U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[ X ] Quarterly report under Section 13 or 15(d) of the
Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1998 .
[ ] Transition report under Section 13 or 15(d) of the
Exchange Act
For the transition period from _______________ to
_______________.
Commission file number 1-12580 .
THE VERMONT TEDDY BEAR CO., INC.
(Exact name of small business issuer as specified in its
charter)
New York 03-0291679
(State or other jurisdiction
(I.R.S. Employer
of incorporation or organization)
Identification No.)
2236 Shelburne Road, Post Office Box 965
Shelburne, Vermont 05482
(Address of principal executive offices)
(802) 985-3001
(Issuer's telephone number)
Not Applicable
<PAGE>
(Former name, former address, and former fiscal year, if
changed since
last report)
Check whether the issuer (1) filed all reports required to
be filed by
Section 13 or 15(d) of the Exchange Act during the past 12
months (or
for such shorter period that the registrant was required to
file such
reports), and (2) has been subject to such filing
requirements for the
past 90 days. Yes X ; No .
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the
issuers classes of
common equity, as of the latest practicable date: 5,173,983
shares of
Common Stock, $.05 par value per share, as of March 31,
1997.
Transitional Small Business Disclosure Format (check one):
Yes ; No X .
The Vermont Teddy Bear Co., Inc.
Index to Form 10-QSB
March 31, 1998
Page
No.
Part I - Financial Information
Financial Statements
Balance Sheet as of March 31, 1998
3
Statements of Operations for the Three and Nine
Months ended March 31, 1998 and 1997
4
Statements of Cash Flows for the Three and Nine
Months ended March 31, 1998 and 1997
5
Notes to Financial Statements
6
Management's Discussion and Analysis
<PAGE>
9
Part II - Other Information
Item 4. Submission of Matters to a Vote of Stockholders
13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K
13
Signatures
18
<TABLE>
The Vermont Teddy Bear Co., Inc.
Balance Sheet
March 31, 1998
(Unaudited)
ASSETS
<S>
<C>
Cash and cash equivalents (includes restricted cash of
$360,000)
$ 1,872,224
Accounts receivable, trade
25,110
Inventories
2,847,428
Prepaid expenses and other current assets
448,183
Deferred income taxes
259,016
---------------
Total Current Assets
5,451,961
Property and equipment, net
9,037,398
Deposits and other assets
883,942
Note receivable
95,000
---------------
Total Assets
$ 15,468,301
<PAGE>
=============== LIABILITIES AND STOCKHOLDER'S EQUITY
Short term note payable
$ 112,673
Current portion of:
Long-term debt
188,192
Capital lease obligations
220,328
Accounts payable
2,458,051
Accrued expenses
940,675
--------------- Total Current Liabilities
3,919,919
Long-term debt, net of current portion
411,575
Capital lease obligations, net of current portion
5,806,686
Deferred income taxes
259,016
--------------
Total Liabilities
$ 10,397,196
Stockholder's Equity:
Preferred stock, $.05 par value:
Authorized 1,000,000 Series A; issued and outstanding,
900,000
90 shares.
Authorized 375,000 Series B; issued and outstanding,
204,912 shares.
10,245
Common stock, $.05 par value:
Authorized 20,000,000 shares; issued 5,172,750 shares;
outstanding 5,173,983 shares
259,299
Additional paid-in capital
10,578,054
Treasury stock at cost, 12,000 shares
(106,824)
Accumulated deficit
(6,569,669)
--------------
Total Stockholder's Equity
$ 5,071,105
Total Liabilities and Stockholder's Equity
<PAGE>
$ 15,468,301
==============
</TABLE>
<TABLE>
The Vermont Teddy Bear Co., Inc.
Statements of Operations
For the Three and Nine Months Ended March 31, 1998 and 1997
(Unaudited)
Three
Months
Ended Nine Months Ended
<S> <C>
<C>
<C> <C>
Mar 31,
1998 Mar 31,
1997 Mar 31, 1998 Mar 31, 1997
---------
--- -------
----- ------------- -------------
Net Revenues $
5,772,179 $
5,330,093 $ 12,814,044 $ 12,739,326
Cost of Goods Sold
2,509,260
2,222,211 5,481,824 5,287,271
---------
--- -------
----- ------------- -------------
Gross Profit
3,262,919
3,107,882 7,332,220 7,452,055
Selling, General and Administrative Expenses:
Selling Expenses
2,355,946
<PAGE>
2,607,506 6,029,059 6,174,596
General and Administrative Expenses
709,896
774,117 2,236,755 2,138,566
---------
--- -------
----- ------------- -------------
3,065,842
3,381,623 8,265,814 8,313,162
---------
--- -------
----- ------------- -------------
Operating Income (Loss)
197,077
(273,741) (933,594) (861,107)
Interest Income
14,560
10,829 29,815 41,757
Interest Expense
(165,453)
(117,639) (488,606) (344,530)
Other Income (Loss), Net
280
3,135 16,211 (9,896)
---------
--- -------
----- ------------- -------------
Income (Loss) Before Income Taxes
46,464
(377,416) (1,376,174) (1,173,776)
Income Tax Provision
(3,583)
(318,544) (3,583) -
---------
--- -------
----- ------------- -------------
Net Income (Loss)
42,881
(695,960) (1,379,757) (1,173,776)
Preferred Stock Dividends
(18,000)
(18,000) (54,000) (54,000)
---------
--- -------
----- ------------- -------------
Net Income (Loss) -- Common Stockholders $
24,881 $
(713,960) $ (1,433,757) $ (1,227,776)
============
============ ============= =============
<PAGE>
Basic Net Income (Loss) Per Common Share $
0.00 $
(0.14) $ (0.28) $ (0.24)
============
============ ============= =============
Diluted Net Income (Loss) Per Common Share $
0.00 $
(0.14) $ (0.28) $ (0.24)
============
============ ============= =============
Weighted Average Number of Common
Shares Outstanding
5,173,858
5,160,750 5,170,079 5,160,750
============
============ ============= =============
Weighted Average Number of Diluted
Common Shares Outstanding
5,578,028
5,160,750 5,170,079 5,160,750
============
============ ============= =============
</TABLE>
<TABLE>
The Vermont Teddy Bear Co., Inc.
Statements of Cash Flows
For the Nine Months Ended March 31, 1998 and 1997
(Unaudited)
1998 1997
--------------- ---------------
<S>
<C> <C>
Cash Flows From Operating Activities:
Net Loss
$ (1,379,757) $ (1,173,776)
Adjustments to reconcile net income (loss) to net cash
<PAGE>
used for operating activities
Depreciation and amortization
718,633 701,164
Loss on sale/disposal of fixed assets
137,633 18,191
Changes in assets and liabilities:
Accounts receivable, trade
21,194 105,493
Inventories
454,885 (1,591,786)
Prepaid and other current assets
(61,236) (35,647)
Deposits and other assets
(634,837) (235,732)
Accounts payable
(104,485) 1,945,713
Accrued expenses and other liabilities
229,328 100,044
Income taxes payable
- 14,293
--------------- ---------------
Net cash used for operating activities
(618,642) (152,043)
Cash Flows From Investing Activities:
Acquisition of property and equipment
(63,374) (493,419)
Proceeds from sale of fixed assets
38,888 -
--------------- ---------------
Net cash used for investing activities
(24,486) (493,419)
Cash Flows From Financing Activities:
Borrowings of short-term debt
313,136 1,159,760
Borrowings of long-term debt
200,000 357,104
Payments of short-term debt
(750,463) (1,216,613)
Payments of long-term debt
(3,416,328) (110,584)
Proceeds from sale-leaseback of building and property
5,863,874 -
Principal payments on capital lease obligations
(149,673) (77,124)
Issuance of common stock, exercise of stock option
13,233 -
Issuance of preferred stock
<PAGE>
- 501,132
--------------- ---------------
Net cash provided by financing activities
2,073,779 613,675
Net Increase (Decrease) in Cash and Cash Equivalents
1,430,651 (31,787)
Cash and Cash Equivalents, Beginning of Period
441,573 1,121,500
Cash and Cash Equivalents, End of Period
$ 1,872,224 $ 1,089,713
=============== ===============
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest
491,772 343,504
Cash paid for taxes
3,734 1,718
Supplemental Disclosures of Non-Cash Investing and Financing
Activities:
Capital lease from sale-leaseback of building and property
5,863,874 -
</TABLE>
Notes to Financial Statements
Basis of Presentation
The interim financial statements of The Vermont Teddy Bear
Co.,
Inc. (the "Company") included herein have been prepared,
without audit,
pursuant to the rules and regulations of the Securities and
Exchange
Commission ("SEC") and, in the opinion of management,
reflect all
adjustments necessary to present fairly the financial
condition and
results of operations for such interim periods. Certain
information and
footnote disclosures normally included in the financial
statements
prepared in accordance with generally accepted accounting
principles
<PAGE>
have been condensed or omitted pursuant to such rules and
regulations.
It is suggested that these financial statements be read in
conjunction
with the audited financial statements and notes thereto for
the fiscal
year ended June 30, 1997, included in the Company's filing
with the SEC
on Form 10-KSB. The Company's sales are seasonal in nature
and,
therefore, the results for these interim periods are not
necessarily
indicative of the results for the respective years.
Use of Estimates
The preparation of financial statements in conformity
with generally
accepted accounting principles requires management to make
estimates and
assumptions that affect the reported amounts of assets and
liabilities
and disclosure of contingent assets and liabilities at the
date of the
financial statements and the reported amounts of revenues
and expenses
during the reporting period. Actual results could differ
from those
estimates.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board
issued
Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings
per Share." The Company adopted SFAS No. 128 effective
December 15,
1997. These financial statements have been prepared and
presented based
on the new standard. Prior period amounts have been
restated to conform
to current year presentation. In accordance with the
requirements of
SFAS No. 128, basic earnings per share is computed by
dividing net
income, after deducting applicable preferred stock
dividends, by the
weighted average number of common shares outstanding and
diluted
earnings per share reflects the dilutive effect of stock
options and
<PAGE>
warrants, as calculated using the Treasury Method. Per share
amounts are
calculated based only on the weighted number of shares
outstanding
during periods of net loss, after deducting applicable
preferred stock
dividends. The weighted average number of shares
outstanding, the
dilutive effects of outstanding stock options and warrants,
and warrants
and shares under option plans which were anti-dilutive for
the periods
included in this report are as follows:
Three Months Ended Nine Months
Ended
3/31/98 3/31/97
3/31/98 3/31/97
Weighted average
number of shares used
in basic EPS calculation 5,173,808 5,160,750 5,170,079
5,160,750
Dilutive effects of
options and warrants 404,220 -- --
--
Weighted average
number of shares used in
diluted EPS calculation 5,578,028 5,160,750
5,170,079 5,160,750
Shares under option plans
excluded in computation
of diluted EPS due to
anti-dilutive effects 551,155 1,738,679 2,751,007
1,738,679
New Accounting Pronouncements
As of January 1, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes
new rules
for the reporting and display of comprehensive income and
its
components. The adoption of SFAS No. 130 had no impact on
the Company's
net income or shareholders' equity for the three months
ended March 31,
1998.
<PAGE>
The Financial Accounting Standards Board issued SFAS No.
131,
"Disclosures About Segments of an Enterprise and Related
Information,"
which is required to be adopted by the Company no later than
fiscal year
1999. This statement introduces a new model for segment
reporting,
called the management approach. The management approach is
based on the
way that the chief operating decision maker organizes
segments within a
company for making operating decisions and assessing
performance.
Reportable segments are defined in any manner in which
management
disaggregates the company, for example, based on products
and services,
geography, legal structure, etc. The Company plans to adopt
this
statement in fiscal year 1999.
In March 1998, the American Institute of Certified
Public
Accountants issued Statement of Position (SOP) 98-1,
"Accounting for the
Costs of Computer Software Developed or Obtained for
Internal use,"
requiring computer software costs associated with internal
use software
to be expensed as incurred until certain capitalization
criteria are
met. The Company will adopt SOP 98-1 beginning July 1,
1999. Adoption
of this Statement is not expected to have a material impact
on the
Company's financial position or results of operations.
In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5, "Reporting on
Costs of
Start-Up Activities," requiring all costs associated with
pre-opening,
pre-operating, and organization activities to be expensed as
incurred.
The Company will adopt SOP 98-5 beginning July 1, 1999.
Adoption of
this Statement is not expected to have a material impact on
the
Company's financial position or results of operations.
Income Taxes
<PAGE>
The Company accounts for income taxes in accordance with the
Statement of Financial Accounting Standards No. 109,
"Accounting for
income taxes," which requires the use of the liability
method. This
standard determines deferred income taxes based on the
estimated future
tax effects of any differences between the financial
statement and the
basis of tax assets and liabilities, given the provisions of
the enacted
tax laws. Based upon the Company's recent losses, a
valuation allowance
has been provided to fully reserve its deferred tax assets.
If the
Company is able to achieve sufficient profitability to
realize all or a
portion of its deferred assets, the valuation allowance will
be reduced
through a credit to income in future periods.
Inventories
Inventories are stated at the lower of cost or market using
the
first-in, first-out method. Inventories consisted of the
following at
March 31, 1998:
Raw materials $ 573,364
Work in process 80,299
Finished goods 2,193,765
------------
$ 2,847,428
============
Debt and Borrowings
The Company has been operating without a working
capital line of
credit facility since July 18, 1997. As such, the Company's
ability to
fund its operations over the short-term is dependent upon
its success in
achieving its business plan for fiscal 1998 or obtaining
additional
financing. If the Company is unsuccessful in achieving its
business plan
or obtaining additional financing, its short-term liquidity
may be
adversely impacted, which could require a curtailment of
certain business
<PAGE>
activities that, in turn, could have a material adverse
effect on the
Company's business.
On December 31, 1997, the Company borrowed $200,000
from Green
Mountain Capital L.P. in the form of a five-year term note.
The note
bears interest at 12 percent per annum, is repayable in
monthly
installments over the five-year term, and is secured by a
security
interest in the Company's real and personal property. In
conjunction
with the issuance of the note, Green Mountain Capital
received warrants
to purchase 80,000 shares of the Company's Common Stock, at
an exercise
price of $1.00 per share, subject to certain anti-dilution
provisions.
(Green Mountain Capital's outstanding warrants to purchase
20,000 shares
at $3.375 were also repriced to a $1.00 per share exercise
price.) The
right to exercise these warrants begins immediately, and
expires the
earlier of five years after the full repayment of all
outstanding notes
or seven years from the date of the note.
On July 18, 1997, the Company completed a sale-leaseback
transaction involving its factory headquarters and a portion
of its
property located in Shelburne, Vermont. This financing
replaced the
Company's mortgage and line of credit agreement with the
Vermont National
Bank. The Company received approximately $5.9 million in
cash, of which
approximately $3.3 million was used to pay off the existing
mortgage with
the Vermont National Bank. The balance, approximately $2.6
million, was
used for general working capital purposes, to pay down a
$600,000 balance
on the Company's line of credit (which was retired as the
result of the
termination of the original mortgage loan), and transaction
costs of
$591,000 associated with the sale-leaseback. The lease
obligation,
secured by the business assets of the Company, is payable on
a
<PAGE>
twenty-year amortization schedule through July 2017. The
transaction was
accounted for under the financing method in accordance with
Statement of
Financial Accounting Standard No. 98, "Accounting for
Leases."
As of June 30, 1997, the Company had a $1,000,000 revolving
line of
credit from a bank, which was terminated on July 18, 1997,
pursuant to
the Company's sale-leaseback transaction.
Management's Discussion and Analysis
The following discussion and analysis provides information
that
the Company's management believes is relevant to an
assessment and
understanding of the Company's results of operations and
financial
condition. The discussion should be read in conjunction
with the
financial statements and footnotes which appear elsewhere in
this
report, as well as the 10-KSB filing for the fiscal year
ending June 30,
1997. This report contains forward-looking statements
within the
meaning of the Private Securities Litigation Reform Act of
1995, Section
27A of the Securities Act of 1993 and Section 21E of the
Securities
Exchange Act of 1934. The words "believe," "expect,"
"anticipate,"
"intend," "estimate," and other expressions which are
predictions of or
indicate future events and trends and which do not relate to
historical
matters identify forward-looking statements. Such
statements involve
risks and uncertainties that could cause actual results to
differ
materially from those set forth in such forward-looking
statements. The
Company undertakes no obligation to publicly update or
revise any
forward-looking statement, whether as a result of new
information,
future events or otherwise.
Results of Operations
<PAGE>
Comparison of the three-month periods ended March 31, 1998
and 1997.
Net revenues for the Company for the nine-month period ended
March
31, 1998 totaled $5,772,000, an 8.3 percent increase from
net revenues
of $5,330,000 for the three-month period ended March 31,
1997. By
business segment, Bear-Gram revenues, which include internet
revenues,
rose $415,000, attributable primarily to increased sales
from the
Company's www.vtbear.com website. Direct mail revenues rose
$184,000,
due to improved demand-per-catalog performance from the
Company's 1998
Valentine's Day catalog. Wholesale revenues rose $42,000,
while
licensing revenues decreased $61,000. Retail revenues
decreased
$138,000. Revenue for the quarter ended March 31, 1997
included results
from the Company's New York retail store, which was not in
operation
during the quarter ended March 31, 1998.
Gross margin increased to $3,263,000 for the quarter ended
March
31, 1998, from $3,108,000 for the quarter ended March 31,
1997. As a
percentage of net revenues, gross margin decreased to 56.5
percent from
58.3 percent, for the three months ended March 31, 1998, and
1997,
respectively.
Selling expenses decreased to $2,356,000 for the three-month
period March 31, 1998, from $2,608,000 for the three-month
period ended
March 31, 1997. This $252,000 reduction was primarily
attributable to
the closing of the Company's New York City retail store,
reduced
circulation on the 1998 Valentine's Day catalog, as compared
to the 1997
catalog, and lower costs of handling telephone traffic
during the
Valentine's Day selling season. As a percentage of net
revenues,
selling expenses were 40.8 percent and 48.9 percent for the
three months
ended March 31, 1998, and 1997, respectively.
<PAGE>
General and administrative expenses were $710,000 for the
quarter
ended March 31, 1998, compared to $774,000 for the quarter
ended March
31, 1997. This $64,000 reduction was largely due to reduced
headcount
and lower spending on external professional services. As a
percentage
of net revenues, general and administrative expenses were
12.3 percent
and 14.5 percent for the three months ended March 31, 1998,
and 1997,
respectively. Interest expense increased to $165,000 for
the quarter
ended March 31, 1998, from $118,000 for the quarter ended
March 31,
1997. Quarterly interest expenses are anticipated to be
higher in
fiscal 1998 than in fiscal 1997, as a result of the sale-
leaseback of
the Company's headquarters in Shelburne, Vermont, which was
completed on
July 18, 1997.
The Company recorded an income tax provision of $4,000 for
the
quarter ended March 31, 1998. The Company recorded an
income tax
provision of $319,000 for the quarter ended March 31, 1997,
reversing an
income tax benefit of $319,000 which had accrued over the
first six
months of the Company's 1997 fiscal year. The reversal was
based on an
estimation at that time that the Company would have a
cumulative loss
for its 1997 fiscal year, which ended June 30, 1997.
As a result of the foregoing factors, net income to common
stockholders totaled $25,000, or nil per common share, for
the quarter
ended March 31, 1998, compared to a net loss to common
stockholders of
$714,000, or fourteen cents per common share for the quarter
ended March
31, 1997.
Comparison of the nine-month periods ended March 31, 1998
and 1997.
Net revenues for the Company for the nine-month period ended
March
<PAGE>
31, 1998 totaled $12,814,000, a 0.6 percent increase from
net revenues
of $12,739,000 for the nine-month period ended March 31,
1997. By
business segment, Bear-Gram revenues, which include internet
revenues,
increased $404,000, attributable primarily to increased
sales from the
Company's www.vtbear.com website. Retail revenues increased
$251,000,
with store locations in New York City and Freeport, Maine
providing
additional sources of revenue. Direct mail revenues
decreased $531,000,
due primarily to a smaller 1997 Fall/Holiday catalog which
had
significantly fewer circulated pages than the 1996
Fall/Holiday catalog.
Gross margin decreased to $7,332,000 for the nine months
ended
March 31, 1998, from $7,452,000 for the nine months ended
March 31,
1997. As a percentage of net revenues, gross margin
decreased to 57.2
percent from 58.5 percent, for the nine months ended March
31, 1998, and
1997, respectively.
Selling expenses decreased by $146,000 to $6,029,000 for the
nine-
month period ended March 31, 1998, from $6,175,000 for the
nine-month
period ended March 31, 1997. Cost savings from reduced
circulation of
the Company's Fall/Holiday and Valentine's Day catalogs and
lower costs
of handling 1-800-829-BEAR call traffic more than offset
one-time
charges related to the closure of the New York City retail
store,
expenses of the Freeport, Maine retail store, which opened
in the
current fiscal year, and an increase in Bear-Gram
advertising spending.
As a percentage of net revenues, selling expenses were 47.0
percent and
48.5 percent for the nine months ended March 31, 1998, and
1997,
respectively.
General and administrative expenses rose $98,000 to
$2,237,000 for
<PAGE>
the nine months ended March 31, 1998, compared to $2,139,000
for the
nine months ended March 31, 1997. On December 31, 1997, the
Company
recorded a charge for amounts payable to R. Patrick Burns,
former Chief
Executive Officer of the Company, under his consulting
agreement.
Additionally, higher legal fees and rent expense on vacant
space at the
Company's Freeport, Maine retail location more than offset
reduced wages
in general and administrative departments. As a percentage
of net
revenues, general and administrative expenses were 17.5
percent and 16.8
percent for the nine months ended March 31, 1998, and 1997,
respectively.
Interest expense increased to $489,000 for the nine months
ended
March 31, 1998, from $345,000 for the nine months ended
March 31, 1997.
Interest expense is anticipated to be higher in fiscal 1998
than in
fiscal 1997, as a result of the sale-leaseback of the
Company's
headquarters in Shelburne, Vermont, which was completed on
July 18,
1997.
The Company recorded an income tax provision of $4,000 for
the
nine months ended March 31, 1998. The Company recorded an
income tax
provision of $319,000 for the quarter ended March 31, 1997,
reversing an
income tax benefit of $319,000 which had accrued over the
first six
months of the Company's 1997 fiscal year. The reversal was
based on an
estimation at that time that the Company would have a
cumulative loss
for its 1997 fiscal year, which ended June 30, 1997. As a
result of
these offsetting income tax benefits and provisions, the
Company had no
income tax provision for the nine months ended March 31,
1997.
As a result of the foregoing factors, the net loss to common
stockholders totaled $1,434,000, or twenty-eight cents per
common share,
<PAGE>
for the nine months ended March 31, 1998, compared to a net
loss to
common stockholders of $1,228,000, or twenty-four cents per
common
share, for the nine months ended March 31, 1997.
Liquidity and Capital Resources
The Company has been operating without a working capital
line of
credit facility since July 18, 1997. As such, the Company's
ability to
fund its operations over the short-term is dependent upon
its success in
achieving its business plan for fiscal 1998 or obtaining
additional
financing. If the Company is unsuccessful in achieving its
business plan
or obtaining additional financing, its short-term liquidity
may be
adversely impacted, which could require a curtailment of
certain business
activities that, in turn, could have a material adverse
effect on the
Company's business.
As of March 31, 1998, the Company's cash position increased
to
$1,872,000, from $442,000 at June 30, 1997. Restricted cash
balances at
these dates were $360,000 and $365,000, respectively. The
largest
component of restricted cash at March 31, 1998 was a
$300,000
certificate of deposit required in connection with the sale-
leaseback
transaction. The largest component of restricted cash at
June 30, 1997
was a $300,000 certificate of deposit with the Vermont
National Bank.
Proceeds from the sale-leaseback transaction and borrowings
of short-
term debt more than offset the repayment of the Company's
mortgage loan
with the Vermont National Bank and other short-term and
long-term debt.
Inventories decreased to $2,847,000 at March 31, 1998, from
$3,302,000 at June 30, 1997. Accounts payable totaled
$2,458,000 at
March 31, 1998, compared to $2,563,000 at June 30, 1997.
<PAGE>
On December 31, 1997, the Company borrowed $200,000 from
Green
Mountain Capital L.P. in the form of a five-year term note.
The note
bears interest at 12 percent per annum, is repayable in
monthly
installments over the five-year term, and is secured by a
security
interest in the Company's real and personal property. In
conjunction
with the issuance of the note, Green Mountain Capital
received warrants
to purchase 80,000 shares of the Company's Common Stock, at
an exercise
price of $1.00 per share, subject to certain anti-dilution
provisions.
(Green Mountain Capital's outstanding warrants to purchase
20,000 shares
at $3.375 were also repriced to a $1.00 per share exercise
price.) The
right to exercise these warrants begins immediately, and
expires the
earlier of five years after the full repayment of all
outstanding notes
or seven years from the date of the note.
On July 18, 1997, the Company completed a sale-leaseback
transaction, involving its factory headquarters and a
portion of its
property located in Shelburne, Vermont. This financing
replaced the
Company's mortgage and line of credit agreement with the
Vermont National
Bank. The Company received approximately $5.9 million in
cash, of which
approximately $3.3 million was used to pay off the existing
mortgage with
the Vermont National Bank. The balance, approximately $2.6
million, was
used for general working capital purposes, to pay down a
$600,000 balance
on the Company's line of credit (which was retired as the
result of the
termination of the original mortgage loan), and transaction
costs of
$591,000 associated with the sale-leaseback. The lease
obligation,
secured by the business assets of the Company, is payable on
a
twenty-year amortization schedule through July 2017. The
transaction was
accounted for under the financing method in accordance with
Statement of
<PAGE>
Financial Accounting Standard No. 98, "Accounting for
Leases."
As of June 30, 1997, the Company had a $1,000,000 revolving
line of
credit from a bank, which was terminated on July 18, 1997,
pursuant to
the Company's sale-leaseback transaction.
On July 12, 1996, the Company privately placed $550,000
of Series B
convertible Preferred Stock. The 204,912 Series B preferred
shares, held
of record by twelve shareholders, are not entitled to any
dividends or
voting rights, but each share was originally convertible
into one share
of the Company's Common Stock at any time on or after July
12, 1997.
Accompanying the issuance of the Preferred Stock were
warrants to
purchase 204,912 shares of the Company's Common at a price
of $2.434 per
share, exercisable between July 12, 1997 and July 12, 1999,
subject to
certain anti-dilution provisions. In addition, finder's
warrants for
10,245 common shares were issued with the same terms and
conditions. As
the result of subsequent issuances of warrants, anti-
dilution provisions
of the Series B Preferred Stock agreement were activated,
and the 204,912
shares of Series B Preferred Stock are now convertible into
482,441
shares of Common Stock. Common shares issued as the result
of the
conversion of the Series B Preferred Stock and/or the
exercise of the
warrant shall be considered "restricted securities" and
shall be subject
to certain registration rights. On liquidation,
dissolution, or winding
up of the Company, holders of Series B Preferred Stock are
entitled to be
paid on a pari passu basis with any holders of Series A
Preferred Stock.
Item 5. Other Information
On January 28, 1998, David W. Garrett submitted a
letter of
<PAGE>
resignation from the Board of Directors of the Company,
which was
accepted by the Board. Mr. Garrett's resignation was for
personal
business reasons.
On April 21, 1998, the Company appointed Robert D.
Delsandro, Jr.
to the position of Vice President of Marketing and Design.
Mr. Delsandro
has been employed by the Company as its Creative Director
since 1996, and
has been responsible for the development of a new image for
the Company,
as well as its products, promotional material, retail
stores, and
catalogs.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
3.3 Restated Certificate of Incorporation of the Company
(filed with
the Securities
and Exchange Commission as exhibit 3.3 to the Company's
1996 Annual
Report on Form 10-KSB (File No. 33-69898) and
incorporated herein
by
reference).
3.4 Amended and Restated By-Laws of the Company (filed
with the
Securities and Exchange Commission as exhibit 3.4 to
the Company's
10-
QSB for the quarter ended December 31, 1996 and
incorporated herein
by
reference).
4.1 Representative's Warrant issued to Barington Capital
Group, L.P.
upon
the consummation of the initial public offering of the
Company's
Common
Stock in November 1993 (filed with the Securities and
Exchange
Commission
as exhibit 4.1 to the Company's 1993 Annual Report on
Form 10-KSB
<PAGE>
(File No.
33-69898) and incorporated herein by reference).
4.2 Form of Common Stock Certificate (filed with the
Securities and
Exchange
Commission as exhibit 4.2 to the Company's Registration
Statement
on Form
SB-2 (File No. 33-69898) and incorporated herein by
reference).
4.3 Form of Warrant, issued in connection with the private
placement of
204,912
shares of the Company's Series B Convertible Preferred
Stock (filed
with the
Securities and Exchange Commission as exhibit 4.3 to
the Company's
1996
Annual Report on Form 10-KSB (File No. 33-69898) and
incorporated
herein
by reference).
4.4 Form of Subscription Agreement issued in connection
with the
private
placement of 204,912 shares of the Company's Series B
Convertible
Preferred Stock (filed with the Securities and Exchange
Commission
as exhibit
4.4 to the Company's 1996 Annual Report on Form 10-KSB
(File No.
33-69898)
and incorporated herein by reference).
4.5 Waiver of Joan H. Martin, dated April 12, 1996, issued
in
connection with
waiver of accrued dividends on Series A Preferred Stock
(filed with
the
Securities and Exchange Commission as exhibit 4.5 to
the Company's
1996
Annual Report on Form 10-KSB (File No. 33-69898) and
incorporated
herein
by reference).
<PAGE>
4.6 Warrant to purchase 43,826.087 shares of the Company's
Common
Stock,
dated April 12, 1996, issued in connection with Joan H.
Martin's
waiver of
accrued dividends on Series A Preferred Stock (filed
with the
Securities and
Exchange Commission as exhibit 4.6 to the Company's
1996 Annual
Report
on Form 10-KSB (File No. 33-69898) and incorporated
herein by
reference).
4.7 Stock Purchase Warrant Agreement, dated July 10, 1997,
between the
Company and URSA (VT) QRS-30, Inc., in conjunction
with the sale-
leaseback
of the Company's headquarters in Shelburne, Vermont
(filed with the
Securities and Exchange Commission as exhibit 4.7 to
the Company's
1997
Annual Report on Form 10-KSB (File No. 33-69898) and
incorporated
herein
by reference).
4.8 Stock Purchase Warrant Agreement, dated December 31,
1997, in
connection
with the $200,000 Term Loan of Green Mountain Capital
(filed with
the
Securities and Exchange Commission as exhibit 4.8 to the
Company's
10-QSB
for the quarter ended December 31, 1997 and incorporated
herein by
reference).
10.2 Stock warrants issued to Edmund H. Shea, Jr. IRA, Allan
Lyons and
William
Maines in connection with the bridge financing prior to
the initial
public
offering of the Company's Common Stock in November 1993
(a form of
which
<PAGE>
was filed with the Securities and Exchange Commission
as exhibit
10.2 to the
Company's Registration Statement on Form SB-2 (File No.
33-69898)
and
incorporated herein by reference).
10.10 Incentive Stock Option Plan adopted by the Company
on August 16,
1993, with
form of Incentive Stock Option Agreement (filed with
the Securities
and
Exchange Commission as exhibit 10.10 to the Company's
Registration
Statement on Form SB-2 (File No. 33-69898) and
incorporated herein
by
reference).
10.11 Securities Purchase Agreement, dated June 10, 1987
between the
Company
and VTB Investment Group and Joan Hixon Martin (filed
with the
Securities
and Exchange Commission as exhibit 10.11 to the
Company's
Registration
Statement on Form SB-2 (File No. 33- 69898) and
incorporated herein
by
reference).
10.12 Agreement, dated as of June 19, 1995, between the
Company and John
N.
Sortino, providing the terms of Mr. Sortino's
separation agreement
with the
Company (filed with the Securities and Exchange
Commission as
exhibit 10.12
to the Company's 10-KSB for the transition period ended
June 30,
1995 and
incorporated herein by reference).
10.14 Employment Agreement, dated November 1, 1993,
between the Company
and
Spencer C. Putnam (filed with the Securities and
Exchange
<PAGE>
Commission as
exhibit 10.14 to the Company's Registration Statement
on Form SB-2
(File No.
33-69898) and incorporated herein by reference).
10.24 Amended 1993 Incentive Stock Option Plan of the
Company, amended as
of
November 28, 1995 (filed with the Securities and
Exchange
Commission as
exhibit 10.24 to the Company's 10-QSB for the quarter
ended March
31,
1995 and incorporated herein by reference).
10.25 Loan Agreement, dated December 26, 1995, between
Green Mountain
Capital,
L.P. and the Company in connection with a $500,000 Term
Loan (filed
with the
Securities and Exchange Commission as exhibit 10.25 to
the
Company's 10-
QSB for the quarter ended December 31, 1995 and
incorporated herein
by
reference).
10.26 Convertible Note, dated December 26, 1995, in the
principal amount
of
$200,000, issued in connection with the $500,000 Term
Loan of Green
Mountain Capital (filed with the Securities and
Exchange Commission
as
exhibit 10.26 to the Company's 10-QSB for the quarter
ended
December 31,
1995 and incorporated herein by reference).
10.27 Stock Purchase Warrant Agreement, dated December
26, 1995, in
connection
with the $500,000 Term Loan of Green Mountain Capital
(filed with
the
Securities and Exchange Commission as exhibit 10.27 to
the
Company's 10-
<PAGE>
QSB for the quarter ended December 31, 1995 and
incorporated herein
by
reference).
10.28 Employment and Loan Agreements, dated June 30,
1996, between the
Company and R. Patrick Burns (filed with the Securities
and
Exchange
Commission as exhibit 10.28 to the Company's 1996
Annual Report on
Form
10-KSB (File No. 33-69898) and incorporated herein by
reference).
10.29 Employment Agreement, dated July 1, 1996, between
the Company and
Elisabeth B. Robert (filed with the Securities and
Exchange
Commission as exhibit 10.29 to the Company's 1996
Annual Report on
Form
10-KSB (File No. 33-69898) and incorporated herein by
reference).
10.30 Amended 1993 Incentive Stock Option Plan of the
Company, amended as
of
November 22, 1996 (filed with the Securities and
Exchange
Commission as
exhibit 10.30 to the Company's 10-QSB for the quarter
ended
December 31,
1996 and incorporated herein by reference).
10.31 Non-Employee Directors Stock Option Plan adopted
by the Company on
November 22, 1996 (filed with the Securities and
Exchange
Commission as
exhibit 10.31 to the Company's 10-QSB for the quarter
ended
December 31,
1996 and incorporated herein by reference).
10.32 Employment Agreement, dated as of July 1, 1996,
between the Company
and
Spencer C. Putnam (filed with the Securities and
Exchange
Commission as
<PAGE>
exhibit 10.32 to the Company's 10-QSB for the quarter
ended
December 31,
1996 and incorporated herein by reference).
10.33 Convertible Note, dated November 19, 1996, in the
principal amount
of
$300,000, issued in connection with the $500,000 Term
Loan of Green
Mountain Capital (filed with the Securities and
Exchange Commission
as
exhibit 10.33 to the Company's 10-QSB for the quarter
ended
December 31,
1996 and incorporated herein by reference).
10.34 Lease Agreement, dated October 24, 1996, in
connection with the
Company's
lease of 2,600 square feet at 538 Madison Avenue in New
York, New
York
(filed with the Securities and Exchange Commission as
exhibit 10.29
to the
Company's 1997 Annual Report on Form 10-KSB (File No.
33-69898) and
incorporated herein by reference).
10.35 Consulting Agreement, dated December 31, 1996,
between the Company
and
Venture Management Group, Inc., regarding the provision
of
consulting
services to the Company (filed with the Securities and
Exchange
Commission as exhibit 10.29 to the Company's 1997
Annual Report
on
Form 10-KSB (File No. 33-69898) and incorporated herein
by
reference).
10.36 Lease Agreement, dated January 17, 1997, in
connection with the
Company's
lease of 6,000 square feet at 55 Main Street in
Freeport, Maine
(filed
with the Securities and Exchange Commission as exhibit
10.29 to the
<PAGE>
Company's 1997 Annual Report on Form 10-KSB (File No.
33-69898) and
incorporated herein by reference).
10.37 Lease Agreement, dated July 10, 1997, between the
Company and URSA
(VT)
QRS-30, Inc., regarding the sale-leaseback of the
Company's
headquarters in
Shelburne, Vermont (filed with the Securities and
Exchange
Commission as exhibit 10.29 to the Company's 1997
Annual Report on
Form 10-KSB (File No. 33-69898) and incorporated herein
by
reference).
10.38 Binding commitment letter, dated October 10, 1997,
from Green
Mountain
Capital LP, in connection with a $200,000 term loan
(filed with the
Securities and Exchange Commission as exhibit 10.29 to
the
Company's
1997 Annual Report on Form 10-KSB (File No. 33-69898)
and
incorporated
herein by reference) .
10.39 Agreement, dated as of October 10, 1997, between
the Company and R.
Patrick
Burns, providing the terms of Mr. Burns' separation and
consulting
agreement
with the Company (filed with the Securities and
Exchange Commission
as
exhibit 10.39 to the Company's 10-QSB for the quarter
ended
September 30,
1997 and incorporated herein by reference).
10.40 Employment Agreement, dated December 3, 1997,
between the Company
and
Elisabeth B. Robert (filed with the Securities and
Exchange
Commission as
exhibit 4.8 to the Company's 10-QSB for the quarter ended
December
31, 1997
<PAGE>
and incorporated herein by reference).
10.41 Loan Agreement, dated December 31, 1997, between
Green Mountain
Capital,
L.P. and the Company in connection with a $200,000 Term
Loan (filed
with the
Securities and Exchange Commission as exhibit 4.8 to the
Company's
10-QSB
for the quarter ended December 31, 1997 and incorporated
herein by
reference).
10.42 Convertible Note, dated December 31, 1997, in the
principal amount
of
$200,000, issued in connection with the $200,000 Term
Loan of Green
Mountain Capital (filed with the Securities and
Exchange Commission
as
exhibit 4.8 to the Company's 10-QSB for the quarter ended
December
31, 1997
and incorporated herein by reference).
10.43 Employment Agreement, dated March 13, 1998,
between the Company and
Spencer C. Putnam (filed herein).
10.44 Employment Agreement, dated April 21, 1998,
between the Company and
Robert D. Delsandro, Jr. (filed herein).
Reports on Form 8-K
There were no reports filed on Form 8-K during the three-
month
period ended March 31, 1998.
Signatures
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by
the
undersigned, thereunto duly authorized.
The Vermont Teddy Bear Co., Inc.
<PAGE>
Date: May 14, 1998 /s/ Elisabeth B. Robert,
-----------------------
Elisabeth B. Robert,
Chief Executive Officer and
Chief Financial Officer
EXHIBIT 10.43
The Vermont Teddy Bear Co., Inc.
Shelburne, Vermont 05482
March 13, 1998
Mr. Spencer C. Putnam
Shelburne, VT 05482
Dear Spence:
This letter is to follow up on our recent discussions and
confirm our
agreement concerning the terms of your continued employment
by The
Vermont Teddy Bear Co., Inc. (the "Company"). Except as
specifically set
forth in this letter, this agreement is intended to amend
and supersede
your existing Employment Agreement, dated July 1, 1996 (the
"Prior
Agreement"). Our agreement is as follows:
1. Position. You shall to be employed as Secretary and
Vice President
of the Company and you shall continue to devote all of your
business
time, attention, skill and efforts to the business and
affairs of the
Company, with such duties as shall be assigned to you by the
Board of
Directors. You shall be based at the Company's Shelburne,
Vermont
offices.
2. Term. Your employment shall continue for a term ending
October 31,
1999, unless earlier terminated in accordance with this
agreement.
3. Base Salary. For the year commencing July 1, 1997,
your base
salary shall be $80,000. For the year commencing July 1,
1998 your
salary shall be $86,000. Thereafter, your base salary shall
be
<PAGE>
renegotiated.
4. Annual Bonus. In addition to your base salary, you
will be
entitled to a cash bonus for each fiscal year during the
term equal to 1%
of the Company's net Pre-Tax Profit, so long as the
Company's Pre-Tax
Profit is at least $100,000. The cash bonus shall be paid
in cash and
within sixty (60) days following the end of the fiscal year
to which the
bonus relates.
5. Stock Options. You shall be eligible to participate in
the
Company's Incentive Stock Option Plan.
6. Benefits. You shall continue to participate in all of
the benefit
plans generally available to senior executive employees of
the Company in
accordance with the policies and procedures currently, or
then, in
effect, as the case may be, and in addition, you shall have
the use of a
company car, subject to the Company's approval, which shall
not
unreasonably be withheld, and a split-dollar life insurance
policy (No.
Z162558) with New England Financial which is collaterally
assigned to the
Company.
7. Indemnification. The Company shall indemnify you (and
your estate)
in accordance with the Company's Bylaws as in effect from
time to time.
This indemnification by the Company shall survive
termination or
expiration of this Agreement.
8. Termination. This Agreement may be terminated by
either you or by
the Company at any time. If your employment is terminated
by (a) you for
"Good Reason" or (b) the Company, for any reason other than
for "Cause"
at any time, except as described in Section 9 below, (i) you
shall
receive, in lieu of any other payment or benefit except as
set forth in
this paragraph, and in a lump sum, an amount equal to six
months base
<PAGE>
salary, plus bonus for the year in which your employment was
terminated
pro rated for the period you were employed, and (ii) all
your outstanding
stock options which were subject to vesting on or prior to
the end of the
fiscal year in which your employment was terminated shall
immediately
vest and all your stock options shall continue to be
exercisable for a
period of ten years after the date of their grant. Upon a
termination of
employment by the Company at any time (other than for
"Cause") the
Company shall provide you with reasonable outplacement
services. Upon a
termination by the Company for "Cause" or by you without
"Good Reason",
you shall not be entitled to receive any further payments or
benefits
following the date of your termination.
If your employment is terminated on account of your death or
your
disability which lasts (or is likely, based on reasonable
medical
evidence, to last) for more than six consecutive months and
renders
you unable to perform your duties under this Agreement, all
outstanding stock options which were subject to vesting on
or prior to
the end of the fiscal year in which your employment was
terminated
shall immediately vest and all your stock options shall
continue to be
exercisable for a period of ten years after the date of
their grant.
Upon such termination for your death or disability, neither
you nor
your estate shall be entitled to receive the salary
continuation
referred to in clause (i) with respect to a termination by
the Company
for any reason other than "Cause".
For purposes of this Agreement the terms "Good Reason" and
"Cause"
shall be defined as follows:
"Good Reason" means (a) the breach or contravention by the
Company of
any provision of this agreement, (b) the assignment to you
of any
<PAGE>
duties inconsistent your status as a senior officer of the
Company or
a substantial adverse alteration in the nature or status of
your
responsibilities from those in effect on the Commencement
Date, (c) a
reduction in your annual base salary as set forth herein or
as the
same may be increased from time to time and (d) the failure
of the
company to provide you with the benefits contemplated
herein. Your
continued employment shall not constitute consent to, or a
waiver of
rights with respect to, any act or failure to act
constituting Good
Reason hereunder.
"Cause" means (a) your conviction for, or guilty plea to,
any felony,
(b) your commission of an act of personal dishonesty or
breach of
fiduciary duty which involves personal profit in connection
with
employment by the Company or (c) your material breach or
contravention
of any material provision of this agreement or your
commission of an
act of gross negligence or willful misconduct in the conduct
of your
duties to the Company; provided, however, that in that cases
of
clauses (b) and (c), the Company shall have given you ten
business
days' notice thereof, a reasonable opportunity to be heard
by the
Board of Directors and, during such ten business day period,
an
opportunity to cure.
9. Change in Control. In the event that the Company
undergoes a
"Change in Control," all your stock options shall
immediately vest and
shall continue to be exercisable for a period of ten years
after the
date of their grant. In the event that your employment is
terminated
(a) by you for "Good Reason," or (b) by the Company for any
reason
other than for "Cause" within ninety days prior to, or
twelve months
after, a "Change in Control," in addition to the immediate
vesting of
<PAGE>
your stock options, you shall be entitled to the following
benefits,
in lieu of the other benefits provided in Section 8, above:
(i) you
shall be entitled to a cash payment, payable upon the
"Change in
Control," in an amount equal to the sum of your base salary
plus pro
rated bonus for the year; (ii) the right to purchase your
company car
for One Dollar ($1.00); and (iii) the Company shall provide
you with
reasonable outplacement services.
For purposes of this Agreement the term "Change in Control"
shall be
defined as follows:
"Change of Control" means (a) the Company is merged or
consolidated
with another corporation or entity, (b) one person (together
with its
affiliates) becomes the beneficial owner of 50% or more of
the issued
and outstanding equity securities of the Company or (c) all
or
substantially all of the assets of the Company are acquired
by another
corporation or entity.
10. Covenant Not To Compete. During the term and for a
period of
six (6) months following termination of your employment with
the
Company, you shall not, directly or indirectly, whether as
stockholder, officer, director, employee, consultant or
otherwise
(except as a beneficiary of less than 5% of the number of
shares of
any publicly traded securities) engage in any business that,
with
respect to 5% or more of its sales, competes with the
Company in the
business of marketing and selling stuffed teddy bears. If
the
foregoing correctly sets forth your understanding of our
Agreement,
please sign and return the enclosed copy of this letter to
me.
Sincerely,
THE VERMONT TEDDY BEAR CO., INC.
<PAGE>
By: /s/ Elisabeth B. Robert
-------------------------
Elisabeth B. Robert, President and
CEO
ACKNOWLEDGED AND AGREED TO:
/s/ Spencer C. Putnam
---------------------
Spencer C. Putnam
EXHIBIT 10.44
The Vermont Teddy Bear Co., Inc.
Shelburne, Vermont 05482
April 30, 1998
Mr. Robert D. Delsandro
Shelburne, VT 05482
Dear Bob:
This letter is to follow up on our recent discussions and
confirm our
agreement concerning the terms of your continued employment
by The
Vermont Teddy Bear Co., Inc. (the "Company"). Our agreement
is as
follows:
1. Position. You shall be employed as Vice President,
Marketing and
Design of the Company and you shall continue to devote all
of your
business time, attention, skill and efforts to the business
and affairs
of the Company, with such duties as shall be assigned to you
by the
President. You shall be based at the Company's Shelburne,
Vermont
offices.
2. Term. Your employment shall continue for a term ending
April 30,
<PAGE>
2000, unless earlier terminated in accordance with this
agreement.
3. Base Salary. For the term of this agreement, your base
salary
shall be $80,000.
4. Annual Bonus. In addition to your base salary, you
will be
entitled to a cash bonus for each fiscal year during the
term equal to
1% of the Company's net Pre-Tax Profit, so long as the
Company's Pre-Tax
Profit is at least $100,000. The cash bonus shall be paid
in cash and
within sixty (60) days following the end of the fiscal year
to which the
bonus relates.
5. Stock Options. You shall be eligible to participate in
the
Company's Incentive Stock Option Plan.
6. Benefits. You shall continue to participate in all of
the benefit
plans generally available to senior executive employees of
the Company
in accordance with the policies and procedures currently, or
then, in
effect, as the case may be.
7. Indemnification. The Company shall indemnify you (and
your
estate) in accordance with the Company's Bylaws as in effect
from time
to time. This indemnification by the Company shall survive
termination
or expiration of this Agreement.
8. Termination. This Agreement may be terminated by
either you or by
the Company at any time. If your employment is terminated
by (a) you
for "Good Reason" or (b) the Company, for any reason other
than for
"Cause" at any time, except as described in Section 9 below,
(i) you
shall receive, in lieu of any other payment or benefit
except as set
forth in this paragraph, and in a lump sum, an amount equal
to six
months base salary, plus bonus for the year in which your
employment was
<PAGE>
terminated pro rated for the period you were employed, and
(ii) all your
outstanding stock options which were subject to vesting on
or prior to
the end of
the fiscal year in which your employment was terminated
shall
immediately vest and all your
stock options shall continue to be exercisable for a period
of ten
years after the date of their
grant. Upon a termination of employment by the Company at
any time
(other than for "Cause") the Company shall provide you with
reasonable outplacement services. Upon a termination by the
Company
for "Cause" or by you without "Good Reason", you shall not
be
entitled to receive any further payments or benefits
following the
date of your termination.
If your employment is terminated on account of your death or
your
disability which lasts (or is likely, based on reasonable
medical
evidence, to last) for more than six consecutive months and
renders
you unable to perform your duties under this Agreement, all
outstanding stock options which were subject to vesting on
or prior
to the end of the fiscal year in which your employment was
terminated
shall immediately vest and all your stock options shall
continue to
be exercisable for a period of ten years after the date of
their
grant. Upon such termination for your death or disability,
neither
you nor your estate shall be entitled to receive the salary
continuation referred to in clause (i) with respect to a
termination
by the Company for any reason other than "Cause".
For purposes of this Agreement the terms "Good Reason" and
"Cause"
shall be defined as follows:
"Good Reason" means (a) the breach or contravention by
the
Company of any provision of this agreement, (b) the
assignment to
you of any duties inconsistent your status as a senior
officer of the
<PAGE>
Company or a substantial adverse alteration in the
nature or
status of your responsibilities from those in effect on
the
Commencement Date, (c) a reduction in your annual base
salary as set
forth herein or as the same may be increased from time
to time and
(d) the failure of the company to provide you with the
benefits
contemplated herein. Your continued employment shall not
constitute
consent to, or a waiver of rights with respect to, any
act or
failure to act constituting Good Reason hereunder.
"Cause" means (a) your conviction for, or guilty plea
to, any
felony, (b) your commission of an act of personal
dishonesty or
breach of fiduciary duty which involves personal profit in
connection
with employment by the Company or (c) your material
breach or
contravention of any material provision of this
agreement or your
commission of an act of gross negligence or willful
misconduct in the
conduct of your duties to the Company; provided,
however, that
in that cases of clauses (b) and (c), the Company shall
have
given you ten business days' notice thereof, a reasonable
opportunity
to be heard by the Board of Directors and, during such
ten
business day period, an opportunity to cure.
9. Change in Control. In the event that the Company
undergoes a
"Change in Control," all your stock options shall
immediately vest
and shall continue to be exercisable for a period of ten
years after
the date of their grant. In the event that your employment
is
terminated (a) by you for "Good Reason," or (b) by the
Company for
any reason other than for "Cause" within ninety days prior
to, or
twelve months after, a "Change in Control," in addition to
the
immediate vesting of your stock options, you shall be
entitled to the
<PAGE>
following benefits, in lieu of the other benefits provided
in Section
8, above: (i) you shall be entitled to a cash payment,
payable upon
the "Change in Control," in an amount equal to the sum of
your base
salary plus pro rated bonus for the year; and (ii) the
Company shall
provide you with reasonable outplacement services.
For purposes of this Agreement the term "Change in Control"
shall be
defined as follows:
"Change of Control" means (a) the Company is merged or
consolidated with another corporation or entity, (b) one
person
(together with its affiliates) becomes the beneficial owner
of 50% or
more of the issued and outstanding equity securities of
the
Company or (c) all or substantially all of the assets of
the
Company are acquired by another corporation or entity.
10. Covenant Not To Compete. During the term and for a
period of
six (6) months following termination of your employment with
the
Company, you shall not, directly or indirectly, whether as
stockholder, officer, director, employee, consultant or
otherwise
(except as a beneficiary of less than 5% of
the number of shares of any publicly traded securities)
engage in any
business that, with respect to 5% or more of its sales,
competes with
the Company in the business of marketing and selling stuffed
teddy
bears.
If the foregoing correctly sets forth your understanding of
our
Agreement, please sign and return the enclosed copy of this
letter to
me.
Sincerely,
THE VERMONT TEDDY BEAR CO., INC.
<PAGE>
By: ______________________________________
Elisabeth B. Robert, President and CEO
ACKNOWLEDGED AND AGREED TO:
______________________________
Robert D. Delsandro
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE MARCH 31, 1998 BALANCE SHEET
AND THE NINE MONTH STATEMENT OF OPERATIONS ENDED
MARCH 31, 1998 FOR THE VERMONT TEDDY BEAR CO., INC.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,872,224
<SECURITIES> 0
<RECEIVABLES> 25,110
<ALLOWANCES> 0
<INVENTORY> 2,847,428
<CURRENT-ASSETS> 5,451,961
<PP&E> 12,124,666
<DEPRECIATION> 3,087,268
<TOTAL-ASSETS> 15,468,301
<CURRENT-LIABILITIES> 3,919,919
<BONDS> 6,626,781
0
910,245
<COMMON> 259,299
<OTHER-SE> 3,901,561
<TOTAL-LIABILITY-AND-EQUITY> 15,468,301
<SALES> 12,814,044
<TOTAL-REVENUES> 12,814,044
<CGS> 5,481,824
<TOTAL-COSTS> 5,481,824
<OTHER-EXPENSES> 8,249,603
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 458,791
<INCOME-PRETAX> (1,376,174)
<INCOME-TAX> 0
<PAGE>
<INCOME-CONTINUING> (1,433,757)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,433,757)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
