<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-24048
GEERLINGS & WADE, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2935863
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
960 Turnpike Street, Canton, MA 02021
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (781) 821-4152
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date:
Par Value Date Number of Shares
--------- ---- ----------------
Common Stock $ .01 May 14, 1999 3,846,550
<PAGE>
GEERLINGS & WADE, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C> <C>
Balance Sheets as of December 31, 1998 and
March 31, 1999 (Unaudited)............................................ 2
Statements of Operations for the Quarters Ended March 31, 1998 and
March 31, 1999 (Unaudited)............................................ 3
Statements of Cash Flows for the Three Months Ended March 31, 1998 and
March 31, 1999 (Unaudited)............................................ 4
Notes to Financial Statements......................................... 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations......................................................... 6
PART II. OTHER INFORMATION
Item 4. Submissions of Matters to a Vote of Stockholders...................... 10
Item 6. Exhibits and Reports on Form 8-K...................................... 10
SIGNATURES ........................................................................................ 11
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GEERLINGS & WADE, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
--------------------------- ---------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,289,646 $ 3,297,216
Accounts receivable 610,382 863,949
Inventory 8,213,801 10,321,055
Prepaid mailing costs 1,357,950 1,196,286
Prepaid expenses and other assets 833,376 684,474
Deferred income taxes 87,119 87,119
----------- -----------
Total Current Assets 15,392,274 16,450,099
----------- -----------
PROPERTY AND EQUIPMENT, AT COST 2,514,299 2,790,664
Less--Accumulated Depreciation 1,646,580 1,748,417
----------- -----------
867,719 1,042,247
----------- -----------
DEFERRED INCOME TAXES, NET 493,436 493,436
----------- -----------
OTHER ASSETS 451,799 415,288
----------- -----------
$17,205,228 $18,401,070
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ --- $ ---
Accounts payable 3,401,392 5,112,581
Current portion of deferred revenue 1,089,659 989,280
Accrued expenses 924,561 321,004
----------- -----------
Total Current Liabilities 5,415,612 6,422,865
----------- -----------
DEFERRED REVENUE, LESS CURRENT PORTION 384,940 592,834
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value -
Authorized-1,000,000 shares
Outstanding-none --- ---
Common stock, $.01 par value-
Authorized-10,000,000 shares-
Issued and outstanding-3,789,495 and
3,846,550 shares in 1998 and 1999, respectively 37,895 38,466
Additional paid-in capital 9,759,371 10,021,823
Retained earnings 1,607,410 1,325,082
----------- -----------
Total Stockholders' Equity 11,404,676 11,385,371
----------- -----------
$17,205,228 $18,401,070
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
GEERLINGS & WADE, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 31, March 31,
1998 1999
--------------------- ----------------------
<S> <C> <C>
Sales $7,391,066 $8,529,923
Cost of Sales 3,930,623 4,427,900
---------- ----------
Gross Profit 3,460,443 4,102,023
Selling, general and administrative expenses 3,299,012 4,603,760
---------- ----------
Income (loss) from operations 161,431 (501,737)
Interest income 118 15,010
Interest expense 20,574 ---
---------- ----------
Income (loss) before income taxes 140,975 (486,727)
Provision (benefit) for income taxes 57,000 (204,400)
---------- ----------
Net income (loss) $ 83,975 $ (282,327)
========== ==========
Net income (loss) per share
Basic $0.02 $(0.07)
========== ==========
Diluted $0.02 $(0.07)
========== ==========
Weighted average common and common equivalent shares
outstanding
Basic 3,782,932 3,827,979
========== ==========
Diluted 3,800,644 3,827,979
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
GEERLINGS & WADE, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 31, March 31,
1998 1999
-------------------------- -----------------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 83,975 $ (282,327)
Adjustments to reconcile net income (loss) to net cash used in
operating activities --
Depreciation and amortization 125,404 113,925
Changes in current assets and liabilities --
Accounts receivable 313,397 (253,567)
Inventory 674,944 (2,107,254)
Prepaid mailing costs 369,278 161,665
Prepaid expenses 72,239 160,761
Accounts payable (35,532) 1,711,189
Deferred revenue 909 107,516
Accrued expenses (718,121) (603,557)
----------- -----------
Net cash (used in) provided by operating activities 886,493 (991,649)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (7,962) (276,364)
Receipts from a return of fixed assets 63,333 ---
Change in other assets --- 12,560
----------- -----------
Net cash provided by (used in) investing activities 55,371 (263,804)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit 1,651,090 ---
Repayments on line of credit (2,633,485) ---
Proceeds from stock award plans 13,931 263,023
----------- -----------
Net cash provided by (used in) financing activities (968,464) 263,023
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (26,600) (992,430)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 358,043 4,289,646
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 331,443 $ 3,297,216
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period -
Income Taxes $ 403,850 $ 260,500
=========== ===========
Interest $ 20,574 $ ---
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
Notes to Financial Statements
1. Basis of Presentation
---------------------
The interim period information set forth in these financial statements is
unaudited and may be subject to normal year-end adjustments. In the opinion of
management, the information reflects all adjustments, which consist of normal
recurring accruals that are considered necessary to present a fair statement of
the results of operations of Geerlings & Wade, Inc. (the "Company") for the
interim periods presented. The operating results for the quarter ended March
31, 1999 are not necessarily indicative of the results to be expected for the
fiscal year ending December 31, 1999.
The financial statements presented herein should be read in conjunction with the
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998. Certain information in these footnote
disclosures normally included in financial statements has been condensed or
omitted in accordance with the rules and regulations of the Securities and
Exchange Commission.
2. Basic and Diluted Net Income (Loss) Per Common Share
----------------------------------------------------
The Company applies the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Share that Statement establishes standards for
computing and presenting earnings per share. For the quarters ending March 31,
1998 and March 31, 1999, 248,828 and 325,001 of anti-dilutive shares,
respectively, have been excluded from the weighted average number of common and
dilutive potential common shares outstanding.
Basic and diluted net income (loss) per share is as follows:
<TABLE>
<CAPTION>
Quarter Ended March 31,
1998 1999
-------------------- -------------------
<S> <C> <C>
Net income (loss) $ 83,975 $ (282,327)
========== ==========
Basic weighted average shares outstanding 3,782,932 3,827,979
Weighted average common equivalent shares computed
under the treasury stock method 17,712 ---
---------- ----------
Diluted weighted average shares outstanding 3,800,644 3,827,979
========== ==========
Basic net income (loss) per share $ 0.02 $ (0.07)
========== ==========
Diluted net income (loss) per share $ 0.02 $ (0.07)
========== ==========
</TABLE>
3. Comprehensive Income
---------------------
SFAS No. 130, Comprehensive Income, requires that all items recognized under
accounting standards as components of comprehensive income be reported in
financial statements. It also requires that an entity classify items of other
comprehensive income (e.g., foreign currency translation adjustments and
unrealized gains and losses on certain marketable securities) by their nature in
its financial statements. The Company did not have any items of comprehensive
income for the quarters ended March 31, 1998 and March 31, 1999, and therefore,
total comprehensive income was the same as reported net income for those
periods.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Geerlings & Wade, Inc. (the "Company") is a direct marketer of premium
wines and wine-related merchandise to retail consumers. The Company currently
maintains licensed facilities in fifteen states. Federal, state and local laws
strictly govern the sale of wine in each market served by the Company.
Important Factors Regarding Forward-Looking Statements
The Company may occasionally make forward-looking statements and estimates
such as forecasts and projections of the Company's future performance or
statements of management's plans and objectives. These forward-looking
statements may be contained in SEC filings, press releases and oral statements,
among others, made by the Company. Actual results could differ materially from
those in such forward-looking statements. Therefore, no assurance can be given
that the results in such forward-looking statements will be achieved. Important
factors could cause the Company's actual results to differ from those contained
in such forward-looking statements, including, among other things, the factors
mentioned in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 on file with the U.S. Securities and Exchange Commission.
Quarters Ended March 31, 1998 and March 31, 1999
Sales
Sales increased $1,139,000, or 15.4%, from $7,391,000 in the quarter ended
March 31, 1998 to $8,530,000 in the quarter ended March 31, 1999. Sales levels
largely depend on response rates and circulation (number) of "house mailings"
which are product offerings sent via the U.S. Postal Service to existing
customers and of "acquisition mailings" which are product offerings sent via the
U.S. Postal Service to potential new customers. Catalog, retail and Internet
sales also contribute to total sales. The increase in sales resulted from
mailing an accessories only catalog with a circulation of 310,000 and a wine and
accessories catalog with a circulation of 329,000, adding Passport Wine Club
which was acquired in July 1998, and new sales from www.geerwade.com which was
----------------
launched in May 1998. About 70% of the Internet sales come from existing
customers. Sales from house mailings, acquisition mailings, and special letters
to preferred customers generated comparable sales to the sales from these types
of promotions mailed in the first quarter of 1998. Sales, exclusive of wine
accessory sales, increased 10.1% in markets, defined by the shipping region of
each warehouse, in which the Company has been open at least one year. The
number of twelve-bottle equivalent cases ("cases"), exclusive of Bordeaux future
sales, sold by the Company increased by 11,786, or 17.1%, from 68,875 in the
quarter ended March 31, 1998 to 80,661 in the quarter ended March 31, 1999. The
average case price, exclusive of Bordeaux future sales, decreased by $1.53, or
1.5%, from $102.81 in the quarter ended March 31, 1998 to $101.28 in the quarter
ended March 31, 1999. The average case price decreased principally as a result
of sales from acquisition mailings, which feature lower cost wines. The average
number of cases purchased per customer order was 1.07 in the quarter ended March
31, 1999 compared to 1.10 in the same fiscal period of 1998. This decrease
resulted primarily from continuity sales made by Passport Wine. These
continuity orders include 2, 4 or 6 bottles per shipment as compared to the
Company's 6-bottle minimum for other types of orders.
Gross Profit
Gross profit increased $642,000, or 18.6%, from $3,460,000 in the quarter
ended March 31, 1998 to $4,102,000 in the quarter ended March 31, 1999. Gross
profit as a percentage of sales increased from 46.8% in the quarter ended March
31, 1998 to 48.1% in the quarter ended March 31, 1999. Gross profit
attributable to wine sales increased $2.71 per case, or 5.6%, from $48.29 per
case in the quarter ended March 31, 1998 to $51.00 per case in the quarter ended
March 31, 1999. The increase in gross margin percentage and average gross
profit resulted primarily from improved purchasing by the Company and lower
domestic wine costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $1,305,000, or
39.6%, from $3,299,000 in the quarter ended March 31, 1998 to $4,604,000 in the
quarter ended March 31, 1999 and increased as a percentage of sales from 44.6%
in the quarter ended March 31, 1998 to 54.0% in the quarter ended March 31,
1999. The net increase in selling, general and administrative expenses is
largely attributable to higher marketing costs due to mailing 639,000 catalogs
(no catalogs were mailed in the quarter ended March 31, 1998) and additional
2,241,000 acquisition mailing pieces. Also, overhead expense was higher
resulting from operating new facilities including Passport Wine Club, the
Newbury Street store, the Texas retail facility and the Internet operations.
6
<PAGE>
Interest
Interest income increased from $118 in the quarter ended March 31, 1998 to
$15,000 in the quarter ended March 31, 1999. This increase in interest income
was due to having higher cash balances invested during the first quarter of 1999
as compared to the first quarter of 1998. There was no interest expense for the
first quarter of 1999 and $21,000 of interest for the first quarter of 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Provision for Income Taxes
The Company's provision (benefit) for income taxes for the quarter ended
March 31, 1999 reflects an approximate 42.0% effective income tax rate
anticipated for the full year ended December 31, 1999. During the quarter
ended March 31, 1999, the Company recorded a benefit for income taxes of
$204,000.
Liquidity and Capital Resources
The Company's primary working capital needs include purchases of inventory
and the cost of acquisition mailings and other expenses associated with
promoting sales. As of March 31, 1999, the Company had cash and cash
equivalents totaling $3,297,000. In addition, the Company has a credit facility
with BankBoston comprised of a revolving, discretionary, demand line of credit
in the maximum principal amount equal to the lesser of 50% of qualifying
inventory or $5.0 million (the "Line of Credit"). The Line of Credit bears
interest at BankBoston's base rate (which approximates the prime rate) plus one-
half of a percent and is collateralized by substantially all of the assets of
the Company. As of March 31, 1999, the Company had no outstanding balance under
the Line of Credit.
For the year to date ending March 31, 1999, net cash of $992,000 was used
by operating activities, resulting principally from increase in inventory and
accounts receivable and a decrease in accrued expenses, which reductions were
offset by an increase in accounts payable and a decrease in prepaid mailings
costs and prepaid expense.
The Company invested $277,000 in computer hardware and software for the
Company in general and in equipment and furniture for the Texas retail facility.
At December 31, 1998 and March 31, 1999, the Company had working capital of
$9,977,000 and $10,027,000, respectively. The increase in working capital was
primarily due to a decrease in accounts receivable and inventory and a decrease
in accrued expenses and was offset by a decrease in accounts payable.
The Company presently believes that cash flows from operations and current
cash balances, together with the Line of Credit, will be sufficient to meet the
Company's working capital and capital expenditure requirements for the
foreseeable future.
Exchange Rates
The Company engages, from time to time, in currency-hedging activities
related to firm commitments for the purchase of inventories in an effort to fix
costs and manage the impact of exchange rate fluctuations. The Company has two
foreign exchange lines of credit, which allow the Company to enter into forward
currency exchange contracts of up to $1,000,000 maturing on any one day. As of
March 31, 1999, the Company had obligations of $727,000 with respect to forward
currency exchange contracts.
Year 2000 Compliance
Year 2000 Compliance. The year 2000 issue relates to computer programs and
systems that recognize dates using two digit year data rather than four digit
year data. As a result, such programs and systems may fail or provide incorrect
information when using dates after December 31, 1999. If the year 2000 issue
were to cause disruptions to the Company's internal information technology
systems or to the information technology systems of entities with whom the
Company has commercial relationships, material adverse effects to the Company's
operations could result.
The Company's internal computer programs and operating systems consist of
programs and systems relating to virtually all segments of the Company's
business, including merchandising, customer database management and marketing,
order-processing, fulfillment, inventory management, customer service and
financial reporting. These programs and systems are primarily comprised of:
7
<PAGE>
"Front-end" systems. These systems automate and manage business functions
such as order-taking and order-processing, inventory management,
fulfillment operations at the Company's retail facilities and financial
reporting. Users within the Company interface with these systems through
personal computers via a local area network and from distant locations
through a private network using the Internet. These users also use and
access through their personal computers off-the-shelf e-mail, word
processing, spreadsheet and other commercial software applications.
Customer database management systems. These systems facilitate the storage
of customer data and direct response and catalog mailings for the Company.
Currently, the Company's internal customer database management system is
integrated with the existing front-end system of the Company.
Telecommunications systems. These systems enable the Company to manage
their order-taking and customer service functions.
Voicemail systems. These systems are used for receiving and storing
messages to employees at various Company facilities.
Ancillary services systems. These include such systems as heating,
ventilation and air conditioning control systems and security systems.
The Company has completed detailed reviews of its internal front-end
systems, its customer database management systems, and its personal computers
and local area networks, to assess the potential impact of the year 2000 issue.
These reviews were completed by the Company's existing workforce at no
identifiable incremental cost. Based upon these reviews, the Company believes
that all of these systems and equipment will operate correctly after minor
software patches are installed when processing data that include dates after
December 31, 1999 except for its front-end processing system. The Company
believes that minor remediation or expenditures are required to ensure continued
proper operation of such systems and equipment other than the front-end
processing system. The Company has purchased a replacement software system for
front-end processing and a new production database that are year 2000 compliant.
This system includes the Catman Catalog software that is developed and sold by
Axexxis Corporation and runs on the Universe data base that is sold by Ardent
Software, Inc. Both of these systems process dates based on a system that adds
or subtracts days from a starting date, which is time zero. Therefore, the
system does not rely on years stored as either 2 or 4 digit number such as "99"
or "1999" and, as represented to the Company, will not fail to function when
January 1, 2000 arrives. The Company has also purchased a new server for this
software which the vendor represents is Year 2000 compliant. In addition to
addressing the year 2000 issue, this new software and hardware system will
enhance the functionality and capability of the Company's entire computer
system. The Company plans to conduct further reviews and tests of its systems
and equipment to insure that all potential year 2000 issues have been addressed.
The approximate cost to purchase this new system, including any necessary
hardware, and to program the new Websites planned for the Company will be
between $800,000 and $1,000,000.
The Company has not yet completed reviews of its internal
telecommunications systems and its internal voicemail and ancillary services
systems. Based on its preliminary reviews, the Company has been advised by its
telephone system vendor that a $3,000 software update can be purchased to bring
the Company's telephone system into compliance. The Company intends to purchase
such software. The Company does not anticipate that upon further reviews that
any remediation relating to such other systems that might be necessary will
cause the Company to incur material costs or present implementation challenges
that cannot be addressed prior to the end of calendar year 1999. The Company
expects to complete its reviews of these systems in the first half of calendar
year 1999.
The computer programs and operating systems used by entities with whom the
Company has commercial relationships also pose potential problems relating to
the year 2000 issue, which may affect the Company's operations in a variety of
ways. These risks are more difficult to assess than those posed by internal
programs and systems, and the Company has not yet completed a plan for assessing
them. The Company believes that the programs and operating systems used by
entities with which it has commercial relationships generally fall into two
categories:
First, the Company relies on programs and systems used by providers of
services necessary to it to reach and communicate with its customers. Examples
of such providers include the United States Postal Service, UPS, telephone
companies, customer list processors and rental agencies, printers and banks.
Services provided by such entities affect almost all facets of the Company's
operations, including processing of orders, printing and mailing of direct
response mail and catalogs, shipping of goods and certain financial services
(e.g., credit card processing). Programs and services in this first category
generally are not specific to the Company's business and disruptions in their
availability would likely have a
8
<PAGE>
negative impact on most enterprises within the direct marketing industry and on
many enterprises outside the direct marketing industry. The Company believes
that all of the most reasonably likely worst case scenarios involving
disruptions to its operations stemming from the year 2000 issue relate to
programs and systems in this first category. The Company intends to include an
evaluation of such scenarios in its plan for assessing the programs and systems
of the entities with which it has commercial relationships.
Second, the Company relies on programs and systems used by a variety of
vendors of the products it markets (in 1998, the Company purchased goods from
many vendors). In the case of risks posed by the year 2000 issue relating to
programs and systems in this second category that are used by product vendors,
such risks are minimal and correctable since these vendors are relatively small
companies and generally rely on off-the-shelf software programs and hardware.
The Company intends to include in its plan for assessing the programs and
systems of the entities with whom it has commercial relationships the
solicitation of assurances of year 2000 compliance from each vendor that is
significant to the Company.
The Company expects to complete its plan for assessing the programs and
systems of the entities with whom it has commercial relationships by the end of
May 1999 and the identification of related risks and uncertainties by the end of
the second quarter of fiscal 1999. Once such identification has been completed,
the Company intends to resolve any material risks and uncertainties that are
identified by communicating further with the relevant vendors, by working
internally to identify alternative sourcing and by formulating contingency plans
to deal with such matters. The Company expects the resolution of such matters
to continue until all year 2000 problems are resolved satisfactorily.
Item 3: Quantitative and Qualitative Disclosure about Market Risk
The following discussion about the Company's market risk disclosures
involves forward-looking statements. Actual results could differ materially
from those projected in the forward-looking statements. The Company is exposed
to market risk related to foreign currency exchange rates. The Company does not
use derivative financial instruments for speculative or trading purposes. The
Company enters into foreign exchange forward contracts to reduce its exposure to
currency fluctuations on vendor accounts payable denominated in foreign
currencies. The objective of these contracts is to neutralize the impact of
foreign currency exchange rate movements on the Company's operating results.
The gains and losses on these contracts are included in earnings when the
underlying foreign currency denominated transaction is recognized. Gains and
losses related to these instruments for the quarters ended March 31, 1999 and
1998 were not material to the Company. Looking forward, the Company does not
anticipate any material adverse effect on its financial position, results of
operations or cash flows resulting from the use of these instruments. However,
there can be no assurance that these strategies will be effective or that
transaction losses can be minimized or forecasted accurately.
9
<PAGE>
PART II. OTHER INFORMATION
Item 4. SUBMISSIONS OF MATTERS TO A VOTE OF STOCKHOLDERS
(a) The Company held its annual meeting on May 11, 1999.
(b) At the annual meeting, stockholders elected Messrs. James C. Curvey and Mr.
Phillip D. Wade as a director. Messrs. Gordon R. Cooke, Huib E. Geerlings,
John M. Connors, Jr. and Robert Webb and Jay L. Essa continued serving
their terms of office after the annual meeting.
(c) Results of annual meeting votes:
<TABLE>
<CAPTION>
Proposal For Against Withheld Abstentions Broker Non-votes
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
To elect as director James C. Curvey 3,429,799 130,912
- ----------------------------------------------------------------------------------------------------
To elect as director Phillip D. Wade 3,430,849 129,862
- ----------------------------------------------------------------------------------------------------
To approve an increase of 150,000 3,340,498 217,313 2,900
shares reserved for issuance under
the Company's Stock Option Plan and
to approve an increase to 250,000 as
the number of options which may be
granted to an individual employee
under the Company's Stock Option Plan
- ----------------------------------------------------------------------------------------------------
To ratify the appointment of Arthur 3,550,019 9,072 1,620
Andersen LLP as independent auditors
of the Company
- ----------------------------------------------------------------------------------------------------
</TABLE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.39 Severance Agreement dated April 2, 1999 between the Company and
Jay L. Essa
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended March 31,
1999.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GEERLINGS & WADE, INC.
(Registrant)
By: /s/ Jay L. Essa
----------------------------
Name: Jay L. Essa
Title: President and Chief Executive Officer
By: /s/ David R. Pearce
----------------------------
Name: David R. Pearce
Title: Vice President and Chief Financial
Officer
Dated: May 14, 1999
11
<PAGE>
EXHIBIT 10.39
Severance Agreement
-------------------
This Agreement, dated as of April 2, 1999, is between Geerlings & Wade,
Inc., a Massachusetts corporation (the "Company") and Jay L. Essa (the
"Executive").
Whereas, effective on September 9, 1996, the Executive and the Company
entered into a letter agreement (the "Employment Agreement") pursuant to which
the Executive agreed to serve as the Company's President and Chief Executive
Officer. The Employment Agreement provides for a base salary of $200,000 and is
terminable at will at the option of the Company or the Executive.
Whereas, the Executive is currently the President and Chief Executive
Officer of the Company.
Whereas, the Company has agreed to provide the Executive with a severance
arrangement in consideration to the Executive's acceptance not to compete with
the business of the Company for a period of one year after the termination of
his employment with the Company.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
promises and conditions set forth in this Agreement, the parties hereby agree:
1. Termination of Employment. If the Executive's employment is terminated by
-------------------------
the Company for any reason other than for Cause, the Executive shall receive a
severance payment of $200,000 for a period of 12 months following the date of
termination (the "Severance Period") payable in equal monthly installments,
provided, however, that if the Executive obtains employment of any kind during
- -------- -------
the Severance Period, the amount payable to the Executive under this Section 1
shall be reduced by 50% of the total of W-2 income received or deferred by the
Executive with respect to the Severance Period from such other employment,
provided, further, that the amount payable to Executive under this Section shall
- -------- -------
not be reduced to less than $100,000.
The following as determined by the Board of Directors of the Company, shall
constitute Cause for termination:
i. Material breach by the Executive of any provision of this Agreement;
or
ii. Other conduct by the Executive that is materially harmful to the
business, interests or reputation of the Company;
<PAGE>
2. Non-Competition
---------------
During the Executive's employment and for a period of twelve months after
his employment terminates, the Executive agrees that he shall not, directly or
indirectly, whether as an employee, consultant, agent, partner, owner, investor
or otherwise, compete with the Company or engage in any manner in any activity
that involves the retail sale of wine or wine accessories via the mails or the
Internet.
3. Non-Disclosure and Non-Use of Confidential Information.
------------------------------------------------------
The Executive agrees that he shall not disclose (except as required by law
or in connection with the performance of his duties and responsibilities to the
Company), or use for his own benefit or gain, any confidential information that
is not generally known by others with whom the Company does, or plans to,
compete or do business ("Confidential Information"). Confidential Information
includes without limitation such information relating to (i) the development,
research, testing, manufacturing and marketing activities of the Company, (ii)
all the products researched, developed, planned, tested, manufactured, sold,
licensed, leased or otherwise distributed or put into use by the Company,
together with all services provided or planned by the Company during the term of
Executive's employment, (iii) the costs, sources of supply and strategic plans
of the Company, (iv) the identity and special needs of the customers of the
Company, and (v) people and organizations with whom the Company has business
relationship and those relationships. Confidential Information also includes
comparable information that the Company may receive or has received belonging to
customers or others who do business with the Company.
4. Withholding.
-----------
All payments made by the Company under this Agreement shall be reduced by
any tax or other amounts required to be withheld by the Company under applicable
law.
5. Entire Agreement.
----------------
This Agreement constitutes the entire agreement between the parties and
supersedes any prior communications, agreements and understandings, written or
oral, with respect to the terms and conditions of Executive's severance
arrangement.
6. Amendment.
---------
This Agreement may be amended or modified only by a written instrument
signed by Executive and by a duly authorized representative of the Company.
<PAGE>
7. Governing Law.
-------------
This contract shall be construed and enforced under and be governed in all
respects by the laws of the Commonwealth of Massachusetts without regard to the
conflict of laws principles thereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
a binding contract as of the date first above written.
Executive:
/s/ Jay L. Essa
--------------------------------
Jay L. Essa
GEERLINGS & WADE, INC.:
By: /s/ Huib Geerlings
-----------------------------
Title: Chairman
-------------------------
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<PAGE>
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<PERIOD-START> JAN-01-1999
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0
0
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