U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Date of Report: June 8, 1998
THE VERMONT TEDDY BEAR CO., INC.
(Exact name of small business issuer as specified in its
charter)
New York 1-12580 03-
0291679
State or other jurisdiction of (Commission (I.R.S.
Employer
incorporation or organization) File Number)
Identification No.)
2236 Shelburne Road, Post Office Box 965
Shelburne, Vermont 05482
(Address of principal executive offices)
(802) 985-3001
(Issuer's telephone number)
<PAGE>
Item 5. Other Events
On Friday, May 22, 1998, The Vermont Teddy Bear Co.,
Inc. entered into a letter of intent with The Shepherd
Group, L.L.C., of Acton, Massachusetts to sell, in a private
<PAGE>
placement, sixty shares of a new series of preferred stock
to be designated _Series C Convertible Redeemable Preferred
Stock._ (_Series C Preferred_) The Shepherd Group will
invest $600,000 in exchange for the sixty shares of Series C
Preferred, which will have a six percent cumulative
dividend, and each share will be convertible into 8,264.467
shares of the Company's Common Stock. The holders of the
Series C Preferred shall be entitled to vote as a class for
two directors of the Company and shall be entitled to vote,
on an as-converted basis, on all other matters on which the
Company's Common Stockholders are entitled to vote. In
addition to sixty shares of Series C Preferred, the Shepherd
Group will also receive warrants to purchase an additional
495,868 shares of the Company's Common Stock at an exercise
price of $1.21 per share.
Consummation of the transactions contemplated by the
letter of intent is subject to the preparation of binding
agreements and various approvals and contingencies described
in the letter of intent and term sheet attached to this Form
8-K as Exhibit 99.1 and hereby incorporated by reference.
The Company's press releases, dated May 22, 1998 and June 3,
1998, are attached hereto as Exhibits 99.2 and 99.3, and are
hereby incorporated by reference.
The following documents are filed herewith as exhibits:
99.1 Letter of Intent and Term Sheet dated May 20, 1998
99.2 Press Release dated May 22, 1998
99.3 Press Release dated June 5, 1998
Signatures
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly
authorized.
The Vermont Teddy Bear Co.,
Inc.
Date: June 8, 1998 /s/ Elisabeth B. Robert
------------------------------
--
Elisabeth B. Robert,
Chief Financial Officer
EXHIBIT 99.1
<PAGE>
May 21, 1998
Ms. Elisabeth Robert Via
Facsimile and Federal Express
President and Chief Executive Officer
The Vermont Teddy Bear Co., Inc.
2236 Shelburne Road
Shelburne, VT 05482
Re: Final terms of a proposed investment in The Vermont
Teddy Bear Co., Inc. by The Shepherd Group LLC and
other investors.
Dear Elisabeth:
This letter, including the attached term sheet, represents a
non-binding proposal for the review and analysis of a
transaction in which The Shepherd Group LLC (_TSG_ or the
_Lead Institutional Investor_) and possibly an additional
institutional investor (collectively the _Institutional
Investors_) and / or individuals (collectively the _Investor
Group_) propose to make an investment in The Vermont Teddy
Bear Company (the _Company_ or _VTB_). The purpose of this
letter and accompanying term sheet is to set forth the
principal terms and conditions upon which an investment will
be considered. The terms and conditions set forth herein are
subject to any adjustments made in order to achieve the most
tax advantageous structure of any such investment.
In consideration of the substantial expenditure of time,
effort and expense to be undertaken by TSG, the Company, its
officers, directors, employees, agents, representatives and
affiliates agree, on the basis of this letter, that during
the period commencing from the date this letter is accepted
by the Company, for a period of 90 days, without the written
consent of TSG, the Company nor its officers, employees,
directors, agents, representatives or affiliates will not:
(i) solicit, initiate or encourage submission of proposals
or offers, or enter into or continue negotiations or
discussions with, any other person or persons with regard to
any sale by the Company of the stock or assets of the
Company (other than the sale of stock or assets in the
ordinary course of business including the exercise of
options by employees and / or disposal of treasury stock),
the sale by the Company or any of its affiliates of the
Company's stock, the merger, consolidation or any other
business combination as a result of which those persons that
control the company, immediately prior to such transaction
no longer control the Company, or any other financing of the
Company except for the refinancing of the mortgage on the
<PAGE>
Company's principal place of business held by W.P. Carey &
Co or any senior creditor working capital financings; or
(ii) furnish to any other person any information with
respect to, or otherwise cooperate in any way, or assist,
facilitate or encourage, any acquisition or proposal for the
assets or stock of the Company or any part thereof or any
other financing except for the refinancing of the mortgage
on the Company's principal place of business held by W.P.
Carey & Co or any senior creditor working capital financings
to the Company by any other person; or (iii) solicit,
initiate or encourage submission of proposals or offers, or
enter into or continue negotiations or discussions with, any
other person or persons with regard to transactions similar
in nature to the investment contemplated herein.
If at any time during the period beginning with the date of
this letter and ending 90 days thereafter the Company sells,
or enters into any agreement to sell, all or substantially
all of its stock or its assets; merges, consolidates or
enters into a business combination or enters into any
agreements to merge consolidate or enter into any business
combination; executes, or enters into an agreement to
execute a transactions similar in nature to the investment
contemplated herein, the Company shall pay to TSG a fee
calculated as follows: (i) $100,000; plus (ii) all out of
pocket costs and expenses incurred by TSG and its respective
accountants and attorneys in connection with their
performance of due diligence and documentation to the point
at which the Company alerts TSG in writing of its intent to
pursue a sale, merger, consolidation, business combination
or investment.
Additionally, if the Company wishes to terminate this
agreement it may do so under the following conditions (i)
the closing price of Company's common stock the day prior to
the day on which the parties hereto plan to consummate the
investment herein is greater than $1.625; (ii) the Company
pays TSG on demand, and upon presentation of appropriate
documentation all out of pocket costs and expenses incurred
by TSG and its respective accountants and attorneys in
connection with their performance of due diligence and
documentation; and (iii) the Company pays TSG on demand one
hundred thousand dollars ($100,000).
Regardless as to whether or not the investment contemplated
herein is consummated, the Company agrees to pay on demand,
and upon presentation of appropriate documentation all out
of pocket costs and expenses incurred by TSG and its
respective accountants and attorneys in connection with
their performance of due diligence and documentation.
Upon the signing of this Letter of Intent, TSG will begin a
due diligence analysis of the Company. This process will
focus on the historical and projected financial results of
<PAGE>
the Company, customer interviews, industry analysis, legal
and accounting due diligence. If, during such process, TSG
or the Investor Group uncovers any issue that is viewed to
materially detract from the investment, TSG and the Investor
Group may, at their sole discretion, elect to discontinue
the pursuit of the investment contemplated herein. Except
as contemplated in the previous paragraph, if TSG or the
Investor Group, at their sole discretion, elect to
discontinue the pursuit of the investment contemplated
herein, the Company will not be subject to any fees or
costs.
Except as provided in the immediately succeeding sentence,
this letter contains a statement of the present intention on
TSG's part and on your part and is not intended to create
any legal binding obligation including a legal binding
obligation to purchase or sell the Company's stock described
above or in the accompanying term sheet, unless or until a
purchase agreement has been negotiated, is acceptable to all
parties in all respects and has been duly executed and
delivered on behalf of all parties. This letter does,
however, constitute a binding obligation with respect to the
provisions of Paragraphs 2, 3, 4 & 5. This letter is
delivered to you on the condition that it be kept
confidential and not shown to or discussed with any third
party other than legal and financial advisors. This letter
shall be of no further force or in effect if it has not been
executed by May 22, 1998. This letter may be executed in
counterparts, all of which, taken together shall constitute
one and the same document.
Elisabeth, if the above is acceptable to you and the Board
of Directors, please so signify by signing the enclosed copy
of this letter. This letter agreement shall become
effective upon execution by all parties listed below.
Sincerely, Agreed and Acknowledged to,
The Shepherd Group LLC The
Vermont Teddy Bear Co., Inc.
T. Nathanael Shepherd
Elisabeth Robert
/s/ T. Nathanael Shepherd /s/ Elisabeth B.
Robert
------------------------- ----------------------
------
President President & Chief Executive
Officer, Director
The Shepherd Group LLC
<PAGE>
The Vermont Teddy Bear Co., Inc. Summary Investment Term
Sheet
Amount of Investment
$600,000
Issuer
The Vermont Teddy Bear Co., Inc. (the "Company")
Investors
The investors shall be comprised of The Shepherd Group LLC
("TSG") and / or individuals (collectively the "Investor
Group").
Type of Security
Convertible Redeemable Preferred Stock (the "Preferred")
with Warrants.
Term
The Preferred must be redeemed upon the tenth anniversary of
the issuance of the Preferred into an amount equal to the
par value of the Preferred plus any accrued and unpaid
dividends. If the Company's common stock is not listed on
any principal exchange or any NASDAQ system at such time,
the Preferred must be liquidated into an amount equal to the
greater of the par value of the Preferred plus any accrued
and unpaid dividends; and the fair market value of the
common stock of the Company that the Preferred is
convertible into at the time of such redemption. The fair
market value shall be determined by a good faith
determination by the Company and the Investor Group; if an
agreement cannot be reached then the fair market value shall
be determined by a disinterested third party that is a
nationally recognized investment banking firm. The cost of
obtaining such fair market value shall be shared equally
between TSG and the Company.
Par Value
$10,000 / share
Number of Shares
60
Dividend Rate
6.0% of outstanding Preferred to be paid for the first five
years from the date of closing on an annual basis in the
form of shares of Preferred (PIK). Beginning the sixth year
from the date of closing and at the discretion of the
Company, the dividend is to be paid on an annual basis in
the form of shares of Preferred (PIK) or in cash.
Additionally, dividends paid on the common stock of the
Company shall be paid on the Preferred on an as converted
basis.
<PAGE>
Subordination Provision
To the extent requested by the Company's existing lenders
TSG will enter into an intercreditor agreement whereby TSG
will allow for the following: The Preferred will be
subordinated in right of payment of principal and dividends
to all of the Company's existing and future indebtedness
that is not convertible, exchangeable or transferable into
securities representing an equity interest in the Company.
The Company may not make any payments on account of the
Preferred if there shall have occurred and be continuing a
default under any of the Company's existing or future
indebtedness. The Company may not make any payments on
account of the Preferred if such payment should cause a
default under any of the Company's existing or future
indebtedness. Additionally, the Preferred will rank senior
in right of payment of principal and dividends to all
existing and future common stock and common stock
equivalents, except for existing preferred stock that is
expressly senior to any subsequent series of preferred
stock, of the Company.
Common Stock Ownership
Conversion Provision
Each Preferred share will be convertible into Common Stock
at an amount equal to the par value of the Preferred divided
by the Common Stock Conversion Price.
Common Stock Conversion Price
The Common Stock Conversion Price shall be calculated on the
effective date of the attached Letter of Intent and will
equal (i) the average of the closing price of the common
stock of the Company, as recorded on the National
Association of Securities Dealers Automated Quotation System
under the symbol BEAR, on the prior sixty (60) days in which
an actual trade was executed at the closing price ("The
Actual Sixty Day Trading Average"); minus (ii) The Actual
Sixty Day Trading Average multiplied by fifteen percent
(0.15).
Anti-Dilution Adjustments
Anti-Dilution adjustments to the Conversion Provision shall
be customary including a weighted average adjustment
component.
Call Provisions
A. The Company may call the Preferred after the fifth
anniversary of the issuance of the Preferred only after
giving Preferred holders 30 days notice of the Company's
intent to call the Preferred;
B. The Preferred may be called in whole, but not in part, at
a price equal to the greater of: (i) par plus accrued and
unpaid dividends and (ii) the amount represented by the
percentage share of the fair market value of the Common
<PAGE>
Stock of the Company that the Preferred is convertible into.
If the Company's common stock is not listed on any principal
exchange or any NASDAQ system at such time, the Preferred
must be liquidated into an amount equal to the greater of
the par value of the Preferred plus any accrued and unpaid
dividends and the fair market value of the common stock of
the Company that the Preferred is convertible into at the
time of such redemption. The fair market value shall be
determined by good faith determination by the Company and
TSG, if an agreement cannot be reached then the fair market
value shall be determined by a disinterested third party
that is a nationally recognized investment banking firm.
Put Rights
A. Holders may put the Preferred back to the Company after
the fifth anniversary of the issuance of the Preferred;
B. Preferred may be put at a price equal to par, the
Preferred shall include any accrued and unpaid dividends;
C. In any single year, the aggregate value of Preferred put
back to the Company may not exceed the greater of 25% of net
earnings after taxes of the preceding 12 months or 25% of
the Company's net worth.
Warrants
Rights of Warrant
To purchase one share of Common Stock
Number
A number equal to the par value of the Preferred divided by
the Common Stock Conversion Price
Exercise Price
Common Stock Conversion Price
Term
Seven Years
Operation of the Business
From the date of the enclosed letter until closing of the
transaction, the business of the Company will be operated in
the ordinary course and will not dispose of assets, incur
any materially adverse changes, dividends, distributions or
sales other than in the ordinary course of business without
the prior written consent of TSG. Further, until the
closing of the transaction contemplated herein, unless the
prior written consent of TSG, the current state of the
Balance Sheet of the Company shall be maintained in
substantially the same condition it is in on the date of
this Letter of Intent.
Registration and Other Shareholder Rights
<PAGE>
A. Preemptive Rights: The Investor Group will be given the
right to purchase all new stock in an amount equal to their
pro-rata share.
B. Piggy-Back Registration Rights: All shareholders will be
given standard Piggy-Back Registration Rights on a pro-rata
basis.
C. Demand Registration Rights: The Investor Group will have
the right to demand the public sale of its stock through no
more than three separate S-3 filings with the SEC. The
Investor Group will be limited to exercising such right to
no more than once every twelve months.
Board Representation
TSG shall have the right, at their sole discretion, to
appoint two board members to the Board of Directors (the
"Board") of the Company. The Board will be capped at 9
members.
Compensation Committee
TSG will be entitled to a seat on the Compensation
Committee. The Committee will be capped at no more than 3
seats.
Executive Committee
TSG will be entitled to a seat on the Executive Committee
and will serve with the Company's CEO and Chairman of the
Board of Directors. The Committee will be capped at no more
than 3 seats.
Financing Fees
TSG will receive a 1 1/2% Financing Fee for capital raised
by the Company with the assistance of TSG following the
closing of the Investment except in situations where capital
raised is (i) directly from TSG or (ii) from affiliates
directly under TSG's control.
Management Fees
TSG shall receive an annual, non-accountable, $25,000
management fee, plus travel and other reasonable expenses
which will be approved in advance and payable monthly. Such
fee is for management services such as (i) liaison services
with credit institutions and financial markets; (ii) access
to alternative sources of established equity capital; (iii)
transaction experience with secondary stock offerings,
mergers, acquisitions and (iv) business operations advisory
services.
Such services shall be rendered pursuant to the attached
Management Agreement in Exhibit I.
Non-Compete Agreements
Non-compete agreements for key senior executive; for a
period of 18 months beyond the conclusion of employment.
Key Woman Insurance
<PAGE>
$1,000,000 key-woman insurance policy for Elisabeth Robert
with the Company as the beneficiary. Such policy must be
obtained within sixty (60) days of the investment
contemplated herein.
Other
A. Stock Purchase Agreement to contain customary terms and
provisions, including
representations, conditions, warranties, covenants, events
of default and indemnities.
B. So long as the Preferred is outstanding there will be no
additional incurrence of debt, liens, or other contracts
with recourse to the assets or cash flow of the Company
without the approval of TSG except for such incurrences
undertaken in the ordinary course of business, including but
not limited to financing or leasing agreements, capital
expenditures, research and development, hiring (except as
stated in C below), firing, arrangements or agreements
relating to promotions, with customers or vendors,
advertising, sales, production and general operations.
C. So long as the Preferred is outstanding TSG shall have
veto rights on hiring decisions for the CEO, CFO and COO
positions excluding the renewal of Elisabeth Robert's
contract in the Fall of 1998.
Conditions to Closing
A. The satisfactory completion of all financial, industry,
accounting, business and legal due diligence.
B. Financial and other information that is currently
available to TSG does not materially change prior to
closing.
C. The Company shall have received a definitive declaration
from the Vermont National Bank ("VNB") that VNB has
rescinded their claim to, and unencumbered, the working
capital assets of the Company specifically pertaining to the
Company's trademark's, receivables, inventory and work in
progress inventory.
D. The Company shall have received third party consents
necessary for the uninhibited implementation of the
investment contemplated herein.
E. The Directors and Executive Officers shall provide
written approval of the transaction contemplated herein
prior to the Company sending proxy materials (seeking the
approvals described in F. below) to shareholder's of the
Company.
F. The Company shall obtain approval from the shareholder's
of the Company for an amendment to the Company's Articles of
incorporation, eliminating shareholder preemptive rights and
allowing for the creation of the Board of Director's seats
contemplated in the section entitled Board Representation
herein. Such approval shall be obtained with no more than
0.0% of the shareholder's exercising their right to dissent
if a majority of votes is obtained.
<PAGE>
G. There will not exist any material pending or threatened
litigation against the Company pertaining to investment
contemplated herein or the elimination of shareholder
preemptive rights.
H. No obligation, liability or fee shall exist or be payable
by the Company to any broker or investment banking firm in
connection with the investment contemplated herein.
<PAGE>
EXHIBIT 99.2
Press Release
The Vermont Teddy Bear Co., Inc.
2236 Shelburne Road * Post Office Box 965 * Shelburne,
Vermont 05482
Phone: (802) 985-3001 * Fax: (802) 985-1304 * Internet:
www.vtbear.com
Contact: Tim George, Director of Finance (802)985-1350 /
[email protected]
May 22, 1998
*** BUSINESS NEWS ***
Boston Firm Proposes Investment In
Vermont Teddy Bear
SHELBURNE, Vt. _ The Vermont Teddy Bear Co., Inc. (NASDAQ:
BEAR) has signed a letter of intent with The Shepherd Group,
a Boston-based private equity investment firm, for a
proposed $600,000 equity investment in the Company. In
return for the $600,000 investment, The Shepherd Group will
receive 495,868 shares of Series C Preferred Stock, as well
as warrants to purchase 495,868 shares of Common Stock at
$1.21 per share. The transaction is subject to final
agreements, and various approvals and conditions.
_We believe that Vermont Teddy Bear is an exciting specialty
gift company with a strong brand and a unique market niche.
Furthermore, the solid management team is well positioned to
take advantage of new business initiatives," explained Tom
Shepherd, Chairman of the Shepherd Group.
The Series C Convertible Redeemable Stock will carry a six
percent coupon, and each share will be convertible into one
share of the Company's Common Stock. The Preferred will
have voting rights, and The Shepherd Group will be entitled
to two seats on the Company's Board of Directors.
Elisabeth Robert, President of the Company, noted, _The
additional funds will provide working capital for the
Company to pursue growth in the Bear-GramR channel and to
maximize the benefits of importing raw materials.
Additionally, Tom Shepherd has strong financial and
<PAGE>
operations experience, and will bring a valuable perspective
to the Board of Directors. Tom's strong suit has been
working with companies which have not yet realized the full
potential of their brand._
The Company is in the process of completing final
arrangements and seeking necessary approvals. The parties
seek to close the transaction in the next 90 days.
* * *
The foregoing can be interpreted as including forward
looking statements under the Private Securities Litigation
Reform Act of 1995. Actual future results may differ
materially from those suggested by the statements above.
About The Shepherd Group:
The Shepherd Group is a private investment firm which
invests in venture and existing small to middle-market
companies. The firm focuses on companies with high-growth
potential and unique market-ready quality products and
services. Prior to forming The Shepherd Group in 1996, Mr.
Shepherd was involved in the acquisition and subsequent
board level management of Anchor Advanced Products, Inc.,
General Nutrition Companies, Inc., Rayovac, Inc., Signature
Brands, Inc. and Thermoscan. Additionally, Mr. Shepherd was
formerly President of both GTE Lighting Products Group (GTE
Sylvania) and North American Philips Commercial
Electronics Corporation. The Shepherd Group's existing
investments include American Photo Booths, Inc., Community
Resource Systems, Inc., Andover Advanced Technologies, Inc.
and Protocol Technologies Incorporated.
About Vermont Teddy Bear:
The teddy bear was born in the United States in 1902, and
from its founding in the early 1980's, The Vermont Teddy
Bear CompanyR has been proud to carry on the tradition,
manufacturing bears in Shelburne, Vermont. Vermont Teddy
Bears are available in various sizes and can be dressed in a
wide variety of outfits that personalize the bear for
significant life events, such as a new baby, get well,
birthdays, graduation, weddings, and _I love you._ The
Company has retail stores on Route 7 in Shelburne, Vermont,
on Route 16 in North Conway, New Hampshire, and on Main
Street in Freeport, Maine. In addition, Bear-GramR orders
can be placed by visiting our Internet website at
www.vtbear.com, or by calling 1-800-829-BEAR, where a Bear
CounselorR can arrange for your personalized Bear-GramR to
be shipped for next day delivery.
<PAGE>
EXHIBIT 99.3
Press Release
<PAGE>
The Vermont Teddy Bear Co., Inc.
2236 Shelburne Road * Post Office Box 965 * Shelburne,
Vermont 05482
Phone: (802) 985-3001 * Fax: (802) 985-1304 * Internet:
www.vtbear.com
Contact: Tim George, Director of Finance (802)985-1350 /
[email protected]
June 5, 1998
*** BUSINESS NEWS ***
Correction of May 22 Press Release
SHELBURNE, Vt. _ The proposed $600,000 investment by The
Shepherd Group announced on May 22, 1998 was for sixty
shares of Series C Preferred Stock, each of which is
convertible into 8,264.467 shares of Vermont Teddy Bear
Common Stock. The number of shares and the conversion ratio
were misstated in a May 22, 1998 press release. In
aggregate, the Series C Preferred Stock class is convertible
into 495,868 shares of Common Stock, as was presented
accurately in the May 22, 1998 press release. The rest of
the terms contained in the May 22, 1998 press release,
including the size of the investment, were presented
accurately.
* * *
