discounts and estimated offering expenses payable by us, and the
application of the net proceeds from this offering.
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<CAPTION>
FISCAL
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1997 1998 1999
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STATEMENT OF OPERATIONS DATA:
Revenue
Retail.................................................. $32,338 $45,285 $50,845
Internet/Direct......................................... 2,070 4,018 8,771
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Total revenue......................................... 34,408 49,303 59,616
Gross profit................................................ 14,137 21,193 25,463
Operating income (loss)..................................... (7,901) (4,289) (10,298)
Net income (loss)........................................... (9,349) (5,719) (8,993)
Basic and diluted net income (loss) per share--pro forma to
reflect income taxes(1)................................... $ (2.42) $ (1.48) $ (1.73)
Shares used in computing basic and diluted net income (loss)
per share--pro forma to reflect income taxes(1)........... 3,862 3,862 5,195
Pro forma net income (loss) per share--basic and
diluted(2)................................................ $ (1.05)
Shares used in computing pro forma net income (loss) per
share--basic and diluted(2)............................... 11,212
</TABLE>
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(1) See note 2(o) to our financial statements for an explanation of the net loss
per share information on a pro forma basis to reflect income taxes and the
determination of the number of shares used in computing per share data.
(2) Reflects our reorganization, which occurred on November 30, 1999, as if it
had occurred as of March 1, 1999, and the conversion of our series A
convertible preferred stock into our common stock as if the conversion had
occurred as of the respective dates of issuance. See notes 2(o) and 3 to our
financial statements.
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AS OF JANUARY 30, 2000
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $17,117 $
Working capital............................................. 12,242
Total assets................................................ 43,413
Total debt (including current maturities)................... 3,200
Total stockholders' equity.................................. 27,533
</TABLE>
4
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RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISKS AND ALL OTHER INFORMATION CONTAINED IN
THIS PROSPECTUS BEFORE YOU DECIDE TO BUY OUR COMMON STOCK. ANY OF THE FOLLOWING
RISKS, AS WELL AS OTHER RISKS AND UNCERTAINTIES THAT WE HAVE NOT YET IDENTIFIED
OR THAT WE BELIEVE ARE IMMATERIAL, COULD IMPAIR OUR BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, CAUSE THE TRADING PRICE OF OUR COMMON STOCK
TO DECLINE, AND RESULT IN A PARTIAL OR COMPLETE LOSS OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE HAVE SUFFERED LOSSES FOR THE LAST SEVERAL YEARS AND EXPECT LOSSES AND
NEGATIVE CASH FLOW TO CONTINUE FOR THE FORESEEABLE FUTURE.
We have not been profitable since the year ended February 28, 1993. We
incurred net losses of approximately $9.0 million for fiscal 1999, $5.7 million
for fiscal 1998 and $9.3 million for fiscal 1997. As of January 30, 2000, we had
an accumulated deficit of approximately $34.9 million. We expect operating
losses and negative cash flows to continue for the foreseeable future as we
continue to incur significant operating expenses and make capital investments.
We also expect to significantly increase expenditures for marketing and
advertising related to our Internet/Direct operations and to upgrade our
technology infrastructure and call, distribution and fulfillment facilities. As
a result, we will need to generate significant revenues to achieve and, if
achieved, to maintain profitability, which may never occur. Even if we do
achieve profitability, we may not be able to sustain or increase profitability
on a quarterly or annual basis in the future. In addition, we may be unable to
adjust our spending quickly enough to offset any unexpected revenue shortfall.
If we have a shortfall in revenue in relation to our expenses, our operating
results will suffer and our losses and negative cash flow will increase. It is
possible that our future results of operations may be below the expectations of
securities and other market analysts and investors, which could cause the
trading price of our common stock to fall.
IF OUR INTERNET/DIRECT GROWTH STRATEGY DOES NOT SUCCEED, OUR BUSINESS AND
FINANCIAL CONDITION WILL BE HARMED.
Our growth strategy depends in substantial part on our ability to
significantly increase sales of our products through our Internet/Direct
operations. In order for our Internet/Direct operations to succeed, we must,
among other things:
- make significant investments in our Internet/Direct operations,
infrastructure, and call, distribution and fulfillment facilities in
Wichita, Kansas;
- significantly increase our online traffic and sales volume;
- attract and retain a loyal base of frequent visitors to our Web site;
- expand the products we offer over our Web site;
- form and maintain relationships with strategic online partners;
- provide high-quality customer service; and
- continue to develop and upgrade our technologies.
We may not be successful in achieving these and other objectives necessary
for our Internet/Direct strategy to succeed. If we are not successful in
achieving these objectives, our Internet/Direct operations may not be profitable
and our results of operations will suffer.
5
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IF WE ARE NOT SUCCESSFUL IN MANAGING OUR EXPANSION, OUR BUSINESS WILL BE HARMED.
We have no significant experience marketing our products in stores other
than in metropolitan New York City, Washington, D.C., Charlotte, North Carolina,
Kansas City, Kansas and St. Helena, California, and limited experience managing
geographically diverse operations. In addition, our sophisticated gourmet and
specialty foods products may not be accepted in other areas. If we fail to
adequately adjust our business plans to account for differences in regional
preferences, we may not attract the customers we need to successfully expand our
retail business.
We are also in the process of expanding our call center and distribution and
fulfillment facilities and operations. If we fail to complete this expansion as
planned, we may not be able to successfully grow our Internet/Direct operations.
A successful expansion of our overall business is also dependent upon our
ability to establish and maintain adequate management and information systems
and financial controls. In this regard, we have commenced consolidating our
financial reporting functions from New York, Atlanta and Wichita to Wichita, and
this consolidation is expected to be completed by the end of fiscal 2000. If
this consolidation takes longer than expected or is otherwise unsuccessful, our
ability to expand our operations could be harmed. In addition, this
consolidation could be disruptive to our operations and, even if this
consolidation is successful, we may have difficulties during this period
relating to tracking inventory, billing and collecting, and accurately and
timely maintaining our financial records.
In addition, we have recently replaced our management information systems,
including purchasing, accounting and inventory management, and our accounting
software, at a cost of $650,000. If we are unable to successfully integrate
these systems or if we fail to continue to maintain or upgrade these systems,
our business and results of operations could be harmed. In addition, we intend
to replace our point-of-sale technology. If the replacement or integration of
our new system is not successful, our business or financial results will be
harmed.
OUR OPERATING RESULTS WILL SUFFER IF SALES DURING OUR PEAK SEASONS DO NOT MEET
OUR EXPECTATIONS.
Our results of operations have fluctuated from quarter-to-quarter as a
result of, among other things, increased business during the holiday season.
Historically, we have realized the majority of our revenues in the third and
fourth quarters. Due to our recent change in fiscal year end, we anticipate that
we will realize in the future the majority of our revenues in the fourth fiscal
quarter. Accordingly, any decline in our sales in the fourth quarter will
adversely impact our results of operations in the applicable year. You should
not rely on quarter-to-quarter comparisons of our results of operations
contained elsewhere in this prospectus as an indication of our future
performance.
In anticipation of increased sales activity during the holiday season, we
have historically hired a significant number of temporary employees to
supplement our permanent staff and significantly increased our inventory levels.
If sales during the holiday season do not meet our expectations, we may not
generate sufficient revenue to offset these increased costs and our operating
results will suffer.
IF WE FAIL TO CONTINUE TO DEVELOP AND MAINTAIN OUR BRAND, WE WILL LOSE CUSTOMERS
AND OUR REVENUES WILL DECLINE.
We must continue to develop and maintain the Dean & DeLuca brand in order to
maintain and expand our customer base and revenues. We believe that the
importance of brand recognition will increase as we expand our Internet/Direct
operations. We intend to substantially increase our expenditures in order to
create and maintain brand loyalty as well as raise awareness of our brand. If we
fail to advertise and market our products effectively, we may not succeed in
maintaining and developing our brand in the future and our business will suffer.
Our success in promoting and enhancing the Dean & DeLuca brand will also
depend on our success in providing our customers with high-quality products and
a high level of customer service. If
6
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our customers do not perceive our products and services to be of high-quality,
the value of our brand will be diminished.
OUR PLANNED MARKETING CAMPAIGNS FOR OUR INTERNET/DIRECT OPERATIONS MAY FAIL OR
MAY DETRACT FROM OUR IMAGE.
We plan to use a significant portion of the proceeds of this offering to
pursue marketing and advertising campaigns online and in print media in order to
promote the Dean & DeLuca brand, and to attract an increasing number of
catalogue shoppers and visitors to our Web site. This investment in increased
marketing and advertising carries with it significant risks, including the
following:
- Our advertisements may not properly convey the Dean & DeLuca brand image
and may even detract from our image.
- Unlike online advertising, which gives us immediate feedback and allows us
to promptly adjust our messages, advertising in print media is less
flexible. Advertisement in print media typically takes longer and costs
more to produce and consequently have longer run times. If we fail to
convey the optimal message in these advertising campaigns, the impact may
be lasting and very costly to correct.
- Even if we succeed in creating the right messages for our promotional
campaigns, these advertisements may fail to attract new customers for our
Internet/Direct operations at levels commensurate with their costs. We
also may fail to choose the optimal mix of print and other media to
cost-effectively deliver our message. If our currently planned marketing
efforts are unsuccessful, we will face difficult and costly choices in
deciding whether and how to redirect our marketing expenditures.
OUR BUSINESS AND GROWTH STRATEGIES WILL REQUIRE ADDITIONAL CAPITAL, WHICH WE MAY
NOT BE ABLE TO RAISE ON TERMS SATISFACTORY TO US, IF AT ALL.
Our business and growth strategies will require additional capital,
including our plans to:
- increase our marketing and advertising expenditures to promote our
Internet/Direct operations;
- increase the number of our retail stores;
- introduce new products; and
- continue investing in our infrastructure.
We cannot be certain that funds required to implement our strategies will be
available to us on terms satisfactory to us when needed, if at all. We may
borrow funds under agreements with covenants that would limit our ability to
borrow additional capital as needed in the future or impose other limitations on
the operation of our business. If funds are not available when needed or are not
available on acceptable terms, we will not be successful in implementing our
strategies. To the extent that we raise additional equity capital, it would have
a dilutive effect on our existing stockholders.
WE DEPEND ON A SMALL NUMBER OF STORES FOR A LARGE PORTION OF OUR REVENUES.
Five specialty markets, seven cafes and a wine store accounted for
approximately 85.3% of our revenues for fiscal 1999. Poor financial performance
at any one of these stores, especially our flagship market in New York City
which generated 32.9% of our total retail revenues for fiscal 1999, would hurt
our overall profitability. Also, all of our retail stores are leased under
agreements expiring during the next two to 12 years. Our failure to renew any
one of these lease agreements upon its expiration could hurt our business and
results of operations.
Due to our small number of markets and cafes and their locations, adverse
publicity relating to an individual store may affect our sales substantially
more than if our markets and cafes were more broadly dispersed. The results
achieved to date by our relatively small markets and cafes base may not
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be indicative of the results of a large number of markets and cafes in a more
geographically dispersed area with varied local characteristics. Because of our
relatively small market and cafe base, an unsuccessful new market or cafe could
have a more significant effect on our financial performance than would be the
case if we operated more markets and cafes.
WE MAY FAIL TO OPEN NEW SPECIALTY MARKETS AND CAFES.
We may not be able to open new specialty markets and cafes as currently
planned or otherwise. Our ability to do so will depend upon a number of factors,
many of which are beyond our control, including our ability to:
- select and secure suitable sites;
- negotiate acceptable lease terms for new sites;
- secure required governmental permits and approvals;
- coordinate and manage operations in multiple and perhaps geographically
distant and diverse locations; and
- generate funds from operations or obtain adequate financing from third
parties on favorable terms or at all.
Our failure to open additional stores as planned will significantly and
negatively impact our retail expansion plans.
NEW SPECIALTY MARKETS AND CAFES MAY NOT SUCCEED.
We currently plan to open one or two specialty markets during calendar 2001
and three or four specialty markets in each of the five years thereafter. We
will also consider opening three or four cafes near each of our new specialty
markets after a market has been in business for about a year. Our proposed
expansion will require the implementation of enhanced operational and financial
systems as well as additional management, operational and financial resources.
Failure to implement these systems or to have these resources would likely
restrict us from opening new markets and cafes as planned. In addition, if new
markets and cafes are opened, our failure to achieve positive results at these
markets and cafes would hurt our business.
WE DEPEND ON OUR KEY PERSONNEL TO OPERATE OUR BUSINESS.
Our performance is dependent on several of our key executives, including
Dane J. Neller, our Chief Executive Officer, John B. Richards, our President,
Patrick A. Roney, our Senior Vice President--Marketing, George E. Mileusnic, our
Executive Vice President and Chief Financial Officer, Duminda M. De Silva, our
Senior Vice President--Internet/Direct Operations, and Curtis L. Gray, our
Executive Vice President--Retail Division. If any of these individuals leave our
employ, we may not be able to find adequate replacements. The loss of any of
these individuals or any of our other key employees could harm our ability to
continue to develop and manage our business. We do not have employment
agreements with our executive officers, except for Mr. Richards. We do not
maintain "key person" life insurance that would result in a payment to us in the
event of the death of any of our executive officers.
SEVERAL KEY MEMBERS OF OUR MANAGEMENT TEAM HAVE ONLY RECENTLY JOINED US AND IF
THEY ARE NOT SUCCESSFULLY INTEGRATED INTO OUR BUSINESS OR FAIL TO WORK TOGETHER
AS A MANAGEMENT TEAM, OUR BUSINESS WILL SUFFER.
Several key members of our management team have joined us since January 30,
2000, including John B. Richards, our President, George E. Mileusnic, our Chief
Financial Officer and Executive Vice President, Curtis L. Gray, our Executive
Vice President--Retail Division, and James E. Bartlett, our Vice
President--Internet/Direct Operations. We also expect to hire additional key
personnel. If we do
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not effectively integrate these employees and new employees into our business,
or if they do not work together as a management team to enable us to implement
our business strategy successfully, our business will suffer.
WE MAY NOT BE ABLE TO HIRE ENOUGH ADDITIONAL MANAGEMENT AND OTHER PERSONNEL AS
OUR BUSINESS GROWS.
The success of our business depends upon our ability to attract and retain
highly motivated, well-qualified management and other personnel, including
technical personnel. We face significant competition in the recruitment of
qualified employees. Some metropolitan areas we currently serve, and intend to
expand into, have competitive labor markets, especially for qualified technical
personnel with retail experience. If we are unable to recruit or retain a
sufficient number of qualified employees, or if the costs of compensation, or of
outsourcing these tasks to third-party providers, or if employee benefits were
to increase substantially, our business would suffer. Our employees are not
unionized. If they were organized by labor unions, our labor costs could
increase, perhaps significantly.
IF WE FAIL TO EFFECTIVELY COMPETE WITH OTHER GOURMET AND SPECIALTY FOODS, HIGH
PREMIUM WINE AND UPSCALE KITCHENWARE BUSINESSES, WE COULD LOSE CUSTOMERS AND OUR
REVENUES COULD DECLINE.
The gourmet and specialty foods, high premium wine and upscale kitchenware
markets are highly competitive and fragmented and have few barriers to entry.
The number of stores and Internet and catalogue businesses with operations
generally similar to ours has grown considerably in the last several years, and
we believe that competition from these stores and Internet and catalogue
businesses is increasing.
Many of our competitors or potential competitors have substantially greater
financial, marketing and other resources and wider geographical diversity than
we do, which may allow them to react to changes in the industry faster and more
effectively than us. In addition, we expect the competition to increase in the
geographic markets in which we operate. Increased competition could result in:
- price reductions, decreased revenues and lower profit margins;
- loss of market share; and
- increased marketing expenditures.
If we fail to compete successfully in these markets, we could lose customers and
our revenues could decline.
WE DEPEND ON THE CONTINUED OPERATION OF OUR CALL, DISTRIBUTION AND FULFILLMENT
CENTER IN WICHITA, KANSAS.
We conduct nearly all of our call, distribution and fulfillment operations
and our Internet/Direct operations' order processing and fulfillment functions
from a single center in Wichita, Kansas. Any disruption in the operations at our
Wichita call, distribution and fulfillment center for any reason, including due
to damage from fire, natural disaster, power loss, telecommunications failure or
similar events, particularly during the holiday shopping season, could cause us
to be unable to fulfill Internet/ Direct orders. This failure could cause us to
lose customers, would harm our business and would lead to a decline in revenues.
We are also dependent on temporary employees to adequately staff our call,
distribution and fulfillment center, particularly during busy periods such as
the holiday shopping season. We cannot assure you that we will continue to
receive adequate assistance from our temporary employees, or that we will
continue to be able to hire a sufficient number of temporary employees. Failure
to attract adequate temporary employees could harm our business.
WE RELY HEAVILY ON THIRD PARTIES FOR OPERATIONS ESSENTIAL TO OUR BUSINESS.
We depend on third parties for important aspects of our business, including:
- Internet access;
- development of software for new Web site features and online customer
service;
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- content of our Web site and catalogues;
- product shipping; and
- telecommunications.
We have limited control over these third parties, and we are not their only
client. We may not be able to maintain satisfactory relationships with any of
them on acceptable commercial terms. As a result, any disruptions of or failures
in services provided by these third parties may impair our ability to deliver
goods and services to our customers. Further, we cannot be certain that the
quality of products and services that they provide will remain at the levels
necessary to enable us to conduct our business effectively. For example, failure
to maintain our Web site or our telecommunications service will impair our
ability to generate revenues. Our future success depends upon these third party
relationships because we rely on third parties to maintain our Web site and our
telecommunications service. If we fail to maintain these relationships or to
replace them on financially attractive terms, our operations may suffer
disruptions and we may incur significant unanticipated costs.
Many of our online strategic relationships with third parties are on very
favorable terms that provide for revenue sharing. We may not be able to renew
these agreements when they expire on similar terms, if at all. If we lose any of
our third party relationships and are not able to replace them, we may
experience reduced brand exposure as well as a disruption to our growth
strategy.
We also rely on a number of common carriers to deliver products purchased by
our customers through our Internet/Direct operations. These carriers may
experience labor stoppages, which could impact our ability to deliver products
on a timely basis to our customers and adversely affect our customer
relationships. Any reduction in performance, disruption in Internet access or
disruption of services provided by third parties could materially adversely
affect our business, financial condition and results of operation.
OUR CATALOGUE BUSINESS IS SUBJECT TO MANY FACTORS BEYOND OUR CONTROL, INCLUDING
FLUCTUATIONS IN THE COST OF POSTAGE AND PAPER AND DELIVERY SERVICES PROVIDED BY
THIRD PARTIES, THAT COULD CAUSE OUR REVENUES TO DECLINE AND ALSO CAUSE US TO
LOSE CUSTOMERS.
Our overall success depends in part on the success of our catalogue
operations, which in turn depends on many factors, including the following, some
of which are beyond our control:
- our ability to achieve adequate response rates to our mailings;
- our ability to continue to offer a mix of products that is attractive to
our mail-order customers;
- general economic conditions;
- the timing of our catalogue mailings;
- our ability to cost-effectively add new customers; and
- our ability to cost-effectively design and produce appealing catalogues.
Catalogue production and mailings entail substantial paper, postage,
merchandise acquisition and human resource costs, including costs associated
with catalogue development and increased inventories. Catalogue production and
distribution costs represented approximately 37.1% of our Internet/Direct
revenues during fiscal 1999. A substantial portion of these expenses are
attributable to paper and postage costs. Material increases in the cost of paper
or catalogue delivery could significantly increase our expenses and reduce our
profitability.
We incur nearly all of the costs associated with our catalogues prior to the
mailing of each catalogue. As a result, we are not able to adjust the costs
incurred in connection with a particular mailing to reflect the actual
performance of the catalogue. If we were to experience a significant shortfall
in anticipated revenue from a particular mailing, and thereby not recover the
costs associated with that mailing, our results could be adversely affected. We
have historically experienced fluctuations
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in the response rates to our catalogue mailings. If we are unable to accurately
target the appropriate segment of the consumer catalogue market or to achieve
adequate response rates, we could experience lower sales, significant markdowns
or write-offs of inventory, and lower margins.
We have established relationships with a number of common carriers for the
delivery of our products. If these carriers were to raise the prices they charge
to ship our goods, our customers might choose to buy comparable products locally
to avoid shipping charges.
OUR REVENUES AND INCOME COULD DECLINE DUE TO CHANGES IN CONSUMER PREFERENCES AND
PERCEPTIONS OR AN ECONOMIC DOWNTURN.
The industry segments in which we operate are often affected by changes in
consumer tastes, national, regional and local economic conditions, and
demographic trends. Individual store performance and our overall performance
generally may be adversely affected by traffic patterns, demographic changes,
the cost and availability of labor, our purchasing power, the availability of
products, and the type, number and location of our competitors.
Our financial success is partially dependent upon economic conditions and
consumer attitudes. Purchases of our specialty products are discretionary. Low
or negative growth in the economy or volatility or a decline in the financial
markets could reduce discretionary spending and, as a result, reduce our sales.
IF WE DO NOT ACCURATELY PREDICT CUSTOMER DEMAND FOR OUR PRODUCTS, WE MAY LOSE
CUSTOMERS OR EXPERIENCE INCREASED COSTS.
We expect that our need to maintain product inventory will become
increasingly more important. We intend to increase inventory levels and the
number of products maintained in our warehouse in connection with the further
development of our Internet/Direct operations. If we do not predict inventory
levels accurately or if we overestimate customer demand for our products, excess
inventory and outdated merchandise will accumulate, tying up working capital and
potentially resulting in reduced warehouse capacity and inventory losses due to
spoilage, damage, theft and obsolescence. On the other hand, if we underestimate
customer demand, we may disappoint our customers who are seeking unavailable
products. Any misjudgment on our part could cause us to lose actual or potential
customers and could cause our revenues to decline. Moreover, the strength of our
brand could be diminished due to misjudgments about merchandise selection.
IF WE FAIL TO PROVIDE OUR CUSTOMERS WITH ADEQUATE CUSTOMER SERVICE, WE MAY NOT
GENERATE SUFFICIENT LEVELS OF INITIAL AND REPEAT ORDERS AND MARKET PENETRATION,
AND OUR RESULTS OF OPERATIONS COULD BE HARMED.
In the online retail industry, customer attrition rates, or the rates at
which subscribers cancel a service, are generally high. Although we do not
charge a subscription fee for our service, our Internet/ Direct operations do
depend upon customers continuing to order from us after they place their initial
order. A critical part of our business strategy depends on hiring, training and
retaining customer-friendly customer service agents to answer telephone and
e-mail inquiries, to offer online customer service and to provide prompt
attention and helpful information in response to our customers' concerns. If we
fail to provide high-quality customer care, or if we are unable to establish
sufficient customer loyalty, we may experience significant decreases in repeat
customer orders, and our business could be harmed. Retention of customers is
also dependent on operational execution. If orders are incorrect, incomplete or
not delivered on time, customer retention rates could decline and, in turn,
cause our revenues and profitability to decline.
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BECAUSE WE HAVE AN UNCONDITIONAL RETURN POLICY, WE MAY BE REQUIRED TO INCUR
SUBSTANTIAL COSTS TO ISSUE REFUNDS, CREDITS OR REPLACEMENT PRODUCTS.
Our unconditional return policy allows customers who are not satisfied with
their online and catalogue purchases to return products purchased from us to our
fulfillment centers or to any of our stores. At the customer's option, we either
send the customer another product or issue the customer a refund or a credit.
Our profitability could decline if a significant number of customers request
replacement products, refunds or credits.
OUR EARNINGS WILL BE ADVERSELY AFFECTED BECAUSE OF STOCK-BASED COMPENSATION
EXPENSES THAT WE HAVE INCURRED AND WILL CONTINUE TO INCUR.
During fiscal 1999, we recorded an approximate $25,000 non-cash compensation
charge related to sales and grants of common stock and stock options made to
employees, directors and consultants. Based principally on sales and grants of
common stock and stock options made to date, we will record, and our earnings
will be reduced by, a total of approximately $1.9 million of additional non-cash
compensation charges through fiscal 2002, which will end on February 2, 2003, as
follows: approximately $929,000 for fiscal 2000, which will end on January 28,
2001, approximately $551,000 for fiscal 2001, which will end on February 3,
2002, approximately $286,000 for fiscal 2002, which will end on February 2,
2003, and approximately $118,000 for fiscal 2003, which will end February 1,
2004.
RISKS RELATED TO THE INTERNET AND OUR TECHNOLOGY
THE SUCCESS OF OUR GROWTH STRATEGY IS SIGNIFICANTLY DEPENDENT ON THE CONTINUED
GROWTH IN THE USE OF THE INTERNET AS A COMMERCIAL MEDIUM.
If our Internet/Direct operations do not achieve and maintain sufficient
customer volume, we may not be able to increase our revenues or achieve
profitability. The use of the Internet as a commercial medium is new and
evolving rapidly. It is uncertain whether e-commerce will achieve and sustain
high levels of demand and market acceptance, particularly for the sale of
gourmet and speciality foods, high premium wines and upscale kitchenware. Our
success will depend to a substantial extent on the willingness of consumers to
increase their use of online service as a means of buying gourmet and specialty
foods, high premium wines and upscale kitchenware and other products and
resources. Specific factors that could prevent customer acceptance of the
Internet as a channel for buying our goods include:
- deferred delivery compared to the immediate receipt of products at a
traditional store;
- customers' desire to see and touch products, particularly fresh produce,
prior to purchase;
- product selection that is less varied than customers desire;
- perceived or actual lack of security or privacy of online transactions;
and
- difficulties in making accurate and timely deliveries to customers.
Moreover, the growth of our business will depend on the growth of the number
of consumers who have access to personal computers or other systems that can
access the Internet. If e-commerce in the gourmet and specialty foods, high
premium wines and upscale kitchenware markets does not achieve high levels of
demand and market acceptance, we may not successfully implement our growth
strategy and our results of operations will be harmed.
THE SUCCESSFUL GROWTH OF THE INTERNET MAY NOT CONTINUE OR BE SUSTAINED.
The Internet has experienced, and is expected to continue to experience,
substantial growth in the number of users and the amount of traffic, resulting
in some cases in substantial delays for users. The Internet could lose its
viability due to delays in the development or adoption of new standards and
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protocols to handle increased levels of Internet activity or due to increased
government regulation. Reliable network backbones and secure transaction
processing necessary to make e-commerce economically viable may not develop.
Even if they are developed, the Internet may not become a viable commercial
marketplace for products like ours. If the necessary infrastructure and
complementary services are not developed, or if the Internet does not become a
viable commercial marketplace for our products, our business could be harmed.
Specific factors that could inhibit the continued growth of the Internet
include:
- inability of the Internet infrastructure to support the demands placed on
it; and
- decline in the performance and reliability of the Internet as usage
increases.
In addition, the growth projections of Internet-related activities included
in this prospectus are only estimates by industry analysts and may not prove to
be accurate.
IF WE ARE UNABLE TO ADAPT TO THE RAPID TECHNOLOGICAL CHANGES IN E-COMMERCE, THE
FEATURES OFFERED ON OUR WEB SITE COULD BECOME OBSOLETE AND WE COULD LOSE
CUSTOMERS AND HARM OUR STRATEGIC RELATIONSHIPS.
E-commerce is characterized by rapidly-changing technology. The success of
our Internet/Direct operations depends upon our ability to add new features and
enhancements to our Web site that keep pace with technological and market
developments. Our hardware and software systems will require continuous
improvement to meet the demands of our customers. The development of new
features and the enhancement of existing services and products entails
significant technical efforts and may require substantial unanticipated costs.
We may not be successful in:
- maintaining and improving our hardware and software;
- effectively using new technologies;
- adapting our Web site operations to emerging industry standards; or
- developing and introducing features and enhancements to our Web site.
Failure to succeed in these efforts could delay or prevent the successful
marketing of our Internet/ Direct operations. As a result, our Web site
operations may not meet the requirements of the marketplace and may not achieve
market acceptance. If we are unable, for technical or other reasons, to
continuously evolve our Web site to enhance its accessability, content and ease
of use or respond to changing market conditions or customer requirements, or if
our Web site operations do not achieve market acceptance, we may lose actual or
potential customers, harm our brand and our reputation, and lose some or all of
our strategic relationships.
Further, if our potential or existing customers do not find our catalogue or
our Web site a convenient shopping destination, we will not attract or retain
customers and our sales will suffer. If our competitors' catalogues or Web sites
are perceived as easier-to-use or otherwise better able to satisfy customer
needs, our customer traffic could decrease and our business would be harmed.
IF WE ARE UNABLE TO AUTOMATE KEY FUNCTIONS AND UPGRADE OUR EXISTING MANAGEMENT
INFORMATION SYSTEMS, OUR BRAND MAY BE HARMED AND WE MAY LOSE CUSTOMERS AND HARM
OUR STRATEGIC RELATIONSHIPS.
We cannot assure you that our existing or new transaction-processing systems
and our network infrastructure will be able to accommodate increases, if any, in
the volume from our Internet/Direct operations in the future. We also may not be
able to accurately predict the rate or timing of these increases or to
effectively upgrade our systems and infrastructure to accommodate future growth
in our Internet/Direct operations. We also cannot assure you that we will be
able in a timely manner to effectively upgrade and expand our
transaction-processing systems or to successfully integrate any newly-developed
or purchased modules with our existing systems. If we are unable to upgrade our
technology, we may suffer from unanticipated system disruptions, slower response
times, degradation in
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levels of customer service, impaired quality and speed of order fulfillment or
delays in reporting accurate financial information. A failure to process
information properly also may negatively impact or damage our brand. Damage to
our brand, fulfillment delays and the failure to cost effectively and
efficiently upgrade and expand our current technology would prevent us from
attracting and retaining customers, could cause us to lose some or all of our
strategic relationships, and consequently harm our business.
UNEXPECTED SYSTEM INTERRUPTIONS CAUSED BY SYSTEM FAILURES MAY HARM OUR
REPUTATION AND CAUSE OUR REVENUES TO DECREASE.
We currently do not have redundant systems or a formal disaster recovery
plan in place, and we do not carry sufficient business interruption insurance to
compensate us for the losses that may occur. Our servers are vulnerable to
computer viruses, physical or electrical break-ins and similar disruptions,
which could lead to interruptions, security breaches, delays, loss of data or
the inability to accept and confirm customer orders, any of which would harm our
reputation and result in reduced revenues.
In the past, particularly during peak holiday periods, we have experienced
significant increases in traffic on our Web site and in the number of calls to
our call center. Our operations are dependent on our ability to maintain our
computer and telecommunications systems in effective working order and to
protect our systems against damage from fire, natural disaster, power loss,
telecommunications failure or similar events. Our systems have experienced in
the past, and may experience in the future:
- system interruptions;
- long response times; and
- degradation in our service.
Because our business depends on customers making purchases on our systems,
our revenues will decrease and our reputation could be harmed if we experience
frequent or long system delays or interruptions or if a disruption occurs,
especially during a peak holiday season.
ANY BREACH OF ONLINE PRIVACY AND SECURITY AND CREDIT CARD FRAUD COULD CAUSE US
TO LOSE ACTUAL OR POTENTIAL CUSTOMERS, SERIOUSLY IMPEDE THE GROWTH OF OUR ONLINE
BUSINESS, AND SUBJECT US TO POSSIBLE LIABILITY.
The secure transmission of confidential information over the Internet is
essential in maintaining consumer and supplier confidence in online commerce.
Substantial or ongoing security breaches on our Web site or other Internet-based
systems could significantly disrupt our business. It is possible that advances
in computer capabilities, new discoveries or other developments could result in
a compromise or breach of the technology that we use to protect merchant and
customer transaction data. We cannot guarantee that security measures taken by
us will prevent security breaches. A party that is able to circumvent our
current or future security systems could steal proprietary or personal
information or cause interruptions in our operations. Security breaches also
could damage our reputation and cause us to lose actual and potential customers,
as well as expose us to a risk of loss or to litigation and possible liability.
Our insurance policies carry low coverage limits, which may not be adequate to
reimburse us for losses caused by security breaches. We also face risks
associated with security breaches affecting third parties conducting business
over the Internet. Any publicized security problems could inhibit the growth of
the Internet as a means of conducting commercial transactions and hinder the
success of our online operations.
Failure to adequately control fraudulent credit card transactions will
reduce our sales and our margins because we do not carry insurance against this
risk. To date, we have suffered losses as a result of orders placed with
fraudulent credit card data even though the associated financial institution
approved payment of the orders. Under current credit card practices, we are
liable for fraudulent credit card transactions because we do not obtain a
cardholder's signature.
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GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD ADD BURDENS TO OUR DOING
BUSINESS ON THE INTERNET, WHICH WOULD HINDER OUR ONLINE OPERATIONS.
Online commerce is new and rapidly changing, and federal and state
regulations relating to the Internet and online commerce are evolving.
Currently, there are few laws or regulations directly applicable to access to
the Internet or online commerce. However, laws and regulations applicable to
Internet communications, commerce and advertising are becoming more prevalent in
the United States and throughout the world. It is possible that laws and
regulations may be enacted to address issues such as user privacy, freedom of
expression, pricing, content, intellectual property rights, information
security, distribution, taxation, advertising, antitrust matters and the quality
of products and services. The adoption of these laws or regulations could reduce
the rate of growth of the Internet, which could potentially decrease the usage
of our Web site and harm our Internet/Direct operations. In addition, the
applicability to the Internet of existing laws governing issues such as property
ownership, copyrights and other intellectual property issues, libel, obscenity
and personal privacy is uncertain. Most of these laws were adopted prior to the
advent of the Internet and do not contemplate or address the unique issues of
the Internet. New laws applicable to the Internet may impose substantial burdens
on companies, including us, that conduct business over the Internet.
The growth of e-commerce may prompt calls for more stringent consumer
protection laws in the United States and abroad. Several states have proposed
legislation to limit the uses of personal user information gathered online or
require online services to establish privacy policies. The Federal Trade
Commission had also initiated action against at least one online service
regarding the manner in which personal information is collected from users and
provided to third parties. We do not currently provide personal information
regarding our users to third parties. However, the adoption of such consumer
protection laws could create uncertainty in Internet usage and reduce the demand
for our products and services.
Several telecommunications carriers have asked the Federal Communications
Commission, or FCC, to regulate telecommunications over the Internet. Due to the
increasing use of the Internet and the burden it has placed on the
telecommunications infrastructure, telephone carriers have requested the FCC to
regulate Internet and online service providers and to impose access fees on
those providers. If the FCC imposes access fees, the costs of using the Internet
could increase dramatically, which would harm our business.
WE MAY BE VULNERABLE TO TAX OBLIGATIONS THAT COULD BE IMPOSED ON OUR
INTERNET/DIRECT OPERATIONS.
We do not expect to collect sales or other similar taxes in respect of
shipments of goods into most states. However, various states or foreign
countries may seek to impose sales tax obligations on us and other online
commerce and direct marketing companies. States have attempted to impose sales
taxes on catalogue sales from businesses such as ours. A successful assertion by
one or more states that we should have collected or be collecting sales taxes on
the sale of our products through our Internet/ Direct operations could adversely
affect us. In 1998, the United States Congress passed the Internet Tax Freedom
Act, which places a three-year moratorium on the ability of the states and
localities to impose taxes on Internet access, unless such tax was imposed prior
to October 1998, and discriminatory taxes on online commerce. Congress may not
renew this legislation in 2001. If the legislation is not renewed, state and
local governments would be free to impose Internet-specific taxes on
electronically purchased goods. We cannot predict the impact of any additional
Internet-specific laws or regulations on our business. Any proposal to impose
additional taxes on the sale of goods and services through the Internet, if
adopted, could cause purchasing through our Web site to be less attractive to
customers as compared to traditional retail purchasing and we may not
successfully maintain or grow our Internet/ Direct operations.
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RISKS RELATING TO LEGAL UNCERTAINTIES
OUR BUSINESS IS SUBJECT TO VARIOUS GOVERNMENTAL REGULATIONS.
Our business is subject to and affected by various federal, state and local
laws, including regulations relating to:
- alcoholic beverage control;
- the preparation and sale of food;
- public health and safety;
- sanitation; and
- building, zoning and fire codes.
REGULATION OF SALE OF ALCOHOL. The distribution of wine and other alcoholic
beverages is subject to extensive federal, state, county and municipal
regulation and taxation relating to:
- licensing;
- payment of excise taxes;
- advertising;
- trade and pricing practices;
- product labeling;
- sales to minors and intoxicated persons; and
- relationships among product producers, importers, wholesalers and
retailers.
Our alcoholic beverage operations are subject to more regulations and higher
taxation than our non-alcohol-related business. The alcoholic beverage industry
also is subject to considerable societal and political attention associated with
the effects of alcohol and the manner of promoting the sale of alcoholic
beverages. This attention relates to such matters as the liability of the
alcoholic beverage industry for harms caused by individuals who drive while
intoxicated, the restriction or prohibition of print and electronic advertising
or other promotional activities and the investigation of other marketing or
promotion activity which allegedly targets youth as potential consumers of
alcoholic beverages. The possibility always exists for further regulation of the
wine industry. The effect on our business operations of an increase in
regulation or an increase in taxation will depend on the amount of the increase
as well as on other factors, but any increase could harm our business.
Some jurisdictions require companies to obtain licenses and permits to sell
alcohol while others do not allow companies such as ours to sell alcohol in
their jurisdictions at all. For example, we are currently prohibited from
selling alcohol in the State of Kansas. We cannot assure you that we will be
able to obtain any or all required permits or licenses in a timely manner, or at
all. We may be forced to incur substantial costs and experience significant
delays in obtaining these permits or licenses. In addition, the U.S. Congress is
considering enacting legislation that would restrict the interstate sale of
alcoholic beverages over the Internet. Changes to existing laws or our inability
to obtain required permits or licenses could prevent us from selling premium
wines in one or more geographic markets or in a portion of those markets. In
those locations where we cannot obtain alcohol permits or licenses, we will be
unable to sell premium wines and will lose an opportunity to increase revenue.
USDA REGULATION. As of the date of this prospectus, we are not regulated by
the U.S. Department of Agriculture, or USDA. Whether the handling of food items
in our markets, cafes and fulfillment center, such as meat and fish, will
subject us to USDA regulation in the future will depend on several factors,
including whether we sell food products on a wholesale basis and whether we
obtain food
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products from non-USDA inspected facilities. In the future, the USDA may require
costly changes to our food handling operations. We are also required to comply
with local health regulations concerning the preparation and packaging of any
prepared food items, such as deli salads that we prepare on-site. Applicable
federal, state or local regulations may cause us to incur substantial compliance
costs or delay the availability of items at one or more of our markets, cafes or
at our call, distribution and fulfillment center, which could harm our business.
FAILURE TO OBTAIN NECESSARY APPROVALS. The failure by us to obtain or
retain food, liquor or other licenses, permits or approvals would harm our
operations. These government regulations impact not only our current operations
but also our growth strategy. Difficulties, delays or failure in obtaining
licenses, permits or approvals in new locations could delay or impede the growth
of our operations. In addition, any inquiry or investigation from a regulatory
authority could harm our reputation and any liability claims could require us to
spend significant time and money in litigation.
THE FOOD SERVICE INDUSTRY IN GENERAL IS AFFECTED BY LITIGATION AND PUBLICITY
CONCERNING FOOD QUALITY, HEALTH AND OTHER ISSUES, WHICH CAN CAUSE CUSTOMERS TO
AVOID OUR PRODUCTS AND SUBJECT US TO LIABILITIES.
Food service businesses can be adversely affected by litigation and
complaints from customers or government authorities resulting from food quality,
illness, injury or other health concerns or operating issues stemming from one
store or a limited number of stores. Adverse publicity about any allegations
against our products may negatively affect us and our business, regardless of
whether the allegations are true, by discouraging customers from buying our
products. A lawsuit or claim could result in a decision against us that could
materially adversely affect our business and results of operations. Also, we
could incur substantial litigation costs, regardless of the result of the
litigation.
OUR BUSINESS AND PROSPECTS MAY BE SERIOUSLY HARMED IF WE ARE UNABLE TO
ADEQUATELY PROTECT AND ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS.
We regard our intellectual property as important to our success and ability
to compete and expand. We rely solely on copyright, trade secret, and trademark
law and confidentiality agreements with our employees to protect our proprietary
rights in our technology, processes, content or other intellectual property to
the extent such protection is sought or secured at all. We hold registered
trademarks for the "Dean & Deluca," "Dean & Deluca Selections" and "St. Helena
Kitchens" names and stylized logos. We require most of our executive-level
employees to sign confidentiality agreements; however, we do not require all
employees to do so. Other than John B. Richards, our President, none of our
employees have a signed proprietary rights agreement or otherwise have agreed to
assign to us their proprietary rights in any inventions or other intellectual
property created by them during their employment. In addition, to the extent
these agreements were entered into after employment commenced and no additional
consideration was provided to the employee, a court may decline to enforce some
or all of the agreements' terms. Despite these and other efforts to protect our
proprietary rights, we cannot guarantee that the steps we take to protect our
proprietary rights are adequate to protect against unauthorized uses of our
intellectual property or other information that we regard as proprietary.
Policing against unauthorized uses is difficult and we may not be able to
identify all unauthorized uses of our intellectual property or may fail to take
appropriate steps to enforce our proprietary rights. Defending our proprietary
rights could result in costly and time-consuming litigation that would divert
valuable managerial and financial resources, which could harm our business,
financial condition, and results of operations.
WE MAY BE LIABLE FOR CONTENT DISPLAYED ON AND COMMUNICATED THROUGH OUR WEB SITE
AND ANY SUCH CLAIMS COULD CAUSE SIGNIFICANT EXPENDITURES AND ALSO HARM OUR BRAND
AND REPUTATION.
We may be sued for defamation, negligence, copyright or trademark
infringement or other legal claims relating to product information or other
content that we publish or make available on our Web site. These types of claims
have been brought against online companies as well as print publications in
17
<PAGE>
the past. We may also be sued based on online content that we do not control but
that is accessible from our Web site through links that we provide to other Web
sites. We could incur substantial expenses and be forced to divert attention
from our business operations to defend ourselves against claims such as those,
even if frivolous. Any claim against us and any litigation involving us, however
frivolous, may be expensive and time consuming to defend and may harm our brand
and our reputation.
WE MAY NOT BE ABLE TO PROTECT OUR DOMAIN NAME AGAINST ALL INFRINGERS, WHICH
COULD DECREASE THE VALUE OF OUR BRAND NAME AND PROPRIETARY RIGHTS.
We currently own the Internet domain name "deandeluca.com," as well as
various other related names. The acquisition and maintenance of domain names
generally is regulated by Internet regulatory bodies. The regulation of domain
names in the United States and in foreign countries is subject to change.
Regulatory bodies could establish additional top-level domains, appoint
additional domain name registrars or modify the requirements for holding domain
names. As a result, we may be unable to acquire or maintain domain names in all
countries where we conduct or wish to conduct business. The relationship between
regulations governing domain names and laws protecting trademarks and similar
proprietary rights is unclear. Therefore, we could be unable to prevent third
parties from acquiring domain names that infringe or otherwise decrease the
value of our brand name, trademarks and other proprietary rights.
INTELLECTUAL PROPERTY CLAIMS AGAINST US CAN BE COSTLY TO DEFEND, AND COULD
RESULT IN THE LOSS OF SIGNIFICANT RIGHTS AND REQUIRE US TO ENTER INTO ROYALTY
LICENSE AGREEMENTS.
Many companies are devoting significant resources to develop patents that
could affect many aspects of our business. Other parties may assert infringement
or unfair competition claims against us that could relate to any aspect of our
technologies, business processes or other intellectual property. We cannot
predict whether third parties will assert claims of infringement against us, the
subject matter of any of these claims, or whether these assertions or
prosecutions will harm our business. If we are forced to defend ourselves
against any of these claims, whether or not they have merit or are determined in
our favor, then we may face costly litigation, diversion of technical and
management attention, an inability to use our current Web site technology or
product shipment delays. As a result of a dispute, we may have to develop
non-infringing technology or enter into royalty or licensing agreements. These
royalty or licensing agreements, if required, may be unavailable on terms
acceptable to us, or at all. If there is a successful claim of infringement
against us and we are unable to develop non-infringing technology or license the
infringed or similar technology on a timely basis, our business and competitive
positions may be hurt.
RISKS RELATED TO THIS OFFERING
WE MAY SPEND THE PROCEEDS FROM THIS OFFERING IN WAYS THAT OUR STOCKHOLDERS MAY
NOT AGREE.
The net proceeds of the sale of our common stock in this offering will be
approximately $ million, after deducting underwriting discounts and
commissions and estimated offering expenses. Our management will retain broad
discretion as to how to spend these proceeds and may spend the proceeds in ways
that you may not approve. Although we do not have a specific plan, we intend to
use the net proceeds from this offering in general as follows:
- to fund the opening of new specialty markets and cafes;
- to market and advertise our Internet/Direct operations;
- to develop technology, including further design and development of our Web
site and the implementation of a fully-integrated management information
system;
- to expand our call, distribution and fulfillment facilities;
18
<PAGE>
- to expand human resources to support both our technology and
infrastructure needs; and
- for other corporate purposes.
The failure of our management to apply these proceeds effectively could harm
our business.
OUR STOCK PRICE MAY EXPERIENCE EXTREME PRICE AND VOLUME FLUCTUATIONS AND YOU MAY
LOSE ALL OR A PART OF YOUR INVESTMENT.
The market price of our common stock may fluctuate significantly in response
to factors, including the following, most of which are beyond our control:
- variations in our quarterly operating results;
- changes in market valuations of similar companies;
- changes in estimates by securities analysts;
- future sales of our securities;
- market volatility in general; and
- departures of key personnel.
Before this offering, there was no public market for our common stock. The
price of our common stock after this offering may be lower than the initial
public offering price or the price that you pay.
An active public market for our common stock may not develop or be sustained
after this offering. We negotiated and determined the initial public offering
price with the representatives of the underwriters and this price may not be
indicative of prices that will prevail in the trading market. As a result, you
may be unable to sell your shares of common stock at or above the offering price
or the price that you pay, and you may lose some or all of your investment.
OUR DIRECTORS AND EXECUTIVE OFFICERS WILL RETAIN SUBSTANTIAL CONTROL OVER US
AFTER THIS OFFERING, WHICH MAY LEAD TO CONFLICTS WITH OTHER STOCKHOLDERS OVER
CORPORATE GOVERNANCE.
After this offering, our directors and executive officers will beneficially
own approximately % of our outstanding common stock. Leslie G. Rudd, the
Chairman of our board of directors, will own approximately % of our
outstanding common stock, and Hummer Winblad Venture Partners IV, L.P. will
beneficially own approximately % of our outstanding common stock upon
completion of this offering. Accordingly, these stockholders together, or
Mr. Rudd individually, are able to exercise substantial control over all matters
requiring approval by our stockholders, including the election of directors and
approval of significant corporate transactions, such as mergers or other
business combination transactions. This control may delay or prevent a third a
party from acquiring us or merging with us, even if doing so might benefit our
stockholders.
THE SUBSTANTIAL NUMBER OF SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE NEAR
FUTURE MAY CAUSE THE MARKET PRICE FOR OUR COMMON STOCK TO DROP SIGNIFICANTLY,
EVEN IF OUR BUSINESS IS DOING WELL.
Sales of substantial number of shares of our common stock in the public
market following this offering could reduce the market price for our common
stock. The number of shares of common stock available for sale in the public
market is limited by restrictions under federal securities laws and under
"lock-up" agreements that our stockholders, executive officers and directors
have entered into with the underwriters. These "lock-up" agreements generally
restrict our stockholders from selling shares for a period of 180 days after the
date of this prospectus, however FleetBoston Robertson Stephens Inc. may waive
these restrictions at any time without notice. The following table indicates
when the shares of our
19
<PAGE>
common stock that were outstanding as of the date of this prospectus will be
eligible for sale into the public market, subject to compliance with federal
securities laws:
<TABLE>
<CAPTION>
ELIGIBILITY OF SHARES
FOR SALE IN PUBLIC MARKET
-------------------------
<S> <C>
Immediately.................................................
At various times during the first 179 days after the date of
this prospectus........................................... 108,884
On the 180th day after the date of this prospectus.......... 14,667,907
At various times beginning 181 days after the date of this
prospectus................................................ 2,590,969
</TABLE>
The shares eligible for sale in the public market at various times beginning
181 days after the date of this prospectus includes 2,600,969 shares of common
stock issuable upon exercise of currently outstanding options and warrants.
Most of the shares that will be available for sale beginning on the 181st
day after the date of this prospectus or afterwards will be subject to volume
limitations because they are held by our affiliates. In addition, we cannot
assure you that the lock-up restrictions will not be removed prior to 180 days
after this offering with the prior consent by the underwriters. For a detailed
description of the securities we currently have outstanding and an analysis of
when they will be available for sale in the public market place, see "Shares
Eligible for Future Sale."
INVESTORS IN THIS OFFERING WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.
Investors purchasing shares in this offering will incur immediate and
substantial dilution in net tangible book value per share. To the extent
outstanding options and warrants to purchase common stock are exercised, there
will be further dilution. For a discussion of the dilution new investors will
experience, see "Dilution."
ANTI-TAKEOVER PROVISIONS IN OUR SECOND RESTATED CERTIFICATE OF INCORPORATION AND
BY-LAWS MAY MAKE IT MORE DIFFICULT OR EXPENSIVE TO ACQUIRE US IN THE FUTURE OR
MAY CAUSE OUR STOCK PRICE TO DECLINE.
Our second restated certificate of incorporation and bylaws contain several
provisions, including our classified board of directors, the manner in which our
vacancies are filled and provisions relating to the calling of stockholder
meetings and stockholder proposals to be determined at those meetings, that may
make it more difficult or more expensive for a third party to acquire control of
us without the approval of our board of directors. These provisions may also
delay, prevent or deter a merger, acquisition, tender offer, proxy contest or
other transaction that might otherwise result in our stockholders receiving a
premium over the market price for their common stock. Our stock price could also
decline because of these provisions. For a detailed discussion of these
provisions, see "Description of Capital Stock--Special Provisions in our Second
Restated Certificate of Incorporation and By-laws may have Anti-Takeover
Effects."
WE DO NOT EXPECT TO PAY DIVIDENDS IN THE FUTURE.
Our policy is to retain earnings to provide funds for the operation and
expansion of our business. Accordingly, we do not intend to pay cash dividends
on our common stock in the foreseeable future. Any payment of future cash
dividends and the amounts thereof will depend on our earnings, financial
requirements and other factors deemed relevant by our board of directors. In
addition, indebtedness that we may incur and other agreements that we may enter
into the future may restrict our ability to pay cash dividends and to make other
distributions on our common stock.
WE MAY BE SUBJECT TO LITIGATION IF OUR COMMON STOCK PRICE IS VOLATILE.
Volatility in the market price of a public company's securities may be
followed by class action securities litigation against that company. The
institution of class action litigation against us could result in substantial
costs to us and a diversion of our management's attention and resources which
would harm our business, financial condition and results of operations. Any
adverse determination in this litigation could also subject us to significant
liabilities.
20
<PAGE>
FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this prospectus, including in the
sections entitled "Summary," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" that are based on our
management's beliefs and assumptions and on information currently available to
our management. The beliefs and assumptions regarding our market components have
been derived from information currently available to us and to third party
market observers quoted in this prospectus, including SIMMONS MARKET BUREAU, the
FOOD MARKETING INSTITUTE, the WINE INSTITUTE and HOUSEWARES INDUSTRIES MAGAZINE.
Forward-looking statements include the information concerning our possible
or assumed future results of operations, business strategies, financing plans,
competitive position, potential growth opportunities, this offering and the
effects of competition. Forward-looking statements include all statements that
are not historical facts and can frequently be identified by the use of
forward-looking terminology such as the words "may," "will," "should," "could,"
"believes," "expects," "anticipates," "predicts," "intends," "plans,"
"potential," "estimates," "continues" and similar expressions. You should
understand that many important factors, including those discussed in the section
entitled "Risk Factors," could cause our results to differ materially from those
expressed in forward-looking statements.
Forward-looking statements involve risks, uncertainties and assumptions.
Actual results may differ materially from those expressed in these
forward-looking statements. You should not put undue reliance on any
forward-looking statement. Except to the extent required under the federal
securities laws and the rules and regulations of the SEC, we do not have any
intention or obligation to update forward-looking statements after we distribute
this prospectus.
This prospectus also contains information concerning the Internet market
generally which is forward-looking in nature and is based on a variety of
assumptions regarding the ways in which this market will develop. These
assumptions have been derived from information currently available to us and to
the third party market observers quoted in this prospectus, including FORRESTER
RESEARCH, MEDIA METRIX and INTERNATIONAL DATA CORPORATION. They include the
following general underlying expectations:
- no catastrophic failure of the Internet will occur;
- the number of people and businesses online and the total number of hours
spent online will increase significantly over the next five years;
- government regulations will not prohibit or materially adversely affect
our business;
- e-commerce will grow significantly over the next five years; and
- Internet security and privacy concerns will be adequately addressed.
If any one or more of the foregoing assumptions is incorrect, actual market
results may differ from those predicted, and our future business, results of
operations and financial condition and the market price of our shares of common
stock may be harmed.
21
<PAGE>
USE OF PROCEEDS
We expect that the net proceeds from our sale of common stock in this
offering will be approximately $ million, after deducting estimated
underwriting discounts and commissions and our estimated offering expenses,
based on an assumed initial public offering price of $ , the midpoint of
the initial public offering price range. If the underwriters' over-allotment
option is exercised in full, we estimate that our net proceeds will be
approximately $ million.
We intend to use the net proceeds from this offering as follows:
- to fund the opening of new specialty markets and cafes;
- to market and advertise our Internet/Direct operations;
- to develop technology, including further design and development of our Web
site and the implementation of a fully-integrated management information
system;
- to expand our call, distribution and fulfillment facilities;
- to expand human resources to support both our technology and
infrastructure needs; and
- for other corporate purposes.
The amounts and timing of expenditures will vary depending on factors
including the amount of cash generated by our operations, competitive and
technological developments and the rate of growth, if any, of our business. We
will retain broad discretion in the allocation of our net proceeds from the sale
of shares in this offering. Pending the uses described above, we will invest the
net proceeds of this offering in short term, interest bearing, investment-grade
securities. We cannot predict whether the proceeds will be invested to yield a
favorable return.
DIVIDEND POLICY
Dean & DeLuca, Inc. has never paid dividends on its common stock and we do
not anticipate paying any dividends in the foreseeable future. Any payment of
future dividends and the amounts of the payments will be at the discretion of
our board of directors and will depend upon, among other things, our earnings,
financial condition, capital requirements, level of indebtedness, statutory and
contractual restrictions applying to the payment of dividends, and other
considerations that our board of directors deems relevant. Finally, Dean &
DeLuca, Inc. is a holding company with few independent operations. Since we have
few other sources of revenue, we can pay dividends only if and to the extent
that we receive dividends from our subsidiaries. These subsidiaries may be
restricted from paying any dividends to us by contractual limitations and
capital surplus requirements under the laws of their jurisdictions of
incorporation.
22
<PAGE>
CAPITALIZATION
The following table provides our capitalization as of January 30, 2000:
- on an actual basis;
- on a pro forma basis after giving effect to and assuming:
- all of our outstanding shares of series A convertible preferred stock
are converted into an aggregate of 3,669,760 shares of our common stock
upon the consummation of this offering;
- a for stock split of our outstanding shares of common stock, which
will be effected before the consummation of this offering;
- the underwriters' over-allotment option will not be exercised; and
- the filing of our second restated certificate of incorporation before
the consummation of this offering; and
- on the same pro forma basis as described above, as adjusted to give effect
to the sale of shares of common stock in this offering at an assumed
initial public offering price of $ per share, and application of the
proceeds from this offering after deducting the underwriting discounts and
commissions and estimated offering expenses.
<TABLE>
<CAPTION>
JANUARY 30, 2000
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Short-term debt, including current portion of long-term
debt...................................................... $ 588 $ 588 $
Long-term debt, less current portion........................ 2,612 2,612
-------- ------- -------
Total debt.......................................... $ 3,200 $ 3,200 $
======== ======= =======
Stockholders' equity:
Preferred stock, $0.01 par value per share; 4,000,000
shares authorized, actual; pro forma and pro forma as
adjusted................................................
Series A convertible preferred stock, $0.01 par value
per share; 3,669,760 shares authorized, issued and
outstanding, actual; no shares authorized, issued and
outstanding, pro forma and pro forma as adjusted...... 20,000 --
Common stock, $0.01 par value per share; 40,000,000 shares
authorized, 11,107,031 shares issued and outstanding,
actual; shares authorized, 14,776,791 shares
issued and outstanding pro forma; and shares
issued and outstanding, pro forma as adjusted........... 111 148
Additional paid-in capital.................................. 42,907 62,870
Deferred stock-based compensation........................... (598) (598)
Accumulated deficit......................................... (34,887) (34,887)
-------- ------- -------
Total stockholders' equity.................................. $ 27,533 $27,533 $
-------- ------- -------
Total capitalization................................ $ 30,733 $30,733 $
======== ======= =======
</TABLE>
The above information is based on the shares outstanding as of January 30,
2000. The total number of shares of common stock that we assume will be
outstanding after the offering excludes:
- 63,859 shares of common stock issued upon the exercise of options between
January 30, 2000 and the date of this prospectus;
- 1,159,887 shares of common stock issuable upon exercise of options
outstanding as of the date of this prospectus, at a weighted average
exercise price of approximately $3.50 per share;
23
<PAGE>
- 473,602 additional shares of common stock issuable upon exercise of
options that we could issue under our 1999 stock option plan;
- 200,000 additional shares of common stock issuable upon exercise of
options that we could issue under our 2000 non-employee directors' stock
option plan; and
- 1,377,223 shares of common stock issuable upon exercise of warrants
outstanding as of the date of this prospectus, each with an exercise price
of $2.94 per share.
24
<PAGE>
DILUTION
Our pro forma net tangible book value as of January 30, 2000, after giving
effect to the conversion of all of our outstanding shares of series A
convertible preferred stock into 3,669,760 shares of our common stock, was $
million, or $ per share of common stock. Pro forma net tangible book value per
share is calculated by (1) subtracting our total liabilities from our total
tangible assets, which equals total assets less intangible assets, and
(2) dividing this amount by the number of our shares of common stock
outstanding. Dilution in net tangible book value per share represents the
difference between (1) the amount per share paid by purchases of our common
stock in this offering and (2) the net tangible book value per share of our
common stock after giving effect to this offering. Assuming the sale by us of
the shares of common stock offered in this offering at an assumed initial
public offering price of $ per share and the application of the estimated
net proceeds from this offering, after deducting the underwriting discounts and
commissions and estimated offering expenses, our pro forma net tangible book
value as of January 30, 2000 would have been approximately $ million, or $ per
share of common stock. This represents an immediate increase in pro forma net
tangible book value of $ per share to our existing stockholders and an
immediate dilution in the pro forma net tangible book value of $ per share to
new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of January
30, 2000................................................ $
Pro forma increase in net tangible book value per share
attributable to new investors...........................
------
Pro forma net tangible book value per share after this
offering................................................
------
Dilution per share to new investors....................... $
======
</TABLE>
The following table summarizes, on the pro forma basis described above, as
of January 30, 2000, the total number of shares of common stock purchased from
us, the total consideration paid to us for our common stock, and the average
price per share paid by existing stockholders and by new investors purchasing
shares in this offering. The calculation below is based on an assumed initial
public offering price of $ per share, before deducting the underwriting
discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................ % $ % $
New investors....................................
----- ----- ------ -----
Total............................................ 100.0% $ -- 100.0%
===== ===== ====== =====
</TABLE>
This discussion and the above tables assume no exercise of options or
warrants that were outstanding as of January 30, 2000 to purchase 2,254,969
shares of common stock. At January 30, 2000, there were 877,746 shares of common
stock reserved for issuance upon exercise of outstanding options, at a weighted
average exercise price of $3.19, and 1,377,223 shares of common stock reserved
for issuance upon exercise of outstanding warrants, each with an exercise price
of $2.94 per share. To the extent that any of these options or warrants are
exercised, there will be further dilution to new investors. See
"Capitalization," "Management--1999 Stock Option Plan" and "Management--2000
Directors' Stock Option Plan."
25
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our financial statements and the related notes
included elsewhere in this prospectus. The statement of operations data for
fiscal 1997, 1998 and 1999 and the selected balance sheet data for March 1,
1998, February 28, 1999 and January 30, 2000 has been derived from our audited
financial statements included elsewhere in this prospectus. The statement of
operations data for fiscal 1995 and fiscal 1996, and the selected balance sheet
data as of March 3, 1996 and March 2, 1997 are derived from our audited
financial statements not included elsewhere in this prospectus. Fiscal 1999
consists of 11 months.
You will also find our selected balance sheet data as of January 30, 2000
both on an actual basis and pro forma as adjusted basis, assuming completion of
this offering. To calculate the "pro forma as adjusted" data, we have assumed
the following:
- all of our outstanding shares of series A convertible preferred stock are
converted into an aggregate of 3,669,760 shares of our common stock upon
the consummation of this offering; and
- the sale by us of shares of common stock at an assumed initial
public offering price of $ per share, after deducting underwriting
discounts and estimated offering expenses payable by us, and the
application of the net proceeds from this offering.
<TABLE>
<CAPTION>
FISCAL
----------------------------------------------------
1995(1) 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Retail........................................... $28,793 $27,226 $32,338 $45,285 $ 50,845
Internet/Direct.................................. -- 973 2,070 4,018 8,771
------- ------- ------- ------- --------
Total revenue................................ 28,793 28,199 34,408 49,303 59,616
Cost of sales...................................... 16,859 15,757 20,271 28,110 34,153
------- ------- ------- ------- --------
Gross profit....................................... 11,934 12,442 14,137 21,193 25,463
Operating expenses:
Advertising...................................... -- 522 689 1,916 7,181
Sales and other operating(2)..................... 15,297 9,917 13,917 17,493 22,530
General and administrative....................... -- 5,662 4,583 4,409 5,661
Amortization of intangible assets................ 1,219 2,849 2,849 1,664 389
------- ------- ------- ------- --------
Total operating expenses..................... 16,516 18,950 22,038 25,482 35,761
------- ------- ------- ------- --------
Operating income (loss)............................ (4,582) (6,508) (7,901) (4,289) (10,298)
Interest and other income (expense), net........... (204) (469) (1,448) (1,628) (1,948)
Losses allocable to minority interest.............. -- -- -- 198 3,253
Income tax expense (benefit)....................... 164 -- -- -- --
------- ------- ------- ------- --------
Net income (loss).................................. $(4,950) $(6,977) $(9,349) $(5,719) $ (8,993)
======= ======= ======= ======= ========
Basic and diluted net income (loss) per share--pro
forma to reflect income taxes(3)................. $ (2.07) $ (2.52) $ (2.42) $ (1.48) $ (1.73)
Shares used in computing basic and diluted net
income (loss) per share--pro forma to reflect
income taxes(3).................................. 2,390 2,764 3,862 3,862 5,195
Pro forma net income (loss) per share--basic and
diluted(4)....................................... $ (1.05)
Shares used in computing pro forma net income
(loss) per share--basic and diluted(4)........... 11,212
</TABLE>
26
<PAGE>
- --------------------------
(1) Information was not available for fiscal 1995 (i) to segregate advertising
and general and administrative expense from sales and other operating
expense and (ii) to identify and classify amortization of leasehold
improvements with cost of sales instead of sales and other operating
expenses.
(2) Sales and other operating expense for fiscal 1995 includes charges
aggregating $1,525,255 for property and equipment impairment amounting to
$601,000, cafe closing expense amounting to $565,209 and employee severance
amounting to $359,046.
(3) See note 2(o) of our financial statements for an explanation of the net loss
per share information on a pro forma basis to reflect income taxes and the
determination of the number of shares used in computing per share data.
(4) Reflects our reorganization, which occurred on November 30, 1999, as if it
had occurred as of March 1, 1999, and the conversion of our series A
convertible preferred stock into our common stock as if the conversion had
occurred as of the respective dates of issuance. See notes 2(o) and 3 to our
financial statements.
<TABLE>
<CAPTION>
AS OF JANUARY 30, 2000
--------------------------------------------- ----------------------
MARCH 3, MARCH 2, MARCH 1, FEBRUARY 28, PRO FORMA
1996 1997 1998 1999 ACTUAL AS ADJUSTED
-------- -------- -------- ------------ -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 176 $ 3,125 $ 834 $ 444 $17,117 $
Working capital (deficit)............... (1,880) 355 (3,059) (4,782) 12,242
Total assets............................ 13,824 15,618 17,682 16,461 43,413
Total debt (including current
maturities)........................... 4,867 11,371 23,133 27,114 3,200
Total stockholders' equity (deficit).... 4,086 (2,818) (12,107) (17,626) 27,533
</TABLE>
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE AUDITED FINANCIAL STATEMENTS
AND THE RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Our founders opened the first Dean & DeLuca specialty food market in 1977 in
the SoHo neighborhood of New York City. In 1988, we moved to a new location in
the heart of SoHo, which today remains our flagship store. Encouraged by the
popularity of the SoHo store, since 1990 we have expanded our retail business by
opening four additional specialty markets, one wine store and eight cafes. To
date, the majority of our revenues have been generated through retail sales.
Internet/Direct revenues as a percent of overall sales are relatively small, but
we expect these revenues to increase significantly in future periods as a result
of our plan to increase advertising and marketing and the continued enhancement
of our next-generation Web site.
On November 30, 1999, all the security holders of Dean & DeLuca
Brands, Inc., Dean & DeLuca Atlanta, LLC, Dean & DeLuca Markets, LLC, and D & D
Cafes of NC, LLC entered into a reorganization agreement. As part of the
reorganization, all of the equity owners of Dean & DeLuca Brands, Dean & DeLuca
Atlanta, Dean & DeLuca Markets and D & D Cafes of NC exchanged all of their
securities in those entities for common stock, warrants or stock options of
Dean & DeLuca, Inc. Immediately prior to the reorganization, all indebtedness of
any of those entities to an equity owner was converted into equity interests in
the applicable entity, which interest was then exchanged in the reorganization.
We incurred net losses of approximately $9.0 million for fiscal 1999,
$5.7 million for fiscal 1998 and $9.3 million for fiscal 1997. At January 30,
2000, we had an accumulated deficit of $34.9 million. The net losses and
accumulated deficit resulted primarily from the costs associated with developing
new specialty markets, cafes and our wine store, marketing costs related to the
start-up of our Internet/ Direct business, and interest and depreciation
charges. Pre-opening costs incurred in connection with the opening of new stores
are expensed in the period in which they are incurred. Because of our plan to
invest heavily in advertising and marketing and technology enhancement and to
increase our operating infrastructure in our Internet/Direct business, as well
as the development of new specialty markets, we expect to incur significant net
losses for the foreseeable future.
28
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the statement of operations data for the
periods indicated as a percentage of revenues. Percentages may not add due to
rounding.
<TABLE>
<CAPTION>
FISCAL
--------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Retail.................................................... 94.0% 91.9% 85.3%
Internet/Direct........................................... 6.0 8.1 14.7
----- ----- -----
Total revenue........................................... 100.0 100.0 100.0
----- ----- -----
Cost of sales............................................... 58.9 57.0 57.3
Gross profit................................................ 41.1 43.0 42.7
Operating expenses:
Advertising............................................... 2.0 3.9 12.0
Sales and other operating................................. 40.4 35.5 37.8
General and administrative................................ 13.3 8.9 9.5
Amortization of intangible assets......................... 8.3 3.4 0.7
----- ----- -----
Total operating expenses................................ 64.0 51.7 60.0
----- ----- -----
Operating income (loss)..................................... (23.0) (8.7) (17.3)
Interest and other income (expense), net.................... (4.2) (3.3) (3.3)
Losses allocable to minority interest....................... -- (0.4) 5.5
Income tax expense (benefit)................................ -- -- --
----- ----- -----
Net income (loss)........................................... (27.2)% (11.6)% (15.1)%
===== ===== =====
</TABLE>
FOR THE ELEVEN-MONTH PERIOD ENDED JANUARY 30, 2000 (FISCAL 1999) AS COMPARED TO
THE YEAR ENDED FEBRUARY 28, 1999 (FISCAL 1998)
REVENUES
RETAIL. Retail revenues consist of revenues derived from our specialty
markets, cafes and wine store. Despite the fact that fiscal 1999 was an
eleven-month period, retail revenues increased 12.3% from $45.3 million for
fiscal 1998 to $50.8 million for fiscal 1999. The increase in sales for fiscal
1999 was due primarily to an increase in sales from comparable stores of 8.6%.
The remaining increase is attributable to the full-period operation of one cafe
and additional revenues from a new cafe as compared to fiscal 1998.
INTERNET/DIRECT. Internet/Direct revenues consist of revenues derived from
catalogue sales and sales through our Web site. Despite the fact that fiscal
1999 was an eleven-month period, Internet/Direct revenues increased 118.3% from
$4.0 million for fiscal 1998 to $8.8 million for fiscal 1999. The increase in
Internet/Direct revenues for fiscal 1999 was due primarily to the increased
circulation of our catalogue, and the increase in the number of fulfilled
orders, which increased 102.5% from fiscal 1998 to fiscal 1999, and the average
fulfilled order size, which increased 21.42% from fiscal 1998 to fiscal 1999.
COST OF SALES
Cost of sales consists of the cost of merchandise and freight, and occupancy
cost of our retail stores and Internet/Direct operations. Our cost of sales
increased 21.5% from $28.1 million for fiscal 1998 to $34.2 million for fiscal
1999. The increase in cost of sales for fiscal 1999 as compared to fiscal
29
<PAGE>
1998 was primarily due to the increased sales volume during the period.
Occupancy costs included in cost of sales was $4.2 million for fiscal 1998 and
$4.3 million for fiscal 1999. Occupancy costs for fiscal 1999 increased slightly
from fiscal 1998 due to the full-period operation of one cafe and costs
associated with one new cafe in fiscal 1999 offset by 11 months of occupancy in
fiscal 1999 as opposed to 12 months in fiscal 1998.
GROSS PROFIT
Gross profit as a percentage of total revenues decreased from 43.0% for
fiscal 1998 to 42.7% for fiscal 1999. The decrease in fiscal 1999 was due to
lower margins achieved in the initial months of operations associated with two
new cafes, increased wine sales, and the increased freight expense incurred with
our Internet/Direct business. The retail margins for fiscal 1999 continued to
increase due to an improved sales mix of perishable products, which have a
higher profit margin than non-perishable products. Gross profit, excluding
occupancy cost, was 51.5% for fiscal 1998 and 49.9% for fiscal 1999. Fiscal 1999
gross profit, excluding occupancy cost, declined due to the shift in sales mix
to wine and the above-mentioned freight increase in our Internet/Direct
business.
OPERATING EXPENSES
ADVERTISING. Advertising expense consists of catalogue production and
mailing costs and all other direct advertising media expenses. Advertising
expense increased 274.8% from $1.9 million for fiscal 1998 to $7.2 million for
fiscal 1999. The increase in fiscal 1999 was due to an increase in the number of
catalogues mailed and our advertising campaign in the 1999 holiday season to
promote both our retail locations and Web site.
SALES AND OTHER OPERATING. Sales and other operating expenses include all
employment costs related to operations, supplies, repairs and maintenance, and
other direct operating expenses, as well as, to a lesser extent, our call center
and fulfillment operating expenses, telecommunications costs, and expenses
related to the maintenance of our Web site. Sales and other operating expenses
increased 28.8% from $17.5 million for fiscal 1998 to $22.5 million for fiscal
1999. Sales and other operating expenses increased primarily as the result of
the full-year operation of one cafe, costs associated with one new cafe,
maintenance of our Web site, and increase in call center and fulfillment
expenses associated with our Internet/Direct business.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and related costs for our corporate executive staff and
finance and administrative departments, and legal and other professional fees.
General and administrative expenses increased 28.4% from $4.4 million for fiscal
1998 to $5.7 million for fiscal 1999. The increase in general and administrative
expenses is due to the increase in our personnel and the costs associated with
their training.
AMORTIZATION OF INTANGIBLE ASSETS. The acquisition of minority interests in
the entities that became our wholly-owned subsidiaries in the reorganization was
accounted for under the purchase method of accounting. As a result of the
acquisition, goodwill is being amortized over a three-year period. Amortization
expense was $0.4 million for fiscal 1999 as compared to $1.7 million for fiscal
1998. The amortization expense for fiscal 1998 is principally related to the
goodwill arising from the acquisition of Dean & DeLuca Brands, Inc. common stock
by Mr. Rudd in fiscal 1995, which was fully amortized during fiscal 1998.
LOSS FROM OPERATIONS
As described above, we have made significant investments in the development
of new cafes, increased our marketing efforts to expand our catalogue
circulation and made significant investments in
30
<PAGE>
the development of our call, distribution and fulfillment center and our Web
site. As a result, our loss from operations increased 140.1% from $4.3 million
for fiscal 1998 to $10.3 million for fiscal 1999.
INTEREST AND OTHER (INCOME) EXPENSE, NET
Interest and other expense, net consists primarily of accrued interest to
our stockholders. Interest expense increased 15.7% from $1.8 million for fiscal
1998 to $2.1 million for fiscal 1999. The increase was primarily due to
increased borrowings.
INCOME TAX PROVISION
No provisions for income taxes were made due to the operating losses
incurred.
FOR THE YEAR ENDED FEBRUARY 28, 1999 (FISCAL 1998) AS COMPARED TO THE YEAR ENDED
MARCH 1, 1998 (FISCAL 1997)
REVENUES
RETAIL. Retail revenues increased 40.0% from $32.3 million for fiscal 1997
to $45.3 million for fiscal 1998. The increase in sales for fiscal 1998 was due
primarily to the full-period operations of three new specialty markets as
compared to fiscal 1997.
INTERNET/DIRECT. Internet/Direct revenues increased 94.0% from
$2.1 million for fiscal 1997 to $4.0 million for fiscal 1998. The increase in
Internet/Direct revenues for fiscal 1998 was due primarily to the increased
circulation of our catalogue, the increase in our number of fulfilled orders,
which increased 109% from fiscal 1997 to fiscal 1998, and the average fulfilled
order size, which increased 15.6% from fiscal 1997 to fiscal 1998.
COST OF SALES
Our cost of sales increased 38.7% from $20.3 million for fiscal 1997 to
$28.1 million for fiscal 1998. The increase in cost of sales for fiscal 1998 as
compared to fiscal 1997 was primarily due to the increased sales volume during
the same period. Occupancy costs included in cost of sales was $3.1 million for
fiscal 1997 and $4.2 million for fiscal 1998.
GROSS PROFIT
Gross profit as a percentage of total revenues increased from 41.1% for
fiscal 1997 to 43.0% for fiscal 1998. The increase in fiscal 1998 was due to an
improved sales mix of perishable products, which have a higher profit margin
than nonperishable products. Gross profit, excluding occupancy costs, was 50.1%
for fiscal 1997 and 51.5% for fiscal 1998.
OPERATING EXPENSES
ADVERTISING. Advertising expense increased 177.9% from $0.7 million for
fiscal 1997 to $1.9 million for fiscal 1998. The increase in fiscal 1998 was
primarily due to an increase in the number of catalogues mailed as we expanded
our catalogue operation.
SALES AND OTHER OPERATING. Sales and other operating expenses increased
25.7% from $13.9 million for fiscal 1997 to $17.5 million for fiscal 1998. Sales
and other operating expenses increased primarily as the result of the full-year
operation of three new specialty markets, the growth in our sales catalogue
circulation and fulfillment expenses associated with our Internet/Direct
business.
31
<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
3.8% from $4.6 million for fiscal 1997 to $4.4 million in fiscal 1998. The
decrease in general and administrative expense was the result of a reduction in
executive compensation.
AMORTIZATION OF INTANGIBLE ASSETS. The amortization for fiscal 1998 and
fiscal 1997 is principally related to goodwill arising from the acquisition of
Dean & DeLuca Brands, Inc. common stock by Mr. Rudd in fiscal 1995. As the
result of the acquisition, goodwill is being amortized over a three-year period.
Amortization expense was $1.7 million for fiscal 1998 as compared to
$2.8 million for fiscal 1997.
LOSS FROM OPERATIONS
As described above, we made significant investments in new specialty markets
development, increased our marketing efforts to expand our catalogue circulation
and made significant investments in the development of our call, distribution
and fulfillment center. As a result, our loss from operations decreased 45.7%
from $7.9 million for fiscal 1997 to $4.3 million for fiscal 1998.
INTEREST AND OTHER (INCOME) EXPENSE, NET
Interest and other expense, net consists primarily of accrued interest to
our stockholders. Interest expense increased 26.4% from $1.4 million for fiscal
1997 to $1.8 million for fiscal 1998. The increase was primarily due to the
increase in funding to cover our operating losses.
INCOME TAX PROVISION
No provisions for income taxes were made due to the operating losses
incurred.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Our business is subject to seasonal influences. A disproportionate amount of
our revenue has historically been realized during our third and fourth fiscal
quarters. Operating margins have historically been higher in each of those
quarters than in the first and second quarters, primarily due to higher average
weekly store sales. Due to our recent change in fiscal year end, the holiday
season now falls predominantly within our fourth fiscal quarter, as opposed to
both our third and fourth fiscal quarters. We therefore anticipate that we will
realize a disproportionate amount of our revenues during our fourth fiscal
quarter.
Quarterly results of operations for fiscal 1998 and fiscal 1999 have been
and are expected to be impacted by the timing of new store openings.
<TABLE>
<CAPTION>
MAY 31, AUGUST 30, NOVEMBER 29, FEBRUARY 28, MAY 2, AUGUST 1, OCTOBER 31,
1998 1998 1998 1999 1999(1) 1999 1999
-------- ----------- ------------- ------------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue
Retail............. $10,209 $ 9,933 $12,068 $13,075 $8,446 $12,330 $13,129
Internet/Direct.... 495 334 826 2,363 560 736 1,051
------- ------- ------- ------- ------ ------- -------
Total revenue.... 10,704 10,267 12,894 15,438 9,006 13,066 14,180
Gross profit......... 4,510 4,327 5,543 6,813 4,125 5,761 6,055
Operating income
(loss)............. (1,398) (1,595) (938) (358) (437) (1,575) (2,254)
Net income (loss).... $(1,527) $(1,826) $(1,357) $(1,009) $ (846) $(1,948) $(2,866)
======= ======= ======= ======= ====== ======= =======
<CAPTION>
JANUARY 30,
2000
------------
<S> <C>
Revenue
Retail............. $16,940
Internet/Direct.... 6,424
-------
Total revenue.... 23,364
Gross profit......... 9,522
Operating income
(loss)............. (6,032)
Net income (loss).... $(3,333)
=======
</TABLE>
- ------------------------------
(1) The quarter ended May 2, 1999 consists of nine weeks. All other quarters
consist of 13 weeks.
32
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Prior to fiscal 1999, we have financed our operations primarily from
borrowings from our equity owners. In fiscal 1999, we received approximately
$20.0 million in a private placement of series A convertible preferred stock. In
addition, we converted approximately $29.6 million of stockholder debt into
equity. An additional $2.3 million of accrued interest due to related parties
was forgiven. At January 30, 2000, we had approximately $17.1 million in cash
and cash equivalents and $0.8 million in current accounts receivable.
We manage our working capital position to increase liquidity and reduce
risk. Our merchandise sales are primarily made against an authorized credit
card, cash or check. Our inventory consists of both perishable and nonperishable
merchandise. We manage our inventory with a view to maximize turn-over.
Net cash used in operating activities was $4.1 million for fiscal 1999,
$1.6 million for fiscal 1998 and $7.4 million for fiscal 1997. The principal use
of cash for all periods was to fund our losses from operations, which included
$1.9 million of preopening costs associated with new store openings in the
aggregate for the three-year period.
Net cash used in investing activities consisted primarily of capital
expenditures, which were $5.3 million for fiscal 1999, $1.7 million for fiscal
1998 and $6.7 million for fiscal 1997, and were mainly for equipment and
leasehold improvements for new store development.
Net cash provided by financing activities was $25.8 million for fiscal 1999,
$2.6 million for fiscal 1998 and $11.8 million for fiscal 1997. Cash provided by
financing activities for fiscal 1997 and 1998 consisted primarily of borrowings
from our equity owners. For fiscal 1999, cash provided by financing activities
consisted primarily of the proceeds from our issuance of series A convertible
preferred stock.
We currently anticipate that we will continue to experience an increase in
our operating losses for the foreseeable future and that our operating losses
will be a material use of our cash resources. We plan on opening additional
specialty markets and cafes. In addition, we intend to launch a marketing and
advertising program for our Internet/Direct business which will require
significant cash resources. We believe that the proceeds raised from this
offering, together with current cash and cash equivalents, will be sufficient to
meet our anticipated cash needs for operating losses, working capital and
capital expenditures for at least the next 12 months.
CHANGES IN ACCOUNTANTS
During fiscal 1998, we terminated the appointment of Grassi & Co., CPAs, PC
as our auditors and engaged KPMG LLP as our auditors. Our board of directors
approved the decision to change auditors. In connection with the audit of
Dean & DeLuca Brands, Inc. and its affiliates for fiscal 1997, there were no
disagreements with Grassi & Co., CPAs, PC on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedures.
The audit report of Grassi & Co., CPAs, PC on the financial statements of
Dean & DeLuca Brands, Inc. and its affiliates for fiscal 1997 did not contain
any adverse opinion or disclaimer of opinion, nor was it qualified or modified
as to uncertainty, audit scope, or accounting principles.
33
<PAGE>
BUSINESS
OVERVIEW
Dean & DeLuca is an established multi-channel retailer of gourmet and
specialty foods, high premium wines and upscale kitchenware. We believe that we
are recognized internationally for having enhanced consumers' access to and
appreciation of American and international specialty products. We also believe
that our brand awareness and appeal, which are larger than our physical
presence, create a franchise with significant growth potential.
Our merchandizing and design are distinctive and elegant, and are based on
the minimalist design principle of form following function. Our stores are
designed to re-create a European marketplace environment, featuring displays of
abundant and overflowing specialty foods and other premium products. Our staff
of trained experts carefully select our gourmet and specialty foods and wines
based on taste, quality and uniqueness, and they screen all of our kitchenware
for performance and style. Our premium specialty products are sold through
multiple distribution channels consisting of:
- our retail operations--comprised of five specialty markets, one wine store
and eight cafes in selected markets throughout the United States;
- our Internet/Direct operations--comprised of our Web site at
WWW.DEANDELUCA.COM and our mail-order catalogues, with an expected
circulation of approximately 13 million during calendar 2000; and
- our business-to-business sales--comprised of sales through selected
premium retailers and sales to corporate customers.
We believe that the combination of our traditional retailing efforts with
our Internet/Direct operations has allowed us to cross-promote our brand
nationally with lower customer acquisition costs. We also believe that the
selective and strategic locations of our stores have allowed us to realize
incremental sales through our Internet/Direct operations without significantly
reducing store sales.
OUR BACKGROUND
We opened the first Dean & DeLuca specialty market in 1977 in the SoHo
neighborhood of New York City. We believe that we were one of the first
retailers in the United States to offer consumers a number of then hard-to-find
products, including balsamic vinegar, sun-dried tomatoes and extra virgin olive
oil. By 1988, we had outgrown our 2,600 square-foot store and moved to 33,000
square-foot store at the corner of Prince Street and Broadway, which today
remains our flagship store. Since 1992, we have opened four additional specialty
markets in Washington, D.C., North Carolina, Kansas and California, and eight
cafes in New York, Washington, D.C., New Jersey and North Carolina. We also
recently opened a store in North Carolina focusing primarily on the sale of
California high premium wines.
In 1996, we launched our Internet/Direct operations with the introduction of
our catalogue and our Web site WWW.DEANDELUCA.COM. Since 1996, we have
continually enhanced and expanded our operations and infrastructure, including
the 1997 opening of our call, distribution and fulfillment center in Wichita,
Kansas and distribution and fulfillment center in St. Helena, California, the
1997 launch of our business-to-business operations, and the introduction of our
current Web site in 1999.
MARKET OVERVIEW
We believe that the gourmet and specialty foods, high premium wines and
upscale kitchenware markets in which we compete, which had aggregate U.S. sales
of approximately $65.8 billion in 1997, the most recent year for which multiple
market sales data is available, has significant growth potential.
34
<PAGE>
MARKET COMPONENTS
GOURMET AND SPECIALTY FOODS. The NATIONAL ASSOCIATION OF SPECIALTY FOOD
TRADE defines gourmet and specialty foods products as foods, beverages or
confections that are of the highest grade, style or quality in their category.
In recent years, the gourmet and specialty foods segment has experienced higher
rates of growth than the overall retail food industry, as consumers have
increasingly moved toward products of higher quality and sophistication.
According to the FOOD MARKETING INSTITUTE's trade publication, PACKAGED FACTS,
gourmet and specialty foods sales in the United States have increased since 1993
and reached approximately $38.8 billion in 1997. This represented approximately
8.4% of the overall U.S. retail food sales during that year. In 1998, PACKAGED
FACTS projected that the gourmet and specialty foods market segment would
continue to grow steadily and will reach an estimated $54 billion in sales in
the United States by 2002. Based on our two decades of experience, we believe
that gross margins in the gourmet and specialty foods segment are typically
higher than the overall retail foods segment.
In September 1999, FORRESTER RESEARCH estimated that online grocery spending
in the United States will grow at a compound annual rate of 114% over the next
four years, from $513 million in 1999 to $10.8 billion in 2003, which would
represent approximately 2% of the projected total United States market for
grocery products in 2003. FORRESTER RESEARCH also estimated that the gourmet and
specialty foods component of online grocery spending in the United States will
grow even more rapidly from $248 million in 1999 to $6.3 billion by 2003,
representing a compound annual growth rate of 124%.
HIGH PREMIUM WINES. The wine market in which we compete is the high premium
California wine segment, defined as super premium wines, which sell for between
$7 and $14 per bottle, and ultra premium wines, which sell for $14 or more per
bottle. The WINE INSTITUTE estimates that U.S. sales of high premium California
wines totaled $2.8 billion in 1999, representing an approximate 14% increase
over 1998. The high premium wine segment represents approximately 63% of the
total California wines sold in the United States. According to the WINE
INSTITUTE, U.S. sales of California wine have increased in each of the past six
years.
UPSCALE KITCHENWARE. The kitchenware markets in which we compete consist of
tabletop, cookware/bakeware, kitchen tools and small appliances for the serious
cook that combine great design with top performance. According to HOUSEWARE
INDUSTRIES MAGAZINE, these market components generated approximately
$25.8 billion dollars in sales in the United States in 1999, representing an
approximate 4% increase over 1998.
FRAGMENTED MARKETS
The distribution of gourmet and specialty foods, premium wines and upscale
kitchenware is accomplished through traditional retail stores, such as gourmet
and specialty food stores, the Internet and catalogues. Despite the existence of
a significant market opportunity in the gourmet and specialty foods sector, no
dominant retailer has emerged. The markets in the United States for gourmet and
specialty foods, premium wines and upscale kitchenware are characterized by a
fragmented supplier and distribution network. According to PACKAGED FACTS, in
1997, gourmet and specialty foods stores accounted for approximately 30% of
gourmet and specialty foods sales, while supermarkets accounted for
approximately 55% of gourmet and specialty foods sales. The remaining 15% in
sales was shared among gift stores, department stores, cheese shops, independent
food stores, confection shops, wine shops, upscale delicatessens, natural food
stores, warehouse clubs, mail order companies and online outlets.
FAVORABLE DEMOGRAPHICS
We believe that current demographic trends indicate that there will be a
growing opportunity for the sale of gourmet and specialty foods, high premium
wines and upscale kitchenware through Internet/
35
<PAGE>
Direct operations as well as through retail stores. According to SIMMONS MARKET
RESEARCH BUREAU, approximately 40% of gourmet and specialty foods shoppers in
the United States during 1997 were between the ages of 35 and 49, representing
the years during which individuals are at their peak earning and spending
potential. Additionally, according to MEDIA METRIX, individuals in this age
category represent 35% of all Internet users in the United States. INTERNATIONAL
DATA CORPORATION indicates in its report dated August 1999 that online U.S.
households have greater incomes and higher levels of education than the U.S.
average.
MARKET OPPORTUNITY
We believe that the combination of the size of the markets for our products,
projected growth of these markets, industry fragmentation, favorable demographic
trends and the emergence of the Internet as a distribution channel presents us
with the opportunity to enhance our position to become a leading multi-channel
retailer of gourmet and specialty foods, high premium wines and upscale
kitchenware.
OUR COMPETITIVE STRENGTHS
THE DEAN & DELUCA BRAND. We believe that Dean & DeLuca is an
internationally recognized brand name in the gourmet and specialty foods market,
due in large part to the success of our flagship store in SoHo, New York City.
We have built a brand awareness which, we believe, is larger than our physical
presence and is associated with our high-quality products. We have nurtured our
brand primarily through word-of-mouth, positive critical acclaim, our cookbook
and from broad exposure in the popular media. One of our New York City cafes,
due to its location, serves as an almost daily backdrop to the opening of NBC's
TODAY SHOW, and a Dean & DeLuca espresso bar is one of the sets for the Warner
Brothers prime-time television show FELICITY. Dean & DeLuca storefronts and
shopping bags have appeared in movies such as "MANHATTAN," "TRUE LIES" and
"STARTING OVER." We are also frequently listed as a resource in THE NEW YORK
TIMES and leading national food magazines.
THE DEAN & DELUCA EXPERIENCE. We strengthen our brand through our signature
approach to retailing, which we deliver to our customers throughout our
distribution channels by:
- PROVIDING A BROAD SELECTION OF HIGH QUALITY PRODUCTS. We offer a broad
selection of high-quality, specialty prepared foods, meats and cheeses,
fresh produce and breads, high premium wines, packaged foods and upscale
kitchenware. Our product selection allows customers to find the range of
items that they need to create a memorable shopping experience. Rather
than compete directly with traditional grocery stores, we focus on
distinctive foods and upscale kitchenware. Instead of stocking every
product within a category, we focus on the "best-in-class" and the
"hard-to-find." We expend significant resources to identify desirable
products from around the world. We believe our product selection builds a
sense of community for our customers and increases loyalty to the Dean &
DeLuca brand. We also believe that our specialty foods are often the
starting point that encourages customers to consider our high premium
wines and upscale kitchenware.
- OFFERING DISTINCTIVE MERCHANDISING AND DESIGN. We offer elegant and
distinctive merchandising and a wide selection of high-quality products
through all of our distribution channels. Our specialty markets and cafes,
Web site and catalogues are designed to facilitate an interactive, logical
shopping experience that allows our customers to discover new specialty
foods and other premium products. Our stores are designed to re-create a
European marketplace environment, with high ceilings, natural or indirect
lighting, exposed columns, marble floors and stainless steel shelving, and
feature specialized logically-organized departments with appealing
displays of overflowing premium products. Our Web site and catalogue are
designed based on simple merchandising principles, offering a visually
appealing shopping experience, and are designed to emulate an in-store
Dean & DeLuca shopping experience.
36
<PAGE>
- PROVIDING SUPERIOR CUSTOMER SERVICE. We are committed to providing
superior customer service through our highly-attentive and well-trained
staff. Our employees receive extensive training with an emphasis on
customer service skills and education about our product offerings. Our
personnel are available online, in our markets and at our call center to
answer questions about the products we offer and to make recommendations
regarding complementary products. In our markets, we encourage our
customers to experience our products firsthand by providing them with
samples across all food categories and in response to requests. We also
maintain an unconditional return policy that allows our customers to
return products through the mail or to any of our specialty markets.
INTEGRATED MULTI-CHANNEL RETAILER. The ability to leverage our brand
identity across our stores, Web site and catalogues is a principal strength of
our business. Our stores, including our flagship store in New York City, are
selectively and strategically located in diverse markets across the United
States and serve as "billboards" for our brand. We believe these stores allow us
to efficiently cross-promote our Internet/Direct operations, allowing us to
reduce marketing and advertising costs to encourage customers to make purchases
through our Web site and catalogues. We also believe that the selective and
strategic locations of our stores allow us to realize incremental sales through
our Internet/Direct operations without significantly reducing sales from our
stores.
ESTABLISHED INFRASTRUCTURE. We believe that consistently shipping
high-quality products to our customers on a timely and error-free basis is
essential to providing superior customer service and to building customer and
brand loyalty. To support our growing Internet/Direct operations, we have
expanded our operating infrastructure by opening a call, distribution and
fulfillment center in Wichita, Kansas and a distribution and fulfillment center
in St. Helena, California. This infrastructure is supported by state-of-the-art
processing and fulfillment technology. We believe that we are one of the few
companies with an Internet/Direct operation in the gourmet and specialty foods
segment that fulfills orders from its own distribution and fulfillment centers.
Our goal is to extend the same experience we provide at our specialty markets to
our Internet/Direct operations. Our established infrastructure has allowed us to
achieve low error and return rates in connection with our Internet/ Direct
operations.
STRONG OPERATING MODEL. We compete on the basis of offering "best-in-class"
and "hard-to-find" products, rather than on price, which has enabled us to
realize high gross margins on our products. Our operating model is strengthened
by our ability to realize economies of scale in purchasing inventories and by
distribution efficiencies we have achieved through operating our own
distribution and fulfillment centers. Our operating model is enhanced by our
selectively and strategically located retail stores, which have enabled us to
leverage our brand awareness and cross-promote our other distribution channels
without significantly reducing retail store revenues. We believe the combination
of our traditional retailing operations with our Internet/Direct operations
provides us with a foundation for continued growth.
OUR STRATEGY
We intend to leverage our brand across our multiple distribution channels in
order to grow our business and achieve further economies of scale. The key
elements of our strategy are:
PURSUING MULTI-CHANNEL GROWTH INITIATIVES
RETAIL STORES. We intend to open one or two specialty markets during
calendar 2001 and three or four specialty markets in each of the five calendar
years thereafter. We expect that each of the new specialty markets will have
between 10,000 and 15,000 square feet of retail selling space and will be
located in strategically selected affluent, densely populated urban markets such
as New York City, Chicago, Miami, Houston and Beverly Hills. We believe that
selective and strategic retail store
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expansion will enhance our Internet/Direct operations by continuing to increase
our brand awareness. We will also consider opening three or four cafes of
approximately 2,500 square feet each near each of our new specialty markets
after a market has been in business for about a year.
INTERNET/DIRECT OPERATIONS. We expect to dedicate a substantial portion of
our financial and management resources to grow our Internet/Direct operations,
gain additional customers and promote our brand. Specifically, we intend to
attract customers to our Web site by:
- mailing approximately 13 million catalogues in 2000 to those on our
existing customer lists and to other targeted potential customers. We
intend to shift the marketing focus of our catalogue to direct mail
promotion of our Web site in order to encourage migration of customers
from catalogue to online purchasing;
- engaging in a significant advertising effort in print media designed to
efficiently reach our target customers;
- cross-marketing our Internet/Direct operations at our retail stores by,
among other things, placing postcards and other printed materials
advertising our Web site in shopping bags and offering free catalogues;
- maintaining existing and entering into new strategic relationships with
leading culinary magazines, Web sites and other third parties; and
- marketing our products through targeted e-mail promotions and offerings to
customers throughout our distribution channels.
BUSINESS-TO-BUSINESS SALES. We believe that business-to-business sales
represent a substantial growth opportunity for us. We actively promote this
business through our Web site and business-to-business sales catalogues. In
order to expand these sales, we intend to:
- increase the sale of our branded products domestically and internationally
through selected premium traditional and online retailers, such as
Bloomingdale's and Marshall Field's, thereby allowing us to place our
branded products in many regions where we do not have a specialty market
without significant capital expenditures;
- actively promote our sales to business customers for their corporate
incentive plans, business-to-business gift-giving programs, consumer
marketing promotions and catalogues. Our existing customers include
Microsoft, Cisco Systems and American Express; and
- develop direct links to our Web site from our business customers' Intranet
networks.
To achieve this strategy, we intend to expand our dedicated
business-to-business sales and customer service organization.
ENHANCING THE WEB SITE EXPERIENCE
We are currently making significant improvements to our Web site to make its
design more attractive, increase the number of products offered, and improve our
customers' ability to navigate the Web site. We will also offer our Web site
customers access to educational information on our products, entertaining
content regarding food and wine, and immediate access to recipes and products
with the goal of encouraging customers to visit our Web site frequently. We
expect to continuously make improvements to our Web site and software as new and
enhanced technology becomes available. We also expect to analyze customers' past
purchasing behavior in an effort to anticipate future needs and generate product
suggestions that match each customer's personal preferences.
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EXPANDING OUR INFRASTRUCTURE
We are currently constructing a 58,000 square foot expansion of our existing
32,100 square-foot distribution and fulfillment facility in Wichita, Kansas and
have leased an additional 15,000 square feet of space for our new call center,
each of which is located in Wichita, Kansas. Once the construction of the new
warehouse and the build-out of our new call center are complete, our total call,
distribution and fulfillment capacity will be approximately 105,100 square feet.
The expansion of our call center facility will result in a significant increase
in our capacity to service our Internet/Direct operations. We have also leased a
separate 55,000 square-foot warehouse facility through the end of calendar year
2000, with options to renew in our favor. The 32,100 square-foot facility
includes approximately 8,000 square feet of office and call center space, and
the new 58,000 square-foot facility we are constructing will include
approximately 12,000 square feet of office space.
We are in the process of evaluating software packages that will allow us to
connect all of our operating sites and link our distribution channels through
one integrated operating system. Currently, we are testing a software package at
one of our markets. Following successful interfacing with our call, distribution
and fulfillment center in Wichita, Kansas, we will install the software at all
of our sites. With an enterprise-wide operating system that allows us to
centrally monitor our Internet/Direct and retail operations, we will be able to
optimize our marketing efforts and make enhancements to maximize our brand
loyalty. We also intend to utilize new integrated reporting and analysis
software to allow us to more efficiently manage our inventory, monitor orders
and operate our business and to improve and enlarge our internal Web site
management team and thereby reduce our dependence on third parties for Web site
design and development.
PRODUCTS AND MERCHANDISING
We select gourmet and specialty foods and high premium wines on the basis of
taste and authenticity, and select our kitchenware for performance and style in
an effort to offer only "best-in-class" and "hard-to-find" products in each
category. We do not screen products on absolute price, but do screen to offer
value. We source approximately 30,000 stock keeping units, or SKUs, from more
than 3,000 vendors to ensure that we offer a diverse assortment of gourmet and
specialty food products, high premium wines and upscale kitchenware. We search
world markets for unusual foods and specialty products.
Although many of our products are available at all of our specialty markets,
individual markets adjust the product mix to reflect local and regional
preferences. Our specialty markets purchase fresh produce directly from local
growers whenever possible, and each market offers a variety of local products
unique to the region. Approximately 15% of our gourmet and specialty foods
selection is produced locally and is offered only at individual markets. Rather
than compete across all categories with traditional grocery stores, we focus on
products that are distinctive, innovative and that meet our standards for
high-quality.
We offer high premium wines from California. Our primary focus is on ultra
premium California wines, which sell for $14 or more per bottle.
We also offer upscale tabletop, cookware/bakeware, kitchen tools and small
appliances for the serious cook.
PRODUCT CATEGORIES. We offer a broad range of specialty foods, high premium
wines and upscale kitchenware. Described below are some of our product
offerings:
- Packaged Foods: extra virgin olive oils from Europe and California and
other cooking oils; wine vinegars; teas; herbs and spices; international
sauces; high-end canned goods; juices; salad dressings; gourmet crackers,
chips and pretzels; imported cookies; and sodas and bottled waters.
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- Prepared Foods: fresh dishes designed for the to-go lunch customer and the
home-meal-replacement market.
- Produce: fresh and seasonal fruit and vegetables.
- Cheeses: hard, soft and semi soft selections made of goat, sheep and cow's
milk.
- Fresh Meat/Poultry/Seafood: lamb, pork, seafood, free-range poultry and
beef, and value-added meat products such as stuffed peppers, marinated
meats and fresh sausages.
- Charcuterie: smoked meats, country bacon, imported prosciutto and Spanish
ham, Italian-style salami, smoked whitefish and salmon, caviar, fresh
black and white truffles and ostrich eggs.
- Baked Goods: muffins, cakes, breads and pies.
- Coffee, Candies, Fruit and Nuts: beans from around the world; jams and
jellies; chocolates; and nut assortments.
- Bulk Products: dried beans, premium pasta, grains, imported and domestic
rices, granola, snacks, flours, seeds and dried fruits.
- Gift Baskets: baskets and other Dean & DeLuca accessories assembled at our
specialty markets or at our Wichita, Kansas distribution and fulfillment
facility.
- Dairy/Frozen: yogurt, milk, fresh organic eggs, imported French butter,
soy milk, soy foods, fresh juices and frozen products, such as ice cream,
sorbet and frozen yogurt.
- Wine and Specialty Beverages: high premium wines from California wineries,
specialty beers and other alcoholic and non-alcoholic beverages.
- Housewares/Kitchenware/Cookbooks/General Merchandise: housewares,
kitchenware and Dean & DeLuca accessories, such as hats, shirts, mugs and
aprons, and The Dean & DeLuca Cookbook.
Our cafes also offer an extensive array of cold and hot beverages, pastries,
breads, croissants, bagels and sandwiches. Through our specialty markets, we
also provide catering services for corporate and private functions.
BRANDED PRODUCTS. We sell our branded products, under the Dean & DeLuca,
St. Helena and Premiata brand names. Our principal branded products include
coffee and tea, herbs and spices, pasta sauce, olive oil and balsamic vinegar.
ADVERTISING AND MARKETING
Historically, we have invested only a modest amount in local advertising and
promotion for our specialty markets and cafes. We have implemented an aggressive
advertising and marketing campaign, using online, print media and direct mail to
promote our brand and increase our customer base. In addition, we intend to
cross-market our distribution channels through promotions in our markets, cafes,
Web site and catalogue. Specifically, we intend to:
- mail our catalogue to people on our existing customer lists and to other
targeted potential customers. We intend to shift the marketing focus of
our catalogue to direct mail promotion of our Web site in order to
encourage customers to migrate from catalogue to online purchasing. During
calendar year 2000, we intend to mail approximately 13 million catalogues
as compared to the approximately 4 million we mailed during calendar year
1999.
- engage in a significant advertising effort in magazines that efficiently
reach our target customers, including magazines in the food, wine,
lifestyle, home and entertaining, money management and fashion areas.
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- cross-market our Internet/Direct operations at retail stores by, among
other things, placing postcards and other printed materials advertising
our Web site in shopping bags and offering free catalogues in our stores.
- market our products through targeted e-mail promotions and offerings. We
currently have a database of approximately 21,000 e-mail addresses and
intend to encourage the individuals listed in our house file and our
catalogue recipients to provide us with their e-mail addresses in an
effort to convert them to online shopping.
STRATEGIC RELATIONSHIPS
We have entered into a number of strategic alliances that we believe have
and will continue to increase brand awareness, attract customers to our Web
site, generate incremental sales and broaden our customer base. Our key
alliances are:
- FOOD NETWORK WEB SITE. In March 2000, we signed a Web site affiliation
agreement pursuant to which our Web site will be linked to the Food
Network Web site at WWW.FOODTV.COM. This agreement provides that during
the term of the agreement, Food Network cannot enter into an agreement
with several of our major competitors, and we cannot enter into an
agreement with some of the Food Network's competitors. The integration of
our Web site's e-commerce capability into the Food Network Web site is
expected to be completed this summer.
- EPICURIOUS FOOD WEB SITE. In January 2000, we signed a Web site
affiliation agreement pursuant to which our Web site will be linked to the
Epicurious Food Web site at WWW.EPICURIOUS.COM as the exclusive provider
of specialty food products on the Epicurious Food Web site. The Epicurious
Web site also provides some of our recipes. The integration of our Web
site and the Epicurious Web site is expected to be completed this summer.
- DELLA & JAMES WEB SITE. In November 1999, we entered into a
cross-merchandising agreement with Della & James through which we provide
upscale kitchenware and gourmet and specialty foods for Della & James'
bridal registry. Our customers and Della & James' customers are able to
register for gifts at the Della & James Web site at WWW.DELLA.COM.
- FIRSTUSA BANK AND MERRILL LYNCH. We have cross-merchandising agreements
with FirstUSA Bank and Merrill Lynch. We are a featured merchant in
FirstUSA Bank's E-card promotion program, which promotes our products to
FirstUSA Bank cardholders in exchange for us providing a rebate to
FirstUSA Bank cardholders on all online purchases. We are also featured in
Merrill Lynch's rewards program, which promotes our products to program
members. The Merrill Lynch agreement contains an exclusivity provision
that prohibits us from entering into similar agreements with other
specified financial services companies. The FirstUSA Bank agreement
contains an exclusivity provision that prohibits us from entering into an
agreement to offer a superior discount with any other credit card company
whose products and services are wholly or primarily marketed online.
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OUR OPERATIONS
RETAIL OPERATIONS
SPECIALTY MARKETS. We operate five specialty markets in New York City
(SoHo); Washington, D.C. (Georgetown); Charlotte, North Carolina; Kansas City
(Leawood), Kansas; and St. Helena, California. The layout of each market is
designed for convenience and is intended to provide a logically-organized
shopping experience and encourage our customers to discover new specialty foods
and products. While none of the markets are exactly the same, all are designed
to suggest a European marketplace, featuring high ceilings, exposed columns,
marble floors and stainless steel shelving. Each market is organized into
dedicated product departments, including specialty prepared foods, fresh meats,
poultry and seafood, cheeses, fresh produce, baked goods, packaged foods and
upscale kitchenware, and all feature simple and abundant displays. Some of our
markets also feature a dedicated wine area, where permitted by local law.
We train our staff to facilitate frequent customer interaction, education
and product sampling. We offer personal shopping, custom gifts, corporate and
personal catering and shipping services at all market locations. Each market
employs between 70 and 190 people, organized into department teams. We promote a
decentralized team approach, in which as many decisions as possible are made at
the department level within the individual markets. Department managers are
trained to be experts in their field and to provide excellent customer service.
This positive atmosphere is fostered at all team levels.
CAFES. We operate three cafes in New York City, one cafe in New Jersey at
The Mall at Short Hills, one cafe in Washington, D.C., and three cafes in
Charlotte, North Carolina. Our cafes are designed to replicate "old world"
coffee houses and feature espresso and other specialty coffees and teas. Each of
our cafes seats between 50 and 60 people. We offer cafe customers specialty
beverages, snacks and meals. Our cafes provide exposure for our brand name and
Internet/Direct operations, and serve as additional outlets for our upscale
kitchenware, cookbook and general Dean & DeLuca merchandise. We also recently
opened a store in North Carolina focusing primarily on the sale of ultra premium
California wines.
The following table provides information on our retail markets, cafes and
wine store:
<TABLE>
<CAPTION>
LOCATION DATE OPENED TYPE OF STORE SQUARE FOOTAGE
- --------------------------------------------- -------------- ---------------- --------------
<S> <C> <C> <C>
New York, NY (SoHo).......................... September 1977 Specialty Market 33,000
New York, NY (Paramount Hotel)............... December 1990 Cafe 1,100
New York, NY (University Place).............. December 1991 Cafe 3,240
Washington, D.C. (Georgetown)................ December 1992 Specialty Market 19,742
Washington, D.C. (Warner Building)........... January 1993 Cafe 3,255
New York, NY (Rockefeller Center)............ September 1993 Cafe 2,900
Short Hills, NJ (The Mall at Short Hills).... October 1995 Cafe 1,827
Charlotte, NC (Philips Place)................ June 1997 Specialty Market 7,500
St. Helena, CA............................... October 1997 Specialty Market 9,000
Kansas City, KS (Leawood).................... December 1997 Specialty Market 8,500
Charlotte, NC (Stonecrest Center)............ March 1999 Cafe 3,984
Charlotte, NC (Philips Place)................ August 1999 Wine Store 1,865
Charlotte, NC (Peninsula Village)............ October 1999 Cafe 3,570
Charlotte, NC (Tryon Street)................. April 2000 Cafe 3,733
</TABLE>
All of our retail stores, administrative offices and distribution facilities
are leased under agreements expiring during the next two to 12 years.
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INTERNET/DIRECT
OUR WEB SITE. Our Web site can be found at WWW.DEANDELUCA.COM. It expands
on our catalogue and offers an even more extensive and diverse collection of
gourmet and specialty foods, high premium wines and upscale kitchenware. Our Web
site includes the following features:
- COMMERCE WRAPPED AROUND CONTENT. Our merchandising strategy is to link and
cross-promote our products with informative and entertaining content. For
instance, a visitor considering our USDA prime beef is offered a
collection of related recipes, a full menu including wine selections,
cooking ware, presentation and serving dishes, silverware and linens, as
well as articles related to prime beef. Our Web site offers extensive
editorial content, including articles on emerging food trends,
entertaining, wine, cooking techniques and international cuisine. We
currently send a monthly food and monthly wine newsletter by e-mail, and
anticipate sending members regular e-mail updates about special offerings
in their designated interest areas.
- FOCUS ON SELLING PRODUCTS. Our Web site is designed around simple
merchandising principles, offering the visitor an uncluttered,
easy-to-navigate and visually appealing shopping experience.
- EXTENSIVE PRODUCT SELECTION AND INFORMATION. Visitors have access to
detailed information about our products and product categories, including
historical facts, geographic origin, recommended recipes, serving
suggestions and menu planning tips.
- COOKBOOK AND RECIPES. We provide visitors with recipes from The Dean &
DeLuca Cookbook, as well as other featured recipes from our five regional
chefs and other leading chefs. We also combine recipes with menu
suggestions that will have direct links to a "shopping cart" function to
facilitate online purchases.
- SPECIALTY WINES. We specialize in high premium wines from California. We
expect to also carry a wider selection of high premium wines to appeal to
a broader demographic. Wine selections complement our product selections,
recipes, and menus.
We are making a number of significant improvements to our Web site, including
redesigning it to make it more appealing visually, broadening the number and
type of products offered, enhancing its navigability, installing personalization
software, expanding its cross-search engine capabilities, implementing an
improved reporting and analysis system, and introducing new features such as:
- CORPORATE GIFTS AND CORPORATE SALES. We plan to provide businesses with a
selection of gift ideas for executive gift giving, recognition awards,
business-to-business gifts, employee incentive awards and consumer
promotions.
- USER-FRIENDLY CATALOGUE ORDERING. Catalogue shoppers will be able to
quickly purchase online by simply typing in the item number from our
catalogue to view and buy the product.
We are also enhancing both our operating hardware and software in order to
enable our Web site to load, return and provide more accurate searches faster,
as well as allow us to analyze a customer's past purchasing behavior to
dynamically generate product offerings that match the customer's personal
preferences. We will also be integrating a new reporting and analysis system to
help us continuously improve our marketing efforts, maximize conversion rates
and increase average order size.
OUR CATALOGUE. We intend to shift the marketing focus of our catalogue
operations to direct mail promotion of our Web site. For example, we will
encourage the individuals listed in our house file and our catalogue recipients
to provide us with their e-mail addresses and we will mail catalogues containing
online promotions in an effort to convert them to online shopping. Our house
file contains the names of individuals who are gift recipients, have requested
our catalogues or have made a purchase through our catalogue during the last
three years. Although we believe that the Internet will be our primary growth
vehicle, we recognize that catalogues will continue to provide a mail-order
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alternative for customers who are not Internet users. We expect to mail
approximately 13 million catalogues in nine mailings during calendar year 2000
as compared to the approximately 4 million catalogues we mailed in eight
mailings during calendar year 1999.
BUSINESS-TO-BUSINESS OPERATIONS
Our business-to-business operations include the sales of our branded
products through selected premium retailers, such as Bloomingdale's and Marshall
Field's, allowing us to place our branded products in many regions where we do
not have a market. Thus, without significant capital expenditures, we are able
to expand the exposure of our brand. In addition, through our
business-to-business operations we sell our offerings to other businesses for
use in their corporate incentive plans, business-to-business gift-giving
programs, consumer marketing promotions and their own or third-party corporate
catalogues. Our existing customers in this areas include Microsoft, Walt Disney,
Hewlett Packard, Cisco Systems and American Express. We also intend to develop
direct links to our Web site for our business customers' Intranet networks. We
intend to expand our dedicated business-to-business sales and customer service
organization.
For information relating to the amounts of revenues, operating profits or
losses and identifiable assets attributable to each of our segments, see
note 13 to our financial statements included in this prospectus.
CUSTOMER SERVICE
We believe that our ability to establish and maintain long-term
relationships with our customers depends on the strength of our customer service
operations and staff. Our employees receive extensive training with an emphasis
on customer service skills and education about our product offerings. In our
stores, we encourage customers to experience our products firsthand by providing
samples across all food categories. In addition, if a customer wishes to sample
a specific product, an employee usually will open a package to accommodate the
customer's request.
We offer a number of automated help options on our Web site and through our
toll-free call center, as well as live online customer assistance, a
frequently-asked-questions system and an easy-to-use direct e-mail service in
order to enable customers to ask questions and to encourage feedback and
suggestions. We generally respond to customer e-mail inquiries within two hours
of submission and our goal is to respond within 24 hours at most. Our customer
service personnel are responsible for handling general customer inquiries,
answering customer questions about ordering, and investigating the status of
orders, deliveries and payments. Our automated customer service function
distributes e-mails to customers after registration and after each order is
placed, giving customers shipping and delivery tracking information. We also
maintain an unconditional return policy that allows Internet/Direct customers to
return product through the mail or to any of our specialty markets.
CALL, DISTRIBUTION AND FULFILLMENT CENTER
We believe that we are among only a few companies in the gourmet and
specialty foods segment that fulfill substantially all of their Internet/Direct
orders from their own distribution and fulfillment facilities. We have focused
on expanding our operational and systems infrastructure and improving the
services provided on our Web site. We currently operate a 32,100 square-foot
call, distribution and fulfillment center in Wichita, Kansas and a distribution
and fulfillment center in St. Helena, California, including approximately
8,000 square feet of office space, that together employ 75 full-time employees
as of May 1, 2000. During the peak holiday season from September through
December, we hire a significant number of additional part-time and full-time
employees. Our distribution and fulfillment center in St. Helena primarily
supports our wine operations and our upscale kitchenware fulfillment operations.
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Our Wichita call, distribution and fulfillment center supports our overall
Internet/Direct operations, retail stores and business-to-business sales. To
expedite Internet/Direct orders, we maintain an inventory of more than 1,600
high-volume SKU's at our Wichita facility, which contains our call center, dry
and cold storage, and packing and shipping areas. While a few highly perishable,
high-value products, like caviar and truffles, are shipped from vendors directly
to our customers, our Wichita facility receives and redistributes higher-volume
items. While many of our online competitors fulfill orders from numerous
suppliers, which then ship multiple boxes at different times, we are generally
able to consolidate each order into a single shipment.
PURCHASING
Our buyers purchase products for retail sale from over 3,000 vendors
throughout the United States and around the world. We manage the majority of our
purchasing operations at the store level, but we have begun to centralize some
of our purchasing in order to negotiate volume discounts and enhance consistent
product assortment. We are upgrading our management information systems to
improve our purchasing leverage by providing product and quantity information by
vendor on a regional and national basis. We will continue to rely on local
vendors for fresh breads, produce, meats and fish. No individual vendor
represents more than 5% of our total vendor purchases.
TECHNOLOGY
We plan to continue to invest in leading, open and scalable technologies to
maximize our ability to serve our customers, differentiate us from our
competitors, and operate efficiently. Our technologies are comprised of the
following key components:
WEB SITE DESIGN. We anticipate that our in-house design team will work
closely with our technical sources to ensure that our Web site meets the needs
of the marketplace. Our objective is to ensure that our Web site design is
clean, elegant, easy-to-use and consistent with our established brand image. Our
immediate focus will be to update the design, navigation and user interface of
our Web Site to ensure our visitors have an enjoyable customer experience. This
includes searching for our products, obtaining relevant recipes and articles and
placing orders rapidly and easily. We are working with eSatisfy to achieve this
objective.
WEB SITE DEVELOPMENT. We intend to continue expanding and enhancing the
online features of our Web site through a combination of internal development
and other third party developers, including Dataskill. Specifically, we expect
to build a membership section that will allow registered customers to access
exclusive merchandise, check on their order status, store an address book and
develop their own recipe box. We will also be expanding our gift and wine
sections, enhancing our search functionality and integrating an advanced
personalization component to recommend products to our customers based on their
personal preferences.
WEB SITE ARCHITECTURE. The three-tier architecture of our Web site is
designed to be stable, secure, scalable and redundant. We are using hardware and
software from Sun Microsystems and IBM that is designed to meet our current and
future performance needs. We have hired Exodus Communications for hosting,
bandwidth burstability to 100 Mbps (megabits per second), network monitoring
(24 hours a day, seven days a week), redundancy and security. Exodus has a daily
in-house backup of our Web site and a weekly backup stored in an off-site
location. Exodus also has a backup generator for alternate power supply and
redundant Internet connections to allow re-routing from our servers should a
problem with a physical line arise. We utilize an Exodus system that provides
proactive security management, attack and intrusion management and vulnerability
analyses.
We use Akamai Technologies to maximize our site speed and enhance our
ability to handle peak site or network traffic. Our hardware and applications
are monitored on a daily basis by Exodus
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Communications and our page delivery speed and availability are monitored on a
daily basis by Keynote Systems. We are also using advanced personalization
software from NetPerceptions to maximize our conversion rate and average order
values. Our customer service systems from People Support, eShare, and Ask It
Systems allow us to quickly and cost-effectively answer customer questions
immediately either by live chat or through a frequently-asked-question search.
ClickAction provides our e-mail newsletter system that allows us to
cost-effectively develop a dialogue with our customers by providing them with
seasonal content and products.
INTEGRATION WITH ENTERPRISE SYSTEM. Orders placed on our Web site are
captured and transferred within 90 seconds to our fulfillment facility in
Wichita, Kansas through a dedicated, high speed T-1 phone line. Inventory is
updated on our Web site twice each day through this same connection. This system
allows us to better serve our customers, minimize processing time and maximize
our efficiency.
STRENGTHEN REPORTING & ANALYSIS SYSTEMS. We maintain a database containing
information compiled from catalogue mailings, orders through our Web site,
customer profiles, shopping patterns and sales data. We have developed, and
continue to develop, techniques and systems for analyzing this information to
develop targeted marketing programs and to provide personalized and enhanced
customer services. Through effective gathering of information we plan to enhance
our marketing efficiency.
MANAGEMENT INFORMATION SYSTEMS
We currently operate our retail operations with decentralized and
non-integrated management information systems, including purchasing, inventory,
and accounting, which are not capable of directly interfacing with each other.
During the past 15 months, we have integrated our Internet/Direct operations,
including order-entry, inventory control, distribution and accounting. To
facilitate this integration we made an investment of approximately $1.0 million
in management information systems during the past 15 months. The principal
investment included a system from Assist Cornerstone Technologies, a
multi-channel (retail, catalog, and Web) systems provider. This system improved
our efficiency and productivity through enhanced order placement, pick and pack
operations, purchasing and inventory management at our call, distribution and
fulfillment center. This system, in addition to supporting our fulfillment and
call center activity, will also provide a complete general ledger reporting
package that will be utilized to consolidate all of our operating business
lines.
The nature of our sales activity in our stores is different from that in our
Internet/Direct operations and requires a type of inventory management system
that can communicate with point-of-sale systems. We are currently piloting a
retail merchandising software package called "Central Office Lite" for our
retail stores. We expect that the new system will give us direct store delivery
capability for our receiving function and significantly improve our purchasing,
receiving and inventory operations. The new retail system is intended allow for
improved item movement reporting and category management. In the future, we
believe that we can consolidate the sales movement activity and inventory
management functions to a consolidated database that is capable of managing
total company sales, inventory and purchasing functions.
The system that supports our Internet/Direct division has been online and
operational since August 1999. It provides full integration from order entry to
distribution to accounting during the product life cycle. We will continue to
integrate our operations, and believe that this integration will enable us to
manage inventory centrally on a real-time basis and fulfill orders from our
call, distribution and fulfillment center and individual store locations.
We currently utilize different accounting software packages in our three
administrative offices that manage financial reporting. We are in the process of
consolidating our accounting departments, and software applications using the
new Assist software package. We expect that the integration and department
consolidation will be completed during calendar year 2000.
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COMPETITION
We operate in highly competitive and fragmented markets.
GOURMET AND SPECIALTY FOODS. We compete with other well-established
regional companies as well as smaller local competitors. Direct competitors to
our retail store gourmet and specialty food operations primarily consist of
retailers with at most a few locations, such as Grace's Market, Balducci's,
Citarella and Zabar's in New York City, as well as larger chains like Food
Emporium and Sutton Place Gourmet. Direct competitors to our Internet/Direct
operations include online businesses such as Balducci's, Tavolo,
Gourmetmarket.com and catalogue companies such as Omaha Steaks and Harry &
David. Competition on the Internet continues to intensify and evolve at a rapid
rate. In addition to the proliferation of Internet-only companies, many
traditional retailers have established Web sites. We believe we compete
primarily on the basis of brand, location and product selection and, to a lesser
extent, price. As the market for gourmet and specialty foods continues to grow,
we believe that major grocery companies such as Whole Foods and Wild Oats will
increase their emphasis on gourmet and specialty foods. We also expect that many
of our competitors will expand their offerings in the home meal replacement
category.
UPSCALE KITCHENWARE. We compete with kitchenware companies such as
Cooking.com and Williams-Sonoma. We believe that online businesses, such as
Cooking.com, will compete with our Web site to become an Internet destination
for people who appreciate good food and upscale kitchenware. We believe that
other multi-channel retailers, such as Williams-Sonoma, which also operates a
Web site, will compete with our business in general because they target people
who are demographically similar to our customers.
HIGH PREMIUM WINES. We compete with traditional specialty wine merchants,
liquor stores and chains and online merchants such as WineShopper.com and
wine.com.
INTELLECTUAL PROPERTY
We regard intellectual property and other proprietary rights as important to
our success. We rely on trademark and copyright laws, trade secret protection
and confidentiality or license agreements with our employees, customers,
strategic alliance partners and others to protect our proprietary rights.
However, the steps we take to protect our proprietary rights may be inadequate.
We have registered trademarks on the names "Dean & DeLuca," "Dean & DeLuca
Selections" and "St. Helena Kitchens" and have filed a trademark registration
application for "Premiata." We also have registered trademarks on our stylized
logos. From time to time, we may file additional trademark applications. We
currently have no patents protecting our technology. To date, we have not been
notified that our technologies infringe the proprietary rights of third parties.
GOVERNMENT REGULATION
Our business is subject to and affected by various federal, state and local
laws, including regulations relating to:
- alcoholic beverage control;
- the preparation and sale of food;
- public health and safety;
- sanitation; and
- building codes, zoning and fire codes.
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REGULATION OF THE SALE OF ALCOHOL. The distribution of wine and other
alcoholic beverages is subject to extensive federal and state regulation and
taxation relating to:
- licensing;
- payment of excise taxes;
- advertising;
- trade and pricing practices;
- product labeling;
- sales to minors and intoxicated persons; and
- relationships among product producers, importers, wholesalers and
retailers.
Our alcoholic beverage operations is subject to more regulations and higher
taxation than our non-alcohol-related business. The alcoholic beverage industry
is subject to considerable societal and political attention associated with the
effects of alcohol and the manner of promoting the sale of alcoholic beverages.
This attention relates to such matters as the liability of the alcoholic
beverage industry for harms caused by individuals who drive while intoxicated,
the restriction or prohibition of print and electronic advertising or other
promotional activities and the investigation of other marketing or promotion
activity which allegedly targets youth as potential consumers of alcoholic
beverages. The possibility always exists for further regulation of the wine
industry. The effect on our business operations of an increase in regulation or
an increase in taxation will depend on the amount of the increase, general
economic conditions and other factors, but could negatively impact sales or
profitability of our products. Food merchants, such as ourselves, cannot sell
wine in the State of Kansas due to state regulations.
Some jurisdictions require companies to obtain licenses and permits to sell
alcohol while others do not allow companies such as ours to sell alcohol in
their jurisdictions at all. We cannot assure you that we will be able to obtain
any or all required permits or licenses in a timely manner, or at all. We may be
forced to incur substantial costs and experience significant delays in obtaining
necessary permits or licenses. In addition, the U.S. Congress is considering
enacting legislation which would restrict the interstate sale of alcoholic
beverages over the Internet. Changes to existing laws or our inability to obtain
required permits or licenses could prevent us from selling wine in various
jurisdictions. We will be unable to sell wines in those jurisdictions where we
cannot obtain alcohol permits or licenses.
USDA REGULATION. As of the date of this prospectus, we are not regulated by
the USDA. Whether the handling of food items in our markets, cafes and
fulfillment center, such as meat and fish, will subject us to USDA regulation in
the future will depend on several factors, including whether we sell food
products on a wholesale basis or whether we obtain food products from non-USDA
inspected facilities. In the future, the USDA may require costly changes to our
food handling operations. We are also required to comply with local health
regulations concerning the preparation and packaging of any prepared food items,
such as deli salads that we prepare on-site. Applicable federal, state or local
regulations may cause us to incur substantial compliance costs or delay the
availability of items at one or more of our markets or cafes or at our warehouse
and distribution and fulfillment center. In addition, any inquiry or
investigation from a food regulatory authority could have a negative impact on
our reputation. The occurrence of any of these events could have a material
adverse effect on our business, financial condition and results of operations.
INTERNET REGULATION. Currently, there are few laws or regulations directly
applicable to the Internet or online commerce. In response to the increasing
popularity of the Internet, it is possible that a number of laws and regulations
may be adopted with respect to the Internet. These laws may cover issues such as
user privacy, freedom of expression, pricing, content and quality of products
and services,
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taxation, advertising, intellectual property rights and information security.
Furthermore, the growth of electronic commerce may lead to more stringent
consumer protection laws. Several states have proposed legislation to limit the
uses of personal user information gathered online or require online services to
establish privacy policies. The Federal Trade Commission had also initiated
action against at least one online service regarding the manner in which
personal information is collected from users and provided to third parties We do
not currently provide personal information regarding our users to third parties.
The adoption of any additional laws or regulations may impair the growth of the
Internet or commercial online services. This could reduce the demand for our
products and services or increase our cost of doing business. See "Risk
Factors--Risks Related to the Internet and Our Technology--Governmental
regulations and legal uncertainties could add burdens to our doing business on
the Internet, which would hinder our online operations."
These government regulations impact not only our current operations but also
our growth strategies. Difficulties, delays or failure in obtaining or retaining
licenses, permits or approvals in new locations could delay or prevent the
opening of a specialty market or cafe, and would adversely affect the operations
of our existing markets, wine store and cafes. In addition, our operating costs
are affected by increases in the minimum hourly wage, unemployment tax rates,
sales taxes and similar matters over which we have no control.
EMPLOYEES
As of March 31, 2000, we employed 795 people, 430 of whom worked full-time.
During the peak holiday season, we also hire a significant number of part-time
employees. As of March 31, 2000, we had 685 employees in our retail stores and
85 employees in our Internet/Direct operations. None of our employees are
represented by unions. We consider our relations with our employees to be
satisfactory and have never experienced any strikes, labor interruptions.
LEGAL PROCEEDINGS
From time to time, we may be involved in various legal proceedings relating
to claims arising out of our operations in the normal course of business. As of
the date of this prospectus, there are no legal proceedings pending or, to our
knowledge, threatened against us, which could, individually or in the aggregate,
seriously harm our business.
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The following table below sets forth information regarding our executive
officers, key employees and directors as of the date of this prospectus. The
individuals who served as executive officers, key employees or directors prior
to our reorganization on November 30, 1999, were executive officers, key
employees or directors of one of more of our subsidiaries.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ -------- ------------------------------------------
<S> <C> <C>
Leslie G. Rudd............................ 58 Chairman of the Board
Dane J. Neller............................ 44 Chief Executive Officer and Director
John B. Richards.......................... 51 President and Director
George E. Mileusnic....................... 45 Executive Vice President and Chief
Financial Officer
Patrick A. Roney.......................... 44 Senior Vice President--Marketing and
Director
Duminda M. De Silva....................... 31 Senior Vice President--Internet/Direct
Operations
Curtis L. Gray............................ 45 Executive Vice President--Retail Division
Emil Grosso............................... 45 Vice President--Finance and Secretary
J. Jeffrey Duncan......................... 34 Vice President--Finance and Controller
Brian E. Bodell........................... 31 Vice President--Electronic Commerce
James E. Bartlett......................... 33 Vice President--Internet/Direct Operations
Joel B. Dean.............................. 69 Director
Ann L. Winblad............................ 49 Director
Lionel W. Greer........................... 77 Director(1)
John L. Sharpe............................ 57 Director(1)
</TABLE>
- ------------------------
1 Lionel W. Greer and John L. Sharpe are expected to join our board of
directors immediately following completion of this offering.
LESLIE G. RUDD has served as the Chairman of our board of directors since
September 1995. Mr. Rudd is the founder of Leslie Rudd Investment Company, a
privately-owned holding company, and has served as its Chief Executive Officer,
since 1983. He was one of the founding partners of Lone Star Steakhouse &
Saloon, Inc., a restaurant operating company, as well as two other operating
companies, Standard Beverage Corporation, a wholesale liquor distributorship in
the State of Kansas, and Rudd Estate (formerly Girard Winery), a premium winery
in the Napa Valley.
DANE J. NELLER has served as our Chief Executive Officer since
January 1997, and as a director since September 1995. He served also as our
President from January 1997 until February 2000. From 1993 to January 1997,
Mr. Neller was the Chief Operating Officer of Leslie Rudd Investment Company.
From 1987 to 1993, Mr. Neller worked as a principal at two boutique investment
banks, Knox Partners, L.P. (a subsidiary of Edmond de Rothschild Banque) and
Charles Street Securities. From 1984 to 1987, he was an investment banker at
Morgan Stanley & Co., Inc.
JOHN B. RICHARDS joined us in February 2000 as our President and a director.
From September 1997 to January 2000, Mr. Richards was President, Retail North
America and then President, North American Operations for Starbucks Corporation,
a leading specialty coffee retailer. From 1987 to September 1997, Mr. Richards
served as the Executive Vice President of Four Seasons Hotels Limited, a hotel
and resort company. Prior to 1987, Mr. Richards held various positions with
McKinsey & Company, a consulting firm, and The Procter & Gamble Company, a
manufacturer and marketer of consumer products.
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GEORGE E. MILEUSNIC joined us on May 1, 2000 as our Executive Vice President
and Chief Financial Officer. From 1998 to April 2000, Mr. Mileusnic worked as an
independent consultant. From 1996 to 1998, he served as Executive Vice
President--Strategic Planning and Administration of the Outdoor Recreation
division of The Coleman Company, Inc., a manufacturer and marketer of camping
and related outdoor recreational products. From 1994 to 1996, he served as
Executive Vice President and Chief Financial Officer of The Coleman Company. He
joined The Coleman Company in September 1989 as Senior Vice President and Chief
Financial Officer. From 1987 to 1989, he was Senior Vice President and
Controller of Burger King Corporation, a fast-food restaurant chain.
Mr. Mileusnic currently serves on the boards of directors of Funco, Inc. and
U.S. Restaurant Properties, Inc.
PATRICK A. RONEY has served as our Senior Vice President--Marketing since
October 1995, and as a director since September 1995. From February 1995 to
October 1995, Mr. Roney was employed by Leslie Rudd Investment Company to serve
both as Chief Operating Officer of New Beverage Concepts and as our interim
Chief Operating Officer. From 1994 to October 1995, Mr. Roney was the Vice
President of Marketing at Black Fox Group. From 1990 to 1994, Mr. Roney was
President of St. Jean and Kunde wineries. From 1986 to 1994, Mr. Roney served as
the Executive Vice President of Marketing for Christian Brothers Sales Company,
a winery and a marketer of spirits and wine. From 1978 to 1986, Mr. Roney served
as Senior Product Manager of Joseph E. Seagram & Sons Co. (now The Seagram
Company Ltd.), a manufacturer and distributor of spirits and wine.
DUMINDA M. DE SILVA has served as our Senior Vice President--Internet/Direct
Operations since April 1999. From August 1998 to April 1999, Mr. De Silva served
as our Vice President--Catalogue Division. From 1990 to August 1998, Mr. De
Silva held several general management and marketing positions at, and was
finally International Venture Leader for a division of, Koch Industries, Inc., a
multinational diversified energy company. Mr. De Silva has also had experience
in non-profit consulting for government as well as private sector companies and
has also served in the U.S. Marine Corps.
CURTIS L. GRAY joined us in March 2000 as our Executive Vice
President--Retail Division. From 1999 to March 2000, Mr. Gray served as Vice
President, Integration Officer--Internet Group of Starbucks Corporation. From
1994 to 1999, Mr. Gray served as the Executive Vice President and Chief
Operating Officer and a co-director of Chapters, Inc., a Canadian bookseller.
From 1989 to 1993, Mr. Gray was the Vice President of Store Operations in New
York for Barnes & Noble, Inc., a U.S. retailer of books and music.
EMIL GROSSO has served as our Vice President--Finance and our Secretary
since March 1999. From September 1998 to March 1999, Mr. Grosso was the
Controller for ShopRite Supermarkets Corporation, an operator of supermarkets
and a wholly-owned subsidiary of Wakefern Food Corporation. From 1995 to
September 1998, he was the Controller for Gemini Food Markets, a member of the
Wakefern/ShopRite Supermarket Co-Op. Earlier in his career, Mr. Grosso was the
Controller for a division of Beckman Instruments, a laboratory equipment maker,
and held various accounting and auditing positions at CPC International, a
branded food products company, and Unilever, a manufacturer of packaged consumer
goods.
J. JEFFREY DUNCAN has agreed to join us in June 2000 as our Vice
President--Finance and Controller. Mr. Duncan has provided consulting services
to us since May 1999. Also since May 1999, he has served as Chief Financial
Officer of Leslie Rudd Investment Company. From May 1995 to May 1999,
Mr. Duncan was employed by Standard Beverage Corporation as Assistant
Controller, Controller and then Vice President, Finance. From December 1994 to
May 1995, he was a Senior Analyst at O'Sullivan Industries Inc., a
ready-to-assemble furniture manufacturer. From 1992 to December 1994,
Mr. Duncan was a Senior Accountant at KPMG LLP (formerly KPMG Peat Marwick LLP).
BRIAN E. BODELL has served as our Vice President--Electronic Commerce since
April 1999. From 1996 to April 1999, Mr. Bodell served as Director of Electronic
Commerce at R.R. Donnelley & Sons
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Company, a financial printing and information services company. From 1992 to
1996, Mr. Bodell was a senior account executive at R.R. Donnelley & Sons
Company.
JAMES E. BARTLETT has served as our Vice President--Internet/Direct
Operations since October 1999. From 1994 to October 1999, he was employed by
Staples, Inc., an office supplies retailer, as Distribution Center Manager,
Director of Process Improvement, Director of Systems Conversions and then
Director of Operations, West Region. From 1988 to 1993, Mr. Bartlett served as a
lieutenant in the U.S. Navy.
JOEL B. DEAN has served on our board of directors since we were founded in
1977. Mr. Dean is one of our founders. He has served as a consultant to Ceglic
Design Studio, a graphics design company, since 1997. From 1975 to 1976,
Mr. Dean served as Vice President of Wonder International Limited, a franchising
company for muffler suppliers. From 1960 to 1975, Mr. Dean was a manager of
various business divisions at Simon & Schuster Publishers, a book publishing
company.
ANN L. WINBLAD has served on our board of directors since December 1999.
Ms. Winblad was elected to our board of directors pursuant to agreements
executed in connection with Hummer Winblad Venture Partners IV, L.P.'s
acquisition of shares of our series A convertible preferred stock. Ms. Winblad
is a founding partner of Hummer Winblad Venture Partners, a venture capital
investment firm that has invested more than $500 million since 1989, and has
served as a managing member of the general partner of Hummer Winblad Venture
Partners, since 1989. She is a member of the board of trustees of the University
of St. Thomas and is an advisor to numerous entrepreneurial groups such as the
Software Development Forum, the Stanford/MIT Venture Forum and the Massachusetts
Computer Software Council, Software Industry Business Practices. Ms. Winblad
also serves on the boards of directors of The Knot, Inc., Liquid Audio, Inc.,
Net Perceptions Inc. and several private companies.
LIONEL W. GREER has been a self-employed business consultant since 1987. He
has served as a consultant to various companies on matters of strategic
planning, marketing and general business organization.
JOHN L. SHARPE was President and Chief Operating Officer of Four Seasons
Hotels from 1995 to November 1999. In addition, Mr. Sharpe has served as a
trustee of the Culinary Institute of America since 1998.
OFFICERS
Our executive officers are elected annually by our board of directors at its
annual meeting. Each officer holds office until the next annual meeting of our
board of directors and until his or her respective successor is elected and
qualified. There are no family relationships among our executive officers or our
directors.
BOARD OF DIRECTORS
Our business is managed under the direction of our board of directors. Our
board of directors presently is comprised of six directors, including the
chairman of our board of directors. Our second restated certificate of
incorporation to be filed immediately prior to completion of this offering
provides that, following the completion of this offering, our board of directors
will be divided into three staggered classes and each of the directors, other
than the initial Class I and Class II directors, will serve a three-year term.
Immediately after the completion of this offering:
- and will be the Class I directors and will serve
until our annual stockholders meeting in 2001;
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- and will be the Class II directors and will serve
until our annual stockholders meeting in 2002; and
- and will be the Class III directors and will serve
until our annual stockholders meeting in 2003.
At each annual stockholders meeting, our stockholders will elect a class of
directors for a three-year term to succeed the directors of the same class whose
terms are then expiring. Any additional directorships resulting from an increase
in the number of directors will be distributed among the three classes so that,
as nearly as possible, each class will consist of one-third of the total number
of directors. This classification of our board of directors may have the effect
of delaying or preventing changes in control or management of Dean & DeLuca.
Ann L. Winblad originally was elected as a director in connection with the
sale of our series A convertible preferred stock to Hummer Winblad Venture
Partners IV, L.P. We do not have a written agreement with Hummer Winblad that
grants it the right to nominate any of our directors. In specific instances,
however, we are obligated to deliver to Hummer Winblad copies of informational
materials that we provide to our directors. For a more detailed description of
this obligation, see "Transactions with Related Parties--Sale of Series A
Convertible Preferred Stock."
BOARD COMMITTEES
Our board of directors established a stock option committee in
December 1999 and an audit committee and a compensation committee in
February 2000.
Our stock option committee currently consists of Ann L. Winblad, Leslie G.
Rudd and Dane J. Neller. Our stock option committee administers our 1999 stock
option plan.
Our audit committee currently consists of Ann L. Winblad, Leslie G. Rudd and
Joel B. Dean. After this offering, the members of our audit committee will be
Joel B. Dean, Ann L. Winblad and Lionel W. Greer. Our audit committee reports to
our board of directors regarding the appointment of independent public
accountants, the scope and results of our annual audits, compliance with our
accounting and financial policies and management's procedures and policies
relative to our internal accounting controls, and reviews and evaluates our
audit and control functions.
For our common stock to be included in the Nasdaq National Market, each
member of the audit committee of our board of directors must be considered
independent under Nasdaq's rules. Among other things, a director is not
independent under Nasdaq rules is he or she has been employed by us or our
affiliates in the current year or past three years. One non-independent director
may serve on the audit committee if our board determines it to be in our best
interests and that of our stockholders, but our current officers or other
employees are not able to serve on the audit committee under this exception.
Our compensation committee currently consists of Ann L. Winblad, Leslie G.
Rudd and John B. Richards. After this offering, the members of our compensation
committee will be Ann L. Winblad, Lionel W. Greer and John L. Sharpe. Our
compensation committee reviews and makes recommendations to our board of
directors regarding our compensation policies and all forms of compensation to
be provided to our executive officers and directors. In addition, our
compensation committee reviews bonus compensation for all of our other
employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our board of directors created our compensation committee in February 2000.
Prior to the creation of our compensation committee, compensation decisions were
made by our entire board of directors. Messrs. Neller and Roney have served on
our board of directors since September 1995 and
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Mr. Richards has served on our board of directors since February 2000. None of
our executive officers currently serves, or has served in the past, as a member
of the board of directors or compensation committee of any other entity that has
one or more executive officers who serve on our board of directors or
compensation committee.
DIRECTOR COMPENSATION
We currently do not compensate our directors for their services as members
of our board of directors or of any committee of the board, although our by-laws
allow our board of directors to determine director compensation. However, we do
reimburse our directors for reasonable and necessary expenses that they incur in
attending our board and committee meetings. We currently do not provide
additional compensation for committee participation or special assignments of
the board of directors. Directors who join us after this offering is completed
will be granted options to acquire 25,000 shares of common stock under our 2000
non-employee directors' stock option plan for each three-year term in office as
compensation for attending board and committee meetings, in addition to
reimbursement for their reasonable and necessary expenses of attendance. These
options will vest in equal installments over three years.
2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Our 2000 non-employee directors' stock option plan was adopted by our board
of directors and approved by our stockholders in 2000. Under the plan, we
may grant options to purchase an aggregate of 200,000 shares of our common
stock. The plan is administered by our board of directors, which may establish
from time to time regulations, provisions and procedures that are advisable in
its opinion for the administration of the plan.
On each date of election or appointment after the date of this prospectus,
each non-employee director will be granted an option to purchase up to 25,000
shares of our common stock, which options will vest in equal installments over
three years. No options have been granted under the plan. We intend to grant
options to purchase 25,000 shares to each of Messrs. Greer and Sharpe
immediately following completion of this offering.
Under our 2000 non-employee directors' stock option plan, the exercise price
of each option is the fair market value of our common stock on the date of
grant. Each option will become exercisable in three equal yearly installments
commencing on the first anniversary of its grant date and will expire ten years
after its grant date. Each option granted under our 2000 non-employee directors'
stock option plan will be evidenced by a written option agreement between us and
the director.
If our board of directors determines that the director has committed a
felony or an act of embezzlement, fraud, dishonesty or moral turpitude, has
failed to pay an obligation owed to us, has breached fiduciary duties owed to
us, has made an unauthorized disclosure of our trade secrets or confidential
information or has engaged in any conduct constituting unfair competition, all
unexercised options will terminate. If the director's service with us terminates
for any other reason, all exercisable but unexercised options will remain
exercisable until the termination of the exercise period. Upon our dissolution
or liquidation, all options will become exercisable, without regard to vesting
schedules, immediately prior to but not after the effective date of the
dissolution, liquidation or change in control. Options granted under the plan
are not assignable or transferable by the director, except by will or the laws
of descent and distribution.
EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
DANE J. NELLER. On November 30, 1999, we issued Mr. Neller an option to
purchase 127,718 shares of our common stock at an exercise price of $2.94 per
share. One half of the shares subject to this option vested and became
exercisable on February 26, 2000 and the balance of the shares subject to
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this option will vest on February 26, 2001. In the event of a "change in
control" as defined in Section 280G of the Internal Revenue Code, all shares
subject to his option will vest and become exercisable immediately. For a more
detailed description of Mr. Neller's option, see "Transactions With Related
Parties--Other Transactions with Our Officers and Directors."
JOHN B. RICHARDS. We entered into an employment agreement with John B.
Richards, our President, on December 30, 1999. The term of Mr. Richards'
employment with us commenced on February 2, 2000. Under the terms of his
employment agreement, Mr. Richards is to be paid a base annual salary of
$500,000. After the completion of this offering, Mr. Richards is eligible to
receive a bonus for each fiscal year of his employment, beginning with fiscal
2000, which ends on January 28, 2001. The amount of this bonus will be between
$137,500 and $275,000, as determined by our board of directors based on the
achievement of performance criteria agreed upon in good faith by Mr. Richards
and our board of directors.
The term of Mr. Richards' employment agreement ends on February 2, 2003.
Mr. Richards' employment agreement terminates automatically upon his death and
immediately upon notice from either party to the other of his disability. If
Mr. Richards' employment agreement terminates due to death or disability, we
must continue to pay his base salary and bonus on a prorated basis through the
end of the calendar month in which his employment agreement is terminated. If we
terminate Mr. Richards' employment agreement without cause, as defined in his
employment agreement, or if Mr. Richards terminates his employment agreement for
good reason, as defined in his employment agreement, we must continue to pay him
his base salary and bonus for the remainder of the term. However, if
Mr. Richards obtains new employment during the period in which we must
compensate him, the compensation that he receives from his new employer will be
deducted from the amount we are obligated to pay him. In addition, we must
continue his health benefits for the remainder of the term or until he obtains
new employment that provides health benefits. If we terminate Mr. Richards'
employment for cause or he terminates his employment other than for good reason,
we will not be obligated to pay him his base salary or bonus after the
termination of his employment; except that upon any termination of his
employment agreement, we must pay Mr. Richards at the rate of his base salary
for unused accrued vacation days through the termination date, prorated for the
calendar year in which his employment agreement is terminated.
Mr. Richards is entitled, under the terms of his employment agreement, to
participate in the pension, profit sharing, bonus, life insurance,
hospitalization, major medical and other employee benefits plans that we have in
effect from time to time and to reimbursement for reasonable expenses incurred
in the performance of his duties. He is also entitled to:
- reimbursement for up to $75,000 in initiation fees to become a member of a
club of his choice;
- term life insurance coverage of $1,000,000, if obtainable at normal rates;
- reimbursement for up to $10,000 in reasonable legal fees incurred in
connection with his employment agreement;
- an advance of $68,000, which he received and is evidenced by a promissory
note dated February 23, 2000;
- reimbursement and advances for relocation, travel and temporary living
expenses, including an advance of $25,000 for reasonable relocation
expenses which he received on February 17, 2000, and a cost of housing
advance not to exceed $500,000; and
- if he purchases a new home before he sells his home in Seattle, a guaranty
on up to $3,000,000 of a short-term loan for the purchase of his new home.
We will forgive 25% of the cost of housing advance on each December 30,
beginning December 30, 2000, if Mr. Richards is still employed with us on that
date. If Mr. Richards terminates
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his employment with us other than for good reason and obtains new employment
before February 2, 2003, he has agreed to reimburse us in full for all
relocation advances and reimbursements, the costs of any bridge financing and an
executive recruitment fee that we paid in connection with his recruitment.
Mr. Richards has agreed, during and following the term of his employment
agreement, to hold in confidence all confidential information about us and
acknowledged that all inventions developed by him during the term belong to us.
As part of his employment agreement, Mr. Richards has agreed to non-compete and
non-interference restrictions during the term of his employment with us and for
a period of two years after the term.
On December 30, 1999, pursuant to the terms of his employment agreement, we
issued to Mr. Richards an option to purchase 450,000 shares of our common stock
at an exercise price of $4.18 per share. Upon completion of this offering, 25%
of the shares subject to the option will vest and become exercisable. An
additional 25% of the shares subject to the option will vest and become
exercisable on each anniversary of his employment with us, beginning on
February 2, 2002. In the event of a "change in control," all shares subject to
his option will vest and become exercisable immediately.
GEORGE E. MILEUSNIC. On March 14, 2000, we entered into an employment
arrangement with George E. Mileusnic, pursuant to which he became our Executive
Vice President and Chief Financial Officer on May 1, 2000 and we agreed to pay
to Mr. Mileusnic a base annual salary of $200,000 and, contingent upon the
completion of this offering, a bonus of $25,000 payable upon completion of this
offering, a bonus of 25% of his base annual salary and an annual discretionary
bonus of up to 25% of his base annual salary if mutually agreed-upon targets and
objectives are achieved. After one year of employment with us, and upon
Mr. Mileusnic's relocation to San Francisco, California, we will adjust his base
annual salary to account for cost-of-living differences between Wichita, Kansas
and San Francisco. In addition, we will pay for reasonable travel and shipping
expenses between Wichita and San Francisco incurred by Mr. Mileusnic in
connection with his relocation. This employment arrangement may be terminated at
any time by either party. On May 1, 2000, we issued Mr. Mileusnic an option to
purchase 100,000 shares of our common stock at an exercise price of $4.18 per
share. Twenty-five percent of the shares subject to the option will vest and
become exercisable on each anniversary of his employment with us, beginning on
May 1, 2001. In the event of a "change in control," all shares subject to his
option will vest and become exercisable immediately. We have a right of first
refusal in the event that he desires to transfer any of the shares purchased
under the option. This right expires upon completion of this offering.
DUMINDA M. DE SILVA. On June 8, 1998, we entered into an employment
arrangement with Duminda M. De Silva, our Senior Vice President--Internet/Direct
Operations, pursuant to which we agreed to pay Mr. De Silva a base annual salary
of $120,000 and an annual discretionary bonus of up to 25% of his base annual
salary. In addition, we agreed to reimburse Mr. De Silva for his reasonable
moving expenses from Boston, Massachusetts to New York, New York. This
employment arrangement may be terminated at any time by either party. On
December 1, 1999, we issued Mr. De Silva an option to purchase 60,000 shares of
our common stock at an exercise price of $4.18 per share. Twenty-five percent of
the shares subject to the option vested and became exercisable on December 1,
1999. An additional 25% of the shares will vest and become exercisable on each
anniversary of his employment with us, beginning on August 5, 2000. In the event
of a "change in control," all shares subject to his option will vest and become
exercisable immediately. We have a right of first refusal in the event that he
desires to transfer any of the shares purchased under the option. This right
expires upon completion of this offering.
CURTIS L. GRAY. On February 23, 2000, we entered into an employment
arrangement with Curtis L. Gray, our Executive Vice President--Retail Division,
pursuant to which we agreed to pay Mr. Gray a base annual salary of $215,000
and, contingent upon the completion of this offering, a $25,000 bonus payable
upon the completion of this offering, a bonus of 25% of his base annual salary,
and an annual
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<PAGE>
bonus of 25% of his base salary if mutually agreed-upon targets and objectives
are achieved. Upon Mr. Gray's relocation to San Francisco, California, we will
adjust his base annual salary to account for cost-of-living differences between
his current home in Salt Lake City, Utah and San Francisco. This employment
arrangement may be terminated at any time by either party. On February 23, 2000,
we issued Mr. Gray an option to purchase 120,000 shares of our common stock at
an exercise price of $4.18 per share. Twenty-five percent of the shares subject
to the option will vest and become exercisable on March 20, 2001. An additional
25% of the shares will vest and become exercisable upon each anniversary. In the
event of a "change in control," all shares subject to his option will vest and
become exercisable immediately.
EMIL GROSSO. On December 30, 1998, we entered into an employment
arrangement with Emil Grosso, our Vice President--Finance and Secretary,
pursuant to which we agreed to pay to Mr. Grosso a base annual salary of
$135,000, a bonus of $7,500 and an annual discretionary bonus of up to 20% of
his base annual salary. This employment arrangement may be terminated at any
time by either party. On January 19, 2000, we issued Mr. Grosso an option to
purchase 40,000 shares of our common stock at an exercise price of $4.18 per
share. Twenty-five percent of the shares subject to the option vested and became
exercisable on March 1, 2000. An additional 25% of the shares will vest and
become exercisable upon each anniversary. In the event of a "change in control,"
all shares subject to his option will vest and become exercisable immediately.
We have a right of first refusal in the event that he desires to transfer any of
the shares purchased under the option. This right expires upon completion of
this offering.
BRIAN E. BODELL. On April 20, 1999, we entered into an employment
arrangement with Brian Bodell, our Vice President--Electronic Commerce, pursuant
to which we agreed to pay Mr. Bodell a base annual salary of $130,000 and an
annual discretionary bonus of up to 23% of his base annual salary. This
employment arrangement may be terminated at any time by either party. On
February 1, 2000, we issued Mr. Bodell an option to purchase 40,000 shares of
our common stock at an exercise price of $4.18 per share. Twenty-five percent of
the shares subject to the option vested and became exercisable on April 20,
2000. An additional 25% of the shares will vest and become exercisable upon each
anniversary. In the event of a "change in control," all shares subject to his
option will vest and become exercisable immediately. We have a right of first
refusal in the event that he desires to transfer any of the shares purchased
under the option. This right expires upon completion of this offering.
JAMES E. BARTLETT. On September 23, 1999, we entered into an employment
arrangement with James Bartlett, our Vice President--Internet/Direct Operations,
pursuant to which we agreed to pay to Mr. Bartlett a base annual salary of
$125,000, a $50,000 bonus consisting of $10,000 already paid to him and $40,000
payable on January 1, 2001, and an annual discretionary bonus of up to 30% of
his base annual salary. In addition, we agreed to reimburse Mr. Bartlett for
(1) reasonable moving costs from his home in Denver, Colorado to Wichita, Kansas
and (2) 90 days' temporary housing in Wichita. This employment arrangement may
be terminated at any time by either party. On April 13, 2000, we issued to
Mr. Bartlett an option to purchase 36,000 shares of our common stock at an
exercise price of $4.18 per share. Twenty-five percent of the shares subject to
the option will vest and become exercisable on each anniversary of his
employment with us, beginning on October 13, 2000. In the event of a "change in
control," all shares subject to his option will vest and become exercisable
immediately. We have a right of first refusal in the event that he desires to
transfer any of the shares purchased under the option. This right expires upon
completion of this offering.
We do not have employment arrangements with any of our other executive
officers.
EXECUTIVE COMPENSATION
The following table sets forth information regarding the compensation for
services rendered during fiscal 1999 by our chief executive officer and our
other most highly compensated executive officers
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<PAGE>
whose salary and bonus during that period exceeded $100,000. The amounts set
forth below include payments made by Dean & DeLuca Brands, Inc., one of our
subsidiaries, through November 30, 1999. We refer to these executive officers in
this prospectus as the "named executive officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------------------
AWARDS
ANNUAL COMPENSATION ----------------
---------------------- SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION ($)
- ---------------------------------------- ---------- --------- --------------------- ----------------
<S> <C> <C> <C> <C>
Dane J. Neller(1)
Chief Executive Officer............... $250,000 $50,000 127,718(2) --
Patrick A. Roney
Senior Vice President--
Marketing and Director................ 115,000 -- -- $332(3)
Duminda M. De Silva
Senior Vice President--
Internet/Direct Operations............ 139,550 35,000 60,000 --
Emil Grosso
Vice President--
Finance and Secretary................. 130,385 27,000 40,000 --
</TABLE>
- ------------------------
(1) Effective February 2, 2000, Mr. Neller resigned his position as our
President and John B. Richards assumed that position. Mr. Richards'
employment agreement provides for annual compensation of $500,000 plus other
benefits. For a more detailed description of the terms of Mr. Richards'
employment see "--Employment and Change of Control Arrangements."
(2) We granted this option to Mr. Neller in exchange for his option to purchase
53,571 shares of Dean & DeLuca Brands common stock in connection with the
reorganization. On March 1, 2000, Mr. Neller exercised this option to
acquire 63,859 shares of our common stock. Currently, 63,859 shares remain
subject to this option. For a more detailed description of Mr. Neller's
option, see "Transaction with Related Parties--Other Transactions with Our
Directors and Officers."
(3) We contributed the amount of $332.78 to Mr. Roney's 401(k) account.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options that we
granted to our named executive officers during fiscal 1999.
OPTIONS GRANTED IN THE FISCAL YEAR ENDED JANUARY 30, 2000
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------
NUMBER OF PERCENTAGE OF POTENTIAL REALIZABLE VALUE AT
SHARES TOTAL OPTIONS ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO EXERCISE STOCK PRICE APPRECIATION FOR
OPTIONS EMPLOYEES IN PRICE PER OPTION TERM(3)
GRANTED FISCAL YEAR SHARE EXPIRATION -----------------------------
NAME (#)(1) (%)(2) ($/SH) DATE 5% ($) 10% ($)
- --------------------- ---------- ------------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Dane J. Neller....... 127,718(4) 18.85% $ 2.94(5) 02/26/04 $152,661 $335,765
Patrick A. Roney..... -- -- -- -- -- --
Duminda M. De Silva.. 60,000 8.85 4.18 11/28/09 157,727 399,711
Emil Grosso.......... 40,000 5.90 4.18 11/28/09 105,151 266,474
</TABLE>
- ------------------------
(1) Unless otherwise indicated, these figures express the number of shares of
our common stock that each named executive officer may acquire upon the
exercise of options granted under our 1999 stock option plan.
(2) The percentages of total options are calculated based on an aggregate of
677,718 shares of our common stock subject to options granted to our
employees under our 1999 stock option plan during fiscal 1999. The options
were granted and issued with an exercise price equal to the fair market
value of our common stock as valued by our board of directors on the date of
grant, except with respect to Mr. Neller whose option was issued in
connection with our reorganization in exchange for shares subject to an
option granted and issued by Dean & DeLuca Brands, Inc. For a detailed
description of Mr. Neller's option, see "Transactions with Related
Parties--Other Transactions with Our Directors and Officers."
(3) The potential realizable values are calculated based on a ten-year term for
Messrs. De Silva and Grosso and a seven-year term for Mr. Neller. These
amounts represent the hypothetical gains that could be achieved for the
listed options if exercised immediately prior to the expiration date. The 5%
and 10% assumed annual rates of compounded stock price appreciation are
required by SEC rules and do not represent our estimates or projections of
the future prices our common stock. These amounts represent assumed rates of
appreciation in the value of our common stock from the deemed fair market
value for accounting purposes on the date of grant. Actual gains, if any,
over stock option exercise prices are dependent on the future performance of
our common stock and overall stock market conditions. The potential values
reflected in the above table may not be achieved. All amounts have been
rounded to the nearest dollar.
(4) In connection with our reorganization, we granted to Mr. Neller an option to
purchase 127,718 shares of our common stock in exchange for his option to
purchase 53,571 shares of Dean & DeLuca Brands, Inc. common stock. On
March 1, 2000, Mr. Neller purchased 63,859 shares of common stock subject to
this option. For a more detailed description of the reorganization and
Mr. Neller's option, see "Transactions with Related Parties."
(5) The exercise price is $2.93612 per share.
The shares underlying Mr. De Silva's option will be fully vested and
exercisable on August 5, 2002, the fourth anniversary of his employment with us,
and the shares underlying Mr. Grosso's option will be fully vested on March 1,
2003, the fourth anniversary of his employment with us. Each of their options
expires on November 28, 2009, subject to earlier termination if their service
with us ceases.
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<PAGE>
With respect to Mr. Neller, his option has a term of seven years. One-half of
the shares subject to Mr. Neller's option vested on February 26, 2000 and were
exercised on March 1, 2000 and the balance of the shares will vest and become
exercisable on February 26, 2001. In the event of a "change in control" as
defined in Section 280G of the Internal Revenue Code, all of these options will
vest and become exercisable immediately. For a detailed description of our 1999
stock option plan and other terms of these options, see "--1999 Stock Option
Plan" and "--Employment and Change of Control Arrangements."
FISCAL YEAR-END OPTION VALUES
The following table sets forth information regarding the number of shares of
common stock (1) acquired and the value realized by the named executive officers
when they exercised any stock options during fiscal 1999 and (2) subject to
exercisable and unexercisable stock options that each named executive officer
held as of January 30, 2000. The following table also sets forth information
regarding the value of so-called "in-the-money" options, which is based on a
value of $4.18 per share, the fair market value of our common stock at
January 30, 2000, as determined by our board of directors, and net of the option
exercise price. There was no public trading market for our common stock at
January 30, 2000.
AGGREGATE OPTION EXERCISES IN FISCAL 1999 AND VALUES AS OF JANUARY 30, 2000
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AS OF OPTIONS AS OF
JANUARY 30, 2000(#) JANUARY 30, 2000(#)
------------------------ ---------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------- ------ ------- ----- --------
Dane J. Neller................................ -- 127,718(1) -- $158,866
Patrick A. Roney.............................. -- -- -- --
Duminda M. De Silva........................... 15,000 45,000 0 0
Emil Grosso................................... -- 40,000 -- 0
</TABLE>
- ------------------------
(1) On March 1, 2000, Mr. Neller exercised his option to acquire 63,859 shares
of our common stock. He paid for these shares by giving us a promissory note
in the principal amount of $186,859.09, and paying for the balance of
$638.59 in cash. For a more detailed description of this transaction, see
"Transactions with Related Parties--Other Transactions with Our Directors
and Officers." Mr. Neller now holds an option to acquire 63,859 shares of
our common stock.
1999 STOCK OPTION PLAN
Our 1999 stock option plan was adopted by our board of directors and
approved by our stockholders in November 1999 and was amended in April 2000. A
total of 1,497,320 shares of common stock has been reserved for issuance under
our 1999 stock option plan. As of the date of this prospectus, options to
purchase 959,859 shares at a weighted average exercise price of $4.10 per share
were outstanding under this plan, leaving 473,602 shares available for future
grants under the plan. 63,859 shares have been issued under the plan to
Mr. Neller upon exercise by him of his option.
Our 1999 stock option plan provides for the granting to employees, including
officers and employee directors, of incentive stock options within the meaning
of Section 422 of the Internal Revenue Code, and for the granting to employees
and consultants, including non-employee directors, of nonqualified stock options
and stock purchase rights. To the extent an optionee would have the right in any
calendar year to exercise for the first time one or more incentive stock options
for shares having an aggregate fair market value (determined for each share as
of the option's date of grant) greater than $100,000, the excess shares will be
treated as if they are subject to nonqualified stock options.
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<PAGE>
The purposes of our 1999 stock option plan are to attract and retain the
best available personnel, to provide additional incentives to our employees and
consultants and to promote the success of our business.
Our 1999 stock option plan may be administered by the board of directors or
a committee of the board. Our 1999 stock option plan is currently administered
by our compensation committee. The administrator determines matters such as
(1) to which persons we will issue options and stock purchase rights under the
plan and (2) the terms of the options or stock purchase rights granted under the
plan, including the number of shares subject to an option or stock purchase
right, exercise or purchase price, payment terms, term and exercisability of
options, and conditions and restrictions related to the grant of stock purchase
rights. A participant accepts the offer of stock purchase rights by executing a
stock purchase agreement. In addition, unless the administrator determines
otherwise, we have an option to repurchase any restricted shares at the original
price paid by the participant upon termination of the participant's
relationship.
Under our 1999 stock option plan, the exercise price of all incentive stock
options must be at least 100% of the fair market value of our common stock on
the date of grant, while the exercise price of all nonqualified stock options
must be at least 85% of the fair market value of our common stock on the date of
grant. However, in the case of any incentive stock option or nonstatutory stock
option granted under our 1999 stock option plan to an optionee who owns stock
representing more than 10% of the total voting power of all classes of our
outstanding capital stock, the exercise price must be at least 110% of the fair
market value of our common stock on the date of grant. Payment of the exercise
price may be made in cash or other consideration, as determined by the
administrator.
The term of any option may not exceed ten years in general, and five years
in the case of an incentive stock option granted to an optionee who owns stock
representing more than 10% of the total combined voting power of all classes of
our outstanding capital stock. The administrator has the discretion to set the
vesting term of an option, provided that all options must vest and become
exercisable at a rate of at least 20% per year from the date of grant. An option
generally is nontransferable during the optionee's lifetime, and is transferable
on the optionee's death according to the laws of descent and distribution.
However, the administrator may grant nonqualified stock options and stock
purchase rights with limited transferability rights in circumstances specified
in our 1999 stock option plan. Each option and stock purchase right generally
may be exercised only by the optionee during an optionee's lifetime or by the
optionee's estate within the time frame set forth in the option agreement. If on
the date of an optionee's termination of employment an option is not completely
vested or if a stock purchase right is not exercised before it expires, the
unvested or unpurchased shares will revert to the plan and will be available for
future grants.
In the event of our merger with or into another corporation, or the sale of
all or substantially all of our assets, each option may be assumed or an
equivalent option or right may be substituted by the successor corporation. If
the successor corporation does not agree to an assumption or substitution, each
outstanding stock option and stock purchase right will fully vest and become
exercisable. In this event, the administrator will notify the optionee or the
participant in writing or electronically that the option or stock purchase right
will be fully exercisable for a period of 15 days from the date of the
administrator's notice, and will terminate upon the expiration of the 15-day
period.
The administrator has the authority to amend or terminate our 1999 stock
option plan, subject to limitations set forth in the plan. Unless terminated
earlier by our board of directors, the plan will terminate in November 2009.
401(K) PLAN
Effective July 1, 1996, we established a 401(k) retirement savings plan that
covers all full-time employees who are at least 21 years old and who have
completed 1,000 hours of service during any
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<PAGE>
12-month period. Participants may contribute a percentage of their gross
salaries, as defined in our 401(k) plan, subject to a maximum contribution limit
allowed by Internal Revenue Service guidelines. We contribute an amount equal to
25% of the amount contributed by each participant, up to a maximum contribution
of 1.5% of a participant's gross salary. We also have the right, but not the
obligation, to make an additional contribution in any year. The participants are
always fully vested as to their own contributions. They vest as to our
contribution at a rate of 25% per year, beginning after one year of employment
so that they are fully vested as to our contributions after five years of
employment. The participants are entitled to borrow from their plan accounts, in
accordance with Internal Revenue Code requirements. During fiscal 1999, we
contributed $37,249 to our 401(k) plan, and during fiscal 1998, we contributed
$9,998 to our 401(k) plan.
INDEMNIFICATION OF DIRECTORS AND OFFICERS; LIMITATION OF LIABILITY
Our second restated certificate of incorporation and restated by-laws
provide that we will indemnify our directors and officers, and may indemnify
other employees and our agents, to the fullest extent permitted by law, and will
provide indemnification for negligence and gross negligence on the part of
indemnified parties. Our by-laws also permit us to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions in that capacity, regardless of whether the by-laws would
permit indemnification. We have director and officer liability insurance that
covers matters, including matters arising under the Securities Act.
Our second restated certificate of incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law provides
that directors of a corporation will not be personally liable for monetary
damages for breach of their fiduciary duties as directors, except liability for:
- any breach of the director's duty of loyalty to us or our stockholders;
- acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law;
- unlawful dividends or unlawful stock purchases or redemptions; and
- any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our second restated
certificate of incorporation and by-laws. These agreements, among other things,
provide for indemnification of our directors and executive officers for
judgments, fines, settlement amounts and expenses, including attorneys' fees,
incurred by any of these persons in any action or proceeding, including
expenses, but not judgments and settlement amounts incurred in any action by us
or in our right, arising out of that person's services as a director or
executive officer of ours, any subsidiary of ours or any other company or
enterprise to which the person provides services at our request. Indemnification
is available only if the director or executive officer acted in good faith and
in a manner reasonably believed to be in or not opposed to our best interests
and, in the case of a criminal action, had no reasonable cause to believe that
his or her conduct was unlawful. We believe that these provisions and agreements
are necessary to attract and retain qualified persons as directors and executive
officers.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees for which indemnification is sought, and we
are unaware of any threatened litigation that may result in claims for
indemnification.
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<PAGE>
TRANSACTIONS WITH RELATED PARTIES
THE REORGANIZATION
In November 1999, we entered into a reorganization agreement pursuant to
which Dean & DeLuca Brands, Inc., Dean & DeLuca Atlanta, LLC, Dean & DeLuca
Markets, LLC and D & D Cafes of NC, LLC became wholly-owned subsidiaries of
Dean & DeLuca. As part of the reorganization, all of the security holders of
Dean & DeLuca Brands, Dean & DeLuca Atlanta, Dean & DeLuca Markets and D & D
Cafes of NC exchanged all of their securities and interests in these entities
for our securities. At closing, we issued an aggregate of 11,107,031 shares of
our common stock and granted and issued warrants and options to purchase an
aggregate of 1,704,969 shares of our common stock.
The following table summarizes our shares of common stock, warrants and
options that we issued to related parties in connection with the reorganization.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF NUMBER OF SHARES
NUMBER OF SHARES OF COMMON STOCK OF COMMON STOCK
NAME COMMON STOCK(1) SUBJECT TO WARRANTS SUBJECT TO OPTIONS
- ------------------------------------------ ------------------- ------------------- ------------------
<S> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Leslie G. Rudd............................ 9,381,544 321,853 --
Dane J. Neller............................ 255,384 256,698 127,718
Giorgio G. DeLuca(2)...................... 335,715 -- 154,966
Joel B. Dean.............................. 202,073 -- 45,062
Patrick A. Roney.......................... 184,056 -- --
FIVE PERCENT STOCKHOLDER:
Samantha Lauren Rudd Gift Trust........... -- 798,672 --
</TABLE>
- ------------------------
(1) We also issued an aggregate of 748,259 shares of common stock to individuals
who were not our directors, executive officers or 5% stockholders.
(2) Giorgio G. DeLuca was a member of our board of directors through
February 2000.
OTHER TRANSACTIONS WITH OUR DIRECTORS AND OFFICERS
LESLIE G. RUDD. Between November 1995 and November 1999, Mr. Rudd, the
Chairman of our board of directors, loaned Dean & DeLuca Brands, Inc.
$16,666,803, including principal and accrued interest. This indebtedness to
Mr. Rudd was evidenced by convertible promissory notes each with an interest
rate of 7.0% per year. These notes were convertible at his option into shares of
Dean & DeLuca Brands, Inc. common stock at a conversion rate of $7.50 per share.
In August 1999, Mr. Rudd forgave approximately $2.3 million of accrued interest
on those notes. On November 30, 1999, Mr. Rudd converted all of these
outstanding notes, including accrued interest, into shares of Dean & DeLuca
Brands Inc. common stock. In addition, Mr. Rudd had loaned an aggregate of
$7,843,709, including principal and accrued interest, to Dean & DeLuca Atlanta,
LLC and Dean & DeLuca Markets, LLC, which indebtedness was converted into
membership interests in these entities immediately prior to our reorganization.
The shares of Dean & DeLuca Brands, Inc. common stock, together with his
interests in Dean & DeLuca Atlanta, LLC, Dean & DeLuca Markets, LLC and D & D
Cafes of NC, LLC, were exchanged for 9,381,544 shares of our common stock in the
reorganization.
Between September 1999 and November 1999, Mr. Rudd loaned us a total of
$446,380. We repaid this amount in November 1999.
In August 1999, for $361,900, Dean & DeLuca Brands sold to Mr. Rudd a
warrant to purchase 470,000 shares of Dean & DeLuca Brands common stock at $7.00
per share. In connection with the
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<PAGE>
reorganization, this warrant was converted into warrants to purchase 1,120,525
shares of our common stock at $2.94 per share. Mr. Rudd assigned to the Samantha
Lauren Rudd Gift Trust a warrant to purchase 798,672 shares of our common stock.
For information regarding the beneficial ownership of our securities, see
"Principal Stockholders."
We currently hold a lease for our Wichita, Kansas location with Mr. Rudd.
The Wichita lease provides for approximately 32,100 square feet of office and
warehouse space, which serves as the site of our call, distribution and
fulfillment center. The term of the lease is 20 years and expires in
September 2017. We have one optional renewal period of five years. The monthly
rent is $11,455 subject to adjustment every three years based on the increase in
the Consumer Price Index--Urban Consumers. Rent paid by us under this lease
amounted to $126,012 during fiscal 1999, $137,468 during fiscal 1998, and
$68,733 during fiscal 1997.
During the term of the Wichita lease, an additional contingent rent equal to
20% of the monthly rent payable under the lease accrues. The accrued amount of
the contingent rent bears interest at the annual rate of 7%. Upon the
consummation of this offering, we will pay Mr. Rudd the accrued amount of the
contingent rent plus accrued interest, at the election of Mr. Rudd, either in
cash or in shares of our common stock valued at the initial public offering
price. As of the date of this prospectus, the amount of the contingent rent plus
accrued interest on the contingent rent is $ , which would be equal
to shares of our common stock (at an assumed initial public offering price of
$ per share) if Mr. Rudd were to exercise his option to receive this
payment in shares of our common stock. The contingent rent will continue to
accrue after the consummation of this offering and be payable in cash together
with other payments to be made under the Wichita lease. If we sell all of our
assets, dissolve, liquidate, merge with another entity or we (or our
stockholders) engage in other specified business combination transactions,
Mr. Rudd will be entitled to receive the contingent rent and any interest
accrued to the date of the transaction in cash. If, at the expiration of the
Wichita lease (including any renewal terms), we have not consummated an initial
public offering of our common stock or a transaction of the type described above
has not occurred, we will not be obligated to pay the contingent rent or any
interest accrued on the contingent rent.
Mr. Rudd has the right to sell the property subject to the Wichita lease to
us at its fair market value on the date of the consummation of this offering, as
determined by an independent appraiser. The purchase price will be payable, at
the election of Mr. Rudd, either in cash or shares of our common stock valued at
the initial public offering price. If Mr. Rudd exercises this right, the closing
of this transaction must occur no later than 180 days after the consummation of
this offering. If during the term of the Wichita lease (including any renewal
terms) we sell all of our assets, dissolve, liquidate, merge with another entity
or we (or our stockholders) engage in certain other business combination
transactions, Mr. Rudd will be entitled to sell the property subject to the
Wichita lease immediately for its then fair market value to us or our
successor-in-interest for cash.
We also hold seven leases with Mr. Rudd for the equipment at our current
call, distribution and fulfillment center in Wichita, Kansas. The term of each
of these equipment leases is 36 months and each expires in September 2000. The
aggregate monthly rent is $12,817. Lease payments made by us under these
equipment leases amounted to $140,987 during fiscal 1999, $153,804 during fiscal
1998, and $76,902 during fiscal 1997.
We are currently constructing an additional warehouse facility on property
that is owned by Mr. Rudd, which is adjacent to our current Wichita facility. We
have not yet entered into a written agreement with Mr. Rudd with respect to this
property, but we are in the process of negotiating to acquire the property, and
expect the purchase price to be financed primarily through bank financing, with
the balance to be paid out of working capital.
From time to time, we acquire premium wines from Gerard Wine, a company
owned by Mr. Rudd, on terms which we believe are at least as favorable to us as
could be obtained elsewhere.
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DANE J. NELLER. On February 26, 1997, Dean & DeLuca Brands, Inc. granted
Mr. Neller, our Chief Executive Officer and a member of our board of directors,
an option to acquire 107,142 shares of Dean & DeLuca Brands, Inc. common stock
at an exercise price of $7.00 per share. In August 1999, Mr. Neller purchased
53,571 shares subject to this option. Mr. Neller paid the exercise price for the
shares by giving a promissory note in the principal amount of $374,997 to
Dean & DeLuca Brands, Inc. This note bears interest at the rate of 7.5% per year
and matures on August 16, 2004. Pursuant to a security agreement dated
August 16, 1999, Mr. Neller pledged the 53,571 shares as collateral for the
promissory note. In 1999, Mr. Neller loaned an aggregate of $132,000 to Dean &
DeLuca Brands, Inc., which, immediately prior to the reorganization was
converted into shares of Dean & DeLuca Brands, Inc. common stock. In addition,
prior to November 30, 1999, Mr. Neller loaned an aggregate of $412,709,
including principal and accrued interest, to Dean & DeLuca Atlanta, LLC, which
indebtedness was converted into membership interests in Dean & DeLuca Atlanta,
LLC immediately prior to our reorganization. In connection with the
reorganization, the balance of shares subject to the option was exchanged for an
option to purchase 127,718 shares of our common stock at an exercise price of
$2.94 per share, and Mr. Neller's shares of Dean & DeLuca Brands, Inc. common
stock, together with his interests in Dean & DeLuca Atlanta, LLC, Dean & DeLuca
Markets, LLC and D & D Cafes of NC, LLC, were exchanged for 255,384 shares of
our common stock.
On March 1, 2000, Mr. Neller acquired 63,859 shares of our common stock by
exercising the vested portion of his option. He paid the exercise price for the
shares by giving us a promissory note in the principal amount of $186,859.09 and
paying the balance of $638.59 in cash. This note bears interest at the rate of
7.5% per year and matures on March 1, 2005. Pursuant to a security agreement
dated March 1, 2000, he pledged the 63,589 shares as collateral for the
promissory note.
In August 1999, for $82,906, Dean & DeLuca Brands, Inc. sold to Mr. Neller a
warrant to purchase 107,671 shares of Dean & DeLuca Brands, Inc. common stock at
$7.00 per share. In connection with the reorganization, the warrant was
exchanged for a warrant to purchase 256,698 shares of our common stock with an
exercise price of $2.94 per share.
JOHN B. RICHARDS. In February 2000, pursuant to the terms of his employment
agreement, we advanced Mr. Richards $25,000 for relocation expenses and we
loaned him $68,000. The loan is evidenced by a promissory note that bears
interest at a rate of 6% per year and matures on December 31, 2002. We have not
yet provided any other benefits to Mr. Richards under the terms of his
employment agreement. For a more detailed description of Mr. Richards'
employment agreement, see "Management--Employment and Change of Control
Arrangements."
GIORGIO G. DELUCA. Effective January 21, 1999, Dean & DeLuca Brands, Inc.
entered into a separation agreement with Giorgio G. DeLuca. Under the terms of
his separation agreement, Mr. DeLuca continued to receive an annual salary of
$115,500 and other benefits through January 20, 2000. Pursuant to the agreement,
Mr. DeLuca and Dean & DeLuca Brands, Inc. released each other from specified
claims and liabilities arising out of Mr. DeLuca's employment. Mr. DeLuca
remains subject to numerous restrictions set forth in his terminated employment
agreement. As long as Mr. DeLuca does not violate these restrictions, Dean &
DeLuca Brands, Inc. releases him from the call rights with respect to our common
stock contained in his terminated employment agreement. Under the terms of his
separation agreement, we have agreed to honor Mr. DeLuca's put rights and
piggyback registration rights. For a description of the put and registration
rights, see "Description of Capital Stock--Put Rights" and "Description of
Capital Stock--Registration Rights."
LESLIE G. RUDD AND PATRICK A. RONEY. We currently hold the following three
leases for space located in St. Helena, California with R & R Land, LLC, a
company owned by Mr. Rudd, the
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Chairman of our board of directors, and Mr. Roney, our Senior Vice President and
a member of our board of directors:
- OFFICE SPACE. The office lease has a three-year term expiring in
July 2002 and is subject to a cancellation option at any time upon
60 days' prior notice by either party. The monthly rent is $3,000 and rent
paid by us under this lease amounted to $21,000 during fiscal 1999.
- WAREHOUSE SPACE. The warehouse lease has a three-year term expiring in
July 2002 and is subject to a cancellation option at any time upon
60 days' prior notice by either party. The monthly rent is $2,000 and rent
paid by us under this lease amounted to $14,000 during fiscal 1999.
- RETAIL MARKET SPACE. The retail market lease has a nine-year term expiring
in March 2008 and six options in our favor to extend the lease for an
aggregate of an additional 22 years. The monthly rent is $11,000 per month
for each of the first three years of the lease term, $11,500 per month for
each of the fourth, fifth and sixth years of the lease term and $12,000
per month for each of the seventh, eighth and ninth years of the lease
term. Rent paid by us under this lease amounted to $121,000 during fiscal
1999.
SALE OF SERIES A CONVERTIBLE PREFERRED STOCK
On November 30, 1999 and December 31, 2000, we sold to Hummer Winblad
Venture Partners IV, L.P. an aggregate of 3,669,760 shares of our series A
convertible preferred stock at a purchase price of approximately $5.45 per
share, or an approximate aggregate purchase price of approximately
$20.0 million. Upon completion of this offering, these shares of series A
convertible preferred stock will convert automatically into an aggregate of
3,669,760 shares of our common stock. Pursuant to the terms of the purchase
agreement relating to this sale, our stockholders appointed Ann L. Winblad, one
of the five managing partners of the general partner of Hummer Winblad, as a
member of our board of directors. We are not under any contractual obligation to
grant to Hummer Winblad the right to nominate any of our directors.
In connection with this sale, we entered into an investors' rights agreement
with Hummer Winblad. The investors' rights agreement gives Hummer Winblad the
following rights:
- REGISTRATION RIGHTS. Hummer Winblad has unlimited piggyback registration
rights and two demand registration rights. These rights will terminate on
the earlier of (1) five years after the date of this prospectus and
(2) the date when all shares of common stock issuable upon conversion of
the series A convertible preferred stock are freely tradable.
- ACCESS TO INFORMATION. We are obligated to provide Hummer Winblad with all
materials provided to our directors if Hummer Winblad (1) beneficially
owns at least 5% of our outstanding capital stock and (2) does not have a
representative on our board of directors. This obligation expires upon the
completion of this offering.
- PREEMPTIVE RIGHTS. Hummer Winblad may purchase its pro rata share of all
equity securities that we issue, subject to various exceptions. This right
will terminate upon the completion of this offering.
Hummer Winblad has waived any preemptive and registration rights that it may
have in connection with this offering.
In connection with the sale of the series A convertible preferred stock, we
also entered into a right of first refusal and co-sale agreement with Hummer
Winblad on November 30, 1999. Pursuant to the terms of this agreement, (1) we
and Hummer Winblad have rights of first refusal with respect to the sale or
transfer of our common stock by some of our stockholders and (2) Hummer Winblad
has the right to require any purchaser of a stockholder's shares of common stock
to purchase a pro rata number of shares held by them. These rights will
terminate upon the completion of this offering.
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REGISTRATION RIGHTS
The holders of 3,669,760 shares of common stock (assuming the conversion of
all outstanding series A convertible preferred stock upon completion of this
offering) and warrants to purchase 1,377,223 shares of common stock, or any of
their transferees, are entitled to cause us to register under the Securities Act
under specified circumstances shares of our common stock held by them or
issuable to them. These rights are provided under the investors' rights
agreement with Hummer Winblad discussed above and under the outstanding
warrants. Holders of registration rights are:
- Leslie G. Rudd, the Chairman of our board of directors, who has
registration rights covering 321,853 shares of our common stock;
- Dane J. Neller, our Chief Executive Officer and a member of our board of
directors, who has registration rights covering 256,698 shares of our
common stock;
- Samantha Lauren Rudd Gift Trust, a 5% stockholder, who has registration
rights covering 798,672 shares of our common stock; and
- Hummer Winblad, a 5% stockholder, assuming conversion of all outstanding
series A convertible preferred stock into shares of our common stock upon
completion of this offering, who has registration rights covering
3,669,760 shares of our common stock.
The registration rights allow holders to:
- require us to, on no more than two occasions, register their shares under
the Securities Act, commonly referred to as "demand rights"; and
- include their shares in registration statements filed by us, commonly
referred to as "piggy-back rights".
Giorgio G. DeLuca, a member of our board of directors until February 2000,
also has piggyback registration rights that allow him to require us to include a
portion of his 490,681 shares of common stock, including 154,966 shares subject
to an option, in registration statements by which we register shares of common
stock held by Mr. Rudd for sale to the public.
For a more detailed description of the registration rights described above,
see "Description of Capital Stock--Registration Rights."
GRANT AND ISSUANCE OF OPTIONS
Between December 1, 1999 and the date of this prospectus, we granted to a
number of our executives under our 1999 stock option plan options to purchase an
aggregate of 886,000 shares of our common stock, each with an exercise price of
$4.18 per share. The executives who received options were Messrs. Richards,
Mileusnic, De Silva, Gray, Grosso, Duncan, Bodell and Bartlett.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information about the beneficial ownership of
our common stock as of the date of this prospectus, and as adjusted to reflect
the sale of our common stock offered by this prospectus, by:
- each of our directors, director nominees and named executive officers;
- each person, or group of affiliated persons, who is known by us to own
beneficially 5% or more of our common stock; and
- all current directors and executive officers as a group.
Beneficial ownership is calculated based upon the rules of the SEC. In
computing the number of shares beneficially owned by a person and the percentage
ownership of that person, shares of common stock subject to options or warrants
held by that person that are currently exercisable or exercisable within
60 days of the date of this prospectus are considered outstanding. These shares,
however, are not considered outstanding for the purposes of computing the
percentage ownership of any other person. Except as indicated in the footnotes
to this table or as a result of applicable community property laws, each
stockholder named in the table has sole voting and investment power to the
shares shown as beneficially owned by them.
Applicable percentage ownership in the following table is based on
14,840,650 shares of our voting securities, consisting of 11,170,890 shares of
common stock and 3,669,760 shares of series A convertible preferred stock
outstanding as of the date of this prospectus. This table assumes the following:
- all of our outstanding shares of series A convertible preferred stock are
converted into an aggregate of 3,669,760 shares of our common stock upon
the consummation of this offering;
- a for stock split of our outstanding shares of common stock, which
will be effected prior to the consummation of this offering; and
- the underwriters' over-allotment option will not be exercised.
Unless otherwise indicated, the address for those named in the table is: c/o
Dean & DeLuca, Inc., 560 Broadway, New York, New York 10012.
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<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING AFTER THE OFFERING
------------------------ ------------------------
NAME OF BENEFICIAL OWNER SHARES (#) PERCENT (%) SHARES (#) PERCENT (%)
- ------------------------------------------------ ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
DIRECTORS AND NAMED EXECUTIVE OFFICERS:
Leslie G. Rudd(1)............................... 9,703,397 64.0% %
Dane J. Neller(2)............................... 1,374,613 8.7
John B. Richards(3)............................. 112,500 *
Patrick A. Roney................................ 184,056 1.2
Duminda M. De Silva(4).......................... 15,000 *
Emil Grosso(4).................................. 10,000 *
Joel B. Dean(5)................................. 247,135 1.7
Ann L. Winblad(6)............................... 3,669,760 24.7
Lionel W. Greer................................. -- --
John L. Sharpe.................................. -- --
All directors and executive officers as a group
(13 persons)(7)............................... 15,336,461 93.4
FIVE PERCENT STOCKHOLDERS:
Hummer Winblad Venture Partners IV, L.P......... 3,669,760 24.7
2 South Park
Second Floor
San Francisco, CA 94102
Samantha Lauren Rudd Gift Trust(8).............. 798,672 5.1
</TABLE>
- ------------------------
* less than 1%
(1) Includes 321,853 shares of our common stock subject to a currently
exercisable warrant. Does not include:
- 798,672 shares of common stock subject to a warrant held by the Samantha
Lauren Rudd Gift Trust, of which Mr. Rudd disclaims beneficial ownership;
- shares of our common stock which would be issued to Mr. Rudd in
satisfaction of contingent rent under the call, distribution and
fulfillment center lease in Wichita, Kansas in the event that he exercises
his right to request payment in common stock; and
- shares of our common stock which will be issued to Mr. Rudd in the event
that he exercises his right to require us to purchase the call,
distribution and fulfillment center and pay the purchase price in common
stock.
For a detailed description of these rights, see "Transactions with Related
Parties--Other Transactions with our Directors and Officers."
(2) Includes 256,698 shares of our common stock subject to a currently
exercisable warrant and 798,672 shares of our common stock subject to a
currently exercisable warrant issued to the Samantha Lauren Rudd Gift Trust
for which Mr. Neller is the trustee and beneficial owner.
(3) Represents shares of common stock subject to an option exercisable within 60
days of the date of this prospectus.
(4) Represents shares of common stock subject to a currently exercisable option.
(5) Includes 45,062 shares of common stock subject to a currently exercisable
option.
(6) Represents the shares of our common stock to be issued to Hummer Winblad
Venture Partners IV, L.P. upon conversion of our series A convertible
preferred stock. Ms. Winblad is one of five
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managing members of the general partner of Hummer Winblad and one of our
directors. As a managing member of the general partner, she may be deemed to
share voting power with respect to the shares held by Hummer Winblad.
(7) Includes an aggregate of 112,500 shares of common stock subject to options
exercisable within 60 days of the date of this prospectus, 90,062 shares of
common stock subject to currently exercisable options and 1,377,223 shares
of common stock subject to currently exercisable warrants.
(8) Represents shares of common stock subject to a currently exercisable
warrant. Beneficial ownership of these shares is also attributable to Mr.
Neller who is the trustee of the Samantha Lauren Rudd Gift Trust.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Our second restated certificate of incorporation, which will be filed before
this offering is completed, authorizes the issuance of up to 40,000,000 shares
of common stock, $0.01 par value per share, and 4,000,000 shares of preferred
stock, $0.01 par value per share, the rights and preferences of which may be
established by our board of directors. Immediately before the completion of this
offering, but after giving effect to the conversion of all outstanding shares of
our series A convertible preferred stock into 3,669,760 shares of our common
stock, we will have 13 stockholders and we will have issued 14,840,650 shares of
common stock (assuming no warrants and options to purchase shares of our common
stock are exercised. As of the date of this prospectus, warrants to purchase
1,377,223 shares of our common stock and options to purchase 1,159,887 shares of
our common stock were issued and outstanding.
COMMON STOCK
Under our second restated certificate of incorporation, the holders of
common stock are entitled to one vote for each share held on all matters to be
voted on by the stockholders and do not have cumulative voting rights. Subject
to preferences that may be applicable to any outstanding shares of preferred
stock, the holders of common stock are entitled to receive dividends, if any, as
may be declared from time to time by our board of directors out of funds legally
available for that purpose in proportion to their stock holdings. If we
liquidate, dissolve or wind up, the holders of common stock are entitled to
share in all of our assets remaining after payment of liabilities and any
liquidation preferences of any outstanding shares of preferred stock in
proportion to their stock holdings. Holders of common stock have no preemptive
or subscription rights or rights to convert their shares of common stock into
any other securities. There are no redemption or sinking fund provisions
applicable to our common stock. All outstanding shares of common stock are, and
all shares of common stock to be outstanding upon completion of this offering
will be, fully paid and nonassessable.
PREFERRED STOCK
Under our second restated certificate of incorporation, our board of
directors has the authority, without further action by stockholders, to issue up
to shares of preferred stock in one or more series and to fix the rights,
preferences, privileges and the qualifications, limitations and restrictions
granted to or imposed upon preferred stock, including dividend rights,
conversion rights, voting rights, rights and terms of redemption, liquidation
preferences, sinking fund provisions, the number of shares constituting the
series and the designation of the series, any or all of which may be greater
than the rights of our common stock. The issuance of preferred stock could
reduce the voting power of the holders of common stock and reduce the likelihood
that the holders of common stock will receive dividend payments and other
payments upon liquidation. This issuance could have the effect of decreasing the
market price of our common stock. The issuance of preferred stock could also
have the effect of delaying, deterring or preventing a change in control of
Dean & DeLuca. We presently have no plans to issue any shares of preferred
stock.
WARRANTS AND OPTIONS
As of the date of this prospectus, we had outstanding warrants held by three
holders to purchase an aggregate of 1,377,223 shares of our common stock. Each
of these warrants have an exercise price of $2.94 per share, subject to
adjustment, and expires on January 15, 2004.
As of the date of this prospectus, we had outstanding options held by twelve
holders to purchase an aggregate of 1,159,887 shares of our common stock. Ten
options to purchase 959,859 shares of our common stock were issued under our
1999 stock option plan and two options to purchase 200,028
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shares of our common stock are non-plan stock options. These twelve options have
a weighted average exercise price of approximately $3.50 per share. The options
issued under our 1999 stock option plan expire on November 28, 2009, except for
Mr. Neller's option which expires on February 26, 2004, the seventh anniversary
of its original date of grant under Dean & DeLuca Brands' 1997 stock option
plan, Mr. Richards' option which expires on December 30, 2009 and Mr. Gray's
option which expires on February 23, 2010. Both of the non-plan options, which
were issued to Messrs. DeLuca and Dean, expire on July 30, 2001.
SPECIAL PROVISIONS IN OUR SECOND RESTATED CERTIFICATE OF INCORPORATION AND
BY-LAWS MAY HAVE ANTI-TAKEOVER EFFECTS
Our second restated certificate of incorporation provides that any action
required or permitted to be taken by our stockholders must be effected at a
duly-called annual or special meeting of stockholders and may not be effected by
any consent in writing. In addition, our by-laws provide that special meetings
of our stockholders may be called only by the chairman of the board of
directors, the chief executive officer or the board of directors by a resolution
adopted by a majority of the total number of authorized directors, or by the
holders of 50% of our outstanding voting stock.
Our by-laws establish an advance notice procedure with regard to business
proposed to be submitted by a stockholder at any annual or special meeting of
stockholders, including the nomination of candidates for election as directors.
The procedure provides that a notice of proposed stockholder business must be
timely given in writing to the secretary of our company prior to the meeting. To
be timely, a stockholder notice relating to an annual meeting must be received
at our principal executive offices not less than 60 days nor more than 90 days
before the first anniversary of the prior year's annual meeting; provided that
if the date of the annual meeting is more than 30 days before or more than
60 days after the first anniversary of the prior year's annual meeting, a
stockholder notice must be delivered not earlier than 90 days prior to the
annual meeting and not later than the later of the 60th day prior to the annual
meeting or the tenth day following the day on which we first publicly announce
the date of the annual meeting. In addition, if our board of directors
determines that directors will be elected at a special meeting, a stockholder
must give written notice of any nominations to be brought before the special
meeting no earlier than the 90th day prior to the special meeting and not later
than the later of the 60th day prior to the special meeting or the tenth day
following the day on which we first publicly announce the date of the special
meeting.
Notice to our company from a stockholder who proposes to nominate a person
at a meeting for election as a director must contain all information relating to
that person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, including that
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected.
The chairman of a meeting of stockholders may determine that a person was
not nominated in accordance with the nomination procedure, in which case that
person's nomination will be disregarded. If the chairman of a meeting of
stockholders determines that other business was not properly brought before that
meeting in accordance with the by-law procedures, such business will not be
conducted at the meeting. Nothing in the nomination procedure or the business
procedure will preclude discussion by any stockholder of any nomination or
business properly made or brought before the annual or any other meeting in
accordance with the above-mentioned procedures.
Our second restated certificate of incorporation specifies that our board of
directors will be classified into three classes of directors. Under Delaware
law, directors of a corporation with a classified board may be removed only for
cause unless the corporation's certificate of incorporation provides otherwise.
Our second restated certificate of incorporation does not provide otherwise. In
addition, our second restated certificate of incorporation specifies that the
authorized number of directors may be changed only by resolution of the board of
directors and excludes cumulative voting for directors. Under cumulative voting,
a minority stockholder holding a sufficient percentage of a class
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of shares may be able to ensure the election of one or more directors. Our
second restated certificate of incorporation provides that a majority of the
directors in office, even if less than a quorum, can fill vacancies created by
resignation, death, disqualification, removal or by an increase in the size of
our board of directors.
These provisions contained in our second restated certificate of
incorporation, including the provisions that provides that our board of
directors may authorize the issuance and specify the designations, rights and
preferences of series of our preferred stock without stockholder approval, and
by-laws could delay or discourage some types of transactions involving an actual
or potential change in control of us or in our management, which includes
transactions in which stockholders might otherwise receive a premium for their
shares over then-current prices. They may also limit the ability of stockholders
to remove our current management or approve transactions that stockholders may
consider to be in their best interests and, therefore, could adversely affect
the price of our common stock. These provisions are intended to enhance the
likelihood of continuity and stability in the composition of, and policies
formulated by, our board of directors.
REGISTRATION RIGHTS
Set forth below is a summary of the registration rights of our warrant
holders and the holders of our series A convertible preferred stock, which will
convert into 3,669,760 shares of common stock upon the completion of this
offering.
DEMAND REGISTRATIONS. Beginning 180 days after the date of this prospectus,
the holders of at least 30% of the 3,669,760 shares of common stock into which
our series A convertible preferred stock will convert may require us to register
shares of common stock having, including the 1,377,223 shares subject to the
warrants that may be included in a demand registration, an aggregate sales price
to the public of more than $10,000,000. We will be obligated to effect only two
registrations pursuant to a request by holders of these demand registration
rights. In addition, in the event the registration is for an underwritten public
offering and the underwriter advises us that marketing factors require a
limitation of the number of shares to be included in such registration, the
number of shares to be included shall be allocated as described in the
investors' rights agreement. These registration rights terminate on the earlier
of the date which is five years after the completion of this offering and the
date when the shares of common stock into which our series A convertible
preferred stock will convert may be sold without limitation as to volume or
manner of sale under Rule 144 under the Securities Act.
Beginning one year after the date of this prospectus, the holders of the
warrants, Messrs. Rudd and Neller and the Samantha Lauren Rudd Gift Trust, may
require us to file a registration statement under the Securities Act to register
the 1,377,223 shares of common stock subject to the warrants. Each warrant
holder has two demand registration rights.
PIGGYBACK REGISTRATION RIGHTS. Holders of the 3,669,760 shares of common
stock into which our series A convertible preferred stock will convert have
unlimited rights to require us to include their shares in any registration of
our common stock initiated by us, other than registrations relating to employee
benefit plans, mergers, acquisitions or similar corporate transactions, and
corporate reorganizations. In the event the registration is for an underwritten
public offering and the underwriter advises us that marketing factors require a
limitation of the number of shares to be included in such registration, the
number of shares to be included shall be allocated as described in the
investors' rights agreement. In no event, however, shall the amount of
securities of the holders of the 3,669,760 shares of our common stock into which
our series A convertible preferred stock will convert be reduced below 30% of
the total amount of securities included in the registration. These registration
rights terminate on the earlier of the date which is five years after the
completion of this offering and the date when the shares of common stock into
which our series A convertible preferred stock will convert may be sold without
limitation as to volume or manner under Rule 144 under the Securities Act. The
holders
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of these registration rights have waived their piggyback registration rights in
connection with this offering.
The warrant holders have unlimited rights to require us to include the
1,377,223 shares of common stock subject to the exercise of the warrants in a
registration statement filed by us under the Securities Act, subject to certain
exceptions. In the event the registration is for an underwritten and secondary
offering and the underwriter advises us that marketing factors require a
limitation of the number of shares to be included in such registration, the
number of shares to be included shall be allocated as described in the
applicable warrant.
FORM S-3 REGISTRATIONS. After we have qualified for registration on
Form S-3 (which will not be available until at least 12 months after we become a
reporting company under the Securities Exchange Act of 1934), the holders of at
least 30% of the shares of common stock into which our series A convertible
preferred stock will convert at the completion of this offering may require us
to effect an unlimited number of registrations of their shares on Form S-3,
subject to certain size of offering limitations. We are not obligated, however,
to effect a registration on Form S-3 within 12 months following effectiveness of
the most recent registration on Form S-3 requested by the holders of these
registration rights.
EXPENSES. In connection with all registrations filed pursuant to exercise
of any registration rights, we will be responsible for paying all registration
expenses and the persons for whom we are registering shares will be responsible
for paying all selling expenses.
OTHER REGISTRATION RIGHTS. Pursuant to Giorgio G. DeLuca's separation
agreement, we have agreed to register a portion of his 490,681 shares of common
stock, including 154,966 shares of common stock subject to an option, under the
Securities Act if we register shares of common stock held by Leslie G. Rudd for
sale to the public in a public offering. The number of shares that Mr. DeLuca
may include is based on the ratio of the shares of common stock being offered by
Mr. Rudd to the total shares of common stock then owned by Mr. Rudd. This right
was originally described in his employment agreement, which has been terminated.
For a description of the agreement pursuant to which we agreed to honor this
registration right, see "Transactions with Related Parties--Other Transactions
with Our Directors and Officers."
PUT RIGHTS
Pursuant to Mr. DeLuca's separation agreement, we have agreed to honor his
right to require us to purchase 47,682 shares of our common stock from him at a
purchase price of $3.15 per share. This right was originally described in his
employment agreement, which has been terminated. For a description of the
agreement pursuant to which we agreed to honor this put right, see "Transactions
with Related Parties--Other Transactions with Our Directors and Officers."
AMENDMENT OF CHARTER DOCUMENTS
The Delaware 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 the certificate of
incorporation or bylaws of the corporation require a greater percentage. Our
second restated certificate of incorporation and restated by-laws do not require
a greater percentage. Immediately after this offering is completed, Mr. Rudd
will own % of our common stock and our management will collectively own
approximately % of our common stock. As a result, Mr. Rudd individually, and
collectively with individuals of our management, will be able to cause us to
amend our certificate of incorporation and bylaws, subject to any limitations
prescribed by law or our by-laws.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
74
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock.
We cannot assure you that a significant public market for our common stock will
develop or be sustained after this offering is completed. As described below,
holders of shares of our common stock that are currently outstanding will not be
able to resell those shares immediately after this offering due to contractual
and regulatory restrictions on resale. Future sales of substantial amounts of
our common stock, which sales include shares issued or issuable upon exercise of
outstanding warrants and options after the restrictions lapse or are released,
in the public market after this offering could:
- adversely affect the market price of our common stock prevailing from time
to time; and
- impair our ability to raise capital through the sale of equity securities.
Upon completion of this offering, we will have outstanding an aggregate of
shares of common stock, assuming no exercise of the underwriters'
over-allotment option. Of these outstanding shares, all of the shares that we
are selling in this offering, plus any shares issued upon exercise of the
underwriters' over-allotment option, will be freely tradable without restriction
or further registration under the Securities Act, unless the shares are
purchased by our "affiliates," as that term is defined in Rule 144 under the
Securities Act. Resales of shares acquired by affiliates are subject to
restrictions under Rule 144 under the Securities Act. The remaining shares
held by existing stockholders are "restricted securities," as that term is
defined in Rule 144 under the Securities Act. Restricted securities may be sold
in the public market only if they have been registered under the Securities Act
or if they qualify for an exemption from registration under Rule 144 or
Rule 701 under the Securities Act, which rules are summarized below.
LOCK-UP AGREEMENTS
All of our directors, officers and key employees listed in the section of
this prospectus entitled "Management" and our stockholders, as a group, will
hold an aggregate of shares of our common stock, representing % of our
common stock prior to this offering, assuming all of our outstanding shares of
series A convertible preferred stock are converted into 3,669,760 shares of our
common stock, have signed lock-up agreements under which they agreed not to
transfer or dispose of, directly or indirectly, any shares of our common stock
for a period of 180 days after the date of this prospectus. Transfers or
dispositions can be made sooner:
- with the prior written consent of FleetBoston Robertson Stephens Inc.;
- in the case of transfers to specified trusts or as a bona fide gift,
provided that the transferee remains subject to the lock-up restrictions.
As a result of these lock-up agreements and the provisions of Rule 144 and
Rule 701, additional shares will be available for sale in the public market as
follows:
- approximately restricted securities will be eligible for sale
beginning 90 days after the date of this prospectus, subject in some cases
to compliance with Rule 144;
- approximately additional restricted securities will be eligible for
sale beginning on the 181st day after the date of this prospectus upon
expiration of the lock-up agreements, subject in some cases to compliance
with Rule 144; and
- the remainder of the restricted securities will be eligible for sale from
time to time thereafter, subject in some cases to compliance with
Rule 144.
75
<PAGE>
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person, or persons whose shares are aggregated,
who has beneficially owned shares of our common stock for at least one year
would be entitled to sell within any three-month period a number of shares of
our common stock that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will be
approximately
shares immediately after this offering; or
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks before a notice on
Form 144 is filed with the SEC in connection with the sale.
Sales under Rule 144 are also subject to regulations on manner of sale and
notice requirements and the availability of current public information about us.
We are unable to estimate the number of shares that will be sold under Rule 144
because sales of shares under Rule 144 will depend on the market price for our
common stock, the personal circumstances of the sellers and other factors.
RULE 144(K)
Under Rule 144(k), a person who (1) is not one of our affiliates at any time
during the three months before a sale and (2) has beneficially owned the shares
of common stock proposed to be sold for at least two years, including the
holding period of any prior owner other than affiliate, is entitled to sell
those shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
each of our employees, officers, directors or consultants who purchases shares
of common stock from us under a compensatory plan or other written agreement is
eligible to resell the shares 90 days after the date of this prospectus in
reliance on Rule 144 without complying with restrictions, including the holding
period, contained in Rule 144.
REGISTRATION RIGHTS
After this offering is completed, holders of shares of our
common stock, or rights to acquire our common stock, will be entitled to require
us register those shares for resale in the public market. For a detailed
description of outstanding registration rights, see "Description of Capital
Stock--Registration Rights." Registration of these shares under the Securities
Act would result in the shares becoming freely tradeable immediately upon the
SEC's declaration that the registration is effective, except for shares that are
purchased by our affiliates.
STOCK OPTIONS
After this offering is completed, we intend to file registration statements
under the Securities Act covering shares of our common stock reserved for
issuance under our 1999 stock option plan and our 2000 directors' stock option
plan. The registration statements are expected to be filed and to become
effective as soon as practicable after the consummation of this offering. Shares
registered under each registration statement, subject to Rule 144 volume
limitations applicable to officers, directors and 10% stockholders and
contractual limitations under the lock-up agreements, will be available for sale
in the open market immediately after the effective date of the applicable
registration statement.
76
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., Chase H&Q, a division of Chase
Securities Inc., and Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated, have severally agreed with us, subject to the terms and conditions
of the underwriting agreement, to purchase from us the number of shares of
common stock listed opposite their names below. The underwriters are committed
to purchase and pay for all shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ---------
<S> <C>
FleetBoston Robertson Stephens Inc..........................
Chase Securities Inc........................................
Dain Rauscher Wessels.......................................
-------
Total...................................................
=======
</TABLE>
We have been advised by the representatives that the underwriters propose to
offer the shares of common stock to the public at the public offering price of
$ per share and to some dealers at that price less a concession of not more
than $ per share, of which $ may be re-allowed to other dealers. After
the initial public offering, these prices may be reduced by the representatives.
This reduction will not change the amount of proceeds to be received by us. The
common stock is offered by the underwriters, subject to receipt and acceptance
by them and subject to their right to reject any order in whole or in part.
Prior to this offering, there has been no public market for the common
stock. Consequently, the public offering price for the common stock offered by
this prospectus has been determined through negotiations among the
representatives and us. Among the factors considered in such negotiations were
prevailing market conditions, our financial information, market valuations of
other companies that we and the representatives believe to be comparable to us,
estimates of our business potential, the present state of our development and
other factors deemed relevant.
We have been advised by the underwriters that they do not intend to conform
sales to any accounts over which they exercise discretionary authority and they
do not expect sales to discretionary accounts to exceed 5% of the total number
of shares offered.
OVER-ALLOTMENT OPTION
We have granted to the underwriters an option, exercisable during the 30-day
period after the date of this prospectus, to purchase up to additional
shares of common stock and an option, on similar terms, to purchase up to
additional shares of common stock, to cover over-allotments, if any, at the
public offering price less the underwriting discount set forth on the cover page
of this prospectus. If the underwriters exercise their over-allotment option to
purchase any of the additional shares of common stock, the underwriters
have severally agreed, subject to certain conditions, to purchase approximately
the same percentage thereof as the number of shares to be purchase by each of
them bears to the total number of shares of common stock offered in this
offering. If purchased, theses additional shares will be sold by the
underwriters on the same terms as those on which the shares offered hereby are
being sold. We will be obligated, pursuant to the over-allotment option, to sell
shares to the underwriters to the extent the over-allotment option is exercised.
The underwriters may exercise the over-allotment option only to cover
over-allotments made in connection with the sale of the shares of common stock
offered in this offering.
77
<PAGE>
The following table summarizes the compensation to be paid by us to the
underwriters. This information is presented assuming either no exercise or full
exercise by the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
WITHOUT WITH
PER OVER-ALLOTMENT OVER-ALLOTMENT
SHARE OPTION OPTION
-------- -------------- --------------
<S> <C> <C> <C>
Public offering price................... $ $ $
Underwriting discounts and
commissions...........................
Proceeds, before expenses, to us........
</TABLE>
We estimate expenses payable by us in connection with this offering, other
than the underwriting discounts and commissions referred to above, will be
approximately $ .
INDEMNITY
The underwriting agreement contains covenants of indemnity among the
underwriters and us against certain civil liabilities, including liabilities
under the Securities Act, and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
LOCK-UP AGREEMENTS
Each executive officer, director, and substantially all of our security
holders have agreed, subject to specified exceptions, not to offer to sell,
contract to sell, or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to any shares of common stock or any options or warrants to
purchase any shares of common stock, or any securities convertible into or
exchangeable for shares of common stock owned as of the date of this prospectus
or thereafter acquired directly by those holders or with respect to which they
have the power of disposition, without the prior written consent of FleetBoston
Robertson Stephens Inc. This restriction terminates after the close of trading
of the shares on the 180th day of (and including) the day the shares commenced
trading on the Nasdaq National Market. However, FleetBoston Robertson
Stephens Inc. may, in its sole discretion and at any time or from time to time
before the termination of the 180-day period, without notice, release all or any
portion of the securities subject to lock-up agreements. There are no existing
agreements between the representatives of the underwriters and any of our
shareholders who have executed a lock-up agreement providing consent to the sale
of shares prior to the expiration of the lock-up period.
In addition, we have agreed that during the lock-up period we will not,
without the prior written consent of FleetBoston Robertson Stephens Inc.,
subject to certain exceptions, consent to the disposition of any shares held by
shareholders subject to lock-up agreements prior to the expiration of the
lock-up period, or issue, sell, contract to sell, or otherwise dispose of, any
shares of common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable for
shares of common stock other than our sale of shares in this offering, the
issuance of our common stock upon the exercise of outstanding options or
warrants, and the issuance of options under existing stock option and incentive
plans provided that those options do not vest before the lock-up period expires.
For a more detailed description of the lock-up provisions in conjunction with
resale restrictions under the Securities Act, see "Shares Eligible for Future
Sale."
LISTING
We have applied to list our common stock on Nasdaq National Market under the
proposed trading symbol "DEAN."
78
<PAGE>
STABILIZATION
We have been advised by the representatives that, pursuant to Regulations M
under the Securities Act, some persons participating in the offering may engage
in transactions, including stabilizing bids, syndicate covering transactions or
the imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the shares of common stock at a level above that
which might otherwise prevail in the open market. A "stabilizing bid" is a bid
for or the purchase of shares of common stock on behalf of the underwriters for
the purpose of fixing or maintaining the price of our common stock. A "syndicate
covering transaction" is a bid for or the purchase of common stock on behalf of
the underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A "penalty bid" is an arrangement that permits the
representatives to reclaim the selling concession from an underwriter or a
syndicate member are purchased by the representatives in a syndicate covering
transaction and therefore have not been effectively placed by the underwriter or
syndicate member. We have been advised by the representatives that these
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinue at any time.
DIRECTED SHARE PROGRAM
At our request, the underwriters have reserved up to 5% of the shares of
common stock for sale at the initial public offering price to persons who are
our directors, officers or employees, or who are otherwise associated with us
and our affiliates, and who have advised us of their desire to purchase these
directed shares. The number of shares of common stock available for sale to the
general public will be reduced to the extent that any directed shares are
purchased by any of the persons for whom they have been reserved. Any directed
shares that are not purchased will be offered by the underwriters on the same
basis as all other shares of common stock offered in this offering. We have
agreed to indemnify underwriters participating in our directed share program
against specific liabilities and expenses, including liabilities under the
Securities Act, in connection with the sale of directed shares.
79
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus will
be passed upon for us by Kaye, Scholer, Fierman, Hays & Handler, LLP, New York,
New York. Certain legal matters in connection with this offering will be passed
upon for the underwriters by Brobeck, Phleger & Harrison LLP, New York, New
York.
EXPERTS
The combined financial statements as of March 1, 1998 and for the year then
ended that are included in this prospectus have been audited by Grassi & Co.,
CPAs, PC, independent public accountants, as stated in their report appearing
herein, and have been so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
The consolidated financial statements and schedule of Dean & DeLuca, Inc. as
of February 28, 1999 and January 30, 2000 and for the year ended February 28,
1999 and the eleven-month period ended January 30, 2000 have been included
herein and in the registration statement in reliance upon the report of KPMG
LLP, independent auditors, and upon the authority of said firm as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1, of which
this prospectus is a part, under the Securities Act with respect to the common
stock offered in this offering. This prospectus, which is part of the
registration statement, does not contain all of the information included in the
registration statement or the accompanying exhibits and schedules. For
additional information about us and our common stock, you should refer to the
registration statement and the accompanying exhibits and schedules. Statements
contained in this prospectus regarding the contents of any contract, agreement
or other document to which we make reference are not necessarily complete. In
each instance, we make reference to the copy of the contract, agreement or other
document filed as an exhibit to the registration statement, of which this
prospectus is a part.
You may also read and copy the registration statement, the related exhibits
and the other materials we file with the SEC at its public reference facilities
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661; and 7 World Trade
Center, Thirteenth Floor, New York, New York 10048. You may also obtain copies
of those documents at prescribed rates by writing to the Public Reference
Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference facilities. The SEC also
maintains a Web site that contains reports, proxy and information statements and
other information regarding issuers that file with the SEC. The site's address
is WWW.SEC.GOV.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities and Exchange Act of 1934
and, accordingly, will file periodic reports, proxy statements and other
information with the SEC. Our periodic reports, proxy statements and other
information will be available for inspection and copying at the SEC's public
reference rooms and on the SEC's Web site.
80
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Dean & DeLuca, Inc. and Subsidiaries:
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets at February 28, 1999 and
January 30, 2000........................................ F-3
Consolidated Statements of Operations for the Year Ended
February 28, 1999
and the Eleven-month Period Ended January 30, 2000...... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the Year Ended
February 28, 1999 and the Eleven-month Period Ended
January 30, 2000........................................ F-5
Consolidated Statements of Cash Flows for the Year Ended
February 28, 1999
and the Eleven-month Period Ended January 30, 2000...... F-6
Notes to Consolidated Financial Statements................ F-7
Dean & DeLuca Brands, Inc. and Affiliates:
Independent Auditors' Report.............................. F-27
Combined Balance Sheet at March 1, 1998................... F-28
Combined Statement of Operations for the Year Ended March
1, 1998................................................. F-29
Combined Statement of Stockholders' Deficit for the Year
Ended March 1, 1998..................................... F-30
Combined Statement of Cash Flows for the Year Ended March
1, 1998................................................. F-31
Notes to Combined Financial Statements.................... F-32
Dean & DeLuca Inc. and Subsidiaries:
Pro Forma Consolidated Statement of Operations for the
Eleven-month
Period Ended January 30, 2000........................... F-44
Notes to Pro Forma Consolidated Statement of Operations... F-45
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Dean & DeLuca, Inc.:
We have audited the accompanying consolidated balance sheets of Dean &
DeLuca, Inc. and subsidiaries as of February 28, 1999 and January 30, 2000, and
the consolidated statements of operations, stockholders' equity (deficit), and
cash flows for the year ended February 28, 1999 and the eleven-month period
ended January 30, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Dean & DeLuca, Inc. and subsidiaries as of February 28, 1999 and January 30,
2000, and the results of their operations and their cash flows for the year
ended February 28, 1999 and the eleven-month period ended January 30, 2000, in
conformity with generally accepted accounting principles.
KPMG LLP
April 11, 2000
Wichita, Kansas
F-2
<PAGE>
DEAN & DELUCA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28, JANUARY 30,
1999 2000
ASSETS ------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 443,537 $17,116,608
Accounts receivable, less allowance for doubtful accounts,
of $66,600 in 1999 and $154,374 in 2000................. 518,202 763,415
Receivables from related parties (note 12)................ 94,037 115,667
Inventories............................................... 3,410,261 4,840,403
Prepaid expenses and other current assets................. 337,324 616,954
----------- -----------
Total current assets................................ 4,803,361 23,453,047
Property and equipment, net (note 4)........................ 10,562,333 13,407,950
Intangible assets, net of accumulated amortization of
$8,832,453 in 1999 and $9,221,860 in 2000................. 971,949 6,469,707
Other assets................................................ 123,313 82,460
----------- -----------
$16,460,956 $43,413,164
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt and capital lease
obligations (note 5).................................... $ 69,550 $ 238,056
Accounts payable.......................................... 2,619,146 6,439,800
Current portion of notes payable to related parties (note
6)...................................................... 4,156,313 --
Accrued expenses.......................................... 2,074,304 3,961,067
Notes payable to bank (note 7)............................ 480,000 350,000
Payables to related parties (note 12)..................... 185,662 222,418
----------- -----------
Total current liabilities........................... 9,584,975 11,211,341
Long-term debt and capital lease obligations, less current
portion (note 5).......................................... 626,844 2,611,603
Notes payable to related parties, less current portion (note
6)........................................................ 21,781,501 --
Deferred lease incentive.................................... 181,666 163,333
Deferred rent (note 9)...................................... 1,911,975 1,894,009
----------- -----------
Total liabilities................................... 34,086,961 15,880,286
----------- -----------
Stockholders' equity (deficit) (notes 3 and 8):
Preferred stock, authorized 4,000,000 shares:
Series A convertible preferred stock, $.01 par value.
Authorized, issued and outstanding 3,669,760 shares in
2000, at stated value............................... -- 19,999,825
Common stock, $.01 par value. Authorized 2,000,000 shares
in 1999 and 40,000,000 shares in 2000; issued and
outstanding 1,199,274 shares in 1999 and 11,107,031
shares in 2000.......................................... 11,993 111,070
Additional paid-in capital................................ 12,645,324 42,907,055
Deferred stock-based compensation......................... -- (597,695)
Accumulated deficit....................................... (24,173,247) (34,887,377)
Members' deficit.......................................... (6,110,075) --
----------- -----------
Total stockholders' equity (deficit)................ (17,626,005) 27,532,878
Commitments (notes 9 and 11)................................
----------- -----------
$16,460,956 $43,413,164
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
DEAN & DELUCA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
FEBRUARY 28, JANUARY 30,
1999 2000
------------ ------------
<S> <C> <C>
Net revenues................................................ $49,302,531 $59,616,411
Cost of sales............................................... 28,109,575 34,153,092
----------- -----------
Gross profit............................................ 21,192,956 25,463,319
----------- -----------
Operating expenses:
Advertising............................................... 1,915,829 7,181,301
Sales and other operating................................. 17,493,138 22,529,882
General and administrative................................ 4,408,941 5,661,242
Amortization of intangible assets......................... 1,663,893 389,407
----------- -----------
Total operating expenses................................ 25,481,801 35,761,832
----------- -----------
Loss from operations.................................... (4,288,845) (10,298,513)
Interest expense (note 12).................................. 1,831,292 2,118,966
Other expense (income)...................................... (203,140) (172,068)
----------- -----------
Loss before minority interest and income taxes.......... (5,916,997) (12,245,411)
Losses allocable to minority interest....................... 197,673 3,252,778
----------- -----------
Loss before income taxes................................ (5,719,324) (8,992,633)
Income tax expense (benefit)................................ -- --
----------- -----------
Net loss................................................ $(5,719,324) $(8,992,633)
=========== ===========
Basic and diluted net loss per share--pro forma to reflect
income taxes (note 2(o)).................................. $ (1.48) $ (1.73)
=========== ===========
Shares used in computing basic and diluted net loss per
share--pro forma to reflect income taxes (note 2(o))...... 3,862,287 5,195,147
=========== ===========
Basic and diluted net loss per share--pro forma to reflect
income taxes and conversion of preferred stock (notes 2(o)
and 2(r)) (unaudited)..................................... $ (1.56)
===========
Shares used in computing basic and diluted net loss per
share--pro forma to reflect income taxes and conversion of
preferred stock (notes 2(o) and 2(r)) (unaudited)......... 5,782,960
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
DEAN & DELUCA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL MEMBERS' STOCKHOLDERS'
PREFERRED COMMON PAID-IN DEFERRED ACCUMULATED EQUITY EQUITY
STOCK STOCK CAPITAL COMPENSATION DEFICIT (DEFICIT) (DEFICIT)
----------- -------- ----------- ------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 1, 1998...... $ -- $11,993 $12,645,324 $ -- $(20,745,530) $(4,018,468) $(12,106,681)
Net loss...................... -- -- -- -- (3,427,717) (2,291,607) (5,719,324)
Capital contribution.......... -- -- -- -- -- 200,000 200,000
----------- -------- ----------- --------- ------------ ----------- ------------
Balance at February 28,
1999........................ -- 11,993 12,645,324 -- (24,173,247) (6,110,075) (17,626,005)
Net loss...................... -- -- -- -- (10,714,130) 1,721,497 (8,992,633)
Capital contribution (note
12)......................... -- -- 2,251,310 -- -- -- 2,251,310
Exercise of stock options..... -- 535 374,462 -- -- -- 374,997
Note receivable attributable
to exercise of stock
options..................... -- -- (374,997) -- -- -- (374,997)
Issuance of warrants to
acquire common stock........ -- -- 444,807 -- -- -- 444,807
Retirement of common stock.... -- (18) (12,903) -- -- -- (12,921)
Proceeds from beneficial
conversion feature of
convertible debt............ -- -- 363,922 -- -- -- 363,922
The Reorganization (note 3):
Conversion of notes payable
to related parties........ -- 22,222 16,644,581 -- -- 7,428,351 24,095,154
Elimination of equity of
reorganized entities...... -- (34,732) (993,737) -- -- (3,039,773) (4,068,242)
Issuance of common stock:
To minority interest...... -- 18,096 7,871,704 -- -- -- 7,889,800
To controlling interest... -- 92,974 4,264,955 -- -- -- 4,357,929
Issuance of 3,669,760 shares
of series A convertible
preferred stock, net of
issuance costs.............. 19,999,825 -- (1,194,873) -- -- -- 18,804,952
Deferred compensation related
to stock option grants...... -- -- 622,500 (622,500) -- -- --
Amortization of deferred
compensation................ -- -- -- 24,805 -- -- 24,805
----------- -------- ----------- --------- ------------ ----------- ------------
Balance at January 30, 2000... $19,999,825 $111,070 $42,907,055 $(597,695) $(34,887,377) $ -- $ 27,532,878
=========== ======== =========== ========= ============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
DEAN & DELUCA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
FEBRUARY 28, JANUARY 30,
1999 2000
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(5,719,324) $(8,992,633)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization......................... 3,306,310 2,537,539
Losses allocable to minority interest................. (197,673) (3,252,778)
Loss on disposal of property and equipment............ 118,412 55,870
Provision for impairment.............................. 64,475 --
Gain on operating lease termination................... (396,763) (95,366)
Amortization of deferred compensation................. -- 24,805
Noncash interest expense.............................. -- 363,922
Changes in:
Accounts receivable................................. 477,372 (245,213)
Receivable from related parties..................... (64,348) (21,630)
Inventories......................................... (1,178,869) (1,430,142)
Prepaid expenses and other current assets........... (118,129) (279,630)
Other assets........................................ 417 40,853
Accounts payable.................................... (8,135) 3,820,654
Accrued expenses.................................... 2,085,787 3,324,363
Payable to related parties.......................... (6,757) 36,756
Lease incentive..................................... (19,990) (18,333)
Deferred rent....................................... 26,521 77,400
----------- -----------
Net cash used in operating activities............. (1,630,694) (4,053,563)
----------- -----------
Cash flows used in investing activities:
Purchase of property and equipment........................ (1,728,852) (5,295,716)
Proceeds from lease termination........................... 396,763 --
Proceeds from sale of property and equipment.............. -- 246,098
----------- -----------
Net cash used in investment activities............ (1,332,089) (5,049,618)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable to bank and
long-term debt.......................................... 555,000 2,377,374
Proceeds from issuance of notes payable to related
parties................................................. 2,317,735 5,069,485
Repayment of notes payable to bank and long-term debt..... (637,500) (289,886)
Repayment of long-term debt and capital lease
obligation.............................................. (43,316) (69,223)
Repayment of notes payable to related parties............. -- (548,336)
Capital contributions..................................... 200,000 --
Equity contributions by minority interest................. 180,000 --
Retirement of common stock................................ -- (12,921)
Proceeds from issuance of warrants........................ -- 444,807
Proceeds from issuance of preferred stock, net............ -- 18,804,952
----------- -----------
Net cash provided by financing activities......... 2,571,919 25,776,252
----------- -----------
Net increase (decrease) in cash................... (390,864) 16,673,071
Cash at beginning of year................................... 834,401 443,537
----------- -----------
Cash at end of year......................................... $ 443,537 $17,116,608
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
DEAN & DELUCA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999 AND JANUARY 30, 2000
(1) DESCRIPTION OF BUSINESS
Dean & DeLuca, Inc. and subsidiaries (collectively referred to as the
Company) are retailers of gourmet and specialty foods, high premium wines and
upscale kitchenware.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF FINANCIAL STATEMENTS
Subsequent to the Reorganization, which occurred effective November 28,
1999, (see note 3), the accompanying financial statements represent the
consolidated financial statements of Dean & DeLuca, Inc. and its subsidiaries,
which are Dean & DeLuca Brands, Inc. and its subsidiaries (Brands), Dean &
DeLuca Atlanta, LLC (Atlanta), Dean & DeLuca Markets, LLC (Markets) and D&D
Cafes of NC, LLC (Cafes). Prior to the Reorganization, the accompanying
financial statements include the accounts of Brands, Atlanta, Markets, and Cafes
on a combined basis. Combined financial statements are presented prior to the
Reorganization because an individual (the controlling owner) owned a controlling
interest in Brands, Atlanta and Markets, and because Cafes was under common
management with Atlanta and had substantially the same ownership as Atlanta. The
portion of each entity not owned by the controlling owner (amounting to 18.5%
for Brands, 20% for Markets, and 49.7% for Atlanta, at February 28, 1999) is
considered as minority interest in the accompanying combined financial
statements. In those periods when losses applicable to the minority interest of
Brands, Atlanta and Markets exceed the minority interest in the equity capital
of the respective entity, such excess (the "excess losses") is charged against
the controlling interests. The controlling interest is credited to the extent of
such "excess losses" previously absorbed when the respective entity subsequently
reports earnings or receives equity capital contributions.
The financial statements include the operations of a wine room located
within one store facility. The Company controls the wine room operations through
a combination of a concession agreement and a management agreement.
All material intercompany balances and transactions have been eliminated in
consolidation.
The accompanying financial statements as of February 28, 1999 and
January 30, 2000 and the respective year and eleven-month period then ended,
which are prepared as described in the preceding paragraphs, are referred to
herein as the "consolidated financial statements."
(B) FISCAL YEAR
Commencing with the period beginning March 1, 1999, the Company's fiscal
year ends on the Sunday nearest to January 31. Previously, the Company's fiscal
year ended on the Sunday nearest to February 28. Accordingly, fiscal 2000 is an
eleven-month period.
(C) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments with
remaining maturities of less than 90 days at the date of purchase. The Company
is exposed to credit risk in the event of default by the financial institutions
or the issuers of these investments to the extent of the amounts recorded on the
balance sheet in excess of amounts that are insured by the FDIC. As of
January 30, 2000, cash equivalents consisted principally of a money market
account and commercial paper.
F-7
<PAGE>
DEAN & DELUCA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999 AND JANUARY 30, 2000
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The carrying value of the Company's cash and cash equivalents, accounts
receivable and accounts payable approximates fair value. Financial instruments
that subject the Company to concentration of credit risk consists primarily of
cash and cash equivalents and trade accounts receivable.
The Company's receivables arise from sales to a number of customers and
credit risk is not significant for any specific customer.
The carrying value of notes payable to bank and long-term debt approximates
fair value due to the floating interest rate of such instruments.
(E) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method. Occupancy expenses are included in cost of
sales and amounted to $4,201,623 and $4,286,390 for the year ended February 28,
1999 and the eleven-month period ended January 30, 2000, respectively.
(F) PROPERTY AND EQUIPMENT
Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are amortized on a
straight-line basis over the lesser of the remaining lease term, including
options which management intends to exercise, or the estimated useful life of
the asset. The range of estimated useful lives are as follows:
<TABLE>
<S> <C>
Equipment and fixtures...................................... 1 to 10 years
Computer software........................................... 1 to 3 years
Leasehold improvements...................................... 5 to 30 years
Vehicles.................................................... 3 to 5 years
</TABLE>
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE (SOP 98-1). SOP 98-1 provides guidance on
capitalization of the costs incurred for computer software developed or obtained
for internal use. The Company adopted SOP 98-1 for the eleven-month period ended
January 30, 2000. Software development costs include costs relating to software
used to operate the Company's web site as well as other software obtained.
Prior to March 1, 1999, substantially all web site development costs were
expensed as incurred.
(G) INTANGIBLE ASSETS
Goodwill arising from the Reorganization (see note 3) is being amortized
over three years. The unamortized balance amounts to $5,560,100 at January 30,
2000. Goodwill arising from the controlling owner's acquisition of ownership
interests in Brands is being amortized over three years from the respective
dates of acquisition. Other intangible assets consist primarily of trademarks
and trade names. Such intangible assets were amortized on the straight-line
method over a period of 40 years for the
F-8
<PAGE>
DEAN & DELUCA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999 AND JANUARY 30, 2000
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
year ended February 28, 1999 and prior periods. Commencing March 1, 1999, the
amortization period was changed prospectively to 14 years. The effect of such
change was not material. The unamortized balance of such intangible assets
amounts to $971,949 and $911,106 at February 28, 1999 and January 30, 2000,
respectively.
(H) IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates its long-lived assets, including goodwill and certain
identifiable intangibles, for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of any asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less cost to
sell.
(I) DEFERRED LEASE INCENTIVE
Lease incentives received from lessors are amortized on a straight-line
basis over the lease term.
(J) REVENUE RECOGNITION
Revenue from internet and catalogue sales is recognized at the time the
merchandise is shipped to the customer. An allowance is recorded for returns
based upon historical experience. Included in cost of sales are costs incurred
for shipping, amounting to $840,999 and $1,956,615 for the year ended
February 28, 1999 and the eleven-month period ended January 30, 2000,
respectively, net of amounts charged customers for shipping, amounting to
$683,267 and $1,446,086 for the year ended February 28, 1999 and the
eleven-month period ended January 30, 2000, respectively.
Revenue from retail segment sales is recorded in the period of the sale.
Sale returns, which are not material, are recorded in the period of return as a
reduction of sales.
(K) CATALOGUE PRODUCTION AND MAILING COSTS
Catalogue production and mailing costs are deferred as prepaid expenses when
incurred and amortized over a period not exceeding six months. The amortization
per catalogue is based upon the relative percentage of estimated monthly
catalogue sales to the total estimated catalogue sales during the period.
Catalogue production and mailing costs, amounting to $151,616 at
February 28, 1999 and $144,462 at January 30, 2000 were capitalized as prepaid
expenses. Other advertising costs are expensed in the period when the
advertising is presented in the applicable media for the first time. Accrued
advertising is included in accrued expenses and amounts to $0 and $976,149 at
February 28, 1999 and January 30, 2000, respectively.
F-9
<PAGE>
DEAN & DELUCA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999 AND JANUARY 30, 2000
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(L) PRE-OPENING COSTS
Pre-opening costs incurred in connection with the opening of new retail
locations are expensed in the period incurred. Such costs relate primarily to
rent, hiring and training of personnel and business promotion and are included
in sales and other operating expense. Such costs amounted to $109,969 and
$178,523 for the year ended February 28, 1999 and the eleven-month period ended
January 30, 2000, respectively.
(M) STOCK-BASED COMPENSATION
The Company uses the intrinsic-value method to account for its stock-based
compensation plans. As such, compensation expense would be recorded over the
vesting period only if the current market price of the underlying stock exceeded
the exercise price on the date of grant.
(N) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. A valuation allowance is recorded for deferred tax assets
when it is not more likely than not that the benefit of such deferred tax assets
will be realized. Markets, Cafes, and Atlanta are limited liability companies
and, as such, results of operations of such entities were included in the
members' individual income tax returns prior to the date of the Reorganization
(see note 3). Accordingly, no provision or benefit for income taxes have been
recorded for these entities in the accompanying financial statements for such
periods.
(O) NET LOSS PER SHARE--PRO FORMA TO REFLECT INCOME TAXES
Prior to the Reorganization (see note 3), income tax expense or benefit
arising from the results of operations of Atlanta, Markets and Cafes, all
limited liability companies, was not recorded in the accompanying financial
statements. Subsequent to the Reorganization, such results of operations are
subject to corporate income taxation.
Net loss per share information is presented on a pro forma basis as if the
results of operations of Atlanta, Markets and Cafes had been subject to
corporate income taxation for all periods presented. There is not any income tax
expense or benefit on a pro forma basis for the year ended February 28, 1999 or
the eleven-month period ended January 30, 2000 due to losses having been
incurred for both periods, and management's determination that valuation
allowances are appropriate for the full amount of net deferred tax assets at
February 28, 1999 and January 30, 2000.
F-10
<PAGE>
DEAN & DELUCA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999 AND JANUARY 30, 2000
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basic net loss per share--pro forma to reflect income taxes is computed
using the weighted-average number of outstanding shares of common stock,
determined as follows:
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
FEBRUARY 28, JANUARY 30,
1999 2000
------------ ------------
<S> <C> <C>
Shares issued to controlling owner of entities
involved in Reorganization accounted for similar
to a pooling of interests (note 3) considered
outstanding for entire period (exclusive of shares
issued upon conversion of convertible debt)....... 3,862,287 3,862,287
Weighted-average effect of shares issued to
controlling owner arising from conversion of
convertible debt (note 6)......................... -- 999,939
Weighted-average effect of shares issued in
Reorganization accounted for by purchase method of
accounting (note 3)............................... -- 332,921
--------- ---------
Weighted average shares outstanding............. 3,862,287 5,195,147
========= =========
</TABLE>
Diluted net loss per share--pro forma to reflect income taxes is computed
using the weighted-average number of outstanding shares of common stock, and,
when dilutive, potential common shares issuable from options and warrants to
purchase common stock, using the treasury stock method, and from convertible
securities, using the if-converted method. The following potential common shares
issuable have been excluded from the computation of diluted loss per share for
all periods presented because the effect would have been anti-dilutive.
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
FEBRUARY 28, JANUARY 30,
1999 2000
------------ ------------
<S> <C> <C>
Shares issuable under stock options and warrants.... 455,465 2,254,969
Shares issuable upon conversion of preferred
stock............................................. -- 3,669,760
------- ---------
Total........................................... 455,465 5,924,729
======= =========
</TABLE>
Basic and diluted net loss per share-pro forma to reflect income taxes and
conversion of preferred stock is presented for the eleven-month period ended
January 30, 2000 to reflect per share data assuming the conversion of all
outstanding shares of preferred stock into common stock on a one-for-one basis
as if the conversion occurred as of the dates of issuance. The data is unaudited
(see notes 2(r) and 8).
F-11
<PAGE>
DEAN & DELUCA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999 AND JANUARY 30, 2000
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(P) STATEMENTS OF CASH FLOWS
Noncash investing and financing activities included:
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
FEBRUARY 28, JANUARY 30,
1999 2000
------------ ------------
<S> <C> <C>
Interest expense reflected as notes payable to
related parties................................... $1,725,919 $ 1,437,600
Issuance of common stock pursuant to the
Reorganization (note 3):
To minority interest.............................. -- 7,889,800
To controlling interest........................... -- 4,357,929
Note receivable attributable to exercise of stock
options........................................... -- 374,997
Conversion of notes payable to equity by controlling
owner (note 3).................................... -- 24,095,154
Notes payable converted to equity of the Entities by
minority interests (note 3)....................... -- 5,545,099
Forgiveness of liability for interest expense on
notes payable to related parties (note 12)........ -- 2,251,310
Deferred stock-based compensation................... -- 622,500
========== ===========
</TABLE>
Cash paid for interest is as follows:
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
FEBRUARY 28, JANUARY 30,
1999 2000
------------ ------------
<S> <C> <C>
Interest............................................ $77,483 $477,910
======= ========
</TABLE>
(Q) USE OF ESTIMATES
Preparation of the Company's financial statements required management to
make certain estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results may differ from
those estimates.
(R) INITIAL PUBLIC OFFERING
The Board of Directors authorized the filing of a registration statement
with the Securities and Exchange Commission (SEC) that would permit the Company
to sell shares of common stock in connection with a proposed initial public
offering (IPO). If the IPO is consummated under the terms presently anticipated,
all the then outstanding shares of the Company's Series A convertible preferred
stock will automatically convert into shares of common stock on a one-for-one
basis upon the closing of the proposed IPO.
F-12
<PAGE>
DEAN & DELUCA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999 AND JANUARY 30, 2000
(3) THE REORGANIZATION
On November 30, 1999, all the equity owners of Brands, Atlanta, Markets and
Cafes (the Entities) entered into an exchange agreement (the Exchange Agreement)
whereby such equity owners agreed to transfer all the ownership interests held
by them in the aforementioned entities to Dean & DeLuca, Inc. (a holding company
with no prior operations which was formed to acquire ownership of the Entities)
in exchange for common stock of Dean & DeLuca, Inc. (the Reorganization). The
Exchange Agreement also provided that all indebtedness of any of the Entities to
an equity owner must be converted to equity in the respective entity prior to
the exchange of ownership interests. An individual owned a controlling interest
in Brands, Atlanta and Markets prior to the Reorganization and, subsequent to
the Reorganization, owns a controlling interest in Dean & DeLuca, Inc. No equity
owner held a controlling interest in Cafes. Consequently, all equity owners,
including the individual who is the controlling owner of the other entities and
who owns a 48.2% ownership interest in Cafes, are considered as minority
interests with respect to Cafes. To effect the Reorganization, Dean &
DeLuca, Inc. issued shares of common stock as follows:
<TABLE>
<CAPTION>
ISSUED TO
-----------------------
CONTROLLING MINORITY
ISSUED TO EQUITY OWNERS OF: OWNER INTERESTS
- --------------------------- ----------- ---------
<S> <C> <C>
Brands................................................. 7,825,570 724,017
Atlanta................................................ 735,647 727,296
Markets................................................ 736,225 184,056
Cafes.................................................. -- 174,220
--------- ---------
9,297,442 1,809,589
========= =========
</TABLE>
The total consideration issued to minority interests amounted to $7,889,800
based upon a value of approximately $4.36 per share of common stock issued,
which in management's opinion was the fair market value of the common stock at
date of issuance.
The acquisition of the ownership of the Entities acquired from the minority
interests has been accounted for under the purchase method of accounting and,
accordingly, the purchase price has been allocated to the assets acquired and
liabilities assumed on the basis of estimated fair values at date of
acquisition. As a result of such acquisition, the Company has recorded goodwill
of $5,887,165 which is being amortized over three years.
The exchange of ownership interests in Brands, Atlanta and Markets by the
controlling owner has been accounted for at historical costs to the controlling
owner in a manner similar to a pooling of interests. Accordingly, the
accompanying financial statements reflect the excess of costs to the controlling
owner over the proportionate underlying net deficit acquired amounting to
approximately $8.4 million arising from the controlling owner's acquisition of
an 81.5% ownership of the outstanding common stock of Brands during the year
ended March 3, 1996 for cash of approximately $7.1 million.
F-13
<PAGE>
DEAN & DELUCA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999 AND JANUARY 30, 2000
(3) THE REORGANIZATION (CONTINUED)
Notes payable to related parties converted in connection with the
Reorganization were as follows:
<TABLE>
<S> <C>
Converted by controlling owner.............................. $24,095,154
Converted by minority interest.............................. 5,545,099
-----------
Total................................................... $29,640,253
===========
</TABLE>
Pursuant to the Exchange Agreement, options and warrants to acquire common
stock of Brands were canceled and options and warrants to acquire common stock
of Dean & DeLuca, Inc. were issued in an amount approximately equal to the
number of shares of common stock that the holder would have obtained if the
options or warrants had been exercised immediately prior to the Reorganization
with appropriate adjustment to the per share exercise price.
It was agreed among the parties to the Exchange Agreement, that the
Reorganization be effective as of November 28, 1999.
The following table summarizes the pro forma results of operations for the
year ended February 28, 1999 and the eleven-month period ended January 30, 2000
as if the Reorganization had been consummated at the beginning of the respective
periods. In presenting the pro forma information, losses allocable to minority
interest and interest expense applicable to notes payable to related parties
converted to equity in connection with the Reorganization have been excluded and
amortization expense of goodwill arising from the Reorganization has been
included in the pro forma results of operations.
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
FEBRUARY 28, JANUARY 30,
1999 2000
------------ ------------
<S> <C> <C>
Revenues.......................................... $49,302,531 $ 59,616,411
Net loss.......................................... $(6,122,207) $(11,754,509)
Net loss per share................................ $ (0.64) $ (1.11)
=========== ============
Pro forma weighted-average shares outstanding..... 9,576,522 10,624,627
=========== ============
</TABLE>
F-14
<PAGE>
DEAN & DELUCA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999 AND JANUARY 30, 2000
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment and accumulated depreciation is as
follows:
<TABLE>
<CAPTION>
FEBRUARY 28, JANUARY 30,
1999 2000
------------ -----------
<S> <C> <C>
Equipment and fixtures............................. $ 7,767,898 $ 9,841,390
Computer software.................................. 16,805 1,321,580
Leasehold improvements............................. 7,438,541 8,809,035
Vehicles........................................... 116,634 104,358
Construction in progress........................... 344,321 351,952
----------- -----------
15,684,199 20,428,315
Less accumulated depreciation and amortization..... 5,121,866 7,020,365
----------- -----------
Net property and equipment................... $10,562,333 $13,407,950
=========== ===========
</TABLE>
The above amounts include capitalized leased assets amounting to $600,249
and accumulated amortization applicable to such assets amounting to $340,107 and
$407,197 as of February 28, 1999 and January 30, 2000, respectively.
(5) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Cafes has entered into certain financing agreements with a commercial bank
to borrow up to $2,350,000 under revolving lines of credit with interest payable
at LIBOR plus 2% (7.89% at January 30, 2000). Interest is paid monthly on the
outstanding balance. The amounts outstanding under such agreements amounted to
$325,000 and $1,923,888 at February 28, 1999 and January 30, 2000, respectively.
Principal on each note is paid in equal monthly installments, commencing in
December 1999 and continuing on each successive month thereafter with final
payments of all unpaid principal and accrued interest due at various dates
through December 2005. These notes are guaranteed by certain stockholders of the
Company and such stockholders are indemnified with respect to such guarantees by
Dean & DeLuca, Inc.
At January 30, 2000, the Company has $623,600 outstanding on a note payable
to bank with interest at LIBOR plus 2% (7.89% at January 30, 2000) payable in
monthly installments commencing on September 30, 1999. Remaining unpaid
principal and accrued interest is payable on April 30, 2001.
F-15
<PAGE>
DEAN & DELUCA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999 AND JANUARY 30, 2000
(5) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
The Company has recorded the cost of certain leased equipment as capitalized
lease obligations. Future minimum capital lease payments and principal payments
on long-term debt as of January 30, 2000 are as follows:
<TABLE>
<CAPTION>
CAPITAL
LEASE LONG-TERM
OBLIGATIONS DEBT
----------- ----------
<S> <C> <C>
Year ending January 30,
2001................................................ $ 75,675 $ 189,881
2002................................................ 46,682 959,314
2003................................................ 46,682 335,714
2004................................................ 46,682 519,721
2005................................................ 46,682 542,858
Thereafter.......................................... 147,824 --
-------- ----------
Total minimum payments.............................. 410,227 2,547,488
Less amount representing interest................... 108,056 --
-------- ----------
Present value of minimum lease payments and unpaid
balance of long-term debt......................... 302,171 2,547,488
Less current portion................................ 48,175 189,881
-------- ----------
$253,996 $2,357,607
======== ==========
</TABLE>
F-16
<PAGE>
DEAN & DELUCA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999 AND JANUARY 30, 2000
(6) NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, JANUARY 30,
1999 2000
------------ -----------
<S> <C> <C>
Convertible notes payable to controlling owner, due
November 2, 2000 with interest at a rate of 7%
per annum, convertible into shares of common
stock of Brands at a rate of $7.50 per share..... $13,133,828 $ --
Unsecured notes payable to members of Atlanta, due
in monthly installments beginning January 2001
with final payment due in December 2001, with
interest at prime rate plus 2%................... 8,545,717 --
Unsecured non-interest bearing notes payable to
members of Markets due on certain dates through
December 26, 1999................................ 400,000 --
Notes payable to members of Markets secured by
assets of Markets, due December 31, 1999 with
interest at a rate of 9%......................... 2,723,577 --
Unsecured notes payable to members of Cafes, due in
monthly installments beginning December 2002,
with interest at prime rate plus 2%.............. 101,956 --
Unsecured note payable to controlling owner, due
April 15, 1999 with interest at prime rate plus
1.25%............................................ 1,032,736 --
----------- -----------
25,937,814 --
Less current portion............................... 4,156,313 --
----------- -----------
$21,781,501 $ --
=========== ===========
</TABLE>
Convertible notes payable of Brands to the controlling owner with an unpaid
balance of $16,666,803 at November 30, 1999 were converted into 2,222,240 shares
of common stock of Brands at a rate of $7.50 per share in connection with the
Reorganization.
During the period from August 6, 1999 to October 27, 1999, Brands issued
convertible notes payable to owners with a face amount of $2,155,157. Such notes
were convertible into common stock of Brands at a rate of $7.50 per share or
approximately $3.06 per equivalent share of the Company's common stock
subsequent to the Reorganization. The difference between the converted basis of
approximately $3.06 per share and the fair value of the Company's common stock
on an equivalent basis on the respective dates of issuance (a weighted-average
fair value of $3.58 per share) as estimated by management amounted to $363,922
and has been recorded as additional paid-in capital attributable to a beneficial
conversion feature, with a corresponding increase to noncash interest expense
since such debt was convertible immediately upon issuance.
F-17
<PAGE>
DEAN & DELUCA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999 AND JANUARY 30, 2000
(7) NOTES PAYABLE TO BANK
Notes payable to bank consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, JANUARY 30,
1999 2000
------------ -----------
<S> <C> <C>
Prime rate plus 3.5% (11.25% at February 28, 1999)
line of credit payable to bank which expired October
1, 1999............................................. $100,000 $ --
Prime rate (8.5% at January 30, 2000) payable on a
$300,000 line of credit facility with bank which is
payable on demand, matured March 24, 2000,
collateralized by certain inventory................. 130,000 250,000
Prime rate (8.5% at January 30, 2000) line of credit
payable to bank which is payable on demand and, if
not demanded sooner, is due December 1, 2000,
collateralized by certain inventory................. 250,000 100,000
-------- --------
Total notes payable............................. $480,000 $350,000
======== ========
</TABLE>
(8) STOCKHOLDERS' EQUITY
SERIES A CONVERTIBLE PREFERRED STOCK
On November 30, 1999, the Company entered into an agreement whereby the
Company (i) on November 30, 1999, issued 2,750,000 shares of Series A
convertible preferred stock for an aggregate issuance price of $14,987,225 to an
unrelated party and (ii) on December 31, 1999, issued 919,760 shares of such
stock for an aggregate issuance price of $5,012,600 to the same unrelated party.
Costs incurred in connection with the issuances amounted to $1,194,873.
The Series A convertible preferred stock has certain rights and privileges
including the following:
- Entitled to receive dividends, if and when declared at the sole discretion
of the Board of Directors, at an annual 8% rate of the stated value
($5.4499 per share) on a non-cumulative basis.
- Entitled to a liquidation preference of the stated value per share
($5.4499 per share) prior to the holders of the common stock receiving any
liquidation proceeds.
- Entitled to participate on an "as converted basis" with common stock
holders to liquidation proceeds in excess of the aggregate of the stated
value of the Series A convertible preferred stock and the cost paid for
common shares prior to December 31, 1999.
- Convertible to common stock (i) automatically at the closing of an initial
public offering of the Company's common stock or (ii) any time at the
option of the holder. The conversion rate is equal to one share of common
stock for each share of Series A convertible preferred stock.
F-18
<PAGE>
DEAN & DELUCA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999 AND JANUARY 30, 2000
(8) STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS TO ACQUIRE COMMON STOCK
Brands issued warrants to acquire its common stock as follows:
<TABLE>
<CAPTION>
NUMBER OF
WARRANT SHARES OF EXERCISE
ISSUANCE COMMON PRICE
ISSUE DATE ISSUED TO PROCEEDS STOCK PER SHARE
- ---------------------- ---------------------- -------- --------- ---------
<S> <C> <C> <C> <C>
August 6, 1999........ Controlling Owner $361,900 470,000 $7.00
August 2, 1999........ Chief Executive
Officer 82,907 107,671 7.00
-------- -------
Total....................................... $444,807 577,671
======== =======
</TABLE>
Such warrants were to expire January 15, 2004.
Such warrants were converted to warrants to acquire the Company's common
stock pursuant to the Reorganization (see note 3). All warrants were exercisable
upon issuance and no warrants have been exercised through January 30, 2000.
Terms of the warrants outstanding at January 30, 2000 are as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES ISSUABLE EXERCISE
UPON EXERCISE PRICE EXPIRATION
OF WARRANTS PER SHARE DATE
- ----------- --------- ----------------
<S> <C> <C>
1,377,223............................................ $2.94 January 15, 2004
</TABLE>
STOCK-BASED COMPENSATION
The Company uses the intrinsic-value method in accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost has been
recognized for any of its stock options granted because the exercise price of
each option equal or exceeded the fair value of the underlying common stock as
of the grant date for each stock option granted except for certain stock options
granted subsequent to November 30, 1999. With respect to the stock options
granted subsequent to November 30, 1999, the Company recorded deferred stock
compensation of $622,500 for the difference at the grant date between the
exercise price of each stock option granted and the fair value of the underlying
common stock as determined by management of the Company. This amount is being
amortized on an accelerated basis over the vesting period which ranges from
three to four years. Amortization of the balance of deferred compensation for
the eleven-month period ended January 30, 2000 amounted to $24,805.
During 1997, Brands adopted the 1997 Nonqualified Stock Option Plan (the
Brands Plan) which authorized the grant of options to officers, directors and
key employees for up to 350,000 shares of Brands' common stock. During 1997, the
Company granted an option to acquire 107,142 shares of common stock under the
Brands Plan to a member of management with an exercise price of $7 per share.
This option expires seven years from the date of grant. The option vests ratably
over a four-year period from date of grant. At February 28, 1999, the option to
acquire 53,571 shares of common stock was exercisable.
Pursuant to the Exchange Agreement, such option was converted to an option
to acquire an approximate equal number of shares of common stock of Dean &
DeLuca, Inc. which the holder would
F-19
<PAGE>
DEAN & DELUCA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999 AND JANUARY 30, 2000
(8) STOCKHOLDERS' EQUITY (CONTINUED)
have obtained if the option had been exercised immediately prior to the
Reorganization with appropriate adjustment to the per share exercise price.
Dean & DeLuca, Inc. adopted the 1999 Stock Option Plan on November 29, 1999
which provides that options to purchase up to 1,077,320 shares of the Company's
common stock may be granted to employees, directors or consultants. The term of
such options are not to exceed ten years. Terms of each grant are to be
determined by the Board of Directors or a committee thereof.
A summary of the status of options under the 1999 Stock Option Plan of the
Company is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
-------- ---------
<S> <C> <C>
Balance at February 28, 1999 (options to acquire common
stock of Brands)........................................ 107,142 $7.00
Exercised................................................. (53,571) 7.00
-------
Balance at date of the Reorganization..................... 53,571
Adjustment arising from the Reorganization (see note 3) to
convert options to acquire common stock of Brands to
options to acquire common stock of the Company.......... 74,147
-------
Balance of options as converted for the Reorganization.... 127,718 2.94
Granted................................................... 550,000 4.18
------- -----
Balance outstanding at January 30, 2000................... 677,718 $3.95
======= =====
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED
NUMBER AVERAGE AVERAGE
OF EXERCISE FAIR
SHARES PRICE VALUE
-------- --------- --------
<S> <C> <C> <C>
Number and weighted-average fair value of options
granted during the period with exercise price
less than fair value at date of grant.......... 550,000 $4.18 $2.07
======= ===== =====
</TABLE>
As of January 30, 2000, the range of exercise price and the weighted-average
remaining contractual life of outstanding options were as follows:
<TABLE>
<CAPTION>
WEIGHTED- OPTIONS
AVERAGE WEIGHTED- EXERCISABLE
NUMBER REMAINING AVERAGE --------------------
OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
EXERCISE PRICE (RANGE) SHARES LIFE PRICE SHARES PRICE
- -------------------------------- -------- ----------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
$ 2.94......................... 127,718 4.07 $2.94 63,859 $2.94
4.18......................... 550,000 9.83 4.18 15,000 4.18
------- ---- ----- ------ -----
$2.94-$4.18..................... 677,718 8.74 $3.95 78,859 $3.17
======= ==== ===== ====== =====
</TABLE>
F-20
<PAGE>
DEAN & DELUCA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999 AND JANUARY 30, 2000
(8) STOCKHOLDERS' EQUITY (CONTINUED)
Effective July 31, 1991, Brands entered into a Stock Option Agreement with
certain officers of Brands that entitled the optionee to purchase shares of
Brands' common stock with an exercise price of $1.50 per share. Of the options
originally granted, 83,901 were outstanding and exercisable at February 28,
1999. The options vested at date of grant and expire on June 30, 2001. Pursuant
to the Exchange Agreement, these options were converted to options to acquire
200,028 shares of the Company's common stock with an exercise price of $.63 per
share.
Had compensation costs been determined in accordance with SFAS No. 123 for
the aforementioned stock options, net loss and basic and diluted net loss per
share--pro forma to reflect income taxes would have been as follows:
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
FEBRUARY 28, JANUARY 30,
1999 2000
------------ ------------
<S> <C> <C>
Net loss:
As reported...................................... $(5,719,324) $(8,992,633)
Pro forma........................................ $(5,792,739) $(9,079,889)
Basic and diluted net loss per share--pro forma to
reflect income taxes:
As reported...................................... $ (1.48) $ (1.73)
Pro forma........................................ $ (1.50) $ (1.75)
</TABLE>
The fair value of each option was estimated on the date of grant using the
minimum value method with the following weighted-average assumptions: no
dividends declared or paid, risk-free interest rate of 6.36% and expected life
of four years.
COMMON STOCK
At February 28, 1999, the authorized and outstanding shares of common stock
as reflected in the accompanying financial statements relates to the common
stock of Brands (see note 2(a)).
MEMBERS' DEFICIT
Members' deficit consists of the controlling owner's capital contributions
to Atlanta, Markets and Cafes, less operating losses allocated to the
controlling owner. Such entities are limited liability companies formed under
various state limited liability company acts. The parties to the respective
limited liability company agreements are designated as members.
The balance at the date of the Reorganization was credited to additional
paid-in capital.
F-21
<PAGE>
DEAN & DELUCA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999 AND JANUARY 30, 2000
(9) LEASES
The Company occupies retail, warehouse and office space under noncancelable
operating leases which expire at various dates through 2017. These leases
generally contain renewal options for periods ranging from five to twenty years.
Rent expense for operating leases aggregated $2,744,655 and $2,701,855 for the
year ended February 28, 1999 and the eleven-month period ended January 30, 2000,
respectively.
Future minimum lease payments under noncancelable operating leases with
initial or remaining lease terms in excess of one year as of January 30, 2000
are:
<TABLE>
<S> <C>
2001........................................................ $ 2,762,686
2002........................................................ 2,715,101
2003........................................................ 2,605,714
2004........................................................ 2,572,060
2005........................................................ 2,467,362
Thereafter.................................................. 9,140,311
-----------
Total minimum lease payments.......................... $22,263,234
===========
</TABLE>
Certain of the leases provide for escalations based on increases in property
taxes and/or operating costs, and certain of the leases provide for contingent
rentals based on sales volume over specified levels.
The aggregate of the future minimum lease payments for certain leases are
being recognized on a straight-line basis over the terms of the related lease.
The difference between rent expense calculated on a straight-line basis and rent
paid is recorded as deferred rent.
The Company is party to certain operating leases with related parties. Rent
paid to these related parties pursuant to lease agreements aggregated $310,624
and $436,499 for the year ended February 28, 1999 and the eleven-month period
ended January 30, 2000, respectively. One lease with a related party provides
for an accrual of contingent rent based upon 20% of the base rent amount, plus
interest, which is payable only in the event the Company consummates an initial
public offering or a business combination, liquidation or asset sale, as
defined. If such amount becomes payable, the amount will be paid either in cash
or common stock of the Company based upon the initial public offering price. The
accrued contingent rent at January 30, 2000 amounts to $72,330. In the event of
an initial public offering, the related party lessor has the right to sell the
property to the Company at fair market value with the purchase price payable in
cash or common stock valued at the initial public offering price.
In most cases, management expects that in the normal course of business,
leases will be renewed or replaced by other leases.
The Company is contingently liable for lease payments aggregating $703,000
applicable to a lease assignment.
F-22
<PAGE>
DEAN & DELUCA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999 AND JANUARY 30, 2000
(10) INCOME TAXES
Significant components of the Company's deferred tax asset/(liability) are
as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, JANUARY 30,
1999 2000
------------ -----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts.................. $ 23,000 $ 54,000
Inventories...................................... 249,000 257,000
Deferred rent, principally due to accrual for
financial reporting purposes................... 669,000 637,000
Related party interest expense................... 586,000 --
Other............................................ 64,000 81,000
Net operating loss carryforwards................. 3,873,000 7,134,000
----------- -----------
Total gross deferred tax assets.............. 5,464,000 8,163,000
Less valuation allowance........................... (5,304,000) (7,692,000)
----------- -----------
Net deferred tax assets...................... 160,000 471,000
----------- -----------
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation.................... (160,000) (471,000)
----------- -----------
Net deferred tax assets...................... $ -- $ --
=========== ===========
</TABLE>
Actual income tax expense (benefit) differs from the "expected" tax expense
computed by applying the U.S. federal corporate tax rate of 35% to loss before
income taxes as follows:
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
FEBRUARY 28, JANUARY 30,
1999 2000
------------ ------------
<S> <C> <C>
Computed expected tax benefit...................... $(2,002,000) $(3,147,000)
Losses allocable to minority interest.............. (69,000) (1,138,000)
Limited liability company loss allocated to
owners........................................... 871,000 523,000
Change in valuation allowance...................... 631,000 2,388,000
Nondeductible goodwill amortization................ 571,000 114,000
Nondeductible interest............................. -- 915,000
Change in corporate tax status of limited liability
companies........................................ -- 336,000
Other.............................................. (2,000) 9,000
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
At January 30, 2000, the Company has net operating loss carryforwards of
approximately $20,400,000 that expire through 2019. Approximately $3,000,000 of
the operating loss carryforwards may be subject to significant annual
limitations in accordance with Section 382 of the Internal Revenue Code. For
financial statement purposes, a valuation allowance has been provided to offset
the net deferred tax assets due to the cumulative operating losses incurred
during recent years. Such allowance
F-23
<PAGE>
DEAN & DELUCA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999 AND JANUARY 30, 2000
(10) INCOME TAXES (CONTINUED)
increased by approximately $631,000 during the year ended February 28, 1999 and
$2,388,000 during the eleven-month period ended January 30, 2000.
The valuation allowance will be reduced when and if, in the opinion of
management, significant positive evidence exists which indicates that it is more
likely than not that the Company will be able to realize its deferred tax
assets.
(11) RETIREMENT PLAN
The Company has a defined contribution retirement plan that covers some of
its employees who meet certain eligibility requirements. Contributions are made
by the Company annually and are based on up to 1.5% of each employee's
compensation depending on the employee's contribution. Pension expense for the
year ended February 28, 1999 and the eleven-month period ended January 30, 2000
was $9,998 and $37,249, respectively.
(12) RELATED PARTY TRANSACTIONS
Receivable from related parties and payable to related parties consist of
various transactions with individuals affiliated with the Company or entities
controlled by such individuals. Payable to related parties includes $158,505 of
accrued interest expense on notes payable to affiliates at February 28, 1999.
The Company incurred interest expense on notes payable to related parties of
$1,757,174 for the year ended February 28, 1999 and $1,962,690 for the
eleven-month period ended January 30, 2000. In August 1999, the controlling
owner forgave $2,251,310 of liability which Brands had to such owner arising
from interest expense on notes payable to the controlling owner (see note 6).
The liability forgiven has been accounted for as a capital contribution.
Purchases from related parties amounted to $98,927 for the year ended
February 28, 1999 and $203,880 for the eleven-month period ended January 30,
2000. Such purchases include primarily inventory, consulting and reimbursements
for employee benefits. See note 9 for disclosure of related party rent expense.
Included in general and administrative expenses are management fees of
$36,525 for the year ended February 28, 1999 and $714,863 for the eleven-month
period ended January 30, 2000 paid to an entity controlled by certain former
minority stockholders of Atlanta and Cafes. Such management fees were based on a
percentage of sales of Atlanta and Cafes pursuant to an arrangement which was
effective for the calendar year ended December 31, 1999 and were to compensate
such entity for management services provided to Atlanta and Cafes. Prior and
subsequent to the year ended December 1999, Atlanta and Cafes reimbursed such
entity for actual costs.
(13) BUSINESS OPERATIONS AND SEGMENT INFORMATION
The Company's business activities include operation of specialty markets and
cafes (the "Retail" segment) and product sales via a web-site, catalogue
operations and on a business-to-business basis (the "Internet/Direct" segment).
Management has identified the segments based upon its internal financial
reporting process and management organization structure.
F-24
<PAGE>
DEAN & DELUCA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999 AND JANUARY 30, 2000
(13) BUSINESS OPERATIONS AND SEGMENT INFORMATION (CONTINUED)
SEGMENT INFORMATION
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
FEBRUARY 28, JANUARY 30,
1999 2000
------------ ------------
<S> <C> <C>
Net revenues:
Retail........................................... $45,285,297 $50,845,441
Internet/Direct.................................. 4,805,697 9,514,762
----------- -----------
$50,090,994 $60,360,203
=========== ===========
Depreciation and amortization:
Retail........................................... $ 1,569,955 $ 1,562,574
Internet/Direct.................................. 36,010 489,159
----------- -----------
$ 1,605,965 $ 2,051,733
=========== ===========
Income (loss) from operations:
Retail........................................... $ 1,208,398 $ 2,064,761
Internet/Direct.................................. (1,751,744) (9,138,827)
----------- -----------
$ (543,346) $(7,074,066)
=========== ===========
Capital expenditures:
Retail........................................... $ 1,464,444 $ 2,848,981
Internet/Direct.................................. 88,692 2,091,167
----------- -----------
$ 1,553,136 $ 4,940,148
=========== ===========
Identifiable assets:
Retail........................................... $12,598,835 $14,216,350
Internet/Direct.................................. 1,343,673 3,944,945
----------- -----------
$13,942,508 $18,161,295
=========== ===========
</TABLE>
Income from operations as reflected in the above segment information has
been determined differently than income from operations in the accompanying
consolidated statements of operations as follows:
INTERCOMPANY SALES
Intercompany sales between segments have not been eliminated in the segment
information. Intercompany sales within segments have been eliminated in the
segment information.
INTERCOMPANY EXPENSE ALLOCATIONS
General and administrative expenses incurred at the corporate level have not
been allocated to the segments for purposes of determining segment income (loss)
from operations.
F-25
<PAGE>
DEAN & DELUCA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1999 AND JANUARY 30, 2000
(13) BUSINESS OPERATIONS AND SEGMENT INFORMATION (CONTINUED)
Identifiable assets as reflected in the above segment information include
trade receivables, inventory, and property and equipment.
A reconciliation of the segment information to the amounts reported in the
consolidated financial statements is presented below:
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
FEBRUARY 28, JANUARY 30,
1999 2000
------------ ------------
<S> <C> <C>
Net revenues per above segment information.................. $50,090,994 $ 60,360,203
Intercompany elimination.................................... (788,463) (743,792)
----------- ------------
Net revenues per consolidated statements of
operations.......................................... $49,302,531 $ 59,616,411
=========== ============
Depreciation and amortization per above segment
information............................................... $ 1,605,965 $ 2,051,733
Corporate depreciation and amortization..................... 1,700,345 485,806
----------- ------------
Depreciation and amortization per consolidated
statements of cash flows............................ $ 3,306,310 $ 2,537,539
=========== ============
Loss from operations per above segment information.......... $ (543,346) $ (7,074,066)
Corporate general and administrative expenses............. (2,045,154) (2,645,344)
Corporate depreciation and amortization................... (1,700,345) (485,806)
Elimination of profit on intercompany sales............... -- (93,297)
----------- ------------
Loss from operations per consolidated statements of
operations.......................................... $(4,288,845) $(10,298,513)
=========== ============
Capital expenditures per above segment information.......... $ 1,553,136 $ 4,940,148
Corporate capital expenditures.............................. 175,716 355,568
----------- ------------
Capital expenditures per consolidated statements of
cash flows.......................................... $ 1,728,852 $ 5,295,716
=========== ============
Identifiable assets per above segment information........... $13,942,508 $ 18,161,295
Corporate assets............................................ 2,518,448 25,251,869
----------- ------------
Assets per consolidated balance sheets................ $16,460,956 $ 43,413,164
=========== ============
</TABLE>
F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Stockholders and the Board of Directors of
Dean & DeLuca Brands, Inc. and Affiliates
New York, New York
We have audited the accompanying combined balance sheet of Dean & DeLuca
Brands, Inc. and Affiliates as of March 1, 1998, and the related combined
statements of operations, stockholders' deficit, and cash flows for the year
then ended. The combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
combined financial statements based on our audit.
We did not audit the financial statements of Dean & DeLuca Markets, LLC
(Markets) and Dean & DeLuca Atlanta, LLC (Atlanta), entities under common
control, which statements reflect total assets of $8,876,834 at March 1, 1998,
and total revenues of $5,405,605 for the year then ended. These statements were
audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the amounts included for Markets and Atlanta,
is based solely on the reports of the other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Dean & DeLuca
Brands, Inc. and Affiliates as of March 1, 1998, and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/Grassi & Co.
- ----------------------------
GRASSI & CO., CPAs, P.C.
Lake Success, New York
July 1, 1999
(except for Note 3, which is
dated November 30, 1999)
F-27
<PAGE>
DEAN & DELUCA BRANDS, INC. AND AFFILIATES
COMBINED BALANCE SHEET
MARCH 1, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents (note 2(c))..................... $ 834,401
Accounts receivable, less allowance for doubtful accounts
of $24,036.............................................. 995,574
Receivables from related parties (note 12)................ 29,689
Inventories............................................... 2,231,392
Prepaid expenses and other current assets (note 2(k))..... 219,195
-----------
Total current assets.................................. 4,310,251
Property and equipment, net (notes 4 and 5)................. 10,611,920
Intangible assets, net of accumulated amortization of
$7,168,560 (note 2(g)).................................... 2,635,842
Other assets................................................ 123,730
-----------
$17,681,743
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of capital lease obligations (note 5)..... $ 45,208
Accounts payable.......................................... 2,627,281
Current portion of notes payable to related parties (note
6)...................................................... 2,494,107
Accrued expenses.......................................... 1,122,425
Notes payable to bank (note 7)............................ 887,500
Payables to related parties (note 12)..................... 192,419
-----------
Total current liabilities............................. 7,368,940
Capital lease obligations, less current portion (note 5).... 327,637
Notes payable to related parties, less current portion (note
6)........................................................ 19,378,333
Accrued expenses............................................ 626,404
Deferred lease incentive (note 2(i))........................ 201,656
Deferred rent (note 9)...................................... 1,885,454
-----------
Total liabilities..................................... 29,788,424
-----------
Stockholders' deficit (notes 3 and 8):
Common stock, $.01 par value--2,000,000 shares authorized;
1,199,274 shares issued and outstanding................. 11,993
Additional paid-in capital................................ 12,645,324
Accumulated deficit....................................... (20,745,530)
Members' deficit.......................................... (4,018,468)
-----------
Total stockholders' deficit........................... (12,106,681)
-----------
$17,681,743
===========
</TABLE>
See accompanying notes to combined financial statements.
F-28
<PAGE>
DEAN & DELUCA BRANDS, INC. AND AFFILIATES
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 1, 1998
<TABLE>
<S> <C>
Net revenues................................................ $34,408,194
Cost of sales............................................... 20,270,567
-----------
Gross profit.......................................... 14,137,627
Operating expenses:
Advertising (note 2(k))................................... 689,459
Sales and other operating (note 2(l))..................... 13,916,683
General and administrative................................ 4,583,288
Amortization of intangible assets......................... 2,848,741
-----------
Total operating expenses.............................. 22,038,171
-----------
Loss from operations.................................. (7,900,544)
Interest expense............................................ 1,448,564
-----------
Loss before income taxes.............................. (9,349,108)
Income tax expense (benefit)................................ 0
-----------
Net loss.............................................. $(9,349,108)
===========
Basic and diluted net loss per share--pro forma to reflect
income taxes (note 2(o)).................................. $ (2.42)
===========
Shares used in computing basic and diluted net loss per
share--pro forma to reflect income taxes (note 2(o))...... 3,862,287
===========
</TABLE>
See accompanying notes to combined financial statements.
F-29
<PAGE>
DEAN & DELUCA BRANDS, INC. AND AFFILIATES
COMBINED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE YEAR ENDED MARCH 1, 1998
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL MEMBERS' STOCKHOLDERS'
COMMON PAID-IN ACCUMULATED EQUITY EQUITY
STOCK CAPITAL DEFICIT (DEFICIT) (DEFICIT)
-------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at March 2, 1997........ $11,993 $12,645,324 $(14,950,011) $ (524,879) $ (2,817,573)
Net loss........................ -- -- (5,795,519) (3,553,589) (9,349,108)
Capital contributions........... -- -- -- 60,000 60,000
------- ----------- ------------ ----------- ------------
Balance at March 1, 1998........ $11,993 $12,645,324 $(20,745,530) $(4,018,468) $(12,106,681)
======= =========== ============ =========== ============
</TABLE>
See accompanying notes to combined financial statements.
F-30
<PAGE>
DEAN & DELUCA BRANDS, INC. AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED MARCH 1, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $(9,349,108)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 3,880,180
Changes in:
Accounts receivable..................................... (843,212)
Receivables from related parties........................ (29,689)
Inventories............................................. (517,868)
Prepaid expenses and other current assets............... (60,214)
Other assets............................................ (46,367)
Accounts payable........................................ 1,120,190
Accrued expenses........................................ 137,868
Payables to related parties............................. (1,728,987)
Deferred lease incentive................................ (13,962)
Deferred rent........................................... 76,572
-----------
Net cash used in operating activities................. (7,374,597)
-----------
Cash flows from investing activities:
Purchase of property and equipment........................ (6,710,176)
-----------
Cash flows from financing activities:
Proceeds from notes payable to related parties............ 10,876,532
Proceeds from notes payable to bank....................... 887,500
Capital contributions..................................... 60,000
Repayment of capital lease obligations.................... (29,719)
-----------
Net cash provided by financing activities............. 11,794,313
-----------
Net decrease in cash and cash equivalents............. (2,290,460)
Cash and cash equivalents, beginning of year.......... 3,124,861
-----------
Cash and cash equivalents, end of year................ $ 834,401
===========
</TABLE>
See accompanying notes to combined financial statements.
F-31
<PAGE>
DEAN & DELUCA BRANDS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED MARCH 1, 1998
(1) DESCRIPTION OF BUSINESS
Dean & DeLuca Brands, Inc. (Brands) and its subsidiaries are engaged in the
development and operations of specialty food retail stores and espresso cafes.
At March 1, 1998, they operated two specialty food retail stores and eight
cafes, located on the East Coast, and a catalogue operation located in the
Midwest.
Dean & DeLuca Markets, LLC (Markets) is a Limited Liability Company formed
on January 10, 1997 under the California Limited Liability Company Act. The
parties to the Limited Liability Company agreement are designated as members.
Markets operates a retail store and a wine room in St. Helena, California which
sell gourmet groceries, wine, kitchenware and prepared foods to the general
public. The store opened on October 23, 1997. Under the terms of Markets'
Limited Liability Company agreement, it will cease to exist no later than
December 31, 2046.
Dean & DeLuca Atlanta, LLC (Atlanta) is a Limited Liability Company formed
on October 21, 1996 under the Delaware Limited Liability Company Act. The
parties to the Limited Liability Company agreement are designated as members.
Atlanta operates retail stores in Charlotte, North Carolina and Leawood, Kansas,
which sell gourmet groceries, kitchenware and prepared foods to the general
public. The Charlotte, North Carolina store opened on June 25, 1997 and the
Leawood, Kansas store opened on December 10, 1997. Under the terms of Atlanta's
Limited Liability Company agreement, it will cease to exist no later than
December 31, 2026.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF FINANCIAL STATEMENTS
The combined financial statements include the accounts of Dean & DeLuca
Brands, Inc. and its affiliates, Dean & DeLuca Markets, LLC, and Dean & DeLuca
Atlanta, LLC, (collectively referred to as "The Company"). Brands consists of a
parent company and its subsidiaries, all of which are wholly-owned. The
financial statements have been presented on a combined basis because, as of
March 1, 1998, an individual owns a controlling interest in each entity (the
controlling owner). The portion of each entity not owned by the controlling
owner (amounting to 18.5% for Brands, 20% for Markets, and 49.7% for Atlanta, at
March 1, 1998) is considered as minority interest in the accompanying combined
financial statements. In those periods when losses applicable to the minority
interest of Brands, Markets and Atlanta exceed the minority interest in the
equity capital of the respective entity, such excess (the "excess losses") is
charged against the respective controlling interest. The controlling interest is
credited to the extent of such "excess losses" previously absorbed when the
respective entity subsequently reports earnings or receives equity capital
contributions.
All material intercompany balances and transactions have been eliminated in
consolidation and combination.
(B) FISCAL YEAR
The Company's fiscal year ends on the Sunday nearest to February 28.
F-32
<PAGE>
DEAN & DELUCA BRANDS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED MARCH 1, 1998
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(C) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments with
remaining maturities of less than 90 days at the date of purchase. The Company
is exposed to credit risk in the event of default by the financial institutions
or the issuers of these investments to the extent of the amounts recorded on the
balance sheet in excess of amounts that are insured by the FDIC. As of March 1,
1998, cash equivalents consisted principally of a money market account and
commercial paper.
(D) FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The carrying value of the Company's cash and cash equivalents, accounts
receivable and accounts payable approximates fair value. Financial instruments
that subject the Company to concentration of credit risk consist primarily of
cash and cash equivalents and trade accounts receivable.
The Company's receivables arise from sales to a number of customers and
credit risk is not significant for any specific customer.
The carrying value of notes payable to bank approximates fair value due to
the floating interest rate of such instruments.
(E) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method. Occupancy expenses are included in cost of
sales and amounted to $3,092,618 for the year ended March 1, 1998.
(F) PROPERTY AND EQUIPMENT
Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are amortized on a
straight-line basis over the lesser of the remaining lease term, including
options which management intends to exercise, or the estimated useful life of
the asset. The range of estimated useful lives are as follows:
<TABLE>
<S> <C>
Equipment and fixtures...................................... 1 to 10 years
Computer software........................................... 1 to 3 years
Leasehold improvements...................................... 5 to 30 years
Vehicles.................................................... 3 to 5 years
</TABLE>
(G) INTANGIBLE ASSETS
Intangible assets includes goodwill arising from the controlling owner's
acquisition of ownership interests in Brands, which is being amortized over
three years from the respective dates of acquisition (see note 3). Intangible
assets also includes tradenames, trademarks and customer mailing lists, which
are amortized on the straight-line method over a period of 40 years.
F-33
<PAGE>
DEAN & DELUCA BRANDS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED MARCH 1, 1998
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(H) IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates its long-lived assets, including goodwill and certain
identifiable intangibles, for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of any asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less cost to
sell.
(I) DEFERRED LEASE INCENTIVE
Lease incentives received from lessors are amortized on a straight-line
basis over the lease term.
(J) REVENUE RECOGNITION
Revenue from internet and catalogue sales is recognized at the time the
merchandise is shipped to the customer. An allowance is recorded for returns
based upon historical experience. Included in cost of sales are costs incurred
for shipping amounting to $218,317, net of amounts charged customers for
shipping amounting to $294,815 for the year ended March 1, 1998.
Revenue from retail segment sales is recorded in the period of the sale.
Sale returns, which are not material, are recorded in the period of return as a
reduction of sales.
(K) CATALOGUE PRODUCTION AND MAILING COSTS
Catalogue production and mailing costs are deferred as prepaid expenses when
incurred and amortized over a period not exceeding six months. The amortization
per catalogue is based upon the relative percentage of estimated monthly
catalogue sales to the total estimated catalogue sales during the period.
Catalogue production and mailing costs amounting to $68,161 at March 1, 1998
were capitalized as prepaid expenses. Other advertising costs are expensed in
the period when the advertising is presented in the applicable media for the
first time.
(L) PRE-OPENING COSTS
Pre-opening costs incurred in connection with the opening of new retail
locations are expensed in the period incurred. Such costs relate primarily to
rent, hiring and training of personnel and business promotion and are included
in sales and other operating expenses. Such costs amounted to $1,648,948 for the
year ended March 1, 1998.
(M) STOCK-BASED COMPENSATION
The Company uses the intrinsic-value method to account for its stock-based
compensation plans. As such, compensation expense would be recorded over the
vesting period only if the current market price of the underlying stock exceeded
the exercise price on the date of grant.
F-34
<PAGE>
DEAN & DELUCA BRANDS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED MARCH 1, 1998
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(N) INCOME TAXES
Brands is taxed under Subchapter C of the Internal Revenue Code. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. A valuation allowance is recorded for deferred tax assets when it is
more likely than not that the benefit of such deferred tax assets will not be
realized. Markets and Atlanta are limited liability companies and, as such, the
results of operations are included in the member's individual income tax
returns. Accordingly, no provision for or benefit from income taxes has been
recorded for these entities in the accompanying combined financial statements.
(O) NET LOSS PER SHARE--PRO FORMA TO REFLECT INCOME TAXES
Prior to the Reorganization (see note 3), income tax expense or benefit
arising from the results of operations of Atlanta and Markets, both limited
liability companies, was not recorded in the accompanying combined financial
statements. Subsequent to the Reorganization, such results of operations will be
subject to corporate income taxation.
Net loss per share information is presented on a pro forma basis as if the
results of operations of Atlanta and Markets had been subject to corporate
income taxation for the period presented. There is no income tax expense or
benefit on a pro forma basis for the year ended March 1, 1998 due to losses
having been incurred and management's determination that valuation allowances
are appropriate for the full amount of net deferred tax assets at March 1, 1998.
Basic net loss per share--pro forma to reflect income taxes is computed
using the weighted-average number of outstanding shares of common stock,
determined as follows:
<TABLE>
<S> <C>
Shares issued to controlling owner of entities involved in
reorganization accounted for similar to a pooling of
interests (note 3) considered outstanding for entire
period (exclusive of shares issued upon conversion of
convertible debt)......................................... 3,862,287
=========
</TABLE>
Diluted net loss per share--pro forma to reflect income taxes is computed
using the weighted-average number of outstanding shares of common stock, and,
when dilutive, potential common shares issuable from options to purchase common
stock, using the treasury stock method, and from convertible securities, using
the if-converted method. The following potential common shares issuable have
been excluded from the computation of diluted loss per share for the year ended
March 1, 1998 because the effect would have been anti-dilutive.
<TABLE>
<S> <C>
Shares issuable under stock options......................... 455,465
=======
</TABLE>
F-35
<PAGE>
DEAN & DELUCA BRANDS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED MARCH 1, 1998
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(P) COMBINED STATEMENT OF CASH FLOWS
Noncash investing and financing activities during the year ended March 1,
1998 were as follows:
<TABLE>
<S> <C>
Interest expense reflected as notes payable to related
parties............................................... $1,209,466
Note issued for reimbursement of pre-opening costs
incurred by a member on behalf of the Company......... 495,000
Property and equipment acquired pursuant to capital
lease................................................. 27,220
</TABLE>
Cash paid for interest was $215,278.
(Q) USE OF ESTIMATES
Preparation of the Company's combined financial statements required
management to make certain estimates and assumptions that affect the amounts
reported in the combined financial statements and accompanying notes. Actual
results may differ from those estimates.
(3) THE REORGANIZATION
On November 30, 1999, all the equity owners of Brands, Atlanta, Markets and
D & D Cafes of NC, LLC (Cafes) entered into an exchange agreement (the Exchange
Agreement) whereby such equity owners agreed to transfer all the ownership
interests held by such owners in the aforementioned entities (the Entities) to
Dean & DeLuca, Inc. (a holding company with no prior operations which was formed
to acquire ownership of the Entities) in exchange for common stock of Dean &
DeLuca, Inc. (the Reorganization). The Exchange Agreement also provided that all
indebtedness of any of the Entities to an equity owner must be converted to
equity prior to the exchange of ownership interests. An individual owned a
controlling interest in Brands, Atlanta and Markets prior to the Reorganization
and, subsequent to the Reorganization, owns a controlling interest in Dean &
DeLuca, Inc. No equity owner held a controlling interest in Cafes. Consequently,
all equity owners, including the individual who is the controlling owner of the
other entities and who owns a 48.2% ownership interest in Cafes, are considered
as minority interests with respect to Cafes. To effect the Reorganization,
Dean & DeLuca, Inc. issued shares of common stock as follows:
<TABLE>
<CAPTION>
ISSUED TO
-----------------------
CONTROLLING MINORITY
ISSUED TO EQUITY OWNERS OF: OWNER INTERESTS
- --------------------------- ----------- ---------
<S> <C> <C>
Brands................................................. 7,825,570 724,017
Atlanta................................................ 735,647 727,296
Markets................................................ 736,225 184,056
Cafes.................................................. -- 174,220
--------- ---------
9,297,442 1,809,589
========= =========
</TABLE>
The exchange of ownership interests in Brands, Atlanta and Markets by the
controlling owner has been accounted for at historical costs to the controlling
owner in a manner similar to a pooling of interests. Accordingly, the
accompanying combined financial statements reflect the excess of costs to
F-36
<PAGE>
DEAN & DELUCA BRANDS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED MARCH 1, 1998
(3) THE REORGANIZATION (CONTINUED)
the controlling owner over the proportionate underlying net deficit acquired
amounting to approximately $8.4 million arising from the controlling owner's
acquisition of an 81.5% ownership of the outstanding common stock of Brands
during the year ended March 3, 1996 for cash of approximately $7.1 million.
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment and accumulated depreciation and
amortization as of March 1, 1998 is as follows:
<TABLE>
<S> <C>
Equipment and fixtures...................................... $ 6,939,803
Computer software........................................... 10,225
Leasehold improvements...................................... 7,183,091
Vehicles.................................................... 68,684
-----------
14,201,803
Less accumulated depreciation and amortization.............. 3,589,883
-----------
Net property and equipment............................ $10,611,920
===========
</TABLE>
The above amounts include capitalized leased assets amounting to $561,575
and accumulated amortization applicable to such assets amounting to $279,685 as
of March 1, 1998.
(5) CAPITAL LEASE OBLIGATIONS
The Company has recorded the cost of certain leased equipment as capitalized
lease obligations. Future minimum capital lease payments as of March 1, 1998,
are as follows:
<TABLE>
<S> <C>
Year ending March 1,
1999...................................................... $ 63,950
2000...................................................... 63,950
2001...................................................... 55,545
2002...................................................... 46,682
2003...................................................... 46,682
Thereafter................................................ 241,188
--------
Total minimum payments.................................... 517,997
Less amount representing interest......................... 145,152
--------
Present value of minimum lease payments................... 372,845
Less current portion...................................... 45,208
--------
$327,637
========
</TABLE>
F-37
<PAGE>
DEAN & DELUCA BRANDS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED MARCH 1, 1998
(6) NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties consist of the following:
<TABLE>
<S> <C>
Convertible notes payable to controlling owner, due November
2, 2000 with interest at a rate of 7% per annum,
convertible into shares of common stock of Brands at a
rate of $7.50 per share................................... $11,294,405
Unsecured notes payable to members of Atlanta, due in
monthly installments beginning January 2001 with final
payment due December 2001, with interest at prime rate
plus 2%................................................... 7,683,928
Unsecured non-interest bearing notes payable to members of
Markets due on certain dates through December 26, 1999.... 400,000
Notes payable to members of Markets secured by assets of
Markets, due December 31, 1998 with interest at a rate of
9%........................................................ 2,494,107
-----------
21,872,440
Less current portion........................................ 2,494,107
-----------
$19,378,333
===========
</TABLE>
(7) NOTES PAYABLE TO BANK
Notes payable to bank consist of the following:
<TABLE>
<S> <C>
Revolving line of credit at Libor plus 2% pursuant to a
construction financing agreement. All principal and unpaid
interest was paid March 29, 1998.......................... $637,500
Prime rate (7.75% at March 1, 1998) line of credit payable
to bank which is payable on demand and, if not demanded
sooner, is due December 1, 1999, guaranteed by a member,
collateralized by inventory, accounts receivable and
certain equipment......................................... 250,000
--------
$887,500
========
</TABLE>
(8) STOCKHOLDERS' DEFICIT
During 1997, Brands adopted the 1997 Nonqualified Stock Option Plan (the
Plan) which authorized the grant of options to officers, directors and key
employees for up to 350,000 shares of Brands' common stock. During 1997, the
Company granted 107,142 shares of common stock under the Plan to a member of
management with an exercise price of $7 per share. This option expires seven
years from the date of grant. The option vests ratably over a four-year period
from date of grant. At March 1, 1998, the option to acquire 26,785 shares of
common stock was exercisable.
A summary of the status of the option under the 1997 Nonqualified Stock
Option Plan of the Company is as follows:
<TABLE>
<CAPTION>
OPTION EXERCISABLE
---------------------------------
EXERCISE PRICE NUMBER OF SHARES REMAINING CONTRACTUAL LIFE EXERCISE PRICE NUMBER OF SHARES EXERCISE PRICE
- --------------------- ---------------- -------------------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
$7.00 107,142 6.00 $7.00 26,785 $7.00
</TABLE>
F-38
<PAGE>
DEAN & DELUCA BRANDS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED MARCH 1, 1998
(8) STOCKHOLDERS' DEFICIT (CONTINUED)
Effective July 31, 1991, Brands entered into a Stock Option Agreement with
certain officers of the Company that entitled the optionee to purchase an
equivalent number of shares of the Company's common stock with an exercise price
of $1.50 per share. Of the options originally granted, 83,901 were outstanding
and currently exercisable at March 1, 1998. The options vested at date of grant
and expire on June 30, 2001.
Had compensation costs been determined in accordance with SFAS No. 123 for
the aforementioned stock options, net loss and basic and diluted net loss per
share--pro forma to reflect income taxes would have been as follows:
<TABLE>
<S> <C>
Net loss:
As reported............................................... $(9,349,108)
Pro forma................................................. $(9,490,290)
Basic and diluted net loss per share--pro forma to reflect
income taxes:
As reported............................................... $ (2.42)
Pro forma................................................. $ (2.46)
</TABLE>
COMMON STOCK
At March 1, 1998, the authorized and outstanding shares of common stock as
reflected in the accompanying combined financial statements relates to the
common stock of Brands (see note 2(a)).
MEMBERS' DEFICIT
Members' deficit consists of the controlling owner's capital contributions
to Atlanta and Markets less operating losses allocated to the controlling owner.
Such entities are Limited Liability Companies formed under various state Limited
Liability Company Acts. The parties to the respective Limited Liability Company
agreements are designated as members.
(9) LEASES
The Company occupies retail, warehouse and office space under noncancelable
operating leases with terms of three to twenty years. These leases generally
contain renewal options for periods ranging from five to twenty years. Rent
expense for operating leases aggregated $2,351,253 for the year ended March 1,
1998.
F-39
<PAGE>
DEAN & DELUCA BRANDS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED MARCH 1, 1998
(9) LEASES (CONTINUED)
Future minimum lease payments under noncancelable operating leases with
initial or remaining lease terms in excess of one year as of March 1, 1998 are:
<TABLE>
<S> <C>
1999........................................................ $ 2,703,449
2000........................................................ 2,736,426
2001........................................................ 2,758,857
2002........................................................ 2,595,792
2003........................................................ 2,610,422
Thereafter.................................................. 14,209,020
-----------
Total minimum lease payments................................ $27,613,966
===========
</TABLE>
Certain of the leases provide for escalations based on increases in property
taxes and/or operating costs, and certain of the leases provide for contingent
rentals based on sales volume over specified levels.
The aggregate of the future minimum lease payments for certain leases are
being recognized on a straight-line basis over the terms of the related lease.
The difference between rent expense calculated on a straight-line accrual basis
and rent paid is recorded as deferred rent.
The Company is party to certain operating leases with a company controlled
by the Company's majority stockholder. Rent paid pursuant to these lease
agreements was $157,642 for the year ended March 1, 1998.
(10) INCOME TAXES
Brands files a consolidated Federal income tax return with its subsidiaries.
Significant components of the Company's deferred tax asset/(liability) as of
March 1, 1998 are approximately as follows:
<TABLE>
<S> <C>
DEFERRED TAX ASSETS:
Allowance for doubtful accounts........................... $ 8,000
Inventories............................................... 170,000
Deferred rent............................................. 660,000
Deferred lease incentive.................................. 71,000
Related party interest expense............................ 284,000
Net operating loss carryforwards.......................... 3,675,000
----------
Total gross deferred tax assets....................... 4,868,000
Less valuation allowance.................................. (4,673,000)
----------
Net deferred tax assets............................... 195,000
----------
DEFERRED TAX LIABILITIES:
Property and equipment, principally due to differences in
depreciation............................................ (195,000)
----------
Net deferred tax assets............................... $ 0
==========
</TABLE>
F-40
<PAGE>
DEAN & DELUCA BRANDS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED MARCH 1, 1998
(10) INCOME TAXES (CONTINUED)
Actual income tax expense (benefit) differs from the "expected" tax expense
computed by applying the U.S. federal corporate tax rate of 35% to loss before
income taxes as follows:
<TABLE>
<S> <C>
Computed expected tax benefit............................... $(3,272,000)
Limited liability company loss allocated to owners.......... 1,244,000
Change in valuation allowance............................... 1,068,000
Nondeductible goodwill amortization......................... 985,000
Other....................................................... (25,000)
-----------
$ 0
===========
</TABLE>
At March 1, 1998, the Company has net operating loss carryforwards of
approximately $10,500,000 that expire through February, 2013. Approximately
$3,000,000 of the operating loss carryforwards may be subject to significant
annual limitations in accordance with Section 382 of the Internal Revenue Code.
For financial statement purposes, a valuation allowance has been provided to
offset the net deferred tax assets due to the cumulative operating losses
incurred during recent years. Such allowance increased by $1,068,000 during the
year ended March 1, 1998.
The valuation allowance will be adjusted when and if, in the opinion of
management, significant positive evidence exists which indicates that it is more
likely than not that the Company will be able to realize its deferred tax
assets.
(11) RETIREMENT PLAN
The Company has a defined contribution retirement plan that covers some of
its employees who meet certain eligibility requirements. Contributions are made
by the Company annually and are based on up to 1.5% of each employee's
compensation depending on the employee's contribution. Pension expense for the
year ended March 1, 1998 was $16,085.
(12) RELATED PARTY TRANSACTIONS
The Company, as part of the normal course of business, purchases goods and
services from related companies, which include companies owned by various
members and shareholders. These transactions include terms which are comparable
to those available with unrelated parties.
Receivables from related parties consists of various expenses incurred by
the Company on behalf of affiliates. The amounts receivable from related parties
are unsecured and do not bear interest.
Included in accrued expenses (long-term) are approximately $404,000 payable
to a company controlled by the Company's majority stockholder. These amounts are
for payroll expense of the Company which was paid by the related party.
Payables to related parties represent advances made to the Company by
members, stockholders and entities controlled by members and stockholders. These
amounts are unsecured and do not bear interest. See Note 6 for information
regarding notes payable to related parties, and Note 9 for related party leases.
F-41
<PAGE>
DEAN & DELUCA BRANDS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED MARCH 1, 1998
(12) RELATED PARTY TRANSACTIONS (CONTINUED)
The Company incurred interest expense on notes payable to related parties of
$1,209,466 for the year ended March 1, 1998.
(13) BUSINESS OPERATIONS AND SEGMENT INFORMATION
The Company's business activities include operation of specialty markets and
cafes (the "Retail" segment) and product sales via a web-site, catalogue
operations and on a business-to-business basis (the "Internet/Direct" segment).
Management has identified the segments based upon its internal financial
reporting process and management organization structure.
SEGMENT INFORMATION
<TABLE>
<S> <C>
Net revenues:
Retail.................................................... $32,337,907
Internet/Direct........................................... 2,383,323
-----------
$34,721,230
===========
Depreciation and amortization:
Retail.................................................... $ 974,216
Internet/Direct........................................... 19,959
-----------
$ 994,175
===========
Loss from operations:
Retail.................................................... $ 518,906
Internet/Direct........................................... 752,705
-----------
$ 1,271,611
===========
Capital expenditures:
Retail.................................................... $ 6,680,052
Internet/Direct........................................... 0
-----------
$ 6,680,052
===========
Identifiable assets:
Retail.................................................... $11,518,323
Internet/Direct........................................... 1,017,011
-----------
$12,535,334
===========
</TABLE>
Loss from operations as reflected in the above segment information has been
determined differently than loss from operations in the accompanying combined
statement of operations as follows:
INTERCOMPANY SALES
Intercompany sales between segments have not been eliminated in the
segment information. Intercompany sales within segments have been eliminated
in the segment information.
F-42
<PAGE>
DEAN & DELUCA BRANDS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED MARCH 1, 1998
(13) BUSINESS OPERATIONS AND SEGMENT INFORMATION (CONTINUED)
INTERCOMPANY EXPENSE ALLOCATIONS
General and administrative expenses incurred at the corporate level have
not been allocated to the segments for purposes of determining segment loss
from operations.
A reconciliation of the segment information to the amounts reported in
the combined financial statements is presented below:
<TABLE>
<S> <C>
Net revenues per above segment information.................. $34,721,230
Intercompany elimination.................................... (313,036)
-----------
Net revenues per combined statement of operations......... $34,408,194
===========
Depreciation and amortization per above segment
information............................................... $ 994,175
Corporate depreciation and amortization..................... 2,886,005
-----------
Depreciation and amortization per combined statement of
cash flows.............................................. $ 3,880,180
===========
Loss from operations per above segment information.......... $ 1,271,611
Corporate general and administrative expenses............... 3,681,126
Corporate depreciation and amortization..................... 2,886,005
Intercompany elimination.................................... 61,802
-----------
Loss from operations per combined statement of
operations.............................................. $ 7,900,544
===========
Capital expenditures per above segment information.......... $ 6,680,052
Corporate capital expenditures.............................. 30,124
-----------
Capital expenditures per combined statement of cash
flows................................................... $ 6,710,176
===========
Identifiable assets per above segment information........... $12,535,334
Corporate assets............................................ 5,146,409
-----------
Assets per combined balance sheet......................... $17,681,743
===========
</TABLE>
F-43
<PAGE>
DEAN & DELUCA, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE ELEVEN-MONTH PERIOD ENDED JANUARY 30, 2000
The following pro forma consolidated statement of operations presents the
results of operations of the Company as if the acquisition of minority interests
in Brands, Atlanta, Markets and Cafes and conversion of indebtedness to equity
owners of such entities to equity in connection with the Reorganization had
occurred as of March 1, 1999. The acquisition of such minority interests has
been accounted for by the purchase method of accounting. The pro forma financial
information should be read in conjunction with the related historical financial
information of the Company included elsewhere herein. The unaudited pro forma
consolidated statement of operations does not purport to represent what the
Company's results of operations would actually have been had the transactions in
fact occurred on the aforementioned date, or to project the Company's results of
operations for any future periods. The pro forma adjustments are based upon
available information and upon certain assumptions that management believes are
reasonable. These adjustments are directly attributable to the transactions and
are expected to have a continuing impact on the results of operations of the
Company.
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
----------- --------------- ------------
<S> <C> <C> <C>
Net revenues............................... $59,616,411 $ -- $ 59,616,411
Cost of sales.............................. 34,153,092 -- 34,153,092
----------- --------------- ------------
Gross margin........................... 25,463,319 -- 25,463,319
----------- ------------
Operating expenses:
Advertising.............................. 7,181,301 -- 7,181,301
Sales and other operating................ 22,529,882 -- 22,529,882
General and administrative expenses...... 5,661,242 -- 5,661,242
Amortization of intangible assets........ 389,407 (1)1,471,788 1,861,195
----------- --------------- ------------
Total operating expenses............... 35,761,832 1,471,788 37,233,620
----------- --------------- ------------
Loss from operations................... (10,298,513) (1,471,788) (11,770,301)
Interest expense........................... 2,118,966 (2)(1,962,690) 156,276
Other expense (income)..................... (172,068) -- (172,068)
----------- --------------- ------------
Loss before minority interest and
income taxes......................... (12,245,411) 490,902 (11,754,509)
Minority interest.......................... 3,252,778 (3)(3,252,778) --
----------- --------------- ------------
Loss before income taxes............... (8,992,633) (2,761,876) (11,754,509)
Income tax expense (benefit)............... -- -- --
----------- --------------- ------------
Net loss............................... $(8,992,633) $ (2,761,876) $(11,754,509)
=========== =============== ============
Pro forma basic and diluted net loss per
share.................................... $ (1.73) $ (1.11)
=========== ============
Pro forma weighted-average common shares
outstanding.............................. 5,195,147 10,624,627
=========== ============
</TABLE>
F-44
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NOTE A
The acquisition of the minority interests in Brands, Atlanta, Markets and
Cafes and conversion to equity of indebtedness to equity owners of such entities
arising from the Reorganization was consummated on November 30, 1999.
Pro forma adjustments are as follows:
1. To reflect the amortization of goodwill over three years using the
straight-line method.
2. To eliminate interest expense applicable to indebtedness to equity
owners of such entities which was converted to equity in connection with
the Reorganization.
3. To eliminate losses allocable to minority interests acquired in
connection with the Reorganization.
NOTE B
Pro forma weighted-average common shares outstanding are based on the
assumption that shares issued in the Reorganization have been outstanding for
the eleven-month period except those shares issued as a result of conversion of
the convertible notes payable to the controlling owner for notes issued during
the eleven-month period ended January 30, 2000 which were assumed to have been
converted to common stock as of the respective dates of issuance of such
convertible notes payable.
F-45
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses, other than underwriting discounts
and commissions, to be borne by the registrant in connection with the issuance
and distribution of the Common Stock being offered.
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- --------
<S> <C>
Securities and Exchange Commission registration fee......... $18,216
NASDAQ National Market listing fee*.........................
NASD filing fee*............................................ 7,400
Blue sky fees and expense*..................................
Printing and engraving expenses*............................
Legal fees and expenses*....................................
Accounting fees and expenses*...............................
Transfer agent and registrar fee*...........................
Miscellaneous*..............................................
-------
Total*..................................................
=======
</TABLE>
- ------------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
authorizes a court to award, or a corporation's board of directors to grant,
indemnity to directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933.
As permitted by the General Corporation Law, the second restated certificate
of incorporation of the registrant includes a provision that eliminates the
personal liability of its directors to the registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the registrant
or its stockholders, (ii) for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, acts or omissions
not in good faith or that involve intentional misconduct or a knowing violation
of law, (iii) under section 174 of the General Corporation Law (regarding
unlawful dividends and stock purchases) or (iv) for any transaction from which
the director derived an improper personal benefit.
As permitted by the General Corporation Law, the bylaws of the registrant
provide that (i) the registrant must indemnify its directors and officers to the
fullest extent permitted by the General Corporation Law, subject to limited
exceptions, (ii) the registrant may indemnify its other employees and agents as
set forth in the General Corporation Law, (iii) the registrant must advance
expenses, as incurred, to its directors and executive officers in connection
with a legal proceeding to the fullest extent permitted by the General
Corporation Law, subject to limited exceptions, and (iv) the rights conferred in
the bylaws are not exclusive. The indemnification provisions inn the certificate
of incorporation and bylaws of the registrant may be sufficiently broad to
permit indemnification of the directors and executive officers of the registrant
for liabilities arising under the Securities Act of 1933.
There is no pending litigation or proceeding involving a director, officer
or employee of the registrant regarding which indemnification is sought, nor is
the registrant aware of any threatened litigation that may result in claims for
indemnification.
II-1
<PAGE>
Reference is also made to section of the form of underwriting agreement,
which provides for the indemnification of officers, directors and controlling
persons of the registrant against certain liabilities.
With the approval of its board of directors, the registrant expects to
obtain director and officer liability insurance.
Reference is made to exhibits 3.2 and 3.4 to this registration statement
regarding relevant indemnification provisions described above and elsewhere
herein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since the registrant's inception in July 1999, the registrant has issued and
sold the following unregistered securities:
1. On November 30, 1999, pursuant to an exchange agreement, all of the
stockholders of Dean & DeLuca Brands, Inc. and all of the members of Dean &
DeLuca Atlanta, LLC, D & D Cafes of NC, LLC and Dean & DeLuca Markets, LLC
exchanged all of their securities of those entities for shares of the
registrant's common stock, or options or warrants to purchase shares of common
stock. In connection with the reorganization, the registrant issued the
following unregistered securities in reliance on Section 4(2) of the Securities
Act of 1933:
a. COMMON STOCK. The registrant issued an aggregate of 11,107,031
shares of its common stock to Leslie G. Rudd, Dane J. Neller, Giorgio
G. DeLuca, Joel B. Dean, Patrick A. Roney, Matthew P. Wogan, Dennis
L. Thompson, Sharon K. Thompson, Wade S. McClure, Thomas W. Shannon,
Timothy Cushman and Ramey G. Millett.
b. OPTIONS. The registrant issued options to purchase an aggregate of
200,028 shares of its common stock to Giorgio G. DeLuca and Joel B.
Dean. The aggregate exercise price for the shares subject to the
option is $125,849.62.
c. NON-QUALIFIED OPTION. The registrant issued a non-qualified option
under the registrant's 1999 stock option plan to purchase 127,718
shares of its common stock to Dane J. Neller. The aggregate purchase
price for the shares subject to the option is $374,995.37.
d. WARRANTS. The registrant issued warrants to purchase an aggregate of
1,377,223 shares of its common stock to Leslie G. Rudd, the Samantha
Lauren Rudd Gift Trust and Dane J. Neller. The aggregate purchase
price of the shares subject to the warrants is $4,043,692.
2. On November 30, 1999 and December 31, 1999, pursuant to a stock purchase
agreement, the registrant issued an aggregate of 3,669,760 shares of its
series A convertible preferred stock to Hummer Winblad Venture Partners IV, L.P.
for an aggregate purchase price of $19,999,825.02. The issuance was made in
reliance on Section 4(2) of the Securities Act of 1933 and Rule 506 of
Regulation D thereunder.
3. On March 1, 2000, the registrant issued to Mr. Neller 63,859 shares of
its common stock for an aggregate exercise price of $187,497.69 in connection
with the partial exercise by Mr. Neller of the vested portion of his option. The
issuance was made in reliance on Section 4(2) of the Securities Act of 1933 and
Rule 506 of Regulation D thereunder.
4. From December 1999 to May 2000, the registrant granted and issued
options to purchase an aggregate of 896,000 shares of its common stock pursuant
to the registrant's 1999 stock option plan. The recipients were
Messrs. Richards, Mileusnic, Gray, De Silva, Grosso, Duncan, Bodell and Bartlett
and Mr. Matthew Pfannenstiel. The aggregate exercise price for the shares
subject to the options is $3,745,280. The issuances to Messrs. Richards,
Mileusnic and Gray were made in reliance on Rule 506 of Regulation D promulgated
under the Securities Act of 1933, and the issuances to Messrs. De Silva,
II-2
<PAGE>
Grosso, Duncan, Bodell, Bartlett and Pfannenstiel were made in reliance on
Rule 701 under the Securities Act of 1933.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Restated Certificate of Incorporation of the registrant
3.2 Second Restated Certificate of Incorporation of the
registrant*
3.3 By-laws of the registrant
3.4 Restated By-laws of the registrant*
4.1 Specimen Common Stock certificate*
4.2 See exhibit 3.2 for the provisions of the Second Restated
Certificate of Incorporation that governs the rights of
holders of the securities being registered
5.1 Opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP*
10.1 Employment Agreement dated as of December 30, 1999 by and
between the registrant and John B. Richards
10.2 Employment Letter dated as of June 8, 1998 by and between
the registrant and Duminda M. De Silva
10.3 Employment Letter dated as of December 30, 1998 by and
between the registrant and Emil Grosso
10.4 Employment Letter dated as of April 20, 1999 by and between
the registrant and Brian E. Bodell
10.5 Employment Letter dated as of September 23, 1999 by and
between the registrant and James E. Bartlett
10.6 Employment Letter dated as of February 23, 2000 by and
between the registrant and Curtis L. Gray
10.7 Employment Letter dated as of March 14, 2000 by and between
the registrant and George E. Mileusnic
10.8 Right of First Refusal and Co-Sale Agreement dated as of
November 30, 1999 by and among the registrant, Hummer
Winblad Partners IV, L.P. and certain of the registrant
stockholders
10.9 Investors' Rights Agreement dated as of November 30, 1999 by
and between the registrant and Hummer Winblad Partners IV,
L.P.
10.10 Warrant dated November 30, 1999 issued to Leslie G. Rudd
10.11 Warrant dated November 30, 1999 issued to Dane J. Neller
10.12 Warrant dated November 30, 1999 issued to the Samantha
Lauren Rudd Gift Trust
10.13 1999 Stock Option Plan of the registrant
10.14 2000 Non-Employee Directors' Stock Option Plan of the
registrant*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<C> <S>
10.15 Lease Agreement dated as of January 29, 1988 by and between
560 Associates and Dean & DeLuca Incorporated*
10.16 Amendment of Lease dated as of November 2, 1992 by and
between 560 Associates and Dean & DeLuca New York, Inc.*
10.17 Second Amendment of Lease dated as of April 24, 1998 by and
between 560 Associates and Dean & DeLuca New York, Inc.*
10.18 Lease Agreement dated as of September 1, 1997 by and between
Leslie G. Rudd and Dean & DeLuca Brands, Inc.
10.19 Retail Lease dated as of March 18, 1999 by and between R & R
Land, LLC and Dean & DeLuca Markets, LLC
10.20 Office Lease Agreement dated as of July 1, 1999 by and
between R & R Land, LLC and Dean & DeLuca Brands, Inc.
10.21 Warehouse Lease dated as of July 1, 1999 by and between R &
R Land, LLC and Dean & DeLuca Markets, LLC
10.22 Equipment Lease Agreement No. 100 dated as of September 1,
1997 by and between Leslie G. Rudd and Dean & DeLuca Brands,
Inc.
10.23 Equipment Lease Agreement No. 101 dated as of September 1,
1997 by and between Leslie G. Rudd and Dean & DeLuca Brands,
Inc.
10.24 Equipment Lease Agreement No. 102 dated as of September 1,
1997 by and between Leslie G. Rudd and Dean & DeLuca Brands,
Inc.
10.25 Equipment Lease Agreement No. 103 dated as of September 1,
1997 by and between Leslie G. Rudd and Dean & DeLuca Brands,
Inc.
10.26 Equipment Lease Agreement No. 104 dated as of September 1,
1997 by and between Leslie G. Rudd and Dean & DeLuca Brands,
Inc.
10.27 Equipment Lease Agreement No. 105 dated as of September 1,
1997 by and between Leslie G. Rudd and Dean & DeLuca Brands,
Inc.
10.28 Equipment Lease Agreement No. 106 dated as of September 1,
1997 by and between Leslie G. Rudd and Dean & DeLuca Brands,
Inc.
16.1 Letter consent dated May 9, 2000 from Grassi & Co. regarding
change in certifying accountants
21.1 List of subsidiaries of the registrant
23.1 Consent and Report on Schedule of KPMG LLP, Independent
Auditors
23.2 Consent of Grassi & Co., Independent Auditors
23.3 Consent of Lionel W. Greer, Director Nominee
23.4 Consent of John L. Sharpe, Director Nominee
23.5 Consent of Kaye, Scholer, Fierman, Hays & Handler, LLP
(included in Exhibit 5.1)*
27.1 Financial Data Schedule*
</TABLE>
- ------------------------
* To be filed by amendment.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS.
The registrant hereby undertakes to provide to the underwriters, at the
closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14 or otherwise, the
registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act of 1933 and is therefore unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, then 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 of whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The registrant hereby undertakes that, 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 under the Securities Act of 1933 and contained in a form of prospectus
filed by the registrant pursuant to Rule 424(b)(1), 424(b)(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.
The registrant hereby undertakes that, for purposes 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 being offered therein and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of New York, state of New
York on May , 2000.
<TABLE>
<S> <C> <C>
DEAN & DELUCA, INC.
BY: /S/ DANE J. NELLER
-----------------------------------------
Dane J. Neller
CHIEF EXECUTIVE OFFICER
</TABLE>
KNOWN TO ALL PERSONS BY THESE PRESENT, that each person whose signature
appears below constitutes and appoints Dane J. Neller and/or John B. Richards
and any of them his attorney-in-fact, with full power of substitution, for him
in any and all capacities, to sign any amendments to this Registration Statement
(including post-effective amendments), and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE NAME TITLE DATE
- ---------------------------------- ------------------- --------------------------------- --------
<C> <S> <C> <C>
May 8,
/s/ LESLIE G. RUDD Leslie G. Rudd Chairman and Director 2000
Chief Executive Officer and
Director May 9,
/s/ DANE J. NELLER Dane J. Neller (principal executive officer) 2000
May 8,
/s/ JOHN B. RICHARDS John B. Richards President and Director 2000
Executive Vice President and
Chief May 9,
Financial Officer (principal 2000
/s/ GEORGE E. MILEUSNIC George E. Mileusnic financial and accounting officer)
Senior Vice President--Marketing May 9,
/s/ PATRICK A. RONEY Patrick A. Roney and Director 2000
Ann L. Winblad Director , 2000
May 9,
/s/ JOEL B. DEAN Joel B. Dean Director 2000
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Restated Certificate of Incorporation of the registrant
3.2 Second Restated Certificate of Incorporation of the
registrant*
3.3 By-laws of the registrant
3.4 Restated By-laws of the registrant*
4.1 Specimen Common Stock certificate*
4.2 See exhibit 3.2 for the provisions of the Second Restated
Certificate of Incorporation that governs the rights of
holders of the securities being registered
5.1 Opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP*
10.1 Employment Agreement dated as of December 30, 1999 by and
between the registrant and John B. Richards
10.2 Employment Letter dated as of June 8, 1998 by and between
the registrant and Duminda M. De Silva
10.3 Employment Letter dated as of December 30, 1998 by and
between the registrant and Emil Grosso
10.4 Employment Letter dated as of April 20, 1999 by and between
the registrant and Brian E. Bodell
10.5 Employment Letter dated as of September 23, 1999 by and
between the registrant and James E. Bartlett
10.6 Employment Letter dated as of February 23, 2000 by and
between the registrant and Curtis L. Gray
10.7 Employment Letter dated as of March 14, 2000 by and between
the registrant and George E. Mileusnic
10.8 Right of First Refusal and Co-Sale Agreement dated as of
November 30, 1999 by and among the registrant, Hummer
Winblad Partners IV, L.P. and certain of the registrant
stockholders
10.9 Investors' Rights Agreement dated as of November 30, 1999 by
and between the registrant and Hummer Winblad Partners IV,
L.P.
10.10 Warrant dated November 30, 1999 issued to Leslie G. Rudd
10.11 Warrant dated November 30, 1999 issued to Dane J. Neller
10.12 Warrant dated November 30, 1999 issued to the Samantha
Lauren Rudd Gift Trust
10.13 1999 Stock Option Plan of the registrant
10.14 2000 Non-Employee Directors' Stock Option Plan of the
registrant*
10.15 Lease Agreement dated as of January 29, 1988 by and between
560 Associates and Dean & DeLuca Incorporated*
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
10.16 Amendment of Lease dated as of November 2, 1992 by and
between 560 Associates and Dean & DeLuca New York, Inc.*
10.17 Second Amendment of Lease dated as of April 24, 1998 by and
between 560 Associates and Dean & DeLuca New York, Inc.*
10.18 Lease Agreement dated as of September 1, 1997 by and between
Leslie G. Rudd and Dean & DeLuca Brands, Inc.
10.19 Retail Lease dated as of March 18, 1999 by and between R & R
Land, LLC and Dean & DeLuca Markets, LLC
10.20 Office Lease Agreement dated as of July 1, 1999 by and
between R & R Land, LLC and Dean & DeLuca Brands, Inc.
10.21 Warehouse Lease dated as of July 1, 1999 by and between R &
R Land, LLC and Dean & DeLuca Markets, LLC
10.22 Equipment Lease Agreement No. 100 dated as of September 1,
1997 by and between Leslie G. Rudd and Dean & DeLuca Brands,
Inc.
10.23 Equipment Lease Agreement No. 101 dated as of September 1,
1997 by and between Leslie G. Rudd and Dean & DeLuca Brands,
Inc.
10.24 Equipment Lease Agreement No. 102 dated as of September 1,
1997 by and between Leslie G. Rudd and Dean & DeLuca Brands,
Inc.
10.25 Equipment Lease Agreement No. 103 dated as of September 1,
1997 by and between Leslie G. Rudd and Dean & DeLuca Brands,
Inc.
10.26 Equipment Lease Agreement No. 104 dated as of September 1,
1997 by and between Leslie G. Rudd and Dean & DeLuca Brands,
Inc.
10.27 Equipment Lease Agreement No. 105 dated as of September 1,
1997 by and between Leslie G. Rudd and Dean & DeLuca Brands,
Inc.
10.28 Equipment Lease Agreement No. 106 dated as of September 1,
1997 by and between Leslie G. Rudd and Dean & DeLuca Brands,
Inc.
16.1 Letter consent dated May 9, 2000 from Grassi & Co. regarding
change in certifying accountants
21.1 List of subsidiaries of the registrant
23.1 Consent and Report of Schedules of KPMG LLP, Independent
Auditors
23.2 Consent of Grassi & Co., Independent Auditors
23.3 Consent of Lionel W. Greer, Director Nominee
23.4 Consent of John L. Sharpe, Director Nominee
23.5 Consent of Kaye, Scholer, Fierman, Hays & Handler, LLP
(included in Exhibit 5.1)*
27.1 Financial Data Schedule*
</TABLE>
- ------------------------
* To be filed by amendment.
II-8
<PAGE>
Exhibit 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
DEAN & DELUCA, INC.
PURSUANT TO Section 241 AND Section 245 OF THE DELAWARE GENERAL CORPORATION LAW
Dean & DeLuca, Inc. (the "CORPORATION"), a corporation organized and
existing under and by virtue of the Delaware General Corporation Law, which
originally filed a Certificate of Incorporation with the Secretary of State of
the State of Delaware on July 28, 1999, hereby adopts the following Restated
Certificate of Incorporation pursuant to Section 241 and Section 245 of the
Delaware General Corporation Law.
1. The name of the corporation is Dean & DeLuca, Inc.
2. The address of the Corporation's registered office in Delaware is
Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New
Castle, Delaware 19801. The Corporation Trust Company is the Corporation's
registered agent at that address.
3. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
4. A. The Corporation shall have authority to issue a total number of
44,000,000 shares of stock, initially consisting of (i) 40,000,000 shares of
common stock, par value $0.01 per share (the "COMMON STOCK")and (ii) 4,000,000
shares of preferred stock, par value $0.01 per share (the "PREFERRED STOCK"), of
which 3,669,760 shall be designated Series A Convertible Preferred Stock, par
value $0.01 per share (the "SERIES A PREFERRED"), and the remainder shall be
undesignated as to class or series. Subject to any limitations prescribed by
law, the Board of Directors of the Corporation (the "BOARD") is authorized to
provide for the issuance of the shares of unissued and undesignated Preferred
Stock, in one or more classes or series, and, by filing a certificate pursuant
to the applicable law of the State of Delaware, to establish from time to time
the number of shares to be included in each such class or series, and to fix the
designation, powers, preferences and rights of the shares of each such class and
series and the qualifications, limitations or restrictions thereof. Without
limiting the generality of the grant of authority contained in the preceding
sentence, the Board is authorized to determine any or all of the following, and
the shares of each series may vary from the shares of any other series in any or
all of the following aspects:
(i) the number of shares of such series (which may
subsequently be increased, except as otherwise provided by the resolutions of
the Board providing for the issue of such series,
<PAGE>
or decreased to a number not less than the number of shares then outstanding)
and the distinctive designation thereof;
(ii) the dividend rights, if any, of such series, the dividend
preferences, if any, as between such series and any other class or series of
stock, whether and the extent to which shares of such series shall be entitled
to participate in dividends with shares of any other series or class of stock,
whether and the extent to which dividends on such series shall be cumulative,
and any limitations, restrictions or conditions on the payment of such
dividends;
(iii) the time or times during which, the price or prices at
which, and any other terms or conditions on which the shares of such series may
be redeemed, if redeemable;
(iv) the rights of such series, and the preferences, if any,
as between such series and any other class or series of stock, in the event of
any voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation and whether and the extent to which shares of any such series shall
be entitled to participate in such event with any other class or series of
stock;
(v) the voting powers, if any, in addition to the voting
powers prescribed by law of shares of such series, and the terms of exercise of
such voting powers;
(vi) whether shares of such series shall be convertible into
or exchangeable for shares of any other series or class of stock, or any other
securities, and the terms and conditions, if any, applicable to such right; and
(vii) the terms and conditions, if any, of any purchase,
retirement or sinking fund which may be provided for the shares of such series.
B. The following is a statement of the designations, powers,
preferences and rights of the Series A Preferred.
(i) the number of shares constituting the Series A Preferred
shall be 3,669,760 shares, each of which shall have a stated value of $5.4499
(the "STATED VALUE").
(ii) DIVIDENDS.
a. Holders of shares of Series A Preferred shall be
entitled to receive, if, when and as declared by the board of directors
of the Corporation and to the extent permitted by the General
Corporation Law of the State of Delaware, dividends at an annual rate
equal to 8% of the Stated Value per share for each of the then
outstanding shares of Series A Preferred, calculated on the basis of a
360-day year consisting of twelve 30 day months. Such dividends shall
be non-cumulative and shall be paid at the times and in the manner set
forth in this Section 4(B). Dividends, if declared and paid, shall be
calculated from the later of the date of issuance
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<PAGE>
of the Series A Preferred or the latest date as of which dividends
shall have been previously declared on the Series A Preferred.
b. Any dividend payment made with respect to the
Series A Preferred shall be made, at the sole discretion of the board
of directors, in cash out of funds legally available for such purpose.
c. No dividends shall be declared or paid on the
Common Stock in any calendar year unless and until dividends shall be
declared and paid on the Series A Preferred. Thereafter, if any
dividends are declared with respect to the Common Stock within the same
calendar year, the holders of shares of Series A Preferred, as of the
record date established by the board of directors for such dividend,
shall be entitled to receive as dividends, in addition to any amounts
paid as dividends pursuant to Section 4(B)(ii)(a) above, an amount
equal to the amount of the dividends that such holder would have
received had the Series A Preferred been converted into Common Stock as
of the date immediately prior to the record date of such dividend.
d. Dividends shall be payable, when and as declared
by the board of directors, on the date established by the board of
directors for payment thereof; except that if any such date is a
Saturday, Sunday or legal holiday, then such dividend shall be payable
on the first immediately succeeding day which is not a Saturday, Sunday
or legal holiday. Each dividend shall be paid to the holders of record
of shares of Series A Preferred as they appear on the books of the
Corporation on a record date fixed by resolution of the board of
directors of the Corporation, which record date shall be not more than
60 days nor fewer than ten (10) days preceding the date so established.
e. Dividends declared on the Series A Preferred shall
be payable before any dividends or distributions or other payments
shall be paid or set aside for payment upon the Junior Stock (as
defined below), other than a dividend, distribution or payment paid
solely in shares of Junior Stock that is not Redeemable Stock or
Convertible Stock (in each case as defined below). If at any time
dividends declared on the outstanding shares of Series A Preferred
shall not have been paid or set apart for payment, the amount of the
declared but unpaid dividends shall be fully paid or set apart for
payment, before any dividend, distribution or payment shall be declared
or paid upon or set apart for the shares of any other class or series
of Junior Stock or Parity Securities (as defined below), other than a
dividend, distribution or payment paid solely in shares of Junior Stock
that is not Redeemable Stock or Convertible Stock. For purposes hereof,
"REDEEMABLE STOCK" means any equity security that by its terms or
otherwise is required to be redeemed for cash at any time or is
redeemable for cash at the option of the holder thereof at any time.
For purposes hereof, "CONVERTIBLE STOCK" means any equity security that
by its terms or otherwise may be converted or exchanged for any other
security of the Corporation or its subsidiaries at the option of the
holder thereof or the Corporation at any time.
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<PAGE>
f. If there shall be outstanding shares of any Parity
Securities (as defined below), then no dividends shall be declared or
paid or set apart for payment on any such Parity Securities for any
period unless dividends have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart
for such payment on the Series A Preferred. In no event shall any
dividends be declared or paid on Parity Securities unless dividends
shall be declared and paid on the Series A Preferred. For purposes of
this document, "PARITY SECURITIES" means any class or series of capital
stock that is entitled to share ratably with the Series A Preferred in
the payment of dividends, if any, and, in the event that the amounts
payable thereon on liquidation are not paid in full, is entitled to
share ratably with the Series A Preferred in any distribution of
assets. All dividends paid with respect to shares of Series A Preferred
shall be paid PRO RATA to the holders entitled thereto, and, in the
event of the payment of dividends on Parity Securities, shall be paid
PRO RATA to the holders of such Parity Securities and Series A
Preferred based upon the aggregate liquidation preference of the
outstanding shares described in Section 4(B)(iii) hereof.
(iii) LIQUIDATION PREFERENCE. In the event of any liquidation,
dissolution or winding up of the affairs of the Corporation, whether voluntary
or involuntary, each holder of Series A Preferred then issued and outstanding
shall be entitled to receive, prior and in preference to any distribution of any
of the assets or funds of the Corporation to the holders of shares of any other
capital stock of the Company ("JUNIOR STOCK"), by reason of their ownership of
such stock, an amount per share of Series A Preferred equal to the Stated Value
of such share plus any dividends declared but unpaid on such share on the date
of liquidation. Thereafter, the holders of any shares of Common Stock acquired
on or prior to December 1, 1999 shall be entitled to receive an amount per share
equal to the cost paid for each share of such Common Stock plus any accrued
dividends declared but unpaid on such Common Stock on the date of liquidation,
dissolution or winding up. Thereafter, all remaining assets shall be
distributed, pro rata, to the holders of shares of Series A Preferred and Common
Stock on an as converted basis. If the assets and funds legally available for
distribution among the holders of shares of Series A Preferred shall be
insufficient to permit the payment in full of any such preference amount, then
the assets and funds shall be distributed ratably among holders of shares of
Series A Preferred in proportion to the number of shares of Series A Preferred
owned by each holder. If the assets and funds of the Corporation available for
distribution to stockholders shall be insufficient to permit the payment in full
of the aforesaid amount and any and all amounts payable in such event to holders
of outstanding Parity Securities, the holders of shares of Series A Preferred
and the holders of such other Parity Securities shall share ratably (as to cash,
in-kind or other distributions) in any distribution of assets of the Corporation
in proportion to the full respective preferential amounts to which such shares
are entitled. The merger or consolidation of the Corporation into or with
another corporation, partnership or other business entity in which the
Corporation is not the surviving entity shall not be deemed a liquidation,
dissolution or winding up of the Corporation for purposes of this Section
4(B)(iii) if the holders of capital stock of the Corporation receive or retain
capital stock of the surviving or resulting corporation having a majority of the
ordinary voting power for the election of directors of all outstanding capital
stock of that corporation immediately after giving effect to such transaction.
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<PAGE>
(iv) CONVERSION.
a. Upon the closing of an underwritten initial public
offering of the Common Stock pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the "SECURITIES
ACT"), other than a registration statement relating solely to an
employee benefit plan or transaction covered by Rule 145 under the
Securities Act, which offering yields aggregate proceeds (including
underwriting discounts and commissions) of not less than ten million
dollars ($10,000,000) (a "QUALIFIED IPO"), each then outstanding share
of the Series A Preferred shall be automatically converted into one or
more shares of Common Stock calculated by multiplying the number of
shares of the Series A Preferred to be so converted by the Conversion
Rate (as defined below). For purposes hereof, "CONVERSION RATE" shall
mean the Stated Value per share divided by the Conversion Price per
share as then in effect. Further, each outstanding share of the Series A
Preferred shall be automatically converted into one or more shares of
Common Stock at the Conversion Rate if less than 50% of the shares of
Series A Preferred originally issued remain outstanding. For purposes
hereof, the "CONVERSION PRICE" per share shall initially be $5.4499 but
shall be subject to adjustment from time to time as provided herein. In
addition, at any time and from time to time prior to the closing of a
Qualified IPO, and subject to and upon compliance with the provisions of
this Section 4, each holder of shares of Series A Preferred shall have
the right, at his option, to convert at the Conversion Rate all or any
portion of his shares of Series A Preferred into one or more shares of
Common Stock by surrendering the shares to be converted in the manner
provided below.
b. In order to exercise his conversion right, a holder of
shares of Series A Preferred to be converted shall surrender the
certificate representing the shares to be converted to the Corporation,
with a notice of election to convert, duly completed and signed, at the
principal office of the conversion agent. Unless the shares issuable
upon conversion are to be issued in the same name as the name in which
the shares of Series A Preferred are registered, each share surrendered
for conversion shall be accompanied by instruments of transfer duly
executed by the holder or his duly authorized attorney.
i. As promptly as practicable after the surrender
by a holder of certificates representing shares of Series A
Preferred and in any event within five (5) business days after
such surrender, the Corporation shall issue and deliver to the
person for whose account such Series A Preferred was surrendered,
or his nominee or nominees (subject to compliance with applicable
agreements restricting transfer), a certificate or certificates
for the number of full shares of Common Stock into which the
shares of Series A Preferred were converted. Any fractional
interest in respect of a share of Common Stock arising upon the
conversion shall be settled as provided in Section 4(B)(iv)(c)
below. In the event that a holder of shares of Series A Preferred
converts less than all of the shares of Series A Preferred
evidenced by the certificates surrendered by such holder, the
Corporation shall issue and deliver to such holder or in
accordance with the instructions of the holder, simultaneously
with the issuance of
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<PAGE>
certificates representing Common Stock, a new certificate for the
balance of the shares of Series A Preferred not so converted. For
purposes hereof, a "person" shall include any individual, firm,
corporation, limited liability company, partnership, trust,
incorporated or unincorporated association, joint venture, joint
stock company, governmental authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of
any such entity.
ii. Each conversion shall be deemed to have been
effected immediately prior to the close of business on the date on
which all of the precedent conditions shall have been satisfied,
and the person in whose name any certificate for Common Stock
shall be issuable upon such conversion shall be deemed to have
become the holder of record of the Common Stock represented by
such certificate at such time, on such date and at the Conversion
Price in effect at such time, unless the stock transfer books of
the Corporation shall be closed on the date, in which event such
person shall be deemed to have become such holder of record at the
close of business on the next succeeding day on which such stock
transfer books are open, and such conversion shall be at the
Conversion Price in effect on the date such transfer books are
open. All Common Stock delivered upon conversion of Series A
Preferred shall upon delivery in accordance with the provisions
hereof be duly and validly issued and fully paid and
nonassessable, free of all liens and charges and not subject to
any preemptive rights. Upon the surrender of certificates
representing Series A Preferred to be converted, the shares shall
no longer be deemed to be outstanding and all rights of a holder
with respect to the shares surrendered for conversion shall
immediately terminate, except the right to receive the Common
Stock or other securities, cash or other assets as herein
provided.
c. No fractional shares or securities representing
fractional shares of Common Stock shall be issued upon conversion of the
Series A Preferred. Any fractional interest in a share of Common Stock
resulting from conversion of a share of the Series A Preferred shall be
paid in cash (computed to the nearest cent) equal to such fraction
multiplied by the fair market value per share as determined by the board
of directors in good faith. If more than one certificate representing
Series A Preferred shall be surrendered for conversion at one time by the
same holder, the number of full shares issuable upon conversion thereof
shall be computed on the basis of the aggregate number of shares of the
Series A Preferred so surrendered for conversion.
d. The Conversion Price shall be subject to adjustment as
follows if any of the events listed below occurs prior to date on which
conversion occurs or is elected:
i. If the Corporation shall (A) pay a dividend or make
a distribution on its Common Stock in shares of its Common Stock,
(B) subdivide or reclassify its outstanding Common Stock into a
greater number of shares or (C) combine or reclassify its
outstanding Common Stock into a smaller number of shares,
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<PAGE>
then the Conversion Price in effect immediately prior to such
event shall be adjusted so that the holder of any share of the
Series A Preferred thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock which he
would have owned or have been entitled to receive after the
happening of such event had the share of the Series A Preferred
been converted immediately prior to the occurrence of such event.
An adjustment made pursuant to this Section 4(B)(iv)(d)(i) shall
become effective immediately after the record date in the case of
a dividend or distribution and shall become effective on the
effective date in the case of a subdivision, combination or
reclassification. If any dividend or distribution is not paid or
made, the Conversion Price then in effect shall be appropriately
readjusted.
ii. If the Corporation shall (A) sell or issue shares
of its Common Stock, (B) issue rights, options or warrants to
subscribe for or purchase shares of Common Stock or (C) issue or
sell other rights for shares of Common Stock or securities
convertible or exchangeable into shares of Common Stock (such
securities and the Common Stock collectively, the "SECURITIES"),
at a price per share less than the Conversion Price, then in each
such case the Conversion Price in effect immediately prior to the
issuance of such Securities shall be adjusted so that it shall
equal the price determined by multiplying the Conversion Price in
effect immediately prior to the date of issuance of the Securities
by a fraction, (1) the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to the
issuance of the Securities plus the number of shares of Common
Stock which the aggregate consideration received for the issuance
of the Securities (plus the aggregate consideration required to
obtain Common Stock upon the exercise, conversion or exchange of
the Securities) would purchase at the Conversion Price in effect
immediately prior to the issuance of such Securities and (2) the
denominator of which shall be the number of shares of Common Stock
outstanding immediately after the issuance of the Securities
(after giving effect to the full exercise, conversion or exchange,
as applicable, of such Securities). The adjustment provided for in
this Section 4(B)(iv)(d)(ii) shall become effective immediately,
except as provided in Section 4(B)(iv)(d)(v), after such issuance
and shall be made successively whenever any such Securities are
issued; PROVIDED that no further adjustments in the Conversion
Price shall be made upon the subsequent exercise, conversion or
exchange, as applicable of such Securities pursuant to the
original terms of such Securities. In determining whether any
Securities entitle the holders of Common Stock to subscribe for or
purchase shares of Common Stock at less than the Conversion Price,
and in determining the aggregate offering price of the Common
Stock so offered, there shall be taken into account any
consideration received by the Corporation for such Securities and
any consideration required to be paid upon the exercise,
conversion or exchange, as applicable, of such Securities. The
value of all such consideration (if other than cash) shall be
determined by the board of directors, whose determination shall be
conclusive if made in good faith. If any or all of such Securities
are not so issued or expire or terminate without having been
exercised, converted or exchanged, the Conversion
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<PAGE>
Price then in effect shall be appropriately readjusted to the
Conversion Price that would then be in effect had the adjustments
made upon the issuance of such Securities been made upon the basis
of only the number of shares of Common Stock delivered pursuant to
Securities actually exercised, converted or exchanged. For
purposes of this Section 4(B)(iv)(d)(ii), the number of shares of
Common Stock at any time outstanding shall not include shares held
in the treasury of the Corporation or by any subsidiary of the
Corporation.
iii. Notwithstanding the foregoing, the provisions of
this Section 4(B)(iv)(d) shall not apply to (A) the issuance of up
to 1,077,320 shares of Common Stock upon the exercise of options
granted or to be granted pursuant to stock option plans approved
by the board of directors or to the grant of options pursuant to
such stock option plans, (B) the issuance of Common Stock upon the
exercise of options to be granted to the directors of the
Corporation pursuant to stock option plans approved by the board
of directors or to the grant of options pursuant to such stock
option plans, (C) the issuance of Common Stock issued pursuant to
any rights or agreements outstanding as of the date of this
Certificate, including without limitation, convertible securities,
options and warrants, (D) the issuance of Common Stock upon
conversion of the Series A Preferred, (E) the issuance of capital
stock as a dividend on Series A Preferred or in connection with a
subdivision or combination of Series A Preferred, (F) the issuance
of capital stock (and options, warrants or other securities
directly or indirectly convertible into capital stock issuable
upon any such conversion) in connection with the establishment of
one or more strategic relationships approved by the board of
directors and (G) the issuance of capital stock (and options,
warrants or other securities directly or indirectly convertible
into capital stock issuable upon any such conversion) issued as
consideration in connection with any merger, acquisition or other
business combination approved by the board of directors.
iv. Notwithstanding any provision in Section
4(B)(iv)(d) to the contrary and without limitation of any other
provision contained in Section 4(B)(iv)(d), if any securities of
the Corporation (other than the Series A Preferred), including
without limitation those securities set forth as exceptions in
Section 4(B)(iv)(d)(iii) above (collectively, the "SUBJECT
SECURITIES"), are amended in a manner that (A) results in the
reduction of the exercise, conversion or exchange price of such
Subject Securities payable upon the exercise for or conversion or
exchange into Common Stock or other securities exercisable for, or
convertible or exchangeable into, Common Stock or (B) causes such
Subject Securities to become exercisable for or convertible or
exchangeable into (x) more shares or dollar amount of such Subject
Securities (which are in turn exercisable for or convertible or
exchangeable into Common Stock) or (y) more shares of Common
Stock, then such amendment or modification shall be treated for
purposes of Section 4(B)(iv)(d) as if the Subject Securities that
have been so amended or modified have been terminated without
issuance of any Common Stock upon the exercise, conversion or
exchange thereof and new securities have been issued
8
<PAGE>
with the amended terms. On the expiration or termination of any
such amended Subject Securities without such Subject Securities
having been exercised, converted or exchanged in full pursuant to
their terms, the Conversion Price shall be appropriately
readjusted in the manner specified in Section 4(B)(iv)(d).
v. No adjustment in the Conversion Price shall be
required unless such adjustment would require a change of at least
1% in the Conversion Price; PROVIDED that any adjustment that by
reason of this Section 4(B)(iv)(d)(v) is not required to be made
shall be carried forward and taken into account in any subsequent
adjustment; PROVIDED FURTHER, that any adjustment required and
made in accordance with Section 4(B)(iv)(d) (other than this
Section 4(B)(iv)(d)(v)) shall be made no later than such time as
may be required in order to preserve the tax-free nature, if any,
of a distribution to the holders of Common Stock. All calculations
shall be made to the nearest cent or to the nearest one hundredth
of a share.
vi. Whenever the Conversion Price or Conversion Rate
is adjusted as herein provided, the Corporation shall promptly
file with its corporate records an officer's certificate setting
forth the Conversion Price and Conversion Rate after the
adjustment and setting forth a brief statement of the facts
requiring the adjustment, which certificate shall be conclusive
evidence of the correctness of the adjustment. Promptly after
delivery of the certificate, the Corporation shall prepare a
notice of the adjustment of the Conversion Price and Conversion
Rate setting forth the Conversion Price and Conversion Rate and
the date on which the adjustment becomes effective and shall mail
the notice of such adjustment of the Conversion Price and
Conversion Rate (together with a copy of the officer's certificate
setting forth the facts requiring such adjustment) to each holder
of Series A Preferred at such holder's last address as shown on
the stock books of the Corporation.
vii. The Corporation shall not, by amendment of its
certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other action, avoid or seek to avoid the
observance or performance of any term hereof and shall at all
times in good faith assist in carrying out of all such terms and
in taking of all action as may be necessary or appropriate to
protect the rights of the holders of Series A Preferred against
dilution or other impairment. Without limiting the generality of
the foregoing, the Corporation (A) shall not increase the par
value of any shares of stock receivable on the conversion of the
Series A Preferred, (B) shall at all times reserve and keep
available the maximum number of authorized shares of Common Stock,
sufficient to permit the full conversion of the Series A Preferred
and (C) shall take such action as may be necessary or appropriate
in order that all shares of Common Stock as may be issued pursuant
to the conversion of Series A Preferred will, upon issuance, be
duly and validly issued, fully paid and nonassessable, and free
from all taxes, liens and charges with respect to the issue
thereof.
9
<PAGE>
e. In case at any time prior to the conversion of all of
the Series A Preferred, (i) the Corporation shall authorize the granting
to all the holders of Common Stock of rights to subscribe for or
purchase any shares of stock of any class or of any other rights, (ii)
there shall be any reclassification of the Common Stock (other than a
subdivision or combination of outstanding Common Stock), (iii) there
shall be any capital reorganization by the Corporation, (iv) there shall
be a consolidation or merger involving the Corporation or a sale of all
or substantially all assets of the Corporation, (v) there shall be
voluntary or involuntary dissolution, liquidation and winding up by the
Corporation or dividend or distribution to holders of Common Stock or
(vi) any other event which would cause an adjustment in the Conversion
Price or Conversion Rate to occur, then the Corporation shall cause to
be delivered to each holder of Series A Preferred, not less than ten
(10) days before any record date or the date set for definitive action,
notice of the date on which the books of the Corporation shall close or
a record shall be taken for such dividend, distribution or subscription
rights or notice of the date on which such reorganization, sale,
consolidation, merger, dissolution, liquidation or winding up or other
transaction shall take place, as the case may be. Such notice shall also
set forth such facts as shall indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the
Conversion Price and the kind and amount of the shares of stock and
other securities and property deliverable upon conversion of the Series
A Preferred.
f. Except where registration is requested in a name other
than the name of the registered holder, the Corporation shall pay any
and all documentary stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of shares of Common Stock on conversion
of Series A Preferred.
g. In case of any reclassification or change of
outstanding shares of Common Stock (other than a change in par value, or
as a result of a subdivision or combination), or in case of any
consolidation of the Corporation with, or merger of the Corporation with
or into, any other entity that results in a reclassification, change,
conversion, exchange or cancellation of outstanding shares of Common
Stock or any sale or transfer of all or substantially all of the assets
of the Corporation, each holder of Series A Preferred then outstanding
shall have the right thereafter to convert his shares of Series A
Preferred into the kind and amount of securities, cash and other
property that he would have been entitled to receive upon such
reclassification, change, consolidation, merger, sale or transfer had he
held Common Stock immediately prior to the reclassification, change,
consolidation, merger, sale or transfer.
h. Upon any conversion of Series A Preferred, the shares
so converted shall revert to the status of authorized but unissued
shares of Preferred Stock of the Corporation.
(v) VOTING RIGHTS. Each share of Series A Preferred shall be
entitled to a number of votes equal to the number of shares of Common Stock into
which such share of Series A Preferred
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could be converted on the record date fixed for determining the holders of
Series A Preferred entitled to vote at the meeting or to give the consent
sought. Except as otherwise specifically provided herein or as provided by law
or in the certificate of incorporation, holders of Series A Preferred shall vote
together with holders of Common Stock as a single class on an as-converted basis
on all matters brought before the stockholders of the Corporation.
(vi) CERTAIN CORPORATE ACTIONS. The Corporation shall not,
without first obtaining the written consent of the holders of at least 50% of
the outstanding shares of Series A Preferred, voting as a single class, (a)
create any senior securities or Parity Securities, except for debt securities
approved by the Series A Preferred board of director representative which are
issued in the ordinary course of business for working capital purposes, (b) pay
dividends on Common Stock, except for shares of Common Stock issued and
outstanding on or before December 1, 1999 for which the holders thereof have the
contractual right to sell such shares to the Company, (c) repurchase Common
Stock except upon termination of employment of the holder, (d) amend the
Company's Certificate of Incorporation in a manner that adversely affects the
rights, preferences or privileges of the Series A Preferred Stock; (e) enter
into any transaction in which control of the Company is transferred, (f)
increase the number of authorized shares of Series A Preferred, (g) authorize
any adverse change to the rights, preferences and privileges of the Series A
Preferred, and (h) approve any increase in the size of the board of directors.
(vii) MISCELLANEOUS PROVISIONS.
a. Except as otherwise expressly provided, whenever
pursuant to this document notices or other communications are to be
made, delivered or otherwise given to holders of Series A Preferred
Stock, the notice or other communication shall be made in writing and
shall be by registered or certified first class mail, return receipt
requested, facsimile transmission, courier service or personal delivery,
addressed to the persons shown on the stock books of the Corporation as
such holders at the addresses as they appear in the books of the
Corporation, as of a record date or dates determined in accordance with
the certificate of incorporation or bylaws and applicable law, as in
effect from time to time. All such notices and communications shall be
deemed to have been duly given (i) when delivered by hand, if personally
delivered, (ii) when delivered by courier, if delivered by commercial
overnight courier service, (iii) five (5) business days after being
deposited in the United States mail, postage prepaid, if mailed, and
(iv) when receipt is acknowledged, if sent by facsimile transmission.
b. If any right, preference or limitation of the Series A
Preferred set forth herein is invalid, unlawful or incapable of being
enforced by reason of any rule or law or public policy, all other
rights, preferences and limitations set forth herein that can be given
effect without the invalid, unlawful or unenforceable right, preference
or limitation herein set forth shall be deemed dependant upon any other
such right, preference or limitation unless otherwise expressed herein.
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5. The name of the sole incorporator is Peggy Wang and her mailing
address is c/o Kaye, Scholer, Fierman, Hays & Handler, LLP, 425 Park Avenue, New
York, New York 10022.
6. The Board shall have the power to make, alter or repeal the by-laws
of the Corporation.
7. The election of the Board need not be by written ballot.
8. The Corporation shall indemnify to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law, as amended, from time to
time, each person who is or was a director or officer of the Corporation, and
the heirs, executors and administrators of each such person.
9. No director shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director for
any act or omission occurring subsequent to the date when this provision becomes
effective, except that a director may be liable (i) for any breach of such
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which such director derived an
improper personal benefit.
10. The Corporation elects not to be governed by Section 203 of the
Delaware General Corporation Law.
11. The Corporation has not received any payment for any of its stock.
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IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate
of Incorporation to be executed by its President and attested by its Secretary
thereunto duly authorized, who acknowledge and affirm under penalties of perjury
that this certificate is the act and deed of the Corporation and that the facts
stated herein are true this 30th day of November, 1999.
DEAN & DELUCA, INC.
By: /s/ Dane J. Neller
---------------------
Name: Dane J. Neller
Title: President
ATTEST:
/s/ Emil Grosso
- --------------------------
Name: Emil Grosso
Title: Secretary
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Exhibit 3.3
BY-LAWS
OF
DEAN & DELUCA, INC.
1. MEETINGS OF STOCKHOLDERS.
1.1 ANNUAL MEETING. The annual meeting of stockholders shall be held on
the first day of July in each year, or as soon thereafter as practicable, and
shall be held at a place and time determined by the board of directors (the
"BOARD").
1.2 SPECIAL MEETINGS. Special meetings of the stockholders may be
called by resolution of the Board or by the president and shall be called by the
president or secretary upon the written request (stating the purpose or purposes
of the meeting) of a majority of the directors then in office or of the holders
of 51% of the outstanding shares entitled to vote. Only business related to the
purposes set forth in the notice of the meeting may be transacted at a special
meeting.
1.3 PLACE AND TIME OF MEETINGS. Meetings of the stockholders may be
held in or outside Delaware at the place and time specified by the Board or the
directors or stockholders requesting the meeting.
1.4 NOTICE OF MEETINGS; WAIVER OF NOTICE. Written notice of each
meeting of stockholders shall be given to each stockholder entitled to vote at
the meeting, except that (a) it shall not be necessary to give notice to any
stockholder who submits a signed waiver of notice before or after the meeting,
and (b) no notice of an adjourned meeting need be given except when required
under Section 1.5 of these by-laws or by law. Each notice of a meeting shall be
given, personally or by mail, not less than 10 nor more than 60 days before the
meeting and shall state the time and place of the meeting, and unless it is the
annual meeting, shall state at whose direction or request the meeting is called
and the purposes for which it is called. If mailed, notice shall be considered
given when mailed to a stockholder at his address on the corporation's records.
The attendance of any stockholder at a meeting, without protesting at the
beginning of the meeting that the meeting is not lawfully called or convened,
shall constitute a waiver of notice by him.
1.5 QUORUM. At any meeting of stockholders, the presence in person or
by proxy of the holders of a majority of the shares entitled to vote shall
constitute a quorum for the transaction of any business. In the absence of a
quorum, a majority in voting interest of those present or, if no stockholders
are present, any officer entitled to preside at or to act as secretary of the
meeting, may adjourn the meeting until a quorum is present. At any adjourned
meeting at which a quorum is present, any action may be taken which might have
been taken at the meeting as originally called. No notice of an adjourned
meeting need be given if the time and place are announced at the meeting at
which the adjournment is taken except that,
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if adjournment is for more than thirty days or if, after the adjournment, a new
record date is fixed for the meeting, notice of the adjourned meeting shall be
given pursuant to Section 1.4.
1.6 VOTING; PROXIES. Each stockholder of record shall be entitled to
one vote for every share registered in his name. Corporate action to be taken by
stockholder vote, including the election of directors, shall be authorized by a
majority of the votes cast at a meeting of stockholders, except as otherwise
provided by law or by Section 1.8 of these by-laws. Voting need not be by ballot
unless requested by a stockholder at the meeting or ordered by the chairman of
the meeting. Each stockholder entitled to vote at any meeting of stockholders or
to express consent to or dissent from corporate action in writing without a
meeting may authorize another person to act for him by proxy. Every proxy must
be signed by the stockholder or his attorney-in-fact. No proxy shall be valid
after three years from its date unless it provides otherwise.
1.7 LIST OF STOCKHOLDERS. Not less than 10 days prior to the date of
any meeting of stockholders, the secretary of the corporation shall prepare a
complete list of stockholders entitled to vote at the meeting, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in his name. For a period of not less than 10 days prior to
the meeting, the list shall be available during ordinary business hours for
inspection by any stockholder for any purpose germane to the meeting. During
this period, the list shall be kept either (a) at a place within the city where
the meeting is to be held, if that place shall have been specified in the notice
of the meeting, or (b) if not so specified, at the place where the meeting is to
be held. The list shall also be available for inspection by stockholders at the
time and place of the meeting.
1.8 ACTION BY CONSENT WITHOUT A MEETING. Any action required or
permitted to be taken at any meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voting. Prompt notice of the taking of any such
action shall be given to those stockholders who did not consent in writing.
2. BOARD OF DIRECTORS.
2.1 NUMBER, QUALIFICATION, ELECTION AND TERM OF DIRECTORS. The business
of the corporation shall be managed by the Board, which shall consist initially
of one director. The number of directors may be changed by resolution of a
majority of the entire Board or by the stockholders, but no decrease may shorten
the term of any incumbent director. Directors shall be elected at each annual
meeting of stockholders by a majority of the votes cast and shall hold office
until the next annual meeting of stockholders and until the election and
qualification of their respective successors, subject to the provisions of
Section 2.9. As used in these by-laws, the term "entire Board" means the total
number of directors which the corporation would have if there were no vacancies
on the Board.
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2.2 QUORUM AND MANNER OF ACTING. One director shall constitute a quorum
for the transaction of business at any meeting, except as provided in Section
2.10 of these by-laws; provided, however, that if the number of directors shall
be increased, the number of directors necessary to constitute a quorum shall be
similarly increased. Action of the Board shall be authorized by the vote of one
director, unless otherwise provided by law or these by-laws. In the absence of a
quorum, a majority of the directors present may adjourn any meeting from time to
time until a quorum is present.
2.3 PLACE OF MEETINGS. Meetings of the Board may be held in or outside
Delaware.
2.4 ANNUAL AND REGULAR MEETINGS. Annual meetings of the Board, for the
election of officers and consideration of other matters, shall be held either
(a) without notice immediately after the annual meeting of stockholders and at
the same place, or (b) as soon as practicable after the annual meeting of
stockholders, on notice as provided in Section 2.6 of these by-laws. Regular
meetings of the Board may be held without notice at such times and places as the
Board determines. If the day fixed for a regular meeting is a legal holiday, the
meeting shall be held on the next business day.
2.5 SPECIAL MEETINGS. Special meetings of the Board may be called by
the president or by the director. Only business related to the purposes set
forth in the notice of meeting may be transacted at a special meeting.
2.6 NOTICE OF MEETINGS; WAIVER OF NOTICE. Notice of the time and place
of each special meeting of the Board, and of each annual meeting not held
immediately after the annual meeting of stockholders and at the same place,
shall be given to each director by mailing it to him at his residence or usual
place of business at least three days before the meeting, or by delivering or
telephoning or telegraphing it to him at least two days before the meeting.
Notice of a special meeting shall also state the purpose or purposes for which
the meeting is called. Notice need not be given to any director who submits a
signed waiver of notice before or after the meeting or who attends the meeting
without protesting at the beginning of the meeting the transaction of any
business because the meeting was not lawfully called or convened. Notice of any
adjourned meeting need not be given, other than by announcement at the meeting
at which the adjournment is taken.
2.7 BOARD OR COMMITTEE ACTION WITHOUT A MEETING. Any action required or
permitted to be taken by the Board or by any committee of the Board may be taken
without a meeting if all of the members of the Board or of the committee consent
in writing to the adoption of a resolution authorizing the action. The
resolution and the written consents by the members of the Board or the committee
shall be filed with the minutes of the proceeding of the Board or of the
committee.
2.8 PARTICIPATION IN BOARD OR COMMITTEE MEETINGS BY CONFERENCE
TELEPHONE. Any or all members of the Board or of any committee of the Board may
participate in a meeting of the Board or of the committee by means of a
conference telephone or similar communications equipment allowing all
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persons participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at the meeting.
2.9 RESIGNATION AND REMOVAL OF DIRECTORS. Any director may resign at
any time by delivering his resignation in writing to the president or secretary
of the corporation, to take effect at the time specified in the resignation; the
acceptance of a resignation, unless required by its terms, shall not be
necessary to make it effective. Any or all of the directors may be removed at
any time, either with or without cause, by vote of the stockholders.
2.10 VACANCIES. Any vacancy in the Board, including one created by an
increase in the number of directors, may be filled for the unexpired term by a
majority vote of the remaining directors, though less than a quorum.
2.11 COMPENSATION. Directors shall receive such compensation as the
Board determines, together with reimbursement of their reasonable expenses in
connection with the performance of their duties. A director may also be paid for
serving the corporation, its affiliates or subsidiaries in other capacities.
3. COMMITTEES.
3.1 EXECUTIVE COMMITTEE. The Board, by resolution adopted by a majority
of the entire Board, may designate an Executive Committee of one or more
directors which shall have all the powers and authority of the Board, except as
otherwise provided in the resolution, Section 141(c) of the Delaware General
Corporation Law, or any other applicable law. The members of the Executive
Committee shall serve at the pleasure of the Board. All action of the Executive
Committee shall be reported to the Board at its next meeting.
3.2 OTHER COMMITTEES. The Board, by resolution adopted by a majority of
the entire Board, may designate other committees of directors of one or more
directors, which shall serve at the Board's pleasure and have such powers and
duties as the Board determines.
3.3 RULES APPLICABLE TO COMMITTEES. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of any member of a committee, the member or members present at
a meeting of the committee and not disqualified, whether or not a quorum, may
unanimously appoint another director to act at the meeting in place of the
absent or disqualified member. All action of a committee shall be reported to
the Board at its next meeting. Each committee shall adopt rules of procedure and
shall meet as provided by those rules or by resolutions of the Board.
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4. OFFICERS.
4.1 NUMBER; SECURITY. The executive officers of the corporation shall
be the president, one or more vice presidents (including an executive vice
president, if the Board so determines), a secretary and a treasurer. Any two or
more offices may be held by the same person .
4.2 ELECTION; TERM OF OFFICE. The executive officers of the corporation
shall be elected annually by the Board, and each such officer shall hold office
until the next annual meeting of the Board and until the election of his
successor, subject to the provisions of Section 4.4.
4.3 SUBORDINATE OFFICERS. The Board may appoint subordinate officers
(including assistant secretaries and assistant treasurers), agents or employees,
each of whom shall hold office for such period and have such powers and duties
as the Board determines. The Board may delegate to any executive officer or to
any committee the power to appoint and define the powers and duties of any
subordinate officers, agents or employees.
4.4 RESIGNATION AND REMOVAL OF OFFICERS. Any officer may resign at any
time by delivering his resignation in writing to the president or secretary of
the corporation, to take effect at the time specified in the resignation; the
acceptance of a resignation, unless required by its terms, shall not be
necessary to make it effective. Any officer appointed by the Board or appointed
by an executive officer or by a committee may be removed by the Board either
with or without cause, and in the case of an officer appointed by an executive
officer or by a committee, by the officer or committee who appointed him or by
the president.
4.5 VACANCIES. A vacancy in any office may be filled for the unexpired
term in the manner prescribed in Sections 4.2 and 4.3 of these by-laws for
election or appointment to the office.
4.6 THE PRESIDENT. The president shall be the chief executive officer
of the corporation and shall preside at all meetings of the Board and of the
stockholders. Subject to the control of the Board, he shall have general
supervision over the business of the corporation and shall have such other
powers and duties as presidents of corporations usually have or as the Board
assigns to him.
4.7 VICE PRESIDENT. Each vice president shall have such powers and
duties as the Board or the president assigns to him.
4.8 THE TREASURER. The treasurer shall be the chief financial officer
of the corporation and shall be in charge of the corporation's books and
accounts. Subject to the control of the Board, he shall have such other powers
and duties as the Board or the president assigns to him.
4.9 THE SECRETARY. The secretary shall be the secretary of, and keep
the minutes of, all meetings of the Board and of the stockholders, shall be
responsible for giving notice of all meetings of stockholders and of the Board,
and shall keep the seal and, when authorized by the Board, apply it to any
instrument requiring it. Subject to the control of the Board, he shall have such
powers and duties as the
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Board or the president assigns to him. In the absence of the secretary from any
meeting, the minutes shall be kept by the person appointed for that purpose by
the presiding officer.
4.10 SALARIES. The Board may fix the officers' salaries, if any, or it
may authorize the president to fix the salary of any other officer.
5. SHARES.
5.1 CERTIFICATES. The corporation's shares shall be represented by
certificates in the form approved by the Board. Each certificate shall be signed
by the president or a vice president and by the secretary or an assistant
secretary, or the treasurer or an assistant treasurer, and shall be sealed with
the corporation's seal or a facsimile of the seal. Any or all of the signatures
on the certificate may be a facsimile.
5.2 TRANSFERS. Shares shall be transferable only on the corporation's
books, upon surrender of the certificate for the shares, properly endorsed. The
Board may require satisfactory surety before issuing a new certificate to
replace a certificate claimed to have been lost or destroyed.
5.3 DETERMINATION OF STOCKHOLDERS OF RECORD. The Board may fix, in
advance, a date as the record date for the determination of stockholders
entitled to notice of or to vote at any meeting of the stockholders, or to
express consent to or dissent from any proposal without a meeting, or to receive
payment of any dividend or the allotment of any rights, or for the purpose of
any other action. The record date may not be more than 60 or less than 10 days
before the date of the meeting or more than 60 days before any other action.
6. MISCELLANEOUS.
6.1 SEAL. The Board shall adopt a corporate seal, which shall be in the
form of a circle and shall bear the corporation's name and the year and state in
which it was incorporated.
6.2 INDEMNIFICATION. The corporation shall indemnify each director,
officer, employee or agent of the corporation to the extent permitted under the
General Corporation Law of the State of Delaware.
6.3 FISCAL YEAR. The Board may determine the corporation's fiscal year.
Until changed by the Board, the corporation's fiscal year shall end on the last
Sunday of the month of February.
6.4 VOTING OF SHARES IN OTHER CORPORATIONS. Shares in other
corporations which are held by the corporation may be represented and voted by
the president or a vice president of this corporation or by proxy or proxies
appointed by one of them. The Board may, however, appoint some other person to
vote the shares.
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6.5 AMENDMENTS. By-laws may be amended, repealed or adopted by the
stockholders or by a majority of the entire Board, but any by-law adopted by the
Board may be amended or repealed by the stockholders.
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Exhibit 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is made as of December 30, 1999, by
Dean & DeLuca, Inc., a Delaware corporation (the "EMPLOYER"), and John B.
Richards, an individual (the "EXECUTIVE").
The parties, intending to be legally bound, hereby agree as
follows:
1. EMPLOYMENT TERMS AND DUTIES
1.1 EMPLOYMENT; DUTIES
The Employer hereby employs the Executive, and the Executive
hereby accepts employment by the Employer, as its President, with such duties
consistent with such position as are assigned or delegated to him by the Board
of Directors of Employer or any duly authorized committee thereof (the "Board").
If, in the good faith judgment of the Board, Executive is satisfactorily
performing his duties hereunder, then within one year from commencement of
Executive's employment under this Agreement, Executive shall be appointed to the
additional position of Chief Executive Officer of the Company. The Employer will
nominate the Executive to serve as a member of the Board. The Executive will
devote his entire business time, attention, skill and energy exclusively to the
business of the Employer, will use his best efforts to promote the success of
the Employer's business, and will cooperate fully with the Board in the
advancement of the best interests of the Employer.
1.2 TERM
The term of the Executive's employment under this Agreement
will be three years, beginning on a date to be mutually agreed by the Executive
and Employer and ending on the third anniversary of such date, subject to
Section 5.
2. COMPENSATION
2.1 BASIC COMPENSATION
(a) SALARY. The Executive will be paid an annual salary of
$500,000 (the "SALARY"), which will be payable in equal periodic installments
according to the Employer's customary payroll practices, but no less frequently
than monthly.
(b) OPTION GRANTS. Upon the execution of this Agreement, the
Employer will issue to the Executive options to acquire 450,000 shares of Common
Stock (900,000 shares after giving effect to a two-for-one stock split scheduled
for January 2000) at an exercise price of $4.18 ($2.09 after giving effect to a
two-for-one stock split scheduled for January 2000) per share, in the form of
Exhibit A.
(c) BENEFITS. The Executive will, during the term of his
employment be entitled to participate in such pension, profit sharing, bonus,
life insurance, hospitalization, major medical and other employee benefit plans
of the Employer as may be in effect from time to time, to the extent the
Executive is eligible under the terms of those plans (collectively, the
"BENEFITS"). The Benefits shall include (i) hospitalization and major medical
coverage effective from the first day of Executive's employment hereunder (if
the Employer's plans do not provide for immediately effective coverage, the
Employer may satisfy this requirement by reimbursing the Executive for the cost
of obtaining coverage under the Comprehensive Omnibus Budget Reconciliation Act
from his prior employer for the period prior to effectiveness of coverage under
Employer's plans) and (ii) $1,000,000 of term life insurance coverage, if
obtainable at normal rates. The Executive will also be entitled to be reimbursed
for the initiation fee to become a member of a club of his choice, in amount not
to exceed $75,000.
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2.2 BONUS COMPENSATION
Following consummation by Employer of a Qualified IPO (as
defined in Employer's certificate of incorporation), the Executive shall be paid
a bonus (the "BONUS") for each fiscal year (or pro rata portion thereof) during
the term of his employment, beginning with the fiscal year ending in 2001, in an
amount (not exceeding $275,000) determined by the Board, but not less than
$137,500, with the balance, if any, based upon the achievement of performance
criteria agreed upon in good faith by Executive and the Board. The bonus for a
fiscal year will be payable within 90 days after the end of that fiscal year.
2.3 NOTE REPLACEMENT
The Employer will advance to the Executive the amount of
approximately $68,000 payable by Executive to Dean & DeLuca, Inc. under a
promissory note dated ___________ , such advance to be evidenced by the
Executive's promissory note in the form of Exhibit B.
3. EXPENSES
(A) The Employer will reimburse the Executive for reasonable
expenses incurred by the Executive at the request of, or on behalf of,
the Employer in the performance of his duties pursuant to this
Agreement, to the extent incurred and documented in accordance with the
Employer's policies.
(B) The Employer will reimburse (or, in the case of clause
(vi), advance to) the Executive for reasonable relocation expenses
incurred by the Executive, including, without duplication: (i)
temporary living and travel expenses for Executive during moving
transition period, not to exceed 8 months; (ii) real estate closing
expenses incurred by Executive in connection with the sale of his
current residence and the purchase of a new home, including fees on any
new mortgage of up to 2 points; (iii) costs of moving and/or storing
all of Executive's personal effects, including packing and unpacking,
and transport of automobiles; (iv) expenses for travel and first class
hotel accommodation for Executive, his spouse and family up to ten
trips to the San Francisco metropolitan area to search for a new home;
(v) travel expenses to move Executive's family to his new home; (vi)
costs of housing advance based on published index of housing cost
differentials in Seattle and the location of his new home, less the
amount of profits made by Executive on the sale of his residence in
Seattle, which advance shall not exceed $500,000; and (vii) if
necessary, temporary living expenses for family in new location while
searching for a home, for a period not to exceed 6 months. Employer
will advance $25,000 to Executive upon execution of this Agreement to
cover relocation incidentals. The advance referred to in clause (vi)
shall be evidenced by a promissory note in the form of Exhibit C, which
shall be forgiven as to 25% of the amount thereof on each annual
anniversary of the date of this Agreement if the Executive is then
employed by the Company. If the Executive purchases a new home prior to
the sale of his residence in Seattle, the Employer will also provide
the Executive with up to $3,000,000 of "bridge financing" for the
purchase of his new home through either (i) a guaranty of a short-term
(not to exceed 90 days) mortgage loan from a bank or other financial
institution or (ii) a short-term (not to exceed 90 days) mortgage loan
from the Employer. Should the Executive voluntarily leave the employ of
the Company (other than for Good Reason, as defined below) and obtain
new employment during the term of this Agreement, Executive shall
reimburse Company in full for the above relocation costs, plus the
amount of the executive recruitment fee paid by the Company in
connection with the Executive's recruitment.
(C) The Employer will reimburse the Executive for the
reasonable fees of legal counsel retained by the Executive in
connection with the negotiation of this Agreement, to the extent not
exceeding $10,000.
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4. VACATIONS, HOLIDAYS AND HOME LEAVE
4.1 The Executive will be entitled to four weeks' paid vacation each
calendar year in accordance with the vacation policies of the Employer in effect
for its executive officers from time to time.
5. TERMINATION
5.1 EVENTS OF TERMINATION
This Agreement and any and all benefits and rights of the
Executive under this Agreement or otherwise as an employee of the Employer will
terminate (except as otherwise provided in this Section 6):
(a) upon the death of the Executive;
(b) upon the Disability of the Executive immediately upon
notice from either party to the other;
(c) For Cause, immediately upon notice from the Employer to
the Executive, or at such later time as such notice may specify; or
(d) For Good Reason upon not less than thirty days' prior
notice from the Executive to the Employer.
5.2 DEFINITION OF DISABILITY
For purposes of Section 5.1, the Executive will be deemed to
have a "Disability" if, for physical or mental reasons, the Executive is unable
to perform the Executive's duties under this Agreement for 60 consecutive days,
or 120 days during any twelve month period, as determined by the Board in good
faith. In order to assist the Board in making that determination, the Executive
will submit to a reasonable number of examinations by a medical doctor
designated by the Board and the Executive hereby authorizes the disclosure and
release to the Employer of the results of such examinations and all supporting
medical records.
5.3 DEFINITION OF "FOR CAUSE"
For purposes of Section 5.1, the phrase "For Cause" means: (a)
the Executive's breach of this Agreement in any material respect; (b) the
Executive's failure to substantially perform his assigned duties hereunder or to
adhere to any written Employer policy if such failure continues uncured for at
least ten days after notice thereof; (c) the appropriation (or attempted
appropriation) of a material business opportunity of the Employer, including
attempting to secure or securing any personal profit in connection with any
transaction entered into on behalf of the Employer; (d) the misappropriation (or
attempted misappropriation) of any of the Employer's funds or property; (e) the
conviction of, the indictment for (or its procedural equivalent), or the
entering of a guilty plea or plea of no contest with respect to, a felony, the
equivalent thereof, or any other crime, involving fraud or falsehood, or with
respect to which imprisonment is a possible punishment; or (f) use of illegal
drugs or controlled substances or excessive and recurring consumption of
alcoholic beverages.
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5.4 DEFINITION OF "FOR GOOD REASON"
For purposes of Section 5.1, the phrase "For Good Reason"
means any of the following: (a) the Employer's breach of this Agreement in any
material respect that continues uncured for at least ten days after notice
thereof from the Executive; (b) the assignment of the Executive without his
consent to a position, responsibilities, or duties inconsistent with Section 1;
(c) the requirement by the Employer that the Executive's principal place of
employment be anywhere more than 75 miles from the City of San Francisco,
without the Executive's consent; or (d) the assignment of Employer's rights
under this Agreement pursuant to Section 8.6, without the Executive's consent .
5.5 TERMINATION PAY
Effective upon the termination of this Agreement, the Employer
will be obligated to pay the Executive (or, in the event of his death, his
estate) only such compensation as is provided in this Section 5.5, in lieu of
all other amounts and in settlement and complete release of all claims the
Executive may have against the Employer.
(A) TERMINATION FOR GOOD REASON OR OTHER THAN FOR CAUSE. If
the Executive's employment pursuant to this Agreement is terminated by
the Employer other than For Cause or by the Executive for Good Reason,
the Employer shall continue to pay to the Executive the Executive's
Salary and Bonus for the remainder of the term of this Agreement, and
(during such period or, if earlier, until he obtains new employment
providing health benefits coverage) the Employer shall provide such
continuation of health benefits coverage, including, without
limitation, medical and dental coverage, required to be provided to
employees, former employees and the beneficiaries or dependents of such
employees and former employees under Part 6 of Subtitle B of Title I of
the Employee Retirement Income Security Act of 1974, as amended, or, if
applicable, Section 4980B of the Internal Revenue Code of 1986, as
amended, on terms no less favorable to the Executive than the terms on
which such coverage was provided prior to termination of his
employment; provided that, although the Executive shall have no duty to
mitigate by obtaining new employment, if the Executive obtains new
employment or is otherwise compensated for the performance of services,
all compensation received by Executive from the new employer whether in
the form of a signing bonus, salary or otherwise, shall be deducted on
a going forward basis from the Salary and Bonus payable by Employer to
Executive pursuant to this Section 5.5(A).
(B) TERMINATION UPON DISABILITY. If the Executive's employment
pursuant to this Agreement is terminated by either party as a result of
the Executive's Disability, as determined under Section 4.2, (i) the
Employer will pay the Executive his Salary through the remainder of the
calendar month during which such termination is effective, and that
part of the Executive's Bonus for the calendar year during which his
disability occurs, in each case prorated through the end of the
calendar month during which his Disability occurs.
(C) TERMINATION UPON DEATH. If the Executive's employment
pursuant to this Agreement is terminated because of the Executive's
death, the Executive's estate will be entitled to receive Executive's
Salary through the end of the calendar month in which his death occurs,
and that part of the Executive's Bonus for the calendar year during
which his death occurs, in each case prorated through the end of the
calendar month during which his death occurs.
(D) BENEFITS. The Executive's accrual of, or participation in
plans providing for, the Benefits will cease at the effective date of
the termination of his employment pursuant to this Agreement, and the
Executive will be entitled to accrued Benefits pursuant to such plans
only as provided in this Agreement or in such plans. The Executive
shall receive upon termination of his employment payment, at the rate
of the Salary, for unused vacation that has accrued pursuant to Section
4.1 through the date of such termination (pro rated for the calendar
year in which such
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termination occurs). The Executive will not receive, as part of his
termination pay pursuant to this Section 5, any other payment or other
compensation for any vacation, holiday, sick leave, or other leave
unused on the date the notice of termination is given under this
Agreement.
6. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
6.1 ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges that (a) during the term of and as
a part of his employment, the Executive will be afforded access to Confidential
Information; (b) public disclosure of such Confidential Information could have
an adverse effect on the Employer and its business; (c) because the Executive
possesses substantial technical expertise and skill with respect to the
Employer's business, the Employer desires to obtain exclusive ownership of each
Employee Invention, and the Employer will be at a substantial competitive
disadvantage if it fails to acquire exclusive ownership of each Employee
Invention; and (d) the provisions of this Section 5 are reasonable and necessary
to prevent the improper use or disclosure of Confidential Information and to
provide the Employer with exclusive ownership of all Employee Inventions.
"CONFIDENTIAL INFORMATION" shall mean any and all:
(a) trade secrets concerning the business and affairs of the
Employer and its subsidiaries, product specifications, data, know-how, formulae,
compositions, processes, designs, sketches, photographs, graphs, drawings,
samples, inventions and ideas, past, current, and planned research and
development, current and planned manufacturing or distribution methods and
processes, customer lists, current and anticipated customer requirements, price
lists, market studies, business plans, computer software and programs (including
object code and source code), computer software and database technologies,
systems, structures, and architectures (and related formulae, compositions,
processes, improvements, devices, know-how, inventions, discoveries, concepts,
ideas, designs and methods and information), and any other information, however
documented, that is a trade secret under applicable law; and
(b) information concerning the business and affairs of the
Employer and its subsidiaries (which includes historical financial statements,
financial projections and budgets, historical and projected sales, capital
spending budgets and plans, the names and backgrounds of key personnel and
personnel training and techniques and materials), however documented; and
(c) notes, analysis, compilations, studies, summaries, and
other material prepared by or for the Employer or any of its subsidiaries
containing or based, in whole or in part, on any information included in the
foregoing.
"EMPLOYEE INVENTION" shall mean any idea, invention,
technique, modification, process or improvement (whether patentable or not), any
industrial design (whether registerable or not) and any work of authorship
(whether or not copyright protection may be obtained for it) created, conceived,
or developed by the Executive, either solely or in conjunction with others,
during the term of his employment, or a period that includes a portion of the
term of his employment, that relates in any way to, or is useful in any manner
in, the business then being conducted or proposed to be conducted by the
Employer or any of its subsidiaries, and any such item created by the Executive,
either solely or in conjunction with others, following termination of the
Executive's employment with the Employer, that is based upon or uses
Confidential Information.
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6.2 COVENANTS OF THE EXECUTIVE
In consideration of the compensation and benefits to be paid
or provided to the Executive by the Employer under this Agreement, the Executive
covenants as follows:
(A) CONFIDENTIALITY.
(i) During and following the term of his employment,
the Executive will hold in confidence the Confidential
Information and will not disclose it to any person except with
the specific prior written consent of the Employer or except
as otherwise expressly permitted by the terms of this
Agreement.
(ii) Any trade secrets of the Employer will be
entitled to all of the protections and benefits under
applicable law. If any information that the Employer deems to
be a trade secret is found by a court of competent
jurisdiction not to be a trade secret for purposes of this
Agreement, such information will, nevertheless, be considered
Confidential Information for purposes of this Agreement. The
Executive hereby waives any requirement that the Employer
submit proof of the economic value of any trade secret.
(iii) None of the foregoing obligations and
restrictions applies to any part of the Confidential
Information that the Executive demonstrates was or became
generally available to the public other than as a result of a
disclosure by the Executive.
(iv) The Executive will not remove from the
Employer's or any of its subsidiaries' premises (except to the
extent such removal is for purposes of the performance of the
Executive's duties at home or while traveling, or except as
otherwise specifically authorized by the Employer) any
document, record, notebook, plan, model, component, device, or
computer software or code, whether embodied in a disk or in
any other form (collectively, the "PROPRIETARY ITEMS"). The
Executive recognizes that, as between the Employer and the
Executive, all of the Proprietary Items, whether or not
developed by the Executive, are the exclusive property of the
Employer. Upon termination of this Agreement by either party,
or upon the request of the Employer during the Employment
Period, the Executive will return to the Employer all of the
Proprietary Items in the Executive's possession or subject to
the Executive's control, and the Executive shall not retain
any copies, abstracts, sketches, or other physical embodiment
of any of the Proprietary Items.
(B) EMPLOYEE INVENTIONS. Each Employee Invention will belong
exclusively to the Employer. The Executive acknowledges that all of the
Executive's writing, works of authorship, specially commissioned works
and other Employee Inventions are works made for hire and the property
of the Employer, including any copyrights, patents, or other
intellectual property rights pertaining thereto. If it is determined
that any such works are not works made for hire, the Executive hereby
assigns to the Employer all of the Executive's right, title, and
interest, including all rights of copyright, patent, and other
intellectual property rights, to or in such Employee Inventions. The
Executive covenants that he will promptly:
(i) disclose to the Employer in writing any Employee
Invention;
(ii) assign to the Employer or to a party designated
by the Employer, at the Employer's request and without
additional compensation, all of the Executive's right to the
Employee Invention for the United States and all foreign
jurisdictions;
6
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(iii) execute and deliver to the Employer such
applications, assignments and other documents as the Employer
may request in order to apply for and obtain patents or other
registrations with respect to any Employee Invention in the
United States and any foreign jurisdictions;
(iv) sign all other papers necessary to carry out the
above obligations; and
(v) give testimony and render any other assistance in
support of the Employer's rights to any Employee Invention.
6.3 DISPUTES OR CONTROVERSIES
The Executive recognizes that should a dispute or controversy
arising from or relating to this Agreement be submitted for adjudication to any
court, arbitration panel or other third party, the preservation of the secrecy
of Confidential Information may be jeopardized. All pleadings, documents,
testimony and records relating to any such adjudication will be maintained in
secrecy and will be available for inspection by the Employer, the Executive and
their respective attorneys and experts, who will agree, in advance and in
writing, to receive and maintain all such information in secrecy, except as may
be limited by them in writing.
7. NON-COMPETITION AND NON-INTERFERENCE
7.1 ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges that: (a) the services to be
performed by him under this Agreement are of a special, unique, unusual,
extraordinary and intellectual character; (b) the Employer's business is
international in scope and its products are marketed throughout the United
States and internationally; (c) the Employer competes with other businesses that
are or could be located in any part of the world; and (d) the provisions of this
Section 7 are reasonable and necessary to protect the Employer's business.
7.2 COVENANTS OF THE EXECUTIVE
In consideration of the acknowledgments by the Executive, and
in consideration of the compensation and benefits to be paid or provided to the
Executive by the Employer, the Executive covenants that he will not, directly or
indirectly:
(a) during the term of his employment, except in the course of
his employment hereunder, and during the Post-Employment Period (as defined
below), engage or invest in, own, manage, operate, finance, control or
participate in the ownership, management, operation, financing or control of, be
employed by, associated with, or in any manner connected with, lend the
Executive's name or any similar name to, lend Executive's credit to or render
services or advice to, any business engaged in any aspect of Employer's
Business; PROVIDED, HOWEVER, that the Executive may purchase or otherwise
acquire up to (but not more than) one percent of any class of securities of any
enterprise (but without otherwise participating in the activities of such
enterprise) if such securities are registered under Section 12 of the Securities
Exchange Act of 1934, as amended;
(b) whether for the Executive's own account or for the account
of any other person, at any time during the term of his employment and the
Post-Employment Period, solicit business related to the Employer's Business from
any person known by the Executive to be a customer of the Employer or any of its
subsidiaries, whether or not the Executive had personal contact with such person
during and by reason of the Executive's employment with the Employer;
7
<PAGE>
(c) whether for the Executive's own account or the account of
any other person (i) at any time during the term of his employment and the
Post-Employment Period, solicit, employ or otherwise engage as an employee,
independent contractor, or otherwise, any person who is or was an employee of
the Employer or any of its subsidiaries at any time during the term of his
employment or in any manner induce or attempt to induce any employee of the
Employer or any of its subsidiaries to terminate his employment with the
Employer or any of its subsidiaries; or (ii) at any time during the term of his
employment and for three years thereafter, interfere with the Employer's or any
of its subsidiaries' relationships with any person, including any person who at
any time during the Employment Period was an employee, contractor, supplier, or
customer of the Employer or any of its subsidiaries; or
(d) at any time during or after the term of his employment,
disparage the Employer or any of its subsidiaries, shareholders, directors,
officers, employees or agents.
For purposes of this Section 7.2, (i) the term
"Post-Employment Period" means the two-year period beginning on the date of
termination of the Executive's employment with the Employer, unless the
Executive's employment pursuant to this Agreement is terminated by the Employer
other than For Cause or by the Executive for Good Reason, in which event it
shall end on the date of termination of the Executive's employment and (ii) the
term "Employer's Business" means the development, marketing, distribution and
sale of gourmet and specialty foods, premium wines and beverages and housewares,
including, but not limited to, through the Internet, direct mail catalogue and
specialty food markets and cafes.
If any covenant in this Section 7.2 is held to be
unreasonable, arbitrary or against public policy, such covenant will be
considered to be divisible with respect to scope, time and geographic area, and
such lesser scope, time or geographic area, or all of them, as a court of
competent jurisdiction may determine to be reasonable, not arbitrary, and not
against public policy, will be effective, binding and enforceable against the
Executive.
The period of time applicable to any covenant in this Section
7.2 will be extended by the duration of any violation by the Executive of such
covenant.
The Executive will, while the covenant under this Section 7.2
is in effect, give notice to the Employer, within ten days after accepting any
other employment, of the identity of the Executive's employer. The Employer may
notify such employer that the Executive is bound by this Agreement and, at the
Employer's election, furnish such employer with a copy of this Agreement or
relevant portions thereof.
8. GENERAL PROVISIONS
8.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
The Executive acknowledges that the injury that would be
suffered by the Employer as a result of a breach of the provisions of this
Agreement (including any provision of Sections 6 and 7) would be irreparable and
that an award of monetary damages to the Employer for such a breach would be an
inadequate remedy. Consequently, the Employer will have the right, in addition
to any other rights it may have, to obtain injunctive relief to restrain any
breach or threatened breach or otherwise to specifically enforce any provision
of this Agreement, and the Employer will not be obligated to post bond or other
security in seeking such relief. In any action to obtain such relief, if the
Executive is the prevailing party he shall be entitled to recover from the
Employer the reasonable costs incurred by him in defending such action,
including, without limitation, reasonable attorneys' fees.
Without limiting the Employer's rights under this Section 8 or
any other remedies of the Employer, if the Executive breaches any of the
provisions of Section 6 or 7, the Employer will have the right
8
<PAGE>
to cease making any payments otherwise due to the Executive under this
Agreement. If the Employer ceases making any such payments to the Executive by
reason of the preceding sentence and it is finally judicially determined that
the Executive had not breached any of the provisions of Section 6 or 7 and that
the Employer's failure to make such payments was not authorized by the preceding
sentence, the Executive shall be entitled to recover, in addition to the
payments that the Employer improperly failed to make, interest on each such
payment from the date it was due until it is made at the prime rate of The Chase
Manhattan Bank.
8.2 COVENANTS OF SECTIONS 6 AND 7 ARE ESSENTIAL AND
INDEPENDENT COVENANTS
The covenants by the Executive in Sections 6 and 7 are
essential elements of this Agreement, and without the Executive's agreement to
comply with such covenants, the Employer would not have entered into this
Agreement or employed or continued the employment of the Executive. The Employer
and the Executive have independently consulted their respective counsel and have
been advised in all respects concerning the reasonableness and propriety of such
covenants, with specific regard to the nature of the business conducted by the
Employer.
The Executive's covenants in Sections 6 and 7 are independent
covenants and the existence of any claim by the Executive against the Employer
under this Agreement or otherwise will not excuse the Executive's breach of any
covenant in Section 6 or 7.
If the Executive's employment hereunder expires or is
terminated, this Agreement will continue in full force and effect as is
necessary or appropriate to enforce the covenants and agreements of the
Executive in Sections 6 and 7.
8.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE
The Executive represents and warrants to the Employer that the
execution and delivery by the Executive of this Agreement do not, and the
performance by the Executive of the Executive's obligations hereunder will not,
with or without the giving of notice or the passage of time, or both: (a)
violate any judgment, writ, injunction or order of any court, arbitrator or
governmental agency applicable to the Executive; or (b) conflict with, result in
the breach of any provisions of or the termination of, or constitute a default
under, any agreement to which the Executive is a party or by which the Executive
is or may be bound.
8.4 OBLIGATIONS CONTINGENT ON PERFORMANCE
Except as otherwise specifically provided herein, the
obligations of the Employer hereunder, including its obligation to pay the
compensation provided for herein, are contingent upon the Executive's
performance of the Executive's obligations hereunder.
8.5 WAIVER
The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by either
party in exercising any right, power or privilege under this Agreement will
operate as a waiver of such right, power or privilege, and no single or partial
exercise of any such right, power or privilege will preclude any other or
further exercise of such right, power or privilege or the exercise of any other
right, power or privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement can be discharged by one
party, in whole or in part, by a waiver or renunciation of the claim or right
unless in writing signed by the other party; (b) no waiver that may be given by
a party will be applicable except in the specific instance for which it is
given; and (c) no notice to or demand on one party will be deemed to be a waiver
of any obligation of such party
9
<PAGE>
or of the right of the party giving such notice or demand to take further action
without notice or demand as provided in this Agreement.
8.6 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED
This Agreement shall inure to the benefit of, and shall be
binding upon, the parties hereto and their respective successors, assigns, heirs
and legal representatives, including any entity with which the Employer may
merge or consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this Agreement,
being personal, may not be delegated.
8.7 NOTICES
All notices, consents, waivers, and other communications under
this Agreement must be in writing and will be deemed to have been duly given
when (a) delivered by hand (with written confirmation of receipt), (b) sent by
facsimile (with written confirmation of receipt), provided that a copy is mailed
by registered mail, return receipt requested or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
If to Employer:
Dean & DeLuca, Inc.
560 Broadway
New York, NY
Attention: Dane J. Neller, Chief Executive Officer
Facsimile No.: (212) 965-1765
With a copy to:
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, NY 10022
Attention: Joel I. Greenberg, Esq.
Facsimile No.: 212-836-8211
If to the Executive:
1215 Lexington Way East
East Seattle, Washington 98112
Facsimile No.: (206) 324-7770
8.8 ENTIRE AGREEMENT; AMENDMENTS
This Agreement contains the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior
agreements and understandings, oral or written, between the parties hereto with
respect to the subject matter hereof. This Agreement may not be amended orally,
but only by an agreement in writing signed by the parties hereto.
10
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8.9 GOVERNING LAW
This Agreement will be governed by the laws of the State of
New York without regard to conflicts of laws principles.
8.10 JURISDICTION
Any action or proceeding seeking to enforce any provision of,
or based on any right arising out of, this Agreement may be brought against
either of the parties in the courts of the State of New York, County of New
York, or, if it has or can acquire jurisdiction, in the United States District
Court for the Southern District of New York, and each of the parties consents to
the jurisdiction of such courts (and of the appropriate appellate courts) in any
such action or proceeding and waives any objection to venue laid therein.
Process in any action or proceeding referred to in the preceding sentence may be
served on either party anywhere in the world.
8.11 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for
convenience only and will not affect its construction or interpretation. All
references to "Section" or "Sections" refer to the corresponding Section or
Sections of this Agreement unless otherwise specified. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
8.12 SEVERABILITY
If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
8.13 COUNTERPARTS
This Agreement may be executed in one or more counterparts,
each of which will be deemed to be an original copy of this Agreement and all of
which, when taken together, will be deemed to constitute one and the same
agreement.
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date above first written above.
DEAN & DELUCA, INC.
By: /s/ Dane J. Neller
----------------------
Name: Dane J. Neller
EXECUTIVE:
/s/ John B. Richards
-------------------------
John B. Richards
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EXHIBIT 10.2
DEAN & DELUCA
560 Broadway
New York, New York 10012
June 8, 1998
Mr. Duminda De Silva
c/o Old Boston Restoration
477 Shawmut Avenue
Boston, MA 02118
Dear Duminda:
The following are the terms of your at will employment at Dean & Deluca as Vice
President and General Manager of the Catalogue Division. Your position, based in
the new corporate offices in New York City, will report directly to me.
You will have full profit and loss responsibility for the catalogue division,
and be accountable for supervising all aspects of catalogue operations,
including marketing/circulation management, order fulfillment and warehousing,
call center operations, catalogue production and creative direction, product
buying/merchandising and catalogue staffing. Your objective will be to grow
sales and create a long-term, profitable enterprise which reflects the superior
quality, excellence, ambiance and brand recognition associated with the Dean &
Deluca name. Your desire to assume a broader brand development role for the
company is one that you could evolve into after you get your hands around the
catalogue business - although I would expect there will be overlap in
positioning the catalogue.
You will be expected to encourage full and open communication with your staff,
and to foster a working environment which embraces the principles of continuous
improvement and excellence in execution. I will expect you to communicate with
me on a regular basis, so there are no surprises. You should feel free to
express yourself candidly about matters affecting your division; just expect a
lot of questions from me, and healthy debate. Finally, you should employ market
based management principles in all of your commercial decision making, and act
with a sense of urgency in executing your plans.
Your annual base salary will be $120,000 with an opportunity to receive a bonus
of up to 25% of your base salary on your first anniversary based on your job
performance. Because the members of our team shared my high opinion of you, we
are willing to meet your compensation objectives. We are
<PAGE>
committed to rewarding people who make significant and valuable contributions to
our organization. Although you do not bring specific catalogue experience to the
table, we have great confidence that you will "learn the ropes" in short order.
All of us were taken by your enthusiasm and passion for this business, and
believe you will accomplish your "vision" for the company.
You will receive standard health benefits after 90 days of employment and will
be eligible to participate in our 401K plan on your first anniversary date.
These and other benefits and responsibilities are more fully defined in Employee
Handbook which has already been issued to you. We will also reimburse you for
reasonable moving costs between Boston and New York, including one trip to New
York to secure permanent housing. Please call Lori Fernandez at extension 236 if
you need assistance in locating an apartment.
Additionally, you will have the opportunity to participate in our non-qualified
employee stock option plan after one year of employment. The granting of these
options will be based on your job performance, and is strictly discretionary at
the will of the committee responsible for administering the plan. The granting
of options is subject to a vesting schedule and other terms and conditions which
are set forth in the stock option plan and stock option agreement, which you
will receive upon eligibility in the plan.
We would like you to start as soon as possible, but recognize you have
obligations at Koch Industries that may require you to give more than the
standard two week's notice. You also have expressed interest in attending the
Harvard Strategic Marketing Management Course which commences on June 14 and
ends on June 26, 1998. Dean & Deluca will reimburse you for tuition costs not to
exceed $9,000. In light of the above, please give me an indication of when you
will be able to start.
Duminda, I know I speak for all the people you have met at Dean & Deluca in
expressing our enthusiasm about the prospects of you joining our team. Your
professionalism and passion for food and brand development, combined with our
commitment to quality and excellence, shall prove to be a winning combination.
2
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This offer of employment is subject to having satisfactory interviews in
Wichita, which we have every confidence will go as well as they did here in New
York. I would like to arrange your visit to Wichita as soon as possible. Please
call me or Lori to set a mutually convenient time, or if you have any questions
or comments concerning this letter. If the terms and conditions of this letter
are acceptable, please sign and fax back to me at my confidential fax - (212)
965-1765.
Yours sincerely,
/s/ DANE J. NELLER
- ------------------------------
Dane J. Neller
President and Chief Executive Officer
Agreed and Accepted:
/s/ Duminda De Silva
- ------------------------------
Duminda De Silva
6/16/98
- ------------------------------
Date
3
<PAGE>
EXHIBIT 10.3
DEAN & DELUCA
560 Broadway
New York, New York 10012
30 December 1998
Mr. Emil Grosso
561 Eder Avenue
Wyckoff, NJ 07481
Dear Emil:
It is my pleasure to confirm our offer of at will employment at Dean & DeLuca
Brands, Inc. ("D&D") as Vice President - Finance.
As Vice President - Finance you will report directly to me and be responsible
for all finance and MIS functions. This will include, among other things,
financial and inventory reporting, financial planning and budgeting, information
technology, loss prevention, payroll and risk management. You will be primarily
responsible for ensuring the integrity and accuracy of our financial statements
and accounting procedures. We will expect you to develop a system of procedures
and controls which produce timely and accurate financial statements and year-end
closes with a small but effect staff. I will also expect you to develop weekly
management reports which summarize in a concise and accurate fashion the key
financial drivers of the business, i.e., weekly gross margins and payroll,
monthly inventory and inventory turns, relevant catalogue information, and other
data useful in managing the business.
This position requires the skills of a highly effective change agent and
financial manager. The major focus during the first six months will be to
examine the existing accounting and information technology infrastructure, to
re-engineer systems, processes and procedures so that they may sustain the
company through a period of significant growth, and to be well on the way toward
implementing these changes. The current structures, while adequate in the past,
are insufficient for the anticipated growth of D&D. Thus, the need to take the
functions to the next level.
We have also discussed the need to centralize and consolidate accounting and MIS
functions for all business units (including the licensed entities) into one
location. By doing this, we can eliminate duplicating functions and costs, and
standardize best practices across the company. During your first six months you
will assess the capabilities of the company and begin to undertake this
initiative. Our objective is to complete this mission in one year.
Your annual base salary will be $135,000. Additionally, you will be eligible to
earn a discretionary bonus of up to 20% of this salary, payable on your
anniversary date based on your job performance.
<PAGE>
The full 20% bonus will be awarded based on exemplary services. A sign-on bonus
of $7,500 will be paid to you within the first thirty (30) days of employment.
We have agreed that this sum will be repaid by you to D&D if you voluntarily
resign or are terminated for cause within the first year of employment. You will
also be eligible to participate in our 401K plan after one year of employment
and participate in our standard health care plan upon completion of 90 days of
employment. Prior to enrollment in the health care plan, you will be personally
responsible for your COBRA payments. You will be entitled to two weeks vacation
during your first year.
Finally, you will be eligible to participate in our non-qualified employee stock
option plan after one year of employment, subject to the terms and conditions of
the plan. The granting of these options will be based on your job performance,
and is strictly discretionary at the will of the committee responsible for
administering the plan. The formula for determining the amount of the grant is
tied to your base salary and the fair market value of the D&D common stock at
the time of your grant.
Emil, I know I speak for all the people you have met at Dean & DeLuca in
expressing our enthusiasm about you leading the financial team at Dean & DeLuca.
Your professionalism and experience, combined with our commitment to quality and
excellence, should prove to be a winning combination. We look forward to you
joining us around February 1, 1999; please let us know your firm start date.
If the terms of this letter are consistent with your understanding, please sign
below and fax back to me at (212) 965-1765 upon receipt. Otherwise call me if
you have any questions or comments.
Yours sincerely,
/s/ DANE J. NELLER
- ------------------------------
Agreed and Accepted
/s/ EMIL GROSSO
------------------------
Emil Grosso
Date: 1/11/99
------------------
cc: Mike Randels
<PAGE>
EXHIBIT 10.4
DEAN & DELUCA
560 Broadway
New York, New York 10012
April 20, 1999
Mr. Brian Bodell
127 West 79th Street, Apt. 8G
New York, NY 100245
Dear Brian:
It is my pleasure to confirm our offer of at will employment at Dean & DeLuca
Brands, Inc. ("D&D") as Vice President-E-Commerce Technology and Strategic
Relationships.
As Vice President-E-Commerce you will report to me and be responsible for site
development, strategic relationships, and the development of our affiliate
program. You will have responsibility for site construction, and be accountable
for supervising all aspects including design, layout, architecture, coordinating
of the third party vendors, and the integration of the site with other software
systems. Additionally, you will be responsible for identifying and recruiting
strategic virtual partners to build our internet reach.
In the execution of all your duties, you will be expected to encourage full and
open communication, and to foster a working environment which embraces the
principles of continuous improvement and excellence in execution. I will expect
you to communicate with me on a regular basis, so there are no surprises. You
should feel free to express yourself candidly about matters affecting your
position; just expect a lot of questions from me, and healthy debate. Finally,
you should employ market based management principles in all of your commercial
decision making, and act with a sense of urgency in executing your plans.
Your start date will be April 26, 1999 and your annual salary will be $130,000
with an opportunity to receive a bonus of up to 23% on your first anniversary
based on your job performance. You will receive standard health benefits after
90-days of employment and will be eligible to participate in our 401K plan on
your first anniversary date. These and other benefits and responsibilities are
more fully defined in Employee Handbook.
Additionally, you will have the opportunity to participate in our non-qualified
employee stock option plan after one year of employment. The granting of these
options will be based on your job performance, and is strictly discretionary at
the will of the committee responsible for administering the
<PAGE>
plan. The granting of options is subject to a vesting schedule and other terms
and conditions which are set forth in the stock option plan and stock option
agreement, which you will receive upon eligibility in the plan.
Brian, I know I speak for all the people you have met at Dean & DeLuca in
expressing our enthusiasm about the prospects of you joining our team. Your
professionalism and combined with our commitment to quality and excellence,
shall prove to be a winning combination.
Yours sincerely,
/s/ DUMINDA DE SILVA
- ------------------------
Duminda De Silva
Vice President
Agreed and Accepted:
/s/ Brian Bodell
- ------------------------
Brian Bodell
4/20/99
- ------------------------
Date
cc: Dane Neller
2
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EXHIBIT 10.5
DEAN & DELUCA
560 Broadway
New York, New York 10012
September 23, 1999
Mr. Jim Bartlett
44 Hillside Drive
Wheat Ridge, CO 80215
Dear Jim:
It is my pleasure to confirm our offer of at will employment at Dean & Deluca
Brands, Inc. as Vice President of Operations for our Internet and Catalogue
division based in Wichita, Kansas.
As Vice President of Operations you will report directly to me, have profit and
loss responsibility for the Wichita operating facility and be accountable for
supervising all aspects of fulfillment operations, including order fulfillment
and warehousing, call center operations, purchasing, MIS, staffing, and
coordinating of third party vendors. Your objective will be to build the
infrastructure necessary for growth and develop an operating culture that
reflects the superior quality, excellence, and ambiance associated with the Dean
& Deluca brand. Your complete responsibilities will be further defined upon your
arrival at Dean & Deluca.
Your overall mission is to build a world-class distribution system for Dean &
Deluca. In the execution of all your duties, you will be expected to encourage
full and open communication, and to foster a working environment which embraces
the principles of continuous improvement and excellence in execution. I will
expect you to communicate with me on a regular basis, so there are no surprises.
You should feel free to express yourself candidly about matters affecting your
position; just expect a lot of questions from me, and healthy debate. Finally,
you should employ market based management principles in all of your commercial
decision making, and act with a sense of urgency in executing your plans.
Your start date will be October 11, 1999 and your annual base salary will be
$125,000 with an opportunity to receive a bonus of up to 30% on your first
anniversary based on your job performance. Additionally, to cover your
non-vested options at Staples you will receive a sum of $50,000, $10,000 as a
sign-on bonus and $40,000 on January 01, 2001. We will also reimburse you for
reasonable moving costs between Wichita and Denver, 90 days temporary housing in
Wichita, including a couple of trips per month back to Denver from October
through January.
<PAGE>
Additionally, you will be granted 15,000 options pursuant to our non-qualified
employee stock option plan, upon the earlier of six months or the commencement
of our IPO. The exercise price shall be the fair market value of the option
shares at the time of grant, which should approximate the IPO value. You will be
vested as to 25% of your option shares upon your first anniversary date of
employment with the balance of your options vested 25% per year upon each
anniversary date thereafter. A further grant will be made based on your job
performance, and is strictly discretionary at the will of the committee
responsible for administering the plan. The granting of options is subject to a
vesting schedule and other terms and conditions which are set forth in the stock
option plan and stock option agreement, which you will receive upon eligibility
in the plan.
Jim, I know I speak for all the people you have met at Dean & Deluca in
expressing our enthusiasm about the prospects of you joining our team. Your
professionalism and combined with our commitment to quality and excellence,
shall prove to be a winning combination.
Yours sincerely,
/s/ DUMINDA DE SILVA
- ------------------------
Duminda DeSilva
Senior Vice President
Agreed and Accepted:
/s/ Jim Bartlett
- ------------------------
Jim Bartlett
9/29/99
- ------------------------
Date
2
<PAGE>
EXHIBIT 10.6
DEAN & DELUCA
560 Broadway
New York, New York 10012
February 23, 2000
Mr. Curt Gray
3246 Kara Court
Salt Lake City, UT 84121
Dear Curt:
It is my pleasure to confirm our offer of at will employment with Dean & Deluca,
Inc. ("Dean & DeLuca") as Executive Vice President ("EVP") of the Retail
Division.
As EVP of the Retail Division, you will report directly to me and have direct
P&L and operations responsibility for all Dean & DeLuca markets and cafes. Your
main responsibility will be to optimize the operating performance of existing
and new retail units, which will include, among other things, driving sales,
maximizing profits, standardizing best practices, and enhancing brand awareness
and consistency. You will also have responsibility for all new store openings,
including site identification, construction, design, staffing, training and all
related matters pertaining to the roll-out of new Dean & DeLuca markets and
cafes.
We would anticipate that for the next year, you will need to travel extensively
and can operate out of a home office during this period. Thereafter, you will be
expected to relocate to San Francisco, and office out of the corporate
headquarters.
Your annual base salary will be $215,000, with a $25,000 sign-on bonus payable
when the company goes public. Additionally, you will be eligible to earn a bonus
of up to 50% of your base salary, payable on your first anniversary date, based
on achieving mutually acceptable targets and objectives, although 50% of the
bonus will be guaranteed. The entire bonus, however, is contingent upon Dean &
DeLuca successfully completing an IPO. Your annual base salary will be subject
to adjustment based on a documented formula which measures the difference of
cost of living between Salt Lake City and San Francisco. We will also pay
reasonable travel and shipping expenses from Salt Lake City to San Francisco.
Finally, you will be granted 120,000 options to acquire the common stock of Dean
& DeLuca at $4.18 per share, subject to our four-year vesting schedule (the
options become automatically vested in the
<PAGE>
event of change of control). A copy of the stock option plan and stock option
agreement is enclosed with this letter.
You will also be eligible to participate in our 401K plan after one year of
employment and participate in our standard healthcare plan, upon completion of
90 days of employment (we will reimburse you for your COBRA payments during this
90-day period). You will be entitled to three weeks of vacation during your
first year.
Curt, Dane and I are extremely pleased that you will be joining our team, and
believe you will make a valuable contribution to the company as it embarks on
its exciting new growth initiatives. We look forward to you joining us within
the next three weeks. Please let me know your firm start date.
If the terms of this letter are consistent with our understanding, please sign
below and fax to Dane at 212-965-1765 upon receipt. Otherwise, call me if you
have any questions or comments.
Yours sincerely,
/s/ JOHN RICHARDS
- ------------------------
John Richards
President
I accept employment with Dean & DeLuca according to the terms set forth above.
My start date will be March 20, 2000.
/s/ CURTIS L. GRAY 2/23/00
- ------------------------ ------------
Signature Date
2
<PAGE>
EXHIBIT 10.7
DEAN & DELUCA
560 Broadway
New York, New York 10012
March 14, 2000
VIA FACSIMILE (316) 291-3599
George Mileusnic
9422 Cross Creek
Wichita, KS 67206
Dear George:
It gives me great pleasure to offer you the position of Executive Vice President
and Chief Financial Officer (EVP/CFO), of Dean & DeLuca, Inc.
("Dean & DeLuca").
As EVP/CFO, your broad responsibilities will include, financial reporting and
control, management information systems, investor relations, SEC reporting and
risk management. You will report directly to me.
We would anticipate that you will need to travel extensively for the next year
and will be involved in the completion of the setup of our accounting and
administration in Wichita. Thereafter, you will be expected to relocate to our
corporate headquarters in San Francisco.
o Your annual base salary will be $200,000.00, with a $25,000.00 sign on
bonus once the company goes public.
o You will be eligible for an annual performance bonus of up to 50% of your
base salary, payable on your first anniversary date, based upon achieving
mutually acceptable targets and objectives, although 50% of this bonus
will be guaranteed. The entire bonus, however, is contingent upon Dean &
DeLuca successfully completing an IPO.
o Your annual base salary will be subject to an adjustment based on a
documented formula, which measures the difference of cost of living
between Wichita and San Francisco. We will also pay reasonable travel and
shipping expenses from Wichita to San Francisco.
o Finally, you will be granted 100,000 options to acquire the common stock
of Dean & DeLuca at $4.18 per share, subject to our four-year vesting
schedule (the options become automatically
<PAGE>
George Mileusnic
March 14, 2000
Page 2
vested in the event of change of control).
o A copy of the stock option plan and stock option agreement is enclosed
with this letter.
o You will also be eligible to participate in our 401K plan after one year
of employment and participate in our standard healthcare plan, upon
completion of the 90 days of employment (we will reimburse you for your
COBRA payments during this 90 day period). You will be entitled to three
(3) weeks of vacation during your first year.
George, Dane and I are extremely pleased that you will be joining the team, and
believe you will make a valuable contribution to the company as it embarks on
its exciting new growth mission.
This offer will remain in effect until Wednesday, March 22, 2000. Please let us
know your firm start date.
Yours sincerely,
/s/ JOHN B. RICHARDS
- ------------------------------
John B. Richards
President
I accept employment with Dean & DeLuca according to the terms set forth above.
My start date will be May 1, 2000.
/s/ GEORGE MILEUSNIC 3/14/00
- ---------------------------- ----------------------------
Signature Date
<PAGE>
Exhibit 10.8
DEAN & DELUCA, INC.
RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT
<PAGE>
PAGE
TABLE OF CONTENTS
1. Certain Definitions.......................................................1
IPO.......................................................................1
Seller....................................................................1
Preferred Holder's Share..................................................1
Offered Stock.............................................................2
Right of Co-Sale..........................................................2
Right of First Refusal....................................................2
Stock.....................................................................2
Transfer .................................................................2
2. Notice of Proposed Transfer...............................................2
3. Right of First Refusal....................................................2
The Right.................................................................2
Purchase Price............................................................3
Payment .................................................................3
Rights as a Stockholder...................................................3
Seller's Right To Transfer................................................4
4. Right of Co-Sale..........................................................4
Right of Co-Sale..........................................................4
Consummation of Co-Sale...................................................4
Exceptions................................................................5
5. [Intentionally Omitted]...................................................5
6. Refusal to Transfer: Put Right............................................5
Refusal to Transfer.......................................................5
Put Right.................................................................5
7. Restrictive Legend and Stop-Transfer Orders...............................5
Legend....................................................................5
Stop Transfer Instructions................................................6
Transfers.................................................................6
8. Termination and Waiver....................................................6
Termination...............................................................6
Waiver....................................................................6
9. Miscellaneous Provisions..................................................6
i
<PAGE>
PAGE
Notice....................................................................6
Binding on Successors and Assigns: Inclusion Within Certain Definitions..7
Severability..............................................................7
Amendment.................................................................7
Continuity of Other Restrictions..........................................7
Governing Law.............................................................7
Obligation of Company: Binding Nature of Exercise.........................7
Further Assurances........................................................8
Conflict .................................................................8
Counterparts..............................................................8
ii
<PAGE>
RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT
This Right of First Refusal and Co-Sale Agreement (this "AGREEMENT") is
entered into as of November 30, 1999 by and among Dean & Deluca, Inc., a
Delaware corporation (the "COMPANY"), the holders of shares of the Company's
Series A Convertible Preferred Stock (the "SERIES A HOLDERS" or the "PREFERRED
HOLDERS"), and those stockholders of the Company who are signatories to this
Agreement (the "STOCKHOLDERS" and each individually a "STOCKHOLDER").
RECITALS
A. The Stockholders currently own capital stock and/or stock options
issued by the Company (the "STOCK").
B. The Series A Holders intend to purchase from the Company shares of
its Series A Preferred Stock, pursuant to the Dean & Deluca, Inc. Series A
Convertible Preferred Stock Purchase Agreement between the Company and the
Series A Holders dated of even date herewith (the "SERIES A PURCHASE
AGREEMENT").
C. To induce the Series A Holders to enter into this Agreement and the
Series A Purchase Agreement, each Stockholder has agreed to grant the Series A
Holders and the Company certain rights of first refusal with respect to equity
securities owned by each Stockholder and any other equity securities of the
Company hereafter owned or acquired by each Stockholder.
D. To induce the Series A Holders to enter this Agreement and the
Series A Purchase Agreement, each Stockholder has agreed to grant to the Series
A Holders certain rights of co-sale with respect to equity securities owned by
each Stockholder and any other equity securities of the Company hereafter owned
or acquired by each Stockholder.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and other consideration, the receipt and adequacy of which hereby is
acknowledged, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. For purposes of this Agreement, the following
terms have the following meanings:
(a) "IPO" means the closing of an underwritten public offering
of the Company's securities registered under the Securities Act of 1933, as
amended.
(b) "SELLER" means any Stockholder proposing to transfer
Stock.
(c) "PREFERRED HOLDER'S SHARE" means, as to the Right of
Co-Sale, the percentage determined by dividing (i) the number of shares of Stock
held by the Preferred Holder by (ii) the number of shares of Stock held by the
Seller and all Preferred Holders participating in the Right of Co-Sale.
1
<PAGE>
(d) "OFFERED STOCK" means all Stock proposed to be Transferred
by the Seller.
(e) "RIGHT OF CO-SALE" means all the right of co-sale provided
to the Preferred Holders in Section 4 of this Agreement.
(f) "RIGHT OF FIRST REFUSAL" means the right of first refusal
provided to the Preferred Holders in Section 3 of this Agreement.
(g) "STOCK" means and includes all securities and options
issued by the Company.
(h) "TRANSFER" means and includes any sale, assignment,
encumbrance, hypothecation, pledge, conveyance in trust, gift, transfer by
bequest, devise or descent, or other transfer or disposition of any kind,
including but not limited to transfers to receivers, levying creditors, trustees
or receivers in bankruptcy proceedings or general assignees for the benefit of
creditors, whether voluntary or by operation of law, directly or indirectly,
except:
(i) any bona fide pledge if the pledgee executes a
counterpart copy of this Agreement and becomes bound thereby as a Stockholder;
or
(ii) any transfers of Stock by a Seller to the
Seller's spouse, lineal descendant or antecedent, father, mother, brother or
sister of the Seller, the adopted child or adopted grandchild of the Seller, or
the spouse of any child, adopted child, grandchild or adopted grandchild of the
Seller, or to a trust or trusts for the exclusive benefit of the Seller or the
Seller's family members as described in this Section, or transfers of Stock by
the Seller by devise or descent or transfers of Stock to a general or limited
partner of the Seller; PROVIDED, THAT, in all cases, the transferee or other
recipient executes a counterpart copy of this Agreement and becomes bound
thereby as was the Seller.
2. NOTICE OF PROPOSED TRANSFER. Before any Seller may effect any
Transfer of Stock, the Seller must give at the same time to the Company and to
the Preferred Holders a written notice signed by the Seller (the "SELLER'S
NOTICE") stating (a) the Seller's bona fide intention to Transfer such Offered
Stock and the name and address of the proposed Transferee, (b) the number of
shares of the Offered Stock, and (c) the bona fide cash price or, in reasonable
detail, other consideration, per share for which the Seller proposes to Transfer
such Offered Stock (the "OFFERED PRICE"). Upon the request of the Company or any
of the Preferred Holders, the Seller will promptly furnish information, to the
Company and to the Preferred Holders, as may be reasonably requested to
establish that the offer and proposed transferee (the "TRANSFEREE") are bona
fide.
3. RIGHT OF FIRST REFUSAL.
(a) THE RIGHT.
2
<PAGE>
(i) COMPANY'S INITIAL RIGHT. The Company has the
right of first refusal to purchase all or any part of the Offered Stock, if the
Company gives written notice of the exercise of such right to the Seller within
fifteen (15) days (the "COMPANY'S REFUSAL PERIOD") after the date of the
Seller's Notice to the Company. If the Company desires to purchase less than all
of the Offered Stock, within one (1) business day after expiration of the
Company's Refusal Period, the Company will give written notice to each Preferred
Holder specifying the number of shares of Offered Stock that were not subscribed
by the Company exercising its Rights of First Refusal (the "COMPANY'S NOTICE").
(ii) PREFERRED HOLDERS' RIGHT. If the Company desires
to purchase less than all of the Offered Stock, the Preferred Holders and their
assignees have the right of first refusal to purchase all or any part of the
remaining Offered Stock; provided, that each Preferred Holder gives written
notice of the exercise of such right to the Seller within thirty (30) days (the
"PREFERRED HOLDERS' REFUSAL PERIOD") after the date of the Company's Notice to
the Preferred Holders. To the extent the aggregate number of shares the
Preferred Holders desire to purchase exceeds the Offered Stock available, each
Preferred Holder will be entitled to purchase a fraction of the Offered Stock,
the numerator of which is the number of shares of stock held by such Preferred
Holder and the denominator of which is the number of Shares of Stock held by all
Preferred Holders exercising their Right of First Refusal. If the Company and
the Preferred Holders exercise their right to purchase with respect to less than
all of the Offered Stock, then none of such exercises of rights shall be
effective. Within ten (10) days after expiration of the Preferred Holders'
Refusal Period, the Seller will give written notice to the Company and each
Preferred Holder specifying the number of shares of Offered Stock that was
subscribed by the Preferred Holders exercising their Rights of First Refusal
(the "CONFIRMATION NOTICE").
(b) PURCHASE PRICE. The purchase price for the Offered Stock
to be purchased by the Company or by a Preferred Holder exercising its Right of
First Refusal under this Agreement will be the Offered Price, and will be
payable as set forth in Section 3(c) hereof. If the Offered Price includes
consideration other than cash, the cash equivalent value of the non-cash
consideration will be determined by the Board of Directors of the Company in
good faith, which determination will be binding upon the Company, each Preferred
Holder and the Seller, absent fraud or error.
(c) PAYMENT. Payment of the purchase price for the Offered
Stock purchased by the Company or by a Preferred Holder exercising its Right of
First Refusal will be made within thirty (30) days after the later of (i) the
end of the Company's Refusal Period, or (ii) the end of the Preferred Holders'
Refusal Period. Payment of the purchase price will be made, at the option of the
Company or the exercising Preferred Holder, (x) in cash (by check), (y) by
cancellation of all or a portion of any outstanding indebtedness of the Seller
to the Company or the Preferred Holder, as the case may be, or (z) by any
combination of the foregoing.
(d) RIGHTS AS A STOCKHOLDER. If the Company or any Preferred
Holder exercises its Right of First Refusal to Purchase the Offered Stock, then,
upon the date the notice of such exercise is given by the Company or any
Preferred Holder, the Seller will have no further rights as a holder of the
Offered Stock except the right to receive payment for the Offered Stock in
accordance with the terms of
3
<PAGE>
this Agreement, and the Seller shall forthwith cause all certificate(s)
evidencing such Offered Stock to be surrendered for transfer to the Company or
the Preferred Holder, as the case may be.
(e) SELLER'S RIGHT TO TRANSFER. If the Company and each
Preferred Holder have not elected to purchase all of the Offered Stock, then,
subject to the Preferred Holders' Right of Co- Sale as defined in Section 4
hereof, the Seller may transfer the Offered Stock to any person named as a
purchaser or other Transferee in the Seller's Notice, at the Offered Price or at
a higher price, provided that such Transfer (i) is consummated within sixty (60)
days after the end of the Preferred Holders' Refusal Period, (ii) is on terms no
more favorable than the terms proposed in the Seller's Notice and (iii) is in
accordance with all the terms of this Agreement. If the Offered Stock is not so
Transferred during such thirty (30) day period, then the Seller may not Transfer
any of such Offered Stock without complying again in full with the provisions of
this Agreement.
4. RIGHT OF CO-SALE.
(a) RIGHT OF CO-SALE. If the Company and the Preferred Holders
have waived or failed to timely exercise their Rights of First Refusal under
Section 3 hereof with respect to the Offered Stock, then, subject to the
Preferred Holders' Right of Co-Sale, the Seller may Transfer to the Transferee
such Offered Stock, as is specified in the Seller's Notice, by giving written
notice to each Preferred Holder within fifteen (15) days after the date of the
expiration of the Preferred Holders' Refusal Period (the "RIGHT OF CO-SALE
NOTICE"), specifying the date of the Transfer of the Offered Stock to such
transferee which shall not occur within fifteen (15) days of the Right of Co-
Sale Notice (the "CLOSING"), and the number of shares and type of Stock that the
Seller desires to Transfer to the Transferee. If the Seller desires to transfer
to the Transferee such Offered Stock, the Preferred Holders shall have the right
to require, as a condition to such sale or transfer, that the Transferee
purchase from the Preferred Holder instead of the Seller, at the same price per
share and on the same terms and conditions as involved in such sale or
disposition by the Seller, the number of shares of the Preferred Holder's shares
equal to the percentage of the Offered Stock (regardless of whether the Offered
Stock consists of preferred stock, common stock or common stock issued upon
conversion of Stock) equivalent to the Preferred Holder's Share. This Right of
Co-Sale shall not apply with respect to Offered Stock sold or to be sold to
Preferred Holders under the Right of First Refusal.
(b) CONSUMMATION OF CO-SALE. A Preferred Holder may exercise
the Right of Co- Sale by giving notice thereof to the Seller within fifteen (15)
days after the Right of Co-Sale Notice. If such notice is given, the Preferred
Holder shall deliver to the Seller at or before the Closing, one or more
certificates, properly endorsed for Transfer, representing a number of shares
not to exceed such Preferred Holder's Share multiplied by the Offered Stock,
representing such Stock to be Transferred by the Seller on behalf of the
Preferred Holder and such documents as the Seller may request so that the
Preferred Holder's sale is on the same terms as the Seller's sale. If the
Preferred Holder does not hold a certificate in that series, class or type of
stock representing the number of securities to be sold by such Preferred Holder
pursuant to this Section 4, then the Company shall promptly issue a certificate
representing the proper number of shares to be sold pursuant to this Right of
Co-Sale. Following the Closing, the Company shall deliver a certificate for the
remaining balance of the securities held by the Preferred Holder, if any, to
4
<PAGE>
such Preferred Holder. At the Closing, such certificates or other instruments
will be Transferred and delivered to the Transferee as set forth in the Right of
Co-Sale Notice in consummation of the transfer of the Offered Stock pursuant to
the terms and conditions specified in the Right of Co-Sale Notice, and the
Seller will remit, or will cause to be remitted, to each participating Preferred
Holder, within ten (10) days after such Closing, that portion of the proceeds of
the Transfer to which each participating Preferred Holder is entitled by reason
of each Preferred Holder's participation in such Transfer pursuant to the Right
of Co-Sale.
(c) EXCEPTIONS. The provisions of this Section 4 shall not
apply unless the Seller is a holder of ten percent (10%) or more of the issued
and outstanding capital stock of the Company, on a fully diluted basis, and the
Offered Stock constitutes at least ten percent (10%) of the capital stock held
by such Seller, on a fully diluted basis.
5. [Intentionally Omitted]
6. REFUSAL TO TRANSFER: PUT RIGHT.
(a) REFUSAL TO TRANSFER. Any attempt by any Stockholder to
transfer any Stock in violation of any provision of this Agreement will be void.
The Company will not be required (i) to transfer on its books any Stock that has
been sold, gifted or otherwise transferred in violation of this Agreement, or
(ii) to treat as owner of such Stock, or to accord the right to vote or pay
dividends to any purchaser, donee or other transferee to whom such Stock may
have been so transferred.
(b) PUT RIGHT. If a Stockholder transfers any Stock in
contravention of the Preferred Holders' Right of Co-Sale under this Agreement (a
"PROHIBITED TRANSFER"), or if the proposed transferee of Offered Stock is
unwilling to purchase any Stock from a Preferred Holder, such Preferred Holder
may, by delivery of written notice to such Stockholder (a "PUT NOTICE") within
ten (10) days after (i) the Closing as defined in subsection 4(a) above, or (ii)
the date on which such Preferred Holder becomes aware of the Prohibited Transfer
or the terms thereof, require such Stockholder to purchase from such Preferred
Holder, for cash or such other consideration as the Stockholder received in the
Prohibited Transfer or at the Closing, a number of shares of Stock (of the same
class or type as transferred in the Prohibited Transfer or at the Closing)
having a purchase price equal to the aggregate purchase price the Seller would
have received in the closing of such Prohibited Transfer if such Preferred
Holder had elected to exercise its right of Co-Sale with respect thereto or in
the Closing if the proposed transferee had been willing to purchase the Stock of
the Preferred Holder. The closing of such sale to the Stockholder will occur
within ten (10) days after the date of such Preferred Holder's Put Notice to
such Stockholder.
7. RESTRICTIVE LEGEND AND STOP-TRANSFER ORDERS.
(a) LEGEND. Each Stockholder understands and agrees that the
Company will cause the legend set forth below, or a legend substantially
equivalent thereto, to be placed upon any certificate(s) or other documents or
instruments evidencing ownership of Stock by the Stockholder:
5
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RIGHTS OF FIRST REFUSAL AND RIGHTS OF CO-SALE AS SET FORTH IN A RIGHT
OF FIRST REFUSAL AND CO-SALE AGREEMENT DATED NOVEMBER 30, 1999, ENTERED
INTO BY THE HOLDER OF THESE SHARES, THE COMPANY AND CERTAIN
STOCKHOLDERS OF THE COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICE OF THE COMPANY. SUCH RIGHTS OF FIRST REFUSAL AND
RIGHTS OF CO-SALE ARE BINDING ON CERTAIN TRANSFEREES OF THESE SHARES.
(b) STOP TRANSFER INSTRUCTIONS. Each Stockholder agrees, to
ensure compliance with the restrictions referred to herein, that the Company may
issue appropriate "stop transfer" certificates or instructions and that, if the
Company transfers its own securities, it may make appropriate notations to the
same effect in its records.
(c) TRANSFERS. No securities shall be transferred by a
Stockholder unless (i) such transfer is made in compliance with all of the terms
of this Agreement and in compliance with the terms of applicable federal and
state securities laws and (ii) prior to such transfer, the transferee or
transferees sign a counterpart to this Agreement pursuant to which it or they
agree to be bound by the terms of this Agreement other than Section 4. The
Company shall not be required (x) to transfer on its books any shares that shall
have been sold or transferred in violation of any of the provisions of this
Agreement or (y) to treat as the owner of such shares or to accord the right to
vote as such owner or to pay dividends to any transferee to whom such shares
shall have been so transferred.
8. TERMINATION AND WAIVER.
(a) TERMINATION. The Preferred Holders' Right of First Refusal
and Right of Co- Sale will terminate upon the earliest to occur of (i) the IPO,
(ii) the date on which this Agreement is terminated by a writing executed by
holders of sixty-six and two-thirds percent (66 2/3%) of the shares then held by
the Preferred Holders, (iii) the dissolution of the Company, or (iv) the
effective date of a consolidation or merger with or into another corporation as
a result of which the stockholders of the Company will own less than fifty
percent (50%) of the outstanding stock of the surviving corporation. The
Company's Right of First Refusal will terminate upon the earliest to occur of
(x) a written election of the Company pursuant to an action by the Board of
Directors or (y) the occurrence of any of clauses (i), (iii) or (iv) in the
preceding sentence.
(b) WAIVER. Any waiver by a party of its rights hereunder will
be effective only if evidenced by a written instrument executed by such party or
its authorized representative.
9. MISCELLANEOUS PROVISIONS.
(a) NOTICE. Any notice required or permitted to be given to a
party pursuant to the provisions of this Agreement will be in writing and will
be effective upon the earliest of (i) the date of delivery by facsimile, (ii)
the business day after deposit with a nationally-recognized overnight delivery
6
<PAGE>
service, including Express Mail, or (iii) five (5) business days after deposit
in the United States mail by registered or certified mail, return receipt
requested. All notices not delivered personally or by facsimile will be sent
with postage and other charges prepaid and properly addressed to the party to be
notified at the address set forth on the signature pages hereto or at such other
address as such party may designate by ten (10) days advance written notice to
the other parties hereto. All notices for delivery outside the United States
will be sent by facsimile, or by nationally recognized courier or overnight
service. Any notice given hereunder to more than one person will be deemed to
have been given, for purposes of counting time periods hereunder, on the date
given to the last party required to be given such notice. Notices to the Company
will be marked to the attention of the President.
(b) BINDING ON SUCCESSORS AND ASSIGNS: INCLUSION WITHIN
CERTAIN DEFINITIONS. This Agreement, and the rights and obligations of the
parties hereunder, will inure to the benefit of, and be binding upon, their
respective successors, assigns, heirs, executors, administrators and legal
representatives. Any permitted transferee of a Stockholder who is required to
become a party hereto will be considered a "Stockholder" for purposes of this
Agreement and any permitted transferee of Stock held by the Seller will be
considered a "Seller" for purposes of this Agreement.
(c) SEVERABILITY. If any provision of this Agreement is held
to be invalid, illegal or unenforceable in any respect, such provision will be
enforced to the maximum extent possible and such invalidity, illegality or
unenforceability will not affect any other provision of this Agreement, and this
Agreement will be construed as if such invalid, illegal or unenforceable
provision had (to the extent not enforceable) never been contained herein.
(d) AMENDMENT. This Agreement may be amended only by a written
instrument executed by the Company, a majority in interest of the Stockholders,
and a majority in interest of the Preferred Holders.
(e) CONTINUITY OF OTHER RESTRICTIONS. Any Stock not purchased
by the Company or any Preferred Holder under their Right of First Refusal
hereunder will continue to be subject to all other restrictions imposed upon
such Stock by law, including any restrictions imposed under the Company's
Restated Certificate of Incorporation or by-laws, or by agreement.
(f) GOVERNING LAW. This Agreement will be governed by and
construed in accordance with the laws of Delaware, excluding that body of law
pertaining to conflict of laws.
(g) OBLIGATION OF COMPANY: BINDING NATURE OF EXERCISE. The
Company agrees to use its best efforts to enforce the terms of this Agreement,
to inform the Preferred Holders of any breach hereof (to the extent the Company
has knowledge thereof) and to assist the Preferred Holders in the exercise of
its rights and the performance of its obligations hereunder. Any exercise of the
Right of First Refusal or Right of Co-Sale will be binding upon the party so
exercising, and may not be withdrawn without the written consent of the Company
or the Stockholder as to whom it is given.
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(h) FURTHER ASSURANCES. Each party hereby agrees to execute
and deliver all such further instruments and documents and take all such other
actions as the other party may reasonably request in order to carry out the
intent and purposes of this Agreement.
(i) CONFLICT. In the event of any conflict between the terms
of this Agreement and the Company's Restated Certificate of Incorporation, its
by-laws, the terms of the Company's Restated Certificate of Incorporation, or
its by-laws, as the case may be, will control. In the event of any conflict
between the terms of this Agreement and any other agreement to which a
Stockholder is a party or by which such Stockholder is bound, the terms of this
Agreement will control. In the event of any conflict between the Company's books
and records and this Agreement or any notice delivered hereunder, the Company's
books and records will control absent fraud or error.
(j) COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered will be deemed an
original, and all such counterparts together will constitute one and the same
instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
COMPANY:
DEAN & DELUCA, INC.
By: /s/ DANE J. NELLER ,
-------------------------------
Name: Dane J. Neller
Title: President and Chief Executive Officer
STOCKHOLDERS:
/s/ LESLIE G. RUDD
----------------------------
Leslie G. Rudd
/s/ DANE J. NELLER
----------------------------
Dane J. Neller
/s/ GIORGIO G. DELUCA
----------------------------
Giorgio G. DeLuca
/s/ JOEL B. DEAN
----------------------------
Joel B. Dean
/s/ PATRICK A. RONEY
----------------------------
Patrick A. Roney
/s/ MATTHEW P. WOGAN
----------------------------
Matthew P. Wogan
/s/ DENNIS L. THOMPSON
----------------------------
Dennis L. Thompson
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/s/ SHARON K. THOMPSON
----------------------------
Sharon K. Thompson
/s/ WADE S. MCCLURE
----------------------------
Wade S. McClure
/s/ THOMAS W. SHANNON
----------------------------
Thomas W. Shannon
/s/ TIMOTHY CUSHMAN
----------------------------
Timothy Cushman
/s/ RAMEY G. MILLETT
----------------------------
Ramey G. Millett
Samantha Lauren Rudd Gift Trust by its Trustee
By: /s/ Dane J. Neller
--------------------------------
Name: Dane J. Neller
Title: Trustee
PREFERRED HOLDERS:
HUMMER WINBLAD VENTURE PARTNERS IV,
L.P. by its General Partner
By: /s/ HANK BARRY
-------------------------------
Name: Hank Barry
Title: Managing Member, General Partner
10
<PAGE>
Exhibit 10.9
DEAN & DELUCA, INC.
INVESTORS' RIGHTS AGREEMENT
NOVEMBER 30, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
1. DEFINITIONS................................................................1
2. REGISTRATION RIGHTS........................................................2
2.1 Demand Registration...................................................2
2.2 Company Registration..................................................4
2.3 Form S-3 Registration.................................................5
2.4 Obligations of the Company............................................6
2.5 Termination of Registration Rights....................................7
2.6 Furnish Information...................................................7
2.7 Indemnification.......................................................8
2.8 Rule 144 Reporting...................................................10
2.9 Assignment of Registration Rights....................................10
2.10 Amendment of Registration Rights.....................................10
2.11 Limitations on Subsequent Registration Rights........................11
2.12 "Market Stand-Off" Agreement.........................................11
3. COVENANTS OF THE COMPANY..................................................11
3.1 Basic Financial Information and Reporting............................11
3.2 Material Changes and Litigation......................................12
3.3 Inspection Rights....................................................12
3.4 Board Information Rights.............................................13
3.5 Confidentiality of Records...........................................13
3.6 Employee Agreements..................................................13
3.7 Termination of Covenants.............................................13
4. RIGHTS OF FIRST REFUSAL...................................................14
4.1 Subsequent Offerings.................................................14
4.2 Exercise of Rights...................................................14
4.3 Issuance of Equity Securities to Other Persons.......................14
4.4 Termination of Rights of First Refusal...............................14
4.5 Transfer of Rights of First Refusal..................................14
4.6 Excluded Securities..................................................14
5. LEGENDS...................................................................15
5.1 Legends.............................................................15
i
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TABLE OF CONTENTS
(CONTINUED)
PAGE
6. MISCELLANEOUS.............................................................16
6.1 Governing Law........................................................16
6.2 Survival.............................................................16
6.3 Successors and Assigns...............................................16
6.4 Severability.........................................................16
6.5 Amendment and Waiver.................................................16
6.6 Delays or Omissions..................................................16
6.7 Notices, etc.........................................................16
6.8 Attorneys' Fees......................................................17
6.9 Titles and Subtitles.................................................17
6.10 Counterparts.........................................................17
ii
<PAGE>
DEAN & DELUCA, INC.
INVESTORS' RIGHTS AGREEMENT
This INVESTORS' RIGHTS AGREEMENT (this "AGREEMENT") is entered into as
of November 30, 1999, by and among Dean & DeLuca, Inc., a Delaware corporation
(the "COMPANY"), and Hummer Winblad Venture Partners IV, L.P. (the "INVESTOR").
RECITALS
A. The Company proposes to sell and issue up to 3,669,760 shares of its
Series A Convertible Preferred Stock, par value $0.01 per share (the "PREFERRED
STOCK"), pursuant to that certain Series A Convertible Preferred Stock Purchase
Agreement dated of even date herewith (the "SERIES A AGREEMENT");
B. The execution of this Agreement is a condition to the closing of the
transactions contemplated by the Series A Agreement.
C. The Company desires to enter into this Agreement and grant to the
investors the rights contained herein in order to fulfill such condition.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereby agree as follows:
1. DEFINITIONS
1.1 The term "HOLDER" means any investor owning of record
Registrable Securities that have not been sold to the public or any assignee of
record of such Registrable Securities in accordance with Section 2.9 hereof.
1.2 The terms "REGISTER," "REGISTERED," and "REGISTRATION"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration or ordering
of effectiveness of such registration statement.
1.3 The term "REGISTRABLE SECURITIES" means (a) shares of
common stock, par value $0.01 per share (the "COMMON STOCK"), of the Company
issued or issuable upon conversion of the Preferred Stock, (b) shares of Common
Stock purchased by the Holder or issued or issuable to the Holder upon
conversion of other securities purchased by the Holder pursuant to its right of
first refusal in Section 4 of this Agreement, and (c) any Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, such above-described
securities. Notwithstanding the foregoing, Registrable Securities shall not
include any securities sold by a person to the public either pursuant to a
registration statement, Section 4(1) of the Securities Act or Rule 144 under
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the Securities Act ("RULE 144") or sold in a private transaction in which the
transferor's rights under Section 2 of this Agreement with respect to such
registration rights are not assigned.
1.4 "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar United States federal statute and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
1.5 The term "FORM S-3" means such form under the Securities
Act as in effect on the date hereof or any successor registration form under the
Securities Act subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
1.6 The term "SEC" or "COMMISSION" means the United States
Securities and Exchange Commission.
2. REGISTRATION RIGHTS.
2.1 DEMAND REGISTRATION.
(A) Subject to the conditions of this Section 2.1, if the
Company shall receive at any time after the earlier of (i) one hundred and
eighty (180) days after the effective date of the Company's first registered
public offering of its capital stock, or (ii) October 31, 2002, a written
request from the Holders of not less than thirty percent (30%) of the
Registrable Securities (the "INITIATING HOLDERS") that the Company file a
registration statement under the Securities Act covering the registration of at
least such Registrable Securities that will have an aggregate sales price to the
public in excess of Ten Million Dollars ($10,000,000), then the Company shall,
within thirty (30) days of the receipt thereof, give written notice of such
request to all Holders, and, subject to the limitations of Section 2.1(b),
effect, as soon as practicable, the registration under the Securities Act of all
Registrable Securities that the Holders request to be registered.
(B) In the event that a registration pursuant to Section 2.1
is for a registered public offering involving an underwriting, the Initiating
Holders will so advise the Company as part of the written request given by such
Initiating Holders and the Company shall in turn so advise the Holders. The
right of any Holder to include its Registrable Securities in such registration
shall be conditioned upon such Holder's participation in such underwriting and
the inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters. Notwithstanding any other
provision of this Section 2.1, if the underwriter advises the Company in writing
that marketing factors require a limitation of the number of securities to be
underwritten (including Registrable Securities) then the Company shall so advise
all Holders of Registrable Securities which would otherwise be underwritten
pursuant hereto, and the number of shares that may be included in the
underwriting shall be allocated, first, to the Holders of Registrable Securities
on a pro rata basis based
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<PAGE>
on the number of Registrable Securities held by all such Holders (including the
Initiating Holders); second, to shares to be registered and sold for the
Company's own account; and third, to the stockholders (other than the Holders)
invoking contractual rights to have their securities registered, if any, on a
pro rata basis.
(C) The Company is obligated to effect only two (2) such
registrations pursuant to this Section 2.1. A registration pursuant to this
Section 2.1 may be the first public offering of the Company's Securities (the
"INITIAL OFFERING").
(D) The Company shall not be required to effect a registration
pursuant to this Section 2.1 during the period starting with the date of filing
of, and ending on the date which is one hundred and eighty (180) days following
the effective date of the registration statement pertaining to the Initial
Offering, provided that the Company is making reasonable and good faith efforts
to cause such registration statement to become effective. In addition, the
Company shall not be required to effect a registration pursuant to this Section
2.1 if within thirty (30) days of receipt of a written request from the
Initiating Holders pursuant to Section 2.1(a), the Company gives notice to the
Holders of the Company's intention to make its Initial Offering and files the
registration statement with respect thereto within sixty (60) days of such
notice; PROVIDED, HOWEVER, that the Company may not exercise its rights under
this sentence more than twice and that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective.
(E) The Company shall be entitled to postpone the filing of
any registration statement otherwise required to be prepared and filed by the
Company pursuant to this Section 2.1 or Section 2.3 hereof, or suspend the use
of any effective registration statement under this Section 2.1 or Section 2.3
hereof, for a reasonable period of time which shall be as short as practicable,
but in any event not in excess of one hundred and twenty (120) days (a "DELAY
PERIOD"), if the Company (i) determines in good faith that the registration and
distribution of the Registrable Securities covered or to be covered by such
registration statement, or the disclosure required by such registration
statement, would materially interfere with any pending material financing,
acquisition or corporate reorganization, or other material corporate development
involving the Company or its subsidiaries, or would require premature disclosure
thereof, and (ii) promptly gives the Holders written notice of such
determination that contains a statement of the reasons for such postponement and
an approximation of the period of the anticipated delay; provided that the
Company shall not be entitled to exercise this right more than once in any
twelve (12) month period. If the Company shall so postpone the filing of a
registration statement, the Holders shall have the right to withdraw the request
for registration by giving written notice from the holders of a majority of the
Registrable Securities that were to be registered to the Company within 60 days
after receipt of the notice of postponement or, if earlier, the termination of
such Delay Period.
(F) All expenses incurred in connection with each registration by
the Holders pursuant to this Section 2.1 (excluding underwriters' discounts and
commissions and broker's fees and any transfer taxes relating to the disposition
of the Registrable Securities, which shall be paid by the selling Holders pro
rata), including without limitation all registration, filing, qualification,
printers' and accounting fees, fees and disbursements of counsel for the
Company, and the reasonable fees and disbursements of a single counsel
3
<PAGE>
for the selling Holder shall be borne by the Company; PROVIDED, HOWEVER, that
the Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 2.1 if the registration request is
subsequently withdrawn by the Initiating Holder, unless the withdrawal of the
registration request results from either (i) intentional actions by the Company
outside the normal course of business, or (ii) the discovery of information
about the Company, that is not known at the time of the Initiating Holders'
request made pursuant to Section 2.1(a), that materially reduces the feasibility
of the registration proceeding.
(G) For purposes of any registration pursuant to this Section
2.1, Messrs. Dane J. Neller and Leslie G. Rudd and the Samantha Lauren Rudd Gift
Trust shall be deemed to be Holders and any Shares issued or issuable upon
exercise of common stock purchase warrants held by such Holders as of the date
of this Agreement (the "Warrants") are deemed to be Registrable Securities;
provided that Messrs. Dane J. Neller and Leslie G. Rudd and the Samantha Lauren
Rudd Gift Trust shall not be considered Holders for purposes of making the
request pursuant to Section 2.1(a).
2.2 COMPANY REGISTRATION. The Company shall promptly notify all
Holders of Registrable Securities in writing of the filing of any registration
statement under the Securities Act, which notice, in the case of the Investor,
shall be provided at least ten (10) days prior to such filing, for purposes of a
public offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans, mergers, acquisitions or similar corporate transactions, and corporate
reorganizations) and will afford each such Holder an opportunity to include in
such registration statement all or part of such Registrable Securities held by
such Holder. Each Holder desiring to include in any such registration statement
(or an amendment to such registration statement) all or any part of the
Registrable Securities held by it shall, within ten (10) days after receipt of
the above-described notice from the Company, so notify the Company in writing.
Such notice shall state the intended method of disposition of the Registrable
Securities by such Holder. If a Holder decides not to include all of its
Registrable Securities in any registration statement thereafter filed by the
Company, such Holder shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
(A) If the registration statement under which the Company gives
notice under this Section 2.2 is for an underwritten offering, the Company shall
so advise the Holders of Registrable Securities. In such event, the right of any
such Holder to be included in a registration pursuant to this Section 2.2 shall
be conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting. If the underwriter determines in good faith that marketing factors
require a limitation of the number of shares to be underwritten, the number of
shares that may be included in the underwriting shall be allocated, first, to
the Company for its own account; second, to the Holders on a pro rata basis
based on the total number
4
<PAGE>
of Registrable Securities held by the Holders (including shares of capital stock
issued or issuable upon exercise of Warrants held by Dane J. Neller, Leslie G.
Rudd or The Samantha Lauren Rudd Gift Trust); and third, to any stockholder
(other than a Holder, Mr. Rudd, Mr. Neller or The Samantha Lauren Rudd Gift
Trust) invoking contractual rights to have their securities registered, if any,
on a pro rata basis. No such reduction shall reduce the securities being offered
by the Company for its own account to be included in the registration and
underwriting, except that in no event shall the amount of securities of the
selling Holders included in the registration be reduced below thirty percent
(30%) of the total amount of securities included in such registration, unless
such offering is the Initial Offering and such registration does not include
shares of any other selling stockholders, in which event any or all of the
Registrable Securities of the Holders may be excluded in accordance with the
immediately preceding sentence. If any Holder disapproves of the terms of any
such underwriting, he may elect to withdraw therefrom by written notice to the
Company and the underwriter. Any Registrable Securities excluded or withdrawn
from such underwriting shall be withdrawn from the registration.
(B) The Company shall bear all fees and expenses incurred in
connection with any registration under this Section 2.2, including without
limitation all registration, filing, qualification, printers' and accounting
fees, fees and disbursements of counsel to the Company, and the reasonable fees
and disbursements of a single counsel to the selling Holders, except that each
participating Holder shall bear its proportionate share of all amounts payable
to underwriters in connection with such offering for discounts and commissions,
any broker's fees and any transfer taxes relating to the disposition of the
Registrable Securities.
2.3 FORM S-3 REGISTRATION. In case the Company shall receive from
any Holder or Holders of at least thirty percent (30%) of the Registrable
Securities a written request or requests that the Company effect a registration
on Form S-3 and any related qualification or compliance with respect to all or a
part of the Registrable Securities owned by such Holder or Holders, the Company
will:
(i) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders
of Registrable Securities; and
(ii) as soon as practicable, effect such registration and
all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within fifteen (15) days after receipt of such written notice from the
Company; PROVIDED, HOWEVER, that the Company shall not be obligated to effect
any such registration, qualification or compliance pursuant to this Section 2.3
(a) if Form S-3 is not available to the Company for such offering by the
Holders, (b) if the Holders, together with the holders of any other securities
of the Company entitled to inclusion in such registration, propose to sell
Registrable Securities and such other securities (if any) at an aggregate price
to the public of less than One Million Dollars ($1,000,000), (c) if the Company
shall furnish to the Holders a certificate signed by the President of the
Company stating that in the good faith judgment of the Board of Directors of the
Company, it would be
5
<PAGE>
seriously detrimental to the Company and its stockholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for a
period of not more than ninety (90) days after receipt of the request of the
Holder or Holders under this Section 2.3, (d) if the Company has, within the
twelve (12) month period preceding the date of such request, already effected a
registration on Form S-3 for the Holders pursuant to this Section 2.3, or (e) in
any particular jurisdiction in which the Company would be required to qualify to
do business or to execute a general consent to service of process in effecting
such registration, qualification or compliance.
(iii) Subject to the foregoing, the Company shall file a
Form S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders. The Company shall pay all expenses
incurred in connection with any registrations requested pursuant to this Section
2.3 (excluding underwriters' discounts and commissions, any broker's fees and
any transfer taxes relating to the disposition of the Registrable Securities,
which shall be paid by the selling Holders pro rata), including without
limitation all registration, filing, qualification, printers' and accounting
fees, fees and disbursements of counsel for the Company, and the reasonable fees
and disbursements of a single counsel for the selling Holder or Holders.
2.4 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(A) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to ninety (90) days.
(B) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(C) Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(D) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions or to take any action
that would subject it to general service of process or taxation in any such
jurisdiction where it is not then subject.
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(E) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(F) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(G) Use its reasonable efforts to cause to be furnished, at the
request of any Holder requesting registration of Registrable Securities, on the
date that such Registrable Securities are delivered to the underwriters for
sale, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated as of such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering and reasonably satisfactory to a
majority in interest of the Holders requesting registration, addressed to the
underwriters, if any, and to the Holders requesting registration of Registrable
Securities and (ii) a letter dated as of such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering and reasonably satisfactory to a majority in
interest of the Holders requesting registration, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
2.5 TERMINATION OF REGISTRATION RIGHTS. All registration rights
granted under this Section 2 shall terminate and be of no further force and
effect on the earlier of (i) the date which is five (5) years following the
Company's Initial Offering and (ii) the date when all Registrable Securities can
be sold without limitation as to volume or manner of sale under Rule 144.
2.6 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 2.1, 2.2 or
2.3 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be required to effect the
registration of their Registrable Securities. If any such information is not
furnished within a reasonable period of time after receipt by the Holders of a
request for such information, the Company may exclude such Holder's Registrable
Securities from the registration.
2.7 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 2.1, 2.2 or 2.3.
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(A) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners, officers and directors of each
Holder, any underwriter (as defined in the Securities Act) for such Holder and
each person, if any, who controls such Holder or underwriter within the meaning
of the Securities Act or the Securities Exchange Act of 1934, as amended, (the
"1934 ACT"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act, the 1934 Act
or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively, a
"VIOLATION") by the Company: (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the 1934 Act or any state securities law in connection with the offering covered
by such registration statement; and the Company will reimburse each such Holder,
partner, officer or director, underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER,
that the indemnity agreement contained in this Section 2.7(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder or a partner, officer, director,
underwriter or controlling person of such Holder.
(B) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers, each person, if any, who controls the Company within the meaning of
the Securities Act, any underwriter and any other Holder selling securities
under such registration statement or any of such other Holder's partners,
directors or officers or any person who controls such Holder, against any
losses, claims, damages or liabilities (joint or several) to which the Company
or any such director, officer, controlling person, underwriter or other such
Holder, or partner, director, officer or controlling person of such other Holder
may become subject under the Securities Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer, controlling person, underwriter or other Holder, or
partner, officer, director or controlling person of such other Holder in
connection with investigating or defending any such loss, claim, damage,
liability or action if it is judicially determined that there was such a
Violation; PROVIDED, HOWEVER, that the indemnity agreement contained in this
Section 2.7(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability
8
<PAGE>
or action if such settlement is effected without the consent of the Holder,
which consent shall not be unreasonably withheld; provided further, that in no
event shall any indemnity under this Section 2.7(b) exceed the net proceeds from
the offering received by such Holder.
(C) Promptly after receipt by an indemnified Party under this
Section 2.7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.7, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate under
applicable professional standards due to actual or potential differing interests
between such indemnified party and any other party represented by such counsel
in such proceeding. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action, if
materially prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
2.7, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 2.7.
(D) If the indemnification provided for in this Section 2.7 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(E) The foregoing indemnity agreements of the Company and Holders
are subject to the condition that, insofar as they relate to any Violation made
in a preliminary prospectus but eliminated or remedied in the amended prospectus
on file with the SEC at the time the registration statement in question becomes
effective or the amended prospectus filed with the SEC pursuant to SEC Rule
424(b) (the "FINAL PROSPECTUS"), such indemnity agreement shall not inure to the
benefit of any person if a copy of the Final Prospectus was furnished to the
indemnified party (or its underwriters) and was not furnished to the person
asserting the loss, liability, claim or damage at or prior to the time such
action is required by the Securities Act.
9
<PAGE>
(F) The obligations of the Company and Holders under this Section
2.7 shall survive the completion of any offering of Registrable Securities in a
registration statement, and otherwise.
2.8 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Registrable Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to:
(A) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the 1934 Act;
(B) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the 1934
Act (at any time after it has become subject to such reporting requirements);
and
(C) Furnish to any Holder forthwith upon request a written
statement by the Company as to its compliance with the reporting requirements of
Rule 144 (at any time after ninety (90) days after the effective date of the
first registration statement filed by the Company for an offering of its
securities to the general public), and of the Securities Act and the 1934 Act
(at any time after it has become subject to such reporting requirements), a copy
of the most recent annual or quarterly report of the Company, and such other
reports and documents of the Company and other information in the possession of
or reasonably obtainable by the Company as such Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing such Holder
to sell any such securities without registration.
2.9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 2 may be
assigned by a Holder to a transferee or assignee of Registrable Securities;
PROVIDED, HOWEVER, that no such transferee or assignee shall be entitled to
registration rights under Sections 2.1, 2.2 or 2.3 hereof unless it owns a
minimum of 100,000 shares of Registrable Securities (as presently constituted
and subject to subsequent adjustments for stock splits, stock dividends, reverse
stock splits and similar events), and the Company shall promptly be furnished
with written notice of the name and address of such transferee or assignee and
the securities with respect to which such registration rights are being
assigned. Notwithstanding the foregoing, rights to cause the Company to register
securities may be assigned to any subsidiary or parent company of a Holder or
any partner of any Holder.
2.10 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Section 2 may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holders of
a majority of the Registrable Securities. Any amendment or waiver effected in
accordance with this Section 2.10 shall be binding upon each Holder and the
Company. By acceptance of any benefits under this Section 2, Holders of
Registrable Securities hereby agree to be bound by the provisions hereunder.
10
<PAGE>
2.11 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. After the
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of the Registrable Securities, enter into any
agreement with any holder or prospective holder of any securities of the Company
that would permit such holder to participate in any registration of securities
of the Company or that the Company register any securities held by such holder,
unless the registration rights of such holder or prospective holders are
subordinate to the registration rights of the Holders.
2.12 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that
during the one hundred eighty (180) day period following the effective date of a
registration statement of the Company filed under the Securities Act, it shall
not, to the extent requested by the Company and the managing underwriter, sell
or otherwise transfer or dispose of (other than to donees who agree to be
similarly bound) any Registrable Securities or Common Stock of the Company held
by it at any time during such period except Common Stock included in such
registration; PROVIDED, HOWEVER, that:
(A) Such agreement shall be applicable only to the first such
registration statement of the Company which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(B) All officers and directors of the Company and all other
persons with registration rights (whether or not pursuant to this Agreement)
enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
3. COVENANTS OF THE COMPANY.
3.1 BASIC FINANCIAL INFORMATION AND REPORTING.
(A) The Company will maintain true books and records of account
in which full and correct entries will be made of all its business transactions
pursuant to a system of accounting established and administered in accordance
with generally accepted accounting principles consistently applied, and will set
aside on its books all such proper accruals and reserves as shall be required
under generally accepted accounting principles consistently applied.
(B) As soon as practicable after the end of each fiscal year of
the Company, and in any event within ninety (90) days thereafter, the Company
will furnish each Holder an audited consolidated balance sheet of the Company,
as at the end of such fiscal year, and an audited consolidated statement of
income and an audited consolidated statement of cash flows of the Company, for
such year, all prepared in accordance with generally accepted accounting
principles and setting forth in each case in comparative form the figures for
the previous fiscal year, all in reasonable detail. Such financial statements
shall be accompanied by a report and opinion thereon by independent public
accountants of national standing selected by the Company's Board of Directors.
11
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(C) So long as a Holder shall own at least 100,000 shares of
Registrable Securities (as presently constituted and subject to subsequent
adjustments for stock splits, stock dividends, reverse stock splits and similar
events), as soon as practicable after the end of the first, second and third
quarterly accounting periods in each fiscal year of the Company, and in any
event within forty-five (45) days thereafter, the Company will furnish each such
Holder an unaudited consolidated balance sheet of the Company as of the end of
each such quarterly period, and an unaudited consolidated statement of income
and a consolidated statement of cash flows of the Company for such period and
for the current fiscal year to date, each showing a comparison to the budget
distributed to the Board of Directors, prepared in accordance with generally
accepted accounting principles, with the exception that no notes need be
attached to such statements and year-end audit adjustments may not have been
made.
(D) So long as a Holder shall own at least 100,000 shares of
Registrable Securities (as presently constituted and subject to subsequent
adjustments for stock splits, stock dividends, reverse stock splits and similar
events), the Company will furnish each such Holder (i) at least thirty (30) days
prior to the beginning of each fiscal year an annual budget and operating plans
for such fiscal year; and (ii) within thirty (30) days after the end of each
month, an unaudited balance sheet and statements of income and cash flows,
prepared in accordance with generally accepted accounting principles (other than
for accompanying notes and subject to year-end adjustments), which also set
forth applicable budget figures and variances from budget.
3.2 MATERIAL CHANGES AND LITIGATION. So long as a Holder shall
own at least 100,000 shares of Registrable Securities (as presently constituted
and subject to subsequent adjustments for stock splits, stock dividends, reverse
stock splits and similar events), as soon as practicable and in any event within
ten (10) days of becoming aware thereof, the Company will notify each such
Holder of any litigation or governmental proceeding or investigation pending or,
to the best knowledge of the Company, threatened against the Company, or against
any officer or stockholder of the Company, or of the occurrence of any other
event, materially affecting, or which if adversely determined, would materially
adversely affect, the present or presently proposed business, properties,
assets, liabilities or prospects of the Company.
3.3 INSPECTION RIGHTS. So long as a Holder shall own at least
100,000 shares of Registrable Securities (as presently constituted and subject
to subsequent adjustments for stock splits, stock dividends, reverse stock
splits and similar events), each such Holder shall have the right to visit and
inspect any of the properties of the Company or any of its subsidiaries, and to
discuss the affairs, finances and accounts of the Company or any of its
subsidiaries with its officers, all at such reasonable times and as often as may
be reasonably requested; PROVIDED, HOWEVER, that the Company shall not be
obligated under this Section 3.3 with respect to a competitor of the Company or
with respect to information which the Board of Directors determines in good
faith is confidential and should not, therefore, be disclosed.
3.4 BOARD INFORMATION RIGHTS. So long as the Investor
beneficially owns not less than five percent (5%) of the Company's outstanding
capital stock and is not represented on the Company's Board of Directors, the
Company shall provide the Investor with copies of all notices, minutes,
12
<PAGE>
consents and other materials provided to its directors; PROVIDED, HOWEVER, that
the Company reserves the right to withhold access to any such material that the
Company believes, upon advice of counsel, that withholding such material is
necessary to protect the attorney-client privilege or to protect highly
confidential proprietary information that may be of a competitive nature with
that of Investor or Investor's principal business. The Investor agrees to hold
in confidence and trust and not use or disclose any confidential information
provided to or learned by it in connection with its rights under this Section
3.4.
3.5 CONFIDENTIALITY OF RECORDS. Each Holder agrees to use, and to
use its best efforts to insure that its authorized representatives use, the same
degree of care as such Holder uses to protect its own confidential information
to keep confidential any information furnished to it which the Company
identified or marked as being confidential or proprietary (so long as such
information is not in the public domain), except that such Holder may disclose
such proprietary or confidential information to any partner, subsidiary or
parent of such Holder for the purpose of evaluating its investment in the
Company as long as such partner, subsidiary or parent is advised of and agrees
to comply with the confidentiality provisions of this Section 3.5.
3.6 EMPLOYEE AGREEMENTS. All key employees and consultants (as
defined in policies adopted from time to time by the Board of Directors) of the
Company hired or retained after the date of this Agreement shall be required to
execute a Proprietary Information and Inventions Agreements in the form attached
to the Series A Agreement as EXHIBIT G with such amendments thereto as the Board
of Directors may from time to time deem appropriate. All stock options granted
to future employees, directors and consultants of the Company shall provide for
vesting of shares in accordance with the vesting provisions currently in place
under the Company's stock option plan, with such amendments thereto as the Board
of Directors may approve. The stock options shall provide that Company has a
right of first refusal to purchase any and all stock acquired on exercise of the
stock option or other right to purchase such stock granted after the date
hereof, and prior to the Initial Offering, to employees, officers, directors or
consultants of the Company.
3.7 TERMINATION OF COVENANTS. All covenants of the Company
contained in Section 3 of this Agreement shall expire and terminate as to each
Holder upon the earlier of (i) the date that each such Holder no longer holds
Registrable Securities and (ii) the date that the Company first becomes subject
to the reporting obligations of the 1934 Act, as amended.
4. RIGHTS OF FIRST REFUSAL.
4.1 SUBSEQUENT OFFERINGS. Each Holder shall have the right of
first refusal to purchase its pro rata share of all equity securities that the
Company may, from time to time, propose to sell and issue after the date of this
Agreement, other than the equity securities excluded by Section 4.6 hereof. Each
Holder's pro rata share is equal to the ratio of the number of shares of
Preferred Stock (or Common Stock issuable upon conversion thereof) with respect
to which such Holder is deemed to be a holder immediately prior to the issuance
of such equity securities to the total number of outstanding shares of Preferred
Stock or Common Stock of the Company.
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<PAGE>
4.2 EXERCISE OF RIGHTS. If the Company proposes to issue any
equity securities, it shall give each Holder written notice of its intention,
describing the equity securities, the price, and the terms and conditions upon
which the Company proposes to issue the same. Each Holder shall have ten (10)
days from the receipt of such notice to agree to purchase its pro rata share of
the equity securities for the price and upon the terms and conditions specified
in the notice by giving written notice to the Company and stating therein the
quantity of equity securities to be purchased. Notwithstanding the foregoing,
the Company shall not be required to offer or sell such equity securities to any
Holder who would cause the Company to be in violation of applicable federal or
state securities laws by virtue of such offer or sale.
4.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If the
Holders fail to exercise in full the rights of first refusal within such ten
(10) day period, the Company shall have ninety (90) days thereafter to sell the
equity securities in respect of which the Holders' rights were not exercised, at
a price and upon terms and conditions no more favorable to the purchasers
thereof than specified in the Company's notice to the Holders pursuant to
Section 4.2 hereof. If the Company has not sold such equity securities within
such ninety (90) days, the Company shall not thereafter issue or sell any equity
securities, without first offering such securities to the Holders in the manner
provided above.
4.4 TERMINATION OF RIGHTS OF FIRST REFUSAL. The rights of first
refusal established by this Section 4 shall terminate upon the closing of an
underwritten public offering of Common Stock of the Company made pursuant to an
effective registration statement under the Securities Act, but shall apply to
the issuance of shares of Common Stock in such offering.
4.5 TRANSFER OF RIGHTS OF FIRST REFUSAL. The rights of first
refusal of each Holder under this Section 4 may be transferred to any subsidiary
or parent company of such Holder, to any partner of such Holder or to any
successor in interest to all or substantially all the assets of such Holder.
4.6 EXCLUDED SECURITIES. The rights of first refusal established
by this Section 4 shall have no application to any of the following equity
securities:
(A) up to 1,077,320 shares of Common Stock (and/or options,
warrants or other Common Stock purchase rights issued pursuant to such options,
warrants or other rights) issued or to be issued to employees, officers or
directors of, or consultants or advisors to the Company or any subsidiary,
pursuant to stock purchase or stock option plans or other arrangements that are
approved by the Board of Directors of the Company;
(B) any equity securities issued pursuant to any rights or
agreements outstanding as of the date of this Agreement, including without
limitation convertible securities, options and warrants; and any equity
securities issued pursuant to any such rights or agreements granted after the
date of this Agreement, provided that the rights of first refusal established by
this Section 4 applied with respect to the initial sale or grant by the Company
of such rights or agreements;
14
<PAGE>
(C) any equity securities issued for consideration other than
cash pursuant to a merger, consolidation, acquisition or similar business
combination;
(D) any equity securities that are issued by the Company as part
of an underwritten public offering referred to in Section 4.4 hereof, except as
otherwise provided therein;
(E) shares of Common Stock issued in connection with any stock
split, stock dividend or recapitalization by the Company; and
(F) shares of Common Stock issued upon conversion of the
Preferred Stock.
5. LEGENDS.
5.1 LEGENDS. Each Investor understands that the share
certificates evidencing any Registrable Securities shall be endorsed with the
following legends (in addition to any legends required under applicable state
securities laws):
(A) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE
OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933."
(B) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE TERMS AND CONDITIONS OF AN INVESTORS' RIGHTS AGREEMENT WHICH PLACES CERTAIN
RESTRICTIONS ON THE SHARES REPRESENTED HEREBY. ANY PERSON ACCEPTING ANY INTEREST
IN SUCH SHARES SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE
PROVISIONS OF SUCH AGREEMENT. A COPY OF SUCH INVESTORS' RIGHTS AGREEMENT WILL BE
FURNISHED TO THE RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN
REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS."
(C) Any legend required to be placed thereon by any applicable
state securities laws.
6. MISCELLANEOUS.
6.1 GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of Delaware.
6.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive for as long as any Holder holds Registrable
Securities.
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6.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors, and administrators of
the parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
PROVIDED, HOWEVER, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the holder of such shares in its records as the absolute owner and holder of
such shares for all purposes, including the payment of dividends or any
redemption price.
6.4 SEVERABILITY. In case any provision of this Agreement shall
be invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
6.5 AMENDMENT AND WAIVER.
(A) Except as otherwise expressly provided, this Agreement may be
amended or modified only upon the written consent of the Company and the holders
of a majority of the Registrable Securities.
(B) Except as otherwise expressly provided, the obligations of
the Company and the rights of the Holders under this Agreement may be waived
only with the written consent of the holders of not less than a majority of the
Registrable Securities.
6.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission
on the part of any party to exercise any right, power, or remedy hereunder shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law. It is
further agreed that any waiver of any provisions or conditions of this Agreement
must be in writing and shall be effective only to the extent specifically set
forth in such writing.
6.7 NOTICES, ETC. All notices and other communications required
or permitted hereunder shall be in writing and shall be sent by registered or
certified mail, return receipt requested, postage prepaid, by means of a
nationally recognized overnight courier service, or by telex or facsimile,
addressed: (a) if to a Holder, at such Holder's address as set forth on the
Company's records, or at such other address as such Holder shall have furnished
to the Company in writing or (b) if to the Company, at 560 Broadway, New York,
NY 10012, or at such other address as the Company shall have furnished to the
Holders in writing.
6.8 ATTORNEYS' FEES. If legal action is brought to enforce or
interpret this Agreement, the prevailing party shall be entitled to recover its
reasonable attorneys' fees and legal costs in connection therewith.
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6.9 TITLES AND SUBTITLES. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
6.10 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth in the first paragraph hereof.
COMPANY: INVESTOR:
DEAN & DELUCA, INC. HUMMER WINBLAD VENTURE PARTNERS IV,
L.P. by its General Partner
By: /s/ DANE J. NELLER By: /s/ HANK BARRY
------------------------------- -------------------------------
Name: Dane J. Neller Name: Hank Barry
Title: President and Title: Managing Member,
Chief Executive Officer General Partner
17
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1
THIS WARRANT, AND THE SHARES ISSUABLE UPON EXERCISE HEREOF, HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES OR "BLUE SKY" LAWS (COLLECTIVELY, "SECURITIES LAWS"),
AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE
BEEN REGISTERED UNDER THE SECURITIES LAWS OR AN EXEMPTION FROM
REGISTRATION APPLIES TO SUCH TRANSFER OR DISPOSITION.
WARRANT
To Purchase Up to 321,853 Shares of Common Stock of
DEAN & DELUCA, INC.
Dated: November 30, 1999
This is to certify that, for value received, Leslie G. Rudd and its
registered assigns (collectively, the "Holder") is entitled to purchase from
Dean & DeLuca, Inc., a Delaware corporation (the "Company"), 321,853 shares of
common stock of the Company (the "Common Stock"), subject to adjustment and on
the terms and conditions hereinafter provided (the "Warrant Shares").
Certain terms used in this Warrant are defined in Section 4.
1. EXERCISE OF WARRANT
1.1 EXERCISE PERIOD. The Holder may exercise this Warrant, for all or
any portion of the Warrant Shares, on any Business Day prior to January 15, 2004
(the "Expiration Date").
1.2 MANNER OF EXERCISE. (a) To exercise this Warrant, the Holder shall
deliver to the Company at its office at 560 Broadway, New York, New York 10012,
or at such other office or agency designated by the Company by written notice to
the Holder (i) this Warrant, (ii) a written notice of the Holder's election to
exercise this Warrant, which notice shall specify the number of Warrant Shares
to be purchased and the denominations of the share certificate or certificates
desired, and (iii) payment of the
<PAGE>
2
Exercise Price with respect to such shares. Such payment may be made, at the
option of the Holder, by cash, money order, certified or bank cashier's check or
wire transfer.
(b) (i) In lieu of the exercise of this Warrant as provided in (a)
above, the Warrant (or any portion thereof) may, at the election of the Holder,
be converted into the nearest whole number of shares of Common Stock determined
as follows:
N(FMV - EP)
S=-------------
FMV
where
S = the number of shares to be issued
N = the number of Warrant Shares issuable upon the exercise of the
Warrant (or portion thereof) to be so converted.
FMV = Fair Market Value per share on the date of conversion.
EP = the Exercise Price in effect on the date of conversion.
(ii) The conversion rights provided under this paragraph may be
exercised in whole or in part and at any time and from time to time while any
portion of the Warrant remains outstanding. In order to exercise the conversion
privilege, the Holder shall deliver to the Company or its office as stated in
(a) above (i) this Warrant and (ii) a written notice of the Holder's election to
exercise its conversion rights, which notice shall specify the portion of the
Warrant to be converted pursuant to this paragraph and the denominations of the
share certificate or certificates desired. The Warrant (or so much thereof as
shall have been surrendered for conversion) shall be deemed to have been
converted immediately prior to the close of business on the date the notice is
delivered to the Company.
(c) The Company shall, as promptly as practicable and in any event
within seven days thereafter, execute and deliver or cause to be executed and
delivered, in accordance with such notice, a certificate or certificates
representing the aggregate number of shares of Common Stock to which the Holder
is entitled as a result of its exercise pursuant to 1.2(a) or the conversion
pursuant to 1.2(b), together with cash in lieu of any fractions of a share as
provided in Section 1.4. The share certificate or certificates so delivered
shall be in such denominations as may be specified in such notice or, if such
notice shall not specify denominations, as the Company may determine, and shall
be issued in the name of the Holder. Such certificate or certificates shall be
deemed to have been issued, and the Holder shall be deemed for all purposes to
have become a holder of record of such shares, as of the date the aforementioned
notice and payment (if applicable) is received by the Company. If this Warrant
shall have been exercised for only
<PAGE>
3
a portion of the Warrant Shares, the Company shall, at the time of delivery of
the certificate or certificates, deliver to the Holder a new Warrant evidencing
the rights to purchase the remaining Warrant Shares, which new Warrant shall in
all other respects be identical with this Warrant, or, at the request of the
Holder, appropriate notation may be made on this Warrant which shall then be
returned to the Holder. The Company shall pay all expenses, taxes and other
charges payable in connection with the preparation, issuance and delivery of
share certificates and new Warrants.
1.3 SHARES TO BE FULLY PAID AND NONASSESSABLE. All Warrant Shares
issued upon the exercise of this Warrant shall be validly issued, fully paid and
nonassessable.
1.4 NO FRACTIONAL SHARES TO BE ISSUED. The Company shall not be
required to issue fractions of shares of Common Stock upon exercise of this
Warrant.
1.5 SHARE LEGEND. Each certificate for Warrant Shares issued upon
exercise of this Warrant shall bear the following legend:
"This security has not been registered under the Securities Act of
1933, as amended, or any state securities law and may not be transferred,
sold or offered for sale unless registered pursuant to such Act and any
applicable state securities law or unless an exemp tion from such
registration is available."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the
Securities Act) shall also bear such legend unless, in the opinion of counsel to
the Company, the securities represented thereby need no longer be subject to
restrictions on resale under the Securities Act.
2. ANTIDILUTION PROVISIONS
2.1 ADJUSTMENTS GENERALLY. The Exercise Price and the number of Warrant
Shares (or other securities or property) issuable upon exercise of this Warrant
shall be subject to adjustment from time to time upon the occurrence of certain
events, as provided in this Section 2. No such adjustment shall reduce the
exercise price below $0.01 per share, but all computations required by this
Section 2 shall be made without giving effect to this sentence.
2.2 COMMON STOCK REORGANIZATION; COMMON STOCK DIVIDENDS. If the Company
shall
(a) subdivide its outstanding shares of Common Stock into a greater
number of shares or consolidate its outstanding shares of Common Stock
into a smaller number of shares (any such
<PAGE>
4
event being called a "Common Stock Reorganization"); or
(b) issue additional shares of Common Stock to pay a dividend or
other distribution to holders of its Common Stock (any such event being
called a "Common Stock Dividend"),
then (i) the Exercise Price shall be adjusted, effective immediately after the
record date at which the holders of shares of Common Stock are determined for
purposes of such Common Stock Reorganization or Common Stock Dividend, as the
case may be, to a price determined by multiplying the Exercise Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding on such record date
before giving effect to such Common Stock Reorganization or Common Stock
Dividend, as the case may be, and the denominator of which shall be the number
of shares of Common Stock outstanding after giving effect to such Common Stock
Reorganization or Common Stock Dividend, as the case may be, and (ii) the number
of Warrant Shares subject to purchase upon exercise of this Warrant shall be
adjusted, effective at such time, to a number determined by multiplying the
number of shares of Common Stock subject to purchase hereunder immediately
before such Common Stock Reorganization or Common Stock Dividend, as the case
may be, by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding after giving effect to such Common Stock Reorganization
or Common Stock Dividend, as the case may be, and the denominator of which shall
be the number of shares of Common Stock outstanding immediately before such
Common Stock Reorganization or Common Stock Dividend, as the case may be. This
Section 2.2 shall apply to any securities of the Company purchasable as a result
of an adjustment pursuant to Section 2.3 as if the references to "Common Stock"
in this Section 2.2 were references to such other securities of the Company.
2.3 CAPITAL REORGANIZATIONS. If there shall be any reclassification or
change in the outstanding shares of Common Stock (other than a Common Stock
Reorganization or Common Stock Dividend or a change in par value) or any other
securities purchasable pursuant to this Warrant or any consolidation or merger
to which the Company is a party, other than a consolidation or a merger in which
the Company is a continuing corporation and which does not result in any
reclassification of, or change in the outstanding shares of common stock, or any
exchange of a majority of the outstanding shares of Common Stock for securities
of another corporation or other entity (any such event being called a "Capital
Reorganization"), then, effective upon the effective date of such Capital
Reorganization, the Holder shall have the right to purchase, upon exercise of
this Warrant, the kind and amount of shares of stock or other securities and
property (including cash) which the Holder would have owned or have been
entitled to receive in respect of the securities issuable upon exercise of this
Warrant after such Capital Reorganization if this Warrant had been exercised
immediately prior to such Capital Reorganization. The Company shall cause the
issuer of any securities for which this Warrant becomes exercisable as a result
of a Capital Reorganization to assume the Company's obligations under this
Warrant. The provisions of this Section 2.3 shall similarly apply to successive
Capital Reorganizations.
<PAGE>
5
2.4 CERTAIN DIVIDENDS. In case the Company shall
(a) pay a dividend or make a distribution of shares of its capital
stock other than shares of Common Stock (excluding (i) distributions
relating to subdivisions and combinations covered by Section 2.2, (ii)
distributions relating to reclassifications, changes, consolidations,
mergers, sales or conveyances covered by Section 2.3 and (iii) rights,
warrants or options to purchase or subscribe for shares of Common Stock or
Convertible Securities); or
(b) pay a dividend or make a distribution in cash or property other
than capital stock of the Company (excluding dividends or distributions
payable in cash out of the current year's or retained earnings of the
Company),
then the Exercise Price shall be adjusted to a price determined by subtracting
from the Exercise Price in effect immediately prior to the record date
(described below) by an amount equal to a fraction, the numerator of which shall
be equal to (x) the fair market value of such dividend or distribution (as
determined by the Board of Directors of the Company in good faith) as of such
record date, and the denominator of which shall be equal to the total number of
shares of Common Stock then outstanding on the record date. Such adjustment
shall be made whenever any such dividend is paid or such distribution is made
and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such dividend or distribution.
There shall be no adjustment to the number of Warrant Shares subject to purchase
upon exercise of this Warrant pursuant to this Section 2.4.
2.5 ADJUSTMENT RULES.
(a) Any adjustments pursuant to this Section 2 shall be made successively
whenever an event referred to herein shall occur, except that, notwithstanding
any other provision of this Section 2, no adjustment shall be made to the number
of Warrant Shares to be delivered to the Holder (or to the Exercise Price) if
such adjustment represents less than 1% of the number of shares previously
required to be so delivered, but any lesser adjustment shall be carried forward
and shall be made at the time and together with the next subsequent adjustment
which together with any adjustments so carried forward shall amount to 1% or
more of the number of shares to be so delivered.
(b) If the Company shall set a record date to determine the holders of
shares of Common Stock for purposes of a Common Stock Reorganization, Common
Stock Dividend or Capital Reorganization and shall legally abandon such action
prior to effecting such action, then no adjustment shall be made pursuant to
this Section 2 in respect of such action.
<PAGE>
6
2.6 NOTICE OF ADJUSTMENT. Not less than 10 days prior to the record date
or effective date, as the case may be, of any action specified in Section 2.2,
2.3 or 2.4 which requires or might require an adjustment or readjustment
pursuant to this Section 2, the Company shall give notice to the Holder of such
event, describing such event in reasonable detail and specifying the record date
or effective date, as the case may be, and, if determinable, the required
adjustment and the computation thereof. If the required adjustment is not
determinable at the time of such notice, the Company shall give notice to the
Holder of such adjustment and computation promptly after such adjustment becomes
determinable.
3. REGISTRATION RIGHTS. The Holder shall be entitled to the registration
rights set forth in Exhibit A.
4. DEFINITIONS.
"BUSINESS DAYS" shall mean each day that is not a Saturday or Sunday and
on which banking institutions in New York are not required or authorized by law
or executive order to close.
"CAPITAL REORGANIZATION" shall have the meaning set forth in Section 2.3.
"COMMON STOCK" shall have the meaning set forth in the first paragraph of
this Warrant.
"COMMON STOCK DIVIDEND" shall have the meaning set forth in Section 2.2.
"COMMON STOCK REORGANIZATION" shall have the meaning set forth in Section
2.2.
"COMPANY" shall have the meaning set forth in the first paragraph of this
Warrant.
"EXERCISE PRICE" shall mean $2.93612 per share of Common Stock, subject to
adjustment pursuant to Section 2.
"EXPIRATION DATE" shall have the meaning set forth in Section 1.1.
"FAIR MARKET VALUE" shall mean the following:
(A) If the Company is a public company, Fair Market Value shall equal (i) the
average of the high and low sales prices of shares of Common Stock on all
securities exchanges on which Common Stock may be listed during the applicable
period listed below, or (ii) if there shall have been no sales on any such
exchange on any day during such period, the average of the bid and asked prices
of Common Stock at the end of each such day, or (iii) if the Common Stock shall
not be so listed, the average of the bid and asked prices during such period in
the over-the-counter market, if any; in each circumstance set forth above,
averaged over the 20 consecutive trading days immediately prior to the day as of
the which Fair Market Value is
<PAGE>
7
determined. In the event quotations for the Common Stock are not available for
each day during the twenty-consecutive day period provided above, then Fair
Market Value shall be determined based upon the first twenty days (which need
not be consecutive) preceding the day as of which Fair Market Value is to be
determined for which quotations are available, provided such twenty day period
does not extend past fifty business days from the date as of which Fair Market
Value is to be determined.
(B) If the Company is not a public company, Fair Market Value shall equal the
fair market value per share of the Common stock of the Company, as determined by
the Board of Directors of the Company in good faith. If the Holder objects to
the Board's determination of Fair Market Value, such objection to be given
within ten Business Days of receipt of such valuation, Fair Market Value shall
be determined by an Independent financial Expert, as provided herein.
"HOLDER" shall have the meaning set forth in the first paragraph of this
Warrant.
"INDEPENDENT FINANCIAL EXPERT" shall mean an independent valuation or
appraisal firm (i) selected jointly by the Board of Directors of the Company and
the Holder as having appropriate experience in valuations of the nature required
and (ii) which certifies that it does not (and the directors and officers of
which do not) have a material direct or indirect financial interest in either
the Company or the valuation. If the Board and the Holder do not agree upon the
selection of the Independent Financial Expert, an Independent Financial Expert
solicited by each of the Board and the Holder shall jointly select a third
Independent Financial Expert. the valuation agreed upon by two of the three
Independent Financial Experts shall be conclusive and binding upon the parties.
If any final determination of Fair Market Value hereunder by an Independent
Financial Expert is not greater than 10% of the original valuation presented to
the Holder by the board, the fees of all Independent Financial Experts involved
in the valuation shall be paid by the Holder; otherwise, such fees shall be paid
by the Company.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and
any successor Federal statute, and the rules and regulations of the Securities
and Exchange Commission (or its successor) thereunder, all as the same shall be
in effect from time to time.
"TRANSFER" shall include any sale, transfer, assignment or other
disposition of this Warrant or any Warrant Shares, or of any interest thereof,
which would constitute a sale of either thereof within the meaning of the
Securities Act.
<PAGE>
8
"WARRANT SHARES" shall have the meaning set forth in the first paragraph
of this Warrant.
Dated: November 30, 1999
DEAN & DELUCA, INC.
By: /s/ Dane J. Neller
---------------------------
Name: Dane J. Neller
Title: President
30018187.WPD
<PAGE>
9
EXHIBIT A
REGISTRATION RIGHTS
1. REGISTRATION ON REQUEST.
1.1 REQUEST. Upon a written request from a Holder of Registrable
Securities (the "Requesting Party") to the Company, requesting that the Company
effect the registration under the Securities Act of all or part of the
Requesting Party's Registrable Securities and specifying the intended method or
methods of disposition thereof, the Company will promptly, but in any event
within 10 Business Days, give written notice of such requested registration to
all holders of Registrable Securities and thereupon will use its best efforts to
effect the registration under the Securities Act of:
(a) First, the Registrable Securities which the Requesting Party has
requested the Company to register for disposition in accordance with the
intended method or methods of disposition stated in the Requesting Party's
request, and
(b) Second, all other Registrable Securities which the Company has been
requested to register by the holders thereof by written request delivered to the
Company within five Business Days after the giving of such written notice by the
Company, in accordance with Section 2.
1.2 LIMITATIONS.
(a) The Company shall not be required to effect any registration pursuant
to this Section 1 until one year after the Company has effected an underwritten
initial public offering of its common stock,
(b) If the Company shall have previously effected a registration pursuant
to this Section 1, the Company shall not be required to effect another
registration pursuant to this Section 1 at the request of the same Requesting
Party until a period of 180 days shall have elapsed from the effective date of
the most recent such previous registration,
(c) The Company shall not be required to effect more than two
registrations pursuant to this Section 1 of the request of the same Requesting
Party;
(d) if at the time of a request pursuant to Section 1(a) the Company has
authorized or
<PAGE>
10
taken steps with a view to effecting a registration under the Securities Act for
an underwritten public offering, whether or not pursuant to Section 1(a), (the
"Pending Offering"), the Company need not take any action pursuant to that
request until 180 days after the registration statement for the Pending Offering
becomes effective under the Securities Act or, if no registration statement is
filed for the Pending Offering within 90 days after such request, 91 days after
such request; and
(e) The Company shall not be required to effect any registration pursuant
to this Section 1 if all Registrable Securities proposed to be sold thereunder
by the Requesting Party are eligible for public sale at that time without
registration (including, but not limited to, sales pursuant to Rule 144 under
the Securities Act).
1.3 SELECTION OF UNDERWRITERS. Whenever a registration is requested
pursuant to Section 1 hereof, the Requesting Holder shall have the right to
select the managing underwriter to administer the offering subject to the
approval of the Company, such approval not to be unreasonably withheld.
1.4 TRANSFEREES. The rights granted under this Section 1 shall inure to
the transferee of more than 50% of the Registrable Securities then held by the
transferor.
2. PIGGYBACK REGISTRATIONS.
2.1 RIGHT TO PIGGYBACK. Whenever the Company proposes to register any of
its securities under the Securities Act on a registration form that may be used
for the registration of Registrable Securities (a "Piggyback Registration"), the
Company will, not later than the first Business Day following the filing of such
registration form, give prompt written notice thereof to all holders of
Registrable Securities and will include in such registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within five Business Days after the Company's notice is given.
2.2 PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration is in
connection with an underwritten primary registration on behalf of the Company
and other stockholders, and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold in an orderly manner
in such offering within a price range acceptable to the Company, the Company
will include in such registration (i) first, the securities the Company proposes
to sell and (ii) second the Registrable Securities requested to be included
therein and other securities requested to be included in such registration, pro
rata among the holders of such securities on the basis of the number of
securities so requested to be included therein.
2.3 PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback Registration is in
connection with an underwritten secondary registration on behalf of holders of
the Company's securities, and the managing underwriters advise the Company in
writing that in their opinion the number of securities
<PAGE>
11
requested to be included in such registration exceeds the number which can be
sold in an orderly manner in such offering within a price range acceptable to
the holders initially requesting such registration, the Company will include in
such registration (i) first, the securities requested to be included therein by
the holders initially requesting such registration, pro rata among the holders
of such securities on the basis of the number of securities so requested to be
included therein, and (ii) second, any other Registrable Securities and other
securities requested to be included in such registration, pro rata among the
holders of such securities on the basis of the number of securities so requested
to be included therein.
2.4 HOLDBACK AGREEMENTS. Each holder of Registrable Securities agrees not
to effect any public sale or distribution (including, but not limited to, sales
pursuant to Rule 144 under the Securities Act) of equity securities of the
Company, or any securities convertible into or exchangeable or exercisable for
such securities (collectively, "Equity Securities"), during the seven days prior
to and the 90-day period (or such longer period, not to exceed 180 days in the
aggregate, as the managing underwriter may request) beginning on the effective
date of any underwritten registration in which Registrable Securities are
included or any Applicable Registration (the "Holdback Period") except as part
of such underwritten registration, unless the underwriters managing the
registered public offering otherwise agree in writing. An "Applicable
Registration" is any underwritten registration if any of the securities included
in such registration are to be sold on behalf of the Company or on behalf of
Holdback Stockholders; and a "Holdback Stockholder" is any person party to or
entitled to the benefits of any registration rights or similar agreement with
the Company.
3. REGISTRATION PROCEDURES. Whenever the holders of Registrable Securities
have requested that any Registrable Securities be included in a registration
statement pursuant to this Agreement, the Company will use its best efforts to
effect the registration and the sale of such Registrable Securities in
accordance with the intended method of disposition thereof, provided that the
Company may at any time delay or abandon the underlying registration (with the
consent of the Requesting Party in the case of a registration pursuant to
Section 1) without any liability to the holders of Registrable Securities. The
Company will:
(a) prepare and file with the Securities and Exchange Commission a
registration statement (or an amendment to a registration statement) with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective;
(b) furnish to each seller of Registrable Securities such number of copies
of such registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as such seller may reasonably request in
order to facilitate the disposition of Registrable Securities owned by such
seller;
(c) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other
<PAGE>
12
acts and things which may be reasonably necessary or advisable to enable such
seller to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that the Company will not be required
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject itself
to taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction);
(d) notify each seller of such Registrable Securities, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such registration statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein not misleading, and,
at the request of any such seller, the Company will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary to make the
statements therein not misleading;
(e) cause all such Registrable Securities to be listed on each securities
exchange or automated quotation system on which similar securities issued by the
Company are then listed;
(f) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(g) make available for inspection by any seller of Registrable Securities,
any underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors, employees and independent accountants to supply all information
reasonably requested by any such seller, underwriter attorney, accountant or
agent in connection with such registration statement, subject to receipt of such
confidentiality undertakings which Company may reasonably require; and
(h) otherwise use its best efforts to comply with all applicable rules and
regulations of the Securities and Exchange Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months beginning with the first day of
the Company's first full calendar quarter after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder.
4. REGISTRATION EXPENSES. All expenses incident to the Company's
performance of or compliance with this Exhibit A, including, without limitation,
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery expenses,
and fees and disbursements of counsel for the Company, all independent certified
public accountants and other
<PAGE>
13
Persons retained by the Company (all such expenses being herein called
"Registration Expenses"), will be paid by the Company, except the holders of
Registrable Securities in any event will pay the fees and disbursements of their
counsel and any underwriting discounts or commissions with respect to the
Registrable Securities.
5. INDEMNIFICATION.
In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder will furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, will indemnify the Company, its
directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is based upon and in conformity with any
information or affidavit so furnished in writing by such holder expressly for
use therein.
The Company agrees to indemnify, to the extent permitted by law, each
holder of Registrable Securities, its officers and directors and each Person who
controls such holder (within the meaning of the Securities Act) against all
losses, claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of material fact required
to be stated therein or necessary to make the statements therein not misleading,
except insofar as the same are based upon and in conformity with any information
furnished in writing to the Company by such holder expressly for use therein or
by such holder's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto after the Company has
furnished such holder with a sufficient number of copies of the same. In
connection with an underwritten offering, the Company will indemnify such
underwriters, their officers and directors and each Person who controls such
underwriters (within the meaning of the Securities Act) to the same extent as
provided above with respect to the indemnification of the holders of Registrable
Securities.
Any Person entitled to indemnification hereunder will (i) give prompt
written notice to the indemnifying party of any claim with respect to which it
seeks indemnification and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. If such defense is assumed, the indemnifying party will not
be subject to any liability for any settlement made by the indemnified party
without its consent (but such consent will not be unreasonably withheld). An
indemnifying party who is not
<PAGE>
14
entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel selected by all
parties indemnified by such indemnifying party to represent such indemnified
parties with respect to such claim.
The indemnification provided for under this Agreement will remain in full
force and effect regardless of any investigation made by or on behalf of the
indemnified party or any officer, director or controlling Person of such
indemnified party and will survive the transfer of securities.
6. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No holder of Registrable
Securities may participate in any registration hereunder which is underwritten
unless such holder (a) agrees to sell such Registrable Securities on the basis
provided in any underwriting arrangements approved by the Company and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements (which may include indemnification and contribution
provisions which differ from those set forth in Section 4).
7. DEFINITIONS.
"BUSINESS DAY" means any day that is not a Saturday or Sunday or a day on
which banks located in the City of New York are authorized or required to be
closed.
"COMPANY" means Dean & DeLuca, Inc., a Delaware corporation.
"REGISTRABLE SECURITIES" means (i) the Warrant Shares issued or issuable
upon exercise of a Warrant and (ii) any Common Stock issued or issuable with
respect to the securities referred to in clause (i) above by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. As to any
particular Registrable Securities, such securities continue to be Registrable
Securities as long as they have been sold pursuant to a private transaction and
are not eligible for public sale without registration (including, but not
limited to, sales pursuant to Rule 144 under the Securities Act). For purposes
of this Agreement, a Person will be deemed to be a holder of Registrable
Securities and such Registrable Securities will be deemed to be in existence
whenever such Person has the right to acquire such Registrable Securities
directly or indirectly (upon conversion or exercise of any security, warrants or
options), whether or not such acquisition has actually been effected.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"WARRANT" means the warrant dated November 30, 1999 issued by the Company
to Leslie G. Rudd and any new warrant issued pursuant to Section 1.2 thereof.
Unless otherwise stated, other capitalized terms contained herein have the
meanings set forth in the Warrant.
<PAGE>
Exhibit 10.11
THIS WARRANT, AND THE SHARES ISSUABLE UPON EXERCISE HEREOF,
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES OR "BLUE SKY" LAWS
(COLLECTIVELY, "SECURITIES LAWS"), AND MAY NOT BE TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED
UNDER THE SECURITIES LAWS OR AN EXEMPTION FROM REGISTRATION
APPLIES TO SUCH TRANSFER OR DISPOSITION.
WARRANT
To Purchase Up to 321,853 Shares of Common Stock of
DEAN & DELUCA, INC.
Dated: November 30, 1999
This is to certify that, for value received, Leslie G. Rudd
and its registered assigns (collectively, the "Holder") is entitled to purchase
from Dean & DeLuca, Inc., a Delaware corporation (the "Company"), 321,853 shares
of common stock of the Company (the "Common Stock"), subject to adjustment and
on the terms and conditions hereinafter provided (the "Warrant Shares").
Certain terms used in this Warrant are defined in Section 4.
1. EXERCISE OF WARRANT
1.1 EXERCISE PERIOD. The Holder may exercise this Warrant, for
all or any portion of the Warrant Shares, on any Business Day prior to January
15, 2004 (the "Expiration Date").
1.2 MANNER OF EXERCISE. (a) To exercise this Warrant, the
Holder shall deliver to the Company at its office at 560 Broadway, New York, New
York 10012, or at such other office or agency designated by the Company by
written notice to the Holder (i) this Warrant, (ii) a written notice of the
Holder's election to exercise this Warrant, which notice shall specify the
number of Warrant Shares to be purchased and the denominations of the share
certificate or certificates desired, and (iii) payment of the
<PAGE>
2
Exercise Price with respect to such shares. Such payment may be made, at the
option of the Holder, by cash, money order, certified or bank cashier's check or
wire transfer.
(b) (i) In lieu of the exercise of this Warrant as provided in
(a) above, the Warrant (or any portion thereof) may, at the election of the
Holder, be converted into the nearest whole number of shares of Common Stock
determined as follows:
S = N (FMV - EP)
-----------
FMV
where
S = the number of shares to be issued
N = the number of Warrant Shares issuable upon the exercise of
the Warrant (or portion thereof) to be so converted.
FMV = Fair Market Value per share on the date of conversion.
EP = the Exercise Price in effect on the date of conversion.
(ii) The conversion rights provided under this
paragraph may be exercised in whole or in part and at any time and from time to
time while any portion of the Warrant remains outstanding. In order to exercise
the conversion privilege, the Holder shall deliver to the Company or its office
as stated in (a) above (i) this Warrant and (ii) a written notice of the
Holder's election to exercise its conversion rights, which notice shall specify
the portion of the Warrant to be converted pursuant to this paragraph and the
denominations of the share certificate or certificates desired. The Warrant (or
so much thereof as shall have been surrendered for conversion) shall be deemed
to have been converted immediately prior to the close of business on the date
the notice is delivered to the Company.
(c) The Company shall, as promptly as practicable and in any
event within seven days thereafter, execute and deliver or cause to be executed
and delivered, in accordance with such notice, a certificate or certificates
representing the aggregate number of shares of Common Stock to which the Holder
is entitled as a result of its exercise pursuant to 1.2(a) or the conversion
pursuant to 1.2(b), together with cash in lieu of any fractions of a share as
provided in Section 1.4. The share certificate or certificates so delivered
shall be in such denominations as may be specified in such notice or, if such
notice shall not specify denominations, as the Company may determine, and shall
be issued in the name of the Holder. Such certificate or certificates shall be
deemed to have been issued, and the Holder shall be deemed for all purposes to
have become a holder of record of such shares, as of the date the aforementioned
notice and payment (if applicable) is received by the Company. If this Warrant
shall have been exercised for only
<PAGE>
3
a portion of the Warrant Shares, the Company shall, at the time of delivery of
the certificate or certificates, deliver to the Holder a new Warrant evidencing
the rights to purchase the remaining Warrant Shares, which new Warrant shall in
all other respects be identical with this Warrant, or, at the request of the
Holder, appropriate notation may be made on this Warrant which shall then be
returned to the Holder. The Company shall pay all expenses, taxes and other
charges payable in connection with the preparation, issuance and delivery of
share certificates and new Warrants.
1.3 SHARES TO BE FULLY PAID AND NONASSESSABLE. All Warrant
Shares issued upon the exercise of this Warrant shall be validly issued, fully
paid and nonassessable.
1.4 NO FRACTIONAL SHARES TO BE ISSUED. The Company shall not
be required to issue fractions of shares of Common Stock upon exercise of this
Warrant.
1.5 SHARE LEGEND. Each certificate for Warrant Shares issued
upon exercise of this Warrant shall bear the following legend:
"This security has not been registered under the Securities
Act of 1933, as amended, or any state securities law and may not be
transferred, sold or offered for sale unless registered pursuant to
such Act and any applicable state securities law or unless an exemp
tion from such registration is available."
Any certificate issued at any time in exchange or substitution
for any certificate bearing such legend (except a new certificate issued upon
completion of a public distribution pursuant to a registration statement under
the Securities Act) shall also bear such legend unless, in the opinion of
counsel to the Company, the securities represented thereby need no longer be
subject to restrictions on resale under the Securities Act.
2. ANTIDILUTION PROVISIONS
2.1 ADJUSTMENTS GENERALLY. The Exercise Price and the number
of Warrant Shares (or other securities or property) issuable upon exercise of
this Warrant shall be subject to adjustment from time to time upon the
occurrence of certain events, as provided in this Section 2. No such adjustment
shall reduce the exercise price below $0.01 per share, but all computations
required by this Section 2 shall be made without giving effect to this sentence.
2.2 COMMON STOCK REORGANIZATION; COMMON STOCK DIVIDENDS. If
the Company shall
(a) subdivide its outstanding shares of Common Stock into a
greater number of shares or consolidate its outstanding shares of
Common Stock into a smaller number of shares (any such
<PAGE>
4
event being called a "Common Stock Reorganization"); or
(b) issue additional shares of Common Stock to pay a dividend
or other distribution to holders of its Common Stock (any such event
being called a "Common Stock Dividend"),
then (i) the Exercise Price shall be adjusted, effective immediately after the
record date at which the holders of shares of Common Stock are determined for
purposes of such Common Stock Reorganization or Common Stock Dividend, as the
case may be, to a price determined by multiplying the Exercise Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding on such record date
before giving effect to such Common Stock Reorganization or Common Stock
Dividend, as the case may be, and the denominator of which shall be the number
of shares of Common Stock outstanding after giving effect to such Common Stock
Reorganization or Common Stock Dividend, as the case may be, and (ii) the number
of Warrant Shares subject to purchase upon exercise of this Warrant shall be
adjusted, effective at such time, to a number determined by multiplying the
number of shares of Common Stock subject to purchase hereunder immediately
before such Common Stock Reorganization or Common Stock Dividend, as the case
may be, by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding after giving effect to such Common Stock Reorganization
or Common Stock Dividend, as the case may be, and the denominator of which shall
be the number of shares of Common Stock outstanding immediately before such
Common Stock Reorganization or Common Stock Dividend, as the case may be. This
Section 2.2 shall apply to any securities of the Company purchasable as a result
of an adjustment pursuant to Section 2.3 as if the references to "Common Stock"
in this Section 2.2 were references to such other securities of the Company.
2.3 CAPITAL REORGANIZATIONS. If there shall be any
reclassification or change in the outstanding shares of Common Stock (other than
a Common Stock Reorganization or Common Stock Dividend or a change in par value)
or any other securities purchasable pursuant to this Warrant or any
consolidation or merger to which the Company is a party, other than a
consolidation or a merger in which the Company is a continuing corporation and
which does not result in any reclassification of, or change in the outstanding
shares of common stock, or any exchange of a majority of the outstanding shares
of Common Stock for securities of another corporation or other entity (any such
event being called a "Capital Reorganization"), then, effective upon the
effective date of such Capital Reorganization, the Holder shall have the right
to purchase, upon exercise of this Warrant, the kind and amount of shares of
stock or other securities and property (including cash) which the Holder would
have owned or have been entitled to receive in respect of the securities
issuable upon exercise of this Warrant after such Capital Reorganization if this
Warrant had been exercised immediately prior to such Capital Reorganization. The
Company shall cause the issuer of any securities for which this Warrant becomes
exercisable as a result of a Capital Reorganization to assume the Company's
obligations under this Warrant. The provisions of this Section 2.3 shall
similarly apply to successive Capital Reorganizations.
<PAGE>
5
2.4 CERTAIN DIVIDENDS. In case the Company shall
(a) pay a dividend or make a distribution of shares
of its capital stock other than shares of Common Stock
(excluding (i) distributions relating to subdivisions and
combinations covered by Section 2.2, (ii) distributions
relating to reclassifications, changes, consolidations,
mergers, sales or conveyances covered by Section 2.3 and (iii)
rights, warrants or options to purchase or subscribe for
shares of Common Stock or Convertible Securities); or
(b) pay a dividend or make a distribution in cash or
property other than capital stock of the Company (excluding
dividends or distributions payable in cash out of the current
year's or retained earnings of the Company),
then the Exercise Price shall be adjusted to a price determined by subtracting
from the Exercise Price in effect immediately prior to the record date
(described below) by an amount equal to a fraction, the numerator of which shall
be equal to (x) the fair market value of such dividend or distribution (as
determined by the Board of Directors of the Company in good faith) as of such
record date, and the denominator of which shall be equal to the total number of
shares of Common Stock then outstanding on the record date. Such adjustment
shall be made whenever any such dividend is paid or such distribution is made
and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such dividend or distribution.
There shall be no adjustment to the number of Warrant Shares subject to purchase
upon exercise of this Warrant pursuant to this Section 2.4.
2.5 ADJUSTMENT RULES.
(a) Any adjustments pursuant to this Section 2 shall be made
successively whenever an event referred to herein shall occur, except that,
notwithstanding any other provision of this Section 2, no adjustment shall be
made to the number of Warrant Shares to be delivered to the Holder (or to the
Exercise Price) if such adjustment represents less than 1% of the number of
shares previously required to be so delivered, but any lesser adjustment shall
be carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried forward
shall amount to 1% or more of the number of shares to be so delivered.
(b) If the Company shall set a record date to determine the
holders of shares of Common Stock for purposes of a Common Stock Reorganization,
Common Stock Dividend or Capital Reorganization and shall legally abandon such
action prior to effecting such action, then no adjustment shall be made pursuant
to this Section 2 in respect of such action.
<PAGE>
6
2.6 NOTICE OF ADJUSTMENT. Not less than 10 days prior to the
record date or effective date, as the case may be, of any action specified in
Section 2.2, 2.3 or 2.4 which requires or might require an adjustment or
readjustment pursuant to this Section 2, the Company shall give notice to the
Holder of such event, describing such event in reasonable detail and specifying
the record date or effective date, as the case may be, and, if determinable, the
required adjustment and the computation thereof. If the required adjustment is
not determinable at the time of such notice, the Company shall give notice to
the Holder of such adjustment and computation promptly after such adjustment
becomes determinable.
3. REGISTRATION RIGHTS. The Holder shall be entitled to the
registration rights set forth in Exhibit A.
4. DEFINITIONS.
"BUSINESS DAYS" shall mean each day that is not a Saturday or
Sunday and on which banking institutions in New York are not required or
authorized by law or executive order to close.
"CAPITAL REORGANIZATION" shall have the meaning set forth in
Section 2.3.
"COMMON STOCK" shall have the meaning set forth in the first
paragraph of this Warrant.
"COMMON STOCK DIVIDEND" shall have the meaning set forth in
Section 2.2.
"COMMON STOCK REORGANIZATION" shall have the meaning set forth
in Section 2.2.
"COMPANY" shall have the meaning set forth in the first
paragraph of this Warrant.
"EXERCISE PRICE" shall mean $2.93612 per share of Common
Stock, subject to adjustment pursuant to Section 2.
"EXPIRATION DATE" shall have the meaning set forth in Section
1.1.
"FAIR MARKET VALUE" shall mean the following:
(A) If the Company is a public company, Fair Market Value shall equal (i) the
average of the high and low sales prices of shares of Common Stock on all
securities exchanges on which Common Stock may be listed during the applicable
period listed below, or (ii) if there shall have been no sales on any such
exchange on any day during such period, the average of the bid and asked prices
of Common Stock at the end of each such day, or (iii) if the Common Stock shall
not be so listed, the average of the bid and asked prices during such period in
the over-the-counter market, if any; in each circumstance set forth above,
averaged over the 20 consecutive trading days immediately prior to the day as of
the which Fair Market Value is
<PAGE>
7
determined. In the event quotations for the Common Stock are not available for
each day during the twenty-consecutive day period provided above, then Fair
Market Value shall be determined based upon the first twenty days (which need
not be consecutive) preceding the day as of which Fair Market Value is to be
determined for which quotations are available, provided such twenty day period
does not extend past fifty business days from the date as of which Fair Market
Value is to be determined.
(B) If the Company is not a public company, Fair Market Value shall equal the
fair market value per share of the Common stock of the Company, as determined by
the Board of Directors of the Company in good faith. If the Holder objects to
the Board's determination of Fair Market Value, such objection to be given
within ten Business Days of receipt of such valuation, Fair Market Value shall
be determined by an Independent financial Expert, as provided herein.
"HOLDER" shall have the meaning set forth in the first
paragraph of this Warrant.
"INDEPENDENT FINANCIAL EXPERT" shall mean an independent
valuation or appraisal firm (i) selected jointly by the Board of Directors of
the Company and the Holder as having appropriate experience in valuations of the
nature required and (ii) which certifies that it does not (and the directors and
officers of which do not) have a material direct or indirect financial interest
in either the Company or the valuation. If the Board and the Holder do not agree
upon the selection of the Independent Financial Expert, an Independent Financial
Expert solicited by each of the Board and the Holder shall jointly select a
third Independent Financial Expert. the valuation agreed upon by two of the
three Independent Financial Experts shall be conclusive and binding upon the
parties. If any final determination of Fair Market Value hereunder by an
Independent Financial Expert is not greater than 10% of the original valuation
presented to the Holder by the board, the fees of all Independent Financial
Experts involved in the valuation shall be paid by the Holder; otherwise, such
fees shall be paid by the Company.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and any successor Federal statute, and the rules and regulations of the
Securities and Exchange Commission (or its successor) thereunder, all as the
same shall be in effect from time to time.
"TRANSFER" shall include any sale, transfer, assignment or
other disposition of this Warrant or any Warrant Shares, or of any interest
thereof, which would constitute a sale of either thereof within the meaning of
the Securities Act.
<PAGE>
8
"WARRANT SHARES" shall have the meaning set forth in the first
paragraph of this Warrant.
Dated: November 30, 1999
DEAN & DELUCA, INC.
By: /s/ Dane J. Neller
------------------------
Name: Dane J. Neller
Title: President
<PAGE>
9
EXHIBIT A
REGISTRATION RIGHTS
1. REGISTRATION ON REQUEST.
1.1 REQUEST. Upon a written request from a Holder of Registrable
Securities (the "Requesting Party") to the Company, requesting that the Company
effect the registration under the Securities Act of all or part of the
Requesting Party's Registrable Securities and specifying the intended method or
methods of disposition thereof, the Company will promptly, but in any event
within 10 Business Days, give written notice of such requested registration to
all holders of Registrable Securities and thereupon will use its best efforts to
effect the registration under the Securities Act of:
(a) First, the Registrable Securities which the Requesting Party
has requested the Company to register for disposition in accordance with the
intended method or methods of disposition stated in the Requesting Party's
request, and
(b) Second, all other Registrable Securities which the Company has
been requested to register by the holders thereof by written request delivered
to the Company within five Business Days after the giving of such written notice
by the Company, in accordance with Section 2.
1.2 LIMITATIONS.
(a) The Company shall not be required to effect any registration
pursuant to this Section 1 until one year after the Company has effected an
underwritten initial public offering of its common stock,
(b) If the Company shall have previously effected a registration
pursuant to this Section 1, the Company shall not be required to effect another
registration pursuant to this Section 1 at the request of the same Requesting
Party until a period of 180 days shall have elapsed from the effective date of
the most recent such previous registration,
(c) The Company shall not be required to effect more than two
registrations pursuant to this Section 1 of the request of the same Requesting
Party;
(d) if at the time of a request pursuant to Section 1(a) the
Company has authorized or
<PAGE>
10
taken steps with a view to effecting a registration under the Securities Act for
an underwritten public offering, whether or not pursuant to Section 1(a), (the
"Pending Offering"), the Company need not take any action pursuant to that
request until 180 days after the registration statement for the Pending Offering
becomes effective under the Securities Act or, if no registration statement is
filed for the Pending Offering within 90 days after such request, 91 days after
such request; and
(e) The Company shall not be required to effect any registration
pursuant to this Section 1 if all Registrable Securities proposed to be sold
thereunder by the Requesting Party are eligible for public sale at that time
without registration (including, but not limited to, sales pursuant to Rule 144
under the Securities Act).
1.3 SELECTION OF UNDERWRITERS. Whenever a registration is
requested pursuant to Section 1 hereof, the Requesting Holder shall have the
right to select the managing underwriter to administer the offering subject to
the approval of the Company, such approval not to be unreasonably withheld.
1.4 TRANSFEREES. The rights granted under this Section 1 shall
inure to the transferee of more than 50% of the Registrable Securities then held
by the transferor.
2. PIGGYBACK REGISTRATIONS.
2.1 RIGHT TO PIGGYBACK. Whenever the Company proposes to register
any of its securities under the Securities Act on a registration form that may
be used for the registration of Registrable Securities (a "Piggyback
Registration"), the Company will, not later than the first Business Day
following the filing of such registration form, give prompt written notice
thereof to all holders of Registrable Securities and will include in such
registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within five Business Days after
the Company's notice is given.
2.2 PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback
Registration is in connection with an underwritten primary registration on
behalf of the Company and other stockholders, and the managing underwriters
advise the Company in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number which can be
sold in an orderly manner in such offering within a price range acceptable to
the Company, the Company will include in such registration (i) first, the
securities the Company proposes to sell and (ii) second the Registrable
Securities requested to be included therein and other securities requested to be
included in such registration, pro rata among the holders of such securities on
the basis of the number of securities so requested to be included therein.
2.3 PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback
Registration is in connection with an underwritten secondary registration on
behalf of holders of the Company's securities, and the managing underwriters
advise the Company in writing that in their opinion the number of securities
<PAGE>
11
requested to be included in such registration exceeds the number which can be
sold in an orderly manner in such offering within a price range acceptable to
the holders initially requesting such registration, the Company will include in
such registration (i) first, the securities requested to be included therein by
the holders initially requesting such registration, pro rata among the holders
of such securities on the basis of the number of securities so requested to be
included therein, and (ii) second, any other Registrable Securities and other
securities requested to be included in such registration, pro rata among the
holders of such securities on the basis of the number of securities so requested
to be included therein.
2.4 HOLDBACK AGREEMENTS. Each holder of Registrable Securities
agrees not to effect any public sale or distribution (including, but not limited
to, sales pursuant to Rule 144 under the Securities Act) of equity securities of
the Company, or any securities convertible into or exchangeable or exercisable
for such securities (collectively, "Equity Securities"), during the seven days
prior to and the 90-day period (or such longer period, not to exceed 180 days in
the aggregate, as the managing underwriter may request) beginning on the
effective date of any underwritten registration in which Registrable Securities
are included or any Applicable Registration (the "Holdback Period") except as
part of such underwritten registration, unless the underwriters managing the
registered public offering otherwise agree in writing. An "Applicable
Registration" is any underwritten registration if any of the securities included
in such registration are to be sold on behalf of the Company or on behalf of
Holdback Stockholders; and a "Holdback Stockholder" is any person party to or
entitled to the benefits of any registration rights or similar agreement with
the Company.
3. REGISTRATION PROCEDURES. Whenever the holders of Registrable
Securities have requested that any Registrable Securities be included in a
registration statement pursuant to this Agreement, the Company will use its best
efforts to effect the registration and the sale of such Registrable Securities
in accordance with the intended method of disposition thereof, provided that the
Company may at any time delay or abandon the underlying registration (with the
consent of the Requesting Party in the case of a registration pursuant to
Section 1) without any liability to the holders of Registrable Securities. The
Company will:
(a) prepare and file with the Securities and Exchange Commission
a registration statement (or an amendment to a registration statement) with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective;
(b) furnish to each seller of Registrable Securities such number
of copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by such seller;
(c) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other
<PAGE>
12
acts and things which may be reasonably necessary or advisable to enable such
seller to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that the Company will not be required
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject itself
to taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction);
(d) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company will prepare
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading;
(e) cause all such Registrable Securities to be listed on each
securities exchange or automated quotation system on which similar securities
issued by the Company are then listed;
(f) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(g) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter attorney,
accountant or agent in connection with such registration statement, subject to
receipt of such confidentiality undertakings which Company may reasonably
require; and
(h) otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Company's first full calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder.
4. REGISTRATION EXPENSES. All expenses incident to the Company's
performance of or compliance with this Exhibit A, including, without limitation,
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery expenses,
and fees and disbursements of counsel for the Company, all independent certified
public accountants and other
<PAGE>
13
Persons retained by the Company (all such expenses being herein called
"Registration Expenses"), will be paid by the Company, except the holders of
Registrable Securities in any event will pay the fees and disbursements of their
counsel and any underwriting discounts or commissions with respect to the
Registrable Securities.
5. INDEMNIFICATION.
In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder will furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, will indemnify the Company, its
directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is based upon and in conformity with any
information or affidavit so furnished in writing by such holder expressly for
use therein.
The Company agrees to indemnify, to the extent permitted by law, each
holder of Registrable Securities, its officers and directors and each Person who
controls such holder (within the meaning of the Securities Act) against all
losses, claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of material fact required
to be stated therein or necessary to make the statements therein not misleading,
except insofar as the same are based upon and in conformity with any information
furnished in writing to the Company by such holder expressly for use therein or
by such holder's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto after the Company has
furnished such holder with a sufficient number of copies of the same. In
connection with an underwritten offering, the Company will indemnify such
underwriters, their officers and directors and each Person who controls such
underwriters (within the meaning of the Securities Act) to the same extent as
provided above with respect to the indemnification of the holders of Registrable
Securities.
Any Person entitled to indemnification hereunder will (i) give prompt
written notice to the indemnifying party of any claim with respect to which it
seeks indemnification and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. If such defense is assumed, the indemnifying party will not
be subject to any liability for any settlement made by the indemnified party
without its consent (but such consent will not be unreasonably withheld). An
indemnifying party who is not
<PAGE>
14
entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel selected by all
parties indemnified by such indemnifying party to represent such indemnified
parties with respect to such claim.
The indemnification provided for under this Agreement will remain in
full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party and will survive the transfer of securities.
6. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No holder of Registrable
Securities may participate in any registration hereunder which is underwritten
unless such holder (a) agrees to sell such Registrable Securities on the basis
provided in any underwriting arrangements approved by the Company and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements (which may include indemnification and contribution
provisions which differ from those set forth in Section 4).
7. DEFINITIONS.
"BUSINESS DAY" means any day that is not a Saturday or
Sunday or a day on which banks located in the City of New York are authorized or
required to be closed.
"COMPANY" means Dean & DeLuca, Inc., a Delaware
corporation.
"REGISTRABLE SECURITIES" means (i) the Warrant Shares
issued or issuable upon exercise of a Warrant and (ii) any Common Stock issued
or issuable with respect to the securities referred to in clause (i) above by
way of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization. As to
any particular Registrable Securities, such securities continue to be
Registrable Securities as long as they have been sold pursuant to a private
transaction and are not eligible for public sale without registration
(including, but not limited to, sales pursuant to Rule 144 under the Securities
Act). For purposes of this Agreement, a Person will be deemed to be a holder of
Registrable Securities and such Registrable Securities will be deemed to be in
existence whenever such Person has the right to acquire such Registrable
Securities directly or indirectly (upon conversion or exercise of any security,
warrants or options), whether or not such acquisition has actually been
effected.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"WARRANT" means the warrant dated November 30, 1999
issued by the Company to Leslie G. Rudd and any new warrant issued pursuant to
Section 1.2 thereof.
Unless otherwise stated, other capitalized terms
contained herein have the meanings
<PAGE>
15
set forth in the Warrant.
<PAGE> 1
THIS WARRANT, AND THE SHARES ISSUABLE UPON EXERCISE HEREOF,
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES OR "BLUE SKY" LAWS
(COLLECTIVELY, "SECURITIES LAWS"), AND MAY NOT BE TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED
UNDER THE SECURITIES LAWS OR AN EXEMPTION FROM REGISTRATION
APPLIES TO SUCH TRANSFER OR DISPOSITION.
WARRANT
To Purchase Up to 798,672 Shares of Common Stock of
DEAN & DELUCA, INC.
Dated: November 30, 1999
This is to certify that, for value received, the Samantha
Lauren Rudd Gift Trust, and its registered assigns (collectively, the "Holder")
is entitled to purchase from Dean & DeLuca, Inc., a Delaware corporation (the
"Company"), 798,672 shares of common stock of the Company (the "Common Stock"),
subject to adjustment and on the terms and conditions hereinafter provided (the
"Warrant Shares").
Certain terms used in this Warrant are defined in Section 4.
1. EXERCISE OF WARRANT
1.1 EXERCISE PERIOD. The Holder may exercise this Warrant, for
all or any portion of the Warrant Shares, on any Business Day prior to January
15, 2004 (the "Expiration Date").
1.2 MANNER OF EXERCISE. (a) To exercise this Warrant, the
Holder shall deliver to the Company at its office at 560 Broadway, New York, New
York 10012, or at such other office or agency designated by the Company by
written notice to the Holder (i) this Warrant, (ii) a written notice of the
Holder's election to exercise this Warrant, which notice shall specify the
number of Warrant Shares to be purchased and the denominations of the share
certificate or certificates desired, and (iii) payment of the
<PAGE>
2
Exercise Price with respect to such shares. Such payment may be made, at the
option of the Holder, by cash, money order, certified or bank cashier's check or
wire transfer.
(b) (i) In lieu of the exercise of this Warrant as provided in
(a) above, the Warrant (or any portion thereof) may, at the election of the
Holder, be converted into the nearest whole number of shares of Common Stock
determined as follows:
[GRAPHIC OMITTED]
where
S = the number of shares to be issued
N = the number of Warrant Shares issuable upon the exercise of
the Warrant (or portion thereof) to be so converted.
FMV = Fair Market Value per share on the date of conversion.
EP = the Exercise Price in effect on the date of conversion.
(ii) The conversion rights provided under this
paragraph may be exercised in whole or in part and at any time and from time to
time while any portion of the Warrant remains outstanding. In order to exercise
the conversion privilege, the Holder shall deliver to the Company or its office
as stated in (a) above (i) this Warrant and (ii) a written notice of the
Holder's election to exercise its conversion rights, which notice shall specify
the portion of the Warrant to be converted pursuant to this paragraph and the
denominations of the share certificate or certificates desired. The Warrant (or
so much thereof as shall have been surrendered for conversion) shall be deemed
to have been converted immediately prior to the close of business on the date
the notice is delivered to the Company.
(c) The Company shall, as promptly as practicable and in any
event within seven days thereafter, execute and deliver or cause to be executed
and delivered, in accordance with such notice, a certificate or certificates
representing the aggregate number of shares of Common Stock to which the Holder
is entitled as a result of its exercise pursuant to 1.2(a) or the conversion
pursuant to 1.2(b), together with cash in lieu of any fractions of a share as
provided in Section 1.4. The share certificate or certificates so delivered
shall be in such denominations as may be specified in such notice or, if such
notice shall not specify denominations, as the Company may determine, and shall
be issued in the name of the Holder. Such certificate or certificates shall be
deemed to have been issued, and the Holder shall be deemed for all purposes to
have become a holder of record of such shares, as of the date the aforementioned
notice and payment (if applicable) is received by the Company. If this Warrant
shall have been exercised for only
<PAGE>
3
a portion of the Warrant Shares, the Company shall, at the time of delivery
of the certificate or certificates, deliver to the Holder a new Warrant
evidencing the rights to purchase the remaining Warrant Shares, which new
Warrant shall in all other respects be identical with this Warrant, or, at
the request of the Holder, appropriate notation may be made on this Warrant
which shall then be returned to the Holder. The Company shall pay all
expenses, taxes and other charges payable in connection with the preparation,
issuance and delivery of share certificates and new Warrants.
1.3 SHARES TO BE FULLY PAID AND NONASSESSABLE. All Warrant
Shares issued upon the exercise of this Warrant shall be validly issued, fully
paid and nonassessable.
1.4 NO FRACTIONAL SHARES TO BE ISSUED. The Company shall not
be required to issue fractions of shares of Common Stock upon exercise of this
Warrant.
1.5 SHARE LEGEND. Each certificate for Warrant Shares issued
upon exercise of this Warrant shall bear the following legend:
"This security has not been registered under the Securities
Act of 1933, as amended, or any state securities law and may not be
transferred, sold or offered for sale unless registered pursuant to
such Act and any applicable state securities law or unless an exemp
tion from such registration is available."
Any certificate issued at any time in exchange or substitution
for any certificate bearing such legend (except a new certificate issued upon
completion of a public distribution pursuant to a registration statement under
the Securities Act) shall also bear such legend unless, in the opinion of
counsel to the Company, the securities represented thereby need no longer be
subject to restrictions on resale under the Securities Act.
2. ANTIDILUTION PROVISIONS
2.1 ADJUSTMENTS GENERALLY. The Exercise Price and the number
of Warrant Shares (or other securities or property) issuable upon exercise of
this Warrant shall be subject to adjustment from time to time upon the
occurrence of certain events, as provided in this Section 2. No such adjustment
shall reduce the exercise price below $0.01 per share, but all computations
required by this Section 2 shall be made without giving effect to this sentence.
2.2 COMMON STOCK REORGANIZATION; COMMON STOCK DIVIDENDS. If
the Company shall
(a) subdivide its outstanding shares of Common Stock into a
greater number of shares or consolidate its outstanding shares of
Common Stock into a smaller number of shares (any such
<PAGE>
4
event being called a "Common Stock Reorganization"); or
(b) issue additional shares of Common Stock to pay a dividend
or other distribution to holders of its Common Stock (any such event
being called a "Common Stock Dividend"),
then (i) the Exercise Price shall be adjusted, effective immediately after the
record date at which the holders of shares of Common Stock are determined for
purposes of such Common Stock Reorganization or Common Stock Dividend, as the
case may be, to a price determined by multiplying the Exercise Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding on such record date
before giving effect to such Common Stock Reorganization or Common Stock
Dividend, as the case may be, and the denominator of which shall be the number
of shares of Common Stock outstanding after giving effect to such Common Stock
Reorganization or Common Stock Dividend, as the case may be, and (ii) the number
of Warrant Shares subject to purchase upon exercise of this Warrant shall be
adjusted, effective at such time, to a number determined by multiplying the
number of shares of Common Stock subject to purchase hereunder immediately
before such Common Stock Reorganization or Common Stock Dividend, as the case
may be, by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding after giving effect to such Common Stock Reorganization
or Common Stock Dividend, as the case may be, and the denominator of which shall
be the number of shares of Common Stock outstanding immediately before such
Common Stock Reorganization or Common Stock Dividend, as the case may be. This
Section 2.2 shall apply to any securities of the Company purchasable as a result
of an adjustment pursuant to Section 2.3 as if the references to "Common Stock"
in this Section 2.2 were references to such other securities of the Company.
2.3 CAPITAL REORGANIZATIONS. If there shall be any
reclassification or change in the outstanding shares of Common Stock (other than
a Common Stock Reorganization or Common Stock Dividend or a change in par value)
or any other securities purchasable pursuant to this Warrant or any
consolidation or merger to which the Company is a party, other than a
consolidation or a merger in which the Company is a continuing corporation and
which does not result in any reclassification of, or change in the outstanding
shares of common stock, or any exchange of a majority of the outstanding shares
of Common Stock for securities of another corporation or other entity (any such
event being called a "Capital Reorganization"), then, effective upon the
effective date of such Capital Reorganization, the Holder shall have the right
to purchase, upon exercise of this Warrant, the kind and amount of shares of
stock or other securities and property (including cash) which the Holder would
have owned or have been entitled to receive in respect of the securities
issuable upon exercise of this Warrant after such Capital Reorganization if this
Warrant had been exercised immediately prior to such Capital Reorganization. The
Company shall cause the issuer of any securities for which this Warrant becomes
exercisable as a result of a Capital Reorganization to assume the Company's
obligations under this Warrant. The provisions of this Section 2.3 shall
similarly apply to successive Capital Reorganizations.
<PAGE>
5
2.4 CERTAIN DIVIDENDS. In case the Company shall
(a) pay a dividend or make a distribution of shares
of its capital stock other than shares of Common Stock
(excluding (i) distributions relating to subdivisions and
combinations covered by Section 2.2, (ii) distributions
relating to reclassifications, changes, consolidations,
mergers, sales or conveyances covered by Section 2.3 and (iii)
rights, warrants or options to purchase or subscribe for
shares of Common Stock or Convertible Securities); or
(b) pay a dividend or make a distribution in cash or
property other than capital stock of the Company (excluding
dividends or distributions payable in cash out of the current
year's or retained earnings of the Company),
then the Exercise Price shall be adjusted to a price determined by subtracting
from the Exercise Price in effect immediately prior to the record date
(described below) by an amount equal to a fraction, the numerator of which shall
be equal to (x) the fair market value of such dividend or distribution (as
determined by the Board of Directors of the Company in good faith) as of such
record date, and the denominator of which shall be equal to the total number of
shares of Common Stock then outstanding on the record date. Such adjustment
shall be made whenever any such dividend is paid or such distribution is made
and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such dividend or distribution.
There shall be no adjustment to the number of Warrant Shares subject to purchase
upon exercise of this Warrant pursuant to this Section 2.4.
2.5 ADJUSTMENT RULES.
(a) Any adjustments pursuant to this Section 2 shall be made
successively whenever an event referred to herein shall occur, except that,
notwithstanding any other provision of this Section 2, no adjustment shall be
made to the number of Warrant Shares to be delivered to the Holder (or to the
Exercise Price) if such adjustment represents less than 1% of the number of
shares previously required to be so delivered, but any lesser adjustment shall
be carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried forward
shall amount to 1% or more of the number of shares to be so delivered.
(b) If the Company shall set a record date to determine the
holders of shares of Common Stock for purposes of a Common Stock Reorganization,
Common Stock Dividend or Capital Reorganization and shall legally abandon such
action prior to effecting such action, then no adjustment shall be made pursuant
to this Section 2 in respect of such action.
<PAGE>
6
2.6 NOTICE OF ADJUSTMENT. Not less than 10 days prior to the
record date or effective date, as the case may be, of any action specified in
Section 2.2, 2.3 or 2.4 which requires or might require an adjustment or
readjustment pursuant to this Section 2, the Company shall give notice to the
Holder of such event, describing such event in reasonable detail and specifying
the record date or effective date, as the case may be, and, if determinable, the
required adjustment and the computation thereof. If the required adjustment is
not determinable at the time of such notice, the Company shall give notice to
the Holder of such adjustment and computation promptly after such adjustment
becomes determinable.
3. REGISTRATION RIGHTS. The Holder shall be entitled to the
registration rights set forth in Exhibit A.
4. DEFINITIONS.
"BUSINESS DAYS" shall mean each day that is not a Saturday or
Sunday and on which banking institutions in New York are not required or
authorized by law or executive order to close.
"CAPITAL REORGANIZATION" shall have the meaning set forth in
Section 2.3.
"COMMON STOCK" shall have the meaning set forth in the first
paragraph of this Warrant.
"COMMON STOCK DIVIDEND" shall have the meaning set forth in
Section 2.2.
"COMMON STOCK REORGANIZATION" shall have the meaning set forth
in Section 2.2.
"COMPANY" shall have the meaning set forth in the first
paragraph of this Warrant.
"EXERCISE PRICE" shall mean $2.93612 per share of Common
Stock, subject to adjustment pursuant to Section 2.
"EXPIRATION DATE" shall have the meaning set forth in Section
1.1.
"FAIR MARKET VALUE" shall mean the following:
(A) If the Company is a public company, Fair Market Value shall equal (i) the
average of the high and low sales prices of shares of Common Stock on all
securities exchanges on which Common Stock may be listed during the applicable
period listed below, or (ii) if there shall have been no sales on any such
exchange on any day during such period, the average of the bid and asked prices
of Common Stock at the end of each such day, or (iii) if the Common Stock shall
not be so listed, the average of the bid and asked prices during such period in
the over-the-counter market, if any; in each circumstance set forth above,
averaged over the 20 consecutive trading days immediately prior to the day as of
the which Fair Market Value is
<PAGE>
7
determined. In the event quotations for the Common Stock are not available for
each day during the twenty-consecutive day period provided above, then Fair
Market Value shall be determined based upon the first twenty days (which need
not be consecutive) preceding the day as of which Fair Market Value is to be
determined for which quotations are available, provided such twenty day period
does not extend past fifty business days from the date as of which Fair Market
Value is to be determined.
(B) If the Company is not a public company, Fair Market Value shall equal the
fair market value per share of the Common stock of the Company, as determined by
the Board of Directors of the Company in good faith. If the Holder objects to
the Board's determination of Fair Market Value, such objection to be given
within ten Business Days of receipt of such valuation, Fair Market Value shall
be determined by an Independent financial Expert, as provided herein.
"HOLDER" shall have the meaning set forth in the first
paragraph of this Warrant.
"INDEPENDENT FINANCIAL EXPERT" shall mean an independent
valuation or appraisal firm (i) selected jointly by the Board of Directors of
the Company and the Holder as having appropriate experience in valuations of the
nature required and (ii) which certifies that it does not (and the directors and
officers of which do not) have a material direct or indirect financial interest
in either the Company or the valuation. If the Board and the Holder do not agree
upon the selection of the Independent Financial Expert, an Independent Financial
Expert solicited by each of the Board and the Holder shall jointly select a
third Independent Financial Expert. the valuation agreed upon by two of the
three Independent Financial Experts shall be conclusive and binding upon the
parties. If any final determination of Fair Market Value hereunder by an
Independent Financial Expert is not greater than 10% of the original valuation
presented to the Holder by the board, the fees of all Independent Financial
Experts involved in the valuation shall be paid by the Holder; otherwise, such
fees shall be paid by the Company.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and any successor Federal statute, and the rules and regulations of the
Securities and Exchange Commission (or its successor) thereunder, all as the
same shall be in effect from time to time.
"TRANSFER" shall include any sale, transfer, assignment or
other disposition of this Warrant or any Warrant Shares, or of any interest
thereof, which would constitute a sale of either thereof within the meaning of
the Securities Act.
<PAGE>
8
"WARRANT SHARES" shall have the meaning set forth in the first
paragraph of this Warrant.
Dated: November 30, 1999
DEAN & DELUCA, INC.
By: /s/ DANE J. NELLER
--------------------------
Name: Dane J. Neller
Title: President
<PAGE>
9
EXHIBIT A
REGISTRATION RIGHTS
1. REGISTRATION ON REQUEST.
1.1 REQUEST. Upon a written request from a Holder of Registrable
Securities (the "Requesting Party") to the Company, requesting that the Company
effect the registration under the Securities Act of all or part of the
Requesting Party's Registrable Securities and specifying the intended method or
methods of disposition thereof, the Company will promptly, but in any event
within 10 Business Days, give written notice of such requested registration to
all holders of Registrable Securities and thereupon will use its best efforts to
effect the registration under the Securities Act of:
(a) First, the Registrable Securities which the Requesting Party
has requested the Company to register for disposition in accordance with the
intended method or methods of disposition stated in the Requesting Party's
request, and
(b) Second, all other Registrable Securities which the Company has
been requested to register by the holders thereof by written request delivered
to the Company within five Business Days after the giving of such written notice
by the Company, in accordance with Section 2.
1.2 LIMITATIONS.
(a) The Company shall not be required to effect any registration
pursuant to this Section 1 until one year after the Company has effected an
underwritten initial public offering of its common stock,
(b) If the Company shall have previously effected a registration
pursuant to this Section 1, the Company shall not be required to effect another
registration pursuant to this Section 1 at the request of the same Requesting
Party until a period of 180 days shall have elapsed from the effective date of
the most recent such previous registration,
(c) The Company shall not be required to effect more than two
registrations pursuant to this Section 1 of the request of the same Requesting
Party;
(d) if at the time of a request pursuant to Section 1(a) the
Company has authorized or
<PAGE>
10
taken steps with a view to effecting a registration under the Securities Act for
an underwritten public offering, whether or not pursuant to Section 1(a), (the
"Pending Offering"), the Company need not take any action pursuant to that
request until 180 days after the registration statement for the Pending Offering
becomes effective under the Securities Act or, if no registration statement is
filed for the Pending Offering within 90 days after such request, 91 days after
such request; and
(e) The Company shall not be required to effect any registration
pursuant to this Section 1 if all Registrable Securities proposed to be sold
thereunder by the Requesting Party are eligible for public sale at that time
without registration (including, but not limited to, sales pursuant to Rule 144
under the Securities Act).
1.3 SELECTION OF UNDERWRITERS. Whenever a registration is
requested pursuant to Section 1 hereof, the Requesting Holder shall have the
right to select the managing underwriter to administer the offering subject to
the approval of the Company, such approval not to be unreasonably withheld.
1.4 TRANSFEREES. The rights granted under this Section 1 shall
inure to the transferee of more than 50% of the Registrable Securities then held
by the transferor.
2. PIGGYBACK REGISTRATIONS.
2.1 RIGHT TO PIGGYBACK. Whenever the Company proposes to register
any of its securities under the Securities Act on a registration form that may
be used for the registration of Registrable Securities (a "Piggyback
Registration"), the Company will, not later than the first Business Day
following the filing of such registration form, give prompt written notice
thereof to all holders of Registrable Securities and will include in such
registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within five Business Days after
the Company's notice is given.
2.2 PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback
Registration is in connection with an underwritten primary registration on
behalf of the Company and other stockholders, and the managing underwriters
advise the Company in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number which can be
sold in an orderly manner in such offering within a price range acceptable to
the Company, the Company will include in such registration (i) first, the
securities the Company proposes to sell and (ii) second the Registrable
Securities requested to be included therein and other securities requested to be
included in such registration, pro rata among the holders of such securities on
the basis of the number of securities so requested to be included therein.
2.3 PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback
Registration is in connection with an underwritten secondary registration on
behalf of holders of the Company's securities, and the managing underwriters
advise the Company in writing that in their opinion the number of securities
<PAGE>
11
requested to be included in such registration exceeds the number which can be
sold in an orderly manner in such offering within a price range acceptable to
the holders initially requesting such registration, the Company will include in
such registration (i) first, the securities requested to be included therein by
the holders initially requesting such registration, pro rata among the holders
of such securities on the basis of the number of securities so requested to be
included therein, and (ii) second, any other Registrable Securities and other
securities requested to be included in such registration, pro rata among the
holders of such securities on the basis of the number of securities so requested
to be included therein.
2.4 HOLDBACK AGREEMENTS. Each holder of Registrable Securities
agrees not to effect any public sale or distribution (including, but not limited
to, sales pursuant to Rule 144 under the Securities Act) of equity securities of
the Company, or any securities convertible into or exchangeable or exercisable
for such securities (collectively, "Equity Securities"), during the seven days
prior to and the 90-day period (or such longer period, not to exceed 180 days in
the aggregate, as the managing underwriter may request) beginning on the
effective date of any underwritten registration in which Registrable Securities
are included or any Applicable Registration (the "Holdback Period") except as
part of such underwritten registration, unless the underwriters managing the
registered public offering otherwise agree in writing. An "Applicable
Registration" is any underwritten registration if any of the securities included
in such registration are to be sold on behalf of the Company or on behalf of
Holdback Stockholders; and a "Holdback Stockholder" is any person party to or
entitled to the benefits of any registration rights or similar agreement with
the Company.
3. REGISTRATION PROCEDURES. Whenever the holders of Registrable
Securities have requested that any Registrable Securities be included in a
registration statement pursuant to this Agreement, the Company will use its best
efforts to effect the registration and the sale of such Registrable Securities
in accordance with the intended method of disposition thereof, provided that the
Company may at any time delay or abandon the underlying registration (with the
consent of the Requesting Party in the case of a registration pursuant to
Section 1) without any liability to the holders of Registrable Securities. The
Company will:
(a) prepare and file with the Securities and Exchange Commission
a registration statement (or an amendment to a registration statement) with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective;
(b) furnish to each seller of Registrable Securities such number
of copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by such seller;
(c) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other
<PAGE>
12
acts and things which may be reasonably necessary or advisable to enable such
seller to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that the Company will not be required
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject itself
to taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction);
(d) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company will prepare
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading;
(e) cause all such Registrable Securities to be listed on each
securities exchange or automated quotation system on which similar securities
issued by the Company are then listed;
(f) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(g) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter attorney,
accountant or agent in connection with such registration statement, subject to
receipt of such confidentiality undertakings which Company may reasonably
require; and
(h) otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Company's first full calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder.
4. REGISTRATION EXPENSES. All expenses incident to the Company's
performance of or compliance with this Exhibit A, including, without limitation,
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery expenses,
and fees and disbursements of counsel for the Company, all independent certified
public accountants and other
<PAGE>
13
Persons retained by the Company (all such expenses being herein called
"Registration Expenses"), will be paid by the Company, except the holders of
Registrable Securities in any event will pay the fees and disbursements of their
counsel and any underwriting discounts or commissions with respect to the
Registrable Securities.
5. INDEMNIFICATION.
In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder will furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, will indemnify the Company, its
directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is based upon and in conformity with any
information or affidavit so furnished in writing by such holder expressly for
use therein.
The Company agrees to indemnify, to the extent permitted by law, each
holder of Registrable Securities, its officers and directors and each Person who
controls such holder (within the meaning of the Securities Act) against all
losses, claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of material fact required
to be stated therein or necessary to make the statements therein not misleading,
except insofar as the same are based upon and in conformity with any information
furnished in writing to the Company by such holder expressly for use therein or
by such holder's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto after the Company has
furnished such holder with a sufficient number of copies of the same. In
connection with an underwritten offering, the Company will indemnify such
underwriters, their officers and directors and each Person who controls such
underwriters (within the meaning of the Securities Act) to the same extent as
provided above with respect to the indemnification of the holders of Registrable
Securities.
Any Person entitled to indemnification hereunder will (i) give prompt
written notice to the indemnifying party of any claim with respect to which it
seeks indemnification and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. If such defense is assumed, the indemnifying party will not
be subject to any liability for any settlement made by the indemnified party
without its consent (but such consent will not be unreasonably withheld). An
indemnifying party who is not
<PAGE>
14
entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel selected by all
parties indemnified by such indemnifying party to represent such indemnified
parties with respect to such claim.
The indemnification provided for under this Agreement will remain in
full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party and will survive the transfer of securities.
6. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No holder of Registrable
Securities may participate in any registration hereunder which is underwritten
unless such holder (a) agrees to sell such Registrable Securities on the basis
provided in any underwriting arrangements approved by the Company and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements (which may include indemnification and contribution
provisions which differ from those set forth in Section 4).
7. DEFINITIONS.
"BUSINESS DAY" means any day that is not a Saturday or
Sunday or a day on which banks located in the City of New York are authorized or
required to be closed.
"COMPANY" means Dean & DeLuca, Inc., a Delaware
corporation.
"REGISTRABLE SECURITIES" means (i) the Warrant Shares
issued or issuable upon exercise of a Warrant and (ii) any Common Stock issued
or issuable with respect to the securities referred to in clause (i) above by
way of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization. As to
any particular Registrable Securities, such securities continue to be
Registrable Securities as long as they have been sold pursuant to a private
transaction and are not eligible for public sale without registration
(including, but not limited to, sales pursuant to Rule 144 under the Securities
Act). For purposes of this Agreement, a Person will be deemed to be a holder of
Registrable Securities and such Registrable Securities will be deemed to be in
existence whenever such Person has the right to acquire such Registrable
Securities directly or indirectly (upon conversion or exercise of any security,
warrants or options), whether or not such acquisition has actually been
effected.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"WARRANT" means the warrant dated November 30, 1999
issued by the Company to Dane J. Neller as trustee for the Samantha Lauren Rudd
Gift Trust and any new warrant issued pursuant to Section 1.2 thereof.
<PAGE>
15
Unless otherwise stated, other capitalized terms
contained herein have the meanings set forth in the Warrant.
<PAGE>
Exhibit 10.13
DEAN & DELUCA, INC.
1999 STOCK OPTION PLAN
AS ADOPTED ON NOVEMBER 29, 1999
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant. Stock Purchase
Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees
as shall be administering the Plan in accordance with Section 4 hereof.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are
granted under the Plan.
(c) "CAUSE" shall mean (a) an Optionee's willful engagement in
conduct which is injurious to the Company or any Subsidiary or gross negligence
or misconduct in the performance of Optionee's duties as determined by the Board
in its reasonable discretion, (b) an Optionee's theft or misappropriation of
funds of the Company or any Subsidiary, (c) an Optionee's conviction of, or plea
of nolo contendere to, a felony or, if involving moral turpitude, a misdemeanor
or (d) the Optionee's causing the Company or any Subsidiary to violate a
material local, state or federal law. If the Optionee has entered into an
employment agreement with the Company on or after the date of grant of an
Option, the Board in its discretion may substitute with respect to the Optionee
the definition of "cause" set forth in such agreement for this definition.
(d) "BOARD" means the Board of Directors of the Company.
(e) "CODE" means the Internal Revenue Code of 1986, as
amended.
(f) "COMMITTEE" means a committee of Directors appointed by
the Board in accordance with Section 4 hereof.
(g) "COMMON STOCK" means the Common Stock of the Company.
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(h) "COMPANY" means Dean & Deluca, Inc., a Delaware
corporation.
(i) "CONSULTANT" means any person who is engaged by the
Company or any Parent or Subsidiary to render consulting or advisory services to
such entity.
(j) "DIRECTOR" means a member of the Board of Directors of the
Company.
(k) "DISABILITY" means total and permanent disability as
defined in Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety (90)
days, unless reemployment upon expiration of such leave is guaranteed by statute
or contract. If reemployment upon expiration of a leave of absence approved by
the Company is not so guaranteed, on the 181st day of such leave any Incentive
Stock Option held by the Optionee shall cease to be treated as an Incentive
Stock Option and shall be treated for tax purposes as a Nonstatutory Stock
Option. Neither service as a Director nor payment of a director's fee by the
Company shall be sufficient to constitute "EMPLOYMENT" by the Company.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
THE WALL STREET JOURNAL or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for the
Common Stock on the last market trading day prior to the day of determination;
or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(o) "INCENTIVE STOCK OPTION" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
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(p) "NONSTATUTORY STOCK OPTION" means an Option not intended
to qualify as an Incentive Stock Option.
(q) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "OPTION" means a stock option granted pursuant to the
Plan.
(s) "OPTION AGREEMENT" means a written or electronic agreement
between the Company and an Optionee evidencing the terms and conditions of an
individual Option grant. The Option Agreement is subject to the terms and
conditions of the Plan.
(t) "OPTION EXCHANGE PROGRAM" means a program whereby
outstanding Options are exchanged for Options with a lower exercise price.
(u) "OPTIONED STOCK" means the Common Stock subject to an
Option or a Stock Purchase Right.
(v) "OPTIONEE" means the holder of an outstanding Option or
Stock Purchase Right granted under the Plan.
(w) "PARENT" means a "PARENT CORPORATION," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(x) "PLAN" means this 1999 Stock Option Plan.
(y) "RESTRICTED STOCK" means shares of Common Stock acquired
pursuant to a grant of a Stock Purchase Right under Section 11 below.
(z) "SECTION 16(B)" means Section 16(b) of the Securities
Exchange Act of 1934, as amended.
(aa) "SERVICE PROVIDER" means an Employee, Director or
Consultant.
(bb) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 12 below.
(cc) "STOCK PURCHASE RIGHT" means a right to purchase Common
Stock pursuant to Section 11 below.
(dd) "SUBSIDIARY" means a "SUBSIDIARY CORPORATION," whether
now or hereafter existing, as defined in Section 424(f) of the Code.
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3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of Shares which may be subject to
option and sold under the Plan is 1,077,320 Shares. The Shares may be authorized
but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). However, Shares that have actually been issued under the Plan, upon
exercise of either an Option or Stock Purchase Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Board or a Committee
appointed by the Board, which Committee shall be constituted to comply with
Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of
the Plan and, in the case of a Committee, the specific duties delegated by the
Board to such Committee, and subject to the approval of any relevant
authorities, the Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and
Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine the number of Shares to be covered by
each such award granted hereunder;
(iv) to approve forms of agreement for use under the
Plan;
(v) to determine the terms and conditions, of any Option
or Stock Purchase Right granted hereunder. Such terms and conditions include,
but are not limited to, the exercise price, the time or times when Options or
Stock Purchase Rights may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or Stock Purchase Right or
the Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vi) to determine whether and under what circumstances
an Option may be settled in cash under subsection 9(e) instead of Common Stock;
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(vii) to reduce the exercise price of any Option to the
then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option has declined since the date the Option was granted;
(viii) to initiate an Option Exchange Program;
(ix) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;
(x) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by Optionees
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable; and
(xi) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
(b) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(c) Neither the Plan nor any Option or Stock Purchase Right
shall confer upon any Optionee any right with respect to continuing the
Optionee's relationship as a Service Provider with the Company, nor shall it
interfere in any way with his or her right or the Company's right to terminate
such relationship at any time, with or without cause.
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6. TERM OF PLAN. The Plan shall become effective upon its adoption by
the Board. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 14 of the Plan.
7. TERM OF OPTION. The term of each Option shall be stated in the
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. In the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant or such shorter term as may be provided
in the Option Agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued
upon exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time
of grant of such Option, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the exercise price shall be no less than 110% of the Fair Market
Value per Share on the date of grant.
(B) granted to any other Employee, the per
Share exercise price shall be no less than one hundred percent (100) % of the
Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a Service Provider who, at
the time of grant of such Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the exercise price shall be no less than one hundred ten (110%)
of the Fair Market Value per Share on the date of the grant.
(B) granted to any other Service Provider,
the per Share exercise price shall be no less than eighty five percent (85%) of
the Fair Market Value per Share on the date of grant.
(iii) Notwithstanding the foregoing, Options may be
granted with a per Share exercise price other than as required above pursuant to
a merger or other corporate transaction.
(b) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of
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(1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case
of Shares acquired upon exercise of an Option, have been owned by the Optionee
for more than six (6) months on the date of surrender, and (y) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which such Option shall be exercised, (5) consideration
received by the Company under a cashless exercise program implemented by the
Company in connection with the Plan, or (6) any combination of the foregoing
methods of payment. In making its determination as to the type of consideration
to accept, the Administrator shall consider if acceptance of such consideration
may be reasonably expected to benefit the Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any
Option granted hereunder shall be exercisable according to the terms hereof at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement, but in no case at a rate of less than 20% per
year over five (5) years from the date the Option is granted. Unless the
Administrator provides otherwise, vesting of Options granted hereunder shall be
tolled during any unpaid leave of absence. An Option may not be exercised for a
fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an
Optionee ceases to be a Service Provider due to termination by the Company
without Cause, such Optionee may exercise his or her Option within such period
of time as is specified in the Option Agreement (of at least thirty (30) days)
to the extent that the Option is vested on the date of termination (but in no
event later than the expiration of the term of the Option as set forth in the
Option Agreement). If an Optionee ceases to be a Service Provider due to
termination by the Company for Cause, or the voluntary resignation by Optionee,
all Options held by Optionee will expire upon such termination. In the absence
of a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the
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Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a
Service Provider as a result of the Optionee's Disability, the Optionee may
exercise his or her Option within such period of time as is specified in the
Option Agreement (of at least six (6) months) to the extent the Option is vested
on the date of termination (but in no event later than the expiration of the
term of such Option as set forth in the Option Agreement). In the absence of a
specified time in the Option Agreement, the Option shall remain exercisable for
twelve (12) months following the Optionee's termination. If such disability is
not a "DISABILITY" as such term is defined in Section 22(e)(3) of the Code, in
the case of an Incentive Stock Option such Incentive Stock Option shall
automatically cease to be treated as an Incentive Stock Option and shall be
treated for tax purposes as a Nonstatutory Stock Option on the day three months
and one day following such termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(d) DEATH OF OPTIONEE. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (of at least six (6) months) (but in no event later than
the expiration of the term of such Option as set forth in the Notice of Grant),
by the Optionee's estate or by a person who acquires the right to exercise the
Option by bequest or inheritance, but only to the extent that the Option is
vested on the date of death. In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee's termination. If, at the time of death, the Optionee is not vested
as to his or her entire Option, the Shares covered by the unvested portion of
the Option shall immediately revert to the Plan. The Option may be exercised by
the executor or administrator of the Optionee's estate or, if none, by the
person(s) entitled to exercise the Option under the Optionee's will or the laws
of descent or distribution. If the Option is not so exercised within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time offer
to buy out for a payment in cash or Shares, an Option previously granted, based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
10. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Options
and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
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11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically of the terms, conditions and
restrictions related to the offer, including the number of Shares that such
person shall be entitled to purchase, the price to be paid, and the time within
which such person must accept such offer. The terms of the offer shall comply in
all respects with Section 260.140.42 of Title 10 of the California Code of
Regulations. The offer shall be accepted by execution of a Restricted Stock
purchase agreement in the form determined by the Administrator.
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine, but in no case at a rate of less than 20% per year
over five years from the date of purchase.
(c) OTHER PROVISIONS. The Restricted Stock purchase agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have rights equivalent to those of a shareholder
and shall be a shareholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action
by the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The
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conversion of any convertible securities of the Company shall not be deemed to
have been "EFFECTED WITHOUT RECEIPT OF CONSIDERATION." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option or Stock Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until fifteen (15) days prior to
such transaction as to all of the Optioned Stock covered thereby, including
Shares as to which the Option would not otherwise be exercisable. In addition,
the Administrator may provide that any Company repurchase option applicable to
any Shares purchased upon exercise of an Option or Stock Purchase Right shall
lapse as to all such Shares, provided the proposed dissolution or liquidation
takes place at the time and in the manner contemplated. To the extent it has not
been previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option and Stock Purchase Right
shall be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option or Stock Purchase
Right shall terminate upon the expiration of such period. For the purposes of
this paragraph, the Option or Stock Purchase Right shall be considered assumed
if, following the merger or sale of assets, the option or right confers the
right to purchase or receive, for each Share of Optioned Stock subject to the
Option or Stock Purchase Right immediately prior to the merger or sale of
assets, the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
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13. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option or Stock Purchase Right is so granted within a reasonable time after the
date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time
amend, alter, suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Board shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to Options
granted under the Plan prior to the date of such termination.
15. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to
the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares shall comply with Applicable Laws and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise
of an Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
16. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
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17. RESERVATION OF SHARES. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under Applicable Laws.
19. INFORMATION TO OPTIONEES AND PURCHASERS. The Company shall provide
to each Optionee and to each individual who acquires Shares pursuant to the
Plan, not less frequently than annually during the period such Optionee or
purchaser has one or more Options or Stock Purchase Rights outstanding, and, in
the case of an individual who acquires Shares pursuant to the Plan, during the
period such individual owns such Shares, copies of annual financial statements.
The Company shall not be required to provide such statements to (i) key
employees whose duties in connection with the Company assure their access to
equivalent information, or (ii) Optionee's who are no longer Service Providers.
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EXHIBIT 10.18
LEASE AGREEMENT
THIS LEASE AGREEMENT, made effective the 1st day of September, 1997,
by and between, LESLIE G. RUDD ("Landlord") and DEAN & DELUCA BRANDS, INC., a
Delaware corporation ("Tenant").
WITNESSETH:
WHEREAS, Landlord is the owner of certain real property, as described
below, upon which has been constructed a building containing approximately
32,100 square feet of office and warehouse space as shown on the detailed plans
and specifications set forth on Exhibit "A" (the "Building") for lease to
Tenant; and
WHEREAS, Landlord desires to lease to Tenant and Tenant desires to lease
from Landlord the entire real property including the Building.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties do hereby agree as follows:
ARTICLE 1
DEMISED PREMISES - TERM OF LEASE
Section 1.01. DESCRIPTION OF THE DEMISED PREMISES - Landlord hereby
demises and leases to Tenant, and Tenant hereby hires and leases from Landlord,
the property located at 2526 East 36th Street North Circle, Wichita, Kansas
67209, more particularly described as:
Lot 1, Block B, Northridge Industrial Park, City of Wichita, Sedgwick
County, Kansas
together with the exclusive right to use all buildings, parking areas,
driveways, sidewalks, walkways, and other improvements and facilities located on
and at the property, together with all the right, title and interest, if any, of
Landlord in and to any easements or other rights in adjoining property enuring
to Landlord by reason of ownership of said property (collectively the "Demised
Premises").
Section 1.02. INITIAL TERM - The initial term of this Lease ("Initial
Term") shall commence on September 1, 1997 (the "Commencement Date"), and unless
sooner terminated or renewed in accordance with this Lease, shall expire twenty
(20) years after the Commencement Date (the "Expiration Date").
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ARTICLE 2
RENT
Section 2.01. BASE RENTAL AMOUNT - Commencing on the Commencement Date and
continuing through the full term of this Lease, Tenant shall pay to Landlord in
the manner and at the address specified in Section 2.03 hereof, or such other
place as designated in writing by Landlord during the term hereof, a net annual
rent, hereinafter called "Net Rent" over and above the other payments to be made
by Tenant as hereinafter provided, in the amount of One Hundred Thirty-Seven
Thousand Four Hundred Sixty-Seven Dollars and Sixty Five Cents ($137,467.75),
calculated at ten percent (10%) of $1,374,677.52, which amount represents the
total cost of the following items:
(a) the aggregate consideration paid by Landlord to acquire the
Demised Premises, including, without limitation, any mortgage registration
taxes and recording charges, legal fees, charges for title searches, title
insurance, survey costs, and all other out-of-pocket costs directly
related to the acquisition; and
(b) the aggregate construction cost of the Building on the Demised
Premises, including, without limitation, interest, contractor's charges
and fees, architect's fees, insurance costs, legal fees and all other
out-of-pocket costs directly related to the construction.
The Net Rent shall be payable in equal monthly installments ("Monthly
Rent") in the amount of Eleven Thousand Four Hundred Fifty-Five Dollars and
Sixty-Five Cents ($11,455.65) (or such increased amount as herein provided)
each. The first Monthly Rent shall be payable in advance on or before the first
day of the first full calendar month of the Lease term and continuing on or
before the same day of each successive calendar month thereafter during the term
of this Lease, except that the Monthly Rent for the period, if any, between the
Commencement Date and the first full calendar month shall be paid on or before
the Commencement Date. The Monthly Rent for any period during the term of this
Lease which is for less than one (1) month shall be prorated based on a thirty
(30) day month.
Section 2.02. ADJUSTMENT TO MONTHLY RENT - The Monthly Rent provided in
Section 2.01 shall be adjusted as follows:
(a) The Monthly Rent shall be adjusted on the third (3rd) calendar
anniversary of the Commencement Date and on the same date every three (3)
years thereafter for the remaining term of this Lease, in proportion to
the increase in the Index (as defined below) which has occurred between
the month immediately preceding the month in which the Commencement Date
occurs (the "Base CPI Month") and the month immediately preceding the
month in which the Monthly Rent is to be increased (a "Comparison CPI
Month"). Landlord shall notify Tenant of each increase by delivering a
written statement setting forth the Index for the Base CPI Month, the
Index for the applicable Comparison CPI Month, the percentage increase
between those two Indices, and the new Monthly Rent payable by Tenant. The
Monthly Rent shall not be reduced from the last previous adjusted Monthly
Rent by reason of any decrease in the Index. If Landlord's notice is given
after the effective date of an increase, Tenant shall nevertheless be
obligated to pay the new Monthly Rent from its effective date until the
next periodic increase. In such event, within ten (10) days of Landlord's
notice, Tenant shall pay Landlord the additional Monthly Rent for the
period between the effective date of the increase and Landlord's notice,
and thereafter shall pay the new Monthly Rent on or before the first day
of each month as provided in Section 2.01.
(b) The term "Index" means the United States Department of Labor,
Bureau of Labor Statistics, Consumer Price Index - Urban Consumers (U.S.
City Average) on the basis of 1982-84 = 100. If the format or components
of the Index are materially changed after the execution of this Lease,
Landlord shall substitute an index which is published by the Bureau of
Labor Statistics, or a similar agency, and which in Landlord's judgment,
is equivalent to the Index in effect on the date of this Lease. Landlord
shall notify Tenant of the substituted index, which shall be used to
calculate the increase in the Monthly Rent.
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Section 2.03. PLACE OF PAYMENT - Until Tenant shall have been given notice
otherwise by Landlord under the provisions of Article 17 hereof, Tenant shall
pay the Net Rent to Landlord at c/o LRICO, 314 South Galena, Aspen, Colorado
81611.
Section 2.04 LATE CHARGE - The Monthly Rent shall be past due on the tenth
(10th) day of each successive month. If the Tenant should fail to pay the
Landlord when due any installment of rental or other sum to be paid hereunder,
Tenant shall pay Landlord on demand a late charge of five percent (5%) thereof.
Failure to pay such late charge upon demand therefor shall be an event of
default hereunder. Provisions for such late charge shall be in addition to all
other rights and remedies available to Landlord hereunder or at law or in equity
and shall not be construed as liquidated damages or limiting Landlord's remedies
in any manner; further provided that such late charge shall automatically accrue
notwithstanding whether Landlord shall have given Tenant written notice of any
such delay in payment.
Section 2.05. NET RENT - It is the purpose and intent of Landlord and
Tenant that this is a net lease and that the Net Rent shall, except as herein
otherwise provided, be absolutely net to Landlord, the Net Rent specified in
Section 2.01 hereof in each year during the term of this Lease, and that all
costs, expenses and obligations of every kind and nature whatsoever relating to
the Demised Premises, except as herein otherwise provided, which may arise or
become due during or out of the term of this Lease shall be paid by Tenant, and
that Landlord shall be indemnified and saved harmless by Tenant from and against
the same.
Section 2.06. NO SET-OFF - The Net Rent, together with any additional
rents, all other sums, impositions (as defined in this document), costs,
expenses and other payments which Tenant assumes and agrees to pay in any of the
provisions of this Lease, shall be paid to the Landlord without notice, demand,
abatement, deduction or set-off. In the event of any nonpayment thereof, the
Landlord shall have (in addition to all other rights and remedies) all of the
rights and remedies provided for herein or by law in the case of nonpayment of
the Net Rent.
Section 2.07. ACCORD AND SATISFACTION - No payment by Tenant or receipt by
Landlord of a lesser amount then the Monthly Rent or any other charge or fee
stipulated in this Lease shall be deemed to be other than on account of the
earliest stipulated rent, fee or other charge, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment be deemed
as creating an accord and satisfaction, and Landlord may accept such a check or
payment without prejudice to Landlord's right to recover the balance of the
rent, fee or charge or pursue any other remedy provide for in this Lease.
Section 2.08. CONTINGENT RENT - Notwithstanding anything herein to the
contrary, in addition to the annual Net Rent provided above, beginning on the
Commencement Date and continuing through the full term of this Lease, an
additional contingent rent equal to twenty percent (20%) of the Monthly Rent
shall accrue for the benefit of Landlord (the "Contingent Rent"). The Contingent
Rent shall bear simple interest (computed on the basis of a 360-day year, 30 day
month) on the accumulated balance thereof, at a rate of seven percent (7%) per
annum. In the event of an initial public offering of Tenant's common stock (the
"D&D Common Stock"), Landlord shall be paid in cash or cash equivalents, the
Contingent Rent and the interest accrued thereon to the date of such public
offering, within five (5) days thereof, or at Landlord's option, Landlord shall
have a right to convert the Contingent Rent and the interest accrued thereon to
the date of such public offering into D&D Common Stock. The Contingent Rent
shall continue to accrue after the date of the public offering during the
remainder of the full term of this Lease and be payable to Landlord in cash at
the same time and in the same manner as the Net Rent. Tenant shall give Landlord
written notice of its intent to make an initial public offering of the D&D
Common Stock at least sixty (60) days prior to such public offering. Landlord
shall notify Tenant in writing of his intent to accept cash or exercise said
conversion right within thirty (30) days after receipt of such notice from
Tenant. The conversion shall take place on such date as is mutually agreeable to
both parties after considering applicable securities laws and regulations, but
in no event shall the date of conversion be more than one hundred eighty (180)
days after such initial public offering of the D&D Common Stock unless an
extension of time is granted by Landlord, in his sole discretion. The conversion
price per share shall be the initial offering price on the date of the initial
public offering
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of the D&D Common Stock. If at any time during the term of this Lease the Tenant
sells all or substantially all of its assets or dissolves, liquidates or winds
up its affairs, merges, reorganizes, consolidates, or combines its assets with
those of another unrelated or unaffiliated corporation, or if the holders of
substantially all of the D&D Common Stock exchange such stock for stock or
securities or property of another unrelated or unaffiliated corporation, the
Landlord shall be entitled to receive immediately the Contingent Rent and
interest accrued thereon to the date of such event as described herein, in cash
or cash equivalents; provided, however, if at the expiration of the Lease
including any renewal terms, Tenant has not made an initial public offering of
D&D Common Stock, and none of the events described herein have occurred, then
Tenant shall not be obligated to pay to Landlord the Contingent Rent or the
interest thereon.
Section 2.09. RIGHT TO SELL THE DEMISED PREMISES - Notwithstanding
anything herein to the contrary, in addition to the annual Net Rent and
Contingent Rent provided above, beginning on the Commencement Date and
continuing each month thereafter until such time, if any, as Tenant makes an
initial public offering of its common stock ("D&D Common Stock"), Landlord shall
have a right, but not the obligation, to sell the Demised Premises to the Tenant
at its fair market value, as determined by an independent appraiser, on the date
of such public offering. In the event of any dispute as to the determination of
said fair market value that cannot be resolved by the parties, such dispute
shall be resolved by arbitration, with Landlord or Landlord's legal
representative, appointing one independent arbitrator, Tenant appointing one
independent arbitrator, and these two arbitrators appointing a third independent
arbitrator, and with the decision of the majority of such arbitrators to be
binding on all parties hereto. Tenant shall give Landlord written notice of its
intent to make an initial public offering of the D&D Common Stock at least sixty
(60) days prior to such public offering. Landlord shall notify Tenant in writing
of his intent to exercise said right to sell the Demised Premises within two
hundred forty (240) days after receipt of such notice from Tenant. The close on
the sale shall take place on such date as is mutually agreeable to both parties
after considering applicable securities laws and regulations, but in no event
shall the date of close be more than one hundred eighty (180) days after such
initial public offering of the D&D Common Stock unless an extension of time is
agreed to by the parties. The purchase price shall be paid in cash or D&D Common
Stock at the sole option of the Landlord. In the event the Landlord elects to
receive D&D Common Stock, the price per share shall be the initial offering
price on the date of the initial public offering of the D&D Common Stock. If at
any time during the term of this Lease the Tenant sells all or substantially all
of its assets or dissolves, liquidates or winds up its affairs, merges,
reorganizes, consolidates, or combines its assets with those of another
unrelated or unaffiliated corporation, or if the holders of substantially all of
the D&D Common Stock exchange such stock for stock or securities or property of
another unrelated or unaffiliated corporation, the Landlord shall be entitled to
immediately sell the property to Tenant or its successor in interest, for cash
or cash equivalents; provided, however, if at the expiration of the Lease
including any renewal terms, Tenant has not made an initial public offering of
D&D Common Stock, and none of the events described herein have occurred, then
Tenant shall not be obligated to purchase the Demised Premises.
ARTICLE 3
PAYMENT OF TAXES, ASSESSMENTS, IMPOSITIONS, ETC.
Section 3.01. TENANT'S OBLIGATIONS - Tenant shall pay or cause to be paid
before any fine, penalty, interest or cost may be added thereto for the
nonpayment thereof, all taxes, assessments, water and sewer rents, rates and
charges, levies, license and permit fees and other governmental impositions,
duties and charges, general and special, ordinary and extraordinary, foreseen
and unforeseen, of any kind and nature whatsoever, which at any time during the
term of this Lease may be assessed, levied, confirmed, imposed upon, or grow or
become due and payable out of or in respect of, or become a lien on, the Demised
Premises, or any part thereof or any appurtenance thereto (all such taxes,
assessments, water and sewer rents, rates and charges, levies, license and
permit fees and other governmental charges being hereinafter referred to as
"Impositions," and any of the same being hereinafter referred to as an
"Imposition"); provided, however, that:
(a) If, by law, any Imposition may at the option of the payer be
paid in installments, Tenant may pay the same in such installments. Tenant
shall pay only such installments as shall become due during the term of
this Lease; and
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(b) All Impositions for the fiscal or tax years in which the term of
this Lease shall begin and end shall be apportioned so that Tenant shall
pay only those portions thereof which correspond with the portion of said
years as are within the terms hereby demised.
The obligation of the Tenant attributable to the Demised Premises shall
apply whether any tax, charge or any other Imposition referred to above is
imposed, during the Lease term or any extension of the term, by virtue of any
present or future laws, rules requirements, orders, directions, ordinances or
regulations of the United States of America, or of the State of Kansas, or of
the county, city government, any other municipal or lawful authority wherein the
Demised Premises is located.
Section 3.02. LANDLORD'S OBLIGATIONS - Nothing herein contained shall
require Tenant to pay municipal, state or federal income taxes assessed against
Landlord, municipal, state or federal capital levy, or transfer taxes of
Landlord or corporation excess profits or franchise taxes imposed upon any
corporate owner of the fee of the Demised Premises, or any income, profits or
revenue tax, assessment or charge imposed upon rent as such, payable by Tenant
under this Lease.
Section 3.03. EVIDENCE OF PAYMENT - Tenant shall furnish to Landlord or,
if required by Landlord, to any fee mortgagee, within thirty (30) days after the
date when any Imposition would become delinquent, official receipts of the
appropriate taxing authority or other evidence satisfactory to Landlord or such
mortgagee evidencing the payment thereof.
Section 3.04. TENANT'S RIGHT TO SEEK REDUCTION - Tenant shall be
privileged to seek a reduction in the valuation of the Demised Premises for tax
purposes and to contest in good faith by appropriate proceedings, at Tenant's
expense, the amount or validity in whole or in part of any Imposition.
Section 3.05. LANDLORD'S RIGHT TO SEEK REDUCTION - Landlord shall have a
right to seek a reduction in the valuation of the Demised Premises assessed for
tax purposes and to prosecute any action or proceeding theretofore commenced by
Tenant, if such assessed valuation or valuations shall in whole or in part
relate and pertain to any period of time subsequent to the expiration or
termination of this Lease. To the extent to which any tax refund payable as a
result of any proceeding in the nature of certiorari which Landlord or Tenant
may institute, or payable by reason of compromise or settlement of any such
proceeding, may be based upon a payment made by anyone other than Landlord and
shall not relate to a period as to which apportionment thereof has been made
with Landlord, Tenant shall be authorized to collect the same subject, however,
to Tenant's obligation to reimburse Landlord forthwith for any expense incurred
by Landlord in connection therewith.
Section 3.06. LANDLORD'S JOINDER - Landlord shall not be required to join
in any proceedings referred to in Section 3.04 hereof unless the provisions of
any law, rule or regulation at the time in effect shall require that such
proceedings be brought by or in the name of Landlord or any owner of the Demised
Premises, in which event Landlord shall join in such proceedings or permit the
same to be brought in his name. Landlord shall not ultimately be subjected to
any liability for the payment of any costs or expenses in connection with any
such proceedings, and Tenant shall indemnify and save harmless Landlord from any
such costs and expenses. Tenant shall be entitled to any refund of any
Imposition and penalties or interest thereon received by Landlord which have
been paid by Tenant, or which have been paid by Landlord but previously
reimbursed in full by Tenant.
Section 3.07. PROOF OF PAYMENT - The certificate, advice, receipt or bill
of the appropriate official designated by law to make or issue the same or to
receive payment of any Imposition, or nonpayment of such Imposition, shall be
prima facie evidence that such Imposition is due and unpaid or has been paid at
the time of the making or issuance of such certificate, advice, receipt or bill.
Section 3.08. ATTORNEY-IN-FACT - Landlord appoints Tenant the
attorney-in-fact of Landlord for the purpose of making all payments to be made
by Tenant pursuant to any of the provisions of this Lease to persons or entities
other than Landlord. In case any person or entity to whom any sum is directly
payable by Tenant under any
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of the provisions of this Lease shall refuse to accept payment of such sum from
Tenant, Tenant shall thereupon give written notice of such fact to Landlord and
shall pay such sum directly to Landlord, and Landlord shall thereupon pay such
sum to such person or entity.
Section 3.09. UTILITIES - Tenant shall procure for its own account, and
shall pay when due, the cost of all water, sewer, gas, electrical power, heat,
fuel, telephone and other services consumed in or at the Demised Premises.
ARTICLE 4
SURRENDER
Section 4.01. SURRENDER - Except as herein otherwise provided, Tenant
shall on the last day of the term or upon any earlier termination of this Lease
well and truly surrender and deliver up the Demised Premises to the possession
and use of Landlord without fraud or delay, free and clear of all lettings and
occupancies, and free and clear of all liens and encumbrances, other than those,
if any, presently existing, and in the same physical condition as existing at
the Commencement Date, reasonable wear and tear excepted. Title to all leasehold
improvements on the Demised Premises shall remain in the Tenant until expiration
or termination of this Lease, at which time all such improvements shall become
the property of Landlord.
Section 4.02. FIXTURES - Where furnished by or at the expense of Tenant or
any subtenant, furniture, trade fixtures and business equipment may be removed
by Tenant at or prior to the termination of this Lease or by such subtenant at
or prior to the termination of its sublease; provided, however, that the removal
thereof will not injure the Demised Premises or necessitate changes in or
repairs to the same. Tenant shall pay or cause to be paid to Landlord the cost
of repairing any damage arising from such removal and restoration of the Demised
Premises to their condition prior to such removal.
Section 4.03. PERSONAL PROPERTY - Any personal property of Tenant or any
subtenant which shall remain in the Demised Premises after the termination of
this Lease and the removal of Tenant or such subtenant from the Demised
Premises, may, at the option of Landlord, be deemed to have been abandoned by
Tenant or such subtenant, and either may be retained by Landlord as his property
or be disposed of, without accountability, in such manner as Landlord may see
fit; or if Landlord shall give written notice to Tenant to such effect, such
property shall be removed by Tenant at Tenant's sole cost and expense. If this
Lease shall terminate pursuant to Article 15 hereof, then, notwithstanding
Sections 4.02 and 4.03 hereof, Tenant or any subtenant shall have a reasonable
time thereafter to remove any property which it shall be entitled to remove
pursuant to Section 4.02 hereof.
Section 4.04. HOLDING OVER - In the event Tenant continues to occupy the
Demised Premises after the last day of the term or any extended term of this
Lease, and the Landlord elects to accept rent thereafter, a tenancy from month
to month only shall be created and not for any longer period. Such tenancy shall
be upon the same terms and conditions as set forth in this Lease as would be
applicable thereto and the rent shall be at the same rate as the rent for the
last month of the term of this Lease. Nothing is this Article 4 shall be deemed
to permit Tenant to retain possession of the Demised Premises after the
expiration or sooner termination of the Lease.
Section 4.05. LANDLORD'S RIGHT TO ENTRY - Landlord, and those persons
authorized by Landlord shall have the right to enter the Demised Premises at all
reasonable times and upon reasonable notice for the purpose of showing the same
to prospective purchasers and/or mortgagees. Further, during the last six (6)
months of the Initial Term or of the Renewal Term, Landlord and those persons
authorized shall have the right at reasonable times and upon reasonable notice
to show the Demised Premises to prospective tenants. Landlord's entry to the
Demised Premises shall not, under any circumstances, be deemed to be a forcible
or unlawful entry into, or a detainer of, the Demised Premises, or an eviction
of Tenant from the Premises or any portion thereof.
Section 4.06. SURVIVAL - The provisions of this Article 4 shall survive
any termination of this Lease.
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ARTICLE 5
INSURANCE
Section 5.01. HAZARD INSURANCE - At all times during the term of this
Lease, Tenant, at its sole cost and expense, shall maintain in effect a policy
or policies of insurance on the improvements on the Demised Premises with
responsible insurers satisfactory to Landlord, on an "all risk" or "special
form" basis, insuring the improvements in an amount equal to 100% of the
replacement cost thereof, excluding land, foundations, footing and underground
installations. During the term hereof, Tenant further agrees that it will suffer
nothing to remain on or about the Demised Premises which may invalidate such
insurance on any part thereof.
Section 5.02. OTHER INSURANCE - At all times during the term of this
Lease, Tenant, at its sole cost and expense, shall maintain for the mutual
benefit of Landlord and Tenant, general public liability insurance, against
claims for bodily injury, death or property damage occurring upon, in or about
the Demised Premises and on, in or about the adjoining sidewalks and passageways
(including, without limitation, personal injury, death or property damage
resulting directly or indirectly from any change, alteration, improvements or
repair thereof) with a combined single limit equal to One Million Dollars
($1,000,000.00). Said amounts to be periodically adjusted at least every two (2)
years to reflect any necessary coverage changes to comport with inflationary or
deflationary trends.
Section 5.03. EVIDENCE OF INSURANCE - All insurance provided for in this
Article 5 shall be effected under valid and enforceable policies issued by
insurers of recognized responsibility and satisfactory to Landlord. Upon the
execution of this Lease and thereafter not less than fifteen (15) days prior to
the expiration dates of the expiring policies theretofore furnished pursuant to
this Article 5, originals of the policies (or, in the case of general public
liability insurance, certificates of the insurers) bearing notations evidencing
the payment of premiums or accompanied by other evidence satisfactory to
Landlord of such payment, shall be delivered by Tenant to Landlord.
Section 5.04. NO OTHER INSURANCE - Except with respect to the insurance
required by Section 5.02 hereof, neither Landlord nor Tenant shall take out
separate insurance concurrent in form or contributing in the event of loss with
that required in this Article 5 to be furnished by, or which may reasonably be
required to be furnished by Tenant unless Landlord and Tenant are included
therein as the insured, with loss payable as in this Lease provided. Each party
shall immediately notify the other of the placing of any such separate insurance
and shall cause the same to be delivered as in Section 5.03 hereof required.
Section 5.05. ADJUSTMENT OF LOSSES - All policies of insurance provided
for in Sections 5.01 and 5.02 hereof shall name Landlord and any mortgagee, when
requested, as the interest of any such mortgagee may appear, by standard
mortgagee clause, if obtainable. In case of any particular casualty resulting in
damage or destruction not exceeding Ten Thousand Dollars ($10,000.00) in the
aggregate, the loss under such policies shall be adjusted by Tenant and the
insurance companies and shall be payable to Tenant. In case of such damage or
destruction in excess of Ten Thousand Dollars ($10,000.00), the loss shall be
adjusted with the insurance companies by Tenant and Landlord, and the proceeds
of any such insurance, as so adjusted, shall be payable to a bank or trust
company in the city of Wichita, Kansas, selected by Tenant and Landlord, willing
to act hereunder as a depository, which bank or trust company shall be
authorized to disburse said insurance proceeds to Tenant as the work for the
restoration of the Demised Premises progresses in accordance with Section 5.8
hereof.
All such policies shall provide that the loss, if any, thereunder shall be
adjusted and paid as herein above provided. Each such policy shall, to the
extent obtainable, contain a provision that no act or omissions of Tenant or any
sublessee shall affect or limit the obligation of the insurance company so to
pay the amount of any loss sustained.
Section 5.06. NOTICE TO LANDLORD AND MORTGAGEES - Each such policy or
certificate therefor issued by the insurer shall, to the extent obtainable,
contain an agreement by the insurer that such policy shall not be canceled
without at least ten (10) days' prior written notice to Landlord and to any
mortgagee named therein.
Section 5.07. UNEARNED PREMIUMS - Upon the expiration of this Lease, the
unearned premiums upon any such transferable insurance policies shall be
apportioned if Tenant shall not then be in default in the performance of any of
Tenant's agreements, terms, covenants and conditions in this Lease provided.
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Section 5.08. RESTORATION - In the event any of the improvements on the
Demised Premises are damaged or destroyed, Tenant shall restore the Demised
Premises and the improvements, or shall cause the same to be restored, in
accordance with the plans and specifications for the original improvements on
the Demised Premises, subject to changes reasonably acceptable to Landlord. Such
reconstruction shall be paid for with funds received from the insurers of the
Demised Premises, and Tenant shall have no obligation to pay for any such
restoration or reconstruction except by use of such funds received from such
insurers. Tenant shall furnish to Landlord plans for reconstruction and repair
of the improvements within sixty (60) days after the occurrence of any casualty
and shall post a reasonable bond to ensure such restoration and commence the
repair and reconstruction thereof within thirty (30) days thereafter in
accordance with said plans with due diligence. In the event that any of the
insurance monies paid by the insurance companies to either Landlord or a
depository, with respect to the Demised Premises and improvements as herein
above provided, shall remain after the completion of such restoration, the
excess shall be retained by, or paid to, Tenant or as it may direct for it own
account.
Section 5.09. COOPERATION - Landlord and Tenant each agree that it will
cooperate with the other, to such extent as such other party may reasonably
require, in connection with the prosecution or defense of any action or
proceeding arising out of, or for the collection of, the collection of any
insurance money that may be due in the event of any loss or damage; and that it
will execute and deliver to such other party such instruments as may be required
to facilitate the recovery of any insurance monies, but the costs and expenses
of all such actions and proceedings shall be paid by Tenant.
Section 5.10. MORTGAGEES - All insurance maintained and required to be
maintained by Tenant hereunder shall provide for Landlord's mortgagees'
requirements as to amount, form, content and carrier. The term "mortgagees," as
used in this Lease, shall include the trustee and beneficiary under any
applicable deed of trust.
Section 5.11. BLANKET INSURANCE - Any insurance required to be provided by
Tenant pursuant to this Lease may be provided by blanket insurance covering the
Demised Premises and other locations of Tenant provided such blanket insurance
complies with all of the other requirements of this Lease with respect to the
insurance involved.
ARTICLE 6
LANDLORD'S RIGHTS
TO PERFORM TENANT'S COVENANTS
Section 6.01. LANDLORD'S RIGHTS - If Tenant shall at any time fail to pay
any Imposition in accordance with the provisions of Article 3 hereof, or to take
out, pay for, maintain or deliver any of the insurance policies or certificates
therefor as provided for in Article 5 hereof, or shall fail to make any other
payment or perform any other act on its part to be made or performed, then
Landlord, after ten (10) days notice to Tenant (or without notice in case of an
emergency) and without waiving or releasing Tenant from any obligation of Tenant
contained in this Lease, or from any default by Tenant and without waiving
Landlord's right to take such action as may be permissible under this Lease as a
result of such default, may (but shall be under no obligation to):
(a) Pay any Imposition payable by Tenant pursuant to the
provisions of Article 3 hereof; or
(b) Take out, pay for and maintain any of the insurance policies
provided for in Article 5 hereof; or
(c) Make any other payment or perform any other act on Tenant's part
to be made or performed as in this Lease provided,
and may enter upon the Demised Premises for any such purpose and take all such
action thereon as may be necessary therefor.
All sums so paid by Landlord and all costs and expenses incurred by
Landlord in connection with the performance of any such act shall constitute
additional rent payable by Tenant under this Lease and shall be paid by
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Tenant to Landlord on demand, together with interest at fifteen percent (15%)
per annum from the date of such advancement.
ARTICLE 7
REPAIRS AND MAINTENANCE; WASTE; RIGHT OF INSPECTION
Section 7.01. CONDITION OF DEMISED PREMISES - The Demised Premises shall
be delivered to Tenant in an "as is" and "all faults" condition and Landlord
shall have no obligation whatsoever to alter, remodel, improve, repair, decorate
or paint the Demised Premises or any part thereof during the term of this Lease
except to the extent expressly provided herein. By accepting possession of the
Demised Premises, Tenant shall be deemed to have acknowledged that the Demised
Premises are suitable for its purposes and in good condition and repair. Tenant
acknowledges and agrees that it has inspected, or prior to the Commencement Date
will inspect, the Demised Premises and that Tenant is not relying on any
representations or warranties made by Landlord regarding the Demised Premises,
except as may be expressly set forth herein.
Section 7.02. REPAIRS AND MAINTENANCE - Throughout the term of this Lease,
Tenant, at its sole cost and expense, shall take good care of the Demised
Premises, all alleyways and passageways and the sidewalks adjoining the same,
and shall keep the same in good order and condition, except for reasonable wear
and tear, and make all necessary repairs thereto, interior and exterior,
structural and nonstructural, ordinary and extraordinary, and foreseen and
unforeseen. All repairs made by Tenant shall be at least equal in quality and
class to the original work. Tenant shall do or cause others to do all necessary
shoring of foundations and walls of any structures on the Demised Premises and
every other act or thing for the safety and preservation thereof which may be
necessary by reason of any excavation or other building operation upon any
adjoining property or street, alleyway or passageway. Tenant shall put, keep and
maintain all portions of the Demised Premises, the sidewalks, curbs, alleyways
and passageways adjoining the same in a clean and orderly condition, free of
dirt, rubbish, snow, ice and unlawful obstructions.
Section 7.03. ALTERATIONS AND ADDITIONS - Tenant shall not make or permit
to be made any alterations, additions or improvements (singularly and
collectively "Alterations") to or of the Demised Premises or any part thereof
without the prior written consent of Landlord in each instance. However,
Landlord's consent shall not be required for minor decorations of the Demised
Premises such as wall coverings and wall hangings, built-in cabinetry and
moveable partitions, nor for the installation of furnishings. Any Alterations
which Tenant shall make or permit to be made shall comply with all laws. Tenant,
at its expense shall obtain all necessary permits and certificates for the
commencement and performance of Alterations and for final approval thereof upon
completion, and shall cause the Alterations to be performed in compliance
therewith and with all applicable insurance requirements, and in good,
first-class and workman like manner. Tenant, at its expense, shall diligently
cause the cancellation or discharge of all notices of violation arising from or
otherwise connected with Alterations, or any other work, labor, services or
materials done for or supplied to Tenant, or by any person claiming through or
under Tenant. Throughout the performance of the Alterations, Tenant, at its
expense, shall carry, or cause to be carried, in addition to the insurance
described in Article 5, Workers' Compensation insurance in statutory limits and
such other insurance as Landlord may reasonably require, with insurers
reasonably satisfactory to Landlord. Tenant shall furnish Landlord with
satisfactory evidence that such insurance is in effect at or before the
commencement of the Alterations and, upon request, at reasonable intervals
thereafter until completion of the Alterations.
Section 7.04. NO WASTE - Tenant shall not do or suffer any waste or
damage, disfigurement or injury to the Demised Premises, or any part thereof,
but this shall not be deemed to prevent demolition or alteration pursuant to
other provisions of this Lease.
Section 7.05. RIGHT OF INSPECTION - Tenant shall permit Landlord and his
authorized representatives to enter the Demised Premises at all reasonable times
for the purposes of:
(a) Inspecting the same; and
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(b) Making all necessary repairs thereto and performing any work
therein that may be necessary by any reason of Tenant's failure to make
any such repairs, or perform any such work, or to commence the same ten
(10) days after written notice from Landlord (or without notice in the
case of emergency). Nothing herein shall imply any duty upon the part of
Landlord to do any such work, and performance thereof by Landlord shall
not constitute a waiver of Tenant's default in failing to perform the
same.
Landlord's entry to the Demised Premises shall not, under any circumstances, be
deemed to be a forcible or unlawful entry into, or a detainer of, the Demised
Premises, or an eviction of Tenant from the Demised Premises or any portion
thereof.
ARTICLE 8
COMPLIANCE WITH LAWS, USE OF PROPERTY
Section 8.01. COMPLIANCE WITH LAWS - Tenant shall not use, or allow the
use, or allow the Demised Premises to be used for any unlawful purpose, or in
violation of any certificate of occupancy covering or affecting the use of the
Demised Premises, or any part thereof, which may, in law, constitute a nuisance,
public or private, or which may make void or voidable any insurance then in
force with respect thereto. Tenant shall have the right to contest, by
appropriate legal proceedings, without cost or expense to Landlord, the validity
of any law, ordinance, order, rule, regulation or requirement affecting the
Demised Premises and to postpone compliance with the same; provided, such
contest shall be promptly and diligently prosecuted by and at the expense of
Tenant, that Landlord shall not thereby suffer any civil or be subject to any
criminal penalties or sanctions, and that Tenant shall properly protect and save
harmless Landlord against any liability and claims for any such noncompliance.
Section 8.02. LANDLORD'S TITLE - Tenant shall not suffer or permit the
Demised Premises, or any portion thereof, to be used by the public, as such,
without restriction or in such manner as might reasonably tend to impair
Landlord's title to the Demised Premises, or any portion thereof, or in such
manner as might reasonably make possible a claim or claims of adverse usage,
adverse possession or prescription by the public, as such or of implied
dedication, of the Demised Premises, or any portion thereof. Tenant hereby
acknowledges that Landlord does not hereby consent, expressly or by implication,
to the unrestricted use or possession of the whole or any portion of the Demised
Premises by the public, as such.
Section 8.03. SIGNS - Tenant shall have the right to install, maintain and
replace, in, on or over, or in front of the Demised Premises, such signs and
advertising matter as Tenant may desire, and Tenant shall comply with all the
applicable requirements of governmental authorities having jurisdiction thereof
and shall obtain any and all necessary permits for such purposes. As used
herein, the word "sign" shall be construed to include any placard, light or
other advertising symbol or object, irrespective of whether the same is
temporary or permanent.
ARTICLE 9
OPTION TO RENEW LEASE
Section 9.01. OPTION TO RENEW INITIAL TERM - At the expiration of the
Initial Term of this Lease, provided that Tenant is not in default hereunder,
Tenant shall have the right and option to renew this Lease for one (1)
additional consecutive period of five (5) years (the "Renewal Term"). Such
Renewal Term shall commence as of the end of the Initial Term of this Lease. If
Tenant shall desire to exercise its right and option with respect to the Renewal
Term, it shall give Landlord notice of the intent to renew in writing not less
than twelve (12) months prior to the expiration of the Initial Term. Upon such
exercise, the Term of the Lease shall automatically be extended for the Renewal
Term without the execution of any further instrument by the parties; provided
that Landlord and Tenant shall, if requested by either party, execute and
acknowledge an instrument confirming the exercise of the Renewal Term. The
failure of the Tenant to give such notice to Landlord in writing during the time
period, shall be conclusively deemed as an election by the Tenant not to renew
and extend the Term of this Lease. Any and all reference herein to the term of
the Lease shall include any renewal period exercised hereunder.
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ARTICLE 10
DISCHARGE OF LIENS
Section 10.01. DISCHARGE - Tenant shall not create or permit to be created
or to remain, and shall discharge any mechanic's, laborer's or materialman's
lien, or any conditional sale, title retention agreement, or chattel mortgage
which might be or become a lien, encumbrance or charge upon the Demised
Premises, or any part thereof, having any priority or preference over or ranking
on a parity with the estate, rights and interest of Landlord in the Demised
Premises, or any part thereof.
Section 10.02. RIGHT TO CONTEST - If any mechanic's, laborer's or
materialman's lien shall at any time be filed against the Demised Premises, or
any part thereof, Tenant, within sixty (60) days after notice of the filing
thereof, shall cause the same to be discharged of record by payment, deposit,
bond, order of a court of competent jurisdiction or otherwise; provided,
however, nothing herein shall be construed as preventing Tenant from contesting
the validity thereof, and it shall not be deemed to be an event of default
hereunder so long as Tenant is in the process of good faith negotiations or
litigation so contesting such validity.
Section 10.03. NO CONTEST - Nothing contained in this Lease shall be
deemed or construed in any way as constituting the consent or request of
Landlord, express or implied by inference or otherwise, to any contractor,
subcontractor, laborer or materialman for the performance of any labor or the
furnishing of any material for any specific improvement, alteration to or repair
of the Demised Premises, or any part thereof.
ARTICLE 11
ENVIRONMENTAL
Section 11.01. PRESENCE AND USE OF HAZARDOUS SUBSTANCES - Tenant shall
not, without Landlord's prior written consent, keep on or around the Demised
Premises for use, disposal, treatment, generation, storage or sale, any
substances designated as, or containing components designated as hazardous,
dangerous, toxic or harmful (collectively referred to as "Hazardous
Substances"), and/or any substance that is subject to regulation by and then
current federal, state or local law, statute or ordinance and the rules and
regulations implementing them, including, but not limited to, the Resources
Conservation and Recovery Act (42 U.S.C. ss. 6901 et seq.); the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. ss. 9601 et
seq.); the Clean Water Act (33 U.S.C. ss. 1251 et seq.); the Clean Air Act (42
U.S.C. ss. 7401 et seq.); the Toxic Substance Control Act (15 U.S.C. ss. 2601 et
seq.); and the Hazardous Material Transportation Act (49 U.S.C. ss. 1801 et
seq.). With respect to such Hazardous Substance, Tenant shall:
(a) Comply promptly, timely and in all material respects with all
governmental requirements for reporting keeping and submitting manifests,
and obtaining and keeping current identification numbers, and submit to
Landlord true and correct copies of all reports, manifests and
identification numbers at the same time as thereby are required to be
and/or are submitted to the appropriate governmental authorities; and
(b) Within ten (10) days of Landlord's request, submit written
reports to Landlord regarding Tenant's use, storage, treatment,
transportation, generation, disposal or sale of Hazardous Substances and
provide evidence satisfactory to Landlord of Tenant's compliance with the
applicable government regulations; and
(c) Allow Landlord or Landlord's agent or representative to come on
the Demised Premises at all reasonable times and after reasonable notice
to check Tenant's compliance with all applicable governmental regulations
regarding Hazardous Substances; and
(d) Comply with minimum levels, standards or other performance
standards or requirements which may be set forth or established for
certain Hazardous Substances (if minimum standards or levels are
applicable to Hazardous Substances present on the Demised Premises, such
levels or standards shall be
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established by an on-site inspection by the appropriate governmental
authorities and shall be set forth in an addendum to the Lease; and
(e) Comply with all applicable governmental rules, regulations and
requirements regarding the proper and lawful use, sale, transportation,
generation, treatment and disposal of Hazardous Substances; and
(f) Pay to Landlord upon demand as additional rent any and all costs
reasonably incurred by Landlord and associated with Landlord's inspection
of the Demised Premises pursuant to this Section and Landlord's monitoring
of Tenant's compliance with this Article 11, including, but not limited
to, Landlord's reasonable attorneys' fees and costs, payment of which
expenses shall only be due if incurred by Landlord after Landlord's having
reasonable belief that Tenant is not in compliance with this Article 11
and Landlord's having communicated notice of noncompliance to Tenant with
Tenant having failed to comply, or commence compliance within ten (10)
days of receipt of such notice from Landlord.
Section 11.02. UNAUTHORIZED RELEASE OF HAZARDOUS SUBSTANCES CLEANUP COSTS,
DEFAULT AND INDEMNIFICATION - Tenant agrees as follows:
(a) Tenant shall give immediate written notice to Landlord of any
release, spill, discharge or threatened discharge of any Hazardous
Substance at the Demised Premises or surrounding environment, in which
said release was not made pursuant to or in conformance with the terms of
any permit or license issued to Tenant by the appropriate governmental
authority. This notice shall include a description of measures taken or
proposed to be taken by Tenant to contain and/or remedy the release and
any resultant damage to property, persons, the Demised Premises and/or the
environment. Tenant shall also give immediate written notice to Landlord
of any private or governmental investigation relating to Hazardous
Material on or about the Demised Premises.
(b) At Tenant's own expense, Tenant shall promptly take all steps
necessary to contain and remedy any release of Hazardous Substances to or
in the Demised Premises or surrounding environment, and all resultant
damage or injury to property, person, and the environment. Landlord shall
have the right, but not the obligation, to participate in and approve any
environmental assessment or remedial cleanup plan for the Demised
Premises. Tenant, its employees, agents and contractors shall fully
cooperate with any and all federal, state and local governmental officials
having jurisdiction over the Demised Premises in resolving any situation
referring to the presence of Hazardous Substances on or about the
Premises.
(c) Tenant shall be fully and completely liable to Landlord for any
and all cleanup costs, and any an all other charges, fees penalties (civil
and criminal) imposed by any governmental authority with respect to
Tenant's use, generation, handling, storage, containment, disposal,
transportation, and/or sale of Hazardous Substances.
(d) Tenant shall indemnify, defend and save Landlord harmless from
any and all of the costs, fees, penalties and charges assessed against or
imposed upon Landlord (as well as Landlord's attorneys' fees and costs) as
a result of Tenant's use, generation, handling, storage, containment,
disposal, transportation, and/or sale of Hazardous Substances. With regard
to Sections 11.01 and 11.02, Tenant's obligations hereunder shall survive
the expiration or earlier termination of this Lease. Upon Tenant's default
under Sections 11.01 or 11.02, and in addition to the rights and remedies
set forth elsewhere in this Lease, Landlord shall be entitled to the
following rights and remedies: (i) at Landlord's option, to terminate this
Lease immediately; and (ii) to recover any and all damages associated with
the default, including, but not limited to cleanup costs and charges,
civil and criminal penalties and fees, loss of business by Landlord, and
any and all damages and claims asserted by third parties and Landlord's
attorneys' fees and costs.
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ARTICLE 12
INDEMNIFICATION OF LANDLORD
12.01. INDEMNIFICATION - Tenant shall defend, indemnify and save harmless
Landlord against and from all liabilities, obligations, damages, penalties,
claims, costs, charges and expenses, including, but not limited to, reasonable
architects' and attorneys' fees, which may be imposed upon, or incurred by, or
asserted against Landlord (except as the same may be incurred by reason of
Landlord's negligence) by reason of any of the following occurrences during the
term of this Lease:
(a) Any work or thing done in, on or about the Demised Premises, or
any part thereof, by Tenant or any party other than Landlord;
(b) Any use, nonuse, possession, occupation, conditions, operation,
maintenance or management of the Demised Premises, or any part thereof, or
any alley, sidewalk, passageway or space adjacent thereto;
(c) Any negligence on the part of Tenant or any of its agents,
contractors, servants, employees, subtenants, licensees or invitees;
(d) Any accident, injury or damage to any person or property
occurring in, on or about the Demised Premises, or any part thereof, or
any alley, sidewalk, curb, vault, passageway or space adjacent thereto;
(e) Any failure on the part of Tenant to perform or comply with any
of the covenants, agreements, terms, provisions, conditions or limitations
contained in this Lease on its part to be performed or complied with.
In case any action or proceeding is brought against Landlord by reason of
any such claim, Tenant, upon written notice from Landlord, shall at Tenant's
expense resist or defend such action or proceeding by counsel approved by
Landlord in writing, which approval Landlord agrees not unreasonably to
withhold. If Tenant has supplied Landlord with insurance policies covering any
of the aforementioned risks, no claim shall be made against Tenant unless and
until the insurer shall fail or refuse to defend and/or pay all or any part
thereof.
ARTICLE 13
CONDEMNATION
This Article 13 shall apply if all or any part of the Demised Premises is
taken or conveyed under appropriation proceedings or by any right of eminent
domain, including a conveyance in lieu thereof.
Section 13.01. TOTAL TAKING - If all of the Demised Premises is so taken
or conveyed, then this Lease shall terminate as of the date that the authority
exercising the right of eminent domain shall be entitled to take possession and
subject to Section 13.04. The entire compensation or award paid shall be
allocated as follows, notwithstanding any other allocation that might be made by
the condemning authority:
(a) To Landlord, the then fair market value of the land and
improvements, subject to the terms of this Lease; and
(b) To Tenant, the balance of the award.
Section 13.02. PARTIAL TAKING - If only a part of the Demised Premises is
so taken or conveyed, this Lease shall continue in full force and effect as to
the portion of the Demised Premises remaining after such taking or conveyance
and subject to Section 13.03, the entire compensation or award paid:
(a) To Landlord, the then fair market value of the land and
improvements, subject to the terms of this Lease; and
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(b) To Tenant, the balance of the award.
Section 13.03. RENTAL REDUCTION - If a partial taking or conveyance does
not result in termination of this Lease, then the Net Rent shall be reduced by
an amount which bears the same proportion the Net Rent immediately prior to the
partial taking as the rental value of the part of the Demised Premises so taken
bears to the rental value of the whole Demised Premises immediately prior to
such taking.
Section 13.04. RIGHT TO CONSENT - Tenant and Landlord may prosecute and
defend any condemnation or appropriation proceedings for the adjudication of
taking of the Demised Premises and compensation due therefor, in Landlord's name
or in Tenant's name, or both if Landlord so desires. Tenant shall be entitled to
prosecute and defend any condemnation or appropriation proceedings for the
adjudication of taking of Tenant's property and to receive compensation in
Landlord's name or in Tenant's own name, or both, and Tenant shall be entitled
to retain, free and clear of any interest or claim of Landlord, the entire
compensation or award allocable to Tenant and for the value of Tenant's business
and for costs of removal or relocation thereof. The entire award received in
connection with any condemnation or appropriation proceeding, including
conveyance in lieu thereof, shall be distributed and applied:
(a) To the costs of obtaining compensation, including attorneys'
fees of Landlord and Tenant;
(b) To Landlord for the value of Landlord's interest as herein above
provided for; and
(c) The balance to Tenant for the value of Tenant's interest as
herein above provided for, including the value of Tenant's business and
for costs of removal or relocation thereof.
ARTICLE 14
ASSIGNMENTS, MORTGAGES AND
SUBLEASES OF TENANT'S INTEREST
Section 14.01. ASSIGNMENT - Tenant and its successors and assigns shall
not have the right to assign this Lease without the prior written approval of
Landlord, which approval shall not be unreasonably withheld.
Section 14.02. SUBLETTING - Tenant and Tenant's successors and assigns
shall have the right to sublet the Demised Premises, in whole or in part,
subject to prior written approval of said subletting by Landlord, which approval
shall not be unreasonably withheld, but only for the term or terms which shall
expire prior to the expiration of the term hereby granted or a renewal thereof,
insofar as such renewal shall have been exercised and provided that each such
sublease shall be subject and subordinate to the rights of Landlord hereunder.
Section 14.03. NON-DISTURBANCE - Subject to the further provisions of this
Section, Landlord agrees to not unreasonably refuse to execute an agreement,
hereinafter referred to as a "non-disturbance agreement," with such subtenants
who shall first have executed the non-disturbance agreement. The term of any
such sublease shall not extend beyond the then current or renewed term of this
Lease.
Section 14.04. NO RELEASE OF TENANT - Notwithstanding the granting of
Landlord's consent, no sale, conveyance, mortgage, pledge, subletting,
assignment or other transfer or encumbrance of this Lease or the Demised
Premises shall release or alter Tenant's primary liability to pay rent and
perform all of its other obligations hereunder. The acceptance of rent by
Landlord from any person other than Tenant shall not be a waiver by Landlord of
any provision hereof. Consent to one assignment or subletting shall not be
deemed a consent to any subsequent assignment or subletting. If any assignee or
successor of Tenant defaults in the performance of any of the terms hereof,
Landlord may proceed directly against Tenant without proceeding against or
exhausting his remedies against the assignee or successor. After any assignment,
sublease or other transfer or encumbrance, Landlord may consent to subsequent
assignments, subleases, transfers or encumbrances, or amendments to this Lease,
without notifying Tenant or any other person, without obtaining consent thereto,
and without relieving Tenant of liability under this Lease.
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ARTICLE 15
CONDITIONAL LIMITATIONS - DEFAULT PROVISIONS
Section 15.01. EVENTS OF DEFAULT - If of any one or more of the following
events (herein sometimes called "events of default") shall happen:
(a) If default shall be made in the due and punctual payment of any
Net Rent or additional rent payable under this Lease, or any part thereof,
when and as the same shall become due and payable, and such default shall
continue for a period of ten (10) days after notice from Landlord to
Tenant specifying the items in default, and shall continue thereafter for
a further period of ten (10) days after a second notice from Landlord to
Tenant which shall specify the items in default; or
(b) If default shall be made by Tenant in the performance or
compliance with any of the agreements, terms, covenants or conditions in
the Lease provided other than those referred to in the foregoing paragraph
(a) of this Section for a period of twenty (20 ) days after notice from
Landlord to Tenant specifying the items in default and shall continue
thereafter for a further period of ten (10) days after a second notice
from Landlord to Tenant, or in the case of a default or a contingency
which cannot with due diligence be cured within said last mentioned ten
(10) day period granted to cure the same, Tenant shall fail to prosecute
the curing of such default with due diligence (it being intended in
connection with a default not susceptible of being cured with due
diligence within said last mentioned ten (10) day period that the time of
Tenant within which to cure the same shall be extended for such period as
may be necessary to complete the same with all due diligence);
(c) If, after the commencement of the term of this Lease: (i) the
Tenant then having the title to the leasehold estate created hereunder
shall, while having such title, be adjudicated a bankrupt or adjudged to
be insolvent; (ii) a receiver or trustee shall be appointed for the
aforesaid Tenant's property and affairs; (iii) the aforesaid Tenant shall
make an assignment for the benefit of creditors or shall file a petition
in bankruptcy or insolvency or for reorganization or shall make
application for the appointment of a receiver; or (iv) any execution or
attachment shall be issued against the aforesaid Tenant or any of the
aforesaid Tenant's property, whereby the Demised Premises or any building
or buildings to be taken or occupied by someone other than the aforesaid
Tenant, except as may herein be permitted, and such adjudication,
appointment, assignment, petition, execution or attachment shall not be
set aside, vacated, discharged or bonded within ten (10) days after the
issuance of the same;
then Landlord at any time thereafter may give written notice to Tenant
specifying such event of default or events of default and stating that this
Lease and the term hereby demised shall expire and terminate on the date
specified in such notice. Upon the date specified in such notice, this Lease and
the term hereby demised and all rights of Tenant under this Lease, including any
renewal privileges, whether or not exercised, shall expire and Tenant shall
remain liable as hereinafter provided.
Section 15.02. SURRENDER - Upon any such expiration or termination of this
Lease, Tenant shall quit and peacefully surrender the Demised Premises to
Landlord. Landlord, upon or at any time after any such expiration or
termination, may without further notice enter upon and re-enter the Demised
Premises and possess and repossess himself thereof by force, summary
proceedings, ejectment or otherwise; and Landlord may dispossess Tenant and
remove Tenant and all other persons and property from the Demised Premises and
may have, hold and enjoy the Demised Premises and the right to receive all
rental income of and from the same.
Section 15.03. RELETTING - At any time or from time to time after any such
expiration or termination, Landlord may relet the Demised Premises, or any part
thereof, for such term or terms (which may be greater or less than the period
which would otherwise have constituted the balance of the term of this Lease)
and on such conditions (which may include concessions or free rent and
alteration of the Demised Premises) as Landlord, in his uncontrolled discretion,
may determine and may collect and receive the rents therefor. Landlord shall in
no way be responsible or
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liable for any failure to relet the Demised Premises, or any part thereof, or
for any failure to collect any rent due upon such reletting.
Section 15.04. NO WAIVER - No failure by Landlord to insist upon the
strict performance of any agreement, term, covenant or condition hereof, or to
exercise any right or remedy consequent upon a breach thereof, and no acceptance
of full or partial rent during the continuance of any breach, shall constitute a
waiver of any such breach of such agreement, term, covenant or condition. No
agreement, term, covenant or condition hereof to be performed or complied with
by Tenant, and a breach thereof, shall be waived, altered or modified, except by
a written instrument executed by Landlord. No waiver of any breach shall affect
or alter this Lease, but each and every agreement, term, covenant and condition
hereof shall continue in full force and effect with respect to any other then
existing or subsequent breach thereof.
Section 15.05. RIGHTS CUMULATIVE - No expiration or termination of this
Lease shall relieve Tenant of its liability and obligations under this Lease,
and such liability and obligations shall survive any such expiration or
termination. In the event of any expiration or termination, whether or not the
Demised Premises or any part thereof shall have been relet, Tenant shall pay to
Landlord the Net Rent and all other charges required to be paid by Tenant up to
the time of such expiration or termination of this Lease and thereafter, Tenant,
until the end of what would have been the term of this Lease in the absence of
such expiration or termination, shall be liable to Landlord for, and shall pay
to Landlord, damages for Tenant's default. Such damages may include the
equivalent of the amount of the Net Rent and the other rent and charges which
would be payable under this Lease by Tenant if this Lease were still in effect,
less the net proceeds of any reletting effected pursuant to the provisions of
Section 15.03 hereof, after deducting all Landlord's expenses in connection with
such reletting, including, without limitation, all repossession costs, brokerage
and management commissions, operating expenses, legal expenses, reasonable
attorneys' fees, alteration costs and expenses of preparation for such
reletting.
Section 15.06. REMEDIES CUMULATIVE - Each right and remedy provided for in
this Lease shall be cumulative and shall be in addition to every other right or
remedy provided for in this Lease or now or hereafter existing at law or in
equity or by statute or otherwise, and the exercise or beginning of the exercise
by Landlord or Tenant of any one or more of the rights or remedies provided for
in this Lease or not or hereafter existing at law or in equity or by statute or
otherwise shall not preclude the simultaneous or later exercise by the party in
question of any or all other rights or remedies provided for in this Lease or
now or hereafter existing at law or in equity or by statute or otherwise.
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ARTICLE 16
INVALIDITY OF PARTICULAR PROVISIONS
Section 16.01. SEVERABILITY - If any term or provision of this Lease or
the application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Lease or the application of such
term or provision to persons or circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Lease shall be valid and be enforced to the fullest extent
permitted by law.
ARTICLE 17
NOTICES
Section 17.01. NOTICES - Any and all notices, demands, requests,
submissions, approvals, consents, disapprovals, objections, offers or other
communications or documents required to be given, delivered or served or which
may be given, delivered or served under or by the terms and provisions of this
Lease or pursuant to law or otherwise, shall be in writing and shall be deemed
to have been duly given, delivered or served if and when sent by registered mail
with proper postage prepaid thereon and deposited with the United States Post
Office, addressed to the Tenant at:
Dean & DeLuca Brands, Inc.
560 Broadway
New York, New York 10012
or to such other address as Tenant may from time to time designate by written
notice to Landlord; or if to Landlord, addressed to the Landlord at:
Leslie G. Rudd
c/o LRICO
314 South Galena
Aspen, Colorado 81611
or to such other agent or agents as may be designated by the parties. The date
of deposit shall be deemed to be the date of such service.
ARTICLE 18
QUIET ENJOYMENT
Section 18.01. QUIET ENJOYMENT - Tenant, upon paying the Net Rent and all
additional rent and other charges herein provided for and observing and keeping
all covenants, agreements and conditions of this Lease on its part to be kept,
shall quietly have and enjoy the Demised Premises during the term of this Lease
without hindrance or molestation by anyone claiming by, through or under
Landlord as such, subject, however, to the exceptions, reservations and
conditions of this Lease.
ARTICLE 19
ESTOPPEL CERTIFICATES
Section 19.01. TENANT CERTIFICATE - Tenant shall, without charge, at any
time and from time to time, within ten (10) days after request by Landlord,
certify by written instrument, duly executed, acknowledged and delivered to
Landlord, or any other person, firm or corporation specified by Landlord:
(a) That this Lease is unmodified and in full force and effect, or,
if there have been any modifications, that the same is in full force and
effect as modified and stating the modifications;
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(b) Whether or not there are then existing any set-offs or defenses
against the enforcement of any of the agreements, terms, covenants or
conditions hereof and any modification hereof upon the part of Tenant to
be performed or complied with, and if so, specifying the same;
(c) The dates, if any, to which the Net Rent, additional rent and
other charges hereunder have been paid in advance;
(d) The date of expiration of the current term; and
(e) The Net Rent then payable under this Lease.
Section 19.02. LANDLORD CERTIFICATE - Landlord shall, without charge, at
any time and from time to time, within thirty (30) days after request by Tenant,
certify by written instrument, duly executed, acknowledged and delivered, to the
effect that this Lease is unmodified and in full force and effect (or if there
shall have been modifications, that the same is in full force and effect as
modified and stating the modifications) and the dates to which the Net Rent,
additional rent and other charges have been paid, the date of expiration of the
current term, the Net Rent then payable under this Lease, and stating whether or
not, to the best knowledge of the officer executing such certificate on behalf
of Landlord, Tenant is in default in the performance of any covenant, agreement
or condition contained in this Lease and, if so, specifying each such default of
which the person executing such certificate may have knowledge.
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ARTICLE 20
APPROVALS NOT UNREASONABLY WITHHELD
Section 20.01. CONSENT AND APPROVAL - Where any provision of this Lease
requires the consent or approval of Landlord, Landlord agrees that it will not
unreasonably withhold or delay such consent or approval. Where any provision of
this Lease requires Tenant to do anything to the satisfaction of Landlord,
Landlord agrees that Landlord will not unreasonably refuse to state Landlord's
satisfaction of such action by Tenant.
ARTICLE 21
NO ORAL MODIFICATION
Section 21.01. ENTIRE AGREEMENT; MODIFICATION - All prior understandings
and agreements between the parties are merged within this agreement, which alone
fully and completely sets forth the understanding of the parties; and this Lease
may not be changed or terminated orally or in any manner other than by an
agreement in writing and signed by the party against whom enforcement of the
change or termination is sought.
ARTICLE 22
COVENANTS TO BIND AND BENEFIT
RESPECTIVE PARTIES
Section 22.01. BINDING EFFECT - The covenants and agreements herein
contained shall bind and inure to the benefit of Landlord, his legal
representatives, successors and assigns, and Tenant, its successors and assigns.
ARTICLE 23
WAIVER OF SUBROGATION
Section 23.01. WAIVER OF SUBROGATION - Landlord and Tenant shall each be
released from any liability resulting from damage by fire or casualty
(irrespective of the cause of such fire or casualty), provided only if policies
of insurance carried by Landlord and Tenant so permit.
ARTICLE 24
MEMORANDUM OF LEASE
Section 24.01. MEMORANDUM OF LEASE - This Lease shall not be recorded, but
upon written request of either party, a memorandum of lease describing the
Demised Premises, giving the term of this Lease, and the name and address of the
Landlord and Tenant, referring to this Lease and in form suitable under law as
record notice, shall be properly executed, acknowledged and delivered by
Landlord and Tenant, and such memorandum of Lease may be recorded by either
party.
ARTICLE 25
GENERAL PROVISIONS
Section 25.01. CHOICE OF LAW - This Lease shall be interpreted under and
governed by the laws of the State of Kansas.
Section 25.02. FORCE MAJEURE - In the event that Landlord shall be
delayed, hindered in or prevented from the performance of any act required
hereunder by reason of strikes, lock-outs, labor troubles, inability to procure
materials, failure of power, restrictive governmental laws or regulations,
riots, insurrection, the act, failure to act or default of the other party, war
or other reason beyond his control, then performance of such shall be excused
for the period of the delay and the period for the performance of any such act
shall be extended for a period equivalent to the period of such delay.
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Section 25.03. PRESUMPTIONS - This Lease shall be construed without regard
to any presumption or other rule requiring construction against the party
drafting the document. The Lease shall be construed neither for nor against
Landlord or Tenant, but shall be give reasonable interpretation in accordance
with the plain meaning of its terms and the intent of the parties.
Section 25.04. HEADINGS - The titles to the Articles and Sections of this
Lease are not a part of this Lease and shall have no effect on the construction
or interpretation.
Section 25.05. EXHIBITS - All exhibits and any riders annexed to this
Lease are incorporated herein by this reference.
Section 25.06. MEANING OF TERMS - Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular, and the masculine, feminine and neuter genders shall each include the
others, and the word person shall include corporation, partnerships and other
entities.
Section 25.07. CONVEYANCE OF DEMISED PREMISES - As used herein the term
"Landlord" means only the current owner or owners of the fee title to the
Demised Premises. Upon each conveyance (whether voluntary or involuntary) of the
Demised Premises, the conveying party shall be relieved of all liability under
any and all of its covenants and obligations contained in or derived from this
Lease or arising out of any act, occurrence or omission occurring after the date
of such conveyance. Landlord may sell, assign, convey, encumber or otherwise
transfer all or any potion of his interest in this Lease, the Demised Premises,
the Building or the Land.
Section 25.08. AUTHORITY - Each of the persons executing this Lease on
behalf of Tenant warrant and represent that Tenant is a duly organized and
validly existing corporation, that Tenant has full right and authority to enter
into this Lease and that the persons signing on behalf of Tenant are authorized
to do so and have the power to bind Tenant to this Lease. Tenant shall provide
Landlord upon request with evidence reasonably satisfactory to Landlord
confirming the foregoing representations.
Section 25.09. COUNTERPARTS - This Lease may be executed in one or more
counterparts, all of which, together, shall constitute but one and the same
agreement.
[Signature Page to Follow]
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IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
executed effective as of the date first above written.
"LANDLORD"
/s/ Leslie G. Rudd
------------------------------------
Leslie G. Rudd
"TENANT"
DEAN & DELUCA BRANDS, INC.
By: /s/ Dane J. Neller
-----------------------------
Dane J. Neller, President
<PAGE>
Exhibit 10.19
RETAIL LEASE
between
R & R LAND COMPANY,
as "Lessor"
and
DEAN & DELUCA MARKETS, LLC
as "Lessee"
<PAGE>
TABLE OF CONTENTS
PAGE
RECITALS.......................................................................1
1. PREMISES....................................................................1
2. TERM; POSSESSION............................................................1
2.1 Initial Term............................................................1
2.2 Extension Option........................................................2
3. RENT AND SECURITY DEPOSIT...................................................3
4. APPURTENANT RIGHTS IN COMMON AREA...........................................4
4.1 Additional Rights Granted to Lessee.....................................4
4.2 Parking And Access......................................................4
(a) Available Parking....................................................4
(b) Service Driveways....................................................5
4.3 Restrictions on Development.............................................5
5. USE.........................................................................5
6. IMPROVEMENTS AND ALTERATIONS................................................5
7. ABANDONMENT.................................................................6
8. REPAIRS.....................................................................6
9. LIENS.......................................................................7
10. SUBORDINATION; NON-DISTURBANCE AND ATTORNMENT..............................7
11. COMPLIANCE WITH GOVERNMENTAL REGULATIONS...................................8
12. INDEMNIFICATION; EXCULPATION AND INSURANCE.................................8
12.1 Lessee's Indemnification...............................................8
12.2 Lessor's Indemnification...............................................8
12.3 Exculpation............................................................9
12.4 General................................................................9
12.5 Fire and Casualty Insurance............................................9
12.6 Insurable Interest in Trade Fixtures and Improvements.................10
12.7 Waiver of Subrogation Rights..........................................10
12.8 Survival..............................................................10
13. ADVERTISEMENTS AND SIGNS..................................................11
14. UTILITIES.................................................................11
15. ENTRY BY LESSOR...........................................................12
16. DESTRUCTION OF PREMISES...................................................12
16.1 Lessor's Duty to Repair...............................................12
16.2 Lessor's Right to Terminate...........................................12
16.3 Lessee's Right to Terminate...........................................13
16.4 Waiver of Statutory Provisions........................................13
17. EMINENT DOMAIN............................................................13
17.1 Premises/Ingress and Egress...........................................13
17.2 Restoration of Premises...............................................14
<PAGE>
18. ASSIGNMENT AND SUBLETTING.................................................14
19. INSOLVENCY OR BANKRUPTCY..................................................15
20. LESSOR'S REMEDIES.........................................................15
21. SURRENDER OF LEASE........................................................17
22. ATTORNEY'S FEES...........................................................17
23. NOTICE....................................................................17
24. WAIVER....................................................................17
25. HOLDING OVER..............................................................17
26. SUCCESSORS AND ASSIGNS....................................................17
27. TIME......................................................................17
28. LATE CHARGE...............................................................18
29. LESSOR'S RIGHT OF FIRST REFUSAL TO PURCHASE...............................18
30. QUIET ENJOYMENT...........................................................18
31. COVENANT OF TITLE.........................................................18
32. HAZARDOUS MATERIAL........................................................19
32.1 Lessor's Representations, Warranties and Covenant.....................19
32.2 Lessor's Indemnification Obligation...................................19
32.3 Lessee's Covenant and Indemnification Obligation......................19
32.4 Definition............................................................20
33. MEMORANDUM OF LEASE.......................................................21
34. BROKER'S REPRESENTATION...................................................21
35. FORCE MAJEURE.............................................................21
36. CONDITION OF PREMISES AT TERMINATION......................................21
37. CONSENTS AND APPROVALS....................................................22
38. AUTHORITY.................................................................22
38.1 Lessor's Representations..............................................22
38.2 Lessee's Representations..............................................22
39. ENTIRE AGREEMENT..........................................................22
40. LESSOR'S LIABILITY........................................................22
41. ESTOPPEL CERTIFICATES.....................................................22
42. MISCELLANEOUS.............................................................23
EXHIBIT A: Legal Description of the Land
EXHIBIT B: Plot Plan
EXHIBIT C: Existing Mortgages
EXHIBIT D: Memorandum of Lease
ii
<PAGE>
RETAIL LEASE
THIS RETAIL LEASE ("Lease") is made and entered into this 18th day of
March, 1999, by and between R & R LAND, LLC, a California limited liability
company ("Lessor"), and DEAN & DELUCA MARKETS, LLC, a California limited
liability company, ("Lessee").
RECITALS:
A. Lessor is the owner of certain "Land" (defined below), upon which is
constructed the "Building" (defined below).
B. Lessor desires to lease to Lessee and Lessee desire to lease from
Lessor the entire rentable area of the Building.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, which the parties hereby acknowledge, Lessor and Lessee
hereby agree as follows:
1. PREMISES. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, upon the terms and subject to the conditions of this Lease, the
entire rentable area (the "Premises"), consisting of approximately 15,000
rentable square feet of retail space, in that building, and all appurtenances
thereto, including the bakery use permits as they currently exist, located in
St. Helena, County of Napa, State of California, known for U.S. Postal purposes
as 607 St. Helena Highway South, St. Helena, California (the "Building"), which
Building is located on the certain real property located in Napa County commonly
known as Assessors Parcel No. 027-150-01 and more fully described in EXHIBIT A
attached hereto (the "Land"). The location of the Building on the Land, the
"Common Areas," the "Adjacent Building" (as those terms are defined below),
entrances, exits, driveways, parking areas and service drives are depicted on
the drawing attached hereto as EXHIBIT B.
2. TERM; POSSESSION.
2.1 INITIAL TERM. The initial term of this Lease ("Initial Term")
shall commence on March 18, 1999, (the "Commencement Date") and, unless sooner
terminated, shall expire nine (9) years after the Commencement Date (the
"Expiration Date"). As used in this Lease, "Month" shall mean a calendar month,
except that if the Term begins on a day other than the first day of a calendar
month, the first "month" shall be the period from (and including) the
Commencement Date through (and including) the last day of the calendar month in
which the Commencement Date falls, and if the Term ends on a day other than the
last day of a calendar month, the last "month" shall be the period from (and
including) the first day of the calendar month in which the Term ends through
(and including) the day on which the Term ends. The term "Lease Year" shall mean
each twelve (12) month period from and after the Commencement Date and each
anniversary thereof. If the Commencement Date occurs on a date other than the
first day of a month, the first Lease Year shall include the partial month and
the next twelve (12) full calendar months.
<PAGE>
2.2 EXTENSION OPTION. Provided that Dean & Deluca Markets, LLC has
not assigned this Lease, or sublet any or all of the Premises (it being intended
that all rights pursuant to this provision are and shall be personal to the
original Lessee under this Lease and shall not be transferable or exercisable
for the benefit of any transferee), and provided that Lessee is not in default
under this Lease, Lessee shall have options (each an "Extension Option") to
extend the Term for up to four (4) additional consecutive periods of three (3)
years and thereafter for up to two (2) additional consecutive periods of five
(5) years (each an "Extension Period"), by giving written notice to Lessor of
the exercise of any such Extension Option at least six (6) months, but not more
than twelve (12) months, prior to the expiration of the Initial Term or the
prior Extension Period, as the case may be. The exercise of any Extension Option
by Lessee shall be irrevocable and shall cover the entire Premises leased by
Lessee pursuant to this Lease. Upon such exercise, the Term of the Lease shall
automatically be extended for the applicable Extension Period without the
execution of any further instrument by the parties; provided that Lessor and
Lessee shall, if requested by either party, execute and acknowledge an
instrument confirming the exercise of the Extension Option. The failure of
Lessee to exercise any Extension Option, or the expiration or termination of the
Lease, shall terminate Lessee's right to exercise any subsequent Extension
Option and Lessee shall have no further right to renew or extend this Lease.
Any extension of the Term shall be upon all the terms and conditions
set forth in this Lease and all Exhibits thereto, except that (i) Lessee shall
have no further option to extend the Term of the Lease, other than as
specifically set forth herein; and (ii) Rent for any such Extension Period shall
be equal to the then Fair Market Rent (as defined below) for the Premises for
the space and term involved, which shall be determined as set forth below.
(a) "Fair Market Rent" shall mean the "fair market" Rent at the
time or times in question for the applicable space, based on the prevailing
rentals then being charged to tenants in other retail buildings in the general
vicinity of the Building of comparable size, location, quality and age as the
Building for leases with terms equal to the Extension Period, taking into
account the creditworthiness and financial strength of the tenant, the financial
guaranties provided by the tenant (if any), the value of market concessions
(including the value of construction, renovation, moving and other allowances or
rent credits), the desirability, location in the building, size and quality of
the space, tenant finish allowance and/or tenant improvements, included
services, operating expenses and tax and expense stops or other escalation
clauses, and brokerage commissions, for the space in the Building for which Fair
Market Rent is being determined and for comparable space in the buildings which
are being used for comparison. Fair Market Rent shall also reflect the then
prevailing rental structure for comparable retail buildings in the general
vicinity of the Property, so that if, for example, at the time Fair Market Rent
is being determined the prevailing rental structure for comparable space and for
comparable lease terms includes periodic rental adjustments or escalations, Fair
Market Rent shall reflect such rental structure.
(b) Lessor and Lessee shall endeavor to agree upon the Fair Market
Rent. If they are unable to so agree within thirty (30) days after receipt by
Lessor of Lessee's notice of exercise of the Extension Option, Lessor and Lessee
shall mutually select a licensed real estate broker who is active in the leasing
of retail space in the general vicinity of the
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Property. Lessor shall submit Lessor's determination of Fair Market Rent and
Lessee shall submit Lessee's determination of Fair Market Rent to such broker,
at such time or times and in such manner as Lessor and Lessee shall agree (or as
directed by the broker if Lessor and Lessee do not promptly agree). The broker
shall select either Lessor's or Lessee's determination as the Fair Market Rent,
and such determination shall be binding on Lessor and Lessee. If Lessee's
determination is selected as the Fair Market Rent, then Lessor shall bear all of
the broker's cost and fees. If Lessor's determination is selected as the Fair
Market Rent, then Lessee shall bear all of the broker's cost and fees.
(c) In the event the Fair Market Rent for any Extension Period has
not been determined at such time as Lessee is obligated to pay Rent for such
Extension Period, Lessee shall pay as Rent pending such determination, the Rent
in effect for such space immediately prior to the Extension Period; provided,
that upon the determination of the applicable Fair Market Rent, any shortage of
Rent paid, together with interest at the rate specified in the Lease, shall be
paid to Lessor by Lessee.
(d) In no event shall the Rent during any Extension Period be less
than the Rent in effect immediately prior to such Extension Period.
(e) The term of this Lease, whether consisting of the Initial Term
alone or the Initial Term as extended by any Extension Period (if any Extension
Option is exercised), is referred to in this Lease as the "Term."
3. RENT AND SECURITY DEPOSIT. During the Initial Term, Lessee agrees to
pay to Lessor as monthly rent for the Premises the following amounts:
LEASE YEARS: MONTHLY RENT
1-3 $11,000
4-6 $11,500
7-9 $12,000
The monthly rent for the Premises under either Subsections 3.1
is referred to herein as "Rent." Rent shall be payable in advance on the first
day of each and every calendar month during the Term, except that Rent for any
partial month at the beginning of the Term shall be paid on the Commencement
Date. Rent for any partial month at the beginning or end of the Term shall be
prorated based on the actual number of days in the month. Rent is payable in
lawful money of the United States of America, which Lessee agrees to pay to
Lessor, without deduction or offset, except as expressly provided herein, at
such place as may be designated from time to time by Lessor. Lessee shall also
pay to Lessor a sum equal to fifty percent (50%) of any real property taxes
levied upon the Land (after taking into account any abatement or refund of taxes
received by Lessor). Any such taxes during each succeeding taxable year shall be
payable in twelve equal monthly installments to the Lessor, payable the first of
each month commencing on the Commencement Date. The term "Additional Rent" shall
mean all payments required to be made
3
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by Lessee under this Lease for real property taxes, insurance, and Lessee's
"Proportionate Share" (as defined below). There shall be no security deposit.
4. APPURTENANT RIGHTS IN COMMON AREA.
4.1 ADDITIONAL RIGHTS GRANTED TO LESSEE. The following rights are
granted to Lessee as appurtenances to the Premises:
(a) Lessee and Lessee's employees and customers shall have the
non-exclusive easement and right to use, in common with Lessor and all other
occupants of the "Property" (defined below) and all persons having business with
Lessor and such other occupants, without charge, the parking areas in the
Property owned by Lessor in which the Premises are located and all other areas
and facilities of the Property designed or intended for common use, including
without limitation "Common Areas" as defined below. The term "Common Areas"
means all areas and facilities outside the Premises and within the exterior
boundaries of the Property, but not including the Adjacent Building, that are
provided and designated by Lessor for the general use and convenience of Lessee
and of other tenants of the Property and their respective authorized
representatives and invitees. Common Areas shall include, at a minimum, all
pedestrian walkways, landscaped areas, sidewalks, service drives, parking areas,
entrances, exits, driveways and roads, substantially as depicted on EXHIBIT B.
(b) Lessor shall maintain the parking areas, landscaping and
other Common Areas of the Property, for which Lessee shall reimburse Lessor
fifty percent (50%) of the reasonable costs thereof ("CAM Charges"), except for
those items expressly stated in this Lease as Lessor's responsibility.
4.2 PARKING AND ACCESS.
(a) AVAILABLE PARKING. Lessee shall have access, during the
Lease term, to the areas provided for the parking of automobiles upon the Land
and intended for common use, as depicted on EXHIBIT B. All parking spaces must
be maintained as non-exclusive "customer only" parking within a two hundred
(200) foot radius of the front entrances to the Premises, and such parking
spaces shall not be assigned for employee parking for this or any other tenant;
provided, with respect to existing tenants of the Property (and their assignees
and sublessees), Lessor shall only be required to use reasonable efforts to
enforce this provision. In addition, Lessor shall enter into agreement
("Reciprocal Parking Agreement") prior to the Commencement Date, in a form
reasonably acceptable to Lessee, with the owner of the adjacent legal parcel
("29 Joe's Parcel"), commonly known as 677 St. Helena Highway South (APN
027-150-015), which reciprocal parking Agreement shall provide for Reciprocal
Parking and access rights (on a non-exclusive, "first-come, first-served" basis)
for Lessee's customers and employees to park on the 29 Joe's Parcel and the
customer's and employees of the 29 Joe's Parcel to park in the parking areas of
the Common Area and which Reciprocal Parking Agreement shall remain in force
during the Term. Lessee agrees to pay its proportionate share of the reasonable
costs incurred to maintain and repair, but not construct, the parking area on
the 29 Joe's Parcel, which proportionate share shall be agreed between the
parties.
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(b) SERVICE DRIVEWAYS. Lessor shall use reasonable efforts to
maintain the ingress and egress that exists on the day that this Lease is
executed, as shown on EXHIBIT B, from public streets to the front and rear
entrances of the Premises for the purpose of receiving and delivering fixtures,
merchandise and other property.
4.3 DEVELOPMENT AND REPAIR OF COMMON AREAS. Lessor hereby reserves
the right to, at any time and from time to time, without liability to Lessee,
and without constituting an eviction, constructive or otherwise, or entitling
Lessee to any abatement of rent or to terminate this Lease or otherwise
releasing Lessee from any of Lessee's obligations under this Lease:
(a) To make alterations, additions, repairs, improvements to or
in, all or any part of the Common Areas;
(b) To install and maintain any and all signs on the exterior
and interior of the Building;
(c) To reduce, increase, enclose or otherwise change at any time
and from time to time the size, number, location and nature of the Common Areas
(including the parking facilities) and other tenancies and premises in the
Property and to create additional rentable areas through the use or enclosure of
common areas, except as otherwise provided herein;
(d) If any governmental authority promulgate or revises any Law
or imposes mandatory or voluntary controls or guidelines on Lessor or the
Property relating to the use or conservation of energy or utilities or the
reduction of automobile or other emissions or reduction or management of traffic
or parking on the Property (collectively "Controls"), to comply with such
Controls, whether mandatory or voluntary, or make any alterations to the Common
Areas or Property related thereto.
5. USE. Lessee may use the Premises for a food market, delicatessen
(with table seating, but not waiter service), food or beverage-related education
and demonstration activities (for e.g., cooking demonstrations), olive oil,
vinegar and mustard processing, espresso bar, sales of foods and beverages of
any and all kinds, sales of kitchenware, food service center, bakery sales,
retail wine sales, Wine Tasting, all related or ancillary uses and for related
general office uses and all other uses ("Other Uses") permitted in accordance
with local zoning regulations, provided, that Lessee shall first notify Lessor
of such Other Uses and further provided that such Other Uses do not conflict
with any exclusive uses that Lessor has granted to another tenant of the
Property or any prospective tenant with whom Lessor is then negotiating to lease
space at the Property. Lessee shall not do, bring, keep or sell anything in or
about the Premises that will create an unreasonably dangerous condition at the
Property, or is prohibited by, or that will cause a cancellation of or an
increase in the premium for, any insurance policy covering the Premises, unless
Lessee agrees to pay any such increase.
6. ALTERATIONS. Lessee may, at its own expense, and from time to time,
make such alterations, additions or changes, structural or otherwise, in and to
the Premises as it may
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deem necessary or desirable; provided, however, Lessee shall obtain Lessor's
prior written consent to drawings and specifications (including engineer's
calculations) for exterior or structural alterations, additions or changes; and
provided, further, that Lessor shall not withhold its consent to structural work
if the structural integrity of the building in which the Premises is located
will not be impaired by such work. Lessor agrees not to unreasonably withhold or
delay its consent. In no event, however, will Lessee increase the "footprint"
(which would not include changes to the total square footage of the Building
that do not change the footprint, such as adding a mezzanine floor) of the
Building beyond its existing square footage or reduce the footprint to less than
11,000 square feet without Lessor's consent, which may be withheld in Lessor's
sole discretion. The term "structural changes" as used herein shall not include
moving of non-load bearing partitions, relocation of building entry doors
(provided no new openings are made in exterior walls), minor plumbing and
electrical work, modification and rearrangement of fixtures or other minor
changes. Lessor, at Lessee's sole cost, shall cooperate with Lessee in securing
building and other permits or authorizations as may be required from time to
time for any work permitted hereunder, but shall not be required to make any
public appearance before any planning commission or other governmental
authority. Notwithstanding the foregoing, Lessee shall have the right to install
furnishings, counters, interior partitions and equipment (including without
limitation, electric fixtures or air handling units) that are not a permanent
part of the structure, whether the same shall be affixed or nailed to the
Premises or not, or by Lessee, which shall at all times be regarded as "Trade
Fixtures" and shall be separately assessed for real property tax purposes. Such
Trade Fixtures may be removed by the Lessee at any time prior to the termination
of this Lease or any renewals or extensions thereof at Lessee's own expense. If
Lessee removes any of such Trade Fixtures as herein designated, Lessee shall do
so in a way as not to injure the Building.
7. ABANDONMENT. Lessee shall not vacate or abandon the Premises at any
time during the Term, except during a major renovation, and if Lessee shall
abandon, vacate or surrender such Premises, or be disposed by process of law, or
otherwise, any personal property belonging to Lessee and left on the Premises
shall be deemed to be abandoned if the same is not claimed thirty (30) days
after written notice, at the option of the Lessor, except such property as may
be mortgaged to Lessor.
8. MAINTENANCE AND REPAIRS. By taking possession of the Premises Lessee
agrees that the Premises are then in a good and tenantable condition. During the
Term, Lessee shall, at its sole cost and expense, keep, repair and maintain the
Premises, including all windows (interior and exterior), plate glass and
glazing, plumbing and electrical systems located within the Premises, interior
walls (excepting the structural portion of the walls forming the perimeter of
the Premises), floors (except as covered by contractor's warranty, if any) and
all interior improvements within the Premises and any septic system that Lessee
installs for its own use, in a first class condition, and Lessee shall keep the
Premises in a clean, safe and orderly condition.
Lessor shall provide, without reimbursement from Lessee, (i)
electrical and plumbing to the exterior wall of the Premises in a manner meeting
all Applicable Laws (including, all current codes) for the existing usage and
electrical and plumbing demands; (ii) all maintenance, replacement and repair to
the foundation, roof, parapets, flashing, gutters,
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downspouts, floor slab, outer walls and structural portions of the Building
which shall be necessary to maintain the Premises in a safe, dry and tenantable
condition and in good order and repair and the parking lot (repaving and
restriping only), curbs, and sidewalks; (iii) all maintenance, replacement and
repair of underground utility installations and underground electrical conduit
and wire; including, but not limited to, repairs, maintenance and replacements
which are occasioned by settlement of the Premises, or a portion thereof, or
caused by soil conditions which are not due to change in use of the Premises by
Lessee; and (iv) any repair, maintenance or restoration required as a result of
the act or neglect of Lessor or its agents, employees, contractors, members or
partners (collectively, "Representatives") or resulting from the failure of
Lessor to perform in a timely manner its obligations under this Lease.
Notwithstanding the foregoing, Lessee shall pay the cost of repairs for
any damage occasioned by Lessee's use of the Premises or Property or any act or
omission of Lessee or Lessee's representatives or visitors, to the extent (if
any) not covered by Lessor's insurance. Lessee shall be also responsible for
maintaining those portions of the roof and structure of the Building to the
extent of any replacements or improvements made by Lessee. Lessee shall also be
responsible for installing and maintaining any improvements to the electrical
and plumbing (including septic systems) facilities to the Premises to the extent
that such improvements are necessary due to Lessee's needs in the Premises.
Lessee hereby waives all rights under and benefits of Subsection (1) of
Civil Code Section 1932 and Sections 1941 and 1942 of the California Civil Code
and under any similar law, statute or ordinance now or hereafter in effect.
9. LIENS. Lessee shall keep the Premises free from any liens arising
out of work performed, materials furnished, or obligations incurred by Lessee.
If Lessee elects to make improvements or additions to the Premises at its own
expense, at least ten (10) days prior to the commencement of any construction
involving expenditures for labor and materials in excess of $5,000.00, Lessee
shall notify Lessor, in writing, of its intention to commence such construction
and the scheduled date for the commencement of such construction. Lessor shall
have the right to enter the Premises to post and keep posted any and all notices
of non-responsibility, or other matters provided or permitted by law for the
Lessor's protection, in connection with any such construction work.
10. SUBORDINATION; NON-DISTURBANCE AND ATTORNMENT.
10.1. Upon written request by Lessor, this Lease shall be
subordinate to the lien of any first mortgage or deed of trust in any amount
whatsoever now or hereafter placed on or against the land or improvements or
either thereof, of which the Premises are a part, or on or against the Lessor's
interest or estate therein (collectively, "Encumbrance"), without the necessity
of the execution and delivery of any further instruments to effectuate such
subordination; provided, however, that such subordination shall only be
effective and be on the express condition that the holder of the Encumbrance
executes and delivers to Lessee a Non-Disturbance Agreement in a form Reasonably
acceptable to Lessee ("Non-Disturbance Agreement"), stating that this Lease
shall survive the termination of the Encumbrance by lapse of
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time, foreclosure or otherwise so long as Lessee is not in default under this
Lease and that the holder of the Encumbrance will honor the rights of first
refusal granted to Lessee pursuant to this Lease. If any mortgagee, trustee, or
ground lessor shall elect to have this lease prior to the lien of its mortgage,
deed of trust, or ground lease, and gives the Lessee written notice thereof,
this Lease shall be deemed prior to such mortgage, deed of trust, or ground
lease, whether it is dated prior or subsequent to the date of the mortgage, deed
of trust or ground lease, or the recording thereof.
10.2 Within five (5) days from request, the Lessee agrees to
execute and deliver without charge such further instruments evidencing the
subordination of this Lease to such ground or underlying leases and to the lien
of any such mortgages or deeds of trust as the Lessor may reasonably request;
provided that a Non-Disturbance Agreement is executed contemporaneously
therewith.
10.3 In the event of foreclosure or the exercise of the power of
sale under any mortgage or deed of trust covering the Premises, the Lessee
agrees to attorn to the purchaser upon any such foreclosure or sale and
recognize such purchaser as the Lessor under this Lease, subject to such
purchaser assuming the remaining obligations of Lessor under the Lease.
11. COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Lessee shall observe
and comply with all requirements, rules, orders and regulations of the federal,
state and municipal governments or other duly constituted public authority
affecting the Premises ("Applicable Laws"), including the making of
nonstructural alterations, insofar as they are due to Lessee's occupancy;
provided, however, that in the event such Applicable Laws shall either (a)
require the removal of asbestos or other Hazardous Material not placed on the
Premises by Lessee, (b) require structural changes, including but not limited
to, the erection of fire escapes or exits, or (c) require nonstructural changes
required of retail and/or commercial properties generally irrespective of the
nature of the current tenancy, unless such changes were triggered by a
remodeling or renovation of the Premises by Lessee (in which case Lessee shall
be solely responsible for the changes), then the same shall be complied with by
Lessor at its sole expense.
12. INDEMNIFICATION; EXCULPATION AND INSURANCE.
12.1 LESSEE'S INDEMNIFICATION. During the Term, Lessee shall
indemnify, defend (with counsel reasonably acceptable to Lessor), and save
Lessor and its Representatives, harmless against all loss, liability, penalties,
claims or demands of whatsoever nature, including reasonable attorneys' fees and
costs, arising from any occurrence in the Premises (including construction of
Lessee's tenant improvements or Alterations), except to the extent resulting, in
whole or in part, directly or indirectly from the default or negligence of
Lessor and its Representative. Lessee will carry liability insurance with a
deductible amount and company reasonably satisfactory to the Lessor in the sum
of $2,000,000.00 in favor of Lessee and Lessor agrees to deliver a duplicate
policy to the Lessor naming Lessor as an additional insured. Lessee shall also
carry such worker's compensation insurance as is required by law.
12.2 LESSOR'S INDEMNIFICATION. During the Term, Lessor shall
indemnify, defend (with counsel reasonably acceptable to Lessee), and save
Lessee, its Representatives and
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sublessees, harmless against all loss, liability, penalties, claims or demands
of whatsoever nature, including reasonable attorneys' fees and costs, arising
from any occurrence in any area of the Property other than the Premises, except
those which shall result, in whole or in part, directly or indirectly from the
default or negligence of Lessee, its Representatives, assignees or sublessees.
Lessor will carry liability insurance with a deductible amount and company
reasonably satisfactory to the Lessee in the sum of $2,000,000.00 and Lessor
agrees to deliver a duplicate policy to the Lessee naming Lessee as an
additional insured.
12.3 EXCULPATION. Lessor shall not be liable for injury or damage
to the person or goods, wares, merchandise or other property of Lessee, Lessee's
employees, contractors, invitees, customers, or any other person in or about the
Premises, whether such damage or injury is caused by or results from fire,
steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, fire sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures, or from any other cause,
whether the such injury or damage results from conditions arising upon the
Premises, or from other sources or places, and regardless of whether the cause
of such damage or injury or the means of repairing the same is accessible or
not, except that Lessor shall remain liable for any damages arising from any act
or neglect of Lessor, or its Representatives or Lessor's breach of this Lease.
12.4 GENERAL. All insurance policies required under this Lease
shall:
(a) be issued by insurance companies authorized to do business
in the State of California, with a financial rating of at least an A VII as
rated in the most recent edition of Best's Key Rating Guide;
(b) be issued as a primary policy;
(c) contain an endorsement requiring thirty (30) days' written
notice from the insurance company to both parties before cancellation or change
in the coverage, scope, or amount of any policy; and
(d) The parties shall increase the amount of liability
insurance carried pursuant to Subsections 12.1 and 12.2 from time to time to the
extent necessary to maintain commercially reasonable amounts of insurance and in
any event no less than that carried by similar first-class properties.
12.5 FIRE AND CASUALTY INSURANCE. Lessor shall maintain in effect
during the Term a policy or policies of insurance on the Building with
responsible insurers, on an "all risk" or "special form" basis, insuring the
Building, but not the Alterations or tenant improvements, in an amount equal to
100% of the replacement cost thereof, excluding land, foundations, footings and
underground installations. Lessee shall pay fifty percent (50%) of such
insurance. Lessor may carry such insurance under a blanket policy, provided that
such policy provides coverage equivalent to a separate policy. Lessor may, but
shall not be obligated to, carry insurance against additional perils and/or in
greater amounts (for example, earthquake or flood insurance), but Lessee shall
not be required to pay its 50% share thereof unless it has consented to such
additional insurance. If
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Lessee refuses to consent to such additional insurance, it shall not be entitled
to the incremental benefit of such additional insurance.
Lessee shall at all times maintain in effect with respect to its Trade
Fixtures, Alterations, tenant improvements and personal property, commercial
property insurance providing coverage, on an "all risk" or "special form" basis,
in an amount equal to the full replacement cost of the covered property. Lessee
may carry such insurance under a blanket policy, provided that such policy
provides coverage equivalent to a separate policy.
12.6 INSURABLE INTEREST IN TRADE FIXTURES AND IMPROVEMENTS. Lessor
hereby expressly acknowledges that Lessee shall have the sole insurable interest
in the Trade Fixtures, leasehold improvements and Alterations installed in the
Premises by Lessee, or at Lessee's direction, or at Lessee's expense, and that,
in the event of any damage to or destruction of the Premises, Lessee shall be
entitled to retain all insurance proceeds collected by Lessee with respect to
such Trade Fixtures, leasehold improvements and Alterations.
12.7 WAIVER OF SUBROGATION RIGHTS. The parties release each other
and their respective authorized representatives, from any claims for damage to
any person or to the Premises and the Building and other improvements in which
the Premises are located and to the fixtures, personal property, Lessee's
improvements and alterations of either Lessor or Lessee in or on the Premises
and the Building and other improvements in which the Premises are located that
are caused by or result from any risk insured against under any insurance
policies required under this Lease or actually carried by the parties and in
force at the time of any such damage; provided, however, this waiver shall only
extend to the limits of the insurance actually carried by the parties.
Each party shall cause each insurance policy contained by it to
provide that the insurance company waives all right of recovery by way of
subrogation against either party in connection with any damage covered by any
policy. Neither party shall be liable to the other for any damage caused by fire
or any of the risks insured against under any insurance policy required by this
Lease. If any insurance policy cannot be obtained which contains a waiver of
subrogation or is obtainable only by the payment of an additional premium charge
above that charge by insurance companies issuing policies without waiver of
subrogation, the party undertaking to obtain the insurance shall notify the
other party of this fact. The other party shall have a period of ten (10) days
after receiving notice either to place the insurance with a company that is
reasonably satisfactory to the other party and that will carry the insurance
with a waiver of subrogation, or to agree to pay the additional premium of such
if such a policy is obtainable at additional cost. If the party in whose favor a
waiver of subrogation is desired refuses to pay the additional premium charge,
the other party is relieved of the obligation to obtain a waiver of subrogation
rights with respect to the particular insurance involved.
12.8 SURVIVAL. The indemnifications set forth in this Section shall
survive the expiration, cancellation or termination of this Lease.
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13. ADVERTISEMENTS AND SIGNS. Lessee shall have the right, at Lessee's
expense, to install, mount, and erect, and repair and replace, its name sign in
Lessee's standard lettering and such other signage as it may desire on the
external facades of the Premises (including without limitation any projecting
sign, marquee or awning on the Building), to the maximum extent permitted by
applicable codes. Lessee shall also have the right, at Lessee's expense, to
install, mount, and erect, and repair and replace such other signage in the
Common Area in front of the Premises (from the dripline of the Building to the
highway right of way) as Lessee in its reasonable business judgment determines
is necessary or desirable in the operation of its business, provided that Lessee
complies with all Applicable Laws and Lessee obtains Lessor's consent thereto,
which shall not be unreasonably withheld. Lessor shall cooperate with Lessee in
attempting to obtain maximum building signage rights. Subject to existing
signage, Lessor shall not permit any other signs, billboards or posters to be
displayed on any portion of the Property, nor shall Lessor erect, or allow any
other tenant of the Property to erect, a pylon, monument or directional sign
(collectively, "Freestanding Sign") without the consent of Lessee, which consent
shall not be unreasonably withheld. Lessee shall have the right to first (1st)
position on any Freestanding Sign erected on any portion of the Property after
the Commencement Date, including without limitation the Freestanding Sign or
signs identified on EXHIBIT B, if any. If Lessee elects to participate in a
Freestanding Sign for the Property, then such Freestanding Sign shall be placed
at a location mutually acceptable to Lessor and Lessee. Lessee will pay its
share of the sign structure costs based upon the square footage of Lessee's sign
as a percentage of total square footage of signage on the Freestanding Sign.
Each user will bear the entire expense of the cost and installation of its
individual sign panel on any pylon sign. Lessee's sign panel shall be wired
directly to the Premises, if practicable. Subject to the approval of the
appropriate governmental agencies, Lessee shall be permitted to illuminate its
signs (and its panels on any pylon signs), from dusk to dawn on a daily basis.
14. UTILITIES. Lessor covenants and agrees that, as of the Commencement
Date, the Premises shall be serviced with gas, electric, telephone, water,
septic and other utilities. Lessor agrees, at its sole cost and expense, to
cause the necessary mains, conduits and other facilities to be provided to make
water, sewer, gas, telephone and electricity available to the Premises from and
after the Commencement Date, including the payment of impact or tap fees and
meter installation charges. Lessor shall also allow Lessee to connect its
wastewater system to the additional leach field. Lessor further agrees, at its
sole cost and expense, to expand the septic field to accommodate the current
permitted flows from the bakery of two hundred (200) gallons per day. After
installation, Lessee shall pay all charges for consumption of utility services
furnished to the Premises during the Term. Lessor agrees to use reasonable
efforts to maintain, and if possible, increase, the amount of water provided to
the Premises.
In the event of an interruption in or failure or inability to provide
any services or utilities to the Premises or Building for any reason (a "Service
Failure"), such Service Failure shall not, regardless of its duration, impose
upon Lessor any liability whatsoever, constitute an eviction of Lessee,
constructive or otherwise, entitle Lessee to an abatement of Rent or to
terminate this Lease or otherwise release Lessee from any of Lessee's
obligations under this Lease. Lessee hereby waives any benefits of any
applicable existing or future Law, including the
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provisions of California Civil Code Section 1932(1), permitting the termination
of this Lease due to such interruption, failure or inability.
15. ENTRY BY LESSOR. Lessee shall permit Lessor and its Representatives
to enter into and upon the Premises at all reasonable times upon reasonable
notice (except in the case of an emergency) for the purpose of inspecting the
Premises to determine if the Premises are in good condition and whether Lessee
is complying with its obligations under the Lease, or for the purposes of
maintaining the Building, including the erection and maintenance of such
scaffolding, canopies, fences and props as may be required, for the purpose of
showing the Premises for sale or in connection with any financing, or for the
purpose of posting notices of non-responsibility for alterations, additions, or
repairs, without any rebate of rent and without any liability to Lessee for any
loss of occupation or quiet enjoyment of the Premises thereby occasioned; and
shall permit Lessor, at any time within six (6) months prior to the expiration
of this Lease, to place upon the Premises any usual or ordinary "to let" or "to
lease" signs, provided that such signs are tasteful and in keeping with the
first-class nature of Lessee's business. Lessor shall use reasonable efforts to
conduct its activities under this Section in a manner that will minimize
inconvenience to Lessee.
16. DESTRUCTION OF PREMISES.
16.1 LESSOR'S DUTY TO REPAIR. If all or a substantial portion of
the Premises are rendered untenantable or inaccessible by damage to all or any
part of the Premises or Common Area from fire or other casualty then, unless
either party is entitled to and elects to terminate this Lease pursuant to
Sections 16.2 or 16.3, Lessor shall, at its expense, use reasonable efforts to
repair and restore the Premises to substantially its former condition as
permitted by then applicable Laws; provided, however, that in no event shall
Lessor have any obligation for repair or restoration beyond the extent of
insurance proceeds received by Lessor for such repair or restoration and not
required to be paid to any mortgagee. Lessor shall have no obligation to repair
or replace any of Lessee's personal property, Trade Fixtures or Alterations.
If Lessor is required or elects to repair damage to the Premises,
this Lease shall continue in effect but the Rent and Additional Rent from the
date of the casualty through the date of substantial completion of the repair
shall be abated with regard to any portion of the Premises that Lessee is
prevented from using by reason of such damage or its repair. The amount and
period of rental abatement shall be mutually determined by the parties in the
exercise of their good faith reasonable judgment. In no event shall Lessor be
liable to Lessee by reason of any injury to or interference with Lessee's
business or property arising from fire or other casualty or by reason of any
repairs to any part of the Property necessitated by such casualty.
16.2 LESSOR'S RIGHT TO TERMINATE. Lessor may elect to terminate
this Lease, effective as of the date of the casualty, under the following
circumstances:
(a) Where, in the reasonable judgment of Lessor, the damage
cannot be substantially repaired and restored under Applicable Law within one
(1) year from the date of the casualty;
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(b) Where the Premises are damaged or destroyed to the extent
that the cost to repair and restore the Premises exceeds the amount of available
insurance proceeds (or that would have been available if Lessor had carried the
insurance required under the Lease);
(c) Where the Premises are damaged or destroyed to the extent
that, in the reasonable judgment of the Lessor, the cost to repair and restore
the Premises would exceed twenty-five percent (25%) of the full replacement cost
of the Building, whether or not the Premises are at all damaged or destroyed; or
(d) If the fire or casualty occurs in the last year of the
Term, unless Lessee has extended, or agrees in advance to extend, the Term
pursuant to its Extension Options.
If any of the circumstances described in subparagraphs (a),
(b), (c) or (d) of this subsection occur or arise, Lessor must notify Lessee in
writing of that fact within one hundred and twenty (120) days after the date of
the casualty and in such notice Lessor must also advise Lessee whether Lessor
has elected to terminate this Lease as of the date of the casualty.
16.3 LESSEE'S RIGHT TO TERMINATE. If all or a substantial part of
the Premises are rendered untenantable or inaccessible by damage to all or any
part of the Premises from fire or other casualty, and Lessor does not elect to
terminate as provided above, then Lessee may elect to terminate this Lease if
Lessor's estimate of the time required to complete Lessor's repair obligations
under this Lease is greater than one (1) year, in which event Lessee may elect
to terminate this Lease by giving Lessor notice of such election to terminate
within thirty (30) days after Lessor's notice to Lessee pursuant to Section 16.2
(Lessor's Right to Terminate).
16.4 WAIVER OF STATUTORY PROVISIONS. Lessor and Lessee each hereby
waive the provisions of California Civil Code Sections 1932(2), 1933(4) and any
other applicable existing or future law, ordinance or regulation with respect to
damage or destruction of leased premises or with respect to the termination of a
lease agreement in the event of such damage or destruction under any
circumstances other than as provided in Sections 16.2 and 16.3 above.
17. CONDEMNATION.
17.1 EFFECT ON THE LEASE. Condemnation shall mean (i) a permanent
taking (or a temporary taking extending beyond the end of the Term) pursuant to
the exercise of power of condemnation or eminent domain by any public or quasi
public authority, private corporation or individual having such power
("Condemnor"), whether by legal proceedings or otherwise, or (ii) a voluntary
sale or transfer by Lessor to any such authority, whether under threat of
condemnation or while legal proceedings for condemnation are pending.
If the Premises are totally taken by Condemnation, this Lease shall
terminate as of the date of that Condemnation. If a portion but not all of the
Premises is taken by Condemnation, this Lease shall remain in effect; provided,
however, that if the portion of the Premises remaining after the Condemnation is
not reasonably suitable for Lessee's continued use, then upon notice to Lessor
within thirty (30) days after Lessor notifies Lessee of the Condemnation, Lessee
may terminate this Lease effective as of the date of the Condemnation. If
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twenty-five percent (25%) of the Property or of the land on which the Building
is situated or of the designated parking areas or of the floor area in the
Building is taken by Condemnation, or if as a result of condemnation the
Building is no longer reasonably suited for use as a retail building, whether or
not any portion of the Premises is taken, Lessor may elect to terminate this
Lease, effective as of the date of Condemnation, by notice to Lessee within
thirty (30) days after the date of Condemnation. If all or a portion of the
Premises is temporarily taken by a Condemnor for a period not extending beyond
the Term, this Lease shall remain in full force and effect.
17.2 RESTORATION OF PREMISES. If this Lease is not terminated as
provided in Section 17.1, Lessor shall, at it expense, diligently proceed to
repair and restore the Premises to substantially its former condition (to the
extent permitted by then applicable Laws) and/or repair and restore the Building
to an architecturally complete retail building; provided, however, that Lessor's
obligations to so repair and restore shall be limited to the amount of any award
received by Lessor for the Condemnation and not required to be paid to any
mortgagee. In no event shall Lessor have any obligation to repair or replace any
improvements in the Premises beyond the amount of any reward received by Lessor
for such repair or to repair or replace any of Lessee's personal property, Trade
Fixtures or Alterations. If any portion of the Premises is taken in a
Condemnation or is rendered untenantable by repairs necessitated by the
Condemnation, and this Lease is not terminated, the Rent and Additional Rent
shall be proportionately reduced as of the date of the Condemnation based upon
the percentage of rentable square feet in the Premises so taken or rendered
permanently untenantable. In addition, if this Lease remains in full force and
effect following a Condemnation and Lessor proceeds to repair and restore the
Premises, the Rent and Additional Rent payable under the Lease shall be abated
during the period of such repair or restoration to the extent such repairs
prevent Lessee's use of the Premises.
Lessor and Lessee each hereby waive the provisions of
California Code of Civil Procedure Section 1265.130 and any other applicable
existing or future Law allowing either party to petition for a termination of
this Lease upon a partial taking of the Premises and/or the Property.
18. ASSIGNMENT AND SUBLETTING. Lessee shall not assign this Lease,
or any interest therein, and shall not sublet the Premises or any part thereof,
or any right or privilege appurtenant thereto, or suffer any other person (the
Representatives of Lessee excepted), including any corporation or other person
or entity resulting from a merger or consolidation with Lessee, or to any person
or entity which acquires substantially all the assets of Lessee as a going
concern to occupy or use the Premises, or any portion thereof, without the prior
written consent of Lessor, which shall not be unreasonably withheld; provided,
however, Lessor's consent shall not be required with respect an assignment or
sublet to any corporation or other person or entity which controls, is
controlled by, or is under common control with Lessee (collectively, an
"Affiliate"). A consent to one assignment, subletting, occupation or use by any
other person, shall not be deemed to be a consent to any subsequent assignment,
subletting, occupation or use by another persons. Any such assignment or
subletting without such consent shall be void. This lease shall not, nor shall
any interest therein, be assignable, as to the interest of Lessee, by operation
of law, without the written consent of Lessor.
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19. INSOLVENCY OR BANKRUPTCY. Lessee shall be in default under this
Lease if (a) a petition of bankruptcy or reorganization is filed by Lessee or
against Lessee and is not dismissed within ninety (90) days after such filing
and Lessee becomes bankrupt, (b) Lessee makes a general assignment for the
benefit of creditors, (c) in any proceeding based upon the insolvency of Lessee,
a receiver or trustee of all of the property of Lessee is appointed and is not
discharged within ninety (90) days after such appointment, or (d) a writ of
attachment or execution is levied against all or substantially all of Lessee's
assets and is not discharged within thirty (30) days after Lessee receives
notice thereof; provided, however, neither bankruptcy, insolvency,
reorganization, an assignment for the benefit of creditors nor the appointment
of a receiver or trustee shall affect this Lease or permit its termination so
long as the covenants on the part of Lessee to be performed shall be performed
by Lessee, or someone claiming under it.
20. DEFAULTS AND REMEDIES.
20.1 Events of Default. The occurrence of any of the following
shall constitute an "Event of Default" by Lessee:
(a) Lessee fails to make any payment of rent when due, or any
amount required to replenish the security deposit as provided in Section 3
above, if payment in full is not received by Lessee within three (3) days after
written notice that it is due.
(b) Lessee abandons the Premises.
(c) Lessee fails timely to deliver any subordination document,
estoppel certificate or financial statement requested by Lessee within the
applicable time period specified in Section 41 below.
(d) Lessee violates the restrictions on Transfer set forth in
Section 18 - ASSIGNMENT AND SUBLETTING.
(e) Lessee ceases doing business as a going concern; makes an
assignment for the benefit of creditors; is adjudicated an insolvent, files a
petition (or files an answer admitting the material allegations of a petition)
seeking relief under any state or federal bankruptcy or other statute, law or
regulation affecting creditors' rights; all or substantially all of Lessee's
assets are subject to judicial seizure or attachment and are not released within
30 days, or Lessee consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for Lessee or for all or any substantial part of Lessee's
assets.
(f) Lessee fails, within ninety (90) days after the
commencement of any proceedings against Lessee seeking relief under any state or
federal bankruptcy or other statute, law or regulation affecting creditors'
rights, to have such proceedings dismissed, or Lessee fails, within ninety (90)
days after an appointment, without Lessee's consent or acquiescence, of any
trustee, receiver or liquidator for Lessee or for all or any substantial part of
Lessee's assets, to have such appointment vacated.
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(g) Lessee fails to perform or comply with any provision of
this Lease other than those described in (a) through (f) above, and does not
fully cure such failure within fifteen (15) days after notice to Lessee or, if
such failure cannot be cured within such fifteen (15)-day period, Lessee fails
within such fifteen (15)-day period to commence, and thereafter diligently
proceed with, all actions necessary to cure such failure as soon as reasonably
possible but in all events within ninety (90) days of such notice; provided,
however, that if Lessee in Lessee's reasonable judgment determines that such
failure cannot or will not be cured by Lessee within such ninety (90) days, then
such failure shall constitute an Event of Default immediately upon such notice
to Lessee.
20.2 Remedies If Lessee is in default under any provision of
this Lease, Lessor shall have the following remedies, which shall not be
exclusive but shall be cumulative and shall be in addition to any other remedies
now or hereafter allowed by law:
(a) Lessor may terminate Lessee's right to possession of
the Premises at any time by written notice to Lessee. Lessee expressly
acknowledges that in the absence of such written notice from Lessor, no other
act of Lessor, including re-entry into the Premises, efforts to relet the
Premises, reletting the Premises for Lessee's account, storage of Lessee's
personal property and Trade Fixtures, acceptance of keys to the Premises from
Lessee or exercise of any other rights and remedies under this Section, shall
constitute an acceptance of Lessee's surrender of the premises or constitute a
termination of this Lease or of Lessee's right to possession of the Premises.
Upon such termination in writing of Lessee's right to possession of the
Premises, as herein provided, this Lease shall terminate and Lessor shall be
entitled to recover damages from Lessee as provided in California Civil Code
Section 1951.2 and any other applicable existing or future Law providing for
recovery of damages for such breach, including the worth at the time of award of
the amount by which rent which would be payable by Lessee hereunder for the
remainder of the Term after the date of the award of damages, including
Additional Rent as reasonably estimated by Lessor, exceeds the amount of such
rental loss as Lessee proves could have been reasonably avoided, discounted at
the discount rate published by the Federal reserve Bank of San Francisco for
member banks at the time of the award plus one percent (1%).
(b) Lessor shall have the remedy described in California
Civil Code Section 1951.4 (Lessor may continue this Lease in effect after
Lessee's breach and abandonment and recover rent as it becomes due, if Lessee
has the right to sublet or assign, subject only to reasonable limitations).
(c) Lessor may cure the default at Lessee's expense. If
Lessor pays any sum or incurs any expense in curing the default, Lessee shall
reimburse Lessor upon demand for the amount of such payment or expense with
interest at the rate of fifteen percent (15%) per annum from the date the sum is
paid or the expense is incurred until Lessor is reimbursed by Lessee.
(d) Lessor may remove all Lessee's property from the
Premises, and such property may be stored by Lessor in a public warehouse or
elsewhere at the sole cost and for the account of Lessee. If Lessor does not
elect to store any or all or Lessee's property left in the Premises, Lessee may
consider such property in any manner deemed appropriate by Lessor. Any proceeds
realized by Lessor on the disposal of any such property shall be applied first
to offset all
16
<PAGE>
expenses of storage and sale, then credited against Lessee's outstanding
obligations to Lessor under this Lease, and any balance remaining after
satisfaction of all obligations of Lessee under this Lease shall be delivered to
Lessee.
21. SURRENDER OF LEASE. The voluntary or other surrender of this Lease
by Lessee, or a mutual cancellation thereof, shall not work a merger, and shall,
at the option of Lessor, terminate all or any existing sublease or subtenancies,
or may, at the option of Lessor, operate as an assignment to him of any or all
such subleases or subtenancies.
22. ATTORNEY'S FEES. In the event of any litigation or arbitration
regarding any rights and obligations under this Lease, the prevailing party
shall be entitled to recover reasonable attorneys' fees and court costs in
addition to any other relief which may be granted. The "prevailing party" shall
be determined by the court or arbitrator before whom the action was brought
based upon an assessment of which party's major arguments or positions taken in
the suit or proceeding could fairly be said to have prevailed over the other
party's major arguments or positions on major disputed issues in the court's or
arbitrator's opinion.
23. NOTICE. Any notice, demand, request, consent or approval that
either party desires or is required to give to the other party under this Lease
shall be in writing and shall be served personally, delivered by messenger or
courier service, or sent by U.S. certified mail, return receipt requested,
postage prepaid, addressed to the other party at the party's address for notices
provided in writing to the other party from time to time. The initial address
for notices shall be the addresses set forth in the signature block to this
Lease. Notices will be effective upon receipt (or refusal of delivery or
receipt). Either party may change its address for notices hereunder by a notice
to the other party complying with this Section. If Lessee sublets the Premises,
notices from Lessor shall be effective on the subtenant when given to Lessee
pursuant to this Section
24. WAIVER. No provisions of this Lease shall be deemed waived by
either party unless such waiver is in a writing signed by the waiving party. The
waiver of any breach of any provision of this Lease shall not be deemed a waiver
of such provision or of any subsequent breach of the same or any other provision
of this Lease. No delay or omission in the exercise of any right or remedy upon
any default shall impair such right or remedy or be construed as a waiver.
Either party's consent to or approval of any act requiring consent or approval
shall not be deemed to waive or render unnecessary such consent to or approval
of any subsequent act.
25. HOLDING OVER. Any holding over after the expiration of the said
term, with the consent of Lessor, shall be construed to be a tenancy from month
to month, at 125% of the current rent and on the terms and conditions herein
specified, so far as applicable.
26. SUCCESSORS AND ASSIGNS. The covenants and conditions herein
contained shall, subject to the provisions as to assignment, apply to and bind
the heirs, successors, executors, administrators and assigns of all of the
parties hereto; and all of the parties hereto shall be jointly and severally
liable hereunder.
27. TIME. Time is of the essence of this Lease.
17
<PAGE>
28. LATE CHARGE. If any payment of Rent is not received by Lessor
within five (5) days after it is due, Lessee shall pay to Lessor on demand as a
late charge an additional amount equal to five percent (5%) of the overdue
payment. Lessee acknowledges that late payment of Rent will cause Lessor to
incur costs which are difficult to ascertain, and the parties agree that the
foregoing amount is a reasonable estimate of Lessor's expenses resulting from
late payments and are not intended as a penalty. A late charge shall not be
imposed more than once on any particular installment not paid when due, but
imposition of a late charge on any payment not made when due does not eliminate
or supersede late charges imposed on other payments not made when due or
preclude imposition of a late charge on other installments or payments not made
when due or waive any other default by Lessee.
29. LESSOR'S RIGHT OF FIRST REFUSAL TO PURCHASE. Lessee hereby grants
to Lessor a continuing Right of First Refusal to purchase Lessee's leasehold
interest in this Lease ("Leasehold Interest"), which shall continue during the
Initial Term or Extension Period, as the case may be. Lessee shall not, at any
time prior to the expiration of the Term of this Lease, or any extension
thereof, sell the Leasehold Interest, except to an Affiliate of Lessee, without
first giving written notice thereof to Lessor, which notice shall clearly state
that Lessor has five (5) business days to respond and which notice is
hereinafter referred to as "Notice of Sale." Provided that Lessor is not in
default under this Lease which remains uncured after the expiration of the
applicable cure period at the time it receives the Notice of Sale, for a period
of five (5) business days after receipt by Lessor of the Notice of Sale, Lessor
shall have the right to give written notice to Lessee of Lessor's exercise of
Lessor's right to purchase the Leasehold Interest, on the same terms, price and
conditions as set forth in the Notice of Sale. In the event that Lessor does not
exercise the purchase right herein granted within such five (5) day period,
there shall be a conclusive presumption that Lessor has elected not to exercise
Lessor's right hereunder, and Lessee may sell the Leasehold Interest, on the
same terms set forth in the Notice of Sale; provided, however, that if (a)
Lessee proposes to sell the Leasehold Interest, at a purchase price that is less
than ninety-five percent (95%) of the purchase price proposed to Lessor, or upon
other terms which are substantially more favorable to the prospective purchaser,
Lessee shall first re-offer such space to Lessor at such lower purchase price
and/or more favorable terms or (b) Lessee proposes to sell the Leasehold
Interest, more than six (6) months after Lessor's receipt of the Notice of Sale,
Lessee shall first re-offer such space to Lessor, all in accordance with the
provisions of this Section. The right under this Section is a continuing right
and must be reoffered to Lessor each time this provision is triggered, whether
or not Lessor has exercised its rights hereunder with respect to previous
offers.
30. QUIET ENJOYMENT. Lessor covenants, represents and warrants that it
has full right and power to execute and perform this Lease and to grant the
estate demised herein and that Lessee, on payment of the rent and performance of
the covenants and agreements hereof, shall peaceably and quietly have, hold and
enjoy the Premises and all rights, easements, appurtenances and privileges
belonging or in any way pertaining thereto during the Lease Term without
molestation or hindrance of any person whomsoever.
31. COVENANT OF TITLE. Lessor further covenants, represents and
warrants that it is seized of an indefeasible estate in fee simple and has good
and marketable title to the Land
18
<PAGE>
described in EXHIBIT A, free and clear of any liens, encumbrances, restrictions
and violations (or claims or notices hereof), except the lien of the mortgage or
mortgages specifically identified on the attached EXHIBIT C and public utility
easements and covenants and restrictions of record not impairing Lessee's
Intended Use of the Premises, and taxes not yet due and payable.
32. HAZARDOUS MATERIAL.
32.1 LESSOR'S REPRESENTATIONS, WARRANTIES AND COVENANT. Lessor
represents that to the best of its knowledge, except as set forth in either of
the ________________________________ and __________________________________
Environmental Reports for the Property, or as previously disclosed to Lessee,
there are no "Hazardous Materials" (as defined below) existing on the Property
as of the Commencement Date. Lessor's representations to Lessee under this
Section shall survive the cancellation or termination of this Lease.
32.2 LESSOR'S INDEMNIFICATION OBLIGATION. Lessor hereby agrees to
indemnify, defend, and hold harmless Lessee, its Representatives, assignees and
Sublessees, and Lessee's guarantor, if any, from and against any penalty, loss,
liability, claim or expenses including, without limitation, engineering and
attorneys fees, arising out of a breach of the representations and warranties in
Section 32.1 above, except to the extent such condition was caused by the breach
of Lessee's covenant below. Lessor's representations and indemnity to Lessee
under this Section shall survive the cancellation or termination of this Lease.
32.3 LESSEE'S COVENANT AND INDEMNIFICATION OBLIGATION.
(a) LESSEE'S COVENANTS. No Hazardous Materials shall be
Handled by Lessee at or about the Premises or Property without Lessor's prior
written consent, which consent may be granted, denied, or conditioned upon
compliance with Lessor's requirements, all in Lessor's absolute discretion.
Notwithstanding the foregoing, normal quantities and use of those Hazardous
Materials customarily used in the conduct of retail and general office
activities, such as copier fluids and cleaning supplies ("Permitted Hazardous
Materials"), may be used and stored at the Premises without Lessor's prior
written consent, provided that Lessee's activities at or about the Premises and
Property and the Handling by Lessee of all Hazardous Materials shall comply at
all times with all Environmental Requirements. At the expiration or termination
of the Lease, Lessee shall promptly remove from the Premises and Property all
Hazardous Materials Handled by Lessee at the Premises or the Property. Lessee
shall keep Lessor fully and promptly informed of all Handling by Lessee of
Hazardous Materials other than Permitted Hazardous Materials. Lessee shall be
responsible and liable for the compliance with all of the provisions of this
Section by all of Lessee's Representatives and Visitors, and all of Lessee's
obligations under this Section (including its indemnification obligations under
paragraph (e) below) shall survive the expiration or termination of this Lease.
(b) COMPLIANCE. Lessee shall at Lessee's expense promptly take
all actions required by any governmental agency or entity in connection with or
as a result of the Handling by Lessee of Hazardous Materials at or about the
Premises or Property, including
19
<PAGE>
inspection and testing, performing all cleanup, removal and remediation work
required with respect to those Hazardous Materials, complying with all closure
requirements and post-closure monitoring, and filing all required reports or
plans. All of the foregoing work and all Handling by Lessee of all Hazardous
Materials shall be performed in a good, safe and workmanlike manner by
consultants qualified and licensed to undertake such work and in a manner that
will not interfere with any other tenant's quiet enjoyment of the Property or
Lessor's use, operation, leasing and sale of the Property. Lessee shall deliver
to Lessor prior to delivery to any governmental agency, or promptly after
receipt from any such agency, copies of all permits, manifests, closure or
remedial action plans, notices, and all other documents relating to the Handling
by Lessee of Hazardous Materials at or about the Premises or Property. If any
lien attaches to the Premises or the Property in connection with or as a result
of the Handling by Lessee of Hazardous Materials, and Lessee does not cause the
same to be released, by payment, bonding or otherwise, within ten (10) days
after the attachment thereof, Lessor shall have the right but not the obligation
to cause the same to be released and any sums expended by Lessor (plus Lessor's
administrative costs) in connection therewith shall be payable by Lessee on
demand.
(c) LESSOR'S RIGHTS. Lessor shall have the right, but not the
obligation, to enter the Premises at any reasonable time (i) to confirm Lessee's
compliance with the provisions of this Section, and (ii) to perform Lessee's
obligations under this Section if Lessee has failed to do so after reasonable
notice to Lessee. Lessor shall also have the right to engage qualified Hazardous
Materials consultants to inspect the Premises and review the Handling by Lessee
of Hazardous Materials, including review of all permits, reports, plans, and
other documents regarding same. Lessee shall pay to Lessor on demand the costs
of Lessor's consultants' fees and all costs incurred by Lessor in performing
Lessee's obligations under this Section. Lessor shall use reasonable efforts to
minimize any interference with Lessee's business caused by Lessor's entry into
the Premises, but Lessor shall not be responsible for any interference caused
thereby.
32.4 DEFINITION.
(a) "Hazardous Materials" shall mean any substance: (A) that
now or in the future is regulated or governed by, requires investigation or
remediation under, or is defined as a hazardous waste, hazardous substance,
pollutant or contaminant under any governmental statute, code, ordinance,
regulation, rule or order, and any amendment thereto, including the
Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C.
ss.9601 eT Seq., and the Resource Conservation and Recovery Act, 42 U.S.C.
ss.6901 ET seq., or (B) that is toxic, explosive, corrosive, flammable,
radioactive, carcinogenic, dangerous or otherwise hazardous, including gasoline,
diesel fuel, petroleum hydrocarbons, polychlorinated biphenyls (PCBs), asbestos,
radon and urea formaldehyde foam insulation.
(b) "Environmental Requirements" shall mean all present and
future Laws, orders, permits, licenses, approvals, authorizations and other
requirements of any kind applicable to Hazardous Materials.
(c) "Handled by Lessee" and "Handling by Lessee" shall mean
and refer to any installation, handling, generation, storage, use, disposal,
discharge, release, abatement,
20
<PAGE>
removal, transportation, or any other activity of any type by Lessee or its
agents, employees, contractors, licensees, assignees, sublessees, transferees or
representatives (collectively, "Representatives") or its guests, customers,
invitees, or visitors (collectively, "Visitors"), at or about the Premises in
connection with or involving Hazardous Materials.
(d) "Environmental Losses" shall mean all costs and expenses
of any kind, damages, including foreseeable and unforeseeable consequential
damages, fines and penalties incurred in connection with any violation of and
compliance with Environmental Requirements and all losses of any kind
attributable to the diminution of value, loss of use or adverse effects on
marketability or use of any portion of the Premises or Property.
33. MEMORANDUM OF LEASE.
The parties hereto have simultaneously with the execution and delivery
of this Lease, executed and delivered a Memorandum of Lease substantially in the
form attached as EXHIBIT D to this Lease, which Lessor shall, at its sole
expense, cause to be recorded within five (5) days following delivery of this
Lease and returned to Lessee by Lessor within five (5) days thereafter.
34. BROKER'S REPRESENTATION. Each party represents that it dealt
with no broker or brokers in connection with the negotiation, execution and
delivery of this Lease. Lessor and Lessee shall, and do hereby, indemnify,
defend, and save the other harmless from and against any losses, damages,
penalties, claims or demands of whatsoever nature arising from a breach of its
foregoing representation including, without limitation, reasonable attorneys'
fees and expenses. The representations and indemnifications set forth in this
Section shall survive the cancellation or termination of this Lease.
35. FORCE MAJEURE. Lessor and Lessee shall be excused for the
period of any delay in performance of any obligations hereunder (except payment
of Rent) by reason of the wrongful or negligent acts or omissions of the other
party, or their Representatives, or by reason of labor disputes, civil
disturbance, war, war-like operations, invasions, rebellion, hostilities,
military or usurped power, sabotage, governmental regulations or controls, fires
or other casualty, or acts of God (referred to collectively herein as "Force
Majeure).
36. CONDITION OF PREMISES AT TERMINATION. At the expiration or
earlier termination of the Term, Lessee shall surrender the Premises, together
with all improvements installed by Lessee then a part thereof, in good order and
condition, except for the following: (a) ordinary wear and tear, (b) repairs
required to be made by Lessor, and (c) loss or damage by fire, the elements or
other casualty. All furniture and Trade Fixtures installed in the Premises at
the expense of Lessee, or other occupant, shall remain the property of Lessee,
or such other occupant; provided, however, Lessee shall have the option, during
the Term, to relinquish its property rights in such Trade Fixtures (including,
but not limited to, air conditioning machinery and lighting fixtures, if owned
by Lessee), which option shall be exercised by written notice of such
relinquishment to Lessor and, from and after the exercise of said option, the
property specified in said notice shall be the property of Lessor.
21
<PAGE>
37. CONSENTS AND APPROVALS. Unless another consent standard is
specifically provided under the terms of this Lease, whenever consent,
satisfaction or approval of either party is required under this Lease, such
consent, satisfaction or approval shall not be unreasonably withheld,
conditioned or delayed. If and to the extent that any written request for
consent, satisfaction or approval is not reasonably disapproved in writing
(including a statement of the reasons for disapproval with reasonable
particularity) within fifteen (15) days or such other time specifically set
forth in the particular provision of the Lease, the consent, satisfaction or
approval shall be deemed to have been given.
38. AUTHORITY.
38.1 LESSOR'S REPRESENTATIONS. Each of the persons executing
this Lease on behalf of Lessor warrants and represents that Lessor is a duly
organized and validly existing limited liability company, that Lessor has full
right and authority to enter into this Lease and that the persons signing on
behalf of Lessor are authorized to do so and have the power to bind Lessor to
this Lease. Lessor shall provide Lessee upon request with evidence reasonably
satisfactory to Lessee confirming the foregoing representations.
38.2 LESSEE'S REPRESENTATIONS. Each of the persons executing
this Lease on behalf of Lessee warrants and represents that Lessee is a duly
organized and validly existing limited liability company, that Lessee has full
right and authority to enter into this Lease and that the persons signing on
behalf of Lessee are authorized to do so and have the power to bind Lessee to
this Lease. Lessee shall provide Lessor upon request with evidence reasonably
satisfactory to Lessor confirming the foregoing representations.
39. ENTIRE AGREEMENT. This Lease, including the Exhibits and any
Addenda attached hereto, and the documents referred to herein, if any,
constitute the entire agreement between Lessor and Lessee with respect to the
leasing of space by Lessee at the Property, and supersede all prior or
contemporaneous agreements, understandings, proposals and other representations
by or between Lessor and Lessee, whether written or oral.
40. LESSOR'S LIABILITY. The liability of Lessor for its obligations
under this Lease is limited solely to the assets of Lessor, including without
limitation Lessor's interest in the Property, and no personal liability shall at
any time be asserted or enforceable against Lessor's partners on account of any
of Lessor's obligations or actions under this Lease.
41. ESTOPPEL CERTIFICATES. Either Lessor or Lessee may request that
the other party execute and deliver, within ten (10) days after written request
therefor, in a form provided by or satisfactory to the requesting party, a
certificate stating that this Lease is in full force and effect, describing any
amendments or modifications hereto, acknowledging that this Lease is subordinate
or prior, as the case may be, to any Encumbrance and stating any other
information that the requesting party may reasonably request, including the
Term, the monthly Rent, the date to which Rent has been paid, any claims or
offsets, the amount of any prepaid rent, and whether either party hereto is in
default under the terms of the Lease. Lessee irrevocably constitutes, appoints
and authorizes Lessor as Lessee's special attorney-in-fact for such purpose to
complete, execute and
22
<PAGE>
deliver such certificate if Lessee fails timely to execute and deliver such
certificate as provided above. Lessor irrevocably constitutes, appoints and
authorizes Lessee as Lessor's special attorney-in-fact for such purpose to
complete, execute and deliver such certificate if Lessor fails timely to execute
and deliver such certificate as provided above. Any person or entity purchasing,
acquiring an interest in or extending financing with respect to the Property
shall be entitled to rely upon any such certificate.
42. MISCELLANEOUS. This Lease may not be amended or modified except
by a writing signed by Lessor and Lessee. The determination that any provisions
hereof may be void, invalid, illegal or unenforceable shall not impair any other
provisions hereof and all such other provisions of this Lease shall remain in
full force and effect. The unenforceability, invalidity or illegality of any
provision of this Lease under particular circumstances shall not render
unenforceable, invalid or illegal other provisions of this Lease, or the same
provisions under other circumstances. This Lease shall be construed and
interpreted in accordance with the laws of the State of California. The
provisions of this Lease shall be construed in accordance with the fair meaning
of the language used and shall not be strictly construed against either party.
The captions contained in this Lease are for purposes of convenience only and
are not to be used to interpret or construe this Lease. When required by the
context of this Lease, the singular includes the plural. Wherever the term
"including" is used in this Lease, it shall be interpreted as meaning
"including, but not limited to" the matter or matters thereafter enumerated.
[Signature Page Follows]
23
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease the day
and year first above written.
LESSOR:
R & R LAND, LLC, a California limited
liability company,
By:
------------------------
Pat Roney, Manager
ADDRESS FOR NOTICES:
999 Adams Street, Suite 302
St. Helena, California 94574
LESSEE:
DEAN & DELUCA MARKETS, LLC, a
California limited liability company
By:
-------------------------
Pat Roney, Manager
ADDRESS FOR NOTICES:
607 St. Helena Highway South
St. Helena, California 94574
24
<PAGE>
EXHIBIT A
ATTACHED TO AND FORMING A PART OF
RETAIL LEASE
DATED AS OF MARCH 18, 1999
BETWEEN
R & R LAND, LLC, AS LESSOR,
AND
DEAN & DELUCA MARKETS, LLC, AS LESSEE ("LEASE")
LEGAL DESCRIPTION OF THE LAND
(TO BE ATTACHED)
25
<PAGE>
EXHIBIT B
ATTACHED TO AND FORMING A PART OF
RETAIL LEASE
DATED AS OF MARCH 18, 1999
BETWEEN
R & R LAND, LLC, AS LESSOR,
AND
DEAN & DELUCA MARKETS, LLC, AS LESSEE ("LEASE")
PLOT PLAN
(PARTIES TO DRAFT AND ATTACH)
Needs to show:
1. Land and layout of Structures, identifying the "Premises" and the "Adjacent
Building"
2. Parking
3. Driveways, entrances, sidewalks and exits
4. Existing signage
26
<PAGE>
EXHIBIT C
ATTACHED TO AND FORMING A PART OF
RETAIL LEASE
DATED AS OF MARCH 18, 1999
BETWEEN
R & R LAND, LLC, AS LESSOR,
AND
DEAN & DELUCA MARKETS, LLC, AS LESSEE ("LEASE")
EXISTING MORTGAGES
None.
27
<PAGE>
EXHIBIT D
ATTACHED TO AND FORMING A PART OF
RETAIL LEASE
DATED AS OF MARCH 18, 1999
BETWEEN
R & R LAND, LLC, AS LESSOR,
AND
DEAN & DELUCA MARKETS, LLC, AS LESSEE ("LEASE")
MEMORANDUM OF LEASE
Recording Requested By
When Recorded Mail To
Michael P. Burns
Farella Braun & Martel LLP
235 Montgomery Street
San Francisco, CA 94104
- ------------------------------------------------ ---------------------------
MEMORANDUM OF LEASE
The Lease term is less than thirty-five (35) years and no
transfer tax is due.
THIS MEMORANDUM OF LEASE is made and entered into as of this ________
day of _______, 1999, by and between R & R Land, LLC, a California limited
liability company ("Lessor"), and Dean & Deluca Markets, LLC, a California
limited liability company ("Lessee").
In consideration of and upon all of the terms, conditions, and
covenants set forth in that certain unrecorded Retail Lease of even date
herewith between Lessor and Lessee (hereinafter, the "Lease"), Lessor hereby
leases to Lessee, and Lessee hereby leases from Lessor, the "Premises" (as
described in the Lease), which Premises are located on the real property
described in EXHIBIT A attached hereto and made a part hereof. The Lease and all
its terms and provisions, are by this reference incorporated herein and made a
part hereof.
The Lease includes a right of first refusal to purchase the "Leasehold
Interest (as defined in Paragraph 29 of the Lease).
This Memorandum of Lease is executed for the sole purpose of giving
notice of the existence and contents of the Lease to all interested parties, and
shall in no way modify or affect the terms of such Lease or the obligations of
the parties thereunder.
28
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Memorandum of Lease
as of the date first above written.
LESSOR: LESSEE:
<TABLE>
<S> <C>
R & R LAND, LLC DEAN & DELUCA MARKETS, LLC
a California limited liability company a California limited liability company
By: /s/ Leslie G. Rudd By: /s/ Patrick Roney
---------------------------------- ----------------------------
Print Name: Leslie G. Rudd Print Name: Patrick Roney
------------------------- ---------------------
Its: Its:
-------------------------------- ----------------------------
</TABLE>
29
<PAGE>
EXHIBIT A
Legal Description of the Premises
All that real property situated in the State of California, County of Napa, and
described as follows:
<PAGE>
Exhibit 10.20
OFFICE LEASE AGREEMENT
between
R & R LAND, LLC a California
limited liability company
as "LANDLORD"
and
DEAN & DELUCA BRANDS, Inc.
a Delaware Corporation
as "TENANT"
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
1. PREMISES...................................................................1
2. TERM; POSSESSION...........................................................1
3. RENT 1
4. SECURITY DEPOSIT...........................................................2
5. USE AND COMPLIANCE WITH LAWS...............................................2
6. TENANT IMPROVEMENTS & ALTERATIONS..........................................4
7. MAINTENANCE AND REPAIRS....................................................4
8. TENANT'S TAXES.............................................................5
9. UTILITIES AND SERVICES.....................................................6
10. EXCULPATION AND INDEMNIFICATION...........................................6
11. INSURANCE.................................................................7
12. DAMAGE OR DESTRUCTION.....................................................9
13. CONDEMNATION.............................................................10
14. ASSIGNMENT AND SUBLETTING................................................12
15. DEFAULT AND REMEDIES.....................................................14
16. LATE CHARGE AND INTEREST.................................................16
17. WAIVER...................................................................16
18. ENTRY, INSPECTION AND CLOSURE............................................16
19. SURRENDER AND HOLDING OVER...............................................17
20. ENCUMBRANCES.............................................................18
21. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS...........................18
22. NOTICES..................................................................19
23. ATTORNEYS'FEES...........................................................19
24. QUIET POSSESSION.........................................................20
25. SECURITY MEASURES........................................................20
26. FORCE MAJEURE............................................................20
27. RULES AND REGULATIONS....................................................20
28. LANDLORD'S LIABILITY.....................................................21
29. CONSENTS AND APPROVALS...................................................21
30. WAIVER OF RIGHT TO JURY TRIAL............................................21
31. BROKERS..................................................................21
32. RELOCATION OF PREMISES...................................................22
33. ENTIRE AGREEMENT.........................................................22
34. MISCELLANEOUS............................................................22
35. AUTHORITY................................................................23
<PAGE>
INDEX OF DEFINED TERMS
Additional Rent.....................................3
Award..............................................14
Base Operating Costs................................1
Base Taxes..........................................2
Broker.............................................25
Building............................................1
Building Rules.....................................24
Building Systems....................................5
Business Days.......................................9
Business Hours......................................9
Claims.............................................10
Commencement Date...................................1
Condemnation.......................................14
Condemnor..........................................14
Controls............................................8
Date of Condemnation...............................14
Encumbrance........................................21
Environmental Losses................................6
Environmental Requirements..........................5
Event of Default...................................17
Expiration Date.....................................1
Fees...............................................23
Handled by Tenant...................................6
Handling by Tenant..................................6
Hazardous Materials.................................5
HVAC................................................5
Interest Rate......................................20
Landlord............................................1
Laws................................................2
Mortgagee..........................................22
Operating Costs.....................................2
Parking Facility....................................1
Permitted Hazardous Materials.......................6
Premises............................................1
Project.............................................1
Property............................................1
Property Manager...................................11
Proposed Transferee................................16
Rent................................................4
Rental Tax..........................................8
Representatives.....................................6
Service Failure.....................................9
Taxes...............................................3
Tenant..............................................1
Tenant's Share......................................3
Tenant's Taxes......................................8
Term................................................1
Trade Fixtures......................................7
Transfer...........................................15
Transferee.........................................16
Visitors............................................6
ii
<PAGE>
<TABLE>
<S> <C>
BASIC LEASE INFORMATION
LEASE DATE: For identification purposes only, the date of this Lease is
July 1, 1999
LANDLORD: R & R LAND, LLC
a California limited liability company
TENANT: DEAN & DELUCA BRANDS, Inc.
a Delaware Corporation
BUILDING ADDRESS: 607 St. Helena Highway South,
Napa, California 94574
RENTABLE AREA OF BUILDING:
2,500 square feet
PREMISES: Floor: First
Suite Number: 517A
Rentable Area: 2,500 square feet
TERM: 36 full calendar months (plus any partial month at the beginning of
the Term)
COMMENCEMENT DATE: July 1, 1999
EXPIRATION DATE: Three (3) years after the Commencement Date with earlier 60 day
termination rights
BASE RENT: $3,000 per month
LANDLORD'S ADDRESS FOR PAYMENT OF
RENT: R & R Land, LLC
999 Adams Street, Suite 302
St. Helena, California 94574
BUSINESS HOURS: 9:00 a.m. to 5:00 p.m., Monday through Friday, excluding
holidays
LANDLORD'S ADDRESS
FOR NOTICES: R & R Land, LLC
999 Adams Street, Suite 302
St. Helena, California 94574
</TABLE>
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<TABLE>
<S> <C>
TENANT'S ADDRESS Dean & DeLuca Brands, Inc
FOR NOTICES: 560 Broadway
New York, NY 10012
PROPERTY MANAGER: Pat Roney
ADDITIONAL PROVISIONS: 35. EXTENSION OPTION
</TABLE>
EXHIBITS:
Exhibit A: The Premises
Exhibit B: Building Rules
Exhibit C: Additional Provisions
The Basic Lease Information set forth above is part of the Lease. In
the event of any conflict between any provision in the Basic Lease Information
and the Lease, the Lease shall control.
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THIS LEASE is made as of the Lease Date set forth in the Basic Lease
Information, by and between the Landlord identified in the Basic Lease
Information ("LANDLORD"), and the Tenant identified in the Basic Lease
Information ("TENANT"). Landlord and Tenant hereby agree as follows:
1. PREMISES. Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, upon the terms and subject to the conditions of this Lease, the office
space identified in the Basic Lease Information as the Premises (the
"PREMISES"), in the Building located at the address specified in the Basic Lease
Information (the "BUILDING"). The approximate configuration and location of the
Premises is shown on EXHIBIT A. Landlord and Tenant agree that the rentable area
of the Premises for all purposes under this Lease shall be the Rentable Area
specified in the Basic Lease Information. The Building, together with the
parking facilities serving the Building (the "PARKING FACILITY"), and the
parcel(s) of land on which the Building and the Parking Facility are situated
are collectively referred to herein as the Property (the "PROPERTY").
2. TERM; POSSESSION. The term of this Lease (the "TERM") shall commence on the
Commencement Date as described below and, unless sooner terminated, shall expire
on the Expiration Date set forth in the Basic Lease Information (the "EXPIRATION
DATE"). The "COMMENCEMENT DATE" shall be the date as specified in the Basic
Lease Information; provided, however, that Landlord shall not be liable for any
claims, damages or liabilities if the Premises are not ready for occupancy by
the Commencement Date.
Notwithstanding the foregoing, Lessor or Tenant may terminate this
Lease for any reason, in their sole discretion, by giving notice sixty (60) days
prior to such termination during the original term of this lease, whether or not
the other party is in default under any provision of this Lease.
3. RENT.
3.1 BASE RENT. Tenant agrees to pay to Landlord the Base Rent set forth in
the Basic Lease Information, without prior notice or demand, on the first day of
each and every calendar month during the Term, except that Base Rent for the
first full calendar month in which Base Rent is payable shall be paid upon
Tenant's execution of this Lease and Base Rent for any partial month at the
beginning of the Term shall be paid on the Commencement Date. Base Rent for any
partial month at the beginning or end of the Term shall be prorated based on the
actual number of days in the month.
If the Basic Lease Information provides for any change in Base Rent by
reference to years or months (without specifying particular dates), the change
will take effect on the applicable annual or monthly anniversary of the
Commencement Date (which won't necessarily be the first day of a calendar
month).
3.2 PAYMENT OF RENT. All amounts payable or reimbursable by Tenant under
this Lease, including late charges and interest (collectively, "RENT"), shall
constitute rent and shall be payable and recoverable as rent in the manner
provided in this Lease. All sums payable to Landlord on demand under the terms
of this Lease shall be payable within ten (10) days after notice from
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Landlord of the amounts due. All rent shall be paid without offset, recoupment
or deduction in lawful money of the United States of America to Landlord at
Landlord's Address for Payment of Rent as set forth in the Basic Lease
Information, or to such other person or at such other place as Landlord may from
time to time designate.
4. SECURITY DEPOSIT. Tenant shall not be required to provide Landlord any
security deposit for this Lease.
5. USE AND COMPLIANCE WITH LAWS.
5.1 USE. The Premises shall be used and occupied for general business office
purposes and for no other use or purpose. Tenant shall comply with all present
and future Laws relating to Tenant's use or occupancy of the Premises (and make
any repairs, alterations or improvements as required to comply with all such
Laws), and shall observe the "Building Rules" (as defined in Section 27 - RULES
AND REGULATIONS). Tenant shall not do, bring, keep or sell anything in or about
the Premises that is prohibited by, or that will cause a cancellation of or an
increase in the existing premium for, any insurance policy covering the Property
or any part thereof. Tenant shall not permit the Premises to be occupied or used
in any manner that will constitute waste or a nuisance, or disturb the quiet
enjoyment of or otherwise annoy other tenants in the Building. Without limiting
the foregoing, the Premises shall not be used for educational activities,
practice of medicine or any of the healing arts, providing social services, for
any governmental use (including embassy or consulate use), or for personnel
agency, customer service office, studios for radio, television or other media,
travel agency or reservation center operations or uses. Tenant shall not,
without the prior consent of Landlord, (i) bring into the Building or the
Premises anything that may cause substantial noise, odor or vibration, overload
the floors in the Premises or the Building or any of the heating, ventilating
and air-conditioning ("HVAC"), mechanical, elevator, plumbing, electrical, fire
protection, life safety, security or other systems in the Building ("BUILDING
SYSTEMS"), or jeopardize the structural integrity of the Building or any part
thereof; (ii) connect to the utility systems of the Building any apparatus,
machinery or other equipment other than typical office equipment; or (iii)
connect to any electrical circuit in the Premises any equipment or other load
with aggregate electrical power requirements in excess of 80% of the rated
capacity of the circuit.
5.2 HAZARDOUS MATERIALS.
(a) DEFINITIONS.
(1) "HAZARDOUS MATERIALS" shall mean any substance: (A) that now or
in the future is regulated or governed by, requires investigation or remediation
under, or is defined as a hazardous waste, hazardous substance, pollutant or
contaminant under any governmental statute, code, ordinance, regulation, rule or
order, and any amendment thereto, including the Comprehensive Environmental
Response Compensation and Liability Act, 42 U.S.C. ss.9601 eT Seq., and the
Resource Conservation and Recovery Act, 42 U.S.C. ss.6901 ET seq., or (B) that
is toxic, explosive, corrosive, flammable, radioactive, carcinogenic, dangerous
or otherwise hazardous, including gasoline, diesel fuel, petroleum hydrocarbons,
polychlorinated biphenyls (PCBs), asbestos, radon and urea formaldehyde foam
insulation.
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(2) "ENVIRONMENTAL REQUIREMENTS" shall mean all present and future
Laws, orders, permits, licenses, approvals, authorizations and other
requirements of any kind applicable to Hazardous Materials.
(3) "HANDLED BY TENANT" and "HANDLING BY TENANT" shall mean and
refer to any installation, handling, generation, storage, use, disposal,
discharge, release, abatement, removal, transportation, or any other activity of
any type by Tenant or its agents, employees, contractors, licensees, assignees,
sublessees, transferees or representatives (collectively, "REPRESENTATIVES") or
its guests, customers, invitees, or visitors (collectively, "VISITORS"), at or
about the Premises in connection with or involving Hazardous Materials.
(4) "ENVIRONMENTAL LOSSES" shall mean all costs and expenses of any
kind, damages, including foreseeable and unforeseeable consequential damages,
fines and penalties incurred in connection with any violation of and compliance
with Environmental Requirements and all losses of any kind attributable to the
diminution of value, loss of use or adverse effects on marketability or use of
any portion of the Premises or Property.
(b) TENANT'S COVENANTS. No Hazardous Materials shall be Handled
by Tenant at or about the Premises or Property without Landlord's prior written
consent, which consent may be granted, denied, or conditioned upon compliance
with Landlord's requirements, all in Landlord's absolute discretion.
Notwithstanding the foregoing, normal quantities and use of those Hazardous
Materials customarily used in the conduct of general office activities, such as
copier fluids and cleaning supplies ("PERMITTED HAZARDOUS MATERIALS"), may be
used and stored at the Premises without Landlord's prior written consent,
provided that Tenant's activities at or about the Premises and Property and the
Handling by Tenant of all Hazardous Materials shall comply at all times with all
Environmental Requirements. At the expiration or termination of the Lease,
Tenant shall promptly remove from the Premises and Property all Hazardous
Materials Handled by Tenant at the Premises or the Property. Tenant shall keep
Landlord fully and promptly informed of all Handling by Tenant of Hazardous
Materials other than Permitted Hazardous Materials. Tenant shall be responsible
and liable for the compliance with all of the provisions of this Section by all
of Tenant's Representatives and Visitors, and all of Tenant's obligations under
this Section (including its indemnification obligations under paragraph (e)
below) shall survive the expiration or termination of this Lease.
(c) COMPLIANCE. Tenant shall at Tenant's expense promptly take
all actions required by any governmental agency or entity in connection with or
as a result of the Handling by Tenant of Hazardous Materials at or about the
Premises or Property, including inspection and testing, performing all cleanup,
removal and remediation work required with respect to those Hazardous Materials,
complying with all closure requirements and post-closure monitoring, and filing
all required reports or plans. All of the foregoing work and all Handling by
Tenant of all Hazardous Materials shall be performed in a good, safe and
workmanlike manner by consultants qualified and licensed to undertake such work
and in a manner that will not interfere with any other tenant's quiet enjoyment
of the Property or Landlord's use, operation, leasing and sale of the Property.
Tenant shall deliver to Landlord prior to delivery to any governmental agency,
or promptly after receipt from any such agency, copies of all permits,
manifests, closure or remedial
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action plans, notices, and all other documents relating to the Handling by
Tenant of Hazardous Materials at or about the Premises or Property. If any lien
attaches to the Premises or the Property in connection with or as a result of
the Handling by Tenant of Hazardous Materials, and Tenant does not cause the
same to be released, by payment, bonding or otherwise, within ten (10) days
after the attachment thereof, Landlord shall have the right but not the
obligation to cause the same to be released and any sums expended by Landlord
(plus Landlord's administrative costs) in connection therewith shall be payable
by Tenant on demand.
(d) LANDLORD'S RIGHTS. Landlord shall have the right, but not
the obligation, to enter the Premises at any reasonable time (i) to confirm
Tenant's compliance with the provisions of this Section 5.2, and (ii) to perform
Tenant's obligations under this Section if Tenant has failed to do so after
reasonable notice to Tenant. Landlord shall also have the right to engage
qualified Hazardous Materials consultants to inspect the Premises and review the
Handling by Tenant of Hazardous Materials, including review of all permits,
reports, plans, and other documents regarding same. Tenant shall pay to Landlord
on demand the costs of Landlord's consultants' fees and all costs incurred by
Landlord in performing Tenant's obligations under this Section. Landlord shall
use reasonable efforts to minimize any interference with Tenant's business
caused by Landlord's entry into the Premises, but Landlord shall not be
responsible for any interference caused thereby.
(e) TENANT'S INDEMNIFICATION. Tenant agrees to indemnify,
defend, protect and hold harmless Landlord and its partners or members and its
or their partners, members, directors, officers, shareholders, employees and
agents from all Environmental Losses and all other claims, actions, losses,
damages, liabilities, costs and expenses of every kind, including reasonable
attorneys', experts' and consultants' fees and costs, incurred at any time and
arising from or in connection with the Handling by Tenant of Hazardous Materials
at or about the Property or Tenant's failure to comply in full with all
Environmental Requirements with respect to the Premises.
6. ALTERATIONS. Subject to the provisions of Section 5 - USE AND COMPLIANCE WITH
LAWS, Tenant may install and maintain furnishings, equipment, movable
partitions, business equipment and other trade fixtures ("TRADE FIXTURES") in
the Premises, provided that the Trade Fixtures do not become an integral part of
the Premises or the Building. Tenant shall promptly repair any damage to the
Premises or the Building caused by any installation or removal of such Trade
Fixtures.
7. MAINTENANCE AND REPAIRS.
7.1 By taking possession of the Premises Tenant agrees that the Premises are
then in a good and tenantable condition. During the Term, Tenant at Tenant's
expense but under the direction of Landlord, shall repair and maintain the
Premises, including the interior walls, floor coverings, ceiling (ceiling tiles
and grid), Tenant Improvements, Alterations, fire extinguishers, outlets and
fixtures, and any appliances (including dishwashers, hot water heaters and
garbage disposers) in the Premises, in a first class condition, and keep the
Premises in a clean, safe and orderly condition.
7.2 Landlord shall maintain or cause to be maintained in reasonably good
order, condition and repair, the structural portions of the roof, foundations,
floors and exterior walls of the
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Building, the Building Systems, and the public and common areas of the Property,
such as elevators, stairs, corridors and restrooms; provided, however, that
Tenant shall pay the cost of repairs for any damage occasioned by Tenant's use
of the Premises or the Property or any act or omission of Tenant or Tenant's
Representatives or Visitors, to the extent (if any) not covered by Landlord's
property insurance. Landlord shall be under no obligation to inspect the
Premises. Tenant shall promptly report in writing to Landlord any defective
condition known to Tenant which Landlord is required to repair. As a material
part of the consideration for this Lease, Tenant hereby waives any benefits of
any applicable existing or future Law, including the provisions of California
Civil Code Sections 1932(1), 1941 and 1942, that allows a tenant to make repairs
at its landlord's expense.
7.3 Landlord hereby reserves the right, at any time and from time to time,
without liability to Tenant, and without constituting an eviction, constructive
or otherwise, or entitling Tenant to any abatement of rent or to terminate this
Lease or otherwise releasing Tenant from any of Tenant's obligations under this
Lease:
(a) To make alterations, additions, repairs, improvements to or in or to
decrease the size of area of, all or any part of the Building, the fixtures and
equipment therein, and the Building Systems;
(b) To change the Building's name or street address;
(c) To install and maintain any and all signs on the exterior and
interior of the Building;
(d) To reduce, increase, enclose or otherwise change at any time and
from time to time the size, number, location, lay-out and nature of the common
areas (including the Parking Facility) and other tenancies and premises in the
Property and to create additional rentable areas through use or enclosure of
common areas; and
(e) If any governmental authority promulgates or revises any Law or
imposes mandatory or voluntary controls or guidelines on Landlord or the
Property relating to the use or conservation of energy or utilities or the
reduction of automobile or other emissions or reduction or management of traffic
or parking on the Property (collectively "CONTROLS"), to comply with such
Controls, whether mandatory or voluntary, or make any alterations to the
Property related thereto.
8. TENANT'S TAXES. "TENANT'S TAXES" shall mean (a) all taxes, assessments,
license fees and other governmental charges or impositions levied or assessed
against or with respect to Tenant's personal property or Trade Fixtures in the
Premises, whether any such imposition is levied directly against Tenant or
levied against Landlord or the Property, (b) all rental, excise, sales or
transaction privilege taxes arising out of this Lease (excluding, however, state
and federal personal or corporate income taxes measured by the income of
Landlord from all sources) imposed by any taxing authority upon Landlord or upon
Landlord's receipt of any rent payable by Tenant pursuant to the terms of this
Lease ("RENTAL TAX"), and (c) any increase in Taxes attributable to inclusion of
a value placed on Tenant's personal property, Trade Fixtures or Alterations.
Tenant shall pay any Rental Tax to Landlord in addition to and at the same time
as Base Rent is payable under this
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Lease, and shall pay all other Tenant's Taxes before delinquency (and, at
Landlord's request, shall furnish Landlord satisfactory evidence thereof). If
Landlord pays Tenant's Taxes or any portion thereof, Tenant shall reimburse
Landlord upon demand for the amount of such payment, together with interest at
the Interest Rate from the date of Landlord's payment to the date of Tenant's
reimbursement.
9. UTILITIES AND SERVICES.
9.1 UTILITIES. Lessor covenants and agrees that, as of the Commencement
Date, the Premises shall be serviced with gas, electric, telephone, water,
septic and other utilities. Lessor agrees, at its sole cost and expense, to
cause the necessary mains, conduits and other facilities to be provided to make
water, sewer, gas, telephone and electricity available to the Premises from and
after the Commencement Date, including the payment of impact or tap fees and
meter installation charges. After installation, Lessee shall pay all charges for
consumption of utility services furnished to the Premises during the Term.
Lessor agrees to use reasonable efforts to maintain, and if possible, increase,
the amount of water provided to the Premises.
9.2 INTERRUPTION OF SERVICES. In the event of an interruption in or
failure or inability to provide any services or utilities to the Premises or
Building for any reason (a "SERVICE FAILURE"), such Service Failure shall not,
regardless of its duration, impose upon Landlord any liability whatsoever,
constitute an eviction of Tenant, constructive or otherwise, entitle Tenant to
an abatement of rent or to terminate this Lease or otherwise release Tenant from
any of Tenant's obligations under this Lease. Tenant hereby waives any benefits
of any applicable existing or future Law, including the provisions of California
Civil Code Section 1932(1), permitting the termination of this Lease due to such
interruption, failure or inability.
10. EXCULPATION AND INDEMNIFICATION.
10.1 LANDLORD'S INDEMNIFICATION OF TENANT. Landlord shall indemnify,
protect, defend and hold Tenant harmless from and against any claims, actions,
liabilities, damages, costs or expenses, including reasonable attorneys' fees
and costs incurred in defending against the same ("CLAIMS") asserted by any
third party against Tenant for loss, injury or damage, to the extent such loss,
injury or damage is caused by the willful misconduct or negligent acts or
omissions of Landlord or its authorized representatives.
10.2 TENANT'S INDEMNIFICATION OF LANDLORD. Tenant shall indemnify,
protect, defend and hold Landlord and Landlord's authorized representatives
harmless from and against Claims arising from (a) the acts or omissions of
Tenant or Tenant's Representatives or Visitors in or about the Property, or (b)
any construction or other work undertaken by Tenant on the Premises (including
any design defects), or (c) any breach or default under this Lease by Tenant, or
(d) any loss, injury or damage, howsoever and by whomsoever caused, to any
person or property, occurring in or about the Premises during the Term,
excepting only Claims described in this clause (d) to the extent they are caused
by the willful misconduct or negligent acts or omissions of Landlord or its
authorized representatives.
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10.3 DAMAGE TO TENANT AND TENANT'S PROPERTY. Landlord shall not be liable
to Tenant for any loss, injury or other damage to Tenant or to Tenant's property
in or about the Premises or the Property from any cause (including defects in
the Property or in any equipment in the Property; fire, explosion or other
casualty; bursting, rupture, leakage or overflow of any plumbing or other pipes
or lines, sprinklers, tanks, drains, drinking fountains or washstands in, above,
or about the Premises or the Property; or acts of other tenants in the
Property). Tenant hereby waives all claims against Landlord for any such loss,
injury or damage and the cost and expense of defending against claims relating
thereto, including any loss, injury or damage caused by Landlord's negligence
(active or passive) or willful misconduct. Notwithstanding any other provision
of this Lease to the contrary, in no event shall Landlord be liable to Tenant
for any punitive or consequential damages or damages for loss of business by
Tenant.
10.4 SURVIVAL. The obligations of the parties under this Section 10 shall
survive the expiration or termination of this Lease.
11. INSURANCE.
11.1 TENANT'S INSURANCE.
(a) LIABILITY INSURANCE. Tenant shall maintain in full force throughout
the Term, commercial general liability insurance providing coverage on an
occurrence form basis with limits of not less than Two Million Dollars
($2,000,000.00) each occurrence for bodily injury and property damage combined,
Two Million Dollars ($2,000,000.00) annual general aggregate, and Two Million
Dollars ($2,000,000.00) products and completed operations annual aggregate.
Tenant's liability insurance policy or policies shall: (i) include premises and
operations liability coverage, products and completed operations liability
coverage, broad form property damage coverage including completed operations,
blanket contractual liability coverage including, to the maximum extent
possible, coverage for the indemnification obligations of Tenant under this
Lease, and personal and advertising injury coverage; (ii) provide that the
insurance company has the duty to defend all insureds under the policy; (iii)
provide that defense costs are paid in addition to and do not deplete any of the
policy limits; (iv) cover liabilities arising out of or incurred in connection
with Tenant's use or occupancy of the Premises or the Property; (v) extend
coverage to cover liability for the actions of Tenant's Representatives and
Visitors; and (vi) designate separate limits for the Property. Each policy of
liability insurance required by this Section shall: (1) contain a cross
liability endorsement or separation of insureds clause; (2) provide that any
waiver of subrogation rights or release prior to a loss does not void coverage;
(3) provide that it is primary to and not contributing with, any policy of
insurance carried by Landlord covering the same loss; (4) provide that any
failure to comply with the reporting provisions by Tenant shall not affect
coverage provided to Landlord, its partners, property managers and Mortgagees;
and (5) name Landlord, its partners, the Property Manager identified in the
Basic Lease Information (the "PROPERTY MANAGER"), and such other parties in
interest as Landlord may from time to time reasonably designate to Tenant in
writing, as additional insureds. Such additional insureds shall be provided at
least the same extent of coverage as is provided to Tenant under such policies
with respect to liability arising out of the ownership, maintenance or use of
the Premises. All endorsements effecting such additional insured status shall be
at least as broad as additional insured endorsement form number CG 20 11 11 85
or CG 20 11 11 01 96 promulgated by the Insurance Services Office.
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(b) PROPERTY INSURANCE. Tenant shall at all times maintain in effect
with respect to any Alterations and Tenant's Trade Fixtures and personal
property, commercial property insurance providing coverage, on an "all risk" or
"special form" basis, in an amount equal to at least 90% of the full replacement
cost of the covered property. Tenant may carry such insurance under a blanket
policy, provided that such policy provides coverage equivalent to a separate
policy. During the Term, the proceeds from any such policies of insurance shall
be used for the repair or replacement of the Alterations, Trade Fixtures and
personal property so insured. Landlord shall be provided coverage under such
insurance to the extent of its insurable interest and, if requested by Landlord,
both Landlord and Tenant shall sign all documents reasonably necessary or proper
in connection with the settlement of any claim or loss under such insurance.
Landlord will have no obligation to carry insurance on any Alterations or on
Tenant's Trade Fixtures or personal property.
(c) REQUIREMENTS FOR ALL POLICIES. Each policy of insurance required
under this Section 11.1 shall: (i) be in a form, and written by an insurer,
reasonably acceptable to Landlord, (ii) be maintained at Tenant's sole cost and
expense, and (iii) require at least thirty (30) days' written notice to Landlord
prior to any cancellation, nonrenewal or modification of insurance coverage.
Insurance companies issuing such policies shall have rating classifications of
"A" or better and financial size category ratings of "VII" or better according
to the latest edition of the A.M. Best Key Rating Guide. All insurance companies
issuing such policies shall be admitted carriers licensed to do business in the
state where the Property is located. Any deductible amount under such insurance
shall not exceed $5,000. Tenant shall provide to Landlord, upon request,
evidence that the insurance required to be carried by Tenant pursuant to this
Section, including any endorsement effecting the additional insured status, is
in full force and effect and that premiums therefor have been paid.
(d) UPDATING COVERAGE. Tenant shall increase the amounts of insurance as
required by any Mortgagee, and, not more frequently than once every three (3)
years, as recommended by Landlord's insurance broker, if, in the opinion of
either of them, the amount of insurance then required under this Lease is not
adequate. Any limits set forth in this Lease on the amount or type of coverage
required by Tenant's insurance shall not limit the liability of Tenant under
this Lease.
(e) CERTIFICATES OF INSURANCE. Prior to occupancy of the Premises by
Tenant, and not less than thirty (30) days prior to expiration of any policy
thereafter, Tenant shall furnish to Landlord a certificate of insurance
reflecting that the insurance required by this Section is in force, accompanied
by an endorsement showing the required additional insureds satisfactory to
Landlord in substance and form. Notwithstanding the requirements of this
paragraph, Tenant shall at Landlord's request provide to Landlord a certified
copy of each insurance policy required to be in force at any time pursuant to
the requirements of this Lease or its Exhibits.
11.2 LANDLORD'S INSURANCE. During the Term, to the extent such coverages are
available at a commercially reasonable cost, Landlord shall maintain in effect
insurance on the Building with responsible insurers, on an "all risk" or
"special form" basis, insuring the Building and the Tenant Improvements in an
amount equal to at least 90% of the replacement cost thereof, excluding land,
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foundations, footings and underground installations. Landlord may, but shall not
be obligated to, carry insurance against additional perils and/or in greater
amounts.
11.3 MUTUAL WAIVER OF RIGHT OF RECOVERY & WAIVER OF SUBROGATION. Landlord
and Tenant each hereby waive any right of recovery against each other and the
partners, managers, members, shareholders, officers, directors and authorized
representatives of each other for any loss or damage that is covered by any
policy of property insurance maintained by either party (or required by this
Lease to be maintained) with respect to the Premises or the Property or any
operation therein, regardless of cause, including negligence (active or passive)
of the party benefiting from the waiver. If any such policy of insurance
relating to this Lease or to the Premises or the Property does not permit the
foregoing waiver or if the coverage under any such policy would be invalidated
as a result of such waiver, the party maintaining such policy shall obtain from
the insurer under such policy a waiver of all right of recovery by way of
subrogation against either party in connection with any claim, loss or damage
covered by such policy.
12. DAMAGE OR DESTRUCTION.
12.1 LANDLORD'S DUTY TO REPAIR.
(a) If all or a substantial part of the Premises are rendered
untenantable or inaccessible by damage to all or any part of the Property from
fire or other casualty then, unless either party is entitled to and elects to
terminate this Lease pursuant to Sections 12.2 - LANDLORD'S RIGHT TO TERMINATE
and 12.3 - TENANT'S RIGHT TO TERMINATE, Landlord shall, at its expense, use
reasonable efforts to repair and restore the Premises and/or the Property, as
the case may be, to substantially their former condition to the extent permitted
by then applicable Laws; provided, however, that in no event shall Landlord have
any obligation for repair or restoration beyond the extent of insurance proceeds
received by Landlord for such repair or restoration, or for any of Tenant's
personal property, Trade Fixtures or Alterations.
(b) If Landlord is required or elects to repair damage to the Premises
and/or the Property, this Lease shall continue in effect, but Tenant's Base Rent
and Additional Rent shall be abated with regard to any portion of the Premises
that Tenant is prevented from using by reason of such damage or its repair from
the date of the casualty until substantial completion of Landlord's repair of
the affected portion of the Premises as required under this Lease. In no event
shall Landlord be liable to Tenant by reason of any injury to or interference
with Tenant's business or property arising from fire or other casualty or by
reason of any repairs to any part of the Property necessitated by such casualty.
12.2 LANDLORD'S RIGHT TO TERMINATE. Landlord may elect to terminate this
Lease following damage by fire or other casualty under the following
circumstances:
(a) If, in the reasonable judgment of Landlord, the Premises and the
Property cannot be substantially repaired and restored under applicable Laws
within one (1) year from the date of the casualty;
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(b) If, in the reasonable judgment of Landlord, adequate proceeds are
not, for any reason, made available to Landlord from Landlord's insurance
policies (and/or from Landlord's funds made available for such purpose, at
Landlord's sole option) to make the required repairs;
(c) If the Building is damaged or destroyed to the extent that, in the
reasonable judgment of Landlord, the cost to repair and restore the Building
would exceed twenty-five percent (25%) of the full replacement cost of the
Building, whether or not the Premises are at all damaged or destroyed; or
(d) If the fire or other casualty occurs during the last year of the
Term.
If any of the circumstances described in subparagraphs (a), (b), (c) or (d) of
this Section 12.2 occur or arise, Landlord shall give Tenant notice within
one hundred and twenty (120) days after the date of the casualty, specifying
whether Landlord elects to terminate this Lease as provided above and, if
not, Landlord's estimate of the time required to complete Landlord's repair
obligations under this Lease.
12.3 TENANT'S RIGHT TO TERMINATE. If all or a substantial part of the
Premises are rendered untenantable or inaccessible by damage to all or any part
of the Property from fire or other casualty, and Landlord does not elect to
terminate as provided above, then Tenant may elect to terminate this Lease if
Landlord's estimate of the time required to complete Landlord's repair
obligations under this Lease is greater than one (1) year, in which event Tenant
may elect to terminate this Lease by giving Landlord notice of such election to
terminate within thirty (30) days after Landlord's notice to Tenant pursuant to
Section 12.2 - LANDLORD'S RIGHT TO TERMINATE.
12.4 WAIVER. Landlord and Tenant each hereby waive the provisions of
California Civil Code Sections 1932(2), 1933(4) and any other applicable
existing or future Law permitting the termination of a lease agreement in the
event of damage or destruction under any circumstances other than as provided in
Sections 12.2 - LANDLORD'S RIGHT TO TERMINATE and 12.3 - TENANT'S RIGHT TO
TERMINATE.
13. CONDEMNATION.
13.1 DEFINITIONS.
(a) "AWARD" shall mean all compensation, sums, or anything of value
awarded, paid or received on a total or partial Condemnation.
(b) "CONDEMNATION" shall mean (i) a permanent taking (or a temporary
taking for a period extending beyond the end of the Term) pursuant to the
exercise of the power of condemnation or eminent domain by any public or
quasi-public authority, private corporation or individual having such power
("CONDEMNOR"), whether by legal proceedings or otherwise, or (ii) a voluntary
sale or transfer by Landlord to any such authority, either under threat of
condemnation or while legal proceedings for condemnation are pending.
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(c) "DATE OF CONDEMNATION" shall mean the earlier of the date that
title to the property taken is vested in the Condemnor or the date the Condemnor
has the right to possession of the property being condemned.
13.2 EFFECT ON LEASE.
(a) If the Premises are totally taken by Condemnation, this Lease shall
terminate as of the Date of Condemnation. If a portion but not all of the
Premises is taken by Condemnation, this Lease shall remain in effect; provided,
however, that if the portion of the Premises remaining after the Condemnation
will be unsuitable for Tenant's continued use, then upon notice to Landlord
within thirty (30) days after Landlord notifies Tenant of the Condemnation,
Tenant may terminate this Lease effective as of the Date of Condemnation.
(b) If twenty-five percent (25%) or more of the Project or of the
parcel(s) of land on which the Building is situated or of the Parking Facility
or of the floor area in the Building is taken by Condemnation, or if as a result
of any Condemnation the Building is no longer reasonably suitable for use as an
office building, whether or not any portion of the Premises is taken, Landlord
may elect to terminate this Lease, effective as of the Date of Condemnation, by
notice to Tenant within thirty (30) days after the Date of Condemnation.
(c) If all or a portion of the Premises is temporarily taken by a
Condemnor for a period not extending beyond the end of the Term, this Lease
shall remain in full force and effect.
13.3 RESTORATION. If this Lease is not terminated as provided in Section
13.2 - EFFECT ON LEASE, Landlord, at its expense, shall diligently proceed to
repair and restore the Premises to substantially its former condition (to the
extent permitted by then applicable Laws) and/or repair and restore the Building
to an architecturally complete office building; provided, however, that
Landlord's obligations to so repair and restore shall be limited to the amount
of any Award received by Landlord and not required to be paid to any Mortgagee
(as defined in Section 20.2 below). In no event shall Landlord have any
obligation to repair or replace any improvements in the Premises beyond the
amount of any Award received by Landlord for such repair or to repair or replace
any of Tenant's personal property, Trade Fixtures, or Alterations.
13.4 ABATEMENT AND REDUCTION OF RENT. If any portion of the Premises is
taken in a Condemnation or is rendered permanently untenantable by repairs
necessitated by the Condemnation, and this Lease is not terminated, the Base
Rent and Additional Rent payable under this Lease shall be proportionally
reduced as of the Date of Condemnation based upon the percentage of rentable
square feet in the Premises so taken or rendered permanently untenantable. In
addition, if this Lease remains in effect following a Condemnation and Landlord
proceeds to repair and restore the Premises, the Base Rent and Additional Rent
payable under this Lease shall be abated during the period of such repair or
restoration to the extent such repairs prevent Tenant's use of the Premises.
13.5 AWARDS. Any Award made shall be paid to Landlord, and Tenant hereby
assigns to Landlord, and waives all interest in or claim to, any such Award,
including any claim for the value of the unexpired Term; provided, however, that
Tenant shall be entitled to receive, or to prosecute a
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separate claim for, an Award for a temporary taking of the Premises or a portion
thereof by a Condemnor where this Lease is not terminated (to the extent such
Award relates to the unexpired Term), or an Award or portion thereof separately
designated for relocation expenses or the interruption of or damage to Tenant's
business or as compensation for Tenant's personal property, Trade Fixtures or
Alterations.
13.6 WAIVER. Landlord and Tenant each hereby waive the provisions of
California Code of Civil Procedure Section 1265.130 and any other applicable
existing or future Law allowing either party to petition for a termination of
this Lease upon a partial taking of the Premises and/or the Property.
14. ASSIGNMENT AND SUBLETTING.
14.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not assign this Lease or any
interest therein, or sublet or license or permit the use or occupancy of the
Premises or any part thereof by or for the benefit of anyone other than Tenant,
or in any other manner transfer all or any part of Tenant's interest under this
Lease (each and all a "TRANSFER"), without the prior written consent of
Landlord, which consent (subject to the other provisions of this Section 14)
shall not be unreasonably withheld. If Tenant is a business entity, any direct
or indirect transfer of fifty percent (50%) or more of the ownership interest of
the entity (whether in a single transaction or in the aggregate through more
than one transaction) shall be deemed a Transfer. Notwithstanding any provision
in this Lease to the contrary, Tenant shall not mortgage, pledge, hypothecate or
otherwise encumber this Lease or all or any part of Tenant's interest under this
Lease.
14.2 REASONABLE CONSENT.
(a) Prior to any proposed Transfer, Tenant shall submit in writing to
Landlord (i) the name and legal composition of the proposed assignee, subtenant,
user or other transferee (each a "PROPOSED TRANSFEREE"); (ii) the nature of the
business proposed to be carried on in the Premises; (iii) a current balance
sheet, income statements for the last two years and such other reasonable
financial and other information concerning the Proposed Transferee as Landlord
may request; and (iv) a copy of the proposed assignment, sublease or other
agreement governing the proposed Transfer. Within fifteen (15) Business Days
after Landlord receives all such information it shall notify Tenant whether it
approves or disapproves such Transfer or if it elects to proceed under Section
14.7 - LANDLORD'S RIGHT TO SPACE.
(b) Tenant acknowledges and agrees that, among other circumstances for
which Landlord could reasonably withhold consent to a proposed Transfer, it
shall be reasonable for Landlord to withhold consent where (i) the Proposed
Transferee does not intend itself to occupy the entire portion of the Premises
assigned or sublet, (ii) Landlord reasonably disapproves of the Proposed
Transferee's business operating ability or history, reputation or
creditworthiness or the character of the business to be conducted by the
Proposed Transferee at the Premises, (iii) the Proposed Transferee is a
governmental agency or unit or an existing tenant in the Project, (iv) the
proposed Transfer would violate any "exclusive" rights of any tenants in the
Project, (v) Landlord or Landlord's agent has shown space in the Building to the
Proposed Transferee or responded to any inquiries from the Proposed Transferee
or the Proposed Transferee's agent concerning
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availability of space in the Building, at any time within the preceding nine
months, or (vi) Landlord otherwise determines that the proposed Transfer would
have the effect of decreasing the value of the Building or increasing the
expenses associated with operating, maintaining and repairing the Property. In
no event may Tenant publicly offer or advertise all or any portion of the
Premises for assignment or sublease at a rental less than that then sought by
Landlord for a direct lease (non-sublease) of comparable space in the Project.
14.3 EXCESS CONSIDERATION. If Landlord consents to the Transfer,
Tenant shall pay to Landlord as additional rent, within ten (10) days after
receipt by Tenant, any consideration paid by any transferee (the "TRANSFEREE")
for the Transfer, including, in the case of a sublease, the excess of the rent
and other consideration payable by the subtenant over the amount of Base Rent
and Additional Rent payable hereunder applicable to the subleased space.
14.4 NO RELEASE OF TENANT. No consent by Landlord to any Transfer
shall relieve Tenant of any obligation to be performed by Tenant under this
Lease, whether occurring before or after such consent, assignment, subletting or
other Transfer. Each Transferee shall be jointly and severally liable with
Tenant (and Tenant shall be jointly and severally liable with each Transferee)
for the payment of rent (or, in the case of a sublease, rent in the amount set
forth in the sublease) and for the performance of all other terms and provisions
of this Lease. The consent by Landlord to any Transfer shall not relieve Tenant
or any such Transferee from the obligation to obtain Landlord's express prior
written consent to any subsequent Transfer by Tenant or any Transferee. The
acceptance of rent by Landlord from any other person (whether or not such person
is an occupant of the Premises) shall not be deemed to be a waiver by Landlord
of any provision of this Lease or to be a consent to any Transfer.
14.5 EXPENSES AND ATTORNEYS' FEES. Tenant shall pay to Landlord on
demand all costs and expenses (including reasonable attorneys' fees) incurred by
Landlord in connection with reviewing or consenting to any proposed Transfer
(including any request for consent to, or any waiver of Landlord's rights in
connection with, any security interest in any of Tenant's property at the
Premises).
14.6 EFFECTIVENESS OF TRANSFER. Prior to the date on which any
permitted Transfer (whether or not requiring Landlord's consent) becomes
effective, Tenant shall deliver to Landlord a counterpart of the fully executed
Transfer document and Landlord's standard form of Consent to Assignment or
Consent to Sublease executed by Tenant and the Transferee in which each of
Tenant and the Transferee confirms its obligations pursuant to this Lease.
Failure or refusal of a Transferee to execute any such instrument shall not
release or discharge the Transferee from liability as provided herein. The
voluntary, involuntary or other surrender of this Lease by Tenant, or a mutual
cancellation by Landlord and Tenant, shall not work a merger, and any such
surrender or cancellation shall, at the option of Landlord, either terminate all
or any existing subleases or operate as an assignment to Landlord of any or all
of such subleases.
14.7 LANDLORD'S RIGHT TO SPACE. Notwithstanding any of the above
provisions of this Section to the contrary, if Tenant notifies Landlord that it
desires to enter into a Transfer, Landlord, in lieu of consenting to such
Transfer, may elect (x) in the case of an assignment or a sublease of the entire
Premises, to terminate this Lease, or (y) in the case of a sublease of less than
the entire
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Premises, to terminate this Lease as it relates to the space proposed to be
subleased by Tenant. In such event, this Lease will terminate (or the space
proposed to be subleased will be removed from the Premises subject to this Lease
and the Base Rent and Tenant's Share under this Lease shall be proportionately
reduced) on the date the Transfer was proposed to be effective, and Landlord may
lease such space to any party, including the prospective Transferee identified
by Tenant.
14.8 ASSIGNMENT OF SUBLEASE RENTS. Tenant hereby absolutely and
irrevocably assigns to Landlord any and all rights to receive rent and other
consideration from any sublease and agrees that Landlord, as assignee or as
attorney-in-fact for Tenant for purposes hereof, or a receiver for Tenant
appointed on Landlord's application may (but shall not be obligated to) collect
such rents and other consideration and apply the same toward Tenant's
obligations to Landlord under this Lease; provided, however, that Landlord
grants to Tenant at all times prior to occurrence of any breach or default by
Tenant a revocable license to collect such rents (which license shall
automatically and without notice be and be deemed to have been revoked and
terminated immediately upon any Event of Default).
15. DEFAULT AND REMEDIES.
15.1 EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "EVENT OF DEFAULT" by Tenant:
(a) Tenant fails to make any payment of rent when due, or any amount
required to replenish the security deposit as provided in Section 4 above, if
payment in full is not received by Landlord within three (3) days after written
notice that it is due.
(b) Tenant abandons the Premises.
(c) Tenant fails timely to deliver any subordination document, estoppel
certificate or financial statement requested by Landlord within the applicable
time period specified in Sections 20 ENCUMBRANCES - and 21 - ESTOPPEL
CERTIFICATES AND FINANCIAL STATEMENTS - below.
(d) Tenant violates the restrictions on Transfer set forth in Section 14
- - ASSIGNMENT AND SUBLETTING.
(e) Tenant ceases doing business as a going concern; makes an assignment
for the benefit of creditors; is adjudicated an insolvent, files a petition (or
files an answer admitting the material allegations of a petition) seeking relief
under any state or federal bankruptcy or other statute, law or regulation
affecting creditors' rights; all or substantially all of Tenant's assets are
subject to judicial seizure or attachment and are not released within 30 days,
or Tenant consents to or acquiesces in the appointment of a trustee, receiver or
liquidator for Tenant or for all or any substantial part of Tenant's assets.
(f) Tenant fails, within ninety (90) days after the commencement of any
proceedings against Tenant seeking relief under any state or federal bankruptcy
or other statute, law or regulation affecting creditors' rights, to have such
proceedings dismissed, or Tenant fails, within ninety (90) days after an
appointment, without Tenant's consent or acquiescence, of any trustee,
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receiver or liquidator for Tenant or for all or any substantial part of Tenant's
assets, to have such appointment vacated.
(g) Tenant fails to perform or comply with any provision of this Lease
other than those described in (a) through (f) above, and does not fully cure
such failure within fifteen (15) days after notice to Tenant or, if such failure
cannot be cured within such fifteen (15)-day period, Tenant fails within such
fifteen (15)-day period to commence, and thereafter diligently proceed with, all
actions necessary to cure such failure as soon as reasonably possible but in all
events within ninety (90) days of such notice; provided, however, that if
Landlord in Landlord's reasonable judgment determines that such failure cannot
or will not be cured by Tenant within such ninety (90) days, then such failure
shall constitute an Event of Default immediately upon such notice to Tenant.
15.2 REMEDIES. Upon the occurrence of an Event of Default, Landlord shall
have the following remedies, which shall not be exclusive but shall be
cumulative and shall be in addition to any other remedies now or hereafter
allowed by law:
(a) Landlord may terminate Tenant's right to possession of the Premises
at any time by written notice to Tenant. Tenant expressly acknowledges that in
the absence of such written notice from Landlord, no other act of Landlord,
including re-entry into the Premises, efforts to relet the Premises, reletting
of the Premises for Tenant's account, storage of Tenant's personal property and
Trade Fixtures, acceptance of keys to the Premises from Tenant or exercise of
any other rights and remedies under this Section, shall constitute an acceptance
of Tenant's surrender of the Premises or constitute a termination of this Lease
or of Tenant's right to possession of the Premises. Upon such termination in
writing of Tenant's right to possession of the Premises, as herein provided,
this Lease shall terminate and Landlord shall be entitled to recover damages
from Tenant as provided in California Civil Code Section 1951.2 and any other
applicable existing or future Law providing for recovery of damages for such
breach, including the worth at the time of award of the amount by which the rent
which would be payable by Tenant hereunder for the remainder of the Term after
the date of the award of damages, including Additional Rent as reasonably
estimated by Landlord, exceeds the amount of such rental loss as Tenant proves
could have been reasonably avoided, discounted at the discount rate published by
the Federal Reserve Bank of San Francisco for member banks at the time of the
award plus one percent (1%).
(b) Landlord shall have the remedy described in California Civil Code
Section 1951.4 (Landlord may continue this Lease in effect after Tenant's breach
and abandonment and recover rent as it becomes due, if Tenant has the right to
sublet or assign, subject only to reasonable limitations).
(c) Landlord may cure the Event of Default at Tenant's expense. If
Landlord pays any sum or incurs any expense in curing the Event of Default,
Tenant shall reimburse Landlord upon demand for the amount of such payment or
expense with interest at the Interest Rate from the date the sum is paid or the
expense is incurred until Landlord is reimbursed by Tenant.
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(d) Landlord may remove all Tenant's property from the Premises, and
such property may be stored by Landlord in a public warehouse or elsewhere at
the sole cost and for the account of Tenant. If Landlord does not elect to store
any or all of Tenant's property left in the Premises, Landlord may consider such
property to be abandoned by Tenant, and Landlord may thereupon dispose of such
property in any manner deemed appropriate by Landlord. Any proceeds realized by
Landlord on the disposal of any such property shall be applied first to offset
all expenses of storage and sale, then credited against Tenant's outstanding
obligations to Landlord under this Lease, and any balance remaining after
satisfaction of all obligations of Tenant under this Lease shall be delivered to
Tenant.
16. LATE CHARGE AND INTEREST.
16.1 LATE CHARGE. If any payment of rent is not received by Landlord when
due, Tenant shall pay to Landlord on demand as a late charge an additional
amount equal to five percent (5%) of the overdue payment. A late charge shall
not be imposed more than once on any particular installment not paid when due,
but imposition of a late charge on any payment not made when due does not
eliminate or supersede late charges imposed on other (prior) payments not made
when due or preclude imposition of a late charge on other installments or
payments not made when due.
16.2 INTEREST. In addition to the late charges referred to above, which are
intended to defray Landlord's costs resulting from late payments, any payment
from Tenant to Landlord not paid when due shall at Landlord's option bear
interest from the date due until paid to Landlord by Tenant at the rate of
fifteen percent (15%) per annum or the maximum lawful rate that Landlord may
charge to Tenant under applicable laws, whichever is less (the "INTEREST RATE").
Acceptance of any late charge and/or interest shall not constitute a waiver of
Tenant's default with respect to the overdue sum or prevent Landlord from
exercising any of its other rights and remedies under this Lease.
17. WAIVER. No provisions of this Lease shall be deemed waived by Landlord
unless such waiver is in a writing signed by Landlord. The waiver by Landlord of
any breach of any provision of this Lease shall not be deemed a waiver of such
provision or of any subsequent breach of the same or any other provision of this
Lease. No delay or omission in the exercise of any right or remedy of Landlord
upon any default by Tenant shall impair such right or remedy or be construed as
a waiver. Landlord's acceptance of any payments of rent due under this Lease
shall not be deemed a waiver of any default by Tenant under this Lease
(including Tenant's recurrent failure to timely pay rent) other than Tenant's
nonpayment of the accepted sums, and no endorsement or statement on any check or
payment or in any letter or document accompanying any check or payment shall be
deemed an accord and satisfaction. Landlord's consent to or approval of any act
by Tenant requiring Landlord's consent or approval shall not be deemed to waive
or render unnecessary Landlord's consent to or approval of any subsequent act by
Tenant.
18. ENTRY, INSPECTION AND CLOSURE. Upon reasonable oral or written notice to
Tenant (and without notice in emergencies), Landlord and its authorized
representatives may enter the Premises at all reasonable times to: (a) determine
whether the Premises are in good condition, (b) determine whether Tenant is
complying with its obligations under this Lease, (c) perform any maintenance or
repair of the Premises or the Building that Landlord has the right or obligation
to
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perform, (d) install or repair improvements for other tenants where access to
the Premises is required for such installation or repair, (e) serve, post or
keep posted any notices required or allowed under the provisions of this Lease,
(f) show the Premises to prospective brokers, agents, buyers, transferees,
Mortgagees or tenants, or (g) do any other act or thing necessary for the safety
or preservation of the Premises or the Building. When reasonably necessary
Landlord may temporarily close entrances, doors, corridors, elevators or other
facilities in the Building without liability to Tenant by reason of such
closure. Landlord shall conduct its activities under this Section in a manner
that will minimize inconvenience to Tenant without incurring additional expense
to Landlord. In no event shall Tenant be entitled to an abatement of rent on
account of any entry by Landlord, and Landlord shall not be liable in any manner
for any inconvenience, loss of business or other damage to Tenant or other
persons arising out of Landlord's entry on the Premises in accordance with this
Section. No action by Landlord pursuant to this paragraph shall constitute an
eviction of Tenant, constructive or otherwise, entitle Tenant to an abatement of
rent or to terminate this Lease or otherwise release Tenant from any of Tenant's
obligations under this Lease.
19. SURRENDER AND HOLDING OVER.
19.1 SURRENDER. Upon the expiration or termination of this Lease, Tenant
shall surrender the Premises and all Tenant Improvements and Alterations to
Landlord broom-clean and in their original condition, except for reasonable wear
and tear, damage from casualty or condemnation and any changes resulting from
approved Alterations; provided, however, that prior to the expiration or
termination of this Lease Tenant shall remove all telephone and other cabling
installed in the Building by Tenant and remove from the Premises all Tenant's
personal property and any Trade Fixtures and all Alterations that Landlord has
elected to require Tenant to remove as provided in Section 6.1 - TENANT
IMPROVEMENTS & ALTERATIONS, and repair any damage caused by such removal. If
such removal is not completed before the expiration or termination of the Term,
Landlord shall have the right (but no obligation) to remove the same, and Tenant
shall pay Landlord on demand for all costs of removal and storage thereof and
for the rental value of the Premises for the period from the end of the Term
through the end of the time reasonably required for such removal. Landlord shall
also have the right to retain or dispose of all or any portion of such property
if Tenant does not pay all such costs and retrieve the property within ten (10)
days after notice from Landlord (in which event title to all such property
described in Landlord's notice shall be transferred to and vest in Landlord).
Tenant waives all Claims against Landlord for any damage or loss to Tenant
resulting from Landlord's removal, storage, retention, or disposition of any
such property. Upon expiration or termination of this Lease or of Tenant's
possession, whichever is earliest, Tenant shall surrender all keys to the
Premises or any other part of the Building and shall deliver to Landlord all
keys for or make known to Landlord the combination of locks on all safes,
cabinets and vaults that may be located in the Premises. Tenant's obligations
under this Section shall survive the expiration or termination of this Lease.
19.2 HOLDING OVER. If Tenant (directly or through any Transferee or other
successor-in-interest of Tenant) remains in possession of the Premises after the
expiration or termination of this Lease, Tenant's continued possession shall be
on the basis of a tenancy at the sufferance of Landlord. No act or omission by
Landlord, other than its specific written consent, shall constitute permission
for Tenant to continue in possession of the Premises, and if such consent is
given or declared to have been given by a court judgment, Landlord may terminate
Tenant's holdover
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tenancy at any time upon seven (7) days written notice. In such event, Tenant
shall continue to comply with or perform all the terms and obligations of Tenant
under this Lease, except that the monthly Base Rent during Tenant's holding over
shall be twice the Base Rent payable in the last full month prior to the
termination hereof. Acceptance by Landlord of rent after such termination shall
not constitute a renewal or extension of this Lease; and nothing contained in
this provision shall be deemed to waive Landlord's right of re-entry or any
other right hereunder or at law. Tenant shall indemnify, defend and hold
Landlord harmless from and against all Claims arising or resulting directly or
indirectly from Tenant's failure to timely surrender the Premises, including (i)
any rent payable by or any loss, cost, or damages claimed by any prospective
tenant of the Premises, and (ii) Landlord's damages as a result of such
prospective tenant rescinding or refusing to enter into the prospective lease of
the Premises by reason of such failure to timely surrender the Premises.
20. ENCUMBRANCES.
20.1 SUBORDINATION. This Lease is expressly made subject and subordinate to
any mortgage, deed of trust, ground lease, underlying lease or like encumbrance
affecting any part of the Property or any interest of Landlord therein which is
now existing or hereafter executed or recorded ("ENCUMBRANCE"); provided,
however, that such subordination shall only be effective, as to future
Encumbrances, if the holder of the Encumbrance agrees that this Lease shall
survive the termination of the Encumbrance by lapse of time, foreclosure or
otherwise so long as Tenant is not in default under this Lease. Provided the
conditions of the preceding sentence are satisfied, Tenant shall execute and
deliver to Landlord, within ten (10) days after written request therefor by
Landlord and in a form reasonably requested by Landlord, any additional
documents evidencing the subordination of this Lease with respect to any such
Encumbrance and the nondisturbance agreement of the holder of any such
Encumbrance. If the interest of Landlord in the Property is transferred pursuant
to or in lieu of proceedings for enforcement of any Encumbrance, Tenant shall
immediately and automatically attorn to the new owner, and this Lease shall
continue in full force and effect as a direct lease between the transferee and
Tenant on the terms and conditions set forth in this Lease.
20.2 MORTGAGEE PROTECTION. Tenant agrees to give any holder of any
Encumbrance covering any part of the Property ("MORTGAGEE"), by registered mail,
a copy of any notice of default served upon Landlord, provided that prior to
such notice Tenant has been notified in writing (by way of notice of assignment
of rents and leases, or otherwise) of the address of such Mortgagee. If Landlord
shall have failed to cure such default within thirty (30) days from the
effective date of such notice of default, then the Mortgagee shall have an
additional thirty (30) days within which to cure such default or if such default
cannot be cured within that time, then such additional time as may be necessary
to cure such default (including the time necessary to foreclose or otherwise
terminate its Encumbrance, if necessary to effect such cure), and this Lease
shall not be terminated so long as such remedies are being diligently pursued.
21. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS.
21.1 ESTOPPEL CERTIFICATES. Within ten (10) days after written request
therefor, Tenant shall execute and deliver to Landlord, in a form provided by or
satisfactory to Landlord, a
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certificate stating that this Lease is in full force and effect, describing any
amendments or modifications hereto, acknowledging that this Lease is subordinate
or prior, as the case may be, to any Encumbrance and stating any other
information Landlord may reasonably request, including the Term, the monthly
Base Rent, the date to which Rent has been paid, the amount of any security
deposit or prepaid rent, whether either party hereto is in default under the
terms of the Lease, and whether Landlord has completed its construction
obligations hereunder (if any). Tenant irrevocably constitutes, appoints and
authorizes Landlord as Tenant's special attorney-in-fact for such purpose to
complete, execute and deliver such certificate if Tenant fails timely to execute
and deliver such certificate as provided above. Any person or entity purchasing,
acquiring an interest in or extending financing with respect to the Property
shall be entitled to rely upon any such certificate. If Tenant fails to deliver
such certificate within ten (10) days after Landlord's second written request
therefor, Tenant shall be liable to Landlord for any damages incurred by
Landlord including any profits or other benefits from any financing of the
Property or any interest therein which are lost or made unavailable as a result,
directly or indirectly, of Tenant's failure or refusal to timely execute or
deliver such estoppel certificate.
21.2 FINANCIAL STATEMENTS. Within ten (10) days after written request
therefor, but not more than once a year, Tenant shall deliver to Landlord a copy
of the financial statements (including at least a year end balance sheet and a
statement of profit and loss) of Tenant (and of each guarantor of Tenant's
obligations under this Lease) for each of the three most recently completed
years, prepared in accordance with generally accepted accounting principles
(and, if such is Tenant's normal practice, audited by an independent certified
public accountant), all then available subsequent interim statements, and such
other financial information as may reasonably be requested by Landlord or
required by any Mortgagee.
22. NOTICES. Any notice, demand, request, consent or approval that either party
desires or is required to give to the other party under this Lease shall be in
writing and shall be served personally, delivered by messenger or courier
service, or sent by U.S. certified mail, return receipt requested, postage
prepaid, addressed to the other party at the party's address for notices set
forth in the Basic Lease Information. Any notice required pursuant to any Laws
may be incorporated into, given concurrently with or given separately from any
notice required under this Lease. Notices shall be deemed to have been given and
be effective on the earlier of (a) receipt (or refusal of delivery or receipt);
or (b) one (1) day after acceptance by the independent service for delivery, if
sent by independent messenger or courier service, or three (3) days after
mailing if sent by mail in accordance with this Section. Either party may change
its address for notices hereunder, effective fifteen (15) days after notice to
the other party complying with this Section. If Tenant sublets the Premises,
notices from Landlord shall be effective on the subtenant when given to Tenant
pursuant to this Section.
23. ATTORNEYS' FEES. In the event of any dispute between Landlord and Tenant in
any way related to this Lease, and whether involving contract and/or tort
claims, the non-prevailing party shall pay to the prevailing party all
reasonable attorneys' fees and costs and expenses of any type, without
restriction by statute, court rule or otherwise, incurred by the prevailing
party in connection with any action or proceeding (including any appeal and the
enforcement of any judgment or award), whether or not the dispute is litigated
or prosecuted to final judgment (collectively, "FEES"). The "prevailing party"
shall be determined based upon an assessment of
19
<PAGE>
which party's major arguments or positions taken in the action or proceeding
could fairly be said to have prevailed (whether by compromise, settlement,
abandonment by the other party of its claim or defense, final decision, after
any appeals, or otherwise) over the other party's major arguments or positions
on major disputed issues. Any Fees incurred in enforcing a judgment shall be
recoverable separately from any other amount included in the judgment and shall
survive and not be merged in the judgment. The Fees shall be deemed an "actual
pecuniary loss" within the meaning of Bankruptcy Code Section 365(b)(1)(B), and
notwithstanding the foregoing, all Fees incurred by either party in any
bankruptcy case filed by or against the other party, from and after the order
for relief until this Lease is rejected or assumed in such bankruptcy case, will
be "obligations of the debtor" as that phrase is used in Bankruptcy Code Section
365(d)(3).
24. QUIET POSSESSION. Subject to Tenant's full and timely performance of all of
Tenant's obligations under this Lease and subject to the terms of this Lease,
including Section 20 - ENCUMBRANCES, Tenant shall have the quiet possession of
the Premises throughout the Term as against any persons or entities lawfully
claiming by, through or under Landlord.
25. SECURITY MEASURES. Landlord may, but shall be under no obligation to,
implement security measures for the Property, such as the registration or search
of all persons entering or leaving the Building, requiring identification for
access to the Building, evacuation of the Building for cause, suspected cause,
or for drill purposes, the issuance of magnetic pass cards or keys for Building
access and other actions that Landlord deems necessary or appropriate to prevent
any threat of property loss or damage, bodily injury or business interruption;
provided, however, that such measures shall be implemented in a way as not to
inconvenience tenants of the Building unreasonably. Landlord shall at all times
have the right to change, alter or reduce any such security services or
measures. Tenant shall cooperate and comply with, and cause Tenant's
Representatives and Visitors to cooperate and comply with, such security
measures. Landlord, its agents and employees shall have no liability to Tenant
or its Representatives or Visitors for the implementation or exercise of, or the
failure to implement or exercise, any such security measures or for any
resulting disturbance of Tenant's use or enjoyment of the Premises.
26. FORCE MAJEURE. If Landlord is delayed, interrupted or prevented from
performing any of its obligations under this Lease, including its obligations
under the Construction Rider (if any), and such delay, interruption or
prevention is due to fire, act of God, governmental act or failure to act, labor
dispute, unavailability of materials or any cause outside the reasonable control
of Landlord, then the time for performance of the affected obligations of
Landlord shall be extended for a period equivalent to the period of such delay,
interruption or prevention.
27. RULES AND REGULATIONS. Tenant shall be bound by and shall comply with the
rules and regulations attached to and made a part of this Lease as EXHIBIT C to
the extent those rules and regulations are not in conflict with the terms of
this Lease, as well as any reasonable rules and regulations hereafter adopted by
Landlord for all tenants of the Building, upon notice to Tenant thereof
(collectively, the "BUILDING RULES"). Landlord shall not be responsible to
Tenant or to any other person for any violation of, or failure to observe, the
Building Rules by any other tenant or other person.
20
<PAGE>
28. LANDLORD'S LIABILITY. The term "Landlord," as used in this Lease, shall mean
only the owner or owners of the Building at the time in question. In the event
of any conveyance of title to the Building, then from and after the date of such
conveyance, the transferor Landlord shall be relieved of all liability with
respect to Landlord's obligations to be performed under this Lease after the
date of such conveyance. Notwithstanding any other term or provision of this
Lease, the liability of Landlord for its obligations under this Lease is limited
solely to Landlord's interest in the Building as the same may from time to time
be encumbered, and no personal liability shall at any time be asserted or
enforceable against any other assets of Landlord or against Landlord's partners
or members or its or their respective partners, shareholders, members,
directors, officers or managers on account of any of Landlord's obligations or
actions under this Lease.
29. CONSENTS AND APPROVALS.
29.1 DETERMINATION IN GOOD FAITH. Wherever the consent, approval, judgment or
determination of Landlord is required or permitted under this Lease, Landlord
may exercise its good faith business judgment in granting or withholding such
consent or approval or in making such judgment or determination without
reference to any extrinsic standard of reasonableness, unless the specific
provision contained in this Lease providing for such consent, approval, judgment
or determination specifies that Landlord's consent or approval is not to be
unreasonably withheld, or that such judgment or determination is to be
reasonable, or otherwise specifies the standards under which Landlord may
withhold its consent. If it is determined that Landlord failed to give its
consent where it was required to do so under this Lease, Tenant shall be
entitled to injunctive relief but shall not to be entitled to monetary damages
or to terminate this Lease for such failure.
29.2 NO LIABILITY IMPOSED ON LANDLORD. The review and/or approval by Landlord
of any item or matter to be reviewed or approved by Landlord under the terms of
this Lease or any Exhibits or Addenda hereto shall not impose upon Landlord any
liability for the accuracy or sufficiency of any such item or matter or the
quality or suitability of such item for its intended use. Any such review or
approval is for the sole purpose of protecting Landlord's interest in the
Property, and no third parties, including Tenant or the Representatives and
Visitors of Tenant or any person or entity claiming by, through or under Tenant,
shall have any rights as a consequence thereof.
30. WAIVER OF RIGHT TO JURY TRIAL. Landlord and Tenant waive their respective
rights to trial by jury of any contract or tort claim, counterclaim,
cross-complaint, or cause of action in any action, proceeding, or hearing
brought by either party against the other on any matter arising out of or in any
way connected with this Lease, the relationship of Landlord and Tenant, or
Tenant's use or occupancy of the Premises, including any claim of injury or
damage or the enforcement of any remedy under any current or future law,
statute, regulation, code, or ordinance.
31. BROKERS. Tenant warrants and represents to Landlord that in the negotiating
or making of this Lease neither Tenant nor anyone acting on Tenant's behalf has
dealt with any broker or finder ("BROKER") who might be entitled to a fee or
commission for this Lease. Tenant shall indemnify and hold Landlord harmless
from any claim or claims, including costs, expenses and attorney's fees incurred
by Landlord asserted by any other broker or finder for a fee or commission based
upon any dealings with or statements made by Tenant or Tenant's Representatives.
21
<PAGE>
32. RELOCATION OF PREMISES. For the purpose of maintaining an economical and
proper distribution of tenants acceptable to Landlord throughout the Project,
Landlord shall have the right from time to time during the Term to relocate the
Premises within the Project, provided that (a) the rentable and usable area of
the new Premises is of equivalent size to the existing Premises, subject to a
variation of up to ten percent (10%), (b) Landlord shall pay the cost of
providing tenant improvements in the new Premises, which shall be substantially
comparable in layout to those in the existing Premises, and (c) Landlord shall
pay reasonable costs (to the extent such costs are submitted in writing to
Landlord and approved in writing by Landlord prior to such move) of moving
Tenant's Trade Fixtures and personal property to the new Premises. Landlord
shall deliver to Tenant written notice of Landlord's election to relocate the
Premises, specifying the new location and the amount of rent payable therefor,
at least sixty (60) days prior to the date the relocation is to be effective.
33. ENTIRE AGREEMENT. This Lease, including the Exhibits and any Addenda
attached hereto, and the documents referred to herein, if any, constitute the
entire agreement between Landlord and Tenant with respect to the leasing of
space by Tenant in the Building, and supersede all prior or contemporaneous
agreements, understandings, proposals and other representations by or between
Landlord and Tenant, whether written or oral, all of which are merged herein.
Neither Landlord nor Landlord's agents have made any representations or
warranties with respect to the Premises, the Building, the Project or this Lease
except as expressly set forth herein, and no rights, easements or licenses shall
be acquired by Tenant by implication or otherwise unless expressly set forth
herein. The submission of this Lease for examination does not constitute an
option for the Premises and this Lease shall become effective as a binding
agreement only upon execution and delivery thereof by Landlord to Tenant.
34. MISCELLANEOUS. This Lease may not be amended or modified except by a writing
signed by Landlord and Tenant. Subject to Section 14 - ASSIGNMENT AND SUBLETTING
and Section 28 - LANDLORD'S LIABILITY, this Lease shall be binding on and shall
inure to the benefit of the parties and their respective successors, assigns and
legal representatives. The determination that any provisions hereof may be void,
invalid, illegal or unenforceable shall not impair any other provisions hereof
and all such other provisions of this Lease shall remain in full force and
effect. The unenforceability, invalidity or illegality of any provision of this
Lease under particular circumstances shall not render unenforceable, invalid or
illegal other provisions of this Lease, or the same provisions under other
circumstances. This Lease shall be construed and interpreted in accordance with
the laws (excluding conflict of laws principles) of the State in which the
Building is located. The provisions of this Lease shall be construed in
accordance with the fair meaning of the language used and shall not be strictly
construed against either party, even if such party drafted the provision in
question. When required by the context of this Lease, the singular includes the
plural. Wherever the term "including" is used in this Lease, it shall be
interpreted as meaning "including, but not limited to" the matter or matters
thereafter enumerated. The captions contained in this Lease are for purposes of
convenience only and are not to be used to interpret or construe this Lease. If
more than one person or entity is identified as Tenant hereunder, the
obligations of each and all of them under this Lease shall be joint and several.
Time is of the essence with respect to this Lease, except as to the conditions
relating to the delivery of possession of the Premises to Tenant. Neither
Landlord nor Tenant shall record this Lease.
22
<PAGE>
35. AUTHORITY. If Tenant is a corporation, partnership, limited liability
company or other form of business entity, each of the persons executing this
Lease on behalf of Tenant warrants and represents that Tenant is a duly
organized and validly existing entity, that Tenant has full right and authority
to enter into this Lease and that the persons signing on behalf of Tenant are
authorized to do so and have the power to bind Tenant to this Lease. Tenant
shall provide Landlord upon request with evidence reasonably satisfactory to
Landlord confirming the foregoing representations.
IN WITNESS WHEREOF, Landlord and Tenant have entered into this Lease as
of the date first above written.
<TABLE>
<CAPTION>
TENANT: LANDLORD:
<S> <C>
DEAN & DELUCA BRANDS, INC. R & R LAND, LLC,
a California limited liability company
By: /s/ Dane J. Neller
-------------------------
Name: Dane Neller
Title: CEO By: /s/ Patrick Roney
----------------------------
Name: Patrick Roney
Title: Manager
</TABLE>
<PAGE>
EXHIBIT A
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF
JULY 1, 1999
BETWEEN
R & R LAND, LLC, AS LANDLORD,
AND
DEAN & DELUCA BRANDS, INC.BRANDS Inc., AS TENANT ("LEASE")
THE PREMISES
INITIALS:
Landlord ______
Tenant ______
Exhibit A, Page 1
<PAGE>
EXHIBIT B
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF
JULY 1, 1999
BETWEEN
R & R LAND, LLC, AS LANDLORD,
AND
DEAN & DELUCA BRANDS, INC.BRANDS Inc., AS TENANT ("LEASE")
BUILDING RULES
The following Building Rules are additional provisions of the foregoing
Lease to which they are attached. The capitalized terms used herein have the
same meanings as these terms are given in the Lease.
1. USE OF COMMON AREAS. Tenant will not obstruct the sidewalks, halls,
passages, exits, entrances, elevators or stairways of the Building ("COMMON
AREAS"), and Tenant will not use the Common Areas for any purpose other than
ingress and egress to and from the Premises. The Common Areas, except for the
sidewalks, are not open to the general public and Landlord reserves the right to
control and prevent access to the Common Areas of any person whose presence, in
Landlord's opinion, would be prejudicial to the safety, reputation and interests
of the Building and its tenants.
2. NO ACCESS TO ROOF. Tenant has no right of access to the roof of the
Building and will not install, repair or replace any antenna, aerial, aerial
wires, fan, air-conditioner or other device on the roof of the Building, without
the prior written consent of Landlord. Any such device installed without such
written consent is subject to removal at Tenant's expense without notice at any
time. In any event Tenant will be liable for any damages or repairs incurred or
required as a result of its installation, use, repair, maintenance or removal of
such devices on the roof and agrees to indemnify and hold harmless Landlord from
any liability, loss, damage, cost or expense, including reasonable attorneys'
fees, arising from any activities of Tenant or of Tenant's Representatives on
the roof of the Building.
3. SIGNAGE. No sign, placard, picture, name, advertisement or notice
visible from the exterior of the Premises will be inscribed, painted, affixed or
otherwise displayed by Tenant on or in any part of the Building without the
prior written consent of Landlord. Landlord reserves the right to adopt and
furnish Tenant with general guidelines relating to signs in or on the Building.
All approved signage will be inscribed, painted or affixed at Tenant's expense
by a person approved by Landlord, which approval will not be unreasonably
withheld.
4. PROHIBITED USES. The Premises will not be used for manufacturing,
for the storage of merchandise held for sale to the general public, for lodging
or for the sale of goods to the
Exhibit B, Page 1
<PAGE>
general public. Tenant will not permit any food preparation on the Premises
except that Tenant may use Underwriters' Laboratory approved equipment for
brewing coffee, tea, hot chocolate and similar beverages so long as such use is
in accordance with all applicable federal, state and city laws, codes,
ordinances, rules and regulations.
5. JANITORIAL SERVICES. Tenant will not employ any person for the
purpose of cleaning the Premises or permit any person to enter the Building for
such purpose other than Landlord's janitorial service, except with Landlord's
prior written consent. Tenant will not necessitate, and will be liable for the
cost of, any undue amount of janitorial labor by reason of Tenant's carelessness
in or indifference to the preservation of good order and cleanliness in the
Premises. Janitorial service will not be furnished to areas in the Premises on
nights when such areas are occupied after 9:30 p.m., unless such service is
extended by written agreement to a later hour in specifically designated areas
of the Premises.
6. KEYS AND LOCKS. Landlord will furnish Tenant, free of charge, two
keys to each door or lock in the Premises. Landlord may make a reasonable charge
for any additional or replacement keys. Tenant will not duplicate any keys,
alter any locks or install any new or additional lock or bolt on any door of its
Premises or on any other part of the Building without the prior written consent
of Landlord and, in any event, Tenant will provide Landlord with a key for any
such lock. On the termination of the Lease, Tenant will deliver to Landlord all
keys to any locks or doors in the Building which have been obtained by Tenant.
7. FREIGHT. Upon not less than twenty-four hours prior notice to
Landlord, which notice may be oral, an elevator will be made available for
Tenant's use for transportation of freight, subject to such scheduling as
Landlord in its discretion deems appropriate. Tenant shall not transport freight
in loads exceeding the weight limitations of such elevator. Landlord reserves
the right to prescribe the weight, size and position of all equipment,
materials, furniture or other property brought into the Building, and no
property will be received in the Building or carried up or down the freight
elevator or stairs except during such hours and along such routes and by such
persons as may be designated by Landlord. Landlord reserves the right to require
that heavy objects will stand on wood strips of such length and thickness as is
necessary to properly distribute the weight. Landlord will not be responsible
for loss of or damage to any such property from any cause, and Tenant will be
liable for all damage or injuries caused by moving or maintaining such property.
8. NUISANCES AND DANGEROUS SUBSTANCES. Tenant will not conduct itself
or permit Tenant's Representatives or Visitors to conduct themselves, in the
Premises or anywhere on or in the Property in a manner which is offensive or
unduly annoying to any other Tenant or Landlord's property managers. Tenant will
not install or operate any phonograph, radio receiver, musical instrument, or
television or other similar device in any part of the Common Areas and shall not
operate any such device installed in the Premises in such manner as to disturb
or annoy other tenants of the Building. Tenant will not use or keep in the
Premises or the Property any kerosene, gasoline or other combustible fluid or
material other than limited quantities thereof reasonably necessary for the
maintenance of office equipment, or, without Landlord's prior written approval,
use any method of heating or air conditioning other than that supplied by
Landlord. Tenant will not use or keep any foul or noxious gas or substance in
the Premises or
Exhibit B, Page 2
<PAGE>
permit or suffer the Premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building by reason of noise,
odors or vibrations, or interfere in any way with other tenants or those having
business therein. Tenant will not bring or keep any animals in or about the
Premises or the Property.
9. BUILDING NAME AND ADDRESS. Without Landlord's prior written consent,
Tenant will not use the name of the Building in connection with or in promoting
or advertising Tenant's business except as Tenant's address.
10. WINDOW COVERINGS. No curtains, draperies, blinds, shutters, shades,
awnings, screens or other coverings, window ventilators, hangings, decorations
or similar equipment shall be attached to, hung or placed in, or used in or with
any window of the Building without the prior written consent of Landlord, and
Landlord shall have the right to control all lighting within the Premises that
may be visible from the exterior of the Building.
11. FLOOR COVERINGS. Tenant will not lay or otherwise affix linoleum,
tile, carpet or any other floor covering to the floor of the Premises in any
manner except as approved in writing by Landlord. Tenant will be liable for the
cost of repair of any damage resulting from the violation of this rule or the
removal of any floor covering by Tenant or its contractors, employees or
invitees.
12. WIRING AND CABLING INSTALLATIONS. Landlord will direct Tenant's
electricians and other vendors as to where and how data, telephone, and
electrical wires and cables are to be installed. No boring or cutting for wires
or cables will be allowed without the prior written consent of Landlord. The
location of burglar alarms, smoke detectors, telephones, call boxes and other
office equipment affixed to the Premises shall be subject to the written
approval of Landlord.
13. OFFICE CLOSING PROCEDURES. Tenant will see that the doors of the
Premises are closed and locked and that all water faucets, water apparatus and
utilities are shut off before Tenant or its employees leave the Premises, so as
to prevent waste or damage. Tenant will be liable for all damage or injuries
sustained by other tenants or occupants of the Building or Landlord resulting
from Tenant's carelessness in this regard or violation of this rule. Tenant will
keep the doors to the Building corridors closed at all times except for ingress
and egress.
14. PLUMBING FACILITIES. The toilet rooms, toilets, urinals, wash bowls
and other apparatus shall not be used for any purpose other than that for which
they were constructed and no foreign substance of any kind whatsoever shall be
disposed of therein. Tenant will be liable for any breakage, stoppage or damage
resulting from the violation of this rule by Tenant, its employees or invitees.
15. USE OF HAND TRUCKS. Tenant will not use or permit to be used in the
Premises or in the Common Areas any hand trucks, carts or dollies except those
equipped with rubber tires and side guards or such other equipment as Landlord
may approve.
Exhibit B, Page 3
<PAGE>
16. REFUSE. Tenant shall store all Tenant's trash and garbage within
the Premises or in other facilities designated By Landlord for such purpose.
Tenant shall not place in any trash box or receptacle any material which cannot
be disposed of in the ordinary and customary manner of removing and disposing of
trash and garbage in the city in which the Building is located without being in
violation of any law or ordinance governing such disposal. All trash and garbage
removal shall be made in accordance with directions issued from time to time by
Landlord, only through such Common Areas provided for such purposes and at such
times as Landlord may designate. Tenant shall comply with the requirements of
any recycling program adopted by Landlord for the Building.
17. SOLICITING. Canvassing, peddling, soliciting and distribution of
handbills or any other written materials in the Building are prohibited, and
Tenant will cooperate to prevent the same.
18. PARKING. Tenant will use, and cause Tenant's Representatives and
Visitors to use, any parking spaces to which Tenant is entitled under the Lease
in a manner consistent with Landlord's directional signs and markings in the
Parking Facility. Specifically, but without limitation, Tenant will not park, or
permit Tenant's Representatives or Visitors to park, in a manner that impedes
access to and from the Building or the Parking Facility or that violates space
reservations for handicapped drivers registered as such with the California
Department of Motor Vehicles. Landlord may use such reasonable means as may be
necessary to enforce the directional signs and markings in the Parking Facility,
including but not limited to towing services, and Landlord will not be liable
for any damage to vehicles towed as a result of non-compliance with such parking
regulations.
19. FIRE, SECURITY AND SAFETY REGULATIONS. Tenant will comply with all
safety, security, fire protection and evacuation measures and procedures
established by Landlord or any governmental agency.
20. RESPONSIBILITY FOR THEFT. Tenant assumes any and all responsibility
for protecting the Premises from theft, robbery and pilferage, which includes
keeping doors locked and other means of entry to the Premises closed.
21. SALES AND AUCTIONS. Tenant will not conduct or permit to be
conducted any sale by auction in, upon or from the Premises or elsewhere in the
Property, whether said auction be voluntary, involuntary, pursuant to any
assignment for the payment of creditors or pursuant to any bankruptcy or other
insolvency proceeding.
22. WAIVER OF RULES. Landlord may waive any one or more of these
Building Rules for the benefit of any particular tenant or tenants, but no such
waiver by Landlord will be construed as a waiver of such Building Rules in favor
of any other tenant or tenants nor prevent Landlord from thereafter enforcing
these Building Rules against any or all of the tenants of the Building.
23. EFFECT ON LEASE. These Building Rules are in addition to, and shall
not be construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements
Exhibit B, Page 4
<PAGE>
and conditions of the Lease. Violation of these Building Rules constitutes a
failure to fully perform the provisions of the Lease, as referred to in Section
15.1 - "EVENTS OF DEFAULT".
24. NON-DISCRIMINATORY ENFORCEMENT. Subject to the provisions of the
Lease (and the provisions of other leases with respect to other tenants),
Landlord shall use reasonable efforts to enforce these Building Rules in a
non-discriminatory manner, but in no event shall Landlord have any liability for
any failure or refusal to do so (and Tenant's sole and exclusive remedy for any
such failure or refusal shall be injunctive relief preventing Landlord from
enforcing any of the Building Rules against Tenant in a manner that
discriminates against Tenant).
25. ADDITIONAL AND AMENDED RULES. Landlord reserves the right to
rescind or amend these Building Rules and/or adopt any other and reasonable
rules and regulations as in its judgment may from time to time be needed for the
safety, care and cleanliness of the Building and for the preservation of good
order therein.
INITIALS:
Landlord ______
Tenant ______
Exhibit B, Page 5
<PAGE>
EXHIBIT C
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF
JULY 1, 1999
BETWEEN
R & R LAND, LLC, AS LANDLORD,
AND
DEAN & DELUCA BRANDS, INC.BRANDS Inc., AS TENANT ("LEASE")
ADDITIONAL PROVISIONS RIDER
35. EXTENSION OPTION.
Provided that Dean & Deluca Brands, Inc has not assigned this Lease or
sublet any or all of the Premises (it being intended that all rights pursuant to
this provision are and shall be personal to the original Tenant under this Lease
and shall not be transferable or exercisable for the benefit of any Transferee),
and provided Tenant is not in default under this Lease at the time of exercise
or at any time thereafter until the beginning of any such extension of the Term,
Tenant shall have the option (the "EXTENSION OPTION") to extend the Term for
three (3) additional consecutive period[s] of three (3) years (each an
"EXTENSION PERIOD"), by giving written notice to Landlord of the exercise of any
such Extension Option at least six (6) months, but not more than twelve (12)
months, prior to the expiration of the initial Term or the prior Extension
Period, as the case may be. The exercise of any Extension Option by Tenant shall
be irrevocable and shall cover the entire Premises leased by Tenant pursuant to
this Lease. Upon such exercise, the term of the Lease shall automatically be
extended for the applicable Extension Period without the execution of any
further instrument by the parties; provided that Landlord and Tenant shall, if
requested by either party, execute and acknowledge an instrument confirming the
exercise of the Extension Option. Any Extension Option shall terminate if not
exercised precisely in the manner provided herein. Any extension of the Term
shall be upon all the terms and conditions set forth in this Lease and all
Exhibits thereto, except that: (i) Tenant shall have no further option to extend
the Term of the Lease, other than as specifically set forth herein; (ii)
Landlord shall not be obligated to contribute funds toward the cost of any
remodeling, renovation, alteration or improvement work in the Premises; and
(iii) Base Rent for any such Extension Period shall be an additional five
hundred dollars ($500.00) per month per Extension Period.
EXTENSION PERIOD BASE RENT
First Extension $3,500 per month
Exhibit C, Page 6
<PAGE>
Second Extension $4,000 per month
Third Extension $4,500 per month
The term of this Lease, whether consisting of the initial Term alone or
the Initial Term as extended by any Extension Period (if any Extension Option is
exercised), is referred to in this Lease as the "Term."
INITIALS:
Landlord ______
Tenant ______
Exhibit C, Page 7
<PAGE>
Exhibit 10.21
WAREHOUSE LEASE
between
R & R LAND, LLC
as "Lessor"
and
DEAN & DELUCA MARKETS, LLC
as "Lessee"
<PAGE>
TABLE OF CONTENTS
PAGE
RECITALS.......................................................................1
1. PREMISES....................................................................1
2. TERM; POSSESSION............................................................1
3. RENT AND SECURITY DEPOSIT...................................................2
4. APPURTENANT RIGHTS IN COMMON AREA...........................................2
4.1 Additional Rights Granted to Lessee.....................................2
4.2 Parking And Access......................................................2
4.3 Restrictions on Development.............................................3
5. IMPROVEMENTS AND ALTERATIONS................................................3
6.1 Alterations.............................................................3
6. ABANDONMENT.................................................................3
7. REPAIRS.....................................................................3
8. LIENS.......................................................................4
9. SUBORDINATION; NON-DISTURBANCE AND ATTORNMENT...............................5
10. COMPLIANCE WITH GOVERNMENTAL REGULATIONS...................................5
11. INDEMNIFICATION; EXCULPATION AND INSURANCE.................................5
11.1 Lessee's Indemnification...............................................5
11.2 Lessor's Indemnification...............................................6
11.3 Exculpation............................................................6
11.4 General................................................................6
11.5 Fire and Casualty Insurance............................................7
11.6 Insurable Interest in Trade Fixtures and Improvements..................7
11.7 Waiver of Subrogation Rights...........................................7
11.8 Survival...............................................................8
12. UTILITIES..................................................................8
13. ENTRY BY LESSOR............................................................8
14. DESTRUCTION OF PREMISES....................................................8
14.1 Lessor's Duty to Repair................................................8
14.2 Lessor's Right to Terminate............................................9
14.3 Lessee's Right to Terminate............................................9
14.4 Waiver of Statutory Provisions.........................................9
15. EMINENT DOMAIN............................................................10
15.1 Premises/Ingress and Egress...........................................10
15.2 Restoration of Premises...............................................10
16. ASSIGNMENT AND SUBLETTING.................................................11
17. INSOLVENCY OR BANKRUPTCY..................................................11
18. DEFAULTS AND REMEDIES.....................................................11
18.1 Events of Default.....................................................11
18.2 Remedies..............................................................12
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19. SURRENDER OF LEASE........................................................13
20. ATTORNEY'S FEES...........................................................13
21. NOTICE....................................................................13
22. WAIVER....................................................................14
23. HOLDING OVER..............................................................14
24. SUCCESSORS AND ASSIGNS....................................................14
25. TIME......................................................................14
26. LATE CHARGE...............................................................14
37. LESSOR'S RIGHT OF FIRST REFUSAL TO PURCHASE...............................14
28. QUIET ENJOYMENT...........................................................15
29. COVENANT OF TITLE.........................................................15
30. HAZARDOUS MATERIAL........................................................15
30.1 Lessor's Representations, Warranties and Covenant.....................15
30.2 Lessor's Indemnification Obligation...................................15
30.3 Lessee's Covenant and Indemnification Obligation......................16
30.4 Definition............................................................17
31. MEMORANDUM OF LEASE.......................................................17
32. BROKER'S REPRESENTATION...................................................17
33. FORCE MAJEURE.............................................................18
34. CONDITION OF PREMISES AT TERMINATION......................................18
35. CONSENTS AND APPROVALS....................................................18
36. AUTHORITY.................................................................18
36.1 Lessor's Representations..............................................18
36.2 Lessee's Representations..............................................18
37. ENTIRE AGREEMENT..........................................................19
38. LESSOR'S LIABILITY........................................................19
39. ESTOPPEL CERTIFICATES.....................................................19
40. MISCELLANEOUS.............................................................19
EXHIBIT A: Legal Description of the Land
EXHIBIT B: Plot Plan
EXHIBIT C: Non-Disturbance Agreement
EXHIBIT D: Existing Mortgages
EXHIBIT E: Memorandum of Lease
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WAREHOUSE LEASE
THIS WAREHOUSE LEASE ("Lease") is made and entered into this 1st day of
July, 1999, by and between R & R LAND, LLC, a California limited liability
company ("Lessor"), and DEAN & DELUCA MARKETS, LLC, a California limited
liability company ("Lessee").
RECITALS:
A. Lessor is the owner of certain "Land" (defined below), upon which is
constructed the "Warehouse" (defined below).
B. Lessor desires to lease to Lessee and Lessee desires to lease from
Lessor the entire rentable area of the Warehouse.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, which the parties hereby acknowledge, Lessor and Lessee
hereby agree as follows:
1. PREMISES. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, upon the terms and subject to the conditions of this Lease, the
entire rentable area (the "Premises"), consisting of approximately 2,580
rentable square feet of space, in that warehouse, and all appurtenances thereto,
located in St. Helena, County of Napa, State of California, known for U.S.
Postal purposes as 607 St. Helena Highway South, St. Helena, California (the
"Warehouse"), which Warehouse is located on the certain real property located in
Napa County commonly known as Assessors Parcel No. 027-150-01 and more fully
described in EXHIBIT A attached hereto (the "Land"). The location of the
Warehouse on the Land, the "Common Areas," entrances, exits, driveways, parking
areas and service drives are depicted on the drawing attached hereto as EXHIBIT
B.
2. TERM; POSSESSION. The term of this Lease ("Term") shall commence on
July 1, 1999 (the "Commencement Date"), and unless sooner terminated, shall
expire three (3) years after the Commencement Date (the "Expiration Date"). As
used in this Lease, "Month" shall mean a calendar month, except that if the Term
begins on a day other than the first day of a calendar month, the first "month"
shall be the period from (and including) the Commencement Date through (and
including) the last day of the calendar month in which the Commencement Date
falls, and if the Term ends on a day other than the last day of a calendar
month, the last "month" shall be the period from (and including) the first day
of the calendar month in which the Term ends through (and including) the day on
which the Term ends. The term "Lease Year" shall mean each twelve (12) month
period from and after the Commencement Date and each anniversary thereof. If the
Commencement Date occurs on a date other than the first day of a month, the
first Lease Year shall include the partial month and the next twelve (12) full
calendar months.
Notwithstanding the foregoing, Lessor may terminate this Lease for any
reason, in its sole discretion, on any day in the month of January of the year
2000 or 2001 by giving notice to Lessee sixty (60) days prior to such
termination, whether or not Lessee is in default under any provision of
<PAGE>
this Lease. (For example, and not by way of limitation, Lessor may terminate the
Lease on January 15, 2000 by giving notice on November 15, 1999).
3. RENT AND SECURITY DEPOSIT. After the Commencement Date and during
the Term, Lessee agrees to pay to Lessor as monthly rent for the Premises the
following amounts:
LEASE YEARS: MONTHLY RENT
1-3 $2,000
Rent shall be payable in advance on the first day of each and every
calendar month during the Term, except that Rent for any partial month at the
beginning of the Term shall be paid on the Commencement Date. Rent for any
partial month at the beginning or end of the Term shall be prorated based on the
actual number of days in the month. Rent is payable in lawful money of the
United States of America, which Lessee agrees to pay to Lessor, without
deduction or offset, except as expressly provided herein, at such place as may
be designated from time to time by Lessor. Lessee shall not be required to pay
to Lessor any portion of the real property taxes levied upon the Land. The term
"Additional Rent" shall mean all payments required to be made by Lessee under
this Lease for insurance. There shall be no security deposit.
4. APPURTENANT RIGHTS IN COMMON AREA.
4.1 ADDITIONAL RIGHTS GRANTED TO LESSEE. The following rights are
granted to Lessee as appurtenances to the Premises:
(a) Lessee and Lessee's employees and customers shall have the
non-exclusive easement and right to use, in common with Lessor and all other
occupants of the "Property" (defined below) and all persons having business with
Lessor and such other occupants, without charge, the parking areas in the
Property owned by Lessor in which the Premises are located and all other areas
and facilities of the Property designed or intended for common use, including
without limitation "Common Areas" as defined below. The term "Common Areas"
means all areas and facilities outside the Premises and within the exterior
boundaries of the Property, but not including the Adjacent Building, that are
provided and designated by Lessor for the general use and convenience of Lessee
and of other tenants of the Property and their respective authorized
representatives and invitees. Common Areas shall include, at a minimum, all
pedestrian walkways, landscaped areas, sidewalks, service drives, parking areas,
entrances, exits, driveways and roads, substantially as depicted on EXHIBIT B.
(b) Lessor shall maintain the parking areas, landscaping and
other Common Areas of the Property; provided, however, Lessee shall be solely
responsible for any landscaping that Lessee installs on the Premises or in the
Common Area.
4.2 ACCESS. Lessor shall use reasonable efforts to maintain the
ingress and egress that exists on the day that this Lease is executed, as shown
on EXHIBIT B, from public streets to the front and rear entrances of the
Premises for the purpose of receiving and delivering fixtures, merchandise and
other property.
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4.3 DEVELOPMENT AND REPAIR OF COMMON AREAS. Lessor hereby reserves
the right to, at any time and from time to time, without liability to Lessee,
and without constituting an eviction, constructive or otherwise, or entitling
Lessee to any abatement of rent or to terminate this Lease or otherwise
releasing Lessee from any of Lessee's obligations under this Lease:
(a) To make alterations, additions, repairs, improvements to or
in, all or any part of the Common Areas;
(b) To install and maintain any and all signs on the exterior
and interior of the Building;
(c) To reduce, increase, enclose or otherwise change at any time
and from time to time the size, number, location and nature of the Common Areas
(including the parking facilities) and other tenancies and premises in the
Property and to create additional rentable areas through the use or enclosure of
common areas, except as otherwise provided herein;
(d) If any governmental authority promulgate or revises any Law
or imposes mandatory or voluntary controls or guidelines on Lessor or the
Property relating to the use or conservation of energy or utilities or the
reduction of automobile or other emissions or reduction or management of traffic
or parking on the Property (collectively "Controls"), to comply with such
Controls, whether mandatory or voluntary, or make any alterations to the Common
Areas or Property related thereto.
5. ALTERATIONS. Lessee shall only have the right to install
furnishings, counters, interior partitions and equipment that are not a
permanent part of the structure, whether the same shall be affixed or nailed to
the Premises or not, or by Lessee, which shall at all times be regarded as
"Trade Fixtures" and shall be separately assessed for real property tax
purposes. Such Trade Fixtures may be removed by the Lessee at any time prior to
the termination of this Lease or any renewals or extensions thereof at Lessee's
own expense. If Lessee removes any of such Trade Fixtures as herein designated,
Lessee shall do so in a way as not to injure the Warehouse.
6. ABANDONMENT. Lessee shall not vacate or abandon the Premises at any
time during the Term, except during a major renovation, and if Lessee shall
abandon, vacate or surrender such Premises, or be disposed by process of law, or
otherwise, any personal property belonging to Lessee and left on the Premises
shall be deemed to be abandoned if the same is not claimed thirty (30) days
after written notice, at the option of the Lessor, except such property as may
be mortgaged to Lessor.
7. MAINTENANCE AND REPAIRS. By taking possession of the Premises Lessee
agrees that the Premises are then in a good and tenantable condition. During the
Term, Lessee shall, at its sole cost and expense, keep, repair and maintain the
Premises, including all windows (interior and exterior), plate glass and
glazing, plumbing and electrical systems located within the Premises, interior
walls (excepting the structural portion of the walls forming the perimeter of
the Premises), floors (except as covered by contractor's warranty, if any) and
all interior
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improvements within the Premises and any septic system that Lessee installs for
its own use, in a first class condition, and Lessee shall keep the Premises in a
clean, safe and orderly condition.
Lessor shall provide, without reimbursement from Lessee, (i) electrical
and plumbing to the exterior wall of the Premises in a manner meeting all
Applicable Laws (including, all current codes) for the existing usage and
electrical and plumbing demands; (ii) all maintenance, replacement and repair to
the foundation, roof, parapets, flashing, gutters, downspouts, floor slab, outer
walls and structural portions of the Building which shall be necessary to
maintain the Premises in a safe, dry and tenantable condition and in good order
and repair and the parking lot (repaving and restriping only), curbs, and
sidewalks; (iii) all maintenance, replacement and repair of underground utility
installations and underground electrical conduit and wire; including, but not
limited to, repairs, maintenance and replacements which are occasioned by
settlement of the Premises, or a portion thereof, or caused by soil conditions
which are not due to change in use of the Premises by Lessee; and (iv) any
repair, maintenance or restoration required as a result of the act or neglect of
Lessor or its agents, employees, contractors, members or partners (collectively,
"Representatives") or resulting from the failure of Lessor to perform in a
timely manner its obligations under this Lease.
Notwithstanding the foregoing, Lessee shall pay the cost of repairs for
any damage occasioned by Lessee's use of the Premises or Property or any act or
omission of Lessee or Lessee's representatives or visitors, to the extent (if
any) not covered by Lessor's insurance. Lessee shall be also responsible for
maintaining those portions of the roof and structure of the Building to the
extent of any replacements or improvements made by Lessee. Lessee shall also be
responsible for installing and maintaining any improvements to the electrical
and plumbing (including septic systems) facilities to the Premises to the extent
that such improvements are necessary due to Lessee's needs in the Premises.
Lessor shall be responsible for abating any asbestos found on the Premises in a
manner that complies with federal, state and local law and further represents
and warrants, to the best of Lessor's knowledge, that (i) all asbestos
previously removed from the Building by Lessor was done in compliance with all
Applicable Laws and (ii) no asbestos remains in the Building.
Lessee hereby waives all rights under and benefits of Subsection (1) of
Civil Code Section 1932 and Sections 1941 and 1942 of the California Civil Code
and under any similar law, statute or ordinance now or hereafter in effect.
8. LIENS. Lessee shall keep the Premises free from any liens arising
out of work performed, materials furnished, or obligations incurred by Lessee.
If Lessee elects to make improvements or additions to the Premises at its own
expense, at least ten (10) days prior to the commencement of any construction
involving expenditures for labor and materials in excess of $5,000.00, Lessee
shall notify Lessor, in writing, of its intention to commence such construction
and the scheduled date for the commencement of such construction. Lessor shall
have the right to enter the Premises to post and keep posted any and all notices
of non-responsibility, or other matters provided or permitted by law for the
Lessor's protection, in connection with any such construction work.
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9. SUBORDINATION; NON-DISTURBANCE AND ATTORNMENT.
9.1. Upon written request by Lessor, this Lease shall be subordinate
to the lien of any first mortgage or deed of trust in any amount whatsoever now
or hereafter placed on or against the land or improvements or either thereof, of
which the Premises are a part, or on or against the Lessor's interest or estate
therein (collectively, "Encumbrance"), without the necessity of the execution
and delivery of any further instruments to effectuate such subordination;
provided, however, that such subordination shall only be effective and be on the
express condition that the holder of the Encumbrance executes and delivers to
Lessee a Non-Disturbance Agreement and Agreement to Honor Rights, in
substantially the form attached hereto as EXHIBIT D ("Non-Disturbance
Agreement"), stating that this Lease shall survive the termination of the
Encumbrance by lapse of time, foreclosure or otherwise so long as Lessee is not
in default under this Lease and that the holder of the Encumbrance will honor
the rights of first refusal granted to Lessee pursuant to this Lease. If any
mortgagee, trustee, or ground lessor shall elect to have this lease prior to the
lien of its mortgage, deed of trust, or ground lease, and gives the Lessee
written notice thereof, this Lease shall be deemed prior to such mortgage, deed
of trust, or ground lease, whether it is dated prior or subsequent to the date
of the mortgage, deed of trust or ground lease, or the recording thereof.
9.2 Within five (5) days from request, the Lessee agrees to execute
and deliver without charge such further instruments evidencing the subordination
of this Lease to such ground or underlying leases and to the lien of any such
mortgages or deeds of trust as the Lessor may reasonably request; provided that
a Non-Disturbance Agreement is executed contemporaneously therewith.
9.3 In the event of foreclosure or the exercise of the power of sale
under any mortgage or deed of trust covering the Premises, the Lessee agrees to
attorn to the purchaser upon any such foreclosure or sale and recognize such
purchaser as the Lessor under this Lease, subject to such purchaser assuming the
remaining obligations of Lessor under the Lease.
10. COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Lessee shall observe and
comply with all requirements, rules, orders and regulations of the federal,
state and municipal governments or other duly constituted public authority
affecting the Premises ("Applicable Laws"), including the making of
nonstructural alterations, insofar as they are due to Lessee's occupancy;
provided, however, that in the event such Applicable Laws shall either (a)
require the removal of asbestos or other Hazardous Material not placed on the
Premises by Lessee, (b) require structural changes, including but not limited
to, the erection of fire escapes or exits, or (c) require nonstructural changes
required of retail and/or commercial properties generally irrespective of the
nature of the current tenancy, unless such changes were triggered by a
remodeling or renovation of the Premises by Lessee (in which case Lessee shall
be solely responsible for the changes), then the same shall be complied with by
Lessor at its sole expense.
11. INDEMNIFICATION; EXCULPATION AND INSURANCE.
11.1 LESSEE'S INDEMNIFICATION. During the Term, Lessee shall
indemnify, defend (with counsel reasonably acceptable to Lessor), and save
Lessor and its Representatives,
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harmless against all loss, liability, penalties, claims or demands of whatsoever
nature, including reasonable attorneys' fees and costs, arising from any
occurrence in the Premises (including construction of Lessee's tenant
improvements or Alterations), except to the extent resulting, in whole or in
part, directly or indirectly from the default or negligence of Lessor and its
Representative. Lessee will carry liability insurance with a deductible amount
and company reasonably satisfactory to the Lessor in the sum of $2,000,000.00 in
favor of Lessee and Lessor agrees to deliver a duplicate policy to the Lessor
naming Lessor as an additional insured. Lessee shall also carry such worker's
compensation insurance as is required by law.
11.2 LESSOR'S INDEMNIFICATION. During the Term, Lessor shall
indemnify, defend (with counsel reasonably acceptable to Lessee), and save
Lessee, its Representatives and sublessees, harmless against all loss,
liability, penalties, claims or demands of whatsoever nature, including
reasonable attorneys' fees and costs, arising from any occurrence in any area of
the Property other than the Premises, except those which shall result, in whole
or in part, directly or indirectly from the default or negligence of Lessee, its
Representatives, assignees or sublessees. Lessor will carry liability insurance
with a deductible amount and company reasonably satisfactory to the Lessee in
the sum of $2,000,000.00 and Lessor agrees to deliver a duplicate policy to the
Lessee naming Lessee as an additional insured.
11.3 EXCULPATION. Lessor shall not be liable for injury or damage
to the person or goods, wares, merchandise or other property of Lessee, Lessee's
employees, contractors, invitees, customers, or any other person in or about the
Premises, whether such damage or injury is caused by or results from fire,
steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, fire sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures, or from any other cause,
whether the such injury or damage results from conditions arising upon the
Premises, or from other sources or places, and regardless of whether the cause
of such damage or injury or the means of repairing the same is accessible or
not, except that Lessor shall remain liable for any damages arising from any act
or neglect of Lessor, or its Representatives or Lessor's breach of this Lease.
11.4 GENERAL. All insurance policies required under this Lease
shall:
(a) be issued by insurance companies authorized to do business
in the State of California, with a financial rating of at least an A VII as
rated in the most recent edition of Best's Key Rating Guide;
(b) be issued as a primary policy;
(c) contain an endorsement requiring thirty (30) days' written
notice from the insurance company to both parties before cancellation or change
in the coverage, scope, or amount of any policy; and
(d) the parties shall increase the amount of liability
insurance carried pursuant to Subsections 12.1 and 12.2 from time to time to the
extent necessary to maintain commercially reasonable amounts of insurance and in
any event no less than that carried by similar first-class properties.
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11.5 FIRE AND CASUALTY INSURANCE. Lessor shall maintain in effect
during the Term a policy or policies of insurance on the Warehouse with
responsible insurers, on an "all risk" or "special form" basis, insuring the
Warehouse, but not the Alterations or tenant improvements, in an amount equal to
100% of the replacement cost thereof, excluding land, foundations, footings and
underground installations. Lessee shall pay fifty percent (50%) of such
insurance.
Lessee shall at all times maintain in effect with respect to its Trade
Fixtures, Alterations, tenant improvements and personal property, commercial
property insurance providing coverage, on an "all risk" or "special form" basis,
in an amount equal to the full replacement cost of the covered property. Lessee
may carry such insurance under a blanket policy, provided that such policy
provides coverage equivalent to a separate policy.
11.6 INSURABLE INTEREST IN TRADE FIXTURES AND IMPROVEMENTS. Lessor
hereby expressly acknowledges that Lessee shall have the sole insurable interest
in the Trade Fixtures, leasehold improvements and Alterations installed in the
Premises by Lessee, or at Lessee's direction, or at Lessee's expense, and that,
in the event of any damage to or destruction of the Premises, Lessee shall be
entitled to retain all insurance proceeds collected by Lessee with respect to
such Trade Fixtures, leasehold improvements and Alterations.
11.7 WAIVER OF SUBROGATION RIGHTS. The parties release each other
and their respective authorized representatives, from any claims for damage to
any person or to the Premises and the Warehouse and other improvements in which
the Premises are located and to the fixtures, personal property, Lessee's
improvements and alterations of either Lessor or Lessee in or on the Premises
and the Warehouse and other improvements in which the Premises are located that
are caused by or result from any risk insured against under any insurance
policies required under this Lease or actually carried by the parties and in
force at the time of any such damage; provided, however, this waiver shall only
extend to the limits of the insurance actually carried by the parties.
Each party shall cause each insurance policy contained by it to
provide that the insurance company waives all right of recovery by way of
subrogation against either party in connection with any damage covered by any
policy. Neither party shall be liable to the other for any damage caused by fire
or any of the risks insured against under any insurance policy required by this
Lease. If any insurance policy cannot be obtained which contains a waiver of
subrogation or is obtainable only by the payment of an additional premium charge
above that charge by insurance companies issuing policies without waiver of
subrogation, the party undertaking to obtain the insurance shall notify the
other party of this fact. The other party shall have a period of ten (10) days
after receiving notice either to place the insurance with a company that is
reasonably satisfactory to the other party and that will carry the insurance
with a waiver of subrogation, or to agree to pay the additional premium of such
if such a policy is obtainable at additional cost. If the party in whose favor a
waiver of subrogation is desired refuses to pay the additional premium charge,
the other party is relieved of the obligation to obtain a waiver of subrogation
rights with respect to the particular insurance involved.
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11.8 SURVIVAL. The indemnifications set forth in this Section shall
survive the expiration, cancellation or termination of this Lease.
12. UTILITIES. Lessor covenants and agrees that, as of the Commencement
Date, the Premises shall be serviced with gas, electric, telephone, water,
septic and other utilities. Lessor agrees, at its sole cost and expense, to
cause the necessary mains, conduits and other facilities to be provided to make
water, sewer, gas, telephone and electricity available to the Premises from and
after the Commencement Date, including the payment of impact or tap fees and
meter installation charges. After installation, Lessee shall pay all charges for
consumption of utility services furnished to the Premises during the Term.
Lessor agrees to use reasonable efforts to maintain, and if possible, increase,
the amount of water provided to the Premises.
In the event of an interruption in or failure or inability to provide
any services or utilities to the Premises or Building for any reason (a "Service
Failure"), such Service Failure shall not, regardless of its duration, impose
upon Lessor any liability whatsoever, constitute an eviction of Lessee,
constructive or otherwise, entitle Lessee to an abatement of Rent or to
terminate this Lease or otherwise release Lessee from any of Lessee's
obligations under this Lease. Lessee hereby waives any benefits of any
applicable existing or future Law, including the provisions of California Civil
Code Section 1932(1), permitting the termination of this Lease due to such
interruption, failure or inability.
13. ENTRY BY LESSOR. Lessee shall permit Lessor and its Representatives
to enter into and upon the Premises at all reasonable times upon reasonable
notice (except in the case of an emergency) for the purpose of inspecting the
Premises to determine if the Premises are in good condition and whether Lessee
is complying with its obligations under the Lease, or for the purposes of
maintaining the Building, including the erection and maintenance of such
scaffolding, canopies, fences and props as may be required, for the purpose of
showing the Premises for sale or in connection with any financing, or for the
purpose of posting notices of non-responsibility for alterations, additions, or
repairs, without any rebate of rent and without any liability to Lessee for any
loss of occupation or quiet enjoyment of the Premises thereby occasioned; and
shall permit Lessor, at any time within six (6) months prior to the expiration
of this Lease, to place upon the Premises any usual or ordinary "to let" or "to
lease" signs, provided that such signs are tasteful and in keeping with the
first-class nature of Lessee's business. Lessor shall use reasonable efforts to
conduct its activities under this Section in a manner that will minimize
inconvenience to Lessee.
14. DESTRUCTION OF PREMISES.
14.1 LESSOR'S DUTY TO REPAIR. If all or a substantial portion of
the Premises are rendered untenantable or inaccessible by damage to all or any
part of the Premises or Common Area from fire or other casualty then, unless
either party is entitled to and elects to terminate this Lease pursuant to
Sections 14.2 or 14.3, Lessor shall, at its expense, use reasonable efforts to
repair and restore the Premises to substantially its former condition as
permitted by then applicable Laws; provided, however, that in no event shall
Lessor have any obligation for repair or restoration beyond the extent of
insurance proceeds received by Lessor for such repair or
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restoration not required to be paid to any mortgagee. Lessor shall have no
obligation to repair or replace any of Lessee's personal property, Trade
Fixtures or Alterations.
If Lessor is required or elects to repair damage to the Premises, this
Lease shall continue in effect but the Rent and Additional Rent from the date of
the casualty through the date of substantial completion of the repair shall be
abated with regard to any portion of the Premises that Lessee is prevented from
using by reason of such damage or its repair. The amount and period of rental
abatement shall be mutually determined by the parties in the exercise of their
good faith reasonable judgment. In no event shall Lessor be liable to Lessee by
reason of any injury to or interference with Lessee's business or property
arising from fire or other casualty or by reason of any repairs to any part of
the Property necessitated by such casualty.
14.2 LESSOR'S RIGHT TO TERMINATE. Lessor may elect to terminate
this Lease, effective as of the date of the casualty, under the following
circumstances:
(a) Where, in the reasonable judgment of Lessor, the damage
cannot be substantially repaired and restored under Applicable Law within one
(1) year from the date of the casualty;
(b) Where the Premises are damaged or destroyed to the extent
that the cost to repair and restore the Premises exceeds the amount of available
insurance proceeds (or that would have been available if Lessor had carried the
insurance required under the Lease);
(c) Where the Premises are damaged or destroyed to the extent
that, in the reasonable judgment of the Lessor, the cost to repair and restore
the Premises would exceed twenty-five percent (25%) of the full replacement cost
of the Building, whether or not the Premises are at all damaged or destroyed; or
(d) If the fire or casualty occurs in the last year of the
Term, unless Lessee has extended, or agrees in advance to extend, the Term
pursuant to its Extension Options.
If any of the circumstances described in subparagraphs (a),
(b), (c) or (d) of this subsection occur or arise, Lessor must notify Lessee in
writing of that fact within one hundred and twenty (120) days after the date of
the casualty and in such notice Lessor must also advise Lessee whether Lessor
has elected to terminate this Lease as of the date of the casualty.
14.3 LESSEE'S RIGHT TO TERMINATE. If all or a substantial part of
the Premises are rendered untenantable or inaccessible by damage to all or any
part of the Premises from fire or other casualty, and Lessor does not elect to
terminate as provided above, then Lessee may elect to terminate this Lease if
Lessor's estimate f the time required to complete Lessor's repair obligations
under this Lease is greater than one (1) year, in which event Lessee may elect
to terminate this Lease by giving Lessor notice of such election to terminate
within thirty (30) days after Lessor's notice to Lessee pursuant to Section 16.2
(Lessor's Right to Terminate).
14.4 WAIVER OF STATUTORY PROVISIONS. Lessor and Lessee each hereby
waive the provisions of California Civil Code Sections 1932(2), 1933(4) and any
other applicable existing
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or future law, ordinance or regulation with respect to damage or destruction of
leased premises or with respect to the termination of a lease agreement in the
event of such damage or destruction under any circumstances other than as
provided in Sections 16.2 and 16.3 above.
15. CONDEMNATION.
15.1 CONDEMNATION DEFINED AND ITS EFFECT ON THE LEASE. Condemnation
shall mean (i) a permanent taking (or a temporary taking extending beyond the
end of the Term) pursuant to the exercise of power of condemnation or eminent
domain by any public or quasi public authority, private corporation or
individual having such power ("Condemnor"), whether by legal proceedings or
otherwise, or (ii) a voluntary sale or transfer by Lessor to any such authority,
whether under threat of condemnation or while legal proceedings for condemnation
are pending.
If the Premises are totally taken by Condemnation, this Lease
shall terminate as of the date of that Condemnation. If a portion but not all of
the Premises is taken by Condemnation, this Lease shall remain in effect;
provided, however, that if the portion of the Premises remaining after the
Condemnation is not reasonably suitable for Lessee's continued use, then upon
notice to Lessor within thirty (30) days after Lessor notifies Lessee of the
Condemnation, Lessee may terminate this Lease effective as of the date of the
Condemnation. If twenty-five percent (25%) of the Property or of the land on
which the Building is situated or of the designated parking areas or of the
floor area in the Building is taken by Condemnation, or if as a result of
condemnation the Building is no longer reasonably suited for use as a retail
building, whether or not any portion of the Premises is taken, Lessor may elect
to terminate this Lease, effective as of the date of Condemnation, by notice to
Lessee within thirty (30) days after the date of Condemnation. If all or a
portion of the Premises is temporarily taken by a Condemnor for a period not
extending beyond the Term, this Lease shall remain in full force and effect.
15.2 RESTORATION OF PREMISES. If this Lease is not terminated as
provided in Section 17.1, Lessor shall, at it expense, diligently proceed to
repair and restore the Premises to substantially its former condition (to the
extent permitted by then applicable Laws) and/or repair and restore the Building
to an architecturally complete retail building; provided, however, that Lessor's
obligations to so repair and restore shall be limited to the amount of any award
received by Lessor for the Condemnation and not required to be paid to any
mortgagee. In no event shall Lessor have any obligation to repair or replace any
improvements in the Premises beyond the amount of any reward received by Lessor
for such repair or to repair or replace any of Lessee's personal property, Trade
Fixtures or Alterations. If any portion of the Premises is taken in a
Condemnation or is rendered untenantable by repairs necessitated by the
Condemnation, and this Lease is not terminated, the Rent and Additional Rent
shall be proportionately reduced as of the date of the Condemnation based upon
the percentage of rentable square feet in the Premises so taken or rendered
permanently untenantable. In addition, if this Lease remains in full force and
effect following a Condemnation and Lessor proceeds to repair and restore the
Premises, the Rent and Additional Rent payable under the Lease shall be abated
during the period of such repair or restoration to the extent such repairs
prevent Lessee's use of the Premises.
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Lessor and Lessee each hereby waive the provisions of California
Code of Civil Procedure Section 1265.130 and any other applicable existing or
future Law allowing either party to petition for a termination of this Lease
upon a partial taking of the Premises and/or the Property.
16. ASSIGNMENT AND SUBLETTING. Lessee shall not assign this Lease, or
any interest therein, and shall not sublet the Premises or any part thereof, or
any right or privilege appurtenant thereto, or suffer any other person (the
Representatives of Lessee excepted), including any corporation or other person
or entity resulting from a merger or consolidation with Lessee, or to any person
or entity which acquires substantially all the assets of Lessee as a going
concern to occupy or use the Premises, or any portion thereof, without the prior
written consent of Lessor, which shall not be unreasonably withheld; provided,
however, Lessor's consent shall not be required with respect an assignment or
sublet to any corporation or other person or entity which controls, is
controlled by, or is under common control with Lessee (collectively, an
"Affiliate"). A consent to one assignment, subletting, occupation or use by any
other person, shall not be deemed to be a consent to any subsequent assignment,
subletting, occupation or use by another persons. Any such assignment or
subletting without such consent shall be void. This lease shall not, nor shall
any interest therein, be assignable, as to the interest of Lessee, by operation
of law, without the written consent of Lessor. Lessor and Lessee acknowledge and
agree that this Section shall not be interpreted to require that Lessee notify
Lessor or obtain Lessor's consent to any joint venture or concession arrangement
involving a portion of the Premises so long as Lessee continues to operate and
maintain its business at the Premises.
17. INSOLVENCY OR BANKRUPTCY. Lessee shall be in default under this
Lease if (a) a petition of bankruptcy or reorganization is filed by Lessee or
against Lessee and is not dismissed within ninety (90) days after such filing
and Lessee becomes bankrupt, (b) Lessee makes a general assignment for the
benefit of creditors, (c) in any proceeding based upon the insolvency of Lessee,
a receiver or trustee of all of the property of Lessee is appointed and is not
discharged within ninety (90) days after such appointment, or (d) a writ of
attachment or execution is levied against all or substantially all of Lessee's
assets and is not discharged within thirty (30) days after Lessee receives
notice thereof; provided, however, neither bankruptcy, insolvency,
reorganization, an assignment for the benefit of creditors nor the appointment
of a receiver or trustee shall affect this Lease or permit its termination so
long as the covenants on the part of Lessee to be performed shall be performed
by Lessee, or someone claiming under it.
18. DEFAULTS AND REMEDIES.
18.1 Events of Default. The occurrence of any of the following
shall constitute an "Event of Default" by Lessee:
(a) Lessee fails to make any payment of rent when due, or any
amount required to replenish the security deposit as provided in Section 3
above, if payment in full is not received by Lessee within three (3) days after
written notice that it is due.
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(b) Lessee abandons the Premises.
(c) Lessee fails timely to deliver any subordination document,
estoppel certificate or financial statement requested by Lessee within the
applicable time period specified in Section 39 below.
(d) Lessee violates the restrictions on Transfer set forth in
Section 16 - ASSIGNMENT AND SUBLETTING.
(e) Lessee ceases doing business as a going concern; makes an
assignment for the benefit of creditors; is adjudicated an insolvent, files a
petition (or files an answer admitting the material allegations of a petition)
seeking relief under any state or federal bankruptcy or other statute, law or
regulation affecting creditors' rights; all or substantially all of Lessee's
assets are subject to judicial seizure or attachment and are not released within
30 days, or Lessee consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for Lessee or for all or any substantial part of Lessee's
assets.
(f) Lessee fails, within ninety (90) days after the commencement of
any proceedings against Lessee seeking relief under any state or federal
bankruptcy or other statute, law or regulation affecting creditors' rights, to
have such proceedings dismissed, or Lessee fails, within ninety (90) days after
an appointment, without Lessee's consent or acquiescence, of any trustee,
receiver or liquidator for Lessee or for all or any substantial part of Lessee's
assets, to have such appointment vacated.
(g) Lessee fails to perform or comply with any provision of this
Lease other than those described in (a) through (f) above, and does not fully
cure such failure within fifteen (15) days after notice to Lessee or, if such
failure cannot be cured within such fifteen (15)-day period, Lessee fails within
such fifteen (15)-day period to commence, and thereafter diligently proceed
with, all actions necessary to cure such failure as soon as reasonably possible
but in all events within ninety (90) days of such notice; provided, however,
that if Lessee in Lessee's reasonable judgment determines that such failure
cannot or will not be cured by Lessee within such ninety (90) days, then such
failure shall constitute an Event of Default immediately upon such notice to
Lessee.
18.2 Remedies. If Lessee is in default under any provision of this
Lease, Lessor shall have the following remedies, which shall not be exclusive
but shall be cumulative and shall be in addition to any other remedies now or
hereafter allowed by law:
(a) Lessor may terminate Lessee's right to possession of the
Premises at any time by written notice to Lessee. Lessee expressly acknowledges
that in the absence of such written notice from Lessor, no other act of Lessor,
including re-entry into the Premises, efforts to relet the Premises, reletting
the Premises for Lessee's account, storage of Lessee's personal property and
Trade Fixtures, acceptance of keys to the Premises from Lessee or exercise of
any other rights and remedies under this Section, shall constitute an acceptance
of Lessee's surrender of the premises or constitute a termination of this Lease
or of Lessee's right to possession of the Premises. Upon such termination in
writing of Lessee's right to possession of the Premises, as
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herein provided, this Lease shall terminate and Lessor shall be entitled to
recover damages from Lessee as provided in California Civil Code Section 1951.2
and any other applicable existing or future Law providing for recovery of
damages for such breach, including the worth at the time of award of the amount
by which rent which would be payable by Lessee hereunder for the remainder of
the Term after the date of the award of damages, including Additional Rent as
reasonably estimated by Lessor, exceeds the amount of such rental loss as Lessee
proves could have been reasonably avoided, discounted at the discount rate
published by the Federal reserve Bank of San Francisco for member banks at the
time of the award plus one percent (1%).
(b) Lessor shall have the remedy described in California Civil
Code Section 1951.4 (Lessor may continue this Lease in effect after Lessee's
breach and abandonment and recover rent as it becomes due, if Lessee has the
right to sublet or assign, subject only to reasonable limitations).
(c) Lessor may cure the default at Lessee's expense. If Lessor
pays any sum or incurs any expense in curing the default, Lessee shall reimburse
Lessor upon demand for the amount of such payment or expense with interest at
the rate of fifteen percent (15%) per annum from the date the sum is paid or the
expense is incurred until Lessor is reimbursed by Lessee.
(d) Lessor may remove all Lessee's property from the Premises,
and such property may be stored by Lessor in a public warehouse or elsewhere at
the sole cost and for the account of Lessee. If Lessor does not elect to store
any or all or Lessee's property left in the Premises, Lessee may consider such
property in any manner deemed appropriate by Lessor. Any proceeds realized by
Lessor on the disposal of any such property shall be applied first to offset all
expenses of storage and sale, then credited against Lessee's outstanding
obligations to Lessor under this Lease, and any balance remaining after
satisfaction of all obligations of Lessee under this Lease shall be delivered to
Lessee.
19. SURRENDER OF LEASE. The voluntary or other surrender of this Lease
by Lessee, or a mutual cancellation thereof, shall not work a merger, and shall,
at the option of Lessor, terminate all or any existing sublease or subtenancies,
or may, at the option of Lessor, operate as an assignment to him of any or all
such subleases or subtenancies.
20. ATTORNEY'S FEES. In the event of any litigation or arbitration
regarding any rights and obligations under this Lease, the prevailing party
shall be entitled to recover reasonable attorneys' fees and court costs in
addition to any other relief which may be granted. The "prevailing party" shall
be determined by the court or arbitrator before whom the action was brought
based upon an assessment of which party's major arguments or positions taken in
the suit or proceeding could fairly be said to have prevailed over the other
party's major arguments or positions on major disputed issues in the court's or
arbitrator's opinion.
21. NOTICE. Any notice, demand, request, consent or approval that
either party desires or is required to give to the other party under this Lease
shall be in writing and shall be served personally, delivered by messenger or
courier service, or sent by U.S. certified mail, return receipt requested,
postage prepaid, addressed to the other party at the party's address for notices
provided in
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writing to the other party from time to time. The initial address for notices
shall be the addresses set forth in the signature block to this Lease. Notices
will be effective upon receipt (or refusal of delivery or receipt). Either party
may change its address for notices hereunder by a notice to the other party
complying with this Section. If Lessee sublets the Premises, notices from Lessor
shall be effective on the subtenant when given to Lessee pursuant to this
Section.
22. WAIVER. No provisions of this Lease shall be deemed waived by
either party unless such waiver is in a writing signed by the waiving party. The
waiver of any breach of any provision of this Lease shall not be deemed a waiver
of such provision or of any subsequent breach of the same or any other provision
of this Lease. No delay or omission in the exercise of any right or remedy upon
any default shall impair such right or remedy or be construed as a waiver.
Either party's consent to or approval of any act requiring consent or approval
shall not be deemed to waive or render unnecessary such consent to or approval
of any subsequent act.
23. HOLDING OVER. Any holding over after the expiration of the said
term, with the consent of Lessor, shall be construed to be a tenancy from month
to month, at 150% of the current rent and on the terms and conditions herein
specified, so far as applicable.
24. SUCCESSORS AND ASSIGNS. The covenants and conditions herein
contained shall, subject to the provisions as to assignment, apply to and bind
the heirs, successors, executors, administrators and assigns of all of the
parties hereto; and all of the parties hereto shall be jointly and severally
liable hereunder.
25. TIME. Time is of the essence of this Lease.
26. LATE CHARGE. If any payment of Rent is not received by Lessor
within five (5) days after it is due, Lessee shall pay to Lessor on demand as a
late charge an additional amount equal to five percent (5%) of the overdue
payment,. Lessee acknowledges that late payment of Rent will cause Lessor to
incur costs which are difficult to ascertain, and the parties agree that the
foregoing amount is a reasonable estimate of Lessor's expenses resulting from
late payments and are not intended as a penalty. A late charge shall not be
imposed more than once on any particular installment not paid when due, but
imposition of a late charge on any payment not made when due does not eliminate
or supersede late charges imposed on other payments not made when due or
preclude imposition of a late charge on other installments or payments not made
when due or waive any other default by Lessee.
27. LESSOR'S RIGHT OF FIRST REFUSAL TO PURCHASE. Lessee hereby grants
to Lessor a continuing Right of First Refusal to purchase Lessee's leasehold
interest in this Lease ("Leasehold Interest"), which shall continue during the
Term or and Extension Period, as the case may be. Lessee shall not, at any time
prior to the expiration of the Term of this Lease, or any extension thereof,
sell the Leasehold Interest, except to an Affiliate of Lessee, without first
giving written notice thereof to Lessor, which notice shall clearly state that
Lessor has five (5) business days to respond and which notice is hereinafter
referred to as "Notice of Sale." Provided that Lessor is not in default under
this Lease which remains uncured after the expiration of the applicable cure
period at the time it receives the Notice of Sale, for a period of five (5)
business days after receipt by Lessor of the Notice of Sale, Lessor shall have
the right to give
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written notice to Lessee of Lessor's exercise of Lessor's right to purchase the
Leasehold Interest, on the same terms, price and conditions as set forth in the
Notice of Sale. In the event that Lessor does not exercise the purchase right
herein granted within such five (5) day period, there shall be a conclusive
presumption that Lessor has elected not to exercise Lessor's right hereunder,
and Lessee may sell the Leasehold Interest, on the same terms set forth in the
Notice of Sale; provided, however, that if (a) Lessee proposes to sell the
Leasehold Interest, at a purchase price that is less than ninety-five percent
(95%) of the purchase price proposed to Lessor, or upon other terms which are
substantially more favorable to the prospective purchaser, Lessee shall first
re-offer such space to Lessor at such lower purchase price and/or more favorable
terms or (b) Lessee proposes to sell the Leasehold Interest, more than six (6)
months after Lessor's receipt of the Notice of Sale, Lessee shall first re-offer
such space to Lessor, all in accordance with the provisions of this Section. The
right under this Section is a continuing right and must be reoffered to Lessor
each time this provision is triggered, whether or not Lessor has exercised its
rights hereunder with respect to previous offers.
28. QUIET ENJOYMENT. Lessor covenants, represents and warrants that it
has full right and power to execute and perform this Lease and to grant the
estate demised herein and that Lessee, on payment of the rent and performance of
the covenants and agreements hereof, shall peaceably and quietly have, hold and
enjoy the Premises and all rights, easements, appurtenances and privileges
belonging or in any way pertaining thereto during the Lease Term without
molestation or hindrance of any person whomsoever.
29. COVENANT OF TITLE. Lessor further covenants, represents and
warrants that it is seized of an indefeasible estate in fee simple and has good
and marketable title to the Land described in EXHIBIT A, free and clear of any
liens, encumbrances, restrictions and violations (or claims or notices hereof),
except the lien of the mortgage or mortgages specifically identified on the
attached EXHIBIT E and public utility easements and covenants and restrictions
of record not impairing Lessee's Intended Use of the Premises, and taxes not yet
due and payable.
30. HAZARDOUS MATERIAL.
30.1 LESSOR'S REPRESENTATIONS, WARRANTIES AND COVENANT. Lessor
represents that to the best of its knowledge, except as set forth in either of
the Underground Storage Tank Report and the DTSC Environmental Reports for the
Property or as otherwise previously disclosed to Lessee, there are no "Hazardous
Materials" (as defined below) on the Premises as of the Commencement Date.
Lessor's representations to Lessee under this Section shall survive the
cancellation or termination of this Lease.
30.2 LESSOR'S INDEMNIFICATION OBLIGATION. Notwithstanding any
investigation or disclosures made by Lessor or Lessee, Lessor hereby agrees to
indemnify, defend, and hold harmless Lessee, its Representatives, assignees and
Sublessees, and Lessee's guarantor, if any, from and against any penalty, loss,
liability, claim or expenses including, without limitation, engineering and
attorneys fees, arising out of a breach of the representations and warranties in
Section 32.1 above, except to the extent such condition was directly caused by
the breach of
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Lessee's covenant below. Lessor's representations and indemnity to Lessee under
this Section shall survive the cancellation or termination of this Lease.
30.3 LESSEE'S COVENANT AND INDEMNIFICATION OBLIGATION.
(a) LESSEE'S COVENANTS. No Hazardous Materials shall be
Handled by Lessee at or about the Premises or Property without Lessor's prior
written consent, which consent may be granted, denied, or conditioned upon
compliance with Lessor's requirements, all in Lessor's absolute discretion.
Notwithstanding the foregoing, normal quantities and use of those Hazardous
Materials customarily used in the conduct of warehouse activities, such as
copier fluids and cleaning supplies ("Permitted Hazardous Materials"), may be
used and stored at the Premises without Lessor's prior written consent, provided
that Lessee's activities at or about the Premises and Property and the Handling
by Lessee of all Hazardous Materials shall comply at all times with all
Environmental Requirements. At the expiration or termination of the Lease,
Lessee shall promptly remove from the Premises and Property all Hazardous
Materials Handled by Lessee at the Premises or the Property. Lessee shall keep
Lessor fully and promptly informed of all Handling by Lessee of Hazardous
Materials other than Permitted Hazardous Materials. Lessee shall be responsible
and liable for the compliance with all of the provisions of this Section by all
of Lessee's Representatives and Visitors, and all of Lessee's obligations under
this Section (including its indemnification obligations under paragraph (e)
below) shall survive the expiration or termination of this Lease.
(b) COMPLIANCE. Lessee shall at Lessee's expense promptly take
all actions required by any governmental agency or entity in connection with or
as a result of the Handling by Lessee of Hazardous Materials at or about the
Premises or Property, including inspection and testing, performing all cleanup,
removal and remediation work required with respect to those Hazardous Materials,
complying with all closure requirements and post-closure monitoring, and filing
all required reports or plans. All of the foregoing work and all Handling by
Lessee of all Hazardous Materials shall be performed in a good, safe and
workmanlike manner by consultants qualified and licensed to undertake such work
and in a manner that will not interfere with any other tenant's quiet enjoyment
of the Property or Lessor's use, operation, leasing and sale of the Property.
Lessee shall deliver to Lessor prior to delivery to any governmental agency, or
promptly after receipt from any such agency, copies of all permits, manifests,
closure or remedial action plans, notices, and all other documents relating to
the Handling by Lessee of Hazardous Materials at or about the Premises or
Property. If any lien attaches to the Premises or the Property in connection
with or as a result of the Handling by Lessee of Hazardous Materials, and Lessee
does not cause the same to be released, by payment, bonding or otherwise, within
ten (10) days after the attachment thereof, Lessor shall have the right but not
the obligation to cause the same to be released and any sums expended by Lessor
(plus Lessor's administrative costs) in connection therewith shall be payable by
Lessee on demand.
(c) LESSOR'S RIGHTS. Lessor shall have the right, but not the
obligation, to enter the Premises at any reasonable time (i) to confirm Lessee's
compliance with the provisions of this Section, and (ii) to perform Lessee's
obligations under this Section if Lessee has failed to do so after reasonable
notice to Lessee. Lessor shall also have the right to engage qualified Hazardous
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Materials consultants to inspect the Premises and review the Handling by Lessee
of Hazardous Materials, including review of all permits, reports, plans, and
other documents regarding same. Lessee shall pay to Lessor on demand the costs
of Lessor's consultants' fees and all costs incurred by Lessor in performing
Lessee's obligations under this Section. Lessor shall use reasonable efforts to
minimize any interference with Lessee's business caused by Lessor's entry into
the Premises, but Lessor shall not be responsible for any interference caused
thereby.
30.4 DEFINITION.
(a) "Hazardous Materials" shall mean any substance: (A) that
now or in the future is regulated or governed by, requires investigation or
remediation under, or is defined as a hazardous waste, hazardous substance,
pollutant or contaminant under any governmental statute, code, ordinance,
regulation, rule or order, and any amendment thereto, including the
Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C.
ss.9601 ET SEQ., and the Resource Conservation and Recovery Act, 42 U.S.C.
ss.6901 ET SEQ., or (B) that is toxic, explosive, corrosive, flammable,
radioactive, carcinogenic, dangerous or otherwise hazardous, including gasoline,
diesel fuel, petroleum hydrocarbons, polychlorinated biphenyls (PCBs), asbestos,
radon and urea formaldehyde foam insulation.
(b) "Environmental Requirements" shall mean all present and
future Laws, orders, permits, licenses, approvals, authorizations and other
requirements of any kind applicable to Hazardous Materials.
(c) "Handled by Lessee" and "Handling by Lessee" shall mean
and refer to any installation, handling, generation, storage, use, disposal,
discharge, release, abatement, removal, transportation, or any other activity of
any type by Lessee or its agents, employees, contractors, licensees, assignees,
sublessees, transferees or representatives (collectively, "Representatives") or
its guests, customers, invitees, or visitors (collectively, "Visitors"), at or
about the Premises in connection with or involving Hazardous Materials.
(d) "Environmental Losses" shall mean all costs and expenses
of any kind, damages, including foreseeable and unforeseeable consequential
damages, fines and penalties incurred in connection with any violation of and
compliance with Environmental Requirements and all losses of any kind
attributable to the diminution of value, loss of use or adverse effects on
marketability or use of any portion of the Premises or Property.
31. MEMORANDUM OF LEASE.
The parties hereto have simultaneously with the execution and delivery
of this Lease, executed and delivered a Memorandum of Lease substantially in the
form attached as EXHIBIT E to this Lease, which Lessor shall, at its sole
expense, cause to be recorded within five (5) days following delivery of this
Lease and returned to Lessee by Lessor within five (5) days thereafter.
32. BROKER'S REPRESENTATION. Each party represents that it dealt with
no broker or brokers in connection with the negotiation, execution and delivery
of this Lease.
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Lessor and Lessee shall, and do hereby, indemnify, defend, and save the other
harmless from and against any losses, damages, penalties, claims or demands of
whatsoever nature arising from a breach of its foregoing representation
including, without limitation, reasonable attorneys' fees and expenses. The
representations and indemnifications set forth in this Section shall survive the
cancellation or termination of this Lease.
33. FORCE MAJEURE. Lessor and Lessee shall be excused for the period of
any delay in performance of any obligations hereunder (except payment of Rent)
by reason of the wrongful or negligent acts or omissions of the other party, or
their Representatives, or by reason of labor disputes, civil disturbance, war,
war-like operations, invasions, rebellion, hostilities, military or usurped
power, sabotage, governmental regulations or controls, fires or other casualty,
or acts of God (referred to collectively herein as "Force Majeure).
34. CONDITION OF PREMISES AT TERMINATION. At the expiration or earlier
termination of the Term, Lessee shall surrender the Premises, together with all
improvements installed by Lessee then a part thereof, in good order and
condition, except for the following: (a) ordinary wear and tear, (b) repairs
required to be made by Lessor, and (c) loss or damage by fire, the elements or
other casualty. All furniture and Trade Fixtures installed in the Premises at
the expense of Lessee, or other occupant, shall remain the property of Lessee,
or such other occupant; provided, however, Lessee shall have the option, during
the Term, to relinquish its property rights in such Trade Fixtures (including,
but not limited to, air conditioning machinery and lighting fixtures, if owned
by Lessee), which option shall be exercised by written notice of such
relinquishment to Lessor and, from and after the exercise of said option, the
property specified in said notice shall be the property of Lessor.
35. CONSENTS AND APPROVALS. Unless another consent standard is
specifically provided under the terms of this Lease, whenever consent,
satisfaction or approval of either party is required under this Lease, such
consent, satisfaction or approval shall not be unreasonably withheld,
conditioned or delayed. If and to the extent that any written request for
consent, satisfaction or approval is not reasonably disapproved in writing
(including a statement of the reasons for disapproval with reasonable
particularity) within fifteen (15) days or such other time specifically set
forth in the particular provision of the Lease, the consent, satisfaction or
approval shall be deemed to have been given.
36. AUTHORITY.
36.1 LESSOR'S REPRESENTATIONS. Each of the persons executing this
Lease on behalf of Lessor warrants and represents that Lessor is a duly
organized and validly existing limited liability company, that Lessor has full
right and authority to enter into this Lease and that the persons signing on
behalf of Lessor are authorized to do so and have the power to bind Lessor to
this Lease. Lessor shall provide Lessee upon request with evidence reasonably
satisfactory to Lessee confirming the foregoing representations.
36.2 LESSEE'S REPRESENTATIONS. Each of the persons executing this
Lease on behalf of Lessee warrants and represents that Lessee is a duly
organized and validly existing limited
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liability company, that Lessee has full right and authority to enter into this
Lease and that the persons signing on behalf of Lessee are authorized to do so
and have the power to bind Lessee to this Lease. Lessee shall provide Lessor
upon request with evidence reasonably satisfactory to Lessor confirming the
foregoing representations.
37. ENTIRE AGREEMENT. This Lease, including the Exhibits and any
Addenda attached hereto, and the documents referred to herein, if any,
constitute the entire agreement between Lessor and Lessee with respect to the
leasing of space by Lessee at the Property, and supersede all prior or
contemporaneous agreements, understandings, proposals and other representations
by or between Lessor and Lessee, whether written or oral.
38. LESSOR'S LIABILITY. The liability of Lessor for its obligations
under this Lease is limited solely to the assets of Lessor, including without
limitation Lessor's interest in the Property, and no personal liability shall at
any time be asserted or enforceable against Lessor's partners on account of any
of Lessor's obligations or actions under this Lease.
39. ESTOPPEL CERTIFICATES. Either Lessor or Lessee may request that the
other party execute and deliver, within ten (10) days after written request
therefor, in a form provided by or satisfactory to the requesting party, a
certificate stating that this Lease is in full force and effect, describing any
amendments or modifications hereto, acknowledging that this Lease is subordinate
or prior, as the case may be, to any Encumbrance and stating any other
information that the requesting party may reasonably request, including the
Term, the monthly Rent, the date to which Rent has been paid, any claims or
offsets, the amount of any prepaid rent, and whether either party hereto is in
default under the terms of the Lease. Lessee irrevocably constitutes, appoints
and authorizes Lessor as Lessee's special attorney-in-fact for such purpose to
complete, execute and deliver such certificate if Lessee fails timely to execute
and deliver such certificate as provided above. Lessor irrevocably constitutes,
appoints and authorizes Lessee as Lessor's special attorney-in-fact for such
purpose to complete, execute and deliver such certificate if Lessor fails timely
to execute and deliver such certificate as provided above. Any person or entity
purchasing, acquiring an interest in or extending financing with respect to the
Property shall be entitled to rely upon any such certificate.
40. MISCELLANEOUS. This Lease may not be amended or modified except by
a writing signed by Lessor and Lessee. The determination that any provisions
hereof may be void, invalid, illegal or unenforceable shall not impair any other
provisions hereof and all such other provisions of this Lease shall remain in
full force and effect. The unenforceability, invalidity or illegality of any
provision of this Lease under particular circumstances shall not render
unenforceable, invalid or illegal other provisions of this Lease, or the same
provisions under other circumstances. This Lease shall be construed and
interpreted in accordance with the laws of the State of California. The
provisions of this Lease shall be construed in accordance with the fair meaning
of the language used and shall not be strictly construed against either party.
The captions contained in this Lease are for purposes of convenience only and
are not to be used to interpret or construe this Lease. When required by the
context of this Lease, the singular includes the plural. Wherever the term
"including" is used in this Lease, it shall be interpreted as meaning
"including, but not limited to" the matter or matters thereafter enumerated.
19
<PAGE>
[Signatures on Following Page]
20
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease the day
and year first above written.
LESSOR:
R & R LAND, LLC, a California limited
liability company,
By: /s/ Pat Roney
-----------------------------------
Pat Roney, Manager
ADDRESS FOR NOTICES:
999 Adams Street, Suite 302
St. Helena, California 94574
LESSEE:
DEAN & DELUCA MARKETS, LLC, a
California limited liability company
By: /s/ Dane J. Neller
----------------------------------
Dane J. Neller, CEO
ADDRESS FOR NOTICES:
607 St. Helena Highway South,
St. Helena, California 94574
21
<PAGE>
EXHIBIT A
ATTACHED TO AND FORMING A PART OF
WAREHOUSE LEASE
DATED AS OF MARCH 18, 1999
BETWEEN
R & R LAND, LLC, AS LESSOR,
AND
DEAN & DELUCA MARKETS, LLC, AS LESSEE ("LEASE")
LEGAL DESCRIPTION OF THE LAND
(TO BE ATTACHED)
<PAGE>
EXHIBIT B
ATTACHED TO AND FORMING A PART OF
WAREHOUSE LEASE
DATED AS OF MARCH 18, 1999
BETWEEN
R & R LAND, LLC, AS LESSOR,
AND
DEAN & DELUCA MARKETS, LLC, AS LESSEE ("LEASE")
PLOT PLAN
(PARTIES TO DRAFT AND ATTACH)
Needs to show:
1. Land and layout of Structures, identifying the "Premises" and the "Adjacent
Building"
2. Parking
3. Driveways, entrances, sidewalks and exits
4. Existing signage
<PAGE>
EXHIBIT C
ATTACHED TO AND FORMING A PART OF
WAREHOUSE LEASE
DATED AS OF MARCH 18, 1999
BETWEEN
R & R LAND, LLC, AS LESSOR,
AND
DEAN & DELUCA MARKETS, LLC, AS LESSEE ("LEASE")
NON-DISTURBANCE AGREEMENT
NON-DISTURBANCE AGREEMENT AND
AGREEMENT TO HONOR RIGHTS
This NON-DISTURBANCE AGREEMENT AND AGREEMENT TO HONOR RIGHTS
("Agreement") is executed as of the _____ day of _________, 199_, among Dean and
Deluca Markets, LLC, a California limited liability company ("Lessee"), R & R
land, LLC, a California limited liability company ("Lessor"), and
________________, a ________________ ("Beneficiary").
RECITALS:
A. Beneficiary has loaned to Lessor (and its affiliates) $__________
(the "Loan"), which Loan is evidenced by a $__________ Promissory Note and
secured by a Deed of Trust, [Security Agreement and Fixture Filing With
Assignment of Rents] executed by Lessor in favor of Beneficiary, dated
_______________, and recorded on ________________ under Series Number
____________ of the Official Records of the Recorder's Office of Napa County,
California (the "Deed of Trust"). [The Loan is also secured by an Assignment of
Lessor's Interest in Leases, executed by Lessor in favor of Beneficiary, dated
_________________, and recorded on ________________ under Series Number
____________ of the Official Records of the Recorder's Office of Napa County,
California (the "Assignment").] The Deed of Trust [and the Assignment] encumber
certain real property (the "Security Property") located in the County of Napa,
State of California and more particularly described on EXHIBIT A to the Deed of
Trust. [IT HAS BEEN ASSUMED THAT THE SECURITY PROPERTY INCLUDES ALL OF THE
"PROPERTY" SUBJECT TO THE OPTION TO PURCHASE. IF NOT, THE DEFINITIONS WILL NEED
TO BE CHANGED.]
B. Lessor and Lessee have executed a Warehouse Lease, dated March 18,
1999 (the "Lease"), pursuant to which Lessor is leasing a portion of the
Security Property (the "Premises") to Lessee. A legal description of the
Premises is attached and made a part of this Agreement as EXHIBIT A.
C. Lessee has requested that Beneficiary agree not to disturb Lessee's
possessory rights in the Premises in the event that, through or in lieu of the
exercise by Beneficiary of any of
<PAGE>
its remedies pursuant to the Deed of Trust, [the Assignment] or any other
documents granting or perfecting a security interest to secure the Loan
(collectively, the "Security Documents"), Beneficiary or any other person or
entity that succeeds to the interests of Lessor in the Security Property or
the Premises (collectively, including Beneficiary and the successors and
assigns of each of them, the "Successor"), provided that Lessee is not in
default under the Lease and that Lessee attorns to the Successor.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants contained herein, the parties agree as follows:
1. LEASE. Beneficiary hereby consents to the Lease. In the event that,
through or in lieu of the exercise by Beneficiary of any of its remedies
pursuant to the Security Documents, Beneficiary or any other Successor succeeds
to the interests of Lessor under the Lease or acquires title to the Security
Property or the Premises, the parties agree that: (a) the Lease and the rights
of Lessee thereunder, shall remain in full force and effect and shall not be
terminated or disturbed, except in accordance with the terms of the Lease and
this Agreement; (b) so long as Lessee shall not be in default in the performance
or observance of any term, covenant or condition of the Lease, beyond any
applicable grace or cure period therein, no action or proceeding shall be
commenced by Successor to remove or evict Lessee from the Premises or to
terminate the Lease; (c) except as provided in Paragraph 2 (Prior Acts) below,
Successor shall assume and perform all of the duties and responsibilities of
Lessor under the Lease; (d) Lessee shall attorn to Successor and perform, and be
bound under, all of the terms, covenants and conditions of the Lease for the
balance of the term thereof remaining, including any renewal options which are
exercised in accordance with the terms of the Lease; and (e) if, notwithstanding
any other provisions of this Agreement, the acquisition by Successor of the
interests of Lessor in the Security Property or the Premises results, in whole
or part, in the termination of the Lease, there shall be deemed to have been
created a direct lease between Successor and Lessee on the same terms and
conditions as the Lease, for the remainder of the term of the Lease, with
renewal options, if any. The provisions of this Paragraph 1 shall be effective
and self-operative immediately upon Successor succeeding to the interests of
Lessor, without the execution of any further instrument.
2. PRIOR ACTS.
Notwithstanding any other provisions of this Agreement, Successor shall
not be:
a. liable for any act or omission of Lessor, or its successors
preceding Successor, under the Lease; or
b. subject to any offsets, counterclaims or defenses which Lessee
might have against Lessor, or its successors preceding Successor, under the
Lease; or
<PAGE>
c. bound by any prepaid rent in excess of one month's rent or by any
security deposit, cleaning deposit or other prepaid charge paid by Lessee to
Lessor, or its successors preceding Successor, unless such amount is actually
transferred to Successor; or
d. bound by any agreement or modification of the Lease made without
the written consent of Successor.
4. SUBJECT TO LEASE. Each Successor shall acquire its interest in the
Premises subject to the Lease and the terms of this Agreement, except as
expressly provided herein.
5. ACKNOWLEDGMENT AND AGREEMENT BY LESSEE. Lessee acknowledges and
agrees as follows:
a. The Lease shall be subject and subordinate to the lien of the
Deed of Trust and to all of the terms thereof, to all advances made thereunder
and to any renewals, extensions, modifications or replacements thereof.
b. Beneficiary has no obligation to oversee the use of the Loan
proceeds by Lessor and Lessee acknowledges that such proceeds, in fact, may be
used by Lessor for purposes other than improvement of the Security Property.
c. In the event of any act or omission by Lessor that would give
Lessee the right to terminate the Lease, to abate the rent payable thereunder or
to claim a partial or total eviction, Lessee's exercise of any such right shall
not be effective until (i) Lessee has given written notice of such act or
omission to Beneficiary, and (ii) Beneficiary has failed to cure such act or
omission within thirty (30) days following Lessee's notice to Beneficiary.
d. If Beneficiary notifies Lessee in writing that Lessor is in
default under the Deed of Trust and demands that Lessee pay rent, consideration
and other sums due under the Lease to Beneficiary, Lessee shall pay such amounts
directly to Beneficiary or as otherwise required in such notice.
e. This Agreement satisfies any condition or requirement in the
Lease relating to the granting of a non-disturbance agreement.
f. Successor shall be relieved of any obligation of Lessor under
the Lease accruing after an assignment by Successor of its interest in the
Premises.
6. ACKNOWLEDGMENT AND AGREEMENT BY LESSOR. Lessor, as Lessor under the
Lease, and trustor under the Deed of Trust, acknowledges and agrees as follows:
a. This Agreement does not constitute a waiver by Beneficiary of
any of its rights under any of the Security Documents or release Lessor from its
obligations under any of the Security Documents.
<PAGE>
b. In the event of a default under the Deed of Trust, Lessee may
pay all rent, consideration and all other sums due under the Lease to
Beneficiary as provided in this Agreement.
7. NOTICES. All communications, notices and demands of any kind which
either party may be required or desire to give or serve upon the other party
shall be made in writing (unless expressly provided otherwise) and will be
effective (a) immediately upon delivery in person or by facsimile, provided
delivery is made during regular business hours or receipt is acknowledged by a
person reasonably believed by the delivering party to be employed by the
recipient, or (b) 24 hours after deposit with a commercial courier or delivery
service for overnight delivery, provided delivery is made during regular
business hours or receipt is acknowledged by a person reasonably believed by the
delivering party to be employed by the recipient, or (c) three (3) days after
deposit with the United States Postal Service, certified mail, return receipt
requested, postage prepaid. All notices must be properly addressed and delivered
to the parties at the addresses set forth below, or at such other addresses as
any party may subsequently designate by written notice given in the manner
provided in this Section.
To Lessee: ------------------------------
------------------------------
------------------------------
------------------------------
Telephone No.:(____) _________
Fax No.: (____) _________
With copies to:
------------------------------
------------------------------
------------------------------
------------------------------
Telephone No.:(____) _________
Fax No.: (____) _________
To Lessor: ------------------------------
------------------------------
------------------------------
------------------------------
Telephone No.:(____) _________
<PAGE>
Fax No.: (____) _________
With copies to:
------------------------------
------------------------------
------------------------------
------------------------------
Telephone No.:(____) _________
Fax No.: (____) _________
To ------------------------------
Beneficiary: ------------------------------
------------------------------
------------------------------
Telephone no.: (___) ________
Fax no.: (___) _________
8. MISCELLANEOUS.
a. This Agreement supersedes any inconsistent provision of the
Lease.
b. This Agreement shall inure to the benefit of and bind the parties
hereto and their respective heirs, legal representatives, successors and
assigns.
c. This Agreement shall be governed by and construed in accordance
with the laws of the State of California.
d. In the event that any controversy, claim or action is filed or
instituted under this Agreement to enforce its terms and provisions, the
prevailing party shall be entitled to receive from the other party or parties,
in addition to all costs, damages, and expenses, reasonable attorneys' fees and
costs, incurred by the prevailing party, whether or not such controversy or
claim is litigated or prosecuted to judgment. The "prevailing party" shall be
determined by the court or arbitrator before whom the action was brought based
upon an assessment of which party's major arguments or positions taken in the
suit or proceeding could fairly be said to have prevailed over the other party's
major arguments or positions on major disputed issues in the court's or
arbitrator's decision. Any attorneys' fees and other costs and expenses incurred
by any party in enforcing a judgment or decision in its favor under this
Agreement shall be recoverable separately from and in addition to any other
amount included in such judgment, and such attorneys' fees obligation is
intended to be severable from the other provisions of this Agreement and to
survive and not be merged in any such judgment, which shall be deemed an "actual
pecuniary loss" within the meaning of Bankruptcy Code Section 365(b) (1) (B).
<PAGE>
e. All Recitals and Exhibits referred to in this Agreement are
incorporated herein by reference and shall be deemed part of this Agreement.
f. This Agreement shall not be canceled, modified or amended orally
or in any manner other than by an agreement in writing signed by the parties
hereto or their respective successors or assigns.
g. This Agreement may be executed in one or more counterparts, all
of which, together, shall constitute but one and the same agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
BENEFICIARY: ______________________________,
a ______________________
By: ________________________
Name: ________________________
Title: ________________________
LESSEE: Dean & Deluca Markets, LLC,
a California limited liability company
By: ________________________
Name: ________________________
Title: ________________________
LESSOR: R & R Land, LLC,
a California limited liability company
By: ________________________
Name: ________________________
Title: ________________________
<PAGE>
EXHIBIT A
DESCRIPTION OF PREMISES
<PAGE>
EXHIBIT D
ATTACHED TO AND FORMING A PART OF
WAREHOUSE LEASE
DATED AS OF MARCH 18, 1999
BETWEEN
R & R LAND, LLC, AS LESSOR,
AND
DEAN & DELUCA MARKETS, LLC, AS LESSEE ("LEASE")
EXISTING MORTGAGES
NONE.
<PAGE>
EXHIBIT E
ATTACHED TO AND FORMING A PART OF
WAREHOUSE LEASE
DATED AS OF MARCH 18, 1999
BETWEEN
R & R LAND, LLC, AS LESSOR,
AND
DEAN & DELUCA MARKETS, LLC, AS LESSEE ("LEASE")
MEMORANDUM OF LEASE
Recording Requested By
When Recorded Mail To
Michael P. Burns
Farella Braun & Martel LLP
235 Montgomery Street
San Francisco, CA 94104
- ------------------------------------------------ -------------------------------
MEMORANDUM OF LEASE
THE LEASE TERM IS LESS THAN THIRTY-FIVE (35) YEARS AND NO
TRANSFER TAX IS DUE.
THIS MEMORANDUM OF LEASE is made and entered into as of this _____ day
of ____________, 1999, by and between R & R Land, LLC, a California limited
liability company ("Lessor"), and Dean & Deluca Markets, LLC, a California
limited liability company ("Lessee").
In consideration of and upon all of the terms, conditions, and
covenants set forth in that certain unrecorded Warehouse Lease of even date
herewith between Lessor and Lessee (hereinafter, the "Lease"), Lessor hereby
leases to Lessee, and Lessee hereby leases from Lessor, the "Premises" (as
described in the Lease), which Premises are located on the real property
described in EXHIBIT A attached hereto and made a part hereof. The Lease and all
its terms and provisions, are by this reference incorporated herein and made a
part hereof.
The Lease includes a right of first refusal to purchase the "Leasehold
Interest (as defined in Paragraph 27 of the Lease).
This Memorandum of Lease is executed for the sole purpose of giving
notice of the existence and contents of the Lease to all interested parties, and
shall in no way modify or affect the terms of such Lease or the obligations of
the parties thereunder.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Memorandum of Lease
as of the date first above written.
<TABLE>
<CAPTION>
LESSOR: LESSEE:
<S> <C>
R & R LAND, LLC DEAN & DELUCA MARKETS, LLC
a California limited liability company a California limited liability company
By: By:
--------------------------- ------------------------
Print Name: Print Name:
------------------ -----------------
Its: Its:
------------------------- ------------------------
</TABLE>
<PAGE>
EXHIBIT A
Legal Description of the Premises
All that real property situated in the State of California, County of Napa, and
described as follows:
<PAGE>
EXHIBIT 10.22
LEASE AGREEMENT
LEASE NUMBER 100
DATE OF LEASE 09-01-97
LESSOR: LESLIE RUDD INVESTMENT COMPANY
314 South Galena Street
Aspen, Colorado 81611
303-925-5866
LESSEE: Dean & Deluca Brands, Inc. LOCATION OF EQUIPMENT
560 Broadway 2526 E. 36th St.
New York, NY 10012 North Circle
212-226-6800 Wichita, KS 67219
- --------------------------------------------------------------------------------
TERM: 36 Months COMMENCEMENT DATE: 09-01-97
RENTAL PAYMENT SCHEDULE
$3,253.27 per month including sales and use tax for the first 36 months followed
by $1,033.39 per month including sales and use tax until the Lease Agreement is
terminated.
SECURITY DEPOSIT
$0 payable at time of signing of the Lease to be applied, if not used, to the
last 0 rental payments, plus sales and use tax, in the inverse order of their
respective maturities.
EQUIPMENT DESCRIPTION
(Model #, Serial #, or Other Description)
Hussman Corporation
Installed Cooler/Freezer Equipment
<PAGE>
LEASE NUMBER 100
LEASE AGREEMENT
This Lease shall constitute an agreement of lease and nothing herein shall be
construed as conveying to Lessee any right, title, or interest in any of the
Equipment. The undersigned agree to all terms and conditions set forth above and
in witness thereof hereby execute this Lease.
NAME OF LESSEE:
Dean & Deluca Brands, Inc.
SIGNED BY: /s/ DANE J. NELLER
------------------------------------------------
Dane J. Neller
Chief Executive Officer Seal
This Lease shall not become effective until accepted by Lessor.
NAME OF LESSOR:
LESLIE RUDD INVESTMENT COMPANY
ACCEPTED DATE: 09-01-97
SIGNED BY: /s/ JON BOWMAN
------------------------------------------------
Jon Bowman
Secretary
LESSEE'S SIGNATURE IN INK REQUIRED ON ORIGINAL LEASE AND LESSEE'S COPY.
2
<PAGE>
EXHIBIT 10.23
LEASE AGREEMENT
LEASE NUMBER 101
DATE OF LEASE 09-01-97
LESSOR: LESLIE RUDD INVESTMENT COMPANY
314 South Galena Street
Aspen, Colorado 81611
303-925-5866
LESSEE: Dean & Deluca Brands, Inc. LOCATION OF EQUIPMENT
560 Broadway 2526 E. 36th St.
New York, NY 10012 North Circle
212-226-6800 Wichita, KS 67219
- --------------------------------------------------------------------------------
TERM: 36 Months COMMENCEMENT DATE: 09-01-97
RENTAL PAYMENT SCHEDULE
$6,921.93 per month including sales and use tax for the first 36 months followed
by $2,198.73 per month including sales and use tax until the Lease Agreement is
terminated.
SECURITY DEPOSIT
$0 payable at time of signing of the Lease to be applied, if not used, to the
last 0 rental payments, plus sales and use tax, in the inverse order of their
respective maturities.
EQUIPMENT DESCRIPTION
(Model #, Serial #, or Other Description)
Rapistan Demag Corp - Equipment
Conveyor Equipment Installed
<PAGE>
LEASE NUMBER 101
LEASE AGREEMENT
This Lease shall constitute an agreement of lease and nothing herein shall be
construed as conveying to Lessee any right, title, or interest in any of the
Equipment. The undersigned agree to all terms and conditions set forth above and
in witness thereof hereby execute this Lease.
NAME OF LESSEE:
Dean & Deluca Brands, Inc.
SIGNED BY: /s/ DANE J. NELLER
------------------------------------------------
Dane J. Neller
Chief Executive Officer Seal
This Lease shall not become effective until accepted by Lessor.
NAME OF LESSOR:
LESLIE RUDD INVESTMENT COMPANY
ACCEPTED DATE: 09-01-97
SIGNED BY: /s/ JON BOWMAN
-------------------------------------------------
Jon Bowman
Secretary
LESSEE'S SIGNATURE IN INK REQUIRED ON ORIGINAL LEASE AND LESSEE'S COPY.
2
<PAGE>
EXHIBIT 10.24
LEASE AGREEMENT
LEASE NUMBER 102
DATE OF LEASE 09-01-97
LESSOR: LESLIE RUDD INVESTMENT COMPANY
314 South Galena Street
Aspen, Colorado 81611
303-925-5866
LESSEE: Dean & Deluca Brands, Inc. LOCATION OF EQUIPMENT
560 Broadway 2526 E. 36th St.
New York, NY 10012 North Circle
212-226-6800 Wichita, KS 67219
- --------------------------------------------------------------------------------
TERM: 36 Months COMMENCEMENT DATE: 09-01-97
RENTAL PAYMENT SCHEDULE
$280.52 per month including sales and use tax for the first 36 months followed
by $89.11 per month including sales and use tax until the Lease Agreement is
terminated.
SECURITY DEPOSIT
$0 payable at time of signing of the Lease to be applied, if not used, to the
last 0 rental payments, plus sales and use tax, in the inverse order of their
respective maturities.
EQUIPMENT DESCRIPTION
(Model #, Serial #, or Other Description)
ADT Security Services - Equipment
Alarm System Installed
<PAGE>
LEASE NUMBER 102
LEASE AGREEMENT
This Lease shall constitute an agreement of lease and nothing herein shall be
construed as conveying to Lessee any right, title, or interest in any of the
Equipment. The undersigned agree to all terms and conditions set forth above and
in witness thereof hereby execute this Lease.
NAME OF LESSEE:
Dean & Deluca Brands, Inc.
SIGNED BY: /s/ DANE J. NELLER
------------------------------------------------
Dane J. Neller
Chief Executive Officer Seal
This Lease shall not become effective until accepted by Lessor.
NAME OF LESSOR:
LESLIE RUDD INVESTMENT COMPANY
ACCEPTED DATE: 09-01-97
SIGNED BY: /s/ JON BOWMAN
-------------------------------------------------
Jon Bowman
Secretary
LESSEE'S SIGNATURE IN INK REQUIRED ON ORIGINAL LEASE AND LESSEE'S COPY.
2
<PAGE>
EXHIBIT 10.25
LEASE AGREEMENT
LEASE NUMBER 103
DATE OF LEASE 09-01-97
LESSOR: LESLIE RUDD INVESTMENT COMPANY
314 South Galena Street
Aspen, Colorado 81611
303-925-5866
LESSEE: Dean & Deluca Brands, Inc. LOCATION OF EQUIPMENT
560 Broadway 2526 E. 36th St.
New York, NY 10012 North Circle
212-226-6800 Wichita, KS 67219
- --------------------------------------------------------------------------------
TERM: 36 Months COMMENCEMENT DATE: 09-01-97
RENTAL PAYMENT SCHEDULE
$192.84 per month including sales and use tax for the first 36 months followed
by $61.26 per month including sales and use tax until the Lease Agreement is
terminated.
SECURITY DEPOSIT
$0 payable at time of signing of the Lease to be applied, if not used, to the
last 0 rental payments, plus sales and use tax, in the inverse order of their
respective maturities.
EQUIPMENT DESCRIPTION
(Model #, Serial #, or Other Description)
AAA Restaurant Supply - Equipment
Four (4) EA 24x52 Nexel Shelving Sets & Four (4) 74" Posts
<PAGE>
LEASE NUMBER 103
LEASE AGREEMENT
This Lease shall constitute an agreement of lease and nothing herein shall be
construed as conveying to Lessee any right, title, or interest in any of the
Equipment. The undersigned agree to all terms and conditions set forth above and
in witness thereof hereby execute this Lease.
NAME OF LESSEE:
Dean & Deluca Brands, Inc.
SIGNED BY: /s/ DANE J. NELLER
------------------------------------------------
Dane J. Neller
Chief Executive Officer Seal
This Lease shall not become effective until accepted by Lessor.
NAME OF LESSOR:
LESLIE RUDD INVESTMENT COMPANY
ACCEPTED DATE: 09-01-97
SIGNED BY: /s/ JON BOWMAN
------------------------------------------------
Jon Bowman
Secretary
LESSEE'S SIGNATURE IN INK REQUIRED ON ORIGINAL LEASE AND LESSEE'S COPY.
2
<PAGE>
EXHIBIT 10.26
LEASE AGREEMENT
LEASE NUMBER 104
DATE OF LEASE 09-01-97
LESSOR: LESLIE RUDD INVESTMENT COMPANY
314 South Galena Street
Aspen, Colorado 81611
303-925-5866
LESSEE: Dean & Deluca Brands, Inc. LOCATION OF EQUIPMENT
560 Broadway 2526 E. 36th St.
New York, NY 10012 North Circle
212-226-6800 Wichita, KS 67219
TERM: 36 Months COMMENCEMENT DATE: 09-01-97
RENTAL PAYMENT SCHEDULE
$34.85 per month including sales and use tax for the first 36 months followed by
$11.07 per month including sales and use tax until the Lease Agreement is
terminated.
SECURITY DEPOSIT
$0 payable at time of signing of the Lease to be applied, if not used, to the
last 0 rental payments, plus sales and use tax, in the inverse order of their
respective maturities.
EQUIPMENT DESCRIPTION
(Model #, Serial #, or Other Description)
Lift Truck Center - Equipment
Two (2) Crown Hand Pallet Trucks
S/N# 7-088217 & 7-088235
<PAGE>
LEASE NUMBER 104
LEASE AGREEMENT
This Lease shall constitute an agreement of lease and nothing herein shall be
construed as conveying to Lessee any right, title, or interest in any of the
Equipment. The undersigned agree to all terms and conditions set forth above and
in witness thereof hereby execute this Lease.
NAME OF LESSEE:
Dean & Deluca Brands, Inc.
SIGNED BY: /s/ DANE J. NELLER
------------------------------------------------
Dane J. Neller
Chief Executive Officer Seal
This Lease shall not become effective until accepted by Lessor.
NAME OF LESSOR:
LESLIE RUDD INVESTMENT COMPANY
ACCEPTED DATE: 09-01-97
SIGNED BY: /s/ JON BOWMAN
------------------------------------------------
Jon Bowman
Secretary
LESSEE'S SIGNATURE IN INK REQUIRED ON ORIGINAL LEASE AND LESSEE'S COPY.
2
<PAGE>
EXHIBIT 10.27
LEASE AGREEMENT
LEASE NUMBER 105
DATE OF LEASE 09-01-97
LESSOR: LESLIE RUDD INVESTMENT COMPANY
314 South Galena Street
Aspen, Colorado 81611
303-925-5866
LESSEE: Dean & Deluca Brands, Inc. LOCATION OF EQUIPMENT
560 Broadway 2526 E. 36th St.
New York, NY 10012 North Circle
212-226-6800 Wichita, KS 67219
- --------------------------------------------------------------------------------
TERM: 36 Months COMMENCEMENT DATE: 09-01-97
RENTAL PAYMENT SCHEDULE
$427.50 per month including sales and use tax for the first 36 months followed
by $135.79 per month including sales and use tax until the Lease Agreement is
terminated.
SECURITY DEPOSIT
$0 payable at time of signing of the Lease to be applied, if not used, to the
last 0 rental payments, plus sales and use tax, in the inverse order of their
respective maturities.
EQUIPMENT DESCRIPTION
(Model #, Serial #, or Other Description)
Southern Kansas Telephone - Telephone Equipment
Norstar Startalk System & Paging System - Installed
<PAGE>
LEASE NUMBER 105
LEASE AGREEMENT
This Lease shall constitute an agreement of lease and nothing herein shall be
construed as conveying to Lessee any right, title, or interest in any of the
Equipment. The undersigned agree to all terms and conditions set forth above and
in witness thereof hereby execute this Lease.
NAME OF LESSEE:
Dean & Deluca Brands, Inc.
SIGNED BY: /s/ DANE J. NELLER
------------------------------------------------
Dane J. Neller
Chief Executive Officer Seal
This Lease shall not become effective until accepted by Lessor.
NAME OF LESSOR:
LESLIE RUDD INVESTMENT COMPANY
ACCEPTED DATE: 09-01-97
SIGNED BY: /s/ JON BOWMAN
------------------------------------------------
Jon Bowman
Secretary
LESSEE'S SIGNATURE IN INK REQUIRED ON ORIGINAL LEASE AND LESSEE'S COPY.
2
<PAGE>
EXHIBIT 10.28
LEASE AGREEMENT
LEASE NUMBER 106
DATE OF LEASE 09-01-97
LESSOR: LESLIE RUDD INVESTMENT COMPANY
314 South Galena Street
Aspen, Colorado 81611
303-925-5866
LESSEE: Dean & Deluca Brands, Inc. LOCATION OF EQUIPMENT
560 Broadway 2526 E. 36th St.
New York, NY 10012 North Circle
212-226-6800 Wichita, KS 67219
- --------------------------------------------------------------------------------
TERM: 36 Months COMMENCEMENT DATE: 09-01-97
RENTAL PAYMENT SCHEDULE
$1,706.09 per month including sales and use tax for the first 36 months followed
by $541.94 per month including sales and use tax until the Lease Agreement is
terminated.
SECURITY DEPOSIT
$0 payable at time of signing of the Lease to be applied, if not used, to the
last 0 rental payments, plus sales and use tax, in the inverse order of their
respective maturities.
EQUIPMENT DESCRIPTION
(Model #, Serial #, or Other Description)
Hesston Business Interiors - Office Furniture
All Office Furniture @ the 2526 E. 36th St. Location - Installed
including but not limited to Desks, Chairs, Tables, File Cabinets
<PAGE>
LEASE NUMBER 106
LEASE AGREEMENT
This Lease shall constitute an agreement of lease and nothing herein shall be
construed as conveying to Lessee any right, title, or interest in any of the
Equipment. The undersigned agree to all terms and conditions set forth above and
in witness thereof hereby execute this Lease.
NAME OF LESSEE:
Dean & Deluca Brands, Inc.
SIGNED BY: /s/ DANE J. NELLER
------------------------------------------------
Dane J. Neller
Chief Executive Officer Seal
This Lease shall not become effective until accepted by Lessor.
NAME OF LESSOR:
LESLIE RUDD INVESTMENT COMPANY
ACCEPTED DATE: 09-01-97
SIGNED BY: /s/ JON BOWMAN
------------------------------------------------
Jon Bowman
Secretary
LESSEE'S SIGNATURE IN INK REQUIRED ON ORIGINAL LEASE AND LESSEE'S COPY.
2
<PAGE>
Exhibit 16.1
May 9, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We have read the section entitled "Changes in Accountants" in the Registration
Statement on Form S-1 of Dean & DeLuca, Inc. being filed with the Securities and
Exchange Commission and are in agreement with the statements contained therein.
Very truly yours,
/s/ Grassi & Co., CPAs, P.C.
- ----------------------------
GRASSI & CO., CPAs, P.C.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
NAME(S) UNDER WHICH
SUBSIDIARY JURISDICTION ENTITY DOES BUSINESS
- ----------------------------------------- ---------------------------- ------------------------
<S> <C> <C>
Dean & DeLuca Brands, Inc. New York Dean & DeLuca
Dean & DeLuca Imports, Inc. New York Dean & DeLuca
Dean & DeLuca New York, Inc. New York Dean & DeLuca
Dean & DeLuca Georgetown, Inc. Washington, D.C. Dean & DeLuca
Dean & DeLuca Espresso, Inc. New York Dean & DeLuca
Dean & DeLuca Espresso D.C., Inc. Washington, D.C. Dean & DeLuca
Dean & DeLuca New Jersey, Inc. New Jersey Dean & DeLuca
Dean & DeLuca Atlanta, LLC North Carolina, Kansas Dean & DeLuca
Dean & DeLuca Markets, LLC California Dean & DeLuca
D & D Cafes of NC, LLC North Carolina Dean & DeLuca
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF KPMG LLP AND REPORT ON SCHEDULE
The Board of Directors
Dean & DeLuca, Inc.
The audits referred to in our report dated April 11, 2000, included the related
financial statement schedule as of February 28, 1999 and January 30, 2000, and
for the year ended February 28, 1999 and the eleven-month period ended January
30, 2000, included in the registration statement. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
May 9, 2000
Wichita, Kansas
/s/ KPMG LLP
<PAGE>
SCHEDULE II
DEAN & DELUCA, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Description Balance at beginning of year Balance at end of year
----------- ---------------------------- ----------------------
<S> <C> <C>
Allowance for doubtful
accounts receivable
1999 $ 24,036 66,600
2000 66,600 154,374
Allowance for excess or
slow moving inventory
1999 $ -- 113,000
2000 113,000 330,436
</TABLE>
Information with respect to additions to and deletions from the above
accounts has been omitted as such amounts and the balances of such accounts
are not significant.
<PAGE>
Exhibit 23.2
May 9, 2000
The Board of Directors
Dean & DeLuca, Inc.
We have audited the combined financial statements of Dean & DeLuca Brands, Inc.
and Affiliates as of March 1, 1998, and for the year then ended. This audit is
referred to in our report dated July 1, 1999 (except for Note 3 which is dated
November 30, 1999) and included the related financial statement schedule as of
March 1, 1998, and for the year then ended, included in the registration
statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audit. In our opinion, such financial
statement schedule, when considered in relation to the basic combined financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
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/ GRASSI & CO., CPAs, P.C.
- ----------------------------
GRASSI & CO., CPAs, P.C.
Lake Success, New York
<PAGE>
EXHIBIT 23.3
CONSENT OF LIONEL W. GREER
The Board of Directors
Dean & DeLuca, Inc.
I have read the section entitled "Management" in the Registration Statement on
Form S-1 of Dean & DeLuca, Inc. that is being filed with the Securities and
Exchange Commission as it pertains to me and (i) agree with the statements
contained therein, and (ii) consent to the use of my name therein.
<TABLE>
<S> <C>
/s/ Lionel W. Greer
------------------------
Lionel W. Greer
</TABLE>
<PAGE>
EXHIBIT 23.4
CONSENT OF JOHN L. SHARPE
The Board of Directors
Dean & DeLuca, Inc.
I have read the section entitled "Management" in the Registration Statement on
Form S-1 of Dean & DeLuca, Inc. that is being filed with the Securities and
Exchange Commission as it pertains to me and (i) agree with the statements
contained therein, and (ii) consent to the use of my name therein.
/s/ John L. Sharpe
----------------------------------------
John L. Sharpe
