<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 12, 1998
REGISTRATION NO. 333-37303
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
FTD CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<C> <C> <C>
DELAWARE 7389 13-3711271
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
3113 WOODCREEK DRIVE
DOWNERS GROVE, ILLINOIS 60515
(630) 719-7800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-------------------------
SCOTT D. LEVIN, ESQ.
FTD CORPORATION
3113 WOODCREEK DRIVE
DOWNERS GROVE, ILLINOIS 60515
(630) 719-7800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
-------------------------
COPIES OF ALL COMMUNICATIONS TO:
MARC WEINGARTEN, ESQ.
SCHULTE ROTH & ZABEL LLP
900 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 756-2000
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after the Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
FTD CORPORATION
---------------------
CROSS REFERENCE SHEET
PURSUANT TO RULE 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-1 ITEM NO. AND CAPTION LOCATION IN PROSPECTUS
----------------------------- ----------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus............................ Facing Page; Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front Cover Page; Outside Back
Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Outside Front Cover Page; Prospectus
Summary; Risk Factors; Selected Historical
Financial Data
4. Use of Proceeds..................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price..................... Outside Front Cover Page; The Offering
6. Dilution............................................ Dilution
7. Selling Security Holders............................ Not Applicable
8. Plan of Distribution................................ Outside Front Cover Page; The Offering
9. Description of Securities to be Registered.......... Outside Front Cover Page; Prospectus
Summary; Description of Capital Stock
10. Interests of Named Experts and Counsel.............. Legal Matters; Experts
11. Information with Respect to the Registrant.......... Outside Front Cover Page; Prospectus
Summary; Risk Factors; Dividend Policy;
Selected Historical Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Security
Ownership of Certain Beneficial Owners and
Management; Relationship with Affiliates;
Description of Capital Stock; Description
of Bank Credit Agreement
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable
</TABLE>
<PAGE> 3
PROSPECTUS SUBJECT TO COMPLETION
JANUARY , 1998
1,146,078 SHARES
FTD CORPORATION
CLASS A COMMON STOCK
------------------------
FTD Corporation ("FTD" or the "Company") hereby offers (the "Offering") in
the United States up to 1,146,078 shares (the "Shares") of Class A Common Stock,
par value $.01 per share (the "Class A Common Stock"), at a price of $[ ] per
Share (the "Offering Price"), for sale solely to certain members of FTD
Association (as defined). The Shares are being offered hereunder to satisfy
certain obligations of FTD contained in the Mutual Support Agreement (as
defined). The Shares offered hereby will be subject to certain restrictions on
transfer. See "THE OFFERING -- Restrictions on Transfer of Shares; Optional
Redemption." The subscription period for the Offering will terminate at 5:00
P.M., New York City time, on , 1998, unless extended at FTD's discretion for up
to an additional 60-day period (the "Offering Termination Date").
All subscriptions are irrevocable. No minimum aggregate number of Shares
must be subscribed for in order for the Offering to close. If at the Offering
Termination Date less than all of the Shares offered shall have been subscribed
for, subscriptions that have been accepted by FTD shall remain effective, and
the Offering shall terminate with respect to the unsubscribed Shares to the
extent such shares are not re-allocated among participating members as provided
herein. See "THE OFFERING -- Members' Allocations."
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS PRIOR TO MAKING A DECISION TO PURCHASE
SHARES.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE
------------------------
<TABLE>
<CAPTION>
==============================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) FTD(2)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................. $ None $
- --------------------------------------------------------------------------------------------------------------
Total................................. $ None $
==============================================================================================================
</TABLE>
(1) There will be no underwriters. The Shares will be offered for sale solely to
certain FTD Association members directly by FTD.
(2) There is no firm commitment for the sale of the Shares offered hereunder.
However, assuming the sale of all of the Shares for cash, the total proceeds
will be as shown above. FTD will also pay estimated expenses of
approximately $ .
------------------------
The date of this Prospectus is January , 1998.
<PAGE> 4
AVAILABLE INFORMATION
FTD has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Shares being offered by this Prospectus. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto, certain portions of which have been
omitted pursuant to the rules and regulations of the Commission. Statements made
in this Prospectus as to the contents of any contract, agreement or other
document are not necessarily complete. With respect to each such contract,
agreement or other document filed or incorporated by reference as an exhibit to
the Registration Statement, reference is made to such exhibit for a more
complete description of the matter involved, and each such statement is
qualified in its entirety by such reference.
FTD is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and in accordance therewith files
reports and other information with the Commission. Such reports and other
information filed by FTD with the Commission may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be available
for inspection and copying at the regional offices of the Commission located at
7 World Trade Center, New York, New York 10048 and at 500 West Madison Street
(Suite 1400), Chicago, Illinois 60661. Copies of such material may also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains a Website that contains reports, proxy and information statements and
other information regarding registrants such as FTD that file electronically
with the Commission. The address of the Commission's Website is
http://www.sec.gov.
FTD will continue to be subject to the informational requirements of the
Exchange Act for so long as the Class A Common Stock continues to be held by at
least 300 holders of record. For so long as FTD is subject to the Exchange Act,
it will provide an annual report to stockholders and such other reports as may
be required by the Exchange Act to be provided to stockholders. If the Company
ceases to be subject to the Exchange Act, the Company will no longer be required
to file with the Commission annual reports containing consolidated financial
statements audited by its independent certified public accountants or quarterly
reports containing unaudited consolidated financial statements for each of the
first three quarters of each fiscal year, and the Company does not intend to
distribute such reports to its stockholders.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements of FTD, including the
notes thereto, appearing elsewhere in this Prospectus. Unless otherwise stated
in this Prospectus, references to the "Company" or "FTD" include FTD Corporation
and its wholly-owned subsidiary, Florists' Transworld Delivery, Inc., a Michigan
corporation (the "Operating Company"). This Offering is being made solely to
certain members of FTD Association, an Ohio non-profit corporation, pursuant to
the Mutual Support Agreement, dated December 18, 1994, between the Operating
Company (as successor to Florists' Transworld Delivery Association, a Michigan
non-profit cooperative association (the "Old Association")) and FTD Association,
as amended (the "Mutual Support Agreement"). All references in this Prospectus
to "members" refer to the members of FTD Association. See "BUSINESS -- The
Acquisition and Relationship with FTD Association." Except where specifically
stated otherwise, all information contained in this Prospectus relating to the
Common Stock, including the Summary Historical and Pro Forma Financial Data, and
Selected Financial Data, has been adjusted to reflect a 2 for 1 stock split
effected in the form of a stock dividend (the "Stock Split"), which occured in
January 1998, prior to the consummation of this Offering and assumes that (i)
all of the Shares offered hereby are sold and (ii) no shares of Class B Common
Stock are converted. See "USE OF PROCEEDS." References in this Prospectus to
fiscal years are to FTD's fiscal years ending on June 30. Certain capitalized
terms used and not defined in this summary shall have the meanings given to them
elsewhere in this Prospectus.
FTD
FTD is the world's largest floral services organization based on number of
members and affiliated organizations. All of the operations of FTD are conducted
through the Operating Company, the successor to a non-profit cooperative
organization founded by a group of retail florists in the United States in 1910.
FTD Association has a membership of approximately 21,000 retail florist shops
primarily in the U.S. and Canada and, through affiliated or related
organizations, approximately 32,000 additional retail florist shops in
approximately 140 other countries. Through these members FTD offers consumers
expedited delivery of high-quality FTD-branded products in the U.S. and Canada
and non-branded floral products throughout most of the world.
FTD's principal executive offices are located at 3113 Woodcreek Drive,
Downers Grove, Illinois 60515, and its telephone number is (630) 719-7800.
Except for certain trade association activities which are being conducted
by FTD Association, FTD, through the Operating Company, operates all of the
businesses conducted by the Old Association prior to the acquisition (the
"Acquisition") by FTD on December 19, 1994, of all of the outstanding equity of
the Old Association pursuant to an Agreement and Plan of Merger, dated August 2,
1994 (the "Merger Agreement"), among FTD, FTD Association and the Old
Association. Neither FTD nor the Operating Company has any ownership interest in
FTD Association; however, as provided in the Merger Agreement, the Operating
Company and FTD Association have entered into the Mutual Support Agreement,
which governs the relationship between the Operating Company and FTD
Association.
FTD promotes a worldwide brand based on the FTD Mercury Man logo, one of
the most recognized corporate logos in the world according to consumer
recognition studies performed by Landor Associates, recognized identity
consultants. See "BUSINESS -- Marketing and Advertising." A significant portion
of FTD's revenues, operating income and competitive advantage is derived from
FTD's technology-based transaction processing businesses, which include the
Mercury Network, Clearinghouse, Advantage Software and Direct Access
(1-800-SEND-FTD). In addition to the foregoing, FTD's operations include
Marketplace and other businesses which support and enhance FTD florists' retail
floral operations. See "BUSINESS -- Operations." The main businesses of FTD are
the following:
Marketplace. FTD's Marketplace is one of the largest wholesale suppliers of
hardgoods to retail florists in the U.S. based on total sales. Marketplace
products include both FTD-branded and non-branded holiday and
3
<PAGE> 6
everyday floral arrangement containers and products, as well as packaging,
promotional products and a wide variety of other floral-related supplies. By
capitalizing on FTD's sourcing expertise and volume purchases, Marketplace is
able to provide FTD florists with a broad selection of products at attractive
prices.
Marketplace also enters into promotional partnerships to design, promote
and sell FTD-branded products. To date, FTD has participated in partnerships
with companies such as Gerber Products Company, Mars, Inc. and Disney
Enterprises, Inc. For example, collectible containers featuring Winnie the Pooh
and his friends have been developed for friendship, new baby, Christmas,
Valentine's Day and Easter floral arrangements. M&M's have been included in the
Sweet Surprise floral arrangement since 1993. The Company believes that FTD's
large retail network and brand recognition make it a valuable corporate partner
for such ventures.
Clearinghouse. FTD's Clearinghouse provides billing and collection services
to both the florist with whom the customer places a delivery order (the "Sending
Florist") and the florist that fills the order locally in flowers-by-wire
transactions (the "Receiving Florist"). In fiscal 1997, FTD cleared floral
orders aggregating in excess of $492 million in retail sales. Revenue from FTD's
Clearinghouse is generated by FTD retaining 7% of the sales price of orders sent
through Clearinghouse. The remaining 93% is allocated as follows: 20% to the
Sending Florist and 73% to the Receiving Florist.
FTD is a joint venture participant in Interflora, Inc., a floral services
organization with non-FTD member florists, which enables florists to transmit
and receive orders outside the Americas.
Mercury Network. FTD's Mercury Network is one of the largest proprietary
telecommunications networks in the world, based on the total number of
participating retail outlets, linking together FTD and approximately 16,400 of
the 21,000 FTD florists. FTD's on-line florists may use the Mercury Network to
transmit orders cleared through FTD or through competing clearinghouses and to
send messages. In fiscal 1997, the Mercury Network transmitted approximately
14.5 million orders among U.S. and Canadian florists.
Direct Access. FTD's Direct Access business offers retail customers the
opportunity to place orders directly with FTD by dialing a toll free number
(1-800-SEND-FTD), through online services such as Compuserve or through FTD
Florists' Online Internet site (www.ftd.com). Revenue from the Direct Access
business is generated by FTD's receipt of a percentage of the sales price as the
Sending Florist and a service charge from the consumer.
Other Businesses. FTD has developed several other businesses to support and
enhance FTD florists' retail floral operations, including greeting cards,
Advantage Software for florists' operations, publications, and credit card
authorization and processing services.
4
<PAGE> 7
THE OFFERING
COMMON STOCK OFFERED.......... Up to 1,146,078 shares of Class A Common Stock,
par value $.01 per share, of FTD are being
offered in the United States solely to Active
Members of FTD Association (defined in the
Articles of Incorporation of FTD Association as
an FTD Association member that is an
individual, partnership, firm or corporation of
good reputation engaged in the retail floral
business) ("Active Members"). Completion of the
Offering is not conditioned upon the sale of
any minimum number of Shares and consequently
the Company is unable to estimate the proceeds,
if any, to be received from the Offering.
Assuming all of the Shares are sold, the
proceeds to the Company will be approximately
$[ ] million. The Company will pay
expenses of approximately $[ ] in
connection with the Offering. The Offering is
being made to satisfy certain obligations of
the Company under the Mutual Support Agreement.
See "BUSINESS -- The Acquisition and
Relationship with FTD Association."
COMMON STOCK OUTSTANDING
AFTER THE OFFERING.......... 13,427,128 shares of Class A Common Stock
3,000,000 shares of Class B Common Stock
TOTAL SHARES OUTSTANDING...... 16,427,128 total shares of Common Stock*
COMMON STOCK.................. Except with respect to voting rights, the Class
A Common Stock and Class B Common Stock, par
value $.0005 per share (the "Class B Common
Stock" and collectively with the Class A Common
Stock, the "Common Stock") are substantially
identical. Each share of Class A Common Stock
is entitled to one vote, while, except as may
be required by law, shares of Class B Common
Stock are non-voting. The Class A Common Stock
and Class B Common Stock will be entitled to
share ratably, as a single class, in any
dividends declared by the Company on the Common
Stock. The Class B Common Stock was issued in
connection with the Acquisition to the Fleet
Funds to satisfy certain restrictions on stock
ownership applicable to bank holding companies
and also was issued upon exercise of the
Warrants (as defined). See "DESCRIPTION OF
CAPITAL STOCK."
OFFERING TERMINATION.......... The Offering will terminate at 5:00 P.M., New
York City time, on [ ], 1998, unless
extended, at FTD's discretion, for up to an
additional 60-day period (the "Offering
Termination Date").
NO MINIMUM NUMBER OF
SHARES REQUIRED TO BE
SOLD........................ The Shares are being offered by FTD pursuant to
the Mutual Support Agreement. Completion of the
sale of the Shares pursuant to the Offering is
not conditioned upon the sale of any minimum
number of Shares. Therefore, if at the Offering
Termination Date less than all of the Shares
offered shall have been subscribed for pursuant
to subscription agreements ("Subscription
Agreements") accepted by FTD, subscriptions
that have been accepted by FTD
- ---------------
* Assumes all Shares are sold and excludes 434,000 shares of Class A Common
Stock issuable upon exercise of options outstanding under the Company's 1994
Stock Award and Incentive Plan. See "DESCRIPTION OF CAPITAL STOCK."
5
<PAGE> 8
shall remain effective, and the Offering shall
terminate with respect to the unsubscribed
Shares to the extent such unsubscribed shares
are not re-allocated among Participating
Members as provided herein. See "RISK FACTORS"
and "THE OFFERING." ALL SUBSCRIPTIONS WILL BE
IRREVOCABLE BY THE PURCHASER WHEN A COMPLETED
SUBSCRIPTION AGREEMENT IS RECEIVED BY FTD.
NOTICE OF COMMENCEMENT OF THE
OFFERING; PARTICIPATING
MEMBERS..................... Each Active Member in the United States
received a notice of the commencement of the
Offering (the "Notice") advising Active Members
who wish to consider purchasing Shares in the
Offering (each a "Participating Member") to
contact FTD to receive a copy of this
Prospectus and the subscription materials. By
contacting FTD and requesting a copy of this
Prospectus and the subscription materials,
Active Members became eligible to subscribe for
Shares.
PARTICIPATING MEMBERS'
ALLOCATIONS................... Active Members will be allocated a number of
Shares for which they may subscribe.
Participating Members who wish to purchase
Shares must subscribe to purchase at least the
lesser of (i) 25 Shares or (ii) their entire
specified allocation. To the extent that a
Participating Member does not subscribe for
such minimum amount, such member will no longer
have any right to participate in the Offering.
FTD may, in its sole discretion, elect to
reoffer any or all Unsubscribed Shares to
Participating Members using the same factors as
were used for the Initial Allocation.
Participating Members may indicate in the
Subscription Agreement that they would like to
purchase additional Shares, if available.
PROCEDURES FOR SUBSCRIBING
FOR SHARES.................. Each Participating Member will receive a copy
of this Prospectus and subscription materials
from FTD which will set forth their allocation
and provide instructions for purchasing Shares.
Participating Members who elect to purchase
Shares must complete, sign and deliver the
Subscription Agreement included in the
subscription materials to FTD before 5:00 P.M.,
New York City time, on the Offering Termination
Date.
Anyone with questions or needing assistance
concerning the procedures for purchasing Shares
should call FTD at (630) 719-7800 and ask to
speak to a representative about the FTD Member
Offering.
PAYMENT OF PURCHASE PRICE..... Participating Members that elect to purchase
Shares will be billed for the purchase price of
the Shares through FTD's Clearinghouse system.
Any Participating Member who fails to pay any
portion of its bill for the purchase price by
[ ], 1998, unless extended at FTD's
discretion for up to an additional 60-day
period (the "Final Payment Date"), will not be
entitled to purchase Shares, and the
Subscription Agreement executed by such
Participating Member will automatically
terminate and the billing for the purchase
price of the Shares will be reversed.
USE OF PROCEEDS............... The cash proceeds from the Offering will be
used to defray expenses of the Offering,
estimated to be approximately $[ ], and
for working capital needs and general corporate
6
<PAGE> 9
purposes of the Operating Company. See "USE OF
PROCEEDS."
RESTRICTIONS ON TRANSFER...... Prior to the earlier of (i) three years from
the closing of the Offering or (ii) 180 days
after the consummation of an Initial Public
Offering (as defined) (the "Restriction
Period"), the Shares will be subject to certain
restrictions on transfer. During this period,
Shares may not be transferred by Participating
Members, other than to (1) family members or
affiliates (as such term is defined in Rule
12b-2 promulgated under the Exchange Act) of
such Participating Member (collectively,
"Permitted Transferees") or (2) subject to the
Company's right of first refusal to purchase
such Shares, other Active Members of FTD
Association in good standing. Such Permitted
Transferees are not permitted to make any
further transfer of the Shares, except to such
Participating Member or the Company. See "THE
OFFERING -- Restrictions on Transfer of Shares;
Optional Redemption."
OPTIONAL REDEMPTION........... If any Participating Member ceases to be an
Active Member of FTD Association, FTD will have
the irrevocable option during the Restriction
Period of redeeming any Shares held by such
Participating Member or any family member or
affiliate of such Participating Member to whom
such Participating Member transferred Shares at
the greater of (i) the Fair Market Value (as
defined) of the Shares and (ii) the Offering
Price. See "THE OFFERING -- Restrictions on
Transfer of Shares; Optional Redemption."
RISK FACTORS.................. See "RISK FACTORS" for a discussion of certain
factors that should be considered by
prospective investors prior to making a
decision to purchase Shares in the Offering.
7
<PAGE> 10
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical data of the Old
Association for the fiscal years ended June 30, 1993 and 1994 and the period
from July 1, 1994 to December 18, 1994, and of FTD for the period December 19,
1994 to June 30, 1995 and the fiscal years ended June 30, 1996 and 1997 and the
three month periods ended September 30, 1996 and 1997. The selected historical
balance sheet and statement of operations data as of and for the fiscal years
ended June 30, 1993 and 1994 were derived from the audited consolidated
financial statements of the Old Association. The Acquisition was consummated on
December 19, 1994. The selected historical statement of operations data for the
period from December 19, 1994 to June 30, 1995, for the years ended June 30,
1996 and 1997, and the balance sheet data as of June 30, 1995, 1996 and 1997
were derived from the audited consolidated financial statements of FTD. The
selected historical statement of operations data for each of the three month
periods ended September 30, 1996 and 1997 and the balance sheet data as of
September 30, 1996 and 1997 were derived from unaudited consolidated financial
statements of FTD and have been prepared on the same basis as the audited
financial statements included herein. In the opinion of management, such
unaudited financial statements include all adjustments necessary to present
fairly the information set forth therein, which consists solely of normal
recurring adjustments. The results of operations for the three month period
ended September 30, 1997 are not necessarily indicative of results of operations
for the full year. The information contained in this table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements for the
years ended June 30, 1995, 1996 and 1997 and the three month periods ended
September 30, 1996 and 1997, of FTD, including the notes thereto, appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
CONSOLIDATED FTD CORPORATION
--------------------------------------------------------------------------
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------------- DECEMBER 19,
YEAR ENDED YEAR ENDED 1994 THROUGH
ACTUAL AS ADJUSTED JUNE 30, JUNE 30, JUNE 30,
1997 1997(7) 1996 1997 1996 1995
------ ----------- ---- ---------- ---------- ------------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.......... $ 35,487 $ 35,487 $ 37,068 $162,583 $166,255 $ 96,518
Cost of goods sold and
services provided.... 22,038 22,038 23,353 96,306 104,386 58,567
Selling, general and
administrative....... 10,136 10,136 11,312 55,769 58,376 30,669
-------- -------- -------- -------- -------- --------
Income (loss) from
operations........... 3,313 3,313 2,403 10,508 3,493 7,282
Other expense,
net(1)............... 2,676 2,676 2,938 11,839 12,067 5,827
Income taxes
(benefit)(2)......... 458 458 24 416 (1,813) 1,021
Minority interest(3)... (1) (1) (11) (14) (33) 8
Cumulative effect of
accounting
change(4)............ -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net income (loss)...... $ 180 $ 180 $ (548) $ (1,733) $ (6,728) $ 426
======== ======== ======== ======== ======== ========
Earnings(loss) per
share(5)
Primary.............. $ .01 $ .01 $ (.04) $ (.12) $ (.51) $ .03
Fully Diluted........ $ .01 $ .01 $ (.04) $ (.12) $ (.51) $ .03
OTHER DATA:
Depreciation and
amortization....... $ 3,333 $ 3,333 $ 3,575 $ 15,606 $ 14,231 $ 6,525
Capital
expenditures....... 402 402 1,386 2,614 4,950 3,082
Ratio of earnings to
fixed charges(6)... 1.2x 1.2x -- -- -- 1.2x
BALANCE SHEET DATA:
(at end of period)
Working capital...... $ 7,073 $ 14,573
Total assets......... 177,116 184,616
Long-term debt,
including current
portion............ 80,260 80,260
Total equity......... $ 27,267 $ 34,767
<CAPTION>
OLD ASSOCIATION
----------------------------------
JULY 1 YEAR ENDED
THROUGH JUNE 30,
DECEMBER 18, -------------------
1994 1994 1993
------------ ---- ----
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
Total revenue.......... $75,333 $166,560 $169,195
Cost of goods sold and
services provided.... 49,109 102,260 103,622
Selling, general and
administrative....... 28,684 57,625 61,073
------- -------- --------
Income (loss) from
operations........... (2,460) 6,675 4,500
Other expense,
net(1)............... 77 795 1,178
Income taxes
(benefit)(2)......... 35 92 42
Minority interest(3)... -- -- --
Cumulative effect of
accounting
change(4)............ -- 6,277 --
------- -------- --------
Net income (loss)...... $(2,572) $ (489) $ 3,280
======= ======== ========
Earnings(loss) per
share(5)
Primary..............
Fully Diluted........
OTHER DATA:
Depreciation and
amortization....... $ 4,911 $ 10,144 $ 9,043
Capital
expenditures....... 1,413 8,134 18,200
Ratio of earnings to
fixed charges(6)... -- 2.9x 2.0x
BALANCE SHEET DATA:
(at end of period)
Working capital......
Total assets.........
Long-term debt,
including current
portion............
Total equity.........
</TABLE>
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<PAGE> 11
- -------------------------
(1) Interest expense in fiscal 1993 is also net of $185 of interest capitalized
as construction in progress.
(2) Taxes on income for the fiscal years ended June 30, 1993 and 1994 and the
period July 1 through December 18, 1994 are generally applicable to the Old
Association's Canadian operations. During these periods, the Old Association
conducted substantially all of its business activities as a member-owned
non-profit cooperative association and, accordingly, no provision for U.S.
income taxes was required. Taxes on income for the period December 19, 1994
through June 30, 1995 and for the fiscal years ended June 30, 1996 and 1997
and for the three month periods ended September 30, 1996 and 1997, represent
operations after conversion from a cooperative association to a for-profit
corporation, which resulted in a provision for U.S. income tax liabilities
to be recorded.
(3) Represents FTD's interest in Renaissance Greeting Cards, Inc.
("Renaissance").
(4) Effective July 1, 1993, the Old Association and its consolidated
subsidiaries adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Post-Retirement Benefits Other Than Pensions,"
for its unfunded post-retirement health care program. See note 8 to the
consolidated financial statements of FTD.
(5) Earnings (loss) per share has been calculated after giving effect to the
Stock Split. The Old Association was a member-owned non-profit cooperative
association and, accordingly, no stock was issued.
(6) In calculating the ratio of earnings to fixed charges, earnings consist of
net income prior to income taxes, minority interest and cumulative effect of
accounting change, plus fixed charges. Fixed charges consist of interest
expense and the component of rental expense believed by management to be
representative of the interest factor thereon. Earnings for the period July
1 through December 18, 1994 were insufficient to cover fixed charges by
$2,537. Earnings for the years ended June 30, 1996 and 1997 and the three
month period ended September 30, 1996, were insufficient to cover fixed
charges by $8,574, $1,331 and $535, respectively.
(7) Adjusted to give effect to this Offering, assuming all Shares are sold for
cash.
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<PAGE> 12
RISK FACTORS
Prospective investors should consider carefully the following factors as
well as the other information set forth in this Prospectus prior to making a
decision to purchase Shares in the Offering.
ABSENCE OF MARKET VALUE IN DETERMINING OFFERING PRICE
No established public trading market exists for the Class A Common Stock,
and accordingly, the Offering Price for the Shares has not been set based on any
market price of the Class A Common Stock or pursuant to arms' length negotiation
with any third party. Rather, the Offering Price has been determined by the
Board of Directors of FTD after giving consideration to many complex factors,
including the historical operations and prospects of the Company, competitive
conditions in the floral industry and general economic conditions. No assurance
can be given that the Offering Price is equal to the fair value of the Shares.
See "THE OFFERING -- Determination of Offering Price."
RESTRICTIONS ON TRANSFER; REDEMPTION; ABSENCE OF PUBLIC MARKET
The transfer of the Shares will be restricted until the earlier of (i)
three years from the closing of the Offering or (ii) 180 days after the
consummation of an Initial Public Offering. Until such time, the Shares can be
transferred only to Permitted Transferees of the Participating Member (who are
not permitted to further transfer the Shares except to such Participating Member
or the Company) or, subject to FTD's right of first refusal, to another Active
Member of FTD Association in good standing. In addition, if any Participating
Member ceases to be an Active Member of FTD Association, FTD will have the
option of redeeming any Shares held by such Participating Member or any
Permitted Transferee of such Participating Member to whom such Participating
Members transferred such Shares at the greater of (i) the Fair Market Value (as
defined) of the Shares as determined in the good faith discretion of an officer
of the Company and (ii) the Offering Price. See "THE OFFERING -- Restrictions on
Transfer of Shares; Optional Redemption." The Class A Common Stock is not
currently listed for trading on any securities exchange, and there can be no
assurance that a trading market for the Class A Common Stock will ever exist.
NO MINIMUM NUMBER OF SHARES REQUIRED TO BE SOLD
The Shares are being offered by FTD to satisfy its obligations pursuant to
the Mutual Support Agreement. Completion of the sale of the Shares pursuant to
the Offering is not conditioned upon the sale of any minimum number of Shares.
All subscriptions will be irrevocable by subscribers when received by FTD. Those
Shares subscribed for under subscriptions accepted by FTD as of the Offering
Termination Date will constitute the Shares sold in the Offering.
RECENT NET OPERATING LOSSES
The Company's revenue decreased approximately 2.2% for fiscal 1997 and
decreased approximately 3.3% for fiscal 1996 compared to the prior fiscal years.
The Company reported net losses of approximately $1.7 million and $6.7 million
in fiscal 1997 and 1996, respectively. The net loss in fiscal 1997 was partially
attributable to certain non-recurring expenses of $4.5 million related to FTD's
facility consolidation efforts including the writeoff of the trained workforce
intangible asset. Due to seasonal variations in the Company's business, as well
as the timing of expenditures, the net income for the three months ended
September 30, 1997 of $0.2 million versus a net loss of $0.5 million reported
for the same period in fiscal 1997 is not necessarily indicative of the results
of operations for the full year. Operating results for 1996 were negatively
impacted by increases in interest expense and the amortization of goodwill and
other intangible assets which were related to the Acquisition. There can be no
assurance that the Company will have net earnings in the future.
SUBSTANTIAL LEVERAGE; NEGATIVE TANGIBLE STOCKHOLDERS' EQUITY
FTD has consolidated indebtedness that is substantial in relation to its
stockholders' equity. As of September 30, 1997, FTD had $80.3 million principal
amount of long-term debt (including current portion of $9.3 million), $27.3
million of equity and a tangible net deficit (equity reduced by the amount of
goodwill and
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<PAGE> 13
other intangible assets) of approximately $50.2 million. As of September 30,
1997, assuming the sale of all Shares in the Offering, the equity will be
$[ ] ($ per Share) and the tangible net deficit will be $[ ]
($ per Share).
The significant indebtedness has several important consequences for
purchasers of Shares including but not limited to the following: (i) a
substantial portion of FTD's cash flow from operations must be dedicated to debt
service and will not be available for other purposes; (ii) FTD's flexibility to
obtain additional financing in the future for working capital, capital
expenditures or acquisitions or to refinance indebtedness may be significantly
impaired; and (iii) FTD's substantial leverage may make it more vulnerable to
economic downturns and limit its ability to withstand competitive pressures or
take advantage of business opportunities.
FTD's ability to satisfy its debt service obligations depends on its future
operating performance, which will be affected by prevailing economic conditions
and financial, business and other factors, certain of which are beyond FTD's
control. If FTD is unable to service its indebtedness, it will be forced to
adopt an alternative strategy that may include actions such as reducing or
delaying capital expenditures, selling assets, restructuring or refinancing its
indebtedness or seeking additional equity capital. There can be no assurance
that any of these strategies could be effected on satisfactory terms, if at all.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
CONTINUED APPLICABILITY OF CONSENT ORDER
The Operating Company is subject to certain operating restrictions pursuant
to the Modified Final Judgment, dated November 13, 1990, of the United States
District Court for the Eastern District of Michigan in United States of America
v. Florists' Telegraph Delivery Association, Civ. No. 56-15748, and United
States of America v. Florists' Transworld Delivery Association, Civ. No.
66-28784 (collectively referred to as the "Consent Order"). Among its terms, the
Consent Order prohibits restricting FTD Association membership to florists who
are not subscribers to a competing clearinghouse. The Consent Order expires on
August 1, 2005.
COMPETITION; CONTINUED DECLINE IN SHARE OF U.S. CLEARING BUSINESS
Management estimates, based on data provided by the American Floral
Endowment, an industry research organization, that FTD's share of the U.S.
clearing business (as measured by the percentage of total transactions cleared)
has declined from 54.0% in 1994 to approximately 40.0% in 1996. Management
believes that the decline in FTD's share has been due to competition from other
clearinghouses. FTD expects a continuing decrease in the number of floral orders
cleared by FTD, which it expects, based on historical trends, to be partially
offset by a continued increase in the average dollar amount per floral order
cleared. If the decline in the number of floral orders cleared is more severe
than the Company expects and/or the increase in the average dollar value per
transaction cleared is not realized, such decline could have a material adverse
effect on FTD's financial condition, results of operations and liquidity. See
"BUSINESS -- Competition."
FTD faces significant competition in its businesses. In particular, based
on FTD's Dual Member Study for 1996, over 80% of FTD's members subscribe to
competing clearinghouses, and competition to provide clearinghouse services is
intense. In addition, FTD's members may use the Mercury Network to transmit
orders to be cleared through competing clearinghouses.
RELIANCE ON THE RETAIL FLORIST INDUSTRY; DECLINE IN RETAIL FLORIST SALES
The operating and financial success of FTD's business has been and is
expected to continue to be dependent on the financial performance of the retail
florist industry. Management estimates, based on data provided by various
industry publications, that retail floriculture industry revenues (excluding
floral hardgoods) increased from $5.9 billion to $15.0 billion from 1983 through
1996. Retail florists are now second to mass merchants as a distribution channel
in the floral industry in the United States. This is primarily due to the growth
of non-traditional channels of distribution such as the mass merchandisers,
supermarkets, 1-800 numbers, on-line computer sales, mail order catalogs, home
shopping networks and audiotex telephone
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<PAGE> 14
shopping. From 1983 to 1996 the share of floral sales attributable to retail
florists declined from 63% to approximately 35%. There can be no assurance that
the retail florist industry will not continue to lose market share to other
floral distribution channels, nor that retail florist revenues and
flowers-by-wire transactions will not decline in absolute terms. A sustained
decline in the sales volume of the retail florist industry could have a material
adverse effect on FTD.
SEASONALITY
FTD generated 22.8%, 25.6%, 29.2% and 22.4% of total revenue in the
quarters ended September 30, December 31, March 31 and June 30 of fiscal 1997,
respectively. FTD's revenue typically exhibits a modest degree of seasonality as
demonstrated in fiscal 1997. FTD's operating income also fluctuates over the
course of the fiscal year, with FTD generating slightly more of its operating
income in the fiscal quarters ending September 30 and March 31. This fluctuation
is primarily attributable to (i) increased advertising and promotional
expenditures during the holiday seasons in the fiscal quarters ending December
31 and June 30 and (ii) a Clearinghouse volume incentive program, which
experiences higher expenses as a result of increased volume during these holiday
seasons. FTD's working capital, cash and short-term borrowings also fluctuate
during the year as a result of the factors set forth above.
CONTROLLING STOCKHOLDERS
The principal stockholders of FTD Corporation are Perry Acquisition
Partners L.P. ("Perry Partners"), a group of five investment funds (the "Bain
Funds") controlled by Bain Capital, Inc. ("Bain"), and three investment funds
(the "Fleet Funds"), two of which are controlled by Fleet Financial Group, Inc.
("FFG"), and one of which is controlled by an affiliate of an FFG subsidiary
(referred to collectively herein as the "Principal Stockholders").
Perry Partners owns approximately 49.06% of the Common Stock, representing
approximately 61.12% of the total voting power. Following the consummation of
the Offering, Perry Partners will own approximately 45.62% of the Common Stock,
representing approximately 55.87% of the total voting power (assuming all of the
Shares are sold and no shares of Class B Common Stock are converted). By virtue
of such stock ownership and the terms of the Stockholders' Agreement (as
defined), Perry Partners has the power to control, subject to certain
exceptions, matters submitted to stockholders and to elect a majority of the
directors of FTD. The Bain Funds own in the aggregate approximately 17.62% of
the Common Stock, representing approximately 21.96% of the total voting power.
Following the consummation of the Offering, the Bain Funds will own, in the
aggregate, approximately 16.39%, of the Common Stock, representing approximately
20.07% of the total voting power (assuming all of the Shares are sold and no
shares of Class B Common Stock are converted). By virtue of the Stockholders'
Agreement, the consent of the Bain Funds is needed with respect to certain
actions submitted to the Board of Directors or stockholders of FTD, and the Bain
Funds have the right to have three of their designees nominated as directors of
FTD Corporation. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT" and "DESCRIPTION OF CAPITAL STOCK -- Stockholders' Agreement."
FTD Corporation currently has 3,000,000 shares of Class B Common Stock
outstanding, all of which are non-voting. The Fleet Funds own 23.29% of the
outstanding Class B Common Stock. Under certain circumstances the Class B Common
Stock may be converted to Class A Common Stock at a rate of one share of Class A
Common Stock for each share of Class B Common Stock tendered and such conversion
could decrease the proportionate voting power of the other stockholders.
Additionally, the Board of Directors of the Company is authorized to issue one
or more series of preferred stock. The issuance of such preferred stock could
adversely effect the voting power of the Class A Common Stock and could, under
certain circumstances, have the effect of preventing a change in control of the
Company. See "DESCRIPTION OF CAPITAL STOCK."
The Company has entered into a Management Consulting Services Agreement
with certain parties related to each of the Principal Stockholders to provide
financial advisory services to the Company. Pursuant to the Management
Consulting Services Agreement, the Principal Stockholders received $1.0 million
for each
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<PAGE> 15
of the years ended June 30, 1997 and 1996, and for the period December 19, 1994
through June 1995. See "RELATIONSHIP WITH AFFILIATES."
THE ACQUISITION AND RELATIONSHIP WITH FTD ASSOCIATION
Pursuant to the terms of the Mutual Support Agreement between the Operating
Company and FTD Association, FTD's ability to change its operations is
restricted in certain ways. See "BUSINESS -- The Acquisition and Relationship
with FTD Association."
RESTRICTIONS ON FTD'S OPERATIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Operating Company's credit agreement with its principal lenders (the
"Bank Credit Agreement") restricts the ability of FTD and its subsidiaries,
including the Operating Company, to, among other things, incur additional
indebtedness, consummate certain asset sales, incur liens, pay dividends or make
certain other restricted payments or investments, enter into certain
transactions with affiliates, merge or consolidate with any other person or
convey, lease, sell, transfer or otherwise dispose of all or substantially all
of its business or property, modify the material terms of its constituent
documents and engage in unrelated businesses. The Bank Credit Agreement also
imposes limitations on FTD's ability to restrict the ability of its subsidiaries
to pay dividends or make certain payments to FTD or any of its other
subsidiaries. In addition, the Indenture with respect to the Operating Company's
$60,000,000 principal amount 14% Series B Senior Subordinated Notes due 2001
(the "Notes") imposes similar restrictions on the Operating Company.
The Bank Credit Agreement also requires FTD and its consolidated
subsidiaries to maintain specified financial ratios and satisfy certain
financial tests. FTD's ability to meet such financial ratios and tests may be
affected by events beyond its control, and there can be no assurance that FTD
will meet such tests. A breach of any of these covenants could result in an
event of default under the Bank Credit Agreement. If an event of default under
the Bank Credit Agreement occurs, the lenders could elect to declare all amounts
borrowed under the Bank Credit Agreement, together with accrued interest, to be
immediately due and payable and to terminate all commitments under the revolving
credit facility under the Bank Credit Agreement. If the Operating Company (or
FTD pursuant to its guaranty of such payments) were unable to repay all amounts
declared due and payable, the lenders could proceed against the collateral
granted to them to satisfy the indebtedness and other obligations due and
payable. Substantially all of the assets of FTD and its subsidiaries are pledged
as security under the Bank Credit Agreement. If the Bank Credit Agreement
indebtedness were to be accelerated, there can be no assurance that the assets
of the Operating Company would be sufficient to repay in full such indebtedness
and the other indebtedness of FTD and the Operating Company, which, upon a
liquidation of the Company, are required to be paid in full before any
distribution on the Common Stock could be made. See "DESCRIPTION OF BANK CREDIT
AGREEMENT."
RESTRICTIONS ON DIVIDENDS
The Company is currently prohibited from paying cash dividends on its
Common Stock, including the Class A Common Stock, by covenants contained in
certain of the Company's financing arrangements. See "DIVIDEND POLICY."
DILUTION
If all Shares offered hereby are sold, there will be a net tangible deficit
per share of $[ ]. This a difference of $[ ] from the Offering Price
of $[ ] per share. See "DILUTION."
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<PAGE> 16
THE OFFERING
GENERAL
FTD is offering in the United States to Active Members (defined in the
Articles of Incorporation of FTD Association as an FTD Association member that
is an individual, partnership, firm or corporation of good reputation engaged in
the retail floral business) of FTD Association, who may legally purchase Shares
in the respective state in which they reside, up to 1,146,078 Shares at a price
of $[ ] per Share.
Active Members may legally purchase Shares if all required action has been
taken to register or qualify the Shares under the blue sky or state securities
laws of the state in which such member resides. The Company has made application
in all states to have the Shares registered or qualified for sale in such state;
however, there can be no assurance that such registration or qualification will
be obtained in each state. In order to purchase Shares in the Offering, an
Active Member must subscribe for Shares in accordance with the procedures
described below and the instructions contained in the subscription materials
accompanying this Prospectus. In certain states the Offering is being
facilitated through a registered broker in order to comply with applicable state
securities laws.
The Offering is being conducted by FTD pursuant to the Mutual Support
Agreement. Completion of the sale of the Shares pursuant to the Offering is not
conditioned upon the sale of any minimum number of Shares. If at the Offering
Termination Date less than all of the Shares have been subscribed for,
subscriptions that have been accepted by FTD will remain effective, and the
Offering shall terminate with respect to the unsubscribed Shares.
DETERMINATION OF OFFERING PRICE
The Offering Price has been determined by the Board of Directors of FTD
after giving consideration to many complex factors, including the historical
operations and prospects of the Company, competitive conditions in the floral
industry and general economic conditions. Although many factors have been
considered, the specific Offering Price of the Shares does not have any direct
relationship to the assets, earnings, book value or other measurable criteria of
the Company. FTD has obtained an opinion of an investment banking firm that the
Offering Price does not exceed the fair market value of the Shares. However, no
assurance can be given that the Offering Price is equal to or exceeds the fair
value of the Shares.
PLAN OF DISTRIBUTION
The Company is offering and selling the Shares without the assistance of
any underwriter. Instead, in order to satisfy the broker/dealer or agent
registration requirements of the federal and state securities laws for an issuer
or an employee of the issuer, except as otherwise noted hereafter, the Offering
will be made through Bear Stearns & Co., a registered broker/dealer in all
jurisdictions. In certain jurisdictions, officers of FTD will be used to offer
shares. In such cases, such persons will comply with the provisions of Exchange
Act Rule 3a4-1.
NOTICE OF COMMENCEMENT OF THE OFFERING
Each Active Member in the United States received a Notice advising it to
contact FTD in order to receive a copy of this Prospectus and the subscription
materials if the Active Member wished to purchase shares in the Offering. By
contacting FTD and requesting a copy of this Prospectus and the subscription
materials, Active Members became eligible to subscribe for Shares.
MEMBERS' ALLOCATIONS
Each Active Member who contacted FTD to receive a copy of this Prospectus
was allocated a number of Shares for which it may subscribe (the "Initial
Allocation"). The subscription materials set out the Participating Member's
Initial Allocation and the aggregate purchase price of such Shares (the
"Purchase Price"). FTD determined each Participating Member's Initial Allocation
on a fair and equitable basis as determined solely by the Company in accordance
with the Mutual Support Agreement, and such allocation
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<PAGE> 17
will be based in part upon the amount of business such Participating Member
conducts through FTD including, without limitation, the dollar amount of
Marketplace purchases and the value of a Member's orders cleared through FTD.
Additionally, the Company may, in its sole discretion, reoffer any or all
Unsubscribed Shares to Participating Members using the same factors as were used
for the Initial Allocation.
SUBSCRIPTION PROCEDURES
The Offering will terminate at 5:00 P.M., New York City time, on
[ ], 199 , unless extended at FTD's discretion for up to an
additional 60-day period. Participating Members may subscribe for Shares by
properly completing and signing a Subscription Agreement and delivering the
Subscription Agreement to the address set forth below prior to 5:00 P.M., New
York City time, on the Offering Termination Date. The instructions accompanying
the Subscription Agreement should be read carefully and followed in detail.
COMPLETED SUBSCRIPTION AGREEMENTS SHOULD BE SENT BY MAIL, OVERNIGHT DELIVERY OR
HAND DELIVERY TO:
AMERICAN STOCK TRANSFER & TRUST COMPANY
40 WALL STREET, 46TH FLOOR
NEW YORK, NEW YORK 10005
ATTN: FTD MEMBER OFFERING
Participating Members who wish to purchase Shares must subscribe for and
purchase at least the lesser of (i) 25 Shares or (ii) all of their Initial
Allocation, or they will not be entitled to purchase any Shares. To the extent
that any Participating Member does not return a properly completed Subscription
Agreement and comply with the procedures set forth therein with respect to its
allocation ("Unsubscribed Shares"), such member will no longer have any right to
participate in the Offering. FTD may elect, in its sole discretion, to reoffer
any or all Unsubscribed Shares to Participating Members using the same factors
as were used for the Initial Allocation. Participating Members who wish to
purchase Unsubscribed Shares in addition to their Initial Allocation should
indicate the maximum number of Shares they would be willing to purchase in the
appropriate space provided in the Subscription Agreement. FTD will notify each
Participating Member of the total number of Unsubscribed Shares allotted to them
and the aggregate Purchase Price following the Offering Termination Date.
THE METHOD OF DELIVERY OF THE SUBSCRIPTION AGREEMENT TO AMERICAN STOCK
TRANSFER & TRUST COMPANY ("AMERICAN STOCK TRANSFER"), FTD'S AGENT, WILL BE AT
THE ELECTION AND RISK OF EACH PARTICIPATING MEMBER. IF SENT BY MAIL, FTD
RECOMMENDS THAT COMPLETED SUBSCRIPTION AGREEMENTS BE SENT BY REGISTERED MAIL,
WITH RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE PROVIDED
FOR TO ENSURE DELIVERY OF THE SUBSCRIPTION AGREEMENT TO AMERICAN STOCK TRANSFER
PRIOR TO THE OFFERING TERMINATION DATE.
SUBSCRIPTION AGREEMENTS RECEIVED BY AMERICAN STOCK TRANSFER FROM
PARTICIPATING MEMBERS MAY NOT BE REVOKED.
RESTRICTIONS ON TRANSFER OF SHARES; OPTIONAL REDEMPTION
Shares sold to Participating Members in the Offering will be subject to
certain restrictions on transfer during the Restriction Period, which terminates
on the earlier of (i) three years from the closing of the Offering or (ii) 180
days after the consummation of an Initial Public Offering (as defined below).
During the Restriction Period, Shares may not be transferred by Participating
Members, other than to (1) Permitted Transferees, which include family members
or affiliates (as such term is defined in Rule 12b-2 promulgated under the
Exchange Act, summarized below) of such Participating Member or (2) subject to
the Company's right of first refusal, other Active Members of FTD Association in
good standing. Such Permitted Transferees are not permitted to make any further
transfer of the Shares, except to such Participating Member or the Company.
FTD's right of first refusal gives FTD an irrevocable option for 30 days after
it receives written notice from a Participating Member that such Participating
Member wishes to transfer his Shares, to purchase the Shares at the price
proposed to be paid by the purchaser. If FTD elects not to purchase the Shares,
the sale of the Shares must be consummated at the price proposed by the
purchaser within 20 days after FTD's option lapses.
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<PAGE> 18
Rule 12b-2 defines an affiliate of a person to mean a person that directly
or indirectly through one or more intermediaries, controls, or is controlled by,
or is under common control with, the person specified. For purposes of the
transfer restrictions on the Shares, "Initial Public Offering" means the sale of
Class A Common Stock to the public in an offering pursuant to an effective
registration statement filed with the Commission under the Securities Act that
results in an active trading market in the Class A Common Stock (such an active
trading market shall be deemed to exist if, among other things, the Class A
Common Stock is listed on a national securities exchange or on the Nasdaq Stock
Market-National Market System); provided that an Initial Public Offering does
not include an offering made in connection with a business acquisition or
combination or an employee benefit plan or an offering of securities by FTD
solely to members of FTD Association made pursuant to the Mutual Support
Agreement.
The certificates representing the Shares will contain a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
SUBSCRIPTION AGREEMENT BETWEEN FTD CORPORATION (THE "COMPANY") AND THE ORIGINAL
HOLDER OF THIS SECURITY, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT
IN ACCORDANCE WITH THE PROVISIONS OF SUCH SUBSCRIPTION AGREEMENT. THE HOLDER OF
THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL
OF THE PROVISIONS OF SUCH SUBSCRIPTION AGREEMENT, INCLUDING RESTRICTIONS
RELATING TO THE TRANSFER OF SECURITIES REPRESENTED HEREBY.
If any Participating Member ceases to be an Active Member of FTD
Association, FTD will have the irrevocable option during the Restriction Period
to redeem any Shares held by such Participating Member or any Permitted
Transferees of such Participating Member to whom such Shares have been
transferred at the greater of (i) the value of the Shares, determined in good
faith by an officer of the Company, in his sole discretion, based on the
earnings, book value and prospects of the Company in light of market conditions
generally ("Fair Market Value") or (ii) the Offering Price.
PAYMENT OF PURCHASE PRICE
Participating Members will be billed for the Purchase Price through FTD's
Clearinghouse system. Any Participating Member who fails to pay any portion of
its bill for the Purchase Price by the Final Payment Date will not be entitled
to purchase Shares, and such Participating Member's Subscription Agreement will
automatically terminate and the billing for the Purchase Price will be reversed.
DETERMINATIONS AS TO VALIDITY; INQUIRIES
All questions concerning the timeliness, validity, form and eligibility of
Subscription Agreements and payments received will be determined by FTD, in its
sole discretion, and such determinations will be final and binding. FTD, in its
sole discretion, may waive any defect or irregularity, or permit a defect or
irregularity to be corrected within such time as it may determine, or reject the
purported subscription for Shares. Subscription Agreements will not be deemed to
have been received or accepted until all irregularities have been waived or
cured within such time as FTD determines in its sole discretion. FTD will not be
under any duty to give notification of any defect or irregularity in connection
with the submission of Subscription Agreements or incur any liability for
failure to give such notification.
ANYONE WITH QUESTIONS OR REQUIRING ASSISTANCE CONCERNING THE PROCEDURES FOR
PURCHASING SHARES SHOULD CALL FTD AT (630) 719-7800 AND ASK TO SPEAK TO A
REPRESENTATIVE ABOUT THE FTD MEMBER OFFERING.
ISSUANCE OF CERTIFICATES REPRESENTING SHARES
Certificates representing Shares purchased pursuant to the Offering will be
delivered to purchasers as soon as practicable following the Final Payment Date.
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RIGHT TO AMEND OR TERMINATE THE OFFERING
FTD expressly reserves the right to amend the terms and conditions of the
Offering, whether the amended terms and conditions are more or less favorable to
Active Members or Participating Members. In the event of a material change in
the terms of the Offering, FTD will file a post-effective amendment to the
Registration Statement, of which this Prospectus is a part, and resolicit
subscribers to the extent required by the Commission. FTD expressly reserves the
right, at any time prior to delivery of Shares offered hereby, to terminate or
suspend the Offering, if the Offering is prohibited by law or regulation or the
Board of Directors concludes, in its sole judgment, that it is not in the best
interests of FTD to complete the Offering under the circumstances. If the
Offering is so terminated, all amounts debited from Participating Members'
accounts will be promptly credited to such accounts without interest.
USE OF PROCEEDS
The Offering is being made pursuant to the Mutual Support Agreement. See
"THE OFFERING." The estimated proceeds of approximately $[ ] million
(assuming all of the Shares are sold for cash) from the consummation of the
Offering will be used by the Company to defray the expenses of the Offering,
estimated to be approximately $[ ], and for working capital needs and
general corporate purposes of the Operating Company, including acquisitions.
However, there is currently no definitive agreement in effect nor is there any
existing plan, commitment or other understanding with respect to FTD's
acquisition of any company, and there is no probable acquisition pending of any
company whose acquisition would have a material effect on the consolidated
financial statements of FTD.
DIVIDEND POLICY
The Company has not paid dividends on its Common Stock since its inception
in March 1993. The Company is currently prohibited from paying cash dividends on
its Common Stock, including the Class A Common Stock, by covenants contained in
certain of the Company's financing arrangements. In the event the payment of
dividends is not prohibited in the future by such covenants, the decision
whether to pay dividends on the Common Stock will be determined by the Board of
Directors in light of the Company's earnings, cash flows, financial condition,
business prospects and other relevant factors. Holders of Class A and Class B
Common Stock will be entitled to share ratably, as a single class, in any
dividends paid on the Common Stock.
17
<PAGE> 20
DILUTION
The net tangible book value of the Company at [ ], 1998 was
$[ ] per share of Common Stock. Net tangible book value per share after
giving effect to the Offering represents the amount of total tangible assets of
the Company less the amount of total liabilities, divided by the number of
shares of Common Stock outstanding, after giving effect to the sale by the
Company of up to 1,146,078 shares of Class A Common Stock in the Offering at the
Offering price of $[ ] per share. "Dilution" per share is determined by
subtracting pro forma net tangible book value per share from the amount to be
paid for a share of Class A Common Stock in the Offering.
The following table illustrates the calculation of the per share dilution
described above:
<TABLE>
<CAPTION>
PRO FORMA AFTER
GIVING EFFECT
EXISTING TO THE OFFERING
STOCKHOLDERS ,1998
------------ ---------------
<S> <C> <C>
Offering Price per share.................................... $ $
Pro forma net tangible book value per share at ,
1998...................................................... $[ ] $[ ]
Net tangible book value dilution per share to new
Investors................................................. $ $
</TABLE>
The following table sets forth on a pro forma basis the distribution
between existing stockholders and new investors with respect to the number of
shares of Common Stock purchased from the Company, the total effective cash cost
and the average price per share paid to the Company.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATIONS
----------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ % $[ ] % $
New investors.................... $
---------
Total....................... 100.00% $ 100.00%
====== ========= ======
</TABLE>
18
<PAGE> 21
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical data of the Old
Association for the fiscal years ended June 30, 1993 and 1994 and the period
from July 1, 1994 to December 18, 1994, and of FTD for the period December 19,
1994 to June 30, 1995 and the fiscal years ended June 30, 1996 and 1997 and the
three month periods ended September 30, 1996 and 1997. The selected historical
balance sheet and statement of operations data as of and for the fiscal years
ended June 30, 1993 and 1994 were derived from the audited consolidated
financial statements of the Old Association. The Acquisition was consummated on
December 19, 1994. The selected historical statement of operations data for the
period from December 19, 1994 to June 30, 1995, for the years ended June 30,
1996 and 1997 and the balance sheet data as of June 30, 1995, 1996 and 1997
derived from the audited consolidated financial statements of FTD. The selected
historical statement of operations data for each of the three month periods
ended September 30, 1996 and 1997 and the balance sheet data as of September 30,
1996 and 1997 were derived from unaudited consolidated financial statements of
FTD and have been prepared on the same basis as the audited financial statements
included herein. In the opinion of management such unaudited financial
statements include all adjustments necessary to present fairly the information
set forth therein which consist solely of normal necessary adjustments. The
results of operations for the three month period ended September 30, 1997 are
not necessarily indicative of results of operations for the full year. The
information contained in this table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements for the years ended June
30, 1995, 1996 and 1997 and the three month periods ended September 30, 1996 and
1997, of FTD, including the notes thereto, appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
CONSOLIDATED FTD CORPORATION OLD ASSOCIATION
-------------------------------------------------------- ----------------------------------
THREE MONTHS ENDED DECEMBER 19, JULY 1
SEPTEMBER 30, YEAR ENDED JUNE 30, 1994 THROUGH THROUGH YEAR ENDED JUNE 30,
------------------- ------------------- JUNE 30, DECEMBER 18, -------------------
1997 1996 1997 1996 1995 1994 1994 1993
---- ---- ---- ---- ------------ ------------ ---- ----
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Marketplace............. $ 12,529 $ 13,639 $ 49,738 $ 57,924 $ 35,460 $ 28,556 $ 58,987 $ 63,606
Clearinghouse........... 6,777 6,627 34,383 37,070 24,738 16,093 42,386 44,717
Mercury Network......... 8,021 8,497 37,558 34,138 17,618 13,865 30,113 27,596
Other................... 8,160 8,305 40,904 37,123 18,702 16,818 35,074 33,276
-------- -------- -------- -------- -------- -------- -------- --------
Total revenue........... 35,487 37,068 162,583 166,255 96,518 75,333 166,560 169,195
Cost of goods sold and
services provided..... 22,038 23,353 96,306 104,386 58,567 49,109 102,260 103,622
Selling, general, and
administrative........ 10,136 11,312 55,769 58,376 30,669 28,684 57,625 61,073
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations............ 3,313 2,403 10,508 3,493 7,282 (2,460) 6,675 4,500
Other expense, net(1)... 2,676 2,938 11,839 12,067 5,827 77 795 1,178
Income taxes
(benefit)(2).......... 458 24 416 (1,813) 1,021 35 92 42
Minority interest(3).... (1) (11) (14) (33) 8 -- -- --
Cumulative effect of
accounting
change(4)............. -- -- -- -- -- -- 6,277 --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ 180 $ (548) $ (1,733) $ (6,728) $ 426 $ (2,572) $ (489) $ 3,280
======== ======== ======== ======== ======== ======== ======== ========
Earnings (loss) per
share(5)
Primary................. $ .01 $ (.04) $ (.12) $ (.51) $ .03
Fully Diluted........... $ .01 $ (.04) $ (.12) $ (.51) $ .03
OTHER DATA:
Depreciation and
amortization.......... $ 3,333 $ 3,575 $ 15,606 $ 14,231 $ 6,525 $ 4,911 $ 10,144 $ 9,043
Capital expenditures.... 402 1,386 2,614 4,950 3,082 1,413 8,134 18,200
Ratio of earnings to
fixed charges(6)...... 1.2x -- -- -- 1.2x -- 2.9x 2.0x
BALANCE SHEET DATA:
(at end of period)
Working capital......... $ 7,073 $ 2,388 $ 5,466 $ 2,718 $ 6,546 $ 16,918 $ 12,581
Total assets............ 177,116 198,109 181,724 196,082 203,864 135,506 125,816
Long-term debt,
including current
portion............... 80,260 94,852 82,400 96,277 100,757 33,463 33,746
Total equity............ $ 27,267 $ 28,570 $ 27,172 $ 29,140 $ 35,080 $ 36,216 $ 40,521
</TABLE>
19
<PAGE> 22
- -------------------------
(1) Interest expense in fiscal 1993 is also net of $185 of interest capitalized
as construction in progress.
(2) Taxes on income for the fiscal years ended June 30, 1993 and 1994 and the
period July 1 through December 18, 1994 are generally applicable to the Old
Association's Canadian operations. During these periods, the Old Association
conducted substantially all of its business activities as a member-owned
non-profit cooperative association and, accordingly, no provision for U.S.
income taxes was required. Taxes on income for the period December 19, 1994
through June 30, 1995 and for the fiscal years ended June 30, 1996 and 1997
and for the three month periods ended September 30, 1996 and 1997, represent
operations after conversion from a cooperative association to a for-profit
corporation, which resulted in a provision for U.S. income tax liabilities
to be recorded.
(3) Represents FTD's interest in Renaissance.
(4) Effective July 1, 1993, the Old Association and its consolidated
subsidiaries adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Post-Retirement Benefits Other Than Pensions,"
for its unfunded post-retirement health care program. See note 8 to the
consolidated financial statements of FTD.
(5) Earnings (loss) per share has been calculated after giving effect to the
Stock Split. The Old Association was a member-owned non-profit cooperative
association and, accordingly, no stock was issued.
(6) In calculating the ratio of earnings to fixed charges, earnings consist of
net income prior to income taxes, minority interest and cumulative effect of
accounting change, plus fixed charges. Fixed charges consist of interest
expense and the component of rental expense believed by management to be
representative of the interest factor thereon. Earnings for the period July
1 through December 18, 1994 were insufficient to cover fixed charges by
$2,537. Earnings for the years ended June 30, 1996 and 1997, and the three
month period ended September 30, 1996, were insufficient to cover fixed
charges by $8,574, $1,331 and $535, respectively.
20
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained in this Prospectus, certain
statements made herein are forward-looking statements that involve risks and
uncertainties and are subject to important factors that could cause FTD's actual
results to differ significantly from the results discussed in the
forward-looking statements, including without limitation, the effect of economic
and market conditions and the impact of competitive activities. The following
discussion should be read in conjunction with the Consolidated Financial
Statements including the notes thereto included elsewhere in this Prospectus.
See "INDEX TO CONSOLIDATED FINANCIAL STATEMENTS."
EFFECT OF ACQUISITION ON RESULTS OF OPERATIONS
The Acquisition was consummated on December 19, 1994. Accordingly, the
results of operations from December 19, 1994 through June 30, 1995 and for the
years ended June 30, 1996 and 1997 and for the three month periods ended
September 30, 1996 and 1997, represent those of FTD Corporation and its
consolidated subsidiaries. Results of operations prior to December 19, 1994 are
those of the Old Association. The Acquisition generally affected FTD's results
of operations as follows: (i) certain trade association activities previously
conducted by FTD are now being conducted by FTD Association; (ii) immediately
following the consummation of the Acquisition, the Operating Company was
converted from a non-profit cooperative association owned by its members to a
for-profit corporation; (iii) in connection with the Acquisition, FTD recorded a
$7.0 million liability subsequently adjusted to $3.9 million for the costs of
termination benefits and other expenses associated with FTD's employee headcount
reduction and the planned consolidation of FTD's data processing facilities;
(iv) as a result of the Acquisition, FTD's balance sheet carries significant
goodwill; (v) certain provisions of the Mutual Support Agreement may impact,
among other things, product pricing in transactions with FTD Association
members; and (vi) the Company has implemented or plans to implement several cost
reduction strategies, including a reduction in costs related to the Company's
Board of Directors, the elimination of costs associated with trade activities of
the Old Association and a reduction in various general and administrative
expenses of the Old Association (offset by additional costs related to the new
management team and out-sourcing certain functions).
RESULTS OF OPERATIONS
The following table illustrates the total revenue generated by FTD's major
businesses and summarizes FTD's historical results of operations for the three
fiscal years ended June 30, 1997, 1996 and 1995 and the three month periods
ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED JUNE 30,
------------------- ------------------------------
1997 1996 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
REVENUE:
Marketplace................................ $12,529 $13,639 $ 49,738 $ 57,924 $ 64,016
Clearinghouse.............................. 6,777 6,627 34,383 37,070 40,831
Mercury Network............................ 8,021 8,497 37,558 34,138 31,483
Other...................................... 8,160 8,305 40,904 37,123 35,521
------- ------- -------- -------- --------
Total revenue................................ 35,487 37,068 162,583 166,255 171,851
Cost of goods sold and services provided..... 22,038 23,353 96,306 104,386 107,676
Selling, general and administrative.......... 10,136 11,312 55,769 58,376 59,353
------- ------- -------- -------- --------
Income from operations....................... $ 3,313 $ 2,403 $ 10,508 $ 3,493 $ 4,822
======= ======= ======== ======== ========
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
The following is a discussion of changes in the Company's financial
condition and results of operations for the three month period ended September
30, 1997, compared with the three month period ended September 30, 1996.
21
<PAGE> 24
Revenue decreased by $1.6 million, or 4.3%, to $35.5 million for the three
month period ended September 30, 1997, compared to $37.1 million for the three
month period ended September 30, 1996. This decline in revenue was primarily the
net result of decreases in Marketplace and Mercury Network revenue.
Marketplace revenue decreased by $1.1 million, or 8.1%, to $12.5 million
for the three month period ended September 30, 1997 compared to $13.6 million
for the three month period ended September 30, 1996. The decrease from the prior
year was the result of the timing of several shipments which resulted in lower
sales volume of holiday products. Marketplace revenue was 35.2% and 36.7% of
total revenue for the three months ended September 30, 1997 and 1996,
respectively.
Mercury Network revenue decreased by $0.5 million, or 5.9%, to $8.0 million
for the three months ended September 30, 1997 from $8.5 million for the three
month period ended September 30, 1996. This decrease is primarily due to a
decrease in sales of Advantage Business Systems.
The cost of goods sold and services provided decreased by $1.4 million, or
6.0%, to $22.0 million for the three month period ended September 30, 1997 from
$23.4 million for the three month period ended September 30, 1996. This is
primarily the result of lower cost of goods sold related to lower Marketplace
sales discussed above. In addition, FTD realized cost reductions resulting from
improvement in customer service operations. As a percent of revenue, cost of
goods sold and services provided decreased slightly to 62.0% for the three month
period ended September 30, 1997, from 63.1% for the three month period ended
September 30, 1996.
Selling, general and administrative expenses decreased $1.2 million, or
10.6%, to $10.1 million for the three month period ended September 30, 1997,
from $11.3 million for the three month period ended September 30, 1996. The
decrease is primarily due to FTD's lower advertising and promotional
expenditures in the first quarter of fiscal 1998 as compared to the same period
in fiscal 1997, as well as lower administrative expenses due to the Company's
facility consolidation in fiscal 1997.
Interest expense for the three month period ended September 30, 1997 was
$3.0 million as compared to $3.3 million for the three month period ended
September 30, 1996. The decrease of $0.3 million resulted from a reduction in
debt during the three month period ended September 30, 1997.
Income tax expense for the three month period ended September 30, 1997 was
$0.5 million compared to minimal tax expense for the comparable three month
period ended September 30, 1996. The change resulted from the increase in
taxable income.
Net income was $0.2 million for the three month period ended September 30,
1997, an improvement of $0.7 million, from a loss of $0.5 million for the three
month period ended September 30, 1996. The change is attributable to the factors
previously discussed.
YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996
The following is a discussion of changes in the Company's financial
condition and results of operations for the year ended June 30, 1997 compared
with the year ended June 30, 1996.
Revenue decreased by $3.7 million, or 2.2%, to $162.6 million for the year
ended June 30, 1997 compared to $166.3 million for the year ended June 30, 1996.
The decline in revenue was the net result of decreases in Marketplace and
Clearinghouse revenue, partially offset by increases in Mercury Network and
Other revenue.
Marketplace revenue decreased by $8.2 million, or 14.2%, to $49.7 million
for the year ended June 30, 1997 compared to $57.9 million for the year ended
June 30, 1996. The decrease from the prior year was the result of lower sales
volume of holiday products. Marketplace revenue was 30.6% and 34.8% of total
revenue for the years ended June 30, 1997 and 1996, respectively.
Clearinghouse revenue decreased by $2.7 million, or 7.3%, to $34.4 million
for the year ended June 30, 1997 from $37.1 million for the year ended June 30,
1996. This was the net result of a decline in the volume of floral orders
cleared through FTD and a 3.5% increase in the average revenue per order in
accordance with overall industry trends. The Company believes the decline in the
volume of orders cleared by FTD is due to
22
<PAGE> 25
competition from other clearinghouse services, and the general decline in
industry clearings which has resulted from the general decline in the market
share of retail florists. Clearinghouse revenue was 21.1% and 22.3% of total
revenue for the years ended June 30, 1997 and 1996, respectively.
Mercury Network revenue increased by $3.5 million, or 10.3%, to $37.6
million for the year ended June 30, 1997 from $34.1 million for the year ended
June 30, 1996. An increase in terminal leasing revenue, order transmission
income and sales of Advantage floral business systems were the major factors in
the revenue increase. Mercury Network revenue was 23.1% and 20.5% of total
revenue for the years ended June 30, 1997 and 1996, respectively.
Other revenue experienced a net increase of $3.8 million, or 10.2%, to
$40.9 million for the year ended June 30, 1997 from $37.1 million for the year
ended June 30, 1996. This increase was primarily due to growth in the order
volume of Direct Access (1-800-SEND-FTD) and publications revenue. Other revenue
was 25.2% and 22.4% of total revenue for the years ended June 30, 1997 and 1996,
respectively.
The cost of goods sold and services provided decreased by $8.1 million, or
7.8%, to $96.3 million for the year ended June 30, 1997 from $104.4 million for
the year ended June 30, 1996. This is primarily the result of lower cost of
goods sold related to the Marketplace sales discussed above. In addition, FTD
realized cost reductions resulting from improvements in customer service
operations. As a percentage of revenue, cost of goods sold and services provided
decreased slightly to 59.2% for the year ended June 30, 1997 from 62.8% for the
year ended June 30, 1996.
Selling, general and administrative expenses decreased by $2.6 million, to
$55.8 million for the year ended June 30, 1997 from $58.4 million for the year
ended June 30, 1996. This decrease is primarily due to FTD's decreased
advertising and promotional expenditures in fiscal 1997. In addition, a pension
curtailment gain of $2.7 million, a $0.8 million post-retirement curtailment
gain and a $0.5 million pension settlement gain were partially offset by costs
of $4.5 million due to FTD's facility consolidation efforts including the
writeoff of the trained workforce intangible asset.
Interest income for the years ended June 30, 1997 and 1996 was $1.5 million
and $1.4 million, respectively. The increase is attributable to higher average
invested cash. Interest expense for the year ended June 30, 1997 was $12.8
million as compared to $13.5 million in the prior year. The decrease of $0.7
million resulted from a reduction in debt during the year ended June 30, 1997.
See "-- Liquidity and Capital Resources."
Income taxes for the year ended June 30, 1997 reflect an expense of $ 0.4
million compared to a benefit of $1.8 million for the comparable period in the
prior year. The tax expenses for the year ended June 30, 1997, represents the
current year reduction to the company's deferred tax assets. The tax benefit for
the year ended June 30, 1996 represents the amount of deferred tax benefit
recognized as a result of the pretax loss incurred for the year.
As a result of the factors described above, a net loss of $1.7 million
resulted for the year ended June 30, 1997, an improvement of $5.0 million from a
net loss of $6.7 million for the year ended June 30, 1996.
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995
The following is a discussion of changes in the Company's financial
condition and results of operations for the year ended June 30, 1996 compared
with the year ended June 30, 1995. For purposes of presenting a meaningful
comparison, as stated above, the year ended June 30, 1995 includes both: (i)
results of the Operating Company's predecessor (Florists' Transworld Delivery
Association) for the period prior to the Acquisition on December 19, 1994; and
(ii) the results of the Company from December 19, 1994 through June 30, 1995.
Revenue decreased by $5.6 million, or 3.3%, to $166.3 million for the year
ended June 30, 1996 compared to $171.9 million for the year ended June 30, 1995.
The decline in revenue was partly due to the elimination of $2.7 million in
revenue from trade association activities in the prior comparable period which,
since the Acquisition, have no longer been conducted by the Company. The balance
of the decline in revenue was the
23
<PAGE> 26
net result of decreases in Marketplace and Clearinghouse revenue, partially
offset by Mercury Network and Other revenue.
Marketplace revenue decreased by $6.1 million, or 9.5%, to $57.9 million
for the year ended June 30, 1996 compared to $64.0 million for the year ended
June 30, 1995. The decrease from the prior year was the result of lower sales of
holiday, seasonal and non-branded everyday containers. This was partially offset
by increased sales of the expanded perishables product line and FTD branded
everyday products. Marketplace revenue was 34.8% and 37.3% of total revenue for
the years ended June 30, 1996 and 1995, respectively.
Clearinghouse revenue decreased by $3.7 million, or 9.2%, to $37.1 million
for the year ended June 30, 1996 from $40.8 million for the year ended June 30,
1995. This was the net result of a decline in the volume of floral orders
cleared through FTD and a 3.1% increase in the average revenue per order in
accordance with overall industry trends. The Company believes the decline in the
volume of orders cleared by FTD is due to competition from other clearinghouse
services, and the general decline in industry clearings which has resulted from
the general decline in the market share of retail florists. Clearinghouse
revenue was 22.3% and 23.8% of total revenue for the years ended June 30, 1996
and 1995, respectively.
Mercury Network revenue increased by $2.6 million, or 8.4%, to $34.1
million for the year ended June 30, 1996 from $31.5 million for the year ended
June 30, 1995. An increase in terminal leasing revenue, order transmission
income and equipment sales were the major factors in the revenue increase.
Mercury Network revenue was 20.5% and 18.3% of total revenue for the years ended
June 30, 1996 and 1995, respectively.
Excluding the trade association related revenues from the prior year
discussed above, Other revenue experienced a net increase of $4.3 million, or
13.1%, to $37.1 million for the year ended June 30, 1996 from $32.8 million for
the year ended June 30, 1995. This increase was primarily due to growth in the
order volume of the Direct Access business and in the volume of listings in the
FTD Directory. Other revenue was 22.4% and 20.6% of total revenue for the years
ended June 30, 1996 and 1995, respectively.
The cost of goods sold and services provided decreased by $3.3 million, or
3.1%, to $104.4 million for the year ended June 30, 1996 from $107.7 million for
the year ended June 30, 1995. The decrease in cost of goods sold and services
provided is primarily due to a $6.2 million reduction in costs for products and
distribution related to the lower Marketplace sales volume and a $1.8 million
decrease due to lower costs of member programs which have not been conducted by
the Company since the Acquisition. Offsetting these decreases was a depreciation
expense increase of $1.1 million from the prior year primarily due to computer
hardware and software acquisitions. Other offsetting cost increases resulted
from the increase in Direct Access order volume, additional FTD Directory costs,
field service costs and Mercury Network product and other costs. As a percentage
of revenue, cost of goods sold and services provided remained relatively
constant, with an increase to 62.8% for the year ended June 30, 1996 from 62.7%
for the year ended June 30, 1995.
Selling, general and administrative expenses decreased by $0.9 million, or
1.5%, to $58.4 million for the year ended June 30, 1996 from $59.3 million for
the year ended June 30, 1995. Several factors contributed to the net decrease:
(i) non-recurring Acquisition related costs of $4.1 million were incurred by the
Company during the year ended June 30, 1995; (ii) the elimination of
approximately $1.3 million in costs of certain trade association activities in
fiscal 1995 which, since the Acquisition, have not been conducted by the
Company; (iii) various overhead reductions of $0.8 million affecting promotional
costs; (iv) advertising activities related to the Company's member incentive
program which was implemented during the year ended June 30, 1996 which amounted
to $4.7 million; and (v) amortization of goodwill and other intangibles
increased by $1.8 million for the year ended June 30, 1996 from the prior
comparable period which included a partial year of amortization. Selling,
general and administrative expenses increased, as a percent of revenue, to 35.1%
from 34.5% for the year ended June 30, 1996 compared to 1995.
Interest income for the years ended June 30, 1996 and 1995 was $1.4 million
and $2.8 million, respectively. The decrease is attributable to lower average
invested cash due to cash utilized to effect the Acquisition. Interest expense
for the year ended June 30, 1996 was $13.5 million as compared to $8.7 million
in the prior year. The increase of $4.8 million resulted from a full year of
interest on the debt in fiscal 1996 versus a partial year of interest on the
debt in fiscal 1995. See "-- Liquidity and Capital Resources."
24
<PAGE> 27
Income taxes for the year ended June 30, 1996 reflect a benefit of $1.8
million compared to an expense of $1.0 million for the prior year. The expense
in the prior year was due to the Operating Company's conversion from a
cooperative association to a for-profit corporation on December 19, 1994, the
date of the Acquisition, resulting in recognition of primarily deferred tax
expense for the period from December 19, 1994 through June 30, 1995. Income tax
expense prior to December 19, 1994 was entirely related to the Old Association's
Canadian operations. The tax benefit for the year ended June 30, 1996 represents
the amount of deferred tax benefit recognized as a result of the pretax loss
incurred for the year.
As a result of the factors described above, a net loss of $6.7 million
resulted for the year ended June 30, 1996, an increase of $4.6 million from a
net loss of $2.1 million for the year ended June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Interest payments on the Notes and interest and principal payments on
obligations under the Bank Credit Agreement represent significant liquidity
requirements for FTD. Borrowings under the Bank Credit Agreement bear interest
at floating rates and require interest payments on varying dates depending on
the interest rate option selected by FTD. Borrowings available under the Bank
Credit Agreement consist of a $50.0 million term loan facility (the "Term Loan
Facility") and a $50.0 million revolving credit facility (the "Revolving Credit
Facility") to finance working capital, acquisitions, certain expenses and letter
of credit needs. FTD has repaid $20.4 million of term loans outstanding under
its prior credit facility through June 30, 1997 and has repaid $2.2 million of
the term loans thereunder in the three month period ended September 30, 1997. In
October the Company refinanced under the Revolving Credit Facility the remaining
balance of the term loan which approximated $22.3 million. Any loan outstanding
under the Revolving Credit Facility will mature on December 31, 2003. The
Company believes, based on current circumstances, that its cash flow, together
with borrowings under the Revolving Credit Facility, will be sufficient to fund
its working capital needs, obligations to the Operating Company and potential
acquisitions, and to repay the term loans and make interest payments as they
become due through the term of the Notes and the Bank Credit Agreement.
In addition to its debt service obligations, FTD's remaining liquidity
demands will be primarily for capital expenditures and working capital needs. In
the fiscal years ended June 30, 1997 and 1996, FTD's capital expenditures were
$2.6 million and $5.0 million, respectively, related primarily in 1997 to
purchase additional office equipment and in 1996 to the upgrade of its Mercury
Network communications facilities through the purchase of its new Mercury 3000
terminals that are leased to FTD florists. FTD's expected capital expenditures
for fiscal 1998 are estimated to be approximately $5.0 million and will
primarily be used for improvements of internal customer service and information
systems and the Mercury Network. The Company believes that cash flow from
operations, together with borrowings available under the revolving credit
facility, will be sufficient to fund anticipated capital expenditures and
working capital needs.
The Bank Credit Agreement contains certain restrictive covenants with
respect to the Company that, among other things, create limitations (subject to
certain exceptions) on the declaration or payment of any dividend or making of
any distribution by the Company on shares of its common stock.
For the three month period ended September 30, 1997, FTD used cash in the
amount of $6.9 million, as compared to a $51,000 increase in cash for the three
month period ended September 30, 1996.
Cash used by operating activities was $4.5 million for the three month
period ended September 30, 1997, compared to cash provided by operating
activities of $3.0 million for the three month period ended September 30, 1996.
Depreciation and amortization was $3.3 million for the three month period ended
September 30, 1997, and $3.6 million for the three month period ended September
30, 1996. The decrease in cash is primarily due to an increase in accounts
receivable and a decrease in accounts payable for the period ended September 30,
1997.
Cash used in investing activities, consisting of capital expenditures net
of disposal of assets, was $62,000 for the three month period ended September
30, 1997 compared to $1.4 million for the three month period ended September 30,
1996.
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<PAGE> 28
Cash used in financing activities, primarily reflecting the payment of
principal on the term loans outstanding under FTD's prior credit facility, was
$2.3 million for the three month period ended September 30, 1997 compared to
$1.5 million for the three month period ended September 30, 1996. During the
first quarter of fiscal 1998, the Company repurchased from a former officer
30,930 shares of Class A Common Stock for approximately $75,000.
Cash provided by operating activities was $12.5 million for the year ended
June 30, 1997 compared to cash provided of $11.1 million for the year ended June
30, 1996. Factors contributing to this change in cash flow were: pension
benefits of $2.9 million and an inventory build of $3.5 million, offset by
certain program obligations to members.
Cash provided by investing activities was $3.6 million for the year ended
June 30, 1997 compared to cash used of $5.0 million for the year ended June 30,
1996. In fiscal 1997, the cash provided by investing activities primarily
consisted of the sale of the Company's previous headquarters in Southfield,
Michigan, which was offset by capital expenditures.
Cash used in financing activities was $14.4 million for the year ended June
30, 1997 compared to cash used of $4.0 million for the year ended June 30, 1996.
The net cash used in the year ended June 30, 1997, reflects primarily payment of
principal on the term loans.
Effective January 1, 1997 amendments to FTD's defined benefit pension plan
were adopted, including the elimination of the accrual of future benefits under
the plan. As a result of these amendments, and the corresponding remeasurement
of the accumulated and projected benefit of obligations under the plan, a pre-
tax pension curtailment gain of $2.7 million as well as a pre-tax settlement
gain of $0.5 million were recognized as a reduction in selling, general and
administrative costs during fiscal 1997. FTD has established a new 401(k)
savings plan for all of its eligible employees.
On January 3, 1997, FTD's Board of Directors approved a plan to consolidate
corporate staff and operations into its Downers Grove, Illinois facility, which
has enabled FTD to improve program execution and is helping FTD to better serve
its customers. Leased office space in Boston, Massachusetts was subleased, and
land and buildings in Southfield, Michigan were sold. FTD's bank credit
agreement required FTD to use the net proceeds from the sale of assets to reduce
the outstanding term loan and as a result, future interest costs will be
reduced. In accordance with EITF Consensus no. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Cost to Exit an Activity,"
non-recurring charges in connection with the consolidation including severance,
asset impairment losses, and other costs aggregating $2.3 million were
recognized as selling, general and administrative costs during fiscal 1997.
Additional non-recurring expenses of $0.7 million were also incurred in
connection with the consolidation resulting in a total of $3.0 million in non-
recurring costs being recorded in fiscal 1997.
The Company has conducted a review of its computer systems to identify the
systems that could be affected by the "Year 2000" issue and is developing an
implementation plan to resolve the issue. The Year 2000 problem is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a major system failure or miscalculations.
The Company expects its Year 2000 date conversion project to be completed
on a timely basis. During the execution of this project the Company will incur
internal staff costs as well as consulting and other expenses related to
enhancements necessary to prepare the systems for the Year 2000. The expenses of
the Year 2000 project as well as the related potential effect on the Company's
earnings is not expected to have a material effect on its financial position or
results of operations.
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<PAGE> 29
BUSINESS
OVERVIEW
FTD is the world's largest floral services organization based on number of
members and affiliated organizations. FTD Association has a membership of
approximately 21,000 retail florist shops primarily in the U.S. and Canada and,
through affiliated or related organizations, approximately 32,000 additional
retail florist shops in approximately 140 other countries. Through these members
FTD offers consumers expedited delivery of high-quality FTD-branded products in
the U.S. and Canada and non-branded floral products throughout most of the
world.
FTD promotes a worldwide brand based on the FTD Mercury Man logo, one of
the most recognized corporate logos in the world according to consumer
recognition studies performed by Landor Associates, recognized identity
consultants. See "-- Marketing and Advertising." A significant portion of FTD's
revenues, operating income and competitive advantage is derived from FTD's
technology-based transaction processing businesses, which include the Mercury
Network, Clearinghouse, Advantage Software and Direct Access (1-800-SEND-FTD).
In addition to the foregoing, FTD's operations include Marketplace and other
businesses which support and enhance FTD Florists' retail floral operations. See
"-- Operations."
THE ACQUISITION AND RELATIONSHIP WITH FTD ASSOCIATION
The Operating Company is the successor to a non-profit cooperative
organization founded by a group of retail florists in the United States in 1910.
The Operating Company was the surviving corporation after the acquisition on
December 19, 1994 by FTD Corporation of all of the outstanding equity of the Old
Association pursuant to the Merger Agreement. Upon consummation of the
Acquisition, the Operating Company became a wholly-owned subsidiary of FTD
Corporation. Immediately following the Acquisition, the Old Association was
converted from a non-profit corporation to a for-profit corporation and renamed
"Florists' Transworld Delivery, Inc."
FTD Corporation, through the Operating Company, operates all of the
businesses conducted by the Old Association prior to the Acquisition except for
certain trade association activities which are being conducted by FTD
Association, an Ohio non-profit corporation organized in connection with the
Acquisition and structured as a member-owned trade association ("FTD
Association"). Neither FTD nor the Operating Company has any ownership interest
in FTD Association; however, as provided in the Merger Agreement, the Operating
Company and FTD Association have entered into the Mutual Support Agreement,
which governs the relationship between the Operating Company and FTD
Association. Pursuant to the Mutual Support Agreement, among other things: (i)
existing and future members have the exclusive right, subject to execution of a
Trademark Membership License Agreement with the Operating Company, to use the
FTD logo and other FTD trademarks in connection with the operation of a retail
florist shop; (ii) all members in good standing are provided access to FTD's
Clearinghouse, Mercury Network and certain other FTD services and products;
(iii) the Operating Company's prices to members for specified services will not
be increased above those charged on July 1, 1994 prior to December 19, 1997
(except for adjustments for inflation); (iv) payments by the Operating Company
equal to a percentage of the value of every floral order cleared through FTD's
Clearinghouse are made to FTD Association; and (v) the Operating Company and FTD
Association may designate up to 20% but not fewer than two individuals to be
elected to the other's board of directors.
MARKETING AND ADVERTISING
FTD conducts extensive marketing and advertising programs on both a
national and local basis. FTD's national advertising (via television, radio,
magazines and Sunday newspaper supplements) generally promotes FTD florists,
FTD-branded products, 1-800-SEND-FTD and FTD Florists' Online Internet site
(www.ftd.com). FTD coordinates cooperative advertising on a local basis with
participating florists. FTD also provides FTD florists with advertising tools
such as billboard paper, slicks for print advertising and television and radio
tapes to be tagged with individual shop information. In addition, FTD provides
FTD florists with
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<PAGE> 30
customized direct mail pieces, in-shop merchandising materials and FTD Floral
Selections, a counter display catalog featuring FTD products for all occasions.
FTD's marketing and advertising programs are designed to: (i) increase
consumer demand for FTD-branded floral arrangements which FTD florists clear
through Clearinghouse and components of which are Marketplace's FTD-branded
hardgoods; (ii) feature the FTD Mercury Man logo; and (iii) support the FTD
retail florists generally by encouraging consumers to associate FTD professional
florists with high-quality floral goods and outstanding customer service.
OPERATIONS
For each transaction cleared by FTD, FTD's Clearinghouse operations
collects the billing information from either the Mercury Network or the
Receiving Florist if the Mercury Network has not been used, and allocates funds
among FTD, the Sending Florist and the Receiving Florist. Generally, orders
received by the Receiving Florist by 2:00 p.m. will be delivered to the
recipient, in the same postal zip code on the same day. Floral orders between
FTD florists are transmitted primarily by FTD's Mercury Network.
FTD was initially formed to encourage flowers-by-wire transactions between
FTD florists, but over time FTD has developed a number of additional services
and products that support and enhance the retail floral operations of FTD
professional florists. Currently, FTD's primary operations are Marketplace,
Clearinghouse, Mercury Network and Other (including Direct Access).
The following table illustrates the percentage of total revenue generated
by the Operating Company's major businesses as a percentage of total revenue for
the three fiscal years ended June 30, 1997, 1996 and 1995 and for the three
months ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30, FISCAL YEAR ENDED JUNE 30,
---------------- ---------------------------
1997 1996 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
REVENUE:
Marketplace......................................... 35.3 36.8 30.6% 34.8% 37.3%
Clearinghouse....................................... 19.1 17.9 21.1 22.3 23.8
Mercury Network..................................... 22.6 22.9 23.1 20.5 18.3
Other............................................... 23.0 22.4 25.2 22.4 20.6
----- ----- ----- ----- -----
Total Revenue....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
Marketplace. The Company believes that Marketplace is one of the largest
wholesale suppliers of hardgoods to retail florists in the U.S. based on total
sales. Marketplace products include both FTD-branded and non-branded holiday and
everyday floral arrangement containers and products, as well as packaging,
promotional products and a wide variety of other floral-related supplies. By
capitalizing on FTD's sourcing expertise and volume purchases, Marketplace is
able to provide FTD florists with a broad selection of products at attractive
prices.
Marketplace also enters into promotional partnerships to design, promote
and sell FTD-branded products. To date, FTD has participated in partnerships
with companies such as Gerber Products Company, Mars, Inc. and Disney
Enterprises, Inc. For example, collectible containers featuring Winnie the Pooh
and his friends have been developed for friendship, new baby, Christmas,
Valentine's Day and Easter floral arrangements. M&M's have been included in the
Sweet Surprise floral arrangement since 1993. The Company believes that FTD's
large retail network and brand recognition make it a valuable corporate partner
for such ventures.
Clearinghouse. FTD's Clearinghouse provides billing and collection services
to both the Sending Florist and the Receiving Florist in flowers-by-wire
transactions. In fiscal 1997, FTD cleared floral orders aggregating in excess of
$492 million in retail sales. Revenue from FTD's Clearinghouse is generated by
FTD retaining 7% of the sales price of orders sent through Clearinghouse. The
remaining 93% is allocated as follows: 20% to the
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<PAGE> 31
Sending Florist and 73% to the Receiving Florist. In addition, pursuant to the
Mutual Support Agreement, payments by FTD equal to one-eighth of one percent
(.125%) of the value of every floral order cleared through FTD's Clearinghouse
are required to be made to FTD Association monthly within ten (10) days after
the end of the prior month in which floral orders are reported to, and collected
by, Clearinghouse.
FTD is a joint venture participant in Interflora, Inc., a floral services
organization with non-FTD member florists, which enables florists to transmit
and receive orders outside the Americas.
Mercury Network. FTD's Mercury Network is one of the largest proprietary
telecommunications networks in the world, based on the total number of
participating retail outlets, linking together FTD and approximately 16,400 of
the 21,000 FTD florists. FTD's on-line florists may use the Mercury Network to
transmit orders cleared through FTD or through competing clearinghouses and to
send messages. In fiscal 1997, the Mercury Network transmitted approximately
14.5 million orders among U.S. and Canadian members.
OTHER BUSINESSES
FTD has developed several other businesses to support and enhance FTD
florists' retail floral operations, including greeting cards, Advantage Software
for florists' operations, publications, and credit card authorization and
processing services.
Renaissance Greeting Cards. Through Renaissance, a subsidiary of the
Operating Company acquired in 1992, FTD produces greeting cards for special
occasions and holidays which are sold in over 7,900 retail outlets nationwide.
Renaissance cards are made using only recycled paper.
Advantage Software. FTD offers FTD florists computer software, which
operates on the Mercury computer system, that is customized to the needs of
retail florists. The Advantage Plus software package provides a comprehensive
range of payroll and accounting functions for the retail florist. In addition,
the package was expanded in 1997 with modules which streamline the delivery
process. These modules automatically calculate delivery rates, confirm accuracy
of addresses, build efficient delivery routes, print delivery maps and capture
recipient data for future marketing.
FTD Directory & Toll Free Listings. FTD produces the FTD Directory & Toll
Free Listings ("FTD Directory"), a directory of all current FTD florists, their
locations, product ordering information and minimum order amounts. In a typical
transaction, the Sending Florist is responsible for selecting the Receiving
Florist within the desired locale. Unless the Sending Florist has already
established a relationship with a particular florist in that locale, the Sending
Florist typically consults FTD Directory to identify a Receiving Florist. FTD
Directory is published periodically and is supplied to FTD florists in printed
form. FTD Directory is also available on CD-ROM.
Credit Card Authorization and Processing. FTD offers processing of credit
card transactions to participating FTD florists. By pooling the credit card
transactions of such florists, FTD is able to secure more favorable terms on
credit card transactions than they could secure individually. Credit card
authorizations can be obtained by telephone, with a dedicated authorization
terminal, or by using the accounting software offered to retail florists by FTD.
FTD also provides an address verification system to minimize fraud, as well as
statement and adjustment services. Revenue from FTD's credit card program is
generated by a monthly subscriber fee and discounts charged for transactions.
Direct Access. FTD's Direct Access business offers retail customers the
opportunity to place orders directly with FTD by dialing a toll free number
(1-800-SEND-FTD), through online services such as Compuserve or through FTD
Florists' Online Internet site (www.ftd.com). Revenue from the Direct Access
business is generated by FTD's receipt of a percentage of the sales price as the
Sending Florist and a service charge from the consumer.
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<PAGE> 32
SEASONALITY
FTD generated 22.8%, 25.6%, 29.2% and 22.4% of total revenue in the
quarters ended September 30, December 31, March 31 and June 30 of fiscal 1997,
respectively. FTD's revenue typically exhibits a modest degree of seasonality as
demonstrated in fiscal 1997. FTD's operating income also fluctuates over the
course of the fiscal year, with FTD generating slightly more of its operating
income in the fiscal quarters ending September 30 and March 31. This fluctuation
is primarily attributable to (i) increased advertising and promotional
expenditures during the holiday seasons in the fiscal quarters ending December
31 and June 30 and (ii) a Clearinghouse volume incentive program, which
experiences higher expenses as a result of increased volume during these
quarters. FTD's working capital, cash and short-term borrowings also fluctuate
during the year as a result of the factors set forth above.
PROPERTIES
FTD's principal executive offices, consisting of approximately 120,000
square feet of office space, are owned by FTD and are located in Downers Grove,
Illinois. FTD leases office space through a subsidiary in Sanford, Maine. FTD
uses independent warehouse and distribution facilities in California, Ohio and
Ontario, Canada for product distribution.
TRADEMARKS
The FTD Mercury Man logo is a registered U.S. trademark which distinguishes
FTD's services and products from those offered by others and appears on the shop
window or door of each member. FTD also owns the rights to a number of other
trademarks, including "FTD," "FTDA" and "Florists' Transworld Delivery" and
trademarks for certain floral products, including the "Chicken Soup Bouquet,"
"Thanks a Bunch Bouquet," "Stay in Touch Bouquet," "Pick-Me-Up Bouquet,"
"Birthday Party Bouquet," "Anniversary Bouquet," "Puzzle Fun Bouquet" and "Sweet
Dreams Bouquet." FTD has licensed certain of its trademarks, including the FTD
Mercury Man logo, to FTD Association for use with its trade association
activities and to the FTD florists who have executed a Trademark Membership
License Agreement with the Operating Company.
COMPETITION
FTD's Clearinghouse operation has two primary competitors: American Floral
Services, Inc. and Teleflora LLC. Both of these competing services offers some
products and services which are comparable to those offered by FTD and most FTD
florists subscribe to at least one of these competing services. FTD's
Clearinghouse processes more orders than any competing services.
FTD's Marketplace operation competes in an extremely fragmented industry
against a large number of wholesalers. The Company believes that it has a
competitive advantage in this segment due to its multi-faceted relationship with
retail florists, its depth of product line and its ability to offer discounted
pricing because of FTD's substantial volume purchases.
The primary competitor for the Direct Access (1-800-SEND-FTD) business is
800-FLOWERS, Inc. Several other less significant companies operate in the toll
free and online services markets.
The Operating Company currently is subject to certain operating
restrictions pursuant to the Consent Order. Among its terms, the Consent Order
prohibits restricting FTD Association membership to florists who are not
subscribers to a competing clearinghouse. The Consent Order expires August 1,
2005.
EMPLOYEES
As of June 30, 1997, FTD employed approximately 380 full-time employees.
FTD considers its relations with its employees to be good. FTD employees are not
currently covered by any collective bargaining agreement.
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<PAGE> 33
LEGAL PROCEEDINGS
FTD is involved in various lawsuits and other matters arising in the normal
course of business. In the opinion of the management of FTD, although the
outcomes of these claims and suits are uncertain, they should not have a
material adverse effect on FTD's financial position or results of operations.
YEAR 2000 ISSUES
The Company has conducted a review of its computer systems to identify the
systems that could be affected by the "Year 2000" issue, which could result in a
major system failure or miscalculations, and is developing a plan to resolve the
issue. The Company expects its Year 2000 date conversion project to be completed
on a timely basis. During the execution of this project the Company will incur
internal staff costs as well as consulting and other expenses related to
enhancements necessary to prepare the systems for the Year 2000. The expenses of
the Year 2000 project as well as the related potential effect on the Company's
earnings is not expected to have a material effect on its financial position or
results of operations.
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<PAGE> 34
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following individuals are the current directors and executive officers
of FTD. All directors are elected annually to serve until the next annual
meeting of stockholders and until their successors have been elected and
qualified. All executive officers of FTD serve at the pleasure of the Board of
Directors of FTD.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard C. Perry.................. 42 Chairman of the Board of Directors of FTD Corporation
and the Operating Company
Robert L. Norton.................. 51 President of FTD Corporation and Chief Executive
Officer, President and Director of the Operating Company
Veronica K. Ho.................... 37 Director of FTD Corporation and the Operating Company
Gary K. Silberberg................ 37 Director of FTD Corporation and the Operating Company
Geoffrey Rehnert.................. 40 Director of FTD Corporation
Habib Y. Gorgi.................... 41 Director of FTD Corporation and the Operating Company
Scott D. Levin.................... 35 Secretary of FTD Corporation and Vice President
Administration, General Counsel and Secretary of the
Operating Company
Francis C. Piccirillo............. 48 Treasurer of FTD Corporation and Vice President and
Chief Financial Officer of the Operating Company
William P. Phelan................. 41 Director of the Operating Company
Catherine A. Hickman.............. 46 Director of the Operating Company
Anthony P. Thonnerieux............ 50 Director of the Operating Company
Rock A. Davis..................... 42 Vice President Marketplace of the Operating Company
Fred Johnson...................... 49 Executive Vice President Technology of the Operating
Company
</TABLE>
The Principal Stockholders of FTD Corporation are Perry Partners, the Bain
Funds and the Fleet Funds. FTD Corporation and the Principal Stockholders have
entered into a stockholders' agreement, dated December 19, 1994 (the
"Stockholders' Agreement"), which provides, among other things, for the
composition of the Board of Directors of FTD. The Board of Directors of FTD
Corporation consists of nine directors, of which Perry Partners is entitled to
nominate six and the Bain Funds are entitled to nominate three. Each of the
Principal Stockholders has agreed to take all actions necessary, including
voting all of the securities owned by it, to cause such nominees to be elected
to the Board of Directors of FTD. See "DESCRIPTION OF CAPITAL STOCK --
Stockholders' Agreement."
Mr. Perry, Ms. Ho and Mr. Silberberg were elected to the Board of Directors
of FTD Corporation as designees of Perry Partners. Mr. Rehnert and Mr. Gorgi
were elected to the Board of Directors of FTD Corporation as designees of the
Bain Funds.
Directors' Fees. Directors of FTD Corporation do not receive any fees in
connection with their service as members of the Board of Directors. All
directors are reimbursed for the reasonable expenses incurred in connection with
each meeting attended.
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<PAGE> 35
Set forth below is certain biographical information about each of the
Company's directors and executive officers:
RICHARD C. PERRY
Chairman of the Board of Directors of FTD Corporation and the Operating Company
Mr. Perry has been Chairman of the Board of Directors of FTD Corporation
since December 1994. Mr. Perry is also Chairman of the Board of Directors of the
Operating Company. Mr. Perry is the President and founder of Perry Corp., a
private money management firm. Prior to forming Perry Corp. in 1988, Mr. Perry
was with Goldman, Sachs & Co. Mr. Perry is an Adjunct Associate Professor at the
New York University Stern School of Business Administration. He is also a
director of Radio & Records, Inc. and a trustee of the Allen Stevenson School
and the Board of Facing History and Ourselves. Mr. Perry received a B.S. from
the Wharton School of the University of Pennsylvania in 1977 and an M.B.A. from
New York University Graduate School of Business Administration in 1980.
ROBERT L. NORTON
President of FTD Corporation and Chief Executive Officer, President and
Director of the Operating Company
Mr. Norton has been the President of FTD Corporation since January, 1997.
Mr. Norton is currently the Chief Executive Officer, President and Director of
the Operating Company. Mr. Norton joined the Operating Company in October 1996
as General Manager and became President and Chief Operating Officer in January
1997. From March 1993 until May 1996, Mr. Norton was Vice Chairman and Chief
Financial Officer of Fabri-Centers of America, Inc., a retail chain of fabric
and craft stores. Mr. Norton received a B.S. from Cleveland State University in
1973.
VERONICA K. HO
Director of FTD Corporation and the Operating Company
Ms. Ho has been a member of the Board of Directors of FTD Corporation since
December 1994. Ms. Ho served as Vice President of FTD Corporation from December
1994 to September 1997. Ms. Ho is a member of the Board of Directors of the
Operating Company and a Managing Director of Perry Corp. Before joining Perry
Corp. in April 1993, Ms. Ho was Chief Financial Officer of Whitehall
Corporation, a producer of defense, electronics, and technology systems, from
April 1991 to March 1993. From 1986 to 1991, she was with several private
merchant banking firms specializing in management buyouts. Ms. Ho is also a
member of the Board of Directors of Radio & Records, Inc. and the New York
Advisory Board of Facing History and Ourselves. She received a B.A. from Brown
University in Economics and Applied Mathematics in 1982 and an M.B.A. from the
Harvard Graduate School of Business Administration in 1986. Ms. Ho is married to
Mr. Silberberg.
GARY K. SILBERBERG
Director of FTD Corporation and the Operating Company
Mr. Silberberg has been a member of the Board of Directors of FTD
Corporation since December 1994. Mr. Silberberg is also a member of the Board of
Directors of the Operating Company. Mr. Silberberg is a Managing Director of
Perry Corp. Prior to joining Perry Corp. in April 1994, Mr. Silberberg was a
principal of Baker Nye Investments, where he managed an investment portfolio for
seven years. Before that time, Mr. Silberberg practiced corporate law with
Skadden, Arps, Slate, Meagher & Flom, where he worked on a variety of
transactions, including strategic mergers and restructurings. Mr. Silberberg
received an Sc.B. in Economics and Applied Mathematics from Brown University in
1982 and a J.D. from Yale Law School in 1985. Mr. Silberberg is married to Ms.
Ho.
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<PAGE> 36
GEOFFREY REHNERT
Director of FTD Corporation
Mr. Rehnert has been a member of the Board of Directors of FTD Corporation
since December 1994. Mr. Rehnert has been a General Partner and Managing
Director of Bain since 1986. He is a director of ICON Health & Fitness, Inc., GT
Bicycles, Inc., and Kollmorgen Corporation. Mr. Rehnert received a B.A. from
Duke University and a J.D. from Stanford Law School.
HABIB Y. GORGI
Director of FTD Corporation and the Operating Company
Mr. Gorgi has been a member of the Board of Directors of FTD Corporation
since January 1997. Mr. Gorgi is also a member of the Board of Directors of the
Operating Company. Mr. Gorgi was the Executive Vice President of various
investment funds controlled by FFG from January 1986 to December 1995, when he
became President of Fleet Growth Resources, Inc. ("FGR"). Mr. Gorgi serves on
the Board of Directors of several non-public companies. Mr. Gorgi earned a B.A.
from Brown University in 1978, and an M.B.A. from Columbia University in 1983.
SCOTT D. LEVIN
Secretary of FTD Corporation and Vice President Administration, General
Counsel and Secretary of the Operating Company
Mr. Levin joined FTD Corporation as Secretary in May 1996. Mr. Levin served
as Vice President of FTD Corporation from May 1996 to September 1997. Mr. Levin
also serves as Vice President Administration, General Counsel and Secretary of
the Operating Company. Prior to joining the Company, Mr. Levin practiced law
with Schulte Roth & Zabel LLP specializing in corporate and securities
transactions from April 1989 to April 1996. Mr Levin received a B.A. in
Political Science and Philosophy from Boston College in 1984 and a J.D. from The
National Law Center of George Washington University in 1987.
FRANCIS C. PICCIRILLO
Treasurer of FTD Corporation and Vice President and Chief Financial Officer
the Operating Company
Mr. Piccirillo joined FTD Corporation as Treasurer in August 1997. Mr.
Piccirillo is also Vice President and Chief Financial Officer of the Operating
Company. Prior to that time, Mr. Piccirillo was Vice President/Treasurer of
Fabri-Centers of America, Inc. Mr. Piccirillo received a B.S. in Industrial
Management in 1971 and an M.B.A. in 1973 from Gannon University. In addition,
Mr. Piccirillo received a J.D. from Cleveland State University in 1976, and is a
Certified Public Accountant.
WILLIAM P. PHELAN
Director of the Operating Company
Mr. Phelan is a member of the Board of Directors of the Operating Company.
Mr. Phelan has been President of Chatham Capital Management, Inc., a private
equity capital firm, since January 1995. From January 1992 through March 1995,
Mr. Phelan was a partner in Fleet Private Equity Co., Inc. From 1988 through
December 1991, Mr. Phelan was a Senior Vice President at Cowen & Company, an
investment banking firm specializing in healthcare and technology-related
investment banking. Mr. Phelan received a B.B.A. in Accounting from Siena
College in 1978 and his M.S. in Taxation from City College of New York in 1983.
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<PAGE> 37
CATHERINE A. HICKMAN
Director of the Operating Company
Ms. Hickman is a member of the Board of Directors of the Operating Company.
Ms. Hickman was President of FTD Association from August 1996 to August 1997.
Ms. Hickman has owned and operated a retail florist business in Long Beach,
California for the past 25 years. Ms. Hickman received a teaching degree from
California State University at Long Beach in 1993.
ANTHONY P. THONNERIEUX
Director of the Operating Company
Mr. Thonnerieux is a member of the Board of Directors of the Operating
Company. Mr. Thonnerieux currently serves as the President and is a member of
the Board of Trustees of FTD Association. Mr. Thonnerieux has been an active
partner in a retail florist business in Newton, New Jersey, for the past 25
years. He received a B.S. degree from Rider University in 1969.
ROCK A. DAVIS
Vice President Marketplace of the Operating Company
Mr. Davis is Vice President Marketplace of the Operating Company. Mr. Davis
joined the Operating Company as Vice President Direct Access in April 1995.
Previously, Mr. Davis was Senior Vice President of The Signature Group from June
1982 to July 1994. Prior to joining The Signature Group, Mr. Davis was in the
Audit Division of Arthur Andersen & Company. Mr. Davis received a B.S. in
General Management from Purdue University in 1977 and a Masters of Management
from Northwestern University in 1986. Mr. Davis is a Certified Public
Accountant.
FRED JOHNSON
Executive Vice President Technology of the Operating Company
Mr. Johnson joined the Operating Company as Executive Vice President
Technology in July 1997. Prior to that time, Mr. Johnson was Senior Vice
President MIS for Fabri Centers of America, Inc. Mr. Johnson received a B.S. in
engineering from Case Institute of Technology in 1969 and an M.B.A. from Case
Western Reserve University in 1977.
EXECUTIVE COMPENSATION
The following table sets forth, for the Company's last three fiscal years,
the compensation of those persons who were, at June 30, 1997, the chief
executive officer and the other four most highly compensated executive officers
of the Company and the Company's former chief executive officer and two persons
who
35
<PAGE> 38
would have been one of the four most highly compensated executive officers
during fiscal 1997 but were not serving on June 30, 1997 (the "Named Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
-----------------------------
ANNUAL COMPENSATION(1) SECURITIES
---------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION($)
--------------------------- ---- ------ ----- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Robert L. Norton(2)...................... 1997 $185,096 $ -- 220,000 2,147(3)
President -- FTD Corporation
Chief Executive Officer and
President -- Operating Company
Margaret C. Whitman(4)................... 1997 160,115 99,500 -- 130,421(5)
Former President and 1996 258,038 -- -- 100,517(6)
Chief Executive Officer 1995 85,600 100,000 510,000 7,018(7)
Rock A. Davis............................ 1997 152,788 6,000 10,000 2,800(3)
Vice President Marketplace -- 1996 125,288 11,000 60,000 2,693(3)
Operating Company 1995 2,404 -- -- 52(3)
Scott D. Levin........................... 1997 137,885 25,000 60,000 18,127(8)
Secretary -- FTD Corporation 1996 17,788 -- -- 11,271(9)
Vice President Administration,
General Counsel and Secretary --
Operating Company
Douglas L. Hagemann(10).................. 1997 149,730 -- -- 11,808(11)
Former Vice President of Finance 1996 149,730 -- -- 2,859(3)
and Stockholder Relations --
Operating Company 1995 144,422 16,500 -- 17,136(12)
Louis E. Nagy, Jr.(13)................... 1997 153,004 -- -- 100,054(14)
Former Vice President Marketing and 1996 125,192 -- 60,000 14,516(15)
Product Development --
Operating Company 1995 40,866 17,500 -- 777(3)
</TABLE>
- -------------------------
(1) Includes cash bonuses paid in the referenced fiscal year with respect to
services rendered in the prior fiscal year. Excludes cash bonuses paid in
the following fiscal year with respect to services rendered in the
referenced fiscal year, which cash bonuses paid in fiscal 1998 with respect
to services rendered in fiscal 1997 are as follows: Rock A. Davis
($80,000), Scott D. Levin ($75,000) and Douglas L. Hagemann ($10,000). The
bonuses for Mr. Davis and Mr. Levin were paid pursuant to the Company's Key
Management Incentive Plan. See "-- Key Management Incentive Plan."
(2) Excludes a cash bonus paid to Mr. Norton in the first quarter of fiscal
1998 with respect to services rendered by Mr. Norton from the commencement
of his employment with the Company through September 30, 1997, pursuant to
the Norton Employment Arrangements. The amount of such bonus is $275,000.
See "-- Norton Employment Arrangements."
(3) Represents flexible dollars for use in connection with FTD's benefit plans.
(4) Ms. Whitman was President and Chief Executive Officer from March 1995 until
the termination of her employment agreement on January 3, 1997.
(5) Reflects $128,419 for the forgiveness of debt issued in connection with Ms.
Whitman's initial employment with the Operating Company and used for the
purchase of FTD shares of Common Stock, and $2,002 for flexible dollars for
use in connection with FTD's benefits plans.
36
<PAGE> 39
(6) Reflects $3,461 for flexible dollars for use in connection with FTD's
benefit plans and $97,056 for the forgiveness of debt used to purchase
shares of Common Stock.
(7) Reflects $1,370 for flexible dollars for use in connection with FTD's
benefit plans and $5,648 for the forgiveness of debt used to purchase
shares of Common Stock.
(8) Reflects $2,424 for flexible dollars for use in connection with FTD's
benefit plans and $15,703 for moving expenses.
(9) Reflects $275 for flexible dollars for use in connection with FTD's benefit
plans and $10,996 for moving expenses.
(10) Mr. Hagemann was Vice President Finance and Stockholder Relations from July
1996 until September 1997.
(11) Reflects $8,874 for Universal Life Insurance and $2,934 for flexible
dollars for use in connection with FTD's benefit plans.
(12) Reflects $14,327 for Universal Life Insurance and $2,809 for flexible
dollars for use in connection with FTD's benefit plans.
(13) Mr. Nagy was Vice President Marketing and Product Development of the
Operating Company from March 1995 until April 1997.
(14) Reflects $8,062 as part of severance arrangement with the Company, $89,552
for moving and related expenses and $2,440 for flexible dollars for use in
connection with FTD's benefit plans.
(15) Reflects $2,963 for flexible dollars for use in connection with FTD's
benefit plans and $11,553 for moving expenses.
The following table sets forth individual grants of stock options made to
the Named Officers during the fiscal year ended June 30, 1997. Options are
exercisable for Class A Common Stock.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------ ANNUAL RATES OF STOCK
PERCENT OF TOTAL PRICE APPRECIATION FOR
NUMBER OF SECURITIES OPTIONS GRANTED TO EXERCISE OR OPTION TERM
UNDERLYING OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- -------------------- ------------------ ----------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Norton..... 120,000(2) 23.5% 3.75 6/6/2007 $248,078 $611,076
100,000(2) 19.6 12.50 6/6/2007
Rock A. Davis........ 10,000(2) 2.0 3.75 3/20/2007 20,675 50,923
Scott D. Levin....... 20,000(3) 3.9 3.75 10/1/2006 41,350 101,846
30,000(3) 5.9 12.50 10/1/2006
10,000(4) 2.0 3.75 3/20/2007 20,675 50,923
</TABLE>
- -------------------------
(1) Options granted under the FTD Corporation 1994 Stock Award and Incentive
Plan.
(2) Such options vest and become exercisable in four equal, cumulative
installments, with the first vesting date being September 30, 1998 for Mr.
Norton, and February 1, 1999 for Mr. Davis.
(3) Such options vest and become exercisable in four equal, cumulative
installments, with the first vesting date being April 18, 1998.
(4) Such options vest and become exercisable in four equal, cumulative
installments, with the first vesting date being February 1, 1999.
37
<PAGE> 40
The following table sets forth the June 30, 1997 aggregate value of
unexercised options held by each of the Named Officers.
FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT FISCAL YEAR-END VALUE OF UNEXERCISED
---------------------------------------------------- IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END
ACQUIRED ON VALUE ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Norton............ -- -- 0 220,000 $ -- $480,000
Rock A. Davis............... -- -- 15,000 55,000 38,063 154,188
Scott D. Levin.............. -- -- 0 60,000 -- 120,000
</TABLE>
- -------------------------
(1) Because no established public trading market exists for the underlying
securities, fiscal year-end option values were based on an assumed stock
price of $7.75 per share, which price is currently used by FTD for purposes
of granting additional options under the FTD Corporation 1994 Stock Award
and Incentive Plan. There can be no assurance that such price per share
represents the actual fair market value of a Share.
No options were exercised during the fiscal year ended June 30, 1997.
1994 Stock Award and Incentive Plan. The FTD Corporation 1994 Stock Award
and Incentive Plan (referred to herein as the "Option Plan") was adopted by the
Board of Directors of the Company and approved by the Company's stockholders on
December 9, 1994 and amended on June 12, 1995. The maximum number of shares of
Common Stock authorized for issuance under the Option Plan is equal to 15% of
the initial equity capital of the Company upon the consummation of the
Acquisition. The Option Plan is not subject to any provisions of the Employee
Retirement Income Security Act of 1974, as amended, nor is the Option Plan a
qualified plan within meaning of Section 401(a) of the Code.
The Option Plan is designed to enable the Company to attract and retain
highly qualified personnel who will contribute to the Company's success by their
ability, ingenuity and industry and to provide incentives to the participating
officers, other key employees, directors, consultants and advisors that are
linked directly to increases in stockholder value and will therefore inure to
the benefit of all stockholders of the Company.
Options may be granted to officers, other key employees of the Company
(collectively, the officers and key employees are referred to as "Eligible
Employees"), directors of the Company (other than members of the Compensation
Committee of the Board of Directors), and consultants and advisors to the
Company who are responsible for or contribute to the management, growth and/or
profitability of the business of the Company (each, a "Participant"). As of June
30, 1997, stock options to purchase an aggregate of 434,000 shares of Class A
Common Stock were outstanding (419,000 of which have not yet vested).
The Option Plan is administered by the Board of Directors or, if appointed
by the Board, the Compensation Committee (as applicable, the "Administrator").
The Company currently does not have a Compensation Committee. The Option Plan
permits the Administrator to determine which Participants shall receive awards,
the times when awards are to be granted and the number of shares, terms and
conditions on which the awards will be granted (not inconsistent with the terms
of the Option Plan). The Administrator is entitled to determine whether and to
what extent stock options, Stock Appreciation Rights ("SARs"), Limited Stock
Appreciation Rights ("LSARs"), Restricted Stock, Deferred Stock, Performance
Shares or a combination of the foregoing, are to be granted thereunder.
The Option Plan provides for grants of "Incentive Stock Options," meeting
the requirements of Section 422 of the Code and "Non-qualified Stock Options,"
which do not qualify as ISOs. Eligible Employees may be granted Incentive Stock
Options, Non-qualified Stock Options, or both, while all other Participants may
only be granted Non-qualified Stock Options, although all awards may be with or
without Stock Appreciation Rights or Limited Stock Appreciation Rights. The
option price per share under each
38
<PAGE> 41
Incentive Stock Option or Non-qualified Stock Option is to be determined by the
Administrator in its sole discretion at the time of grant but shall not, in the
case of Incentive Stock Options, be less than 100% of the Fair Market Value (as
defined therein) of the stock on such date. If an employee owns or is deemed to
own (by reason of the attribution rules applicable under Section 425(d) of the
Code) more than 10% of the combined voting power of all classes of stock of the
Company and an Incentive Stock Option is granted to such employee, the option
price of such Incentive Stock Option (to the extent required by the Code at the
time of grant) shall be no less than 110% of the Fair Market Value of the Stock
on the date such Incentive Stock Option is granted. The Company is authorized to
make loans available to Participants in connection with the exercise of
outstanding options granted under the Option Plan as the Administrator, in its
sole discretion, may determine appropriate.
Unless otherwise determined by the Administrator, the options shall not be
transferable and shall only be exercisable during the optionee's lifetime by the
optionee. In the event that an employee is terminated for any reason, the Stock
Option may thereafter be exercised to the extent provided in the applicable
subscription or award agreement.
SARs and LSARs may be granted either alone ("Free Standing") or in
conjunction with all or part of any option granted under the Option Plan
("Related Rights"). LSARs may only be exercised within the 30-day period
following a Change of Control (as defined by the Administrator in the agreement
evidencing such LSAR), and, with respect to LSARs that are Related Rights, only
to the extent that the stock options to which they relate shall be exercisable
in accordance with the provisions of the Option Plan.
SARs that are Related Rights are exercisable only at such time or times and
to the extent that the stock options to which they relate shall be exercisable.
Upon the exercise of a SAR that is a Related Right, an optionee shall be
entitled to receive up to, but not more than, an amount in cash or that number
of shares of Common Stock (or in some combination of cash and shares of Common
Stock) equal in value to the excess of the Fair Market Value of one share of
Common Stock as of the date of exercise over the option price per share
specified in the related stock option multiplied by the number of shares of
Common Stock in respect of which such Related Right SAR is being exercised. The
Administrator has the right to determine the form of payment.
SARs that are Free Standing are exercisable at such time or times and
subject to such terms and conditions as are determined by the Administrator at
or after the grant thereof. Upon the exercise of a SAR that is Free Standing, a
recipient shall be entitled to receive up to, but not more than, an amount in
cash or that number of shares of Common Stock (or any combination of cash or
shares of Common Stock) equal in value to the excess of the Fair Market Value of
one share of Common Stock as of the date of exercise over the price per share
specified in the grant thereof (which price shall be no less than 100% of the
Fair Market Value of the Common Stock on the date of grant) multiplied by the
number of shares of Common Stock in respect to which the right is being
exercised. The Administrator has the right to determine the form of payment.
Restricted Stock, Deferred Stock or Performance Share awards may be issued
either alone or in addition to other awards granted under the Option Plan. Such
awards are generally subject to restrictions on transfer and termination
determined in the discretion of the Administrator. Such restrictions may be
accelerated or waived in whole or in part based on such factors and such
circumstances as the Administrator may determine, in its sole discretion,
including, but not limited to, the attainment of certain performance related
goals, the Participant's termination of employment or service, death or
disability or the occurrence of a Change of Control (as defined in the agreement
evidencing such award).
Upon the award of any restricted stock or performance shares, the
participant will have the rights of a stockholder with respect to the shares,
including dividend rights, subject to the conditions and restrictions generally
applicable to restricted stock specifically set forth in the award agreement for
the participant's restricted stock or performance shares. Upon an award of
deferred stock, the participant will not have any rights of a stockholder, other
than the right to receive dividends, during the specified deferral period.
The Administrator may amend, alter or discontinue the Option Plan, provided
that any amendment which would (i) increase the total number of shares of stock
reserved for the purpose of the Option Plan,
39
<PAGE> 42
(ii) change the class of employees, directors, consultants and advisors eligible
to participate in the Option Plan or (iii) extend the maximum option period must
be approved by the stockholders to the extent such amendment would affect the
qualified status of the Option Plan under Rule 16b-3 of the Act.
Pension Plan. Prior to January 1, 1997, the Company provided a qualified
defined benefit pension plan (the "Pension Plan") which covered all employees
who received a regular stated salary and who did not work a varied schedule for
purposes of meeting the peak demand requirements of the Company's business
(provisional employees). Effective January 1, 1997, amendments to the Pension
Plan were adopted, including the elimination of the accrual of future benefits
under the Pension Plan.
The following table shows the estimated annual pension benefits payable to
a covered participant upon normal retirement at age 65 under the Pension Plan,
based on the remuneration that is covered under the Pension Plan and years of
service with the Company and its subsidiaries:
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30
------------ - -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$ 50,000............. $ 4,150 8,300 12,450 16,600 20,750 24,900
60,000............. 5,025 10,050 15,075 20,100 25,125 30,150
70,000............. 5,900 11,800 17,700 23,600 29,500 35,400
80,000............. 6,775 13,550 20,325 27,100 33,875 40,650
90,000............. 7,650 15,300 22,950 30,600 38,250 45,900
100,000............. 8,625 17,050 25,575 34,100 42,625 51,150
110,000............. 9,400 18,800 28,200 37,600 47,000 56,400
120,000............. 10,275 20,550 30,825 41,100 51,375 61,650
130,000............. 11,150 22,300 33,450 44,600 55,750 66,900
140,000............. 12,025 24,050 36,075 48,100 60,125 72,150
150,000............. 12,900 25,600 38,700 51,600 64,500 77,400
to
270,000
</TABLE>
Pension Plan benefits, as shown above, are calculated based upon total
years of services to a maximum of 30 years and the average of the five highest
consecutive calendar years' salary, bonus and certain elements of other
compensation and assume that participants have contributed all years to the Tax
Deferred Account-Mandatory under the Company's 401(k) Retirement Savings Plan
(as amended, the "401(k) Plan"). The annual pension benefits shown are computed
as a straight life annuity with ten years certain period beginning at age 65,
and assume that participants will transfer the balance of the Tax Deferred
Account-Mandatory from the 401(k) Plan to the Pension Plan. The amounts paid
under the Pension Plan are not offset by any social security payments. Mr.
Hagemann is the only Named Officer eligible to receive benefits under the
Pension Plan. Mr. Hagemann's covered compensation and the estimated years of
service as of June 30, 1997 is $158,604 and 15.75 years.
401(k) Plan. FTD has amended, effective January 1, 1997, its 401(k) Plan
for all of its eligible employees to replace certain benefits eliminated under
the Pension Plan. Generally, any employee who has completed 12 months of service
and is over 21 years of age is eligible to participate in the 401(k) Plan. Each
eligible employee may elect to contribute to the 401(k) Plan, through payroll
deductions, up to 15% of his or her compensation for services rendered in any
year, not to exceed a statutorily prescribed annual limit. Participants in the
401(k) Plan are always fully vested in their own contributions. The 401(k) Plan
provides that the Company may make matching contributions to the 401(k) Plan
based on the Company's net income and at the discretion of the Board of
Directors. Each participant becomes fully vested in the Company's contributions
allocated to his or her account upon completion of five years of service. The
Company's contributions are tax-deductible to the Company. Company contributions
to the 401(k) Plan for fiscal 1997 were not significant, and no contributions
were made by the Company to the accounts of any of the Named Executive Officers.
40
<PAGE> 43
Norton Employment Arrangements. FTD Corporation and the Operating Company
have entered into employment arrangements with Mr. Norton to serve as President
of FTD Corporation and President and Chief Executive Officer of the Operating
Company. Although Mr. Norton does not have an employment agreement with FTD,
pursuant to the terms of letters from the Operating Company to Mr. Norton dated
October 17, 1996 and June 6, 1997 (collectively, the "Norton Employment
Arrangements"), effective October 1, 1997 Mr. Norton's annual base salary was
increased to $300,000 plus an annual bonus and salary increase based on
performance criteria established by the Board of Directors. Mr. Norton's annual
bonus is paid at the end of the first quarter of the fiscal year based upon
performance criteria met as of the end of the immediately preceding fiscal year.
Pursuant to the Norton Employment Arrangements, Mr. Norton was granted
Non-Qualified Stock Options to purchase (i) 120,000 shares of Class A Common
Stock at an exercise price of $3.75 per share and (ii) 100,000 shares of Class A
Common Stock at an exercise price of $12.50 per share. Also, pursuant thereto,
on June 30, 1997, Mr. Norton purchased 60,000 shares of Class A Common Stock at
a price of $3.75 per share. The Company issued Mr. Norton 40,000 additional
shares of Class A Common Stock during the first quarter of fiscal 1998, which
are subject to restrictions on transfer and forfeiture in the event of
termination of employment prior to the expiration of a specified period of time.
Such 40,000 additional shares of Class A Common Stock were issued as restricted
stock and no purchase price was paid thereon.
The Norton Employment Arrangements provide that Mr. Norton shall be paid an
amount equal to twelve month's salary if his employment is terminated (other
than for cause) by the Operating Company at any time after October 28, 1997.
Levin Note. The Company loaned $150,000 to Mr. Levin pursuant to a
five-year, interest bearing recourse note dated June 30, 1997 (the "Levin
Note"), with accrued interest and principal due and payable at maturity. The
Levin Note bears interest at 7% per annum. The proceeds of the Levin Note were
used to purchase a primary residence and to assist Mr. Levin with other
relocation expenses. At October 31, 1997, $153,530 in principal and interest was
outstanding under the Levin Note.
Severance Arrangements. The Company has agreed with Mr. Hagemann that he
will be entitled to receive, among other things, salary continuation until the
age of 62 (November 8, 1998) if his employment with the Company or an affiliate
of the Company were terminated by the Company for any reason other than cause
(as defined in the Merger Agreement) prior to such time. Mr. Hagemann's
severance benefit currently would equal approximately $199,640. The Company has
agreed to provide Mr. Nagy with up to 12 months salary continuation unless Mr.
Nagy obtains employment prior to the end of such 12-month period.
Key Management Incentive Plan. Mr. Davis and Mr. Levin are participants in
the Company's Key Management Incentive Plan which covers approximately 30 key
employees of FTD and provides bonuses in the event that (i) the Company achieves
one or more targets based on FTD's EBITDA (earnings before interest, taxes,
depreciation and amortization), and (ii) the individual achieves specified
goals.
Compensation Committee Interlocks and Insider Participation. The Company
currently does not have a Compensation Committee. All matters which would
otherwise be determined by the Compensation Committee are considered by the
entire Board of Directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the ownership
of FTD Corporation Common Stock as of September 25, 1997, by: (i) each person
who is known to the Company to own beneficially more than 5% of the outstanding
shares of Class A Common Stock; (ii) each director and each of the Named
Officers owning equity securities of FTD Corporation; and (iii) all executive
officers and directors
41
<PAGE> 44
of the Company as a group. To the knowledge of the Company, each of such
stockholders has sole voting and dispositive power as to the shares beneficially
owned unless otherwise noted.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
(VOTING) (NONVOTING)
------------------------ -----------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF
SHARES CLASS SHARES CLASS
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Perry Partners..................................... 7,458,862 61.12 -- --
599 Lexington Avenue
New York, NY 10022
Bain Funds......................................... 2,679,616 21.96 -- --
Two Copley Place
Boston, MA 02116
Richard C. Perry(1)................................ 7,458,862 61.12 -- --
Habib Y. Gorgi(2).................................. 430,904 3.53 698,750 23.29
Geoffrey Rehnert(3)................................ 2,679,616 21.96 -- --
Robert L. Norton(4)................................ 100,000 * -- --
William P. Phelan(5)............................... 26,494 * 51,250 1.71
Rock A. Davis(6)................................... 25,000 * -- --
Scott D. Levin(7).................................. 6,666 * -- --
All executive officers and directors of FTD as a
group (10 people)(8)............................. 10,727,542 87.90 750,000 25.00
</TABLE>
- -------------------------
* Represents less than 1%
(1) The address of Mr. Perry is c/o the Company, 3113 Woodcreek Drive, Downers
Grove, Illinois 60515. All of the shares shown are held by Perry Partners.
Mr. Perry has a controlling interest in Perry Investors, L.L.C., the general
partner of Perry Partners. Accordingly, Mr. Perry may be deemed to have
voting and dispositive power with respect to the Shares held by Perry
Partners. Mr. Perry disclaims beneficial ownership of such Shares.
(2) The address of Mr. Gorgi is c/o Fleet Equity Partners, 50 Kennedy Plaza,
Providence, Rhode Island 02903. Includes shares owned by FGR, Fleet Equity
Partners VII, L.P. ("FEP"), and Chisholm Partners II, L.P. ("CPII"). Mr.
Gorgi is the President of FGR, Silverado V Corp. ("SVC"), and Silverado II
Corp. ("SIIC"). FGR and SVC are general partners of FEP, and SIIC is the
general partner of Silverado II L.P. ("SIILP"), which is the general partner
of CPII. Mr. Gorgi is also a limited partner of FEP and SIILP. As President
of FGR, SVC and SIIC, Mr. Gorgi may be deemed to share voting and
dispositive power with Robert M. Van Degna, Chairman & CEO of those
entities. Mr. Gorgi disclaims beneficial ownership of all shares which are
directly owned by FGR and those shares which are directly owned by FEP and
CPII, except for his pecuniary interest therein.
(3) The address of Mr. Rehnert is c/o Bain Capital, Inc., Two Copley Place,
Boston, Massachusetts 02116. All of the Shares shown are owned by the Bain
Funds. Mr. Rehnert is a Managing Director of Bain, which is a general
partner of the Bain Funds. Accordingly, Mr. Rehnert may be deemed to share
voting and dispositive power as to the shares held by the Bain Funds. Mr.
Rehnert disclaims beneficial ownership of such Shares. In addition, the
other Managing Directors of Bain, Joshua Bekenstein, Edward Conrad, David
Dominik, Paul Edgerley, Robert Gay, Adam Kirsch, Mark Nunnelly, Mitt Romney,
Stephan Pagliuca, Mark B. Wolpow and Robert White, may also be deemed to
share voting and dispositive power as to, and also disclaim beneficial
ownership of, such Shares.
(4) The address of Mr. Norton is c/o the Company, 3113 Woodcreek Drive, Downers
Grove, Illinois 60515. The Shares owned by Mr. Norton are subject to certain
restrictions on transfer. Includes 40,000 restricted shares which will vest
in three equal annual installments commencing September 30, 1999.
(5) The address of Mr. Phelan is c/o the Company, 3113 Woodcreek Drive, Downers
Grove, Illinois 60515. All of the shares shown are owned by Turnberry
Partners, L.P. ("Turnberry"). Mr. Phelan is the
42
<PAGE> 45
President and sole stockholder of Chatham Capital Management, Inc., the
general partner of Turnberry and is deemed to have voting and dispositive
power as to the shares held by Turnberry.
(6) The address of Mr. Davis is c/o the Company, 3113 Woodcreek Drive, Downers
Grove, Illinois 60515. Includes 15,000 Shares issuable upon exercise of
outstanding options which are currently exercisable. The Shares owned by Mr.
Davis are subject to certain restrictions on transfer.
(7) The address of Mr. Levin is c/o the Company, 3113 Woodcreek Drive, Downers
Grove, Illinois 60515. The Shares owned by Mr. Levin are subject to certain
restrictions on transfer.
(8) Includes 40,000 restricted shares which will vest in three equal annual
installments commencing September 30, 1999, and includes 15,000 Shares
issuable upon exercise of outstanding options which are currently
exercisable.
Except as described above, no directors or executive officers of FTD
Corporation beneficially own any shares of Common Stock.
See "DESCRIPTION OF CAPITAL STOCK" for a description of certain voting
arrangements with respect to the Common Stock owned by the Principal
Stockholders and certain other rights and obligations with respect to such
Common Stock.
RELATIONSHIP WITH AFFILIATES
Management Consulting Services Agreement. Parties related to each of the
Principal Stockholders have entered into an agreement for management consulting
services (the "Management Consulting Services Agreement") with FTD pursuant to
which they will make available to the Operating Company's management financial
and other corporate advisory services. Subject to certain limitations contained
in the Bank Credit Agreement and the Indenture with respect to the Notes, for
each fiscal year of the Company, the Operating Company will pay dividends to FTD
sufficient to allow FTD to pay such affiliates $400,000 per year plus up to an
additional $1.6 million per year conditioned upon the achievement of certain
levels of operating income, and reimbursement of reasonable out-of-pocket
expenses. Subject to certain conditions, such fee will be shared by the parties
thereto in proportion to their relative ownership interests in FTD. Pursuant to
the Management Consulting Services Agreement, the Principal Stockholders
received $1.0 million for each of the years ended June 30, 1997 and 1996, and
for the period December 19, 1994 through June 30, 1995.
Certain directors of FTD Corporation will receive indirectly a portion of
the management fee as a result of their ownership interest in or other
relationship with the entities providing services to the Operating Company. Mr.
Rehnert, a director of FTD Corporation designated by the Bain Funds, is a
Managing Director of Bain Capital, Inc. Mr. Gorgi, a director of FTD Corporation
designated by the Bain Funds, is the President of certain entities which own
Shares, directly or indirectly through general partnership interests. Mr.
Phelan, a director of the Operating Company, designated by the Bain Funds, is
entitled to receive a portion of the fees to be paid by the Operating Company
under the Management Consulting Services Agreement to Fleet Growth Resources,
Inc. pursuant to an agreement with such entity, so long as Mr. Phelan remains a
director of the Operating Company. Mr. Perry, Ms. Ho and Mr. Silberberg,
directors of FTD Corporation designated by Perry Partners, have an interest in
Perry Investors, L.L.C. Assuming the relative ownership interest among the
Principal Stockholders remains unchanged, Bain Capital, Inc., Fleet Growth
Resources, Inc. and Perry Investors, L.L.C. will be entitled to 23.33%, 11.67%
and 65%, respectively, of the fees to be paid by the Company under the
Management Consulting Services Agreement. The portion of such fee each of such
directors will receive, if any, is discretionary.
Stockholders' Agreement. Pursuant to the Stockholders' Agreement, each of
the Principal Stockholders has agreed, among other things, (i) to vote its
shares of common stock in order to elect and maintain a board of directors of
FTD and each of its subsidiaries (including the Operating Company), which
consists of six nominees of Perry Partners and three nominees of the Bain Funds
and, in the case of the Operating Company, FTD Association nominees as well,
(ii) that certain actions taken by the Company including (A) amending the
certificate of incorporation or by-laws of the Company, (B) entering into
acquisitions of assets or stock exceeding $4 million or (C) effectuating any
merger, consolidation or sale of the Company, require the
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approval of two of the directors nominated by Perry Partners and two of the
directors nominated by the Bain Funds and (iii) to certain restrictions on
transferring its shares of Class A Common Stock, including grants to the other
Principal Stockholders of certain rights with respect to the sale of its Class A
Common Stock. See "DESCRIPTION OF CAPITAL STOCK -- Stockholders' Agreement."
DESCRIPTION OF CAPITAL STOCK
The following summary description of the material terms of the capital
stock of FTD Corporation does not purport to be complete and is qualified in its
entirety by reference to the Restated Certificate of Incorporation and Bylaws of
the Company. For a description of certain restrictions on transfer with respect
to the Shares offered hereby, see "THE OFFERING."
Upon the consummation of the Offering, the authorized capital stock of the
Company will consist of 30,000,000 shares of Class A Common Stock, par value
$.01 per share, 3,000,000 shares of Class B Common Stock, par value $.0005 per
share and 1,000,000 shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock"). Following the Offering, the Company will have 13,427,128
shares of Class A Common Stock and 3,000,000 shares of Class B Common Stock
outstanding (assuming all of the Shares are sold and no shares of Class B Common
Stock are converted). No shares of Preferred Stock are issued and outstanding.
No established public trading market exists for FTD's common equity. As of
September 25, 1997, there were approximately 1,800 holders of Class A Common
Stock and approximately five holders of Class B Common Stock.
American Stock Transfer & Trust Company has been appointed the transfer
agent and registrar for the Class A Common Stock and Class B Common Stock.
COMMON STOCK
The Class A Common Stock and the Class B Common Stock rank equally and,
except with respect to voting power, are substantially identical in all material
respects. The Class B Common Stock was issued in connection with the Acquisition
to the Fleet Funds to satisfy certain restrictions on stock ownership applicable
to bank holding companies and was also issued upon exercise of the Warrants.
Dividends. The holders of Common Stock are entitled to receive dividends
when and as dividends are declared by the Board of Directors of FTD Corporation
out of funds legally available therefor, provided that if any shares of
Preferred Stock are at the time outstanding, the payment of dividends on the
Common Stock or other distributions may be subject to the declaration and
payment of full dividends on outstanding shares of Preferred Stock. FTD has not
paid any dividends on its common equity since its inception, and it has no
present intention of paying any such dividends. Any future determination as to
the payment of dividends will be at the discretion of the Board of Directors of
FTD, and will depend on the Company's financial condition, results of
operations, capital requirements, compliance with charter and contractual
restrictions, and such other factors as the Board of Directors deems relevant.
In addition, under the terms of its borrowings, the Company may not declare or
pay any dividend or make any distribution (other than dividends or distributions
payable solely in capital stock of the Company) on shares of its common stock to
holders of such common stock if at the time of such proposed dividend, or
immediately after giving effect thereto, certain financial conditions are not
satisfied. Notwithstanding the foregoing, the following, among other things, are
permitted: (1) payments by the Operating Company to or on behalf of FTD to fund
certain operating expenses of FTD; (2) payments by the Operating Company to FTD
pursuant to a tax sharing agreement between such parties as in effect on
December 19, 1994 or any amendment thereto or replacement agreement thereof; (3)
payments by the Operating Company to FTD to fund certain payments by FTD for
management services provided to the Operating Company; (4) payments by the
Operating Company to FTD to pay reasonable expenses incurred in connection with
this Offering; and (5) payments by the Operating Company to FTD to fund
repurchases by FTD of shares of its Common Stock or options to purchase Common
Stock held by former employees of FTD or its subsidiaries (subject to
restrictions).
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Holders of Class A Common Stock and Class B Common Stock will be entitled
to share ratably, as a single class, in any dividends paid on the Common Stock.
No dividend may be declared or paid in cash, property, Common Stock or Preferred
Stock convertible into Common Stock on either the Class A Common Stock or Class
B Common Stock unless a corresponding dividend is paid simultaneously on the
other Class of Common Stock. If stock dividends are declared, holders of Class A
Common Stock will receive shares of Class A Common Stock and holders of Class B
Common Stock will receive shares of Class B Common Stock; provided, however,
that if the dividends consist of other voting securities, then the Company shall
make available to each holder of Class B Common Stock, at such holder's request,
dividends consisting of non-voting securities otherwise identical to the voting
securities and which are convertible into or exchangeable for such voting
securities on the same terms as the Class B Common Stock is convertible into
Class A Common Stock. See "DIVIDEND POLICY."
Voting Rights. Each holder of Class A Common Stock is entitled to one vote
for each share of Class A Common Stock held on all matters submitted to a vote
of the Company's stockholders. Holders of Class B Common Stock are not entitled
to vote on any matters, except as otherwise required by law.
Conversion Rights. Shares of Class B Common Stock are convertible into
Class A Common Stock on a one-to-one basis at any time at the option of the
holders thereof, except that no shares of Class B Common Stock originally issued
to a bank holding company or an affiliate of a bank holding company shall be
converted into shares of Class A Common Stock by the original holder or any
direct or indirect transferee thereof, unless such Shares are being distributed,
disposed of or sold in any one of the following transactions:
(a) a public offering of such shares registered under the Securities
Act or a public sale pursuant to Rule 144 of the Securities Act, or any
similar rule then in effect;
(b) a sale of such shares to a person or group of persons if, after
such sale, such person or group of persons in the aggregate would own or
control securities of FTD which possess in the aggregate the ordinary
voting power to elect a majority of FTD's directors (provided that such
sale has been approved by the Board of Directors or a committee thereof);
(c) a sale of such shares to a person or group of persons if, after
such sale, such person or group of persons in the aggregate would own or
control securities of FTD (excluding any Class B Common Stock converted and
disposed of in connection with such sale) which possess in the aggregate
the ordinary voting power to elect a majority of FTD's directors; and
(d) a sale of such shares to a person or group of persons if, after
such sale, such person or group of persons in the aggregate would not own,
control or have the right to acquire more than two percent of the
outstanding securities of any Class of voting securities of FTD.
Liquidation Rights. Upon any liquidation, dissolution or winding up of the
affairs of the Company, whether voluntary or involuntary, any assets remaining
after the satisfaction in full of the prior rights of creditors, and the
aggregate liquidation preference of any Preferred Stock then outstanding will be
distributed to the holders of Class A Common Stock and Class B Common Stock,
ratably as a single Class in proportion to the number of shares held by them.
Reorganization, Consolidation or Merger. In the event of a reorganization,
consolidation or merger of the Company, each holder of a share of Class A Common
Stock shall be entitled to receive the same kind and amount of property
receivable by a holder of a share of Class B Common Stock and each holder of a
share of Class B Common Stock shall be entitled to receive the same kind and
amount of property receivable by a holder of Class A Common Stock.
No Preemptive Rights. The holders of Class A Common Stock and Class B
Common Stock are not entitled to preemptive or subscription rights.
PREFERRED STOCK
Pursuant to the Restated Certificate of Incorporation, the Board of
Directors of FTD Corporation is authorized to establish and designate one or
more series of Preferred Stock, without further authorization of
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the Company's stockholders, subject to the approval required pursuant to the
Stockholders' Agreement as described below. The Board of Directors is authorized
to fix the number of shares, the voting powers and such distinctive
designations, preferences and relative rights and limitations of any such
series. Thus, any series may, if so determined by the Board of Directors of the
Company, have full voting rights with the Class A Common Stock or superior or
limited voting rights, be convertible into Common Stock or another security of
the Company, and have such other relative preferences, rights and limitations as
the Board of Directors shall determine. As a result, any series of Preferred
Stock could have rights which would adversely affect the voting power of the
Class A Common Stock. The issuance of shares of Preferred Stock under certain
circumstances may have the effect of delaying, deterring or preventing a change
in control of the Company. The shares of any series or Class of Preferred Stock
need not be identical.
STOCKHOLDERS' AGREEMENT
The shares of Common Stock owned by the Principal Stockholders are subject
to the Stockholders' Agreement. The following is a summary of certain provisions
of the Stockholders' Agreement.
Board of Directors; Voting Matters. Under the Stockholders' Agreement, the
Principal Stockholders have agreed to vote their shares of Common Stock in order
to elect (i) a Board of Directors of the Company which consists of six designees
of Perry Partners and three designees of the Bain Funds and (ii) Boards of
Directors of the Operating Company and each of its subsidiaries which consist of
six designees of Perry Partners, two designees of the Bain Funds and two
designees of FTD Association. For biographical information regarding the Board
of Directors of FTD Corporation and the Operating Company, see "MANAGEMENT."
The affirmative vote of at least a majority of the members of the Board of
Directors of the Company or any of its subsidiaries, as the case may be, which
majority shall include at least two directors designated by Perry Partners and
two directors designated by the Bain Funds, is required with respect to certain
actions by the Company and the Operating Company, including, among others, the
following: (1) with certain exceptions, the issuance or sale by the Company or
any of its significant subsidiaries of any of its debt or equity securities
(other than the offerings, including this Offering, to FTD members required
under the Mutual Support Agreement (each, a "FTD Member Offering")) or any
incurrence of any material long-term indebtedness by the Company or any of its
significant subsidiaries; (2) with certain exceptions, the registration by the
Company or any of its subsidiaries of any of its securities; (3) certain
material acquisitions of assets or stock of another entity; (4) certain business
combinations and asset dispositions; (5) the declaration of dividends or the
payment of other distributions to stockholders of the Company; (6) with certain
exceptions, the repurchase or redemption by the Company or any of its
subsidiaries of any of its securities; (7) transactions with affiliates of the
Company (other than in the ordinary course); and (8) any material refinancing or
restructuring of the Bank Credit Agreement which is reasonably likely to have an
adverse effect on the Company.
Each annual operating budget for the Company and each of its significant
subsidiaries and the appointment of the Chairman, and the Chief Executive
Officer of the Company and the Operating Company require the approval of Perry
Partners and the Bain Funds.
Tag-Along Rights; Right of First Refusal. With respect to any proposed
transfer (other than with respect to offers and sales of Common Stock (i) in a
Public Offering (as defined in the Stockholders' Agreement), (ii) following a
Public Offering, pursuant to Rule 144 or Rule 144A under the Securities Act or
(iii) in an FTD Member Offering) by Perry Partners and its affiliates of Common
Stock which, when taken together with all prior transfers, represents more than
5% of the Common Stock initially held by Perry Partners upon consummation of the
Acquisition, each other stockholder of the Company who is a party to the
Stockholders' Agreement has the right to require the proposed transferee to
purchase a proportionate number of shares of Common Stock held by such
stockholder at the same price and upon the same terms and conditions as to be
paid and given to Perry Partners.
If any stockholder of the Company who is a party to the Stockholders'
Agreement at any time intends to transfer any Common Stock to a third party in a
bona-fide arms'-length transaction, the Company has an
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irrevocable option to purchase all (but not less than all) of such Common Stock
at the price offered by the third party. If such option is not exercised by the
Company, the other stockholders party to the Stockholders' Agreement (excluding
affiliates of the selling stockholder) have an irrevocable option to purchase
all (but not less than all) of such securities at the applicable offer price.
Registration Rights. Subject to certain limitations, at any time and from
time to time after the earlier of (i) the Company's first Public Offering and
(ii) December 19, 1998, upon the written request (a "Registration Request") of
the holders of a majority of the Common Stock held by Perry Partners, its
affiliates and their transferees permitted under the Stockholders' Agreement
("Permitted Transferees"), on the one hand, or holders of a majority of the
Common Stock held by the Bain Funds, the Fleet Funds, their respective
affiliates and their Permitted Transferees, on the other hand (in each case, a
"Requesting Stockholder"), that the Company effect the registration under the
Securities Act of all or part of the Common Stock owned by such Requesting
Stockholder, the Company is obligated to use its best efforts to effect the
registration under the Securities Act of such Common Stock. Except with respect
to applicable underwriting discounts and commissions, such registration will
generally be at the expense of the Company.
Notwithstanding the foregoing, except in certain circumstances: (i) the
Company will not be required to effect more than one such registration within
any 360-day period; (ii) Perry Partners, its affiliates and their Permitted
Transferees are entitled to no more than five Registration Requests; and (iii)
the Bain Funds, the Fleet Funds, their respective affiliates and their Permitted
Transferees are entitled to no more than three Registration Requests; provided
that the limitations on the number of Registration Requests contained in clauses
(ii) and (iii) above do not apply to registrations where the Requesting
Stockholder agrees to pay all of the costs and expenses of each such
registration.
If the Company at any time after the first Public Offering proposes to
register any shares of Common Stock under the Securities Act (except solely in
connection with any employee benefit plan or dividend reinvestment plan or a
merger or consolidation), including registrations pursuant to a Registration
Request, then upon the written request of any stockholder a party to the
Stockholders' Agreement, the Company, subject to certain limitations, is
obligated to use its best efforts to also register such stockholder's shares.
In connection with the registrations described above, to the extent
permitted by applicable law, the Company will indemnify each selling stockholder
and each selling stockholder will indemnify the Company and the other selling
stockholders against certain liabilities under the Securities Act and the
Exchange Act.
Termination. The Stockholders' Agreement (other than the tag-along
provisions, the registration rights provisions and certain provisions with
respect to the Bain Funds' and the Fleet Funds' obligations to pay Perry
Partners a portion of the profits they receive on certain sales of their Common
Stock) terminates on the earliest of (i) the date on which Perry Partners, the
Bain Funds and the Fleet Funds and their respective affiliates do not own in the
aggregate at least 35% of the Common Stock outstanding on a fully diluted basis,
(ii) the date on which either Perry Partners and its affiliates, on the one
hand, or the Bain Funds and the Fleet Funds and their respective affiliates, on
the other hand, do not own in the aggregate at least 10% of the Common Stock on
a fully-diluted basis or (iii) December 19, 2003.
SECURITYHOLDERS' AND REGISTRATION RIGHTS AGREEMENT
The Company, the Principal Stockholders and BT Securities Corporation and
Montgomery Securities (collectively, the "Initial Purchasers") have entered into
a Securityholders' and Registration Rights Agreement (the "Securityholders'
Agreement") with respect to the shares of Class B Common Stock issued upon
exercise of warrants (the "Warrants") issued to the Initial Purchasers in
connection with the Acquisition (the "Warrant Shares"). The Securityholders'
Agreement provides that the Initial Purchasers and persons to whom Registrable
Securities (as defined in the Securityholders' Agreement) are transferred
(collectively, "Holders") have the registration rights and other rights and
obligations with respect to the Registrable Securities described below.
Demand Registration Rights. At any time and from time to time, Holders
owning, individually or in the aggregate, not less than 25% of the Registrable
Securities may make a written request for registration under
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the Act of their Registrable Securities (a "Demand Registration"). Subject to
certain conditions, within 120 days of the receipt of such written request for a
Demand Registration, the Company shall file with the Commission and use its best
efforts to cause to become effective under the Securities Act a registration
statement with respect to such Registrable Securities. Subject to the
satisfaction of certain conditions set forth in the Securityholders' Agreement,
the Company shall be required to register Registrable Securities pursuant to the
foregoing provisions on a maximum of two separate occasions.
If at any time the Company proposes to file a registration statement under
the Securities Act with respect to an offering by the Company for its own
account or for the account of any of its securityholders of any class of its
common equity securities (other than, among others, a registration statement
filed pursuant to the offering of securities of the Company in an FTD Members
Offering), then the Company is required to offer Holders of Registrable
Securities the opportunity to include such Registrable Securities.
Take-Along Rights. If at any time prior to the occurrence of a Triggering
Event (as defined below) any existing stockholder prior to the consummation of
the 1995 Members' Offering (the "Initial Equity Holders") or any of its
Permitted Transferees (as defined in the Securityholders' Agreement) (a
"Take-Along Seller"), directly or indirectly, transfers (other than in a bona
fide public distribution pursuant to an effective registration statement under
the Securities Act) in a single transaction or a series of related transactions
a number of shares of Common Stock greater than or equal to 15% of the shares of
Common Stock collectively owned by the Initial Equity Holders on December 19,
1994 to a Non-Qualified Transferee (as defined in the Securityholders'
Agreement) (other than any sale effected pursuant to the Mutual Support
Agreement), the Holders of Warrant Shares have the irrevocable exclusive option,
but not obligation, to sell to the Non-Qualified Transferee Warrant Shares in an
amount equal to up to such number of Shares proposed to be sold by such
Take-Along Seller (the "Take-Along Included Securities") determined in
accordance with the Securityholders' Agreement, at a price per Take-Along
Included Security comprising such Take-Along Included Securities identical to
the price per share of Common Stock to be paid by the Non-Qualified Transferee
to the Take-Along Seller and on other terms identical to the terms applicable to
the Take-Along Seller.
A "Triggering Event" means the earlier of (i) the date on which the Company
or the Operating Company or any of their respective successors or assigns
consummates an underwritten primary public offering of equity securities
pursuant to a registration statement under the Act after which at least 30% of
the total issued and outstanding common equity of the Company or of the
Operating Company has been distributed by means of an effective registration
statement under the Securities Act or sales pursuant to Rule 144 promulgated
under the Securities Act or (ii) the date on which any class of equity
securities of the Company or the Operating Company is listed on a national
securities exchange or authorized for quotation on the National Association of
Securities Dealers, Inc. Automated Quotations System (other than as a result of
any FTD Member Offering).
DESCRIPTION OF BANK CREDIT AGREEMENT
Effective November 20, 1997, the Operating Company has entered into the
Bank Credit Agreement with The First National Bank of Chicago ("FNBC"), as agent
(the "Agent") and other institutions from time to time party thereto as lenders
(the "Banks"), which provides loans of up to $100.0 million. The Bank Credit
Agreement provides a facility of up to $50.0 million in aggregate principal
amount of term loans (the "Term Loans") and the Revolving Credit Facility,
pursuant to which the Operating Company borrowed approximately $25.0 million to
refinance the Company's then existing indebtedness under its prior credit
facility and which permits the Operating Company to borrow up to an additional
$25.0 million for working capital, acquisitions and the payment of certain
expenses. As part of the $50.0 million Revolving Credit Facility, the Operating
Company may borrow up to $5.0 million in aggregate principal amount of swing
line loans (the "Swing Line Loans") and may have letters of credit issued on its
behalf. This information relating to the Bank Credit Agreement is qualified in
its entirety by reference to the complete text of the documents entered into in
connection therewith. The following is a description of the general terms of the
Bank Credit Agreement.
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Indebtedness of the Operating Company under the Bank Credit Agreement is
guaranteed by the Company and certain of its subsidiaries and is secured by (i)
a first priority perfected pledge of all capital stock of each direct and
indirect subsidiary of the Company (including the Operating Company), provided
that only 65% of the capital stock of foreign subsidiaries are so pledged and
(ii) a first priority security interest in all of the receivables and the
proceeds thereof, inventory, equipment (other than certain equipment secured by
purchase money security interests), general intangibles, contract rights,
chattel paper, instruments and documents, interest and currency contracts, and
all investment property owned by FTD and its direct and indirect subsidiaries,
other than Florists' Transworld Delivery Association of Canada Limited.
Indebtedness under the Bank Credit Agreement bears interest at a floating
rate based (at FTD's option) upon (i) the Alternate Base Rate (defined as the
higher of (x) the corporate base rate of FNBC and (y) the Federal Reserve
reported rate on overnight Federal funds transactions (as adjusted pursuant to
the Bank Credit Agreement) plus 1/2 of 1%) plus up to 0.50% as a floating rate
margin or (ii) the Eurodollar Base Rate (as defined in the Bank Credit
Agreement) for 14 days or one, two, three or six months, plus an additional 1%
to 2% as a Eurodollar margin; provided that the Swing Line Loans shall be at a
floating rate (as described above).
The Term Loans and the Revolving Credit Facility will mature on December
31, 2003. The Company is required to repay the Term Loans beginning March 31,
1999, in 20 consecutive quarterly installments, which are based on the total
amount of Term Loans outstanding as of February 1, 1999 (the last date the
Operating Company may make a borrowing thereunder). In addition, the Bank Credit
Agreement provides for mandatory repayments, subject to certain exceptions, of
the Term Loans (i) from the net proceeds of, among other things, asset sales
outside the ordinary course of business of the Operating Company and its
subsidiaries, and (ii) in an amount equal to 50% of Excess Cash Flow (as defined
therein) per annum.
The loans under the Revolving Credit Facility (the "Revolving Loans") may
be borrowed, repaid and reborrowed, and shall be repaid in full on the
Termination Date (as defined in the Bank Credit Agreement). The Operating
Company is required to pay to the lenders under the Bank Credit Agreement a
commitment fee ranging from 1/4 of 1% to 1/2 of 1% per annum, payable on a
quarterly basis, on the unused portion of the Revolving Credit Facility (and,
prior to February 1, 1999, the unused portion of the Term Loan Commitment)
during such quarter, and certain additional fees payable to the Agent and First
Chicago Capital Markets, Inc., as arranger. The Operating Company is required to
pay to the lenders participating in the Revolving Credit Facility (i) a standby
letter of credit fee equal to the applicable Eurodollar Margin multiplied by the
average daily outstanding face amount available for drawing under all letters of
credit and (ii) a performance letter of credit fee equal to 50% of the
applicable Eurodollar Margin multiplied by the average daily outstanding face
amount available for drawing under all letters of credit. The Operating Company
is also required to pay fronting fees to each letter of credit issuer equal to a
percentage rate agreed upon by the Operating Company and such issuer, payable on
a quarterly basis, on the average daily outstanding face amount available for
drawing under all letters of credit of such issuer. Each such letter of credit
and fronting fee shall be payable quarterly in arrears. The Agent and the Banks
will receive such other fees as have been separately agreed upon with the Agent.
The Bank Credit Agreement requires FTD and its subsidiaries to meet certain
financial tests, including minimum fixed charge coverage, maximum leverage,
minimum consolidated net worth and maximum amounts of capital expenditures. The
Bank Credit Agreement also contains covenants which, among other things, limit
the incurrence of additional indebtedness, consummation of certain asset sales,
incurrence of liens, declaration or payment of dividends, making certain other
restricted payments or investments, transactions with affiliates, mergers and
consolidations, conveying, leasing, selling, transferring or otherwise disposing
of all or substantially all of its business or property, modifying the material
terms of its constituent documents, or engaging in unrelated businesses. The
Operating Company is in full compliance with all restrictive covenants set forth
in the Bank Credit Agreement.
The Bank Credit Agreement contains customary events of default, including
payment defaults, breach of representations and warranties, covenant defaults,
cross-default to certain other indebtedness, certain events of bankruptcy and
insolvency, judgment defaults, failure of any guaranty or security agreement
supporting the
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Bank Credit Agreement to be in full force and effect and change of control of
the Company or the Operating Company.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Class A
Common Stock by non-United States holders. As used herein, "non-United States
holder" means (i) a corporation, individual or partnership that is, for United
States federal income tax purposes, a foreign corporation, a non-resident alien
individual or a foreign partnership, (ii) an estate that is not subject to
United States taxation on income from sources without the United States that is
not effectively connected with the conduct of a trade or business within the
United States and (iii) a trust if either (A) a court in the United States is
not able to exercise primary supervision over the administration of such trust
or (B) one or more United States fiduciaries do not have the authority to
control all substantial decisions of such trust.
This discussion is based on current law which is subject to change
(possibly with retroactive effect) or different interpretations. This discussion
does not purport to deal with all aspects of federal income and estate taxation
that may be relevant to a particular non-United States holder's decision to
purchase Class A Common Stock.
ALL PROSPECTIVE NON-UNITED STATES HOLDERS OF CLASS A COMMON STOCK ARE
ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE UNITED STATES FEDERAL,
STATE AND LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF CLASS A COMMON STOCK.
DIVIDENDS
Dividends, if any, paid to a non-United States holder of Class A Common
Stock will be subject to withholding of United States federal income tax at a
30% rate or such lower rate as may be specified by an applicable income tax
treaty. However, a non-United States holder will be taxed at ordinary federal
income tax rates (on a net income basis) on dividends that are effectively
connected with the conduct of a trade or business of such non-United States
holder within the United States (but only if, in cases in which a tax treaty
applies, such dividends are attributable to a permanent establishment of the
holder in the United States) and will not be subject to the withholding tax
described above. If such non-United States holder is a foreign corporation, it
also may be subject to a United States branch profits tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty.
Under current law, dividends paid to an address located in a country other
than the United States are presumed to be paid to a resident of such country
(unless the payer has knowledge to the contrary) for purposes of the withholding
discussed above and, under the current interpretation of United States Treasury
regulations, for purposes of determining the applicability of a tax treaty rate.
Under proposed United States Treasury regulations not currently in effect,
however, a Non-United States holder of Class A Common Stock who wishes to claim
the benefit of an applicable treaty rate (and avoid backup withholding, as
discussed below) would be required to satisfy applicable certification and other
requirements. Currently, certain certification and disclosure requirements must
be complied with in order to be exempt from withholding under the effectively
connected income exemption discussed above. A non-United States holder that is
eligible for a reduced rate of United States withholding tax pursuant to an
income tax treaty may obtain a refund of any excess amounts withheld by filing
an appropriate claim for refund with the Internal Revenue Service ("IRS").
DISPOSITION OF STOCK
Non-United States holders generally will not be subject to United States
federal income tax in respect of gain recognized on a disposition of Class A
Common Stock unless (i) the gain is effectively connected with a trade or
business conducted by the non-United States holder within the United States and,
if a tax treaty
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applies, is attributable to a permanent establishment of the Non-United States
holder that is located in the United States (in which case the branch profits
tax described under "Dividends" above may also apply if the holder is a foreign
corporation), (ii) in the case of a non-United States holder who is a
non-resident alien individual and holds Class A Common Stock as a capital asset,
such holder is present in the United States for 183 or more days in the taxable
year of the disposition, and either the income from the disposition is
attributable to an office or other fixed place of business maintained by the
holder in the United States or the holder has a "tax home" in the United States
(within the meaning of the Internal Revenue Code of 1986, as amended (the
"Code")), or (iii) the Non-United States holder is subject to tax pursuant to
certain Code provisions applicable to expatriates. (The foregoing is based on
the assumption that the Company is not and has not been a "United States real
property holding corporation" for federal income tax purposes. The Company does
not believe it has been or is currently, and does not anticipate becoming, such
a corporation.)
FEDERAL ESTATE TAXES
Class A Common Stock that is owned or treated as being owned by a
non-United States holder at the time of death will be included in such holder's
gross estate for United States federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise. Such individual's estate may be subject to
U.S. federal estate tax on the property includable in the estate for U.S.
federal estate tax purposes.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
The Company must report annually to the IRS and to each Non-United States
holder the amount of dividends paid to such holder and the tax withheld with
respect to such dividends, regardless of whether withholding was required.
Copies of the information returns reporting such dividends and withholding may
also be made available to the tax authorities in the country in which the
Non-United States holder resides under the provisions of an applicable income
tax treaty.
Under current law, backup withholding at the rate of 31% generally will not
apply to dividends paid to a Non-United States holder at an address outside the
United States (unless the payer has knowledge that the payee is a U.S. person).
Under proposed United States Treasury regulations not currently in effect,
however, a Non-United States holder will be subject to backup withholding unless
applicable certification requirements are met.
Payment of the proceeds of a sale of Class A Common Stock by or through a
U.S. office of a broker is subject to both backup withholding and information
reporting unless the beneficial owner provides the payer with its name and
address and certifies under penalties of perjury that it is a Non-United States
holder, or otherwise establishes an exemption. In general, backup withholding
and information reporting will not apply to a payment of the proceeds of a sale
of Class A Common Stock by or through a foreign office of a foreign broker. If,
however, such broker is, for U.S. federal income tax purposes a U.S. person, a
controlled foreign corporation, or a foreign person that derives 50% or more of
its gross income for a certain period from the conduct of a trade or business in
the United States, such payments will be subject to information reporting, but
not backup withholding, unless (1) such broker has documentary evidence in its
records that the beneficial owner is a Non-United States holder and certain
other conditions are met, or (2) the beneficial owner otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules generally will be
allowed as a refund or a credit against such holder's U.S. federal income tax
liability provided the required information is furnished in a timely manner to
the IRS.
The backup withholding and information reporting rules are under review by
the Treasury Department and their application to the Class A Common Stock could
be changed by future regulations. Non-United States holders should consult their
tax advisors regarding the application of these rules to their particular
situations, the availability of an exemption therefrom, the procedure for
obtaining such an exemption, if available, and the possible application of the
proposed United States Treasury regulations addressing the withholding and the
information reporting rules.
51
<PAGE> 54
LEGAL MATTERS
The validity of the Shares will be passed upon for the Company by Schulte
Roth & Zabel LLP.
EXPERTS
The consolidated financial statements and schedule of FTD Corporation as of
June 30, 1997 and 1996, and for each of the years in the three-year period ended
June 30, 1997, have been included herein in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
52
<PAGE> 55
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of June 30, 1997 and 1996 and
September 30, 1997........................................ F-3
Consolidated Statements of Operations for the years ended
June 30, 1997, 1996 and 1995 and the three month periods
ended September 30, 1997 and 1996......................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1997, 1996 and 1995 and the three
month period ended September 30, 1997..................... F-5
Consolidated Statements of Cash Flows for the years ended
June 30, 1997, 1996 and 1995 and the three month periods
ended September 30, 1997 and 1996......................... F-6
Notes to Consolidated Financial Statements as of June 30,
1997, 1996 and 1995 and the three month period ended
September 30, 1997........................................ F-7
Independent Auditors' Report on Supplementary Information... F-22
Schedule II -- Valuation and Qualifying Accounts............ F-23
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are not applicable and therefore have
been omitted.
F-1
<PAGE> 56
KPMG LETTERHEAD
INDEPENDENT AUDITORS' REPORT
Board of Directors
FTD Corporation:
We have audited the accompanying consolidated balance sheets of FTD
Corporation and subsidiary as of June 30, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three year period ended June 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
FTD Corporation and subsidiary as of June 30, 1997 and 1996, and the results of
their operations and their cash flows for each of the years in the three year
period ended June 30, 1997, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Detroit, Michigan
August 14, 1997
F-2
<PAGE> 57
FTD CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1997 AND 1996 AND SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
AS OF AS OF JUNE 30,
SEPTEMBER 30, -------------------
1997 1997 1996
------------- ---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 21,398 $ 28,294 $ 26,650
Accounts receivable, less allowance for doubtful accounts
($2,247 at September 30, 1997 and $2,211 and $1,412 at
June 30, 1997 and 1996, respectively)..................... 31,342 24,979 24,080
Inventories, principally finished goods, net................ 14,520 14,992 12,468
Deferred income taxes....................................... 7,242 7,242 5,569
Other current assets........................................ 1,958 2,034 1,718
-------- -------- --------
Total current assets.................................... 76,460 77,541 70,485
PROPERTY AND EQUIPMENT:
Land and improvements....................................... 1,600 1,600 2,500
Building and improvements................................... 7,607 7,601 13,169
Mercury consoles............................................ 22,287 22,472 23,187
Furniture and equipment..................................... 13,079 12,832 11,630
-------- -------- --------
Total................................................... 44,573 44,505 50,486
Less accumulated depreciation............................... 26,381 23,925 15,158
-------- -------- --------
Property and equipment, net............................. 18,192 20,580 35,328
OTHER ASSETS:
Deferred financing costs, less accumulated amortization
($2,993 at September 30, 1997 and $2,724 and $1,648 at
June 30, 1997 and 1996, respectively)..................... 3,125 3,394 4,470
Deferred income taxes....................................... -- -- 194
Other noncurrent assets..................................... 1,857 1,979 2,191
Goodwill and other intangibles, less accumulated
amortization ($8,276 at September 30, 1997 and $7,528 and
$4,874 at June 30, 1997 and 1996, respectively)........... 77,482 78,230 83,414
-------- -------- --------
Total other assets...................................... 82,464 83,603 90,269
-------- -------- --------
Total assets............................................ $177,116 $181,724 $196,082
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt........................ $ 9,287 $ 9,297 $ 8,496
Accounts payable............................................ 25,595 29,237 28,360
Accrued member incentive programs........................... 12,930 13,816 12,949
Accrued severance costs..................................... 920 1,245 1,319
Other accrued liabilities................................... 7,616 5,765 6,059
Members' deposits........................................... 10,022 9,991 8,876
Unearned income............................................. 3,017 2,724 1,708
-------- -------- --------
Total current liabilities............................... 69,387 72,075 67,767
Long-term debt, less current maturities..................... 70,973 73,103 87,781
Post-retirement benefits, less current portion.............. 6,577 6,577 7,163
Accrued pension obligations................................. 576 876 4,061
Deferred income taxes....................................... 2,181 1,765 --
Minority interest in subsidiary............................. 155 156 170
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 1,000,000 shares
authorized, no shares issued.............................. -- -- --
Common stock:
Class A, $0.01 par value, 30,000,000 shares authorized;
6,185,014 shares issued and 6,055,470 shares outstanding
at September 30, 1997; 6,164,514 shares issued and
6,073,839 outstanding at June 30, 1997; 6,160,181 issued
and 6,134,549 outstanding at June 30, 1996.............. 62 62 62
Class B, $0.0005 par value, 3,000,000 shares authorized;
1,566,686 shares issued and outstanding at September 30,
1997 and at June 30, 1997 and 1996...................... 1 1 1
Paid-in capital............................................. 35,949 35,639 35,607
Accumulated deficit......................................... (7,830) (8,013) (6,275)
Notes receivable............................................ (295) (32) (128)
Treasury stock, at cost, 129,544 shares Class A Common Stock
at September 30, 1997; 90,675 shares Class A Common Stock
at June 30, 1997; 25,632 shares Class A Common Stock at
June 30, 1996............................................. (620) (485) (127)
-------- -------- --------
Total stockholders' equity.............................. 27,267 27,172 29,140
-------- -------- --------
Total liabilities and stockholders' equity.............. $177,116 $181,724 $196,082
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 58
FTD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
AND THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
THREE MONTH PERIOD
ENDED SEPTEMBER 30, FISCAL YEAR ENDED JUNE 30,
-------------------- -------------------------------
1997 1996 1997 1996 1995
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Marketplace.................................. $12,529 $13,639 $ 49,738 $ 57,924 $35,460
Clearinghouse................................ 6,777 6,627 34,383 37,070 24,738
Mercury Network.............................. 8,021 8,497 37,558 34,138 17,618
Other........................................ 8,160 8,305 40,904 37,123 18,702
------- ------- -------- -------- -------
Total revenues.......................... 35,487 37,068 162,583 166,255 96,518
COSTS:
Products and distribution.................... 8,746 9,461 35,897 41,209 25,736
Floral order transmissions and processing
services................................... 6,716 7,081 29,803 30,562 14,923
Member programs.............................. 6,576 6,811 30,606 32,615 17,908
------- ------- -------- -------- -------
Total cost of goods sold and services
provided.............................. 22,038 23,353 96,306 104,386 58,567
Selling, general and administrative
expense.................................... 10,136 11,312 55,769 58,376 30,669
------- ------- -------- -------- -------
Income from operations.................. 3,313 2,403 10,508 3,493 7,282
OTHER INCOME AND EXPENSES:
Interest income.............................. (327) (345) (1,480) (1,431) (1,719)
Interest expense............................. 3,003 3,283 12,789 13,498 7,546
Loss on sale of Southfield Michigan
facility................................... -- -- 530 -- --
------- ------- -------- -------- -------
Total other income and expenses......... 2,676 2,938 11,839 12,067 5,827
Income (loss) before income tax expense
(benefit) and minority interest....... 637 (535) (1,331) (8,574) 1,455
Income tax expense (benefit)................. 458 24 416 (1,813) 1,021
Minority interest in earnings (loss) of
subsidiary................................. (1) (11) (14) (33) 8
------- ------- -------- -------- -------
Net income (loss)....................... $ 180 $ (548) $ (1,733) $ (6,728) $ 426
======= ======= ======== ======== =======
EARNINGS (LOSS) PER SHARE:
Primary...................................... $0.01 $(0.04) $(0.12) $(0.51) $0.03
Fully Diluted................................ $0.01 $(0.04) $(0.12) $(0.51) $0.03
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 59
FTD CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
AND THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE
------------- ---------------------------
1997 1997 1996 1995
---- ---- ---- ----
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Class A, shares outstanding
Balance at beginning of period............................ 6,073 6,135 6,029 0
Common stock issued to effect merger.................... 5,986
Additional common stock issued.......................... 20 149
Purchase of common stock from initial investors......... (552)
Sales of common stock in public offering................ 659
Repurchase of common stock.............................. (39) (66) (33) (106)
Sale of common stock to officers........................ 4 32
------- ------- ------- -------
Balance at end of period.................................. 6,054 6,073 6,135 6,029
------- ------- ------- -------
Class B, shares outstanding
Balance at beginning of period............................ 1,567 1,567 442
Common Stock issued to effect merger.................... 442
Exercise of common stock warrants....................... 1,125
------- ------- ------- -------
Balance at end of period.................................. 1,567 1,567 1,567 442
------- ------- ------- -------
Common stock Class A and Class B at par value
Balance at beginning of period............................ $ 63 $ 63 $ 66 $ 0
Repurchase of initial investment........................ (5)
Common stock issued to effect merger.................... 64
Additional common stock issued.......................... 2
Sale of treasury stock.................................. (1)
Sale of common stock in public offering................. 6
Change in par value of class B shares................... (4)
Exercise of common stock warrants....................... 1
------- ------- ------- -------
Balance at end of period.................................. $ 63 $ 63 $ 63 $ 66
======= ======= ======= =======
Paid-in Capital
Balance at beginning of period............................ $35,639 $35,607 $35,385 $ 0
Repurchase of initial investment........................ (2,949)
Common stock issued to effect merger.................... 29,936
Additional common stock issued.......................... 310 949
Net income (loss)....................................... 4,500
Sale of treasury stock.................................. (499)
Sale of common stock in public offering................. 3,516
Repurchase of common stock.............................. 80
Sale of common stock to officers........................ 32 135
Change in par value of class B shares................... 4
Cancellation of shareholder receivable related to
repurchase of common stock............................ (65)
------- ------- ------- -------
Balance at end of period.................................. $35,949 $35,639 $35,607 $35,385
======= ======= ======= =======
Retained Earnings (Accumulated Deficit)
Balance at beginning of period............................ $(8,013) $(6,275) $ 449 $ 0
Net income (loss)....................................... 180 (1,733) (6,728) 426
Foreign currency translation adjustment................. 3 (5) 4 23
------- ------- ------- -------
Balance at end of period.................................. $(7,830) $(8,013) $(6,275) $ 449
======= ======= ======= =======
Stock Subscription and Notes Receivable
Balance at beginning of period............................ $ (32) $ (128) $ (319) $ 0
Repurchase of initial investment........................ $ 32 68
Additional common stock issued.......................... (319)
Sale of common stock to officers........................ $ (295) (32) (12)
Amortization of shareholder notes....................... 70
Cancellation of shareholder receivable related to
repurchase of common stock............................ 65
Forgiveness of officers loan............................ 128
------- ------- ------- -------
Balance at end of period.................................. $ (295) $ (32) $ (128) $ (319)
======= ======= ======= =======
Treasury Stock
Balance at beginning of period............................ $ (485) $ (127) $ (500) $ 0
Repurchase of common stock.............................. (135) (358) (162) (500)
Sale of treasury stock.................................. 500
Sale of common stock to officers........................ 35
------- ------- ------- -------
Balance at end of period.................................. $ (620) $ (485) $ (127) $ (500)
======= ======= ======= =======
Total Stockholders Equity................................... $27,267 $27,172 $29,140 $35,081
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 60
FTD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
AND THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
THREE MONTH
PERIOD ENDED
SEPTEMBER 30, FISCAL YEAR ENDED JUNE 30,
------------------ --------------------------------
1997 1996 1997 1996 1995
---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ 180 $ (548) $ (1,733) $(6,728) $ 426
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 3,333 3,575 15,606 14,231 6,525
Amortization of deferred financing costs and original
issue discount.......................................... 359 346 1,404 1,359 708
Post-retirement benefits.................................. -- 149 (586) 401 361
Pension................................................... (300) 247 (2,756) (120) --
Minority interest in earnings (loss) of subsidiary........ (1) (11) (14) (33) 8
Undistributed loss of unconsolidated affiliate............ (13) (10) (30) (66) (54)
Loss on sale or disposal of assets........................ -- 107 530 663
Increase (decrease) in cash due to change in:
Accounts receivable..................................... (6,363) (1,076) (899) (3,219) 12,842
Inventories............................................. 472 (1,435) (2,524) 1,027 1,524
Deferred income taxes................................... 416 (33) 286 (2,035) 507
Other current assets.................................... 76 (1,989) (316) (159) 2,336
Accounts payable........................................ (3,642) (203) 877 1,491 (28,694)
Accrued member incentive programs....................... (886) (2) 867 6,194 (2,819)
Accrued severance costs................................. (325) (312) (74) (1,504) (1,075)
Other accrued liabilities, unearned income, and members'
deposits.............................................. 2,175 4,159 1,837 (417) 1,907
------- ------- -------- ------- ---------
Net cash provided by (used in) operating activities..... (4,519) 2,964 12,475 11,085 (5,498)
CASH FLOWS FROM INVESTING ACTIVITIES:
Release of restricted cash related to credit deposit fund
investments............................................... 2,173
Proceeds from acquisition................................... 46,577
Payment to effect merger.................................... (109,028)
Capital expenditures, net................................... (402) (1,386) (2,614) (4,950) (3,082)
Proceeds from sale of Southfield Michigan facility.......... 340 -- 6,224
------- ------- -------- ------- ---------
Net cash provided by (used in) investing activities... (62) (1,386) 3,610 (4,950) (63,360)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to deferred financing costs....................... (126)
Proceeds from long-term debt................................ 95,436
Repayments of long-term debt................................ (2,230) (1,503) (14,206) (4,762) (35,101)
Issuance of common stock.................................... 310 (39) 3,681 30,631
Repurchase of common stock.................................. (135) -- (358) (3,037) (500)
Issuance of common stock warrants........................... 1 3,000
Decrease on notes receivable from stockholders.............. (263) 12 128 138
------- ------- -------- ------- ---------
Net cash provided by (used in) financing activities... (2,318) (1,530) (14,436) (3,979) 93,340
Effect of foreign exchange rate changes on cash............. 3 3 (5) 12
------- ------- -------- ------- ---------
Net increase in cash and cash equivalents................... (6,896) 51 1,644 2,168 24,482
Cash and cash equivalents at beginning of period............ 28,294 26,650 26,650 24,482
------- ------- -------- ------- ---------
Cash and cash equivalents at end of period.................. $21,398 $26,701 $ 28,294 $26,650 $ 24,482
======= ======= ======== ======= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid............................................... $ 554 $ 931 $ 11,458 $12,113 $ 6,704
======= ======= ======== ======= =========
Income taxes paid........................................... $ 44 $ 100 $ 237 $ 201 $ 260
======= ======= ======== ======= =========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Florists' Transworld Delivery Association (the "Acquired Company") was
acquired by FTD Corporation (the "Company") on December 19, 1994 (see note 2).
The acquisition was effected through a merger of the Acquired Company with a
subsidiary of the Company, with the Acquired Company surviving the merger as a
wholly owned subsidiary of the Company, as follows:
<TABLE>
<S> <C>
Cash utilized to effect merger.............................. $109,028
NONCASH ITEMS:
Reduction of proceeds from long-term debt for financing
costs..................................................... 5,992
Value ascribed to common stock warrants issued.............. 1,500
Reduction in accrued severance costs subsequent to initial
purchase price allocation................................. 3,138
Other purchase accounting adjustments for assets acquired
and liabilities assumed................................... (809)
--------
Total purchase price...................................... $118,849
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 61
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995 AND THE THREE MONTH
PERIOD ENDED SEPTEMBER 30, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS
FTD Corporation (the "Company"), is a supplier of non-perishable hardgoods,
order clearing services, marketing support and other services, including
greeting cards, publications and credit card authorization and processing to the
retail floral industry and operates a toll free number that offers consumers the
opportunity to place orders directly with the Company.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company at June 30, 1997 and
1996, include the accounts of FTD Corporation and its wholly owned subsidiary,
Florists' Transworld Delivery, Inc. (the "Operating Company"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
Prior to the acquisition, the Company was inactive. The accompanying
consolidated statements of operations and cash flows for the year ended June 30,
1995 includes only the Operating Company's revenues, operating expenses and cash
flows for the period December 19, 1994 through June 30, 1995.
Certain amounts in the 1996 and 1995 consolidated financial statements have
been reclassified to conform to the 1997 presentation.
The unaudited consolidated financial statements at September 30, 1997, have
been prepared in accordance with generally accepted accounting principles for
interim financial information pursuant to the rules and regulations of the
Securities and Exchange Commission and do not contain all information included
in the audited consolidated financial statements and notes for the year ended
June 30, 1997. In the opinion of FTD management, all adjustments necessary for a
fair presentation of the financial position and results of operations have been
included (and any such adjustments are of a normal, recurring nature, except as
disclosed herein). Due to seasonal variations in FTD's business, operating
results for the three month period ended September 30, 1997 are not necessarily
indicative of the results that might be expected for the year ended June 30,
1998.
Certain amounts in the September 30, 1996 unaudited consolidated financial
statements have been reclassified to conform to the current presentation.
CASH AND CASH EQUIVALENTS
The Company's policy is to invest cash in excess of operating requirements
in income-producing investments. The Company considers all investments purchased
with maturities of three months or less at the date of purchase to be cash
equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist primarily of cash and cash equivalents,
accounts receivable, accounts payable, accrued member incentive programs,
accrued severance costs, other accrued liabilities, unearned income, member
deposits and long-term debt. At June 30, 1997, because of the short maturity of
those instruments other than Long-term debt, the fair value of these financial
instruments approximates the carrying amount. Long-term debt is discussed in
Note 4.
INVENTORIES
Inventories consist principally of finished goods and are stated at the
lower of cost, principally on a first in, first out basis, or market (net
realizable sales value).
F-7
<PAGE> 62
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated over their
estimated useful lives using the straight-line method. The useful lives are ten
to 31.5 years for building and improvements, five years for Mercury consoles,
and five to ten years for furniture and equipment. Assets acquired on December
19, 1994 (see Note 2), have been recorded at fair value.
Upon sale or retirement of property and equipment, the cost and related
accumulated depreciation are eliminated from the respective accounts, and any
gain or loss incurred in the ordinary course of business is included as selling,
general and administrative expenses in the accompanying consolidated statements
of operations. Maintenance and repairs are charged to expense as incurred.
Expenditures which improve or extend the life of existing property and equipment
are capitalized.
SYSTEMS SOFTWARE
Systems software, included in other noncurrent assets, is recorded at
purchase cost and is being amortized over its expected economic life of five
years using the straight-line method. Assets acquired on December 19, 1994 (see
Note 2), have been recorded at fair value.
INTANGIBLES
Deferred financing costs are being amortized over the life of the related
financing using the straight-line method. Goodwill is being amortized using the
straight line method over 30 years. Other intangibles consist of trademarks,
trained workforce, and software, and are being amortized over 40, 7, and 5
years, respectively, using the straight-line method.
The Company periodically evaluates whether events and circumstances that
have occurred indicate that the remaining balance of goodwill and other
intangibles may not be recoverable or that the remaining estimated useful lives
may warrant revision. When such factors indicate that goodwill and other
intangibles should be evaluated for possible impairment, the Company uses an
estimate of undiscounted future cash flows to measure whether the goodwill and
other intangibles is recoverable, and over what period (see Notes 2 and 3).
INCOME TAXES
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 109, Accounting for Income Taxes. SFAS No. 109 requires the asset and
liability method of accounting for income taxes in which deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under SFAS No.
109, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date (see Note
7).
FOREIGN CURRENCY TRANSLATION
In accordance with SFAS No. 52, balance sheet accounts of the Company's
foreign operations are translated from Canadian currency into U.S. dollars at
year-end or historical rates, while income and expenses are translated at the
weighted average exchange rates for the year. Translation gains or losses
related to net assets located outside the United States are included in retained
earnings. Gains and losses resulting from foreign currency transactions are
included in net income.
F-8
<PAGE> 63
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
EARNINGS PER SHARE
Earnings (loss) per share is calculated by dividing net income (loss) by
the weighted average common shares and common share equivalents outstanding
during the period. Where dilutive, unexercised stock options of the Company are
included as common stock equivalents using the treasury stock method.
REVENUES
Revenues earned by the Company for processing floral orders are recorded in
the month the orders are reported to the Company as filled. Revenues for other
services related to the processing of floral orders (including equipment rentals
and transmission charges) are recorded in the period the service is provided.
Sales of products are recorded when the products are shipped. Revenues relating
to publications are recognized in the periods in which the publications are
issued.
STOCK-BASED COMPENSATION
Prior to July 1, 1996, the Company accounted for its stock options in
accordance with provisions of Accounting Principles Board ("APB") Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price.
On July 1, 1996, the Company adopted SFAS No. 123 Accounting for
Stock-Based Compensation, which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair value-based method defined in SFAS No. 123 has been
applied. The Company has elected to continue apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosure provisions of SFAS No. 123 (see Note
11).
USE OF ESTIMATES
Management of the Company has made estimates and assumptions relating to
the reporting of assets and liabilities and related disclosures to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results may differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued SFAS No. 128,
"Earnings Per Share" in Fiscal 1997. This Statement establishes standards for
computing and presenting earnings per share and applies to entities with
publicly held Common Stock or potential Common Stock. This statement supersedes
Accounting Principles Board (APB) Opinion No. 15 and is effective for periods
ending after December 15, 1997. The Company will adopt this statement in the
second quarter of Fiscal 1998. Currently, the Company is evaluating the effect
of this statement.
The FASB also has recently issued two new accounting standards, SFAS No.
130, Reporting Comprehensive Income and SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. These statements will affect the
disclosure requirements for the Fiscal 1999 annual financial statements. The
Company does not know at this time the effect of these new statements.
F-9
<PAGE> 64
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(2) ACQUISITION
On December 19, 1994 (the "Merger Date"), FTD Corporation, a Delaware
corporation, completed an acquisition of all of the outstanding equity of
Florists' Transworld Delivery Association, a Michigan nonprofit cooperative
association (the "Acquired Company"), pursuant to the terms of an Agreement and
Plan of Merger (the "Merger Agreement") dated August 2, 1994. The acquisition
was effected through the merger (the "Merger") of FTD Acquisition Corp., a
wholly owned subsidiary of FTD Corporation, with and into the Acquired Company,
with the Acquired Company surviving the Merger as a wholly owned subsidiary of
FTD Corporation. Concurrent with the Merger, the Acquired Company was converted
from a nonprofit cooperative association to a for-profit corporation and renamed
"Florists' Transworld Delivery, Inc." (from and after the Merger Date, the
"Operating Company").
The Company has accounted for the Merger under the purchase method of
accounting, and accordingly, the Company's consolidated financial statements,
reflect the allocation of the total purchase price to the tangible and
intangible assets acquired and liabilities assumed of the Acquired Company as of
December 19, 1994, based on their respective estimated fair values.
Upon consummation of the acquisition of the Operating Company by FTD
Corporation, management began to assess, formulate, and implement a plan to
involuntarily terminate and/or relocate employees of the Operating Company as
part of its relocation and/or consolidation efforts. The allocation of the total
purchase price referred to above included a reserve for the estimated cost of
planned termination, severance and relocation.
On January 3, 1997, the Operating Company's Board of Directors approved a
plan to consolidate corporate staff and operations into its Downers Grove,
Illinois facility. Leased office space in Boston, Massachusetts was sub-leased,
and land and buildings, in Southfield, Michigan were sold. The Company's bank
credit agreement required it to use the net proceeds from the sale of assets to
reduce the outstanding term loan. In accordance with EITF Consensus No. 94-3
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity," non-recurring charges in connection with this
consolidation including severance, asset impairment losses, and other costs
aggregating $3.0 million were recognized as selling, general and administrative
costs in the accompanying Consolidated Statement of Operations for the year
ended June 30, 1997. The severance costs results from the planned termination of
approximately 183 employees, who performed corporate and operating functions at
the Southfield and Boston locations. In addition, based on the consolidation of
the Company's facilities and the termination of a majority of the workforce as a
result of the closed facilities, the balance of $2.1 million, net of $0.6
million of amortization, for the intangible asset of trained workforce was
written off during the year ended June 30, 1997.
F-10
<PAGE> 65
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(2) ACQUISITION -- CONTINUED
The activity in such reserves during the period December 19, 1994 through June
30, 1995 and the years ended June 30, 1996 and 1997, can be summarized as
follows (in thousands):
<TABLE>
<CAPTION>
SEVERANCE RELOCATION
BENEFITS COSTS OTHER TOTAL
--------- ---------- ----- -----
<S> <C> <C> <C> <C>
Initial estimate as of December 19, 1994................... $5,573 $600 $863 $7,036
Costs paid during the period December 19, 1994 through
June 30, 1995............................................ 843 -- 232 1,075
------ ---- ---- ------
Remaining liability as of June 30, 1995.................... 4,730 600 631 5,961
------ ---- ---- ------
Costs paid during the year ending June 30, 1996............ 1,310 41 153 1,504
Change in estimate......................................... 2,370 480 288 3,138
------ ---- ---- ------
Remaining liability as of June 30, 1996.................... 1,050 79 190 1,319
------ ---- ---- ------
Additional liability recognized due to consolidation....... 1,292 93 1,575 2,960
Cost paid during the year ending June 30, 1997............. 1,550 53 1,431 3,034
------ ---- ---- ------
Remaining liability as of June 30, 1997.................... $ 792 $119 $334 $1,245
====== ==== ==== ======
</TABLE>
(3) INTANGIBLES
At June 30, 1997 and 1996 goodwill and other intangible assets consisted of
the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Goodwill.................................................... $68,758 $69,188
Trademarks.................................................. 15,000 15,000
Trained Workforce........................................... -- 2,100
Software.................................................... 2,000 2,000
------- -------
Total....................................................... 85,758 88,288
Less accumulated amortization............................... 7,528 4,874
------- -------
Total....................................................... $78,230 $83,414
======= =======
</TABLE>
The Company had no intangibles prior to the Merger Date. The changes in
goodwill resulted from adjustments to the reserve for estimated costs of planned
termination, severance and relocation (see Note 2), as well as pension and
postretirement obligations (see Notes 8 and 9). The reduction in trained
workforce related from the consolidation of the Company's offices in Fiscal 1997
and the related impairment of this asset at that time (see Note 2).
F-11
<PAGE> 66
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(4) FINANCING ARRANGEMENTS
LONG-TERM DEBT (IN THOUSANDS)
At June 30, 1997 and 1996 long-term debt consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Series B senior subordinated notes, interest payable
semiannnually at 14% due December 15, 2001, net of
unamortized discount of $2,252 and $2,580 at June 30, 1997
and 1996 respectively..................................... $57,748 $57,420
Term loan, payable quarterly at various amounts, plus
interest at a weighted average floating Eurodollar rate of
8.8%, and 8.5% at June 30, 1997 and 1996 respectively, due
December 15, 1999......................................... 24,619 38,781
Other....................................................... 33 76
------- -------
Total long-term debt................................. 82,400 96,277
Less current maturities..................................... 9,297 8,496
------- -------
Long-term debt, less current maturities.............. $73,103 $87,781
======= =======
</TABLE>
The principal payments required for each of the following five Fiscal years
are as follows (in thousands):
<TABLE>
<S> <C>
1998....................................................... $ 9,297
1999....................................................... 10,094
2000....................................................... 5,252
2001....................................................... 6
2002....................................................... 60,003
-------
Total................................................. $84,652
=======
</TABLE>
The Company's debt agreements include covenants which, among other things,
require that the Company maintain certain financial ratios and a minimum level
of consolidated net worth. The Company is in compliance with all debt covenants
at June 30, 1997. The Company's debt agreements also include restrictions on the
declaration and payment of dividends. The term loan agreement requires the
Company to repay principal of the loans to the extent cash flow generated in the
Fiscal year exceeds certain calculated amounts. As of June 30, 1997 the
estimated fair value of long-term debt, discounted at current rates, was
$87,652,000.
LINE OF CREDIT
The Company has a $25 million revolving line of credit, obtained at the
acquisition date, with a group of banks at an interest rate varying with prime
or other indices. There were no borrowings on this line during 1997 or 1996
however the Company has trade letters of credit of approximately $3.0 million
outstanding under this revolving line of credit agreement at June 30, 1997. The
agreement provides a maximum commitment for letters of credit of $5.0 million
and requires an annual commitment fee of 0.5% on the unused portion of the
commitment.
F-12
<PAGE> 67
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(5) LEASES
AS LESSOR
The Company leases Mercury consoles to members through leases classified as
operating leases for accounting purposes. The net investment in equipment leased
to members under operating leases, including equipment used for maintenance
purposes, was as follows at June 30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Mercury consoles............................................ $22,472 $23,187
Less: Accumulated Depreciation.............................. 17,710 10,946
------- -------
Net Investment......................................... $ 4,762 $12,241
======= =======
</TABLE>
AS LESSEE
Rental expense with respect to operating leases related to facilities and
equipment was $1,005,000, $802,000 and $459,000 for the years ended June 30,
1997, 1996 and 1995, respectively. The minimum aggregate annual operating lease
obligations are as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $1,160
1999........................................................ 637
2000........................................................ 333
2001........................................................ 333
Thereafter.................................................. 106
------
Total.................................................. $2,569
======
</TABLE>
(6) ADVERTISING AND SALES PROMOTION COSTS
The Company expenses advertising time and space costs and related residual
rights and contracts at the time the advertising is first broadcast or
displayed. Production and promotion costs are charged to expense when incurred.
Advertising credits earned by FTD members under the Company's sales incentive
program are charged to expense when earned.
In the years ended 1997, 1996 and 1995, advertising and sales promotion
expense was $28 million, $31 million and $16 million, respectively.
F-13
<PAGE> 68
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(7) INCOME TAXES
At June 30, 1997 and 1996, the Company's deferred tax assets and
liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current deferred tax assets:
Accrued Value Plus incentive obligations.................. $ 2,824 $ 3,058
Accrued severance costs................................... 399 499
Allowance for doubtful accounts........................... 814 518
Unearned income........................................... 970 617
Inventory................................................. 1,075 497
Accrued vacation.......................................... 132 246
Other..................................................... 1,028 134
------- -------
Current deferred tax assets................................. 7,242 5,569
------- -------
Noncurrent deferred tax assets:
Net operating loss carryforwards.......................... 3,131 4,844
Postretirement benefit obligations........................ 2,433 2,650
Accrued pension........................................... 324 1,503
Other..................................................... 254 197
------- -------
Noncurrent deferred tax assets.............................. 6,142 9,194
Noncurrent deferred tax liabilities -- tax over book
depreciation and difference in basis...................... 6,407 7,500
------- -------
Net noncurrent deferred tax assets (liabilities)............ (265) 1,694
------- -------
Deferred tax assets -- valuation allowance.................. (1,500) (1,500)
------- -------
Net deferred tax assets..................................... $ 5,477 $ 5,763
======= =======
</TABLE>
The deferred tax assets are subject to certain asset realization tests.
Company management believes that, under the principles of SFAS No. 109, based on
their evaluation of taxable income in future years and the uncertainty of fully
realizing the noncurrent deferred tax assets with very long lives, a valuation
allowance of $1.5 million is appropriate at June 30, 1997 and 1996.
The Company's net operating loss carryforwards at June 30, 1997 and 1996,
of approximately $8.5 million, and $10.8 million, respectively, the tax benefits
of which are included above as noncurrent deferred tax assets, will expire if
unused, as follows: $0.2 million in 2007; $2.3 million in 2008; $0.8 million in
2009; and $5.2 million in 2010. In addition, as a result of the Merger (see Note
2), the Company's pre-Merger net operating loss carryforwards of $3.3 million
available to be utilized in the future are limited to approximately $1.8 million
per year.
The provision for income taxes consists of the following components (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current..................................................... $130 $ 189 $ 144
Deferred.................................................... 286 (2,002) 877
---- ------- ------
Income Tax expense (benefit)................................ $416 $(1,813) $1,021
==== ======= ======
</TABLE>
F-14
<PAGE> 69
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(7) INCOME TAXES -- CONTINUED
The provision for income taxes for the years ended June 30, 1997, 1996 and
1995, differs from the amount computed by applying the U.S. federal income tax
rate (35%) to pretax income because of the effect of the following items (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax expense (benefit) at U.S. federal income rate.......... $(466) $(3,001) $ 509
State income taxes (benefit), net of federal income tax
benefit.................................................. (27) (172) 29
Amortization of purchased goodwill......................... 893 842 464
Valuation allowance........................................ -- 500 --
Other items, net........................................... 16 18 19
----- ------- ------
Reported income tax expense (benefit).................... $ 416 $(1,813) $1,021
===== ======= ======
</TABLE>
(8) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Operating Company provides certain postretirement health care benefits
to substantially all employees who retired with a minimum of 10 years of service
and have attained 60 years of age. The plan retirees are required to share in
the cost of the benefit. During 1997, the consolidation of corporate staff and
operations into one facility (see Note 2), together with other factors, resulted
in the termination of numerous employees which significantly reduced the
expected years of future service of those employees and the Operating Company's
corresponding liability for certain postretirement benefits. These terminations
caused a decrease in the Operating Company's postretirement obligation and
generated a pretax gain of $0.8 million which was recorded as a reduction in
selling, general and administrative expenses. In addition, the Operating Company
amended its postretirement benefit plan effective January 1, 1997, and will no
longer provide such benefits to employees hired after January 1, 1997.
At June 30, 1997 and 1996 the status of the plan consisted of the following
(in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Retirees.................................................... $4,448 $4,198
Fully eligible active participants.......................... -- 62
Other active participants................................... 860 1,921
------ ------
Accumulated postretirement benefit.......................... 5,308 6,181
Unrecognized net gain....................................... 1,526 1,238
------ ------
Accrued postretirement benefit.............................. $6,834 $7,419
====== ======
</TABLE>
At June 30, 1995, the accrued postretirement benefit liability included
employees who were subsequently voluntarily or involuntarily terminated as part
of the Company's relocation and/or consolidation plan to relocate and/or
consolidate employees. Upon the completion of the Company's relocation and/or
consolidation plan, a reduction to the accrued postretirement benefit liability
of $590,000 was recorded to reflect the impact of this plan.
Net periodic postretirement benefit costs for the years ended June 30,
1997, 1996 and 1995 included the following components (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost................................................ $190 $194 $168
Interest cost............................................... 434 438 294
Unrecognized prior period................................... (45) (54) --
---- ---- ----
Total....................................................... $579 $578 $462
==== ==== ====
</TABLE>
F-15
<PAGE> 70
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(8) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS -- CONTINUED
The discount rates used in determining the accumulated postretirement
benefit obligation ("APBO") were 7.75% at and for the year ended June 30, 1997,
7.5% at and for the year ended June 30, 1996, 8.5% for the year ended June 30,
1995 and 7.75% at June 30, 1995. The assumed health care cost trend rate used in
measuring the APBO was 9.8% and graded down to 5.75% over 11 years at June 30,
1997, 10.0% and graded down to 5.5% over 12 years at June 30, 1996 and 13.2% and
graded down to 6.4% over 13 years at June 30, 1995. If the current health care
cost trend rate assumption was increased by one percent, the APBO as of June 30,
1997, would increase approximately $558,000, or 10.5%, while the periodic cost
for the Fiscal year ended June 30, 1997, would have increased approximately
$64,800, or 11.2%.
(9) PENSION PLANS
During the quarter ended December 31, 1996, the level of lump sum
distributions made to participants in the Company's defined benefit pension plan
caused a partial pension plan settlement, resulting in the recognition of a
pre-tax pension settlement gain of $429,000. As virtually all of these
distributions were accrued as part of a purchase price allocation in connection
with the Merger, the settlement gain was accounted for as a reduction of
goodwill which arose as part of the Merger.
Prior to January 1, 1997, the Operating Company had both a defined benefit
and a defined contribution plan which covered substantially all domestic
employees. The Operating Company's funding policy was to contribute annually to
the defined benefit plan the amount deductible for income tax purposes. No
contributions were made in 1997, 1996, or 1995. The Operating Company's matching
contributions to the defined contribution plan are determined at the discretion
of its Board of Directors. No matching contributions were made in the year ended
June 30, 1997, 1996 or 1995 to the defined contribution plan.
Effective January 1, 1997, amendments to the Operating Company's defined
benefit pension plan were adopted, including the elimination of the accrual of
future benefits under the plan. As a result of these amendments, and the
corresponding remeasurement of the accumulated and projected benefit obligations
under the plan, a pre-tax pension curtailment gain of $2.7 million as well as a
pre-tax settlement gain of $0.5 million were recognized in income as a reduction
in selling, general and administrative costs. The Operating Company has
established a new 401(k) savings plan for all of its eligible employees to
replace the defined benefit pension plan.
Benefits under the defined benefit plan are based on the employee's age,
years of service, and the highest consecutive five-year average compensation.
Pension expense, including administrative costs, charged to the operations
for the above-mentioned plans amounted to $370,000, $903,000 and $491,000 in the
year ended June 30, 1997, 1996 and 1995, respectively.
F-16
<PAGE> 71
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(9) PENSION PLANS -- CONTINUED
Plan assets for the defined benefit plan consist of investments in common
stock, real estate properties, fixed income securities, and short-term
investments. Pension expense for the defined benefit plan in 1997, 1996 and 1995
was computed as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost.............................................. $ 299 $ 616 $ 360
Interest cost............................................. 546 820 387
Actual gain on plan assets................................ (495) (1,434) (566)
Net amortization and deferral............................. 20 901 310
------- ------- -----
Net Periodic Pension expense.............................. 370 903 491
Settlement gain........................................... (936) -- --
Curtailment gain.......................................... (2,665) -- --
------- ------- -----
Total Pension Cost/(Gain)................................. $(3,231) $ 903 $ 491
======= ======= =====
</TABLE>
At June 30, 1997 and 1996 the funded status of the defined benefit plan was
as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Actuarial present value of:
Vested benefit obligations................................ $ 2,457 $ 6,136
Nonvested benefit obligations............................. 573 840
------- -------
Accumulated benefit obligations........................... 3,030 6,976
======= =======
Projected benefit obligations............................... 3,144 10,653
Plan assets at fair value................................... (2,562) (5,780)
------- -------
Projected benefit obligations in excess of plan assets...... 582 4,873
Unrecognized net gain....................................... 1,272 212
------- -------
Total accrued pension obligations........................... $ 1,854 $ 5,085
======= =======
</TABLE>
For the period July 1, 1995 through March 1, 1996, the weighted average discount
rate was 7.75% preretirement and 6% postretirement for those participating in
the defined benefit plan on November 1, 1976, and 7.75% for all others. For any
benefits accrued after March 1, 1996, the weighted average discount rate was
7.75% for both preretirement and postretirement for all plan participants. For
the year ended June 30, 1995, the weighted average discount rate was 8.5%
preretirement and 6% postretirement for those participating in the defined
benefit plan on November 1, 1976, and 8.5% for all others. The discount rate
used to calculate the projected benefit obligation at June 30, 1996 was
decreased to 7.5%. The discount rate used to calculate the projected benefit
obligation at June 30, 1997 was decreased to 7.0% for the period January 1, 1997
through June 30, 1997. The rate of increase in future compensation levels was
5.0% and the expected long-term rate of return on assets was 9.0%.
At June 30, 1995 the calculated projected benefit obligation assumed that
certain employees of FTD Association, who were formerly employees of the
Operating Company, were active plan participants continuing to earn benefits.
Subsequent to June 30, 1995, the status of FTD Association employees was changed
to vested terminated participants who were due a lump sum under the plan
agreement and, accordingly, the calculated projected benefit obligation was
increased by $734,000.
(10) NOTE RECEIVABLE AND OTHER RELATED PARTY TRANSACTIONS
Operating expenses for the years ended June 30, 1997, 1996 and 1995 include
$1,000,000 payable each period to certain investors of the Company for
management consulting services.
F-17
<PAGE> 72
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(10) NOTE RECEIVABLE AND OTHER RELATED PARTY TRANSACTIONS -- CONTINUED
An agreement with a former officer of the Company ("Agreement") provided,
among other things, for the sale of 127,500 shares of Common Stock of the
Company at the assumed fair market value on the agreement date of $4.71 per
share. A portion of such purchase was financed through (i) a $100,000 one-year,
interest-free loan from the Company, and (ii) a $150,000 interest-bearing
recourse loan from the Company due June 30, 1996. The interest-free loan was
forgiven in its entirety by June 30, 1996 and was recorded as compensation
expense by the Operating Company in the amount of $97,000 for the year ended
June 30, 1996. The outstanding principal balance of the interest-bearing
recourse loan accrued interest at 9%. At June 30, 1996, $128,419 was outstanding
from these notes.
In November 1996, options for 255,000 shares of Class A Common Stock issued
to such former officer pursuant to the FTD Corporation 1994 Stock Award and
Incentive Plan were canceled. Also in November 1996, $128,419 and owing under
the $150,000 recourse loan was forgiven by the Operating Company. The Company
during the third quarter repurchased 45,689 shares of Class A Common Stock for
$241,898 from such former officer.
The Company loaned an officer of the Company $150,000 pursuant to a five
year interest bearing note dated June 30, 1997, with accrued interest at 7% per
annum with principal due at maturity.
The Company and the Operating Company, pursuant to an employment
arrangement the current president was granted Non-Qualified Stock Options to
purchase (i) 60,000 shares of Class A Common Stock at an exercise price of $7.50
per share and (ii) 50,000 shares of Class A Common Stock at an exercise price of
$25.00 per share.
(11) 1994 STOCK AWARD AND INCENTIVE PLAN
The Company's 1994 Stock Award and Incentive Plan (the "Plan") was adopted
by the Board of Directors of the Company and approved by the Company's
stockholders on December 19, 1994, and amended on June 12, 1995. The maximum
number of shares of Common Stock authorized for issuance under the Plan is equal
to 15% of the initial equity capital of the Company upon the consummation of the
Merger.
The Plan provides for the granting of incentive stock options ("ISOs");
options which do not qualify as ISOs, known as nonqualified stock options
("NSOs"); or a combination of both ISOs and NSOs ("Options"), provided, however,
that ISOs may only be granted to employees of the Company and its subsidiaries.
Options granted under the Plan may be accompanied by stock appreciation rights
("SARs") or limited stock appreciation rights ("LSARs"), or both ("Rights"). The
Plan also provides for the granting of restricted stock, deferred stock, and
performance shares (together, referred to as "Restricted Awards"). The Plan is
not subject to any provisions of the Employee Retirement Income Security Act of
1974, as amended, nor is the Plan a qualified plan within the meaning of section
401(a) of the Internal Revenue Code of 1986, as amended.
Under the Agreement (see Note 10), a former officer was issued options in
Fiscal 1995 to purchase: (i) at an exercise price of $4.71 per share, 127,500
shares of the Company's Common Stock; and (ii) at an exercise price of $18.84
per share, 127,500 shares of the Company's Common Stock. During the year ended
June 30, 1995, another senior officer of the Company was granted options to
purchase: (i) at an exercise price of $4.71 per share, 40,000 shares of the
Company's Common Stock; and (ii) at an exercise price of $18.84 per share,
40,000 shares of the Company's Common Stock. As of June 30, 1995, options
covering 335,000 shares of the Class A Common Stock were outstanding, of which
none were exercisable.
During the year ended June 30, 1996, other senior officers were granted
options to purchase: (i) at an exercise price of $5.35 per share, 75,000 shares
of the Company's Common Stock; and (ii) at an exercise price of $21.40 per
share, 100,000 shares of the Company's Common Stock. During the year ended June
30, 1997, other employees have been granted options to purchase: (i) at an
exercise price of $7.50 per share, 163,500
F-18
<PAGE> 73
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(11) 1994 STOCK AWARD AND INCENTIVE PLAN -- CONTINUED
shares of the Company's Common Stock; and (ii) at an exercise price of $25.00
per share, 91,500 shares of the Company's Common Stock. These options vest and
become exercisable in four or five equal installments. As of June 30, 1997 and
1996, options covering 217,000 and 430,000 shares respectively of Class A Common
Stock were outstanding of which 7,500 and 51,000 shares were vested,
respectively and none were exercised.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for the Plan and accordingly, no compensation cost has been
recognized for the Plan. Had compensation cost for the Plan been determined
based on the fair value at the grant dates for options under the Plan consistent
with SFAS No. 123, the Company's net income and earnings per share would have
been reduced to the Pro Forma amounts shown in the table below:
PRO FORMA RESULTS
<TABLE>
<CAPTION>
1997 1997 1996 1996
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net Loss (in thousands)................... $(1,733) $(2,051) $(6,728) $(7,121)
Earnings per share:
Primary................................. $ (0.23) $ (0.27) $ (1.01) $ (1.07)
Fully Diluted........................... $ (0.23) $ (0.27) $ (1.01) $ (1.07)
</TABLE>
The pro forma disclosures shown are not representative of the future
effects on net earnings and earnings per share because the retroactive
application of SFAS No. 123 is prohibited.
The fair values of the options granted under the Plan during Fiscal 1997
and 1996 were determined at the grant date using the Black-Scholes option
pricing model. The significant assumptions used to calculate the fair value of
option grants were: risk-free interest rates ranging from 6.19% to 6.37%,
expected volatility of 50%, expected lives of 3.07 to 5.05 years and no expected
dividends for the shares.
SUMMARY STOCK OPTION ACTIVITY
<TABLE>
<CAPTION>
CLASS A WEIGHTED AVERAGE
# OF OPTIONS EXERCISE $
------------ ----------------
<S> <C> <C>
Outstanding @ December 19, 1994........................... -- --
Granted................................................. 335,000 $11.78
-------- -------
Outstanding @ June 30, 1995............................... 335,000 11.78
Granted................................................. 175,000 14.52
Canceled................................................ 80,000 11.78
-------- -------
Outstanding @ June 30, 1996............................... 430,000 12.89
Granted................................................. 255,000 13.78
Canceled................................................ 468,000 2.88
-------- -------
Outstanding @ June 30, 1997............................... 217,000 13.96
======== =======
Exercisable @ June 30, 1997............................... 7,500 $ 5.35
Weighted Average of Fair Value of options granted in
Fiscal 1997............................................. $ 2.29
Weighted Average of Fair Value of options granted in
Fiscal 1996............................................. $ 3.26
</TABLE>
F-19
<PAGE> 74
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(11) 1994 STOCK AWARD AND INCENTIVE PLAN -- CONTINUED
STOCK OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
CLASS A OPTIONS EXERCISE WEIGHTED AVERAGE REMAINING
OUTSTANDING PRICE (RANGE) EXERCISE $ CONTRACTUAL LIFE
- --------------- ------------- ---------------- ----------------
<C> <C> <C> <C>
132,000 $ 5.35 - 7.50 $ 7.26 9.57 years
85,000 21.40 - 25.00 24.36 9.45 years
------- -------------- ------- ----------
217,000 $ 5.35 - 25.00 $13.96 9.52 years
======= ============== ======= ==========
</TABLE>
(12) COMMITMENTS AND CONTINGENCIES
On July 16, 1997, Teleflora LLC ("Teleflora") instituted an arbitration
against FTD in Southfield, Michigan. The arbitration was filed under the
Commercial Arbitration Rules of the American Arbitration Association alleging
that FTD breached a 1991 Agreement by which FTD provides certain Mercury Network
services to Teleflora (the "1991 Agreement"). The specific claim is that FTD has
failed to negotiate in good faith a new contract on expiration of the 1991
Agreement as required by its terms. Unspecified damages are alleged. FTD has
filed an answering statement that denies the allegations. FTD management
believes that it has meritorious defenses to this action and intends to contest
Teleflora's allegations vigorously. An adverse decision could have a material
adverse effect on the Company's financial position and results of operations.
On July 21, 1997, Teleflora filed a complaint against FTD in United States
District Court for the Central District of California. On August 7, 1997,
Teleflora filed a first amended and supplemental complaint in that action. The
first amended and supplemental complaint contains six counts alleging
monopolization and attempted monopolization in violation of Section 2 of the
Sherman Act, discriminatory pricing violation of Section 2 of the Clayton Act,
unfair competition in violation of California Business and Professions Code
Sections 17200 et seq., and a claim for breach of contract. The allegations
pertain to the 1991 Agreement. Teleflora seeks compensatory and treble damages,
and declaratory relief and have moved for a preliminary injunction. FTD
management believes that it also has meritorious defenses to this action and
intends to contest Teleflora's allegations vigorously. An adverse decision could
have a material adverse effect on the Company's financial position and results
of operations.
The Company is involved in various lawsuits and other matters arising in
the normal course of business. In the opinion of the management of the Company,
although the outcomes of these claims and suits are uncertain, they should not
have a material adverse effect on the Company's financial condition, liquidity,
or results of operations.
(13) CAPITAL STOCK
Class A and non-voting class B Common Stock rank equally and, except with
respect to voting power, are substantially identical in all material respects.
Class B Common Stock is convertible into Class A Common Stock on a one-to-one
basis.
The Company is authorized to establish and designate one or more series of
preferred stock.
Pursuant to the Merger Agreement, on July 5, 1995, the Company sold 658,483
shares of Class A Common Stock at a price of $5.35 to certain members of FTD
Association. The Company concurrently repurchased 552,239 shares of Class A
Common Stock and two shares of Class B Common Stock from existing stockholders
on a pro rata basis and recouped the costs associated with a previous purchase
of treasury stock.
F-20
<PAGE> 75
FTD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(13) CAPITAL STOCK -- CONTINUED
Effective September 21, 1995, the stockholders of the Company, in an
unanimous Action by Written Consent, authorized a change in the par value of the
Class B Common Stock from $0.01 to $0.0005 per share.
Ninety thousand warrants were exercised in May, 1996 to purchase 1,125,000
shares of Class B Common Stock at a price of $0.01 per warrant, each of which
bought 12.5 shares of Class B Common Stock.
During Fiscal 1997 the Company repurchased into treasury 65,043 shares of
Class A Common Stock at a cost of approximately $358,000.
(14) QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (IN THOUSANDS, EXCEPT FOR PER
SHARE DATA):
<TABLE>
<CAPTION>
FISCAL 1997 FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
----------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net Revenue............................... $37,068 $41,640 $47,841 $36,034
Income from Operations.................... 2,403 1,417 6,742 (54)
Net Income (Loss)......................... (548) (1,162) 2,270 (2,293)
Net Income (Loss) Per Common Share:
Primary................................. $ (.07) $ (.15) $ .30 $ (.30)
Fully Diluted........................... $ (.07) $ (.15) $ .30 $ (.30)
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1996 FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
----------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net Revenue............................... $36,536 $45,865 $44,794 $39,060
Income from Operations.................... 3,657 (1,463) 2,343 (1,044)
Net Income (Loss)......................... 107 (3,067) (627) (3,141)
Net Income (Loss) Per Common Share:
Primary................................. $ .01 $ (.43) $ (.09) $ (.47)
Fully Diluted........................... $ .01 $ (.43) $ (.09) $ (.47)
</TABLE>
F-21
<PAGE> 76
KPMG LETTERHEAD
INDEPENDENT AUDITORS' REPORT
Board of Directors
FTD Corporation:
Under date of August 14, 1997, we reported on the consolidated balance
sheets of FTD Corporation and subsidiary as of June 30, 1997 and 1996 and the
related consolidated statements of operations, stockholder's equity, and cash
flows for each of the years in the three-year period ended June 30, 1997, which
are included in the prospectus. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedule in the registration statement. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Detroit, Michigan
August 14, 1997
F-22
<PAGE> 77
FTD CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COST AND OTHER END OF
PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
------------ ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
YEAR 1996
Allowance for doubtful accounts (shown as
deduction from Accounts Receivable in
balance sheet).......................... $1,589 $ 895 $80(a) $1,152(b) $1,412
Inventory valuation reserve (included in
Inventories, net in balance sheet)...... $ 345 $1,325 -- $1,276(c) $ 394
YEAR 1997
Allowance for doubtful accounts (shown as
deduction from Accounts Receivable in
balance sheet).......................... $1,412 $1,105 $75(a) $ 381(b) $2,211
Inventory valuation reserve (included in
Inventories, net in balance sheet)...... $ 394 $1,363 -- $ 52(c) $1,705
</TABLE>
- -------------------------
(a) Collection of accounts previously written off
(b) Uncollectible accounts written off
(c) Valuation writedown
F-23
<PAGE> 78
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER CONTAINED
HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT
RELATES NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, TO ANY PERSON MANY JURISDICTION IN, WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF FTD SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Prospectus Summary.................... 3
Risk Factors.......................... 10
The Offering.......................... 14
Use of Proceeds....................... 17
Dividend Policy....................... 17
Dilution.............................. 18
Selected Historical Financial Data.... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 27
Management............................ 32
Security Ownership of Certain
Beneficial Owners and Management.... 41
Relationship with Affiliates.......... 43
Description of Capital Stock.......... 44
Description of Bank Credit
Agreement........................... 48
Certain United States Federal Income
Tax Consequences to Non-United
States Holders...................... 50
Legal Matters......................... 52
Experts............................... 52
Index to Consolidated Financial
Statements and Schedule............. F-1
</TABLE>
======================================================
======================================================
1,002,819 SHARES
FTD CORPORATION
CLASS A COMMON STOCK
--------------------
PROSPECTUS
--------------------
, 199
======================================================
<PAGE> 79
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemized list of the estimated expenses to be incurred
in connection with this offering of the securities being offered hereunder other
than underwriting discounts and commissions. All of these expenses will be borne
by the Company.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 2,692
Blue sky fees and expenses.................................. 5,000*
Printing and engraving expenses............................. 30,000
Legal fees and expenses..................................... 100,000*
Accounting fees and expenses................................ 50,000
Transfer agent and registrar fees........................... 12,500*
Miscellaneous fees and expenses............................. 49,808
--------
Total..................................................... $250,000
========
</TABLE>
- -------------------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 102(b)(7) of the Delaware General Corporation Law
(the "DGCL"), Article Seventh of the Certificate of Incorporation of FTD
Corporation eliminates in certain circumstances the liability of directors of
the Company for monetary damages for breach of their fiduciary duty as
directors. This provision does not eliminate the liability of a director: (i)
for breach of the director's duty of loyalty to the Company or its stockholders;
(ii) for acts or omissions by the director not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) under Section 174 of
the DGCL; or (iv) for transactions from which the director derived an improper
personal benefit. Such limitation of liability does not affect the availability
of equitable remedies such as injunctive relief or rescission.
Subsection (a) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against expenses (including attorneys' fees), judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the fact that
such person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation except that no indemnification may be made in
respect of any claim, issue, or matter as to which such person shall have been
adjudged to be liable to the corporation, unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine that despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
II-1
<PAGE> 80
Section 145 of the DGCL further provides that to the extent a director,
officer, employee, or agent of a corporation has been successful in the defense
of any action, suit, or proceeding referred to in subsections (a) and (b) or in
the defense of any claim, issue, or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith; that indemnification provided for by Section 145 of
the DGCL shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; and empowers the corporation to purchase and
maintain insurance on behalf of any person acting in any of the capacities set
forth in the second preceding paragraph against any liability asserted against
him or incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under Section 145 of the DGCL.
The Bylaws of FTD Corporation require the Company, under certain
circumstances, to indemnify any person who is or was a director or officer
against expense (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with any
threatened, pending or completed action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The Bylaws of the
Company also provide that expenses incurred by a director or officer in
defending or investigating a threatened or pending action, suit or proceeding
shall be paid by the Company in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Company as authorized in the
Bylaws.
In addition, the Company has directors' and officers' reimbursements and
liability insurance which insures against liabilities that directors and
officers of the Company may incur in such capacities. The risks covered by such
policies do not exclude liabilities under the Securities Act.
II-2
<PAGE> 81
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
3.1 Restated Certificate of Incorporation of the Registrant.
(Incorporated by reference to Exhibit 3.1 of the
Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1997 (the "Registrant's 1997 Form 10-K").)
3.2 Bylaws of the Registrant. (Incorporated by reference to
Exhibit 3.2 of the Registrant's 1997 Form 10-K.)
4.1 Indenture, dated as of December 1, 1994 (the "Indenture"),
by and between Florists' Transworld Delivery, Inc. and First
Trust of New York, National Association, as Trustee.
(Incorporated by reference to Exhibit 4.1 of the Florists'
Transworld Delivery, Inc. Registration Statement on Form S-1
(File No. 33-88628) (the "FTDI S-1").)
4.2 Supplemental Indenture, dated as of December 19, 1994, to
the Indenture. (Incorporated by reference to Exhibit 4.3 of
the FTDI S-1.)
4.3 Form of Subscription Agreement among FTD and certain
stockholders of FTD. (Incorporated by reference to Exhibit
4.3 of Post-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-1 (File No. 33-91582) (the
"FTD S-1").)
4.4* Form of Subscription Agreement among FTD and Participating
Members.
5.1* Opinion of Schulte Roth & Zabel LLP.
10.1** Credit Agreement, dated November 20, 1997, among the
Registrant, Florists' Transworld Delivery, Inc., the various
lending institutions party thereto and The First National
Bank of Chicago, as Agent.
10.2** Pledge Agreement, dated November 20, 1997, by and among the
Registrant, Florists' Transworld Delivery, Inc., The First
National Bank of Chicago, as Agent.
10.3** Security Agreement, dated November 20, 1997, by and among
the Registrant, Florists' Transworld Delivery, Inc., and The
First National Bank of Chicago, as Agent.
10.4 Consultation Agreement and Covenant Not to Compete, dated as
of August 2, 1994, by and between Florists' Transworld
Delivery, Inc. and John A. Borden. (Incorporated by
reference to Exhibit 10.8 of the FTDI S-1.)
10.5 Mutual Support Agreement, dated as of December 18, 1994, by
and between Florists' Transworld Delivery, Inc. and FTD
Association. (Incorporated by reference to Exhibit 10.9 of
the FTDI S-1.)
10.6 Supplement to Mutual Support Agreement, dated as of January
11, 1996, by and between Florists' Transworld Delivery, Inc.
and FTD Association. (Incorporated by reference to Exhibit
10.9 of the Registrant's 1997 Form 10-K.)
10.7 Trademark License Agreement, dated as of December 18, 1994,
by and between Florists' Transworld Delivery, Inc. and FTD
Association. (Incorporated by reference to Exhibit 10.10 of
the FTDI S-1.)
10.8 Securityholders' and Registration Rights Agreement, dated as
of December 19, 1994, among the Registrant, Florists'
Transworld Delivery, Inc., BT Securities Corporation and
Montgomery Securities. (Incorporated by reference to Exhibit
10.11 of the FTD S-1.)
10.9 Tax Sharing Agreement, dated as of December 19, 1994,
between the Registrant and Florists' Transworld Delivery,
Inc. (Incorporated by reference to Exhibit 10.12 of the FTDI
S-1.)
10.10 Stockholders' Agreement, dated as of December 19, 1994,
among the Registrant and certain stockholders of the
Registrant. (Incorporated by reference to Exhibit 10.13 of
the FTD S-1.)
10.11 FTD Corporation 1994 Stock Award and Incentive Plan.
(Incorporated by reference to Exhibit 10.14 of the FTD S-1.)
10.12 Letter dated October 17, 1996 regarding Norton employment
arrangements. (Incorporated by reference to Exhibit 10.15 of
the Registrant's 1997 Form 10-K.)
</TABLE>
II-3
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.13 Letter dated June 6, 1997, amending Norton employment
arrangements. (Incorporated by reference to Exhibit 10.16 of
the Registrant's 1997 Form 10-K.)
10.14 Description of Key Management Incentive Plan. (Incorporated
by reference to Exhibit 10.6 of Florists' Transworld
Delivery, Inc.'s Quarterly Report on Form 10-Q for fiscal
quarter ended March 31, 1997.)
10.15 Promissory Note, dated June 30, 1997, made by Scott D. Levin
(Incorporated by reference to Exhibit 10.18 of the
Registrant's 1997 Form 10-K.)
10.16 Agreement dated as of April 30, 1997, between the Registrant
and Louis Nagy. (Incorporated by reference to Exhibit 10.11
of Florists' Transworld Delivery, Inc.'s Annual Report on
Form 10-K for the fiscal year ended June 30, 1997.)
11.1 Computation of Earnings Per Share. (Incorporated by
reference to Exhibit 11-1 of the Registrant's 1997 Form
10-K.)
21.1 Subsidiaries of the Registrant. (Incorporated by reference
to Exhibit 21.1 of the FTD S-1.)
23.1** Consent of KPMG Peat Marwick LLP.
23.2* Consent of Schulte Roth & Zabel LLP. (Included in its
opinion filed as Exhibit 5.1 hereof.)
24.1 Power of Attorney. (Included in Part II of the original
Registration Statement.)
27.1* Financial Data Schedule.
99.1* Form of Notice of Commencement of Offering -- U.S.
99.2* Form of Share Allocation Letter.
</TABLE>
- ---------------
* Previously filed with original Registration Statement
** Filed herewith
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) (sec. 230.424(b) of this
chapter) if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE> 83
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
(b) The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the Prospectus, to each person to whom the Prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the Prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the Prospectus, to deliver, or
cause to be delivered to each person to whom the Prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the Prospectus to provide such interim financial information.
(c) The undersigned Registrant hereby undertakes as follows:
1. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
In the event that a claim for indemnification against such liabilities
(other than payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of such Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-5
<PAGE> 84
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Downers
Grove, State of Illinois, January 12, 1998.
FTD CORPORATION
By: /s/ ROBERT L. NORTON
------------------------------------
Name: Robert L. Norton
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board of Directors January 12, 1998
- ---------------------------------------------
Richard C. Perry
/s/ ROBERT L. NORTON President January 12, 1998
- ---------------------------------------------
Robert L. Norton
* Treasurer (Principal Financial January 12, 1998
- --------------------------------------------- Officer and Principal Accounting
Francis C. Piccirillo Officer)
* Director January 12, 1998
- ---------------------------------------------
Veronica K. Ho
* Director January 12, 1998
- ---------------------------------------------
Gary K. Silberberg
* Director January 12, 1998
- ---------------------------------------------
Geoffery Rehnert
* Director January 12, 1998
- ---------------------------------------------
Habib Y. Gorgi
</TABLE>
*By: /s/ SCOTT D. LEVIN
---------------------------
Scott D. Levin
Attorney-in-Fact
II-6
<PAGE> 85
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
3.1 Restated Certificate of Incorporation of the Registrant.
(Incorporated by reference to Exhibit 3.1 of the
Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1997 (the "Registrant's 1997 Form 10-K").)
3.2 Bylaws of the Registrant. (Incorporated by reference to
Exhibit 3.2 of the Registrant's 1997 Form 10-K.)
4.1 Indenture, dated as of December 1, 1994 (the "Indenture"),
by and between Florists' Transworld Delivery, Inc. and First
Trust of New York, National Association, as Trustee.
(Incorporated by reference to Exhibit 4.1 of the Florists'
Transworld Delivery, Inc. Registration Statement on Form S-1
(File No. 33-88628) (the "FTDI S-1").)
4.2 Supplemental Indenture, dated as of December 19, 1994, to
the Indenture. (Incorporated by reference to Exhibit 4.3 of
the FTDI S-1.)
4.3 Form of Subscription Agreement among FTD and certain
stockholders of FTD. (Incorporated by reference to Exhibit
4.3 of Post-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-1 (File No. 33-91582) (the
"FTD S-1").)
4.4* Form of Subscription Agreement among FTD and Participating
Members.
5.1* Opinion of Schulte Roth & Zabel LLP.
10.1** Credit Agreement, dated November 20, 1997, among the
Registrant, Florists' Transworld Delivery, Inc., the various
lending institutions party thereto and The First National
Bank of Chicago, as Agent.
10.2** Pledge Agreement, dated November 20, 1997, by and among the
Registrant, Florists' Transworld Delivery, Inc., The First
National Bank of Chicago, as Agent.
10.3** Security Agreement, dated November 20, 1997, by and among
the Registrant, Florists' Transworld Delivery, Inc., and The
First National Bank of Chicago, as Agent.
10.4 Consultation Agreement and Covenant Not to Compete, dated as
of August 2, 1994, by and between Florists' Transworld
Delivery, Inc. and John A. Borden. (Incorporated by
reference to Exhibit 10.8 of the FTDI S-1.)
10.5 Mutual Support Agreement, dated as of December 18, 1994, by
and between Florists' Transworld Delivery, Inc. and FTD
Association. (Incorporated by reference to Exhibit 10.9 of
the FTDI S-1.)
10.6 Supplement to Mutual Support Agreement, dated as of January
11, 1996, by and between Florists' Transworld Delivery, Inc.
and FTD Association. (Incorporated by reference to Exhibit
10.9 of the Registrant's 1997 Form 10-K.)
10.7 Trademark License Agreement, dated as of December 18, 1994,
by and between Florists' Transworld Delivery, Inc. and FTD
Association. (Incorporated by reference to Exhibit 10.10 of
the FTDI S-1.)
10.8 Securityholders' and Registration Rights Agreement, dated as
of December 19, 1994, among the Registrant, Florists'
Transworld Delivery, Inc., BT Securities Corporation and
Montgomery Securities. (Incorporated by reference to Exhibit
10.11 of the FTD S-1.)
10.9 Tax Sharing Agreement, dated as of December 19, 1994,
between the Registrant and Florists' Transworld Delivery,
Inc. (Incorporated by reference to Exhibit 10.12 of the FTDI
S-1.)
10.10 Stockholders' Agreement, dated as of December 19, 1994,
among the Registrant and certain stockholders of the
Registrant. (Incorporated by reference to Exhibit 10.13 of
the FTD S-1.)
10.11 FTD Corporation 1994 Stock Award and Incentive Plan.
(Incorporated by reference to Exhibit 10.14 of the FTD S-1.)
10.12 Letter dated October 17, 1996 regarding Norton employment
arrangements. (Incorporated by reference to Exhibit 10.15 of
the Registrant's 1997 Form 10-K.)
</TABLE>
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<PAGE> 86
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
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<C> <S>
10.13 Letter dated June 6, 1997, amending Norton employment
arrangements. (Incorporated by reference to Exhibit 10.16 of
the Registrant's 1997 Form 10-K.)
10.14 Description of Key Management Incentive Plan. (Incorporated
by reference to Exhibit 10.6 of Florists' Transworld
Delivery, Inc.'s Quarterly Report on Form 10-Q for fiscal
quarter ended March 31, 1997.)
10.15 Promissory Note, dated June 30, 1997, made by Scott D. Levin
(Incorporated by reference to Exhibit 10.18 of the
Registrant's 1997 Form 10-K.)
10.16 Agreement dated as of April 30, 1997, between the Registrant
and Louis Nagy. (Incorporated by reference to Exhibit 10.11
of Florists' Transworld Delivery, Inc.'s Annual Report on
Form 10-K for the fiscal year ended June 30, 1997.)
11.1 Computation of Earnings Per Share. (Incorporated by
reference to Exhibit 11-1 of the Registrant's 1997 Form
10-K.)
21.1 Subsidiaries of the Registrant. (Incorporated by reference
to Exhibit 21.1 of the FTD S-1.)
23.1** Consent of KPMG Peat Marwick LLP.
23.2* Consent of Schulte Roth & Zabel LLP. (Included in its
opinion filed as Exhibit 5.1 hereof.)
24.1 Power of Attorney. (Included in Part II of the original
Registration Statement.)
27.1* Financial Data Schedule.
99.1* Form of Notice of Commencement of Offering -- U.S.
99.2* Form of Share Allocation Letter.
</TABLE>
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* Previously filed with original Registration Statement
** Filed herewith
II-8
<PAGE> 1
EXHIBIT 10.1
CREDIT AGREEMENT
Dated as of November 20, 1997
among
FLORISTS' TRANSWORLD DELIVERY, INC.,
FTD CORPORATION,
THE INSTITUTIONS FROM TIME TO TIME
PARTIES HERETO AS LENDERS
and
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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ARTICLE I: DEFINITIONS
1.1 Certain Defined Terms...............................................................1
1.2 References.........................................................................23
1.3 Supplemental Disclosure............................................................23
ARTICLE II: THE TERM LOAN AND REVOLVING LOAN FACILITIES
2.1. Term Loans.........................................................................23
2.2 Revolving Loans....................................................................25
2.3 Swing Line Loans...................................................................25
2.4 Rate Options for all Advances......................................................27
2.5 Optional Payments; Mandatory Prepayments...........................................27
2.6 Reduction of Commitments...........................................................29
2.7 Method of Borrowing................................................................30
2.8 Method of Selecting Types and Interest Periods for Advances........................30
2.9 Minimum Amount of Each Advance.....................................................30
2.10 Method of Selecting Types and Interest Periods for Conversion and Continuation
of Advances......................................................................31
2.11 Default Rate.......................................................................31
2.12 Method of Payment..................................................................31
2.13 Notes..............................................................................32
2.14 Telephonic Notices.................................................................32
2.15 Promise to Pay; Interest and Commitment Fees; Interest Payment Dates; Interest
and Fee Basis; Taxes; Loan and Control Accounts..................................32
2.16 Notification of Advances, Interest Rates, Prepayments and Aggregate Revolv
Loan Commitment Reductions.......................................................38
2.17 Lending Installations..............................................................38
2.18 Non-Receipt of Funds by the Agent..................................................38
2.19 Termination Date...................................................................39
2.20 Replacement of Certain Lenders.....................................................39
ARTICLE III: THE LETTER OF CREDIT FACILITY
3.1 Obligation to Issue................................................................40
3.2 Transitional Provision.............................................................40
3.3 Types and Amounts..................................................................40
3.4 Conditions.........................................................................41
3.5 Procedure for Issuance of Letters of Credit........................................41
3.6 Letter of Credit Participation.....................................................42
3.7 Reimbursement Obligation...........................................................42
3.8 Letter of Credit Fees..............................................................43
3.9 Issuing Bank Reporting Requirements................................................43
3.10 Indemnification; Exoneration.......................................................43
</TABLE>
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3.11 Cash Collateral.....................................................................44
ARTICLE IV: CHANGE IN CIRCUMSTANCES
4.1 Yield Protection....................................................................45
4.2 Changes in Capital Adequacy Regulations.............................................46
4.3 Availability of Types of Advances...................................................47
4.4 Funding Indemnification.............................................................47
4.5 Lender Statements; Survival of Indemnity............................................47
ARTICLE V: CONDITIONS PRECEDENT
5.1 Initial Advances and Letters of Credit..............................................48
5.2 Each Advance and Letter of Credit...................................................49
ARTICLE VI: REPRESENTATIONS AND WARRANTIES
6.1 Organization; Corporate Powers......................................................49
6.2 Authority...........................................................................50
6.3 No Conflict; Governmental Consents..................................................50
6.4 Financial Statements................................................................51
6.5 No Material Adverse Change..........................................................51
6.6 Taxes...............................................................................51
6.7 Litigation; Loss Contingencies and Violations.......................................52
6.8 Subsidiaries........................................................................52
6.9 ERISA53
6.10 Accuracy of Information.............................................................54
6.11 Securities Activities...............................................................54
6.12 Material Agreements.................................................................54
6.13 Compliance with Laws................................................................54
6.14 Assets and Properties...............................................................54
6.15 Statutory Indebtedness Restrictions.................................................55
6.16 Insurance...........................................................................55
6.17 Labor Matters.......................................................................55
6.18 Environmental Matters...............................................................55
6.19 Solvency............................................................................56
ARTICLE VII: COVENANTS
7.1 Reporting...........................................................................56
7.2 Affirmative Covenants...............................................................61
7.3 Negative Covenants..................................................................63
7.4 Financial Covenants.................................................................72
ARTICLE VIII: DEFAULTS
8.1 Defaults..........................................................................73
</TABLE>
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ARTICLE IX: ACCELERATION, DEFAULTING LENDERS; WAIVERS, AMENDMENTS AND REMEDIES
9.1 Termination of Commitments; Acceleration............................................76
9.2 Defaulting Lender...................................................................77
9.3 Amendments..........................................................................78
9.4 Preservation of Rights..............................................................79
ARTICLE X: GENERAL PROVISIONS
10.1 Survival of Representations........................................................79
10.2 Governmental Regulation............................................................79
10.3 Performance of Obligations.........................................................79
10.4 Headings...........................................................................80
10.5 Entire Agreement...................................................................80
10.6 Several Obligations; Benefits of this Agreement....................................80
10.7 Expenses; Indemnification..........................................................80
10.8 Numbers of Documents...............................................................82
10.9 Accounting.........................................................................82
10.10 Severability of Provisions.........................................................83
10.11 Nonliability of Lenders............................................................83
10.12 GOVERNING LAW......................................................................83
10.13 CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL............................83
ARTICLE XI: THE AGENT
11.1 Appointment; Nature of Relationship................................................85
11.2 Powers.............................................................................85
11.3 General Immunity...................................................................85
11.4 No Responsibility for Loans, Creditworthiness, Recitals, Etc.......................85
11.5 Action on Instructions of Lenders..................................................86
11.6 Employment of Agents and Counsel...................................................86
11.7 Reliance on Documents; Counsel.....................................................86
11.8 The Agent's Reimbursement and Indemnification......................................86
11.9 Rights as a Lender.................................................................86
11.10 Lender Credit Decision.............................................................87
11.11 Successor Agent....................................................................87
ARTICLE XII: SETOFF; RATABLE PAYMENTS
12.1 Setoff..............................................................................88
12.2 Ratable Payments....................................................................88
12.3 Application of Payments.............................................................88
12.4 Relations Among Lenders.............................................................89
</TABLE>
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ARTICLE XIII: BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
13.1 Successors and Assigns.............................................................90
13.2 Participations.....................................................................90
13.3 Assignments........................................................................91
13.4 Confidentiality....................................................................92
13.5 Dissemination of Information.......................................................93
ARTICLE XIV: NOTICES
14.1 Giving Notice......................................................................93
14.2 Change of Address..................................................................93
ARTICLE XV: COUNTERPARTS
</TABLE>
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<PAGE> 6
EXHIBITS
EXHIBIT A -- Commitments
(Definitions)
EXHIBIT B-1 -- Form of Revolving Note
(Definitions)
EXHIBIT B-2 -- Form of Swing Line Note
(Definitions)
EXHIBIT B-3 -- Form of Term Note
(Definitions)
EXHIBIT C -- Form of Borrowing/Conversion/Continuation
Notice (Section 2.8 and Section 2.10)
EXHIBIT D -- Form of Request for Letter of Credit (Section
3.4)
EXHIBIT E -- Form of Assignment and Acceptance Agreement
(Sections 2.20 and 13.3)
EXHIBIT F -- Form of Borrower's Counsel's Opinion
(Section 5.1)
EXHIBIT G -- List of Closing Documents
(Section 5.1)
EXHIBIT H -- Form of Officer's Certificate
(Sections 5.2 and 7.1(A)(iii))
EXHIBIT I -- Form of Compliance Certificate
(Sections 5.2 and 7.1(A)(iii))
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<PAGE> 7
SCHEDULES
Schedule 1.1.1 -- Permitted Existing Contingent Obligations
(Definitions)
Schedule 1.1.2 -- Permitted Existing Indebtedness (Definitions)
Schedule 1.1.3 -- Permitted Existing Investments (Definitions)
Schedule 1.1.4 -- Permitted Existing Liens (Definitions)
Schedule 3.2 -- Transitional Letters of Credit (Section 3.2)
Schedule 3.3 -- Letters of Credit (Section 3.3)
Schedule 6.3 -- Conflicts; Governmental Consents (Section
6.3)
Schedule 6.4(A)(i) -- Pro Forma Balance Sheet (Section 6.4(A))
Schedule 6.4(A)(ii) -- Pro Forma Projections (Section 6.4(A))
Schedule 6.7 -- Litigation; Loss Contingencies (Section 6.7)
Schedule 6.8 -- Subsidiaries (Section 6.8)
Schedule 6.9 -- ERISA (Section 6.9)
Schedule 6.16 -- Insurance (Sections 6.16 and 7.2(E))
Schedule 6.18 -- Environmental Matters (Section 6.18)
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<PAGE> 8
CREDIT AGREEMENT
This Credit Agreement dated as of November 20, 1997 is entered into
among Florists' Transworld Delivery, Inc., a Michigan corporation, the
institutions from time to time parties hereto as Lenders, whether by execution
of this Agreement or an Assignment Agreement pursuant to Section 13.3, and The
First National Bank of Chicago, in its capacity as contractual representative
for itself and the other Lenders. The parties hereto agree as follows:
ARTICLE I: DEFINITIONS
1.1 Certain Defined Terms. In addition to the terms defined above,
the following terms used in this Agreement shall have the following meanings,
applicable both to the singular and the plural forms of the terms defined.
As used in this Agreement:
"ACQUISITION" means any transaction, or any series of related
transactions, consummated on or after the date of this Agreement, by which the
Borrower or any of its Subsidiaries (i) acquires any going business or all or
substantially all of the assets of any firm, corporation or division thereof,
whether through purchase of assets, merger or otherwise or (ii) directly or
indirectly acquires (in one transaction or as the most recent transaction in a
series of transactions) at least a majority (in number of votes) of the
securities of a corporation which have ordinary voting power for the election
of directors (other than securities having such power only by reason of the
happening of a contingency) or a majority (by percentage of voting power) of
the outstanding equity interests of another Person.
"ADVANCE" means a borrowing hereunder consisting of the aggregate
amount of the several Loans made by the Lenders to the Borrower of the same
Type and, in the case of Eurodollar Rate Advances, for the same Interest
Period.
"AFFECTED LENDER" is defined in Section 2.20 hereof.
"AFFILIATE" of any Person means any other Person directly or
indirectly controlling, controlled by or under common control with such Person.
A Person shall be deemed to control another Person if the controlling Person is
the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934) of greater than ten percent (10%) or more of any class of voting
securities (or other voting interests) of the controlled Person or possesses,
directly or indirectly, the power to direct or cause the direction of the
management or policies of the controlled Person, whether through ownership of
Capital Stock, by contract or otherwise.
<PAGE> 9
"AGENT" means First Chicago in its capacity as contractual
representative for itself and the Lenders pursuant to Article XI hereof and any
successor Agent appointed pursuant to Article XI hereof.
"AGGREGATE REVOLVING LOAN COMMITMENT" means the aggregate of the
Revolving Loan Commitments of all the Lenders, as may be reduced from time to
time pursuant to the terms hereof. The initial Aggregate Revolving Loan
Commitment is Fifty Million and 00/100 Dollars ($50,000,000.00).
"AGGREGATE TERM LOAN COMMITMENT" means the aggregate of the Term Loan
Commitments of all the Lenders. The Aggregate Term Loan Commitment is Fifty
Million and 00/100 Dollars ($50,000,000.00).
"AGREEMENT" means this Credit Agreement, as it may be amended,
restated or otherwise modified and in effect from time to time.
"AGREEMENT ACCOUNTING PRINCIPLES" means generally accepted accounting
principles as in effect as of the date of this Agreement, applied in a manner
consistent with that used in preparing the financial statements referred to in
Section 6.4(B)(1) hereof, provided, however, that with respect to the
calculation of financial ratios and other financial tests required by this
Agreement, "Agreement Accounting Principles" means generally accepted
accounting principles as in effect as of the date of this Agreement, applied in
a manner consistent with that used in preparing the financial statements
referred to in Section 6.4(A) hereof, subject to change as provided in Section
10.9 of this Agreement; provided, further, however, all pro forma financial
statements reflecting Acquisitions shall be prepared in accordance with the
requirements established by the Commission for acquisition accounting for
reporting acquisitions by public companies (whether or not such Acquisitions
are required to be publicly reported).
"ALTERNATE BASE RATE" means, for any day, a fluctuating rate of
interest per annum equal to the higher of (i) the Corporate Base Rate for such
day and (ii) the sum of (a) the Federal Funds Effective Rate for such day and
(b) one-half of one percent (0.5%) per annum.
"APPLICABLE COMMITMENT FEE PERCENTAGE" means, as at any date of
determination, the rate per annum then applicable in the determination of the
amount payable under Section 2.15(C)(i) hereof determined in accordance with
the provisions of Section 2.15(D)(ii) hereof.
"APPLICABLE EURODOLLAR MARGIN" means, as at any date of determination,
the rate per annum then applicable to Eurodollar Rate Loans determined in
accordance with the provisions of Section 2.15(D)(ii) hereof.
"APPLICABLE FLOATING RATE MARGIN" means, as at any date of
determination, the rate per annum then applicable to Floating Rate Loans,
determined in accordance with the provisions of Section 2.15(D)(ii) hereof.
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<PAGE> 10
"APPLICABLE L/C FEE PERCENTAGE" means, as at any date of
determination, a rate per annum equal (i) with respect to standby Letters of
Credit, to the Applicable Eurodollar Margin in effect on such date and (ii)
with respect to commercial and performance Letters of Credit, to 50% of the
Applicable Eurodollar Margin in effect on such date.
"ARRANGER"means First Chicago Capital Markets, Inc., in its capacity
as the arranger for the loan transaction evidenced by this Agreement.
"ASSIGNMENT AGREEMENT" shall mean an assignment and acceptance
agreement entered into in connection with an assignment pursuant to Section
13.3 hereof in substantially the form of Exhibit E.
"ASSET SALE" means, with respect to any Person, the sale, lease,
conveyance, disposition or other transfer by such Person of any of its assets
(including by way of a sale-leaseback transaction and including the sale or
other transfer of any of the Equity Interests of any Subsidiary of such
Person).
"AUTHORIZED OFFICER" means any of the President, any Vice President or
Chief Financial Officer of the Borrower, acting singly.
"BENEFIT PLAN" means a defined benefit plan as defined in Section
3(35) of ERISA (other than a Multiemployer Plan) in respect of which the
Borrower or any other member of the Controlled Group is, or within the
immediately preceding six (6) years was, an "employer" as defined in Section
3(5) of ERISA.
"BORROWER" means Florists' Transworld Delivery, Inc., a Michigan
corporation, together with its successors and assigns.
"BORROWING DATE" means a date on which an Advance or Swing Line Loan
is made hereunder.
"BORROWING NOTICE" is defined in Section 2.8 hereof.
"BUSINESS DAY" means (i) with respect to any borrowing, payment or
rate selection of Loans bearing interest at the Eurodollar Rate, a day (other
than a Saturday or Sunday) on which banks are open for business in Chicago,
Illinois and New York, New York and on which dealings in Dollars are carried on
in the London interbank market and (ii) for all other purposes a day (other
than a Saturday or Sunday) on which banks are open for business in Chicago,
Illinois and New York, New York.
"CAPITAL EXPENDITURES" means, for any period, (i) the aggregate of all
expenditures (whether paid in cash or accrued as liabilities and including
Capitalized Leases and Permitted Purchase Money Indebtedness) by the Borrower
and its Subsidiaries during that period that, in conformity with Agreement
Accounting Principles, are required to be included in or reflected
-3-
<PAGE> 11
by the property, plant, equipment (including replacements, capitalized repairs
and improvements) or similar fixed asset accounts reflected in the consolidated
balance sheet of the Borrower and its Subsidiaries minus (ii) the aggregate
amount of all cash proceeds received by the Borrower and its Subsidiaries
during such period from the sale, casualty, condemnation or other disposition
in the ordinary course of business of equipment, motor vehicles or other
capital assets which have become obsolete or redundant. For the purpose of
this definition, the purchase price of equipment which is purchased
simultaneously with the trade-in of existing equipment owned or leased by the
Borrower or any of its Subsidiaries or with insurance proceeds or condemnation
awards shall be included in Capital Expenditures only to the extent of the
gross amount of such purchase price less the reduction in purchase price
granted by the seller of such equipment for the existing equipment being traded
in at such time or the amount of such insurance proceeds or condemnation
awards.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"CAPITALIZED LEASE" of a Person means any lease of property by such
Person as lessee which would be capitalized on a balance sheet of such Person
prepared in accordance with Agreement Accounting Principles.
"CAPITALIZED LEASE OBLIGATIONS" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be capitalized
on a balance sheet of such Person prepared in accordance with Agreement
Accounting Principles.
"CASH EQUIVALENTS" means (i) marketable direct obligations issued or
unconditionally guaranteed by the United States government and backed by the
full faith and credit of the United States government; (ii) domestic and
Eurodollar certificates of deposit and time deposits, bankers' acceptances and
floating rate certificates of deposit issued by any commercial bank organized
under the laws of the United States, any state thereof, the District of
Columbia, Canada, any foreign bank, or its branches or agencies (fully
protected against currency fluctuations for any such deposits with a term of
more than ninety (90) days); (iii) shares of money market, mutual or similar
funds having assets in excess of $100,000,000 and the investments of which are
limited to investment grade securities (i.e., securities rated at least Baa by
Moody's Investors Service, Inc. or at least BBB by Standard & Poor's
Corporation); and (iv) commercial paper of United States and foreign banks and
bank holding companies and their subsidiaries and United States and foreign
finance, commercial industrial or utility companies which, at the time of
acquisition, are rated A-1 (or better) by Standard & Poor's Corporation or P-1
(or better) by Moody's Investors Services, Inc.; provided that the maturities
of such Cash Equivalents shall not exceed 365 days.
-4-
<PAGE> 12
"CHANGE" is defined in Section 4.2 hereof.
"CHANGE OF CONTROL" means an event or series of events by which:
(a) prior to any initial public offering of Equity Interests in
either the Borrower or Holdings:
(i) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act) (other than the Current
Stockholders or any of their Affiliates) becomes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, of 50% or more of the combined voting power of
the Borrower's Capital Stock ordinarily having the right to vote at an
election of directors; or
(ii) during any period of twelve (12) consecutive calendar
months, individuals: (i) who were directors of the Borrower on the
first day of such period, or (ii) whose election or nomination for
election to the board of directors of the Borrower was recommended or
approved by at least a majority of the directors then still in office
who were directors of the Borrower on the first day of such period, or
whose election or nomination for election was so approved, shall cease
to constitute a majority of the board of directors of the Borrower;
and
(b) after any initial public offering of Equity Interests in either
the Borrower or Holdings:
(i) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act) (other than the Current
Stockholders or any of their Affiliates), becomes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, of 30% or more of the combined voting power of
the Borrower's Capital Stock ordinarily having the right to vote at an
election of directors; or
(ii) during any period of twelve (12) consecutive calendar
months subsequent to such public offering, individuals: (i) who were
directors of the Borrower on the first day of such period, or (ii)
whose election or nomination for election to the board of directors of
the Borrower was recommended or approved by at least a majority of the
directors then still in office who were directors of the Borrower on
the first day of such period, or whose election or nomination for
election was so approved, shall cease to constitute a majority of the
board of directors of the Borrower.
"CLOSING DATE" means the date on which the initial Revolving Loans are
advanced hereunder.
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<PAGE> 13
"CODE" means the Internal Revenue Code of 1986, as amended, reformed
or otherwise modified from time to time.
"COLLATERAL" means all property and interests in property now owned or
hereafter acquired by the Borrower or any of its Subsidiaries in or upon which
a security interest, lien or mortgage is granted to the Agent, for the benefit
of the Holders of Secured Obligations, or to the Agent, for the benefit of the
Lenders, under any of the Collateral Documents or under any of the other Loan
Documents.
"COLLATERAL DOCUMENTS" means all agreements, instruments and
documents executed in connection with this Agreement, including, without
limitation, the Security Agreement and all other security agreements, loan
agreements, notes, guarantees, pledges, powers of attorney, consents,
assignments, contracts, fee letters, notices, leases, financing statements and
all other written matter whether heretofore, now, or hereafter executed by or
on behalf of the Borrower or any of its Subsidiaries and delivered to the Agent
or any of the Lenders, together with all agreements and documents referred to
therein or contemplated thereby.
"COMMISSION" means the Securities and Exchange Commission and any
Person succeeding to the functions thereof.
"COMMITMENT" means, for each Lender, collectively, such Lender's
Revolving Loan Commitment and Term Loan Commitment.
"CONSOLIDATED ADJUSTED NET WORTH" means Consolidated Net Worth of
Holdings and its consolidated Subsidiaries calculated excluding the effect of
any write-off of unamortized debt discount or financing costs in connection
with the purchase or prepayment of the Subordinated Notes or other Indebtedness
of the Borrower and any prepayment premiums paid in connection with any such
purchase or prepayment.
"CONSOLIDATED ASSETS" means the total assets of Holdings and its
consolidated Subsidiaries on a consolidated basis determined in accordance with
Agreement Accounting Principles.
"CONSOLIDATED NET WORTH" means, at a particular date, all amounts
which would be included under shareholders' equity for Holdings and its
consolidated Subsidiaries determined in accordance with Agreement Accounting
Principles.
"CONTAMINANT" means any waste, pollutant, hazardous substance, toxic
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos, polychlorinated biphenyls ("PCBS"), or any
constituent of any such substance or waste, and includes but is not limited to
these terms as defined in Environmental, Health or Safety Requirements of Law.
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"CONTINGENT OBLIGATION", as applied to any Person, means any
Contractual Obligation, contingent or otherwise, of that Person with respect to
any Indebtedness of another or other obligation or liability of another,
including, without limitation, any such Indebtedness, obligation or liability
of another directly or indirectly guaranteed, endorsed (otherwise than for
collection or deposit in the ordinary course of business), co-made or
discounted or sold with recourse by that Person, or in respect of which that
Person is otherwise directly or indirectly liable, including Contractual
Obligations (contingent or otherwise) arising through any agreement to
purchase, repurchase, or otherwise acquire such Indebtedness, obligation or
liability or any security therefor, or to provide funds for the payment or
discharge thereof (whether in the form of loans, advances, stock purchases,
capital contributions or otherwise), or to maintain solvency, assets, level of
income, or other financial condition, or to make payment other than for value
received. The amount of any Contingent Obligation shall be equal to the
present value of the portion of the obligation so guaranteed or otherwise
supported, in the case of known recurring obligations, and the maximum
reasonably anticipated liability in respect of the portion of the obligation so
guaranteed or otherwise supported assuming such Person is required to perform
thereunder, in all other cases.
"CONTRACTUAL OBLIGATION", as applied to any Person, means any
provision of any equity or debt securities issued by that Person or any
indenture, mortgage, deed of trust, security agreement, pledge agreement,
guaranty, contract, undertaking, agreement or instrument, in any case in
writing, to which that Person is a party or by which it or any of its
properties is bound, or to which it or any of its properties is subject.
"CONTROLLED GROUP" means the group consisting of (i) any corporation
which is a member of the same controlled group of corporations (within the
meaning of Section 414(b) of the Code) as the Borrower; (ii) a partnership or
other trade or business (whether or not incorporated) which is under common
control (within the meaning of Section 414(c) of the Code) with the Borrower;
and (iii) a member of the same affiliated service group (within the meaning of
Section 414(m) of the Code) as the Borrower, any corporation described in
clause (i) above or any partnership or trade or business described in clause
(ii) above.
"CONTROLLED SUBSIDIARY" of any Person means a Subsidiary of such
Person (i) 90% or more of the total Equity Interests or other ownership
interests of which (other than directors' qualifying shares) shall at the time
be owned by such Person or by one or more wholly-owned Subsidiaries of such
Person and (ii) of which such Person possesses, directly or indirectly, the
power to direct or cause the direction of the management or policies, whether
through the ownership of voting securities, by agreement or otherwise.
"CONVERSION/CONTINUATION NOTICE" is defined in Section 2.10(D) hereof.
"CORPORATE BASE RATE" means the corporate base rate of interest
announced by First Chicago from time to time, changing when and as said
corporate base rate changes.
"CURE LOAN" is defined in Section 9.2(iii) hereof.
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"CURRENT STOCKHOLDERS" means Perry Acquisition Partners, L.P., Bain
Capital Fund IV, L.P., Bain Capital Fund IV-B, L.P., Information Partners
Capital Fund, LP, BCIP Associates, BCIP Trust Associates, L.P., Fleet Growth
Resources, Inc., Fleet Equity Partners VII, L.P. and Chisholm Partners II L.P.
"CUSTOMARY PERMITTED LIENS" means:
(i) Liens with respect to the payment of taxes, assessments or
governmental charges in all cases which are not yet due or (if foreclosure,
distraint, sale or other similar proceedings shall not have been commenced or
any such proceeding after being commenced is stayed) which are being contested
in good faith by appropriate proceedings properly instituted and diligently
conducted and with respect to which adequate reserves or other appropriate
provisions are being maintained in accordance with Agreement Accounting
Principles;
(ii) statutory Liens of landlords and Liens of suppliers,
mechanics, carriers, materialmen, warehousemen or workmen and other similar
Liens imposed by law created in the ordinary course of business for amounts not
yet due or which are being contested in good faith by appropriate proceedings
properly instituted and diligently conducted and with respect to which adequate
reserves or other appropriate provisions are being maintained in accordance
with Agreement Accounting Principles;
(iii) Liens incurred or deposits made in the ordinary course
of business in connection with worker's compensation, unemployment insurance or
other types of social security benefits or to secure the performance of bids,
tenders, sales, contracts (other than for the repayment of borrowed money),
surety, appeal and performance bonds and other obligations of a like nature or
to secure the performance of leases of real property to the extent incurred or
made in the ordinary course of business; provided that (A) all such Liens do
not in the aggregate materially detract from the value of the Borrower's or
such Subsidiary's assets or property taken as a whole or materially impair the
use thereof in the operation of the businesses taken as a whole, and (B) all
Liens securing bonds to stay judgments or in connection with appeals do not
secure at any time an aggregate amount exceeding $1,000,000;
(iv) Liens arising with respect to zoning restrictions,
easements, licenses, reservations, covenants, rights-of-way, utility easements,
building restrictions and other similar charges or encumbrances on the use of
real property which do not in any case materially detract from the value of the
property subject thereto or interfere with the ordinary conduct of the business
of the Borrower or any of its Subsidiaries;
(v) Liens of attachment or judgment with respect to judgments,
writs or warrants of attachment, or similar process against the Borrower or any
of its Subsidiaries which do not constitute a Default under Section 8.1(H)
hereof;
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<PAGE> 16
(vi) any interest or title of the lessor in the property
subject to any operating lease entered into by the Borrower or any of its
Subsidiaries in the ordinary course of business;
(vii) Liens arising from Uniform Commercial Code financing
statements regarding leases permitted by this Agreement; and
(viii) leases or subleases granted to third Persons not
interfering in any material respect with the business of the Borrower or any of
its Subsidiaries.
"DEFAULT" means an event of default described in Article VIII hereof.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
Revolving Loan Termination Date.
"DOL" means the United States Department of Labor and any Person
succeeding to the functions thereof.
"DOLLAR" and "$" means dollars in the lawful currency of the United
States.
"EBITDA" means, for any period, on a consolidated basis for the
Borrower and its Subsidiaries, the sum of the amounts for such period, without
duplication, of (i) Net Income, plus (ii) Interest Expense, plus (iii) charges
against income for foreign, federal, state and local taxes to the extent
deducted in computing Net Income, plus (iv) depreciation expense to the extent
deducted in computing Net Income, plus (v) amortization expense, including,
without limitation, amortization of goodwill and other intangible assets to the
extent deducted in computing Net Income, plus (vi) extraordinary non-cash
charges to the extent deducted in computing Net Income; minus (vii)
extraordinary non-cash gains to the extent included in computing Net Income.
"ENVIRONMENTAL, HEALTH OR SAFETY REQUIREMENTS OF LAW" means all
Requirements of Law derived from or relating to federal, state and local laws
or regulations relating to or addressing pollution or protection of the
environment, or protection of worker health or safety, including, but not
limited to, the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 et seq., the Occupational Safety and
Health Act of 1970, 29 U.S.C. Section 651 et seq., and the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901 et seq., in
each case including any amendments thereto, any successor statutes, and any
regulations or guidance promulgated thereunder, and any state or local
equivalent thereof.
"ENVIRONMENTAL LIEN" means a lien in favor of any Governmental
Authority for (a) any liability under Environmental, Health or Safety
Requirements of Law, or (b) damages
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<PAGE> 17
arising from, or costs incurred by such Governmental Authority in response to,
a Release or threatened Release of a Contaminant into the environment.
"ENVIRONMENTAL PROPERTY TRANSFER ACT" means any applicable requirement
of law that conditions, restricts, prohibits or requires any notification or
disclosure triggered by the closure of any property or the transfer, sale or
lease of any property or deed or title for any property for environmental
reasons, including, but not limited to, any so-called "Industrial Site Recovery
Act" or "Responsible Property Transfer Act."
"EQUITY INTERESTS" means Capital Stock and all warrants, options or
other rights to purchase Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time including (unless the context otherwise requires) any
rules or regulations promulgated thereunder.
"EURODOLLAR BASE RATE" means, with respect to a Eurodollar Rate Loan
for the relevant Interest Period, the rate at which deposits in Dollars are
offered by First Chicago to first-class banks in the London interbank market at
approximately 11 a.m. (London time) two Business Days prior to the first day of
such Interest Period, in the approximate amounts of the portions of the
relevant Eurodollar Rate Loan of First Chicago, and having a maturity
approximately equal to such Interest Period, as adjusted for Reserves.
"EURODOLLAR RATE" means, with respect to a Eurodollar Rate Loan for
the relevant Interest Period, the Eurodollar Base Rate applicable to such
Interest Period plus the then Applicable Eurodollar Margin. The Eurodollar
Rate shall be rounded to the next higher multiple of 1/16 of 1% if the rate is
not such a multiple.
"EURODOLLAR RATE ADVANCE" means an Advance which bears interest at the
Eurodollar Rate.
"EURODOLLAR RATE LOAN" means a Loan, or portion thereof, which bears
interest at the Eurodollar Rate.
"EXCESS CASH FLOW" means, for any Cash Flow Period, an amount equal to
the Borrower's and its Subsidiaries' consolidated (i) EBITDA for such period,
minus (ii) income taxes paid in cash for such period, minus (iii) Capital
Expenditures paid in cash during such period, minus (iv) Interest Expense for
such period, minus (v) the amount of any payment of the principal portion of
the Term Loans (whether by scheduled amortization or otherwise) and payments of
the principal portion of all other Indebtedness of the Borrower and its
Subsidiaries (whether by scheduled amortization or otherwise) during such
period, minus (vi) cash payments in respect of extraordinary and nonrecurring
items, minus (vii) the increase (or plus
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<PAGE> 18
the decrease) in Working Capital during such period, in each case as calculated
in accordance with Agreement Accounting Principles.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, an interest rate
per annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day
which is a Business Day, the average of the quotations at approximately 10:00
a.m. (Chicago time) on such day on such transactions received by the Agent from
three Federal funds brokers of recognized standing selected by the Agent in its
sole discretion.
"FINANCING" means, with respect to any Person, the issuance or sale by
such Person of any Equity Interests of such Person or any Indebtedness
consisting of debt securities of such Person.
"FIRST CHICAGO" means The First National Bank of Chicago, in its
individual capacity, and its successors.
"FIXED CHARGE COVERAGE RATIO" is defined in Section 7.4(A) hereof.
"FLOATING RATE" means, for any day for any Loan, a rate per annum
equal to the Alternate Base Rate for such day, changing and as the Alternate
Base Rate changes, plus the then Applicable Floating Rate Margin.
"FLOATING RATE ADVANCE" means an Advance which bears interest at the
Floating Rate.
"FLOATING RATE LOAN" means a Loan, or portion thereof, which bears
interest at the Floating Rate.
"GOVERNMENTAL ACTS" is defined in Section 3.10(A) hereof.
"GOVERNMENTAL AUTHORITY" means any nation or government, any federal,
state, local or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"GROSS NEGLIGENCE" means recklessness, or actions taken or omitted
with conscious indifference to or the complete disregard of consequences.
Gross Negligence does not mean the absence of ordinary care or diligence, or an
inadvertent act or inadvertent failure to act. If the term "gross negligence"
is used with respect to the Agent or any Lender or any indemnitee in any of the
other Loan Documents, it shall have the meaning set forth herein.
"HEDGING AGREEMENTS" is defined in Section 7.3(P).
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<PAGE> 19
"HEDGING OBLIGATIONS" of a Person means any and all obligations of
such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all
agreements, devices or arrangements designed to protect at least one of the
parties thereto from the fluctuations of interest rates, commodity prices,
exchange rates or forward rates applicable to such party's assets, liabilities
or exchange transactions, including, but not limited to, dollar-denominated or
cross-currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options, puts and warrants, and (ii) any and all
cancellations, buy backs, reversals, terminations or assignments of any of the
foregoing.
"HOLDERS OF SECURED OBLIGATIONS" shall mean the holders of the Secured
Obligations from time to time and shall include their respective successors,
transferees and assigns.
"HOLDINGS" means FTD Corporation, a Delaware corporation, together
with its successors and assigns.
"INDEBTEDNESS" of any Person means, without duplication, such Person's
(a) obligations for borrowed money, (b) obligations representing the deferred
purchase price of property or services (other than accounts payable arising in
the ordinary course of such Person's business payable on terms customary in the
trade), (c) obligations, whether or not assumed, secured by Liens or payable
out of the proceeds or production from property or assets now or hereafter
owned or acquired by such Person, (d) obligations which are evidenced by notes,
acceptances or other instruments, (e) Capitalized Lease Obligations, (f)
Contingent Obligations, (g) obligations with respect to letters of credit, (h)
net liabilities of such Person under Hedging Obligations as calculated in
accordance with accepted practice and (i) Off Balance Sheet Liabilities. The
amount of Indebtedness of any Person at any date shall be without duplication
(i) the outstanding balance at such date of all unconditional obligations as
described above and (ii) in the case of Indebtedness of others secured by a
Lien to which the property or assets owned or held by such Person is subject,
the lesser of the fair market value at such date of any asset subject to a Lien
securing the Indebtedness of others and the amount of the Indebtedness secured.
"INDEMNIFIED MATTERS" is defined in Section 10.7(B) hereof.
"INDEMNITEES" is defined in Section 10.7(B) hereof.
"INDENTURE" means the Indenture dated as of December 1, 1994, between
the Borrower (as successor to FTD Acquisition Corp.) and First Trust of New
York, National Association with respect to the Subordinated Notes.
"INTEREST EXPENSE" means, for any period, the total interest expense
of the Borrower and its consolidated Subsidiaries, whether paid or accrued
(including the interest component of
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<PAGE> 20
Capitalized Leases, commitment and letter of credit fees, discounts,
commissions and other charges), but excluding interest expense not payable in
cash (including amortization of discount), all as determined in conformity with
Agreement Accounting Principles.
"INTEREST PERIOD" means, with respect to a Eurodollar Rate Loan, a
period of fourteen (14) days or one (1), two (2), three (3) months or six (6)
months or such other period as the Borrower may request and the Lenders, in
their discretion, shall agree to, commencing on a Business Day selected by the
Borrower pursuant to this Agreement. Such Interest Period shall end on (but
exclude) the day which corresponds numerically to such date fourteen (14) days
or one, two, three or six months thereafter (or as agreed); provided, however,
that if there is no such numerically corresponding day in such next, second,
third, sixth or other succeeding month, such Interest Period shall end on the
last Business Day of such next, second, third, sixth or other succeeding month.
If an Interest Period would otherwise end on a day which is not a Business Day,
such Interest Period shall end on the next succeeding Business Day, provided,
however, that if said next succeeding Business Day falls in a new calendar
month, such Interest Period shall end on the immediately preceding Business
Day.
"INVESTMENT" means, with respect to any Person, (i) any purchase or
other acquisition by that Person of any Indebtedness, Equity Interests or other
securities, or of a beneficial interest in any Indebtedness, Equity Interests
or other securities, issued by any other Person, (ii) any purchase by that
Person of all or substantially all of the assets of a business conducted by
another Person, and (iii) any loan, advance (other than deposits with financial
institutions available for withdrawal on demand, prepaid expenses, accounts
receivable, trade credit, advances to employees and similar items made or
incurred in the ordinary course of business) or capital contribution by that
Person to any other Person, including all Indebtedness to such Person arising
from a sale of property by such Person other than in the ordinary course of its
business.
"IRS" means the Internal Revenue Service and any Person succeeding to
the functions thereof.
"ISSUING BANKS" means First Chicago, Michigan National Bank and any
Lender which, at the Borrower's request, agrees, in each such Lender's sole
discretion, to become an Issuing Bank for the purpose of issuing Letters of
Credit, and their respective successors and assigns, in each case in such
Lender's separate capacity as an issuer of Letters of Credit pursuant to
Section 3.1. The designation of any Lender as an Issuing Bank after the date
hereof shall be subject to the prior written consent of the Agent, which
consent shall not be unreasonably withheld or delayed.
"L/C DRAFT" means a draft drawn on an Issuing Bank pursuant to a
Letter of Credit.
"L/C INTEREST" shall have the meaning ascribed to such term in Section
3.6 hereof.
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<PAGE> 21
"L/C OBLIGATIONS" means, without duplication, an amount equal to the
sum of (i) the aggregate of the amount then available for drawing under each of
the Letters of Credit, (ii) the face amount of all outstanding L/C Drafts
corresponding to the Letters of Credit, which L/C Drafts have been accepted by
the applicable Issuing Bank, and (iii) the aggregate outstanding amount of all
Reimbursement Obligations at such time.
"LENDERS" means the lending institutions listed on the signature pages
of this Agreement and their respective permitted successors and assigns.
"LENDING INSTALLATION" means, with respect to a Lender or the Agent,
any office, branch, subsidiary or affiliate of such Lender or the Agent.
"LETTER OF CREDIT" means the letters of credit to be (a) issued by the
Issuing Banks pursuant to Section 3.1 hereof or (b) deemed issued by the
Issuing Banks pursuant to Section 3.2 hereof.
"LEVERAGE RATIO" is defined in Section 7.4(B) hereof.
"LIEN" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, the interest of a vendor or
lessor under any conditional sale, Capitalized Lease or other title retention
agreement).
"LOAN(S)" means, with respect to a Lender, such Lender's portion of
any Advance made pursuant to Section 2.1 or Section 2.2 hereof, as applicable,
and in the case of the Swing Line Bank, any Swing Line Loan made pursuant to
Section 2.3 hereof, and collectively all Term Loans, Revolving Loans and Swing
Line Loans, whether made or continued as or converted to Floating Rate Loans or
Eurodollar Rate Loans.
"LOAN ACCOUNT" is defined in Section 2.15(F) hereof.
"LOAN DOCUMENTS" means this Agreement, the Notes and all other documents,
instruments and agreements executed in connection therewith, as the same may be
amended, restated or otherwise modified and in effect from time to time.
"MARGIN STOCK" shall have the meaning ascribed to such term in
Regulation U.
"MATERIAL ADVERSE EFFECT" means a material adverse effect upon (a) the
business, condition (financial or otherwise), operations, performance or
properties of the Borrower, or the Borrower and its Subsidiaries, taken as a
whole, (b) the ability of the Borrower or any of its Subsidiaries to perform
their respective payment or other material obligations under the Loan Documents
to which they are a party, or (c) the ability of the Lenders or the Agent to
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<PAGE> 22
enforce in any material respect the Obligations in accordance with the terms of
the Loan Documents.
"MULTIEMPLOYER PLAN" means a "Multiemployer Plan" as defined in
Section 4001(a)(3) of ERISA which is, or within the immediately preceding six
(6) years was, contributed to by either the Borrower or any member of the
Controlled Group.
"NET CASH PROCEEDS" means, with respect to any Asset Sale by any
Person, (a) cash (freely convertible into Dollars) received by such Person or
any Subsidiary of such Person from such Asset Sale (including cash received as
consideration for the assumption or incurrence of liabilities incurred in
connection with or in anticipation of such Asset Sale), after (i) provision for
all income or other taxes measured by or resulting from such Asset Sale, (ii)
payment of all brokerage commissions, attorneys' fees and expenses,
accountants' fees and expenses, investment banking fees and expenses, survey
costs, title insurance premiums, and other fees and expenses related to such
Asset Sale, (iii) all amounts used to repay Indebtedness secured by a Lien on
any asset disposed of in such Asset Sale or which is or may be required (by the
express terms of the instrument governing such Indebtedness) to be repaid in
connection with such Asset Sale (including payments made to obtain or avoid the
need for the consent of any holder of such Indebtedness), and (iv) deduction of
appropriate amounts to be provided by such Person or a Subsidiary of such
Person as a reserve, in accordance with Agreement Accounting Principles,
against any liabilities associated with the assets sold or disposed of in such
Asset Sale and retained by such Person or a Subsidiary of such Person after
such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities and liabilities related to environmental
matters or against any indemnification obligations associated with the assets
sold or disposed of in such Asset Sale; and (b) cash payments in respect of any
other consideration received by such Person or any Subsidiary of such Person
from such Asset Sale upon receipt of such cash payments by such Person or such
Subsidiary, net of such amounts described in clauses (i) through (iv) above, to
the extent applicable.
"NET INCOME" means, for any period, the net earnings (or loss) after
taxes of Holdings and its Subsidiaries on a consolidated basis for such period
taken as a single accounting period determined in conformity with Agreement
Accounting Principles.
"NON PRO RATA LOAN" is defined in Section 9.2 hereof.
"NOTES" means the Revolving Notes, Swing Line Notes and Term Notes.
"NOTICE OF ASSIGNMENT" is defined in Section 13.3(B) hereof.
"OBLIGATIONS" means all Loans, advances, debts, liabilities,
obligations, covenants and duties owing by the Borrower to the Agent, any
Lender, the Swing Line Bank, the Arranger, any Affiliate of the Agent or any
Lender, or any Indemnitee, of any kind or nature, present or future, arising
under this Agreement, the Notes or any other Loan Document, whether or not
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<PAGE> 23
evidenced by any note, guaranty or other instrument, whether or not for the
payment of money, whether arising by reason of an extension of credit, loan,
guaranty, indemnification, or in any other manner, whether direct or indirect
(including those acquired by assignment), absolute or contingent, due or to
become due, now existing or hereafter arising and however acquired. The term
includes, without limitation, all interest, charges, and reasonable expenses,
fees, attorneys' fees and disbursements, and paralegals' fees, and any other
sum chargeable to the Borrower under this Agreement or any other Loan Document.
"OFF BALANCE SHEET LIABILITIES" of a Person means (a) any repurchase
obligation or liability of such Person or any of its Subsidiaries with respect
to accounts or notes receivable sold by such Person or any of its Subsidiaries,
(b) any liability under any sale and leaseback transactions which do not create
a liability on the consolidated balance sheet of such Person, (c) any liability
under any financing lease or so-called "synthetic" lease transaction, or (d)
any obligations arising with respect to any other transaction which is the
functional equivalent of or takes the place of borrowing but which does not
constitute a liability on the consolidated balance sheets of such Person and
its Subsidiaries.
"OTHER TAXES" is defined in Section 2.15(E)(ii) hereof.
"PARTICIPANTS" is defined in Section 13.2(A) hereof.
"PAYMENT DATE" means the 15th day of each month.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor thereto.
"PERMITTED ACQUISITION" is defined in Section 7.3(G) hereof.
"PERMITTED EXISTING CONTINGENT OBLIGATIONS" means the Contingent
Obligations of Holdings and its Subsidiaries identified as such on Schedule
1.1.1 to this Agreement.
"PERMITTED EXISTING INDEBTEDNESS" means the Indebtedness of Holdings
and its Subsidiaries identified as such on Schedule 1.1.2 to this Agreement.
"PERMITTED EXISTING INVESTMENTS" means the Investments of Holdings and
its Subsidiaries identified as such on Schedule 1.1.3 to this Agreement.
"PERMITTED EXISTING LIENS" means the Liens on assets of Holdings and
its Subsidiaries identified as such on Schedule 1.1.4 to this Agreement.
"PERMITTED PURCHASE MONEY INDEBTEDNESS" is defined in Section
7.3(A)(viii) hereof.
"PERSON" means any individual, corporation, firm, enterprise,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, limited liability
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<PAGE> 24
company or other entity of any kind, or any government or political subdivision
or any agency, department or instrumentality thereof.
"PLAN" means an employee benefit plan defined in Section 3(3) of ERISA
in respect of which the Borrower or any member of the Controlled Group is, or
within the immediately preceding six (6) years was, an "employer" as defined in
Section 3(5) of ERISA.
"PRO RATA SHARE" means, with respect to any Lender, (i) at any time
prior to the Closing Date, the percentage obtained by dividing (A) such
Lender's Commitments at such time (in each case, as adjusted from time to time
in accordance with the provisions of this Agreement) by (B) the sum of the
Aggregate Term Loan Commitment and the Aggregate Revolving Loan Commitment at
such time and (ii) at any time after the Closing Date, the percentage obtained
by dividing (A) the sum of such Lender's unfunded Term Loan Commitment,
Revolving Loan Commitment and outstanding Term Loans at such time (in each
case, as adjusted from time to time in accordance with the provisions of this
Agreement) by (B) the sum of the aggregate amount of all of the outstanding
Term Loans, the unfunded Aggregate Term Loan Commitment and the Aggregate
Revolving Loan Commitment at such time; provided, however, if all of the
Commitments are terminated pursuant to the terms of this Agreement, then "Pro
Rata Share" means the percentage obtained by dividing (x) the sum of such
Lender's Term Loan and Revolving Loans and, in the case of the Swing Line Bank,
Swing Lines Loans, by (y) the aggregate amount of all Term Loans, Revolving
Loans and Swing Line Loans.
"PURCHASERS" is defined in Section 13.3(A) hereof.
"RATE OPTION" means the Eurodollar Rate or the Floating Rate.
"REGISTER" is defined in Section 13.3(C) hereof.
"REGULATION G" means Regulation G of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or
other regulation or official interpretation of said Board of Governors relating
to the extension of credit by nonbank, nonbroker lenders for the purpose of
purchasing or carrying margin stock (as defined therein).
"REGULATION T" means Regulation T of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or
other regulation or official interpretation of said Board of Governors relating
to the extension of credit by and to brokers and dealers of securities for the
purpose of purchasing or carrying margin stock (as defined therein).
"REGULATION U" means Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or
other regulation or official interpretation of said Board of Governors relating
to the extension of credit by banks for the
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<PAGE> 25
purpose of purchasing or carrying Margin Stock applicable to member banks of
the Federal Reserve System.
"REGULATION X" means Regulation X of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or
other regulation or official interpretation of said Board of Governors relating
to the extension of credit by foreign lenders for the purpose of purchasing or
carrying margin stock (as defined therein).
"REIMBURSEMENT OBLIGATION" is defined in Section 3.7 hereof.
"RELEASE" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment, including the movement of Contaminants
through or in the air, soil, surface water or groundwater.
"RENTALS" of a Person means the aggregate fixed amounts payable by
such Person under any lease of real or personal property but does not include
any amounts payable under Capitalized Leases of such Person.
"REPLACEMENT LENDER" is defined in Section 2.20 hereof.
"REPORTABLE EVENT" means a reportable event as defined in Section 4043
of ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days
after such event occurs, provided, however, that a failure to meet the minimum
funding standards of Section 412 of the Code and of Section 302 of ERISA shall
be a Reportable Event regardless of the issuance of any such waiver of the
notice requirement in accordance with either Section 4043(a) of ERISA or
Section 412(d) of the Code.
"REQUIRED LENDERS" means Lenders whose Pro Rata Shares, in the
aggregate, are greater than fifty percent (50%); provided, however, that, if
any of the Lenders shall have failed to fund its Pro Rata Share of any
Revolving Loan requested by the Borrower, or any Swing Line Loan as requested
by the Agent, which such Lenders are obligated to fund under the terms of this
Agreement and any such failure has not been cured, then for so long as such
failure continues, "REQUIRED LENDERS" means Lenders (excluding all Lenders
whose failure to fund their respective Pro Rata Shares of such Revolving Loans
or Swing Line Loans has not been so cured) whose Pro Rata Shares represent
greater than fifty percent (50%) of the aggregate Pro Rata Shares of such
Lenders; provided further, however, that, if the Commitments have been
terminated pursuant to the terms of this Agreement, "REQUIRED LENDERS" means
Lenders (without regard to such Lenders' performance of their respective
obligations hereunder) whose aggregate ratable shares (stated as a percentage)
of the aggregate outstanding principal balance of all Loans and L/C Obligations
are greater than fifty percent (50%).
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"REQUIREMENTS OF LAW" means, as to any Person, the charter and by-laws
or other organizational or governing documents of such Person, and any law,
rule or regulation, or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its material property or to which such Person or any of its material
property is subject including, without limitation, the Securities Act of 1933,
the Securities Exchange Act of 1934, Regulations G, T, U and X, ERISA, the Fair
Labor Standards Act, the Worker Adjustment and Retraining Notification Act,
Americans with Disabilities Act of 1990, and any material certificate of
occupancy, zoning ordinance, building, environmental or land use requirement or
permit or environmental, labor, employment, occupational safety or health law,
rule or regulation, including Environmental, Health or Safety Requirements of
Law.
"RESERVES" shall mean the maximum reserve requirement, as prescribed
by the Board of Governors of the Federal Reserve System (or any successor) with
respect to "Eurocurrency liabilities" or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Eurodollar Rate Loans is determined or category of extensions of credit or
other assets which includes loans by a non-United States office of any Lender
to United States residents.
"RESTRICTED PAYMENT" means (i) any dividend or other distribution,
direct or indirect, on account of any Equity Interests of Holdings or the
Borrower now or hereafter outstanding, except a dividend payable solely in
Holdings' or the Borrower's Capital Stock (other than Disqualified Stock) or in
options, warrants or other rights to purchase such Capital Stock, (ii) any
redemption, retirement, purchase or other acquisition for value, direct or
indirect, of any Equity Interests of Holdings or the Borrower or any of its
Subsidiaries now or hereafter outstanding, other than in exchange for, or out
of the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Borrower) of other Equity Interests of Holdings or the
Borrower (other than Disqualified Stock), (iii) any redemption, purchase,
retirement, defeasance, prepayment or other acquisition for value, direct or
indirect, of any Indebtedness other than Indebtedness permitted hereunder and
the other Loan Documents and other than the Obligations, (iv) any payment of a
claim for the rescission of the purchase or sale of, or for material damages
arising from the purchase or sale of, any Indebtedness (other than the
Obligations) or any Equity Interests of Holdings or the Borrower or any of the
Borrower's Subsidiaries, or of a claim for reimbursement, indemnification or
contribution arising out of or related to any such claim for damages or
rescission and (v) any payment of any management fee or similar consulting fee
to any Affiliate of the Borrower.
"REVOLVING CREDIT AVAILABILITY" means, at any particular time, the
amount by which the Aggregate Revolving Loan Commitment at such time exceeds
the Revolving Credit Obligations at such time.
"REVOLVING CREDIT OBLIGATIONS" means, at any particular time, the sum
of (i) the outstanding principal amount of the Revolving Loans at such time,
plus (ii) the outstanding
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principal amount of the Swing Line Loans at such time, plus (iii) the
outstanding L/C Obligations at such time.
"REVOLVING LOAN" is defined in Section 2.2 hereof.
"REVOLVING LOAN COMMITMENT" means, for each Lender, the obligation of
such Lender to make Revolving Loans and to purchase participations in Letters
of Credit not exceeding the amount set forth on Exhibit A to this Agreement
opposite its name thereon under the heading "Revolving Loan Commitment" or the
signature page of the assignment and acceptance by which it became a Lender, as
such amount may be modified from time to time pursuant to the terms of this
Agreement or to give effect to any applicable assignment and acceptance.
"REVOLVING LOAN TERMINATION DATE" means December 31, 2003.
"REVOLVING NOTE" means a promissory note, in substantially the form of
Exhibit B-1 hereto, duly executed by the Borrower and payable to the order of a
Lender in the amount of its Revolving Loan Commitment, including any amendment,
restatement, modification, renewal or replacement of such Revolving Note.
"RISK-BASED CAPITAL GUIDELINES" is defined in Section 4.2 hereof.
"SECURED OBLIGATIONS" means, collectively, (i) the Obligations and
(ii) all Hedging Obligations owing under Interest Rate Agreements to any Lender
or any affiliate of any Lender.
"SECURITY AGREEMENT" means that certain Security Agreement of even
date herewith executed by the Borrower in favor of the Agent for the benefit of
the Holders of Secured Obligations, as amended, restated or otherwise modified
from time to time.
"SINGLE EMPLOYER PLAN" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"SOLVENT" shall mean, when used with respect to any Person and its
Subsidiaries, taken as a whole, that at the time of determination:
(i) the fair value of its assets (both at fair valuation and
at present fair saleable value) is equal to or in excess of the total
amount of its liabilities for which Payment is required, including,
without limitation, contingent liabilities as they mature; and
(ii) it is then able and expects to be able to pay its debts
as they mature; and
(iii) it has capital sufficient to carry on its business as
conducted and as proposed to be conducted.
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With respect to contingent liabilities (such as litigation, guarantees and
pension plan liabilities), such liabilities shall be computed at the amount
which, in light of all the facts and circumstances existing at the time,
represent the amount which can be reasonably be expected to become an actual or
matured liability.
"SUBORDINATED NOTES" means those notes in the original principal
amount of $60,000,000 issued pursuant to that certain Indenture dated as of
December 1, 1994 between the Borrower (formerly, FTD Acquisition Corporation)
and First Trust of New York, National Association.
"SUBSIDIARY" of a Person means (i) any corporation more than 50% of
the outstanding securities having ordinary voting power of which shall at the
time be owned or controlled, directly or indirectly, by such Person or by one
or more of its Subsidiaries or by such Person and one or more of its
Subsidiaries, or (ii) any partnership, association, joint venture or similar
business organization more than 50% of the ownership interests having ordinary
voting power of which shall at the time be so owned or controlled. Unless
otherwise expressly provided, all references herein to a "Subsidiary" shall
mean a Subsidiary of the Borrower.
"SWING LINE BANK" means First Chicago or any other Lender as a
successor Swing Line Bank pursuant to the terms hereof.
"SWING LINE COMMITMENT" means the obligation of the Swing Line Bank to
make Swing Line Loans up to a maximum principal amount of $5,000,000 at any one
time outstanding.
"SWING LINE LOAN" means a Loan made available to the Borrower by the
Swing Line Bank pursuant to Section 2.3 hereof.
"SWING LINE NOTE" means a promissory note, in substantially the form
of Exhibit B-2 hereto, duly executed by the Borrower and payable to the order
of the Swing Line Bank in the amount of its Swing Line Commitment, including
any amendment, restatement, modification, renewal or replacement of such Swing
Line Note.
"SYNDICATION PERIOD" is defined in Section 2.4 hereof.
"TAXES" is defined in Section 2.15(E)(i) hereof.
"TERMINATION DATE" means the earlier of (a) the Revolving Loan
Termination Date, and (b) the date of termination in whole of the Aggregate
Revolving Loan Commitment pursuant to Section 2.6 hereof or the Commitments
pursuant to Section 9.1 hereof.
"TERMINATION EVENT" means (i) a Reportable Event with respect to any
Benefit Plan; (ii) the withdrawal of the Borrower or any member of the
Controlled Group from a Benefit
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Plan during a plan year in which the Borrower or such Controlled Group member
was a "substantial employer" as defined in Section 4001(a)(2) of ERISA or the
cessation of operations which results in the termination of employment of
twenty percent (20%) of Benefit Plan participants who are employees of the
Borrower or any member of the Controlled Group; (iii) the imposition of an
obligation on the Borrower or any member of the Controlled Group under Section
4041 of ERISA to provide affected parties written notice of intent to terminate
a Benefit Plan in a distress termination described in Section 4041(c) of ERISA;
(iv) the institution by the PBGC of proceedings to terminate a Benefit Plan;
(v) any event or condition which might constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer,
any Benefit Plan; or (vi) the partial or complete withdrawal of the Borrower or
any member of the Controlled Group from a Multiemployer Plan.
"TERM LOAN" is defined in Section 2.1(A) hereof.
"TERM LOAN COMMITMENT" means, for each Lender, the obligation of such
Lender to make its Term Loan pursuant to the terms and conditions of this
Agreement, and which shall not exceed the principal amount set forth on Exhibit
A to this Agreement opposite its name thereon under the heading "Term Loan
Commitment", as such amount may be modified from time to time pursuant to the
terms hereof.
"TERM LOAN TERMINATION DATE" means December 31, 2003.
"TERM NOTE" means a promissory note, in substantially the form of
Exhibit B-3 hereto, duly executed by the Borrower and payable to the order of a
Lender in the amount of its Term Loan Commitment, including any amendment,
restatement, modification, renewal or replacement of such Term Note.
"TRANSFEREE" is defined in Section 13.5 hereof.
"TYPE" means, with respect to any Loan, its nature as a Floating Rate
Loan or a Eurodollar Rate Loan.
"UNFUNDED LIABILITIES" means (i) in the case of Single Employer Plans,
the amount (if any) by which the present value of all vested nonforfeitable
benefits under all Single Employer Plans exceeds the fair market value of all
such Plan assets allocable to such benefits, all determined as of the then most
recent valuation date for such Plans, and (ii) in the case of Multiemployer
Plans, the withdrawal liability that would be incurred by the Controlled Group
if all members of the Controlled Group completely withdrew from all
Multiemployer Plans.
"UNMATURED DEFAULT" means an event which, but for the lapse of time or
the giving of notice, or both, would constitute a Default.
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"WORKING CAPITAL" means, as at any date of determination, the excess,
if any, of (i) the Borrower's consolidated current assets, except cash and Cash
Equivalents, over (ii) the Borrower's consolidated current liabilities, except
current maturities of long-term debt and Revolving Credit Obligations as of
such date and all accrued interest as of such date.
Any accounting terms used in this Agreement which are not specifically
defined herein shall have the meanings customarily given them in accordance
with generally accepted accounting principles in existence as of the date
hereof.
1.2 References. The existence throughout the Agreement of references
to the Borrower's Subsidiaries is for a matter of convenience only. Any
references to Subsidiaries of the Borrower set forth herein shall not in any
way be construed as consent by the Agent or any Lender to the establishment,
maintenance or acquisition of any Subsidiary, except as may otherwise be
permitted hereunder or under the other Loan Documents or, to the extent not
prohibited hereunder or such other Loan Documents, by applicable law.
1.3 Supplemental Disclosure. At any time at the reasonable request
of the Agent and at such additional times as the Borrower determines, the
Borrower shall supplement each schedule or representation herein or in the
other Loan Documents with respect to any matter hereafter arising which, if
existing or occurring at the date of this Agreement, would have been required
to be set forth or described in such schedule or as an exception to such
representation or which is necessary to correct any information in such
schedule or representation which has been rendered inaccurate thereby. Unless
any such supplement to such schedule or representation discloses the existence
or occurrence of events, facts or circumstances which are not prohibited by the
terms of this Agreement or any other Loan Documents, such supplement to such
schedule or representation shall not be deemed an amendment thereof unless
expressly consented to in writing by Agent and the Required Lenders, and no
such amendments, except as the same may be consented to in a writing which
expressly includes a waiver, shall be or be deemed a waiver by the Agent or any
Lender of any Default disclosed therein.
ARTICLE II: THE TERM LOAN AND REVOLVING LOAN FACILITIES
2.1. Term Loans. (A) Amount of Term Loans. Subject to the terms and
conditions set forth in this Agreement, each Lender on the Closing Date
severally and not jointly agrees to make on or after the Closing Date but prior
to February 1, 1999, term loans, in Dollars, to the Borrower in an aggregate
amount equal to such Lender's Term Loan Commitment (each individually, a "TERM
LOAN" and, collectively, the "TERM LOANS"). All Term Loans shall be made by
the Lenders on or after the Closing Date but prior to February 1, 1999
simultaneously and proportionately to their respective Pro Rata Shares, it
being understood that no Lender shall be responsible for any failure by any
other Lender to perform its obligation to make any Term Loan hereunder nor
shall the Term Loan Commitment of any Lender be increased or decreased as a
result of any such failure.
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(B) Borrowing Notice. The Borrower may deliver to the Agent a
Borrowing Notice, signed by it, on or after the Closing Date but prior to
February 1, 1999. Such Borrowing Notice shall specify (i) the aggregate amount
of the Term Loans being requested and (ii) instructions for the disbursement of
the proceeds of such Term Loans. The Term Loans made on the Closing Date shall
initially be Floating Rate Loans and thereafter may be continued as Floating
Rate Loans or converted into Eurodollar Rate Loans in the manner provided in
Section 2.10 and subject to the other conditions and limitations therein set
forth and set forth in this Article II. Any Borrowing Notice given pursuant to
this Section 2.1(B) shall be irrevocable.
(C) Making of Term Loans. Promptly after receipt of the Borrowing
Notice under Section 2.1(B) in respect of the Term Loans, the Agent shall
notify each Lender by telex or telecopy, or other similar form of transmission,
of the proposed Advance. Each Lender shall deposit an amount equal to its Pro
Rata Share of the Term Loans with the Agent at its office in Chicago, Illinois,
in immediately available funds, on the date specified in the Borrowing Notice
(which date shall be prior to February 1, 1999). Subject to the fulfillment of
the conditions precedent set forth in Sections 5.1 and 5.2, as applicable, the
Agent shall make the proceeds of such amounts received by it available to the
Borrower at the Agent's office in Chicago, Illinois on such date and shall
disburse such proceeds in accordance with the Borrower's disbursement
instructions set forth in such Borrowing Notice. The failure of any Lender to
deposit the amount described above with the Agent on such date shall not
relieve any other Lender of its obligations hereunder to make its Term Loan on
such date.
(D) Repayment of the Term Loans. (i) The Term Loans shall be repaid
in twenty (20) consecutive quarterly installments, payable on the last Business
Day of each fiscal quarter of the Borrower, commencing on March 31, 1999 and
continuing thereafter until the Term Loan Termination Date, and the Term Loans
shall be permanently reduced by the amount of each installment on the date
payment thereof is made hereunder. The installments shall be in the aggregate
amounts set forth below:
INSTALLMENT AMOUNT
AS A PERCENTAGE OF
TERM LOANS OUTSTANDING
INSTALLMENT DATE AS OF FEBRUARY 1, 1999
March 31, 1999 2.50%
June 30, 1999 2.50%
September 30, 1999 2.50%
December 31, 1999 2.50%
March 31, 2000 3.75%
June 30, 2000 3.75%
September 30, 2000 3.75%
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December 31, 2000 3.75%
March 31, 2001 5.00%
June 30, 2001 5.00%
September 30, 2001 5.00%
December 31, 2001 5.00%
March 31, 2002 6.25%
6.25%
June 30, 2002 6.25%
September 30, 2002 6.25%
December 31, 2002 6.25%
March 31, 2003 7.50%
June 30, 2003 7.50%
September 30, 2003 7.50%
December 31, 2003 7.50%
Notwithstanding the foregoing, the final installment shall be in the amount of
the then outstanding principal balance of the Term Loans. In addition, the
then outstanding principal balance of the Term Loans, if any, shall be due and
payable on the Termination Date. No installment of any Term Loan shall be
reborrowed once repaid.
(ii) In addition to the scheduled payments on the Term Loans, the
Borrower (a) may make the voluntary prepayments described in Section
2.5(A) for credit against the scheduled payments on the Term Loans pursuant to
Section 2.5(A) and (b) shall make the mandatory prepayments prescribed in
Section 2.5(B) for credit against the scheduled payments on the Term Loans
pursuant to Section 2.5(B).
2.2 Revolving Loans. Upon the satisfaction of the conditions
precedent set forth in Sections 5.1 and 5.2, as applicable, from and including
the date of this Agreement and prior to the Termination Date, each Lender
severally and not jointly agrees, on the terms and conditions set forth in this
Agreement, to make revolving loans to the Borrower from time to time, in
Dollars, in an amount not to exceed such Lender's Pro Rata Share of Revolving
Credit Availability at such time (each individually, a "REVOLVING LOAN" and,
collectively, the "REVOLVING LOANS"); provided, however, at no time shall the
Revolving Credit Obligations exceed the Aggregate Revolving Loan Commitment.
Subject to the terms of this Agreement, the Borrower may borrow, repay and
reborrow Revolving Loans at any time prior to the Termination Date. The
Revolving Loans made on the Closing Date shall initially be Floating Rate Loans
and thereafter may be continued as Floating Rate Loans or converted into
Eurodollar Rate Loans in the manner provided in Section 2.10 and subject to
the other conditions and limitations therein set forth and set forth in this
Article II. On the Termination Date, the Borrower shall repay in full the
outstanding principal balance of the Revolving Loans. Each Advance under this
Section 2.2 shall consist of Revolving Loans made by each Lender ratably in
proportion to such Lender's respective Pro Rata Share.
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2.3 Swing Line Loans. (A) Amount of Swing Line Loans. Upon the
satisfaction of the conditions precedent set forth in Section 5.1 and 5.2, as
applicable, from and including the date of this Agreement and prior to the
Termination Date, the Swing Line Bank agrees, on the terms and conditions set
forth in this Agreement, to make swing line loans to the Borrower from time to
time, in Dollars, in an amount not to exceed the Swing Line Commitment (each,
individually, a "SWING LINE LOAN" and collectively, the "SWING LINE LOANS");
provided, however, at no time shall the Revolving Credit Obligations exceed the
Aggregate Revolving Loan Commitment; and provided, further, that at no time
shall the sum of (a) the outstanding amount of the Swing Line Loans, plus (b)
the outstanding amount of Revolving Loans made by the Swing Line Bank pursuant
to Section 2.2, exceed the Swing Line Bank's Revolving Loan Commitment at such
time. Subject to the terms of this Agreement, the Borrower may borrow, repay
and reborrow Swing Line Loans at any time prior to the Termination Date.
(B) Borrowing Notice. The Borrower may deliver to the Agent and the
Swing Line Bank a Borrowing Notice, signed by it, not later than 2:00 p.m.
(Chicago time) on the Borrowing Date of each Swing Line Loan, specifying (i)
the applicable Borrowing Date (which date shall be a Business Day and which may
be the same date as the date the Borrowing Notice is given), and (ii) the
aggregate amount of the requested Swing Line Loan which shall be an amount not
less than $100,000. The Swing Line Loans shall at all times be Floating Rate
Loans.
(C) Making of Swing Line Loans. Promptly after receipt of the
Borrowing Notice under Section 2.3(B) in respect of Swing Line Loans, the Agent
shall notify each Lender by telex or telecopy, or other similar form of
transmission, of the requested Swing Line Loan. Not later than 3:00 p.m.
(Chicago time) on the applicable Borrowing Date, the Swing Line Bank shall make
available its Swing Line Loan, in funds immediately available in Chicago to the
Agent at its address specified pursuant to Article XIV. The Agent will
promptly make the funds so received from the Swing Line Bank available to the
Borrower on the Borrowing Date at the Agent's aforesaid address.
(D) Repayment of Swing Line Loans. The Swing Line Loans shall be
evidenced by the Swing Line Note, and each Swing Line Loan shall be paid in
full by the Borrower on or before the fifth Business Day after the Borrowing
Date for such Swing Line Loan. The Borrower may at any time pay, without
penalty or premium, all outstanding Swing Line Loans or, in a minimum amount
and increments of $100,000, any portion of the outstanding Swing Line Loans,
upon notice to the Agent and the Swing Line Bank. In addition, the Agent (i)
may at any time in its sole discretion with respect to any outstanding Swing
Line Loan, or (ii) shall on the fifth Business Day after the Borrowing Date of
any Swing Line Loan, require each Lender (including the Swing Line Bank) to
make a Revolving Loan in the amount of such Lender's Pro Rata Share of such
Swing Line Loan, for the purpose of repaying such Swing Line Loan. Not later
than 2:00 p.m. (Chicago time) on the date of any notice received pursuant to
this Section 2.3(D), each Lender shall make available its required Revolving
Loan or Revolving Loans, in funds immediately available in Chicago to the Agent
at its address specified pursuant to Article XIV. Revolving Loans made
pursuant to this Section 2.3(D) shall initially be
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Floating Rate Loans and thereafter may be continued as Floating Rate Loans or
converted into Eurodollar Rate Loans in the manner provided in Section 2.10 and
subject to the other conditions and limitations therein set forth and set forth
in this Article II. Unless a Lender shall have notified the Swing Line Bank,
prior to its making any Swing Line Loan, that any applicable condition
precedent set forth in Sections 5.1 and 5.2, as applicable, had not then been
satisfied, such Lender's obligation to make Revolving Loans pursuant to this
Section 2.3(D) to repay Swing Line Loans shall be unconditional, continuing,
irrevocable and absolute and shall not be affected by any circumstances,
including, without limitation, (a) any set-off, counterclaim,
recoupment, defense or other right which such Lender may have against the
Agent, the Swing Line Bank or any other Person, (b) the occurrence of
continuance of a Default or Unmatured Default, (c) any adverse change in the
condition (financial or otherwise) of the Borrower, or (d) any other
circumstances, happening or event whatsoever. In the event that any Lender
fails to make payment to the Agent of any amount due under this Section 2.3(D),
the Agent shall be entitled to receive, retain and apply against such
obligation the principal and interest otherwise payable to such Lender
hereunder until the Agent receives such payment from such Lender or such
obligation is otherwise fully satisfied. In addition to the foregoing, if for
any reason any Lender fails to make payment to the Agent of any amount due
under this Section 2.3(D), such Lender shall be deemed, at the option of the
Agent, to have unconditionally and irrevocably purchased from the Swing Line
Bank, without recourse or warranty, an undivided interest and participation in
the applicable Swing Line Loan in the amount of such Revolving Loan, and such
interest and participation may be recovered from such Lender together with
interest thereon at the Federal Funds Effective Rate for each day during the
period commencing on the date of demand and ending on the date such amount is
received. On the Termination Date, the Borrower shall repay in full the
outstanding principal balance of the Swing Line Loans.
2.4 Rate Options for all Advances. The Swing Line Loans shall be
Floating Rate Advances at all times. The Revolving Loans and Term Loans may be
Floating Rate Advances or Eurodollar Rate Advances, or a combination thereof,
selected by the Borrower in accordance with Section 2.10. The Borrower may
select, in accordance with Section 2.10, Rate Options and Interest Periods
applicable to portions of the Revolving Loans and the Term Loans; provided that
there shall be no more than thirteen (13) Interest Periods in effect with
respect to all of the Loans at any time. Notwithstanding anything herein to
the contrary, the Borrower may not select the Eurodollar Rate with Interest
Periods longer than fourteen (14) days for any Loans without the Agent's
consent during the period from the Closing Date through the earlier to occur of
(i) the date that is 90 days after the Closing Date and (ii) the date on which
the Arranger notifies the Borrower that the primary syndication of the Loans
and Commitments has been completed (the "SYNDICATION PERIOD"). The Swing Line
Loans shall at all times be Floating Rate Loans.
2.5 Optional Payments; Mandatory Prepayments.
(A) Optional Payments. The Borrower may from time to time and at any
time repay or prepay, without penalty or premium all or any part of outstanding
Floating Rate Advances;
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<PAGE> 35
provided, that the Borrower may not so prepay Floating Rate Advances consisting
of Term Loans unless it shall have provided at least one Business Day's written
notice to the Agent of such prepayment. Eurodollar Rate Advances may be
voluntarily repaid or prepaid prior to the last day of the applicable Interest
Period, subject to the indemnification provisions contained in Section 4.4,
provided, that the Borrower may not so prepay Eurodollar Rate Advances unless
it shall have provided at least three Business Days' written notice to the
Agent of such prepayment. Unless the aggregate outstanding principal balance
of the Term Loans is to be prepaid in full, voluntary prepayments of the Term
Loans shall be in an aggregate minimum amount of $500,000 and integral
multiples of $100,000 in excess of that amount, and shall be applied to each of
the then remaining installments payable thereunder, on a ratable basis based
upon the respective amounts of such installments.
(B) Mandatory Prepayments.
(i) Mandatory Prepayments of Term Loans.
(a) Upon the consummation of any Asset Sale by the Borrower
or any Subsidiary of the Borrower, other than those Asset Sales
permitted pursuant to Section 7.3(B), except to the extent that the
Net Cash Proceeds of such Asset Sale, when combined with the Net Cash
Proceeds of all such Asset Sales during the immediately preceding four
fiscal quarters of the Borrower do not exceed $500,000, and except as
provided in the second sentence of this Section 2.5(B)(i)(a), within
three (3) Business Days after the Borrower's or any of its
Subsidiaries' (i) receipt of any Net Cash Proceeds from any such Asset
Sale, or (ii) conversion to cash or Cash Equivalents of non-cash
proceeds (whether principal or interest and including securities,
release of escrow arrangements or lease payments) received from any
Asset Sale, the Borrower shall make a mandatory prepayment of the
Obligations (to be applied in accordance with the priority set forth
in clause (d) of this Section 2.5(B)(i)) in an amount equal to one
hundred percent (100%) of such Net Cash Proceeds or such proceeds
converted from non-cash to cash or Cash Equivalents received by the
Borrower or such Subsidiary. Net Cash Proceeds of Asset Sales with
respect to which the Borrower shall have given the Agent written
notice of its intention to replace the assets within six months, in
the case of a sale of equipment or other assets (other than real
property), or twelve months, in the case of a sale of real property,
following such Asset Sale shall not be subject to the provisions of
the first sentence of this Section 2.5(B)(i)(a) unless and to the
extent that such applicable period shall have expired without such
replacement having been made.
(b) Simultaneously with the delivery of the annual audited
financial statements required to be delivered pursuant to Section
7.1(A)(ii) for each fiscal year beginning with the fiscal year ending
June 30, 1999, the Borrower shall calculate Excess Cash Flow for such
fiscal year and shall make a mandatory prepayment, payable not later
than the earlier of ten (10) days after such financial statements and
calculation are
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delivered or one hundred and fifteen (115) days after the end of such
fiscal year, in an amount equal to fifty percent (50.0%) of such
Excess Cash Flow.
(c) Nothing in this Section 2.5(B)(i) shall be construed to
constitute the Lenders' consent to any transaction referred to in
clause (a) above which is otherwise prohibited by the terms of this
Agreement.
(d) Each mandatory prepayment required by clauses (a) and (b)
of this Section 2.5(B) shall be referred to herein as a "Designated
Prepayment." Designated Prepayments shall be allocated and applied to
the Obligations as follows:
(I) the amount of each Designated Prepayment shall
be applied to each of the then remaining installments payable
under the Term Loans, on a ratable basis based on the
respective amounts of such installments; and
(II) following the payment in full of the Term
Loans, the amount of each Designated Prepayment shall be
applied to repay Revolving Loans (but shall reduce Revolving
Loan Commitments only at the option of the Borrower).
(e) On the date any Designated Prepayment is received by the
Agent, such prepayment shall be applied first to Floating Rate Loans
and to any Eurodollar Rate Loans maturing on such date and then to
subsequently maturing Eurodollar Rate Loans in order of maturity.
(ii) Mandatory Prepayments of Revolving Loans. In addition to
repayments under Section 2.5(B)(i)(d)(II), if at any time and for any reason
the Revolving Credit Obligations (net of the amount of any cash collateral
deposited with the Agent pursuant to the immediately following sentence) are
greater than the Aggregate Revolving Loan Commitment, the Borrower shall
immediately make a mandatory prepayment of the Revolving Credit Obligations in
an amount equal to such excess. In addition, if the amount of L/C Obligations
outstanding at any time is greater than the Aggregate Revolving Loan Commitment
at such time minus the sum of the outstanding principal amount of the Revolving
Loans at such time and the outstanding principal amount of the Swing Line Loans
at such time, the Borrower shall deposit cash collateral with the Agent in an
amount equal to such excess.
(iii) Subject to the preceding provisions of this Section 2.5(B), all
of the mandatory prepayments made under this Section 2.5(B) shall be applied
first to Floating Rate Loans and to any Eurodollar Rate Loans maturing on such
date. The Agent shall hold the remaining portion of such mandatory prepayment
as cash collateral in an interest bearing deposit account and shall apply funds
from such account to subsequently maturing Eurodollar Rate Loans in order of
maturity.
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2.6 Reduction of Commitments. The Borrower may, in its sole
discretion, permanently reduce the Aggregate Revolving Loan Commitment or the
Aggregate Term Loan Commitment in whole, or in part ratably among the Lenders,
in an aggregate minimum amount of $1,000,000 with respect to each such
Commitment and integral multiples of $100,000 in excess of that amount with
respect to each such Commitment (unless the Aggregate Revolving Loan Commitment
or the Aggregate Term Loan Commitment is reduced in whole), upon at least one
Business Day's written notice to the Agent, which notice shall specify the
amount of any such reduction; provided, however, that the amount of the
Aggregate Revolving Loan Commitment may not be reduced below the aggregate
principal amount of the outstanding Revolving Credit Obligations, and the
Aggregate Term Loan Commitment may not be reduced below the Aggregate principal
amount of the outstanding Term Loans. All accrued commitment fees shall be
payable on the effective date of any termination of the obligations of the
Lenders to make Loans hereunder.
2.7 Method of Borrowing. Not later than 2:00 p.m. (Chicago time) on
each Borrowing Date, each Lender shall make available its Revolving Loan or
Term Loan, in funds immediately available in Chicago to the Agent at its
address specified pursuant to Article XIV. The Agent will promptly make the
funds so received from the Lenders available to the Borrower at the Agent's
aforesaid address.
2.8 Method of Selecting Types and Interest Periods for Advances. The
Borrower shall select the Type of Advance and, in the case of each Eurodollar
Rate Advance, the Interest Period applicable to each Advance from time to time.
The Borrower shall give the Agent irrevocable notice in substantially the form
of Exhibit C hereto (a "BORROWING/CONVERSION/CONTINUATION NOTICE") not later
than 10:00 a.m. (Chicago time) (a) on or before the Borrowing Date of each
Floating Rate Advance and (b) three Business Days before the Borrowing Date for
each Eurodollar Rate Advance, specifying: (i) the Borrowing Date (which shall
be a Business Day) of such Advance; (ii) the aggregate amount of such Advance;
(iii) the Type of Advance selected; and (iv) in the case of each Eurodollar
Rate Advance, the Interest Period applicable thereto. The Borrower shall
select Interest Periods so that, to the best of the Borrower's knowledge, it
will not be necessary to prepay all or any portion of any Eurodollar Rate
Advance prior to the last day of the applicable Interest Period in order to
make mandatory prepayments as required pursuant to the terms hereof. Each
Floating Rate Advance and all Obligations other than Loans shall bear interest
from and including the date of the making of such Advance, in the case of
Loans, and the date such Obligation is due and owing in the case of such other
Obligations, to (but not including) the date of repayment thereof at the
Floating Rate, changing when and as such Floating Rate changes. Changes in the
rate of interest on that portion of any Advance maintained as a Floating Rate
Loan will take effect simultaneously with each change in the Alternate Base
Rate. Each Eurodollar Rate Advance shall bear interest from and including the
first day of the Interest Period applicable thereto to (but not including) the
last day of such Interest Period at the interest rate determined as applicable
to such Eurodollar Rate Advance.
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<PAGE> 38
2.9 Minimum Amount of Each Advance. Each Advance (other than an
Advance to repay Swing Line Loans or a Reimbursement Obligation) shall be in
the minimum amount of $1,000,000 (and in multiples of $100,000 if in excess
thereof), provided, however, that any Floating Rate Advance may be in the
amount of the unused Aggregate Revolving Loan Commitment.
2.10 Method of Selecting Types and Interest Periods for Conversion and
Continuation of Advances.
(A) Right to Convert. The Borrower may elect from time to time,
subject to the provisions of Section 2.4 and this Section 2.10, to convert all
or any part of a Loan of any Type into any other Type or Types of Loans;
provided that any conversion of any Eurodollar Rate Advance shall be made on,
and only on, the last day of the Interest Period applicable thereto.
(B) Automatic Conversion and Continuation. Floating Rate Loans shall
continue as Floating Rate Loans unless and until such Floating Rate Loans are
converted into Eurodollar Rate Loans. Eurodollar Rate Loans shall continue as
Eurodollar Rate Loans until the end of the then applicable Interest Period
therefor, at which time such Eurodollar Rate Loans shall be automatically
converted into Floating Rate Loans unless the Borrower shall have given the
Agent notice in accordance with Section 2.10(D) requesting that, at the end of
such Interest Period, such Eurodollar Rate Loans continue as a Eurodollar Rate
Loan.
(C) No Conversion Post-Default or Post-Unmatured Default.
Notwithstanding anything to the contrary contained in Section 2.10(A) or
Section 2.10(B), no Loan may be converted into or continued as a Eurodollar
Rate Loan (except with the consent of the Required Lenders) when any Default or
Unmatured Default has occurred and is continuing.
(D) Conversion/Continuation Notice. The Borrower shall give the
Agent irrevocable notice (a "BORROWING/CONVERSION/CONTINUATION NOTICE") of each
conversion of a Floating Rate Loan into a Eurodollar Rate Loan or continuation
of a Eurodollar Rate Loan not later than 10:00 a.m. (Chicago time) three
Business Days prior to the date of the requested conversion or continuation,
specifying: (1) the requested date (which shall be a Business Day) of such
conversion or continuation; (2) the amount and Type of the Loan to be converted
or continued; and (3) the amount of Eurodollar Rate Loan(s) into which such
Loan is to be converted or continued and the duration of the Interest Period
applicable thereto.
2.11 Default Rate. After the occurrence and during the continuance of
(i) any Default described in Section 8.1(B) through (P) and following the
written direction of all of the Lenders or (ii) a Default described in Section
8.1(A), the interest rate(s) applicable to the Obligations and the fees payable
under Section 3.8 with respect to Letters of Credit shall be increased by two
percent (2.0%) per annum above the Floating Rate or Eurodollar Rate, as
applicable.
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<PAGE> 39
2.12 Method of Payment. All payments of principal, interest, and fees
hereunder shall be made, without setoff, deduction or counterclaim, in
immediately available funds to the Agent at the Agent's address specified
pursuant to Article XIV, or at any other Lending Installation of the Agent
specified in writing by the Agent to the Borrower, by 2:00 p.m. (Chicago time)
on the date when due and shall be made ratably among the Lenders (unless such
amount is not to be shared ratably in accordance with the terms hereof). Each
payment delivered to the Agent for the account of any Lender shall be delivered
promptly by the Agent to such Lender in the same type of funds which the Agent
received at its address specified pursuant to Article XIV or at any Lending
Installation specified in a notice received by the Agent from such Lender. The
Borrower authorizes the Agent to charge the account of the Borrower maintained
with First Chicago for each payment of principal, interest and fees as it
becomes due hereunder.
2.13 Notes. Each Lender is authorized to record the principal amount
of each of its Loans and each repayment with respect to its Loans on the
schedule attached to its respective Notes; provided, however, that the failure
to so record shall not affect the Borrower's obligations under any such Note.
2.14 Telephonic Notices. The Borrower authorizes the Lenders and the
Agent to extend Advances, effect selections of Types of Advances and to
transfer funds based on telephonic notices made by any person or persons the
Agent or any Lender in good faith believes to be acting on behalf of the
Borrower. The Borrower agrees to deliver promptly to the Agent a written
confirmation, signed by an Authorized Officer, if such confirmation is
requested by the Agent or any Lender, of each telephonic notice. If the
written confirmation differs in any material respect from the action taken by
the Agent and the Lenders, (i) the telephonic notice shall govern absent
manifest error and (ii) the Agent or the Lender, as applicable, shall promptly
notify the Authorized Officer who provided such confirmation of such
difference.
2.15 Promise to Pay; Interest and Commitment Fees; Interest Payment
Dates; Interest and Fee Basis; Taxes; Loan and Control Accounts.
(A) Promise to Pay. The Borrower unconditionally promises to pay
when due the principal amount of each Loan and all other Obligations incurred
by it, and to pay all unpaid interest accrued thereon, in accordance with the
terms of this Agreement, the Notes and the other Loan Documents.
(B) Interest Payment Dates. Interest accrued on each Floating Rate
Loan shall be payable on each Payment Date, commencing with the first such date
to occur after the date hereof, and at maturity (whether by acceleration or
otherwise). Interest accrued on each Eurodollar Rate Loan shall be payable on
the last day of its applicable Interest Period, on any date on which the
Eurodollar Rate Loan is prepaid, whether by acceleration or otherwise, and at
maturity. Interest accrued on each Eurodollar Rate Loan having an Interest
Period longer than three months shall also be payable on the last day of each
three-month interval during
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such Interest Period. Interest accrued on the principal balance of all other
Obligations, unless otherwise set forth herein, shall be payable in arrears (i)
on the last day of each calendar month, commencing on the first such day
following the incurrence of such Obligation, (ii) upon repayment thereof in
full or in part, and (iii) if not theretofore paid in full, at the time such
other Obligation becomes due and payable (whether by acceleration or
otherwise).
(C) Commitment Fees. (i) Subject to Section 9.2(vi), the Borrower
shall pay to the Agent, for the account of the Lenders in accordance with their
Pro Rata Shares, from and after the Closing Date until the date on which the
Aggregate Revolving Loan Commitment shall be terminated in whole, a commitment
fee accruing at the rate of the then Applicable Commitment Fee Percentage, on
the amount by which (A) the Aggregate Revolving Loan Commitment plus, at all
times prior to February 1, 1999, the Aggregate Term Loan Commitment in effect
from time to time exceeds (B) the Revolving Credit Obligations plus, at all
times prior to February 1, 1999, the aggregate principal amount of the Term
Loans from time to time. All such commitment fees payable under this clause
(C) shall be payable quarterly in arrears on the last day of each fiscal
quarter of the Borrower occurring after the Closing Date (with the first such
payment being calculated for the period from the Closing Date and ending on
December 31, 1997), and, in addition, on the date on which the Aggregate
Revolving Loan Commitment shall be terminated in whole.
(ii) The Borrower agrees to pay to the Agent for the sole account of
the Agent and the Arranger (unless otherwise agreed between the Agent and the
Arranger and any Lender) the fees set forth in the letter agreement between the
Agent and the Borrower dated October 14, 1997, payable at the times and in the
amounts set forth therein.
(D) Interest and Fee Basis; Applicable Floating Rate Margin,
Applicable Eurodollar Margin and Applicable Commitment Fee Percentage.
(i) Interest and fees shall be calculated for actual days elapsed on
the basis of a 360-day year. Interest shall be payable for the day an
Obligation is incurred but not for the day of any payment on the amount paid if
payment is received prior to 2:00 p.m. (Chicago time) at the place of payment.
If any payment of principal of or interest on a Loan or any payment of any
other Obligations shall become due on a day which is not a Business Day, such
payment shall be made on the next succeeding Business Day and, in the case of a
principal payment, such extension of time shall be included in computing
interest in connection with such payment.
(ii) The Applicable Floating Rate Margin, Applicable Eurodollar and
Applicable Commitment Fee Percentage shall be determined from time to time by
reference to the table set forth below, on the basis of the then applicable
Leverage Ratio as described in this Section 2.15(D)(ii):
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<PAGE> 41
<TABLE>
<CAPTION>
Applicable Applicable Applicable
Eurodollar Floating Rate Commitment
Leverage Ratio Margin Margin Fee Percentage
<S> <C> <C> <C>
Greater than
3.0 to 1.0 2.00% 0.50% 0.50%
Greater than
2.5 to 1.0 and
less than or equal
to 3.0 to 1.0 1.75% 0.25% 0.375%
Greater than
2.0 to 1.0 and
less than or equal
to 2.5 to 1.0 1.50% 0.00% 0.375%
Greater than
1.5 to 1.0 and
less than or equal
to 2.0 to 1.0 1.25% 0.00% 0.25%
Less than or equal
to 1.5 to 1.0 1.00% 0.00% 0.25%
</TABLE>
For purposes of this Section 2.15(D)(ii), the Leverage Ratio shall be
determined as of the last day of each fiscal quarter based upon (a) for
Indebtedness for borrowed money, Indebtedness for borrowed money as of the last
day of each such fiscal quarter; and (b) for EBITDA, the actual amount for the
four-quarter period ending on such day, calculated, with respect to Permitted
Acquisitions, on a pro forma basis using historical audited and reviewed
unaudited financial statements obtained from the seller, broken down by fiscal
quarter in the Borrower's reasonable judgment. Upon receipt of the financial
statements delivered pursuant to Sections 7.1(A)(i) and (ii), as applicable,
the Applicable Floating Rate Margin, Applicable Eurodollar Margin and
Applicable Commitment Fee Percentage shall be adjusted, such adjustment being
effective five (5) Business Days following the Agent's receipt of such
financial statements and the compliance certificate required to be delivered in
connection therewith pursuant to Section 7.1(A)(iii); provided, that if the
Borrower shall not have timely delivered its financial statements in accordance
with Section 7.1(A)(i) or (ii), as applicable, then commencing on the date upon
which such financial statements should have been delivered and continuing until
such financial statements are actually delivered, it shall be assumed for
purposes of determining the Applicable Floating Rate Margin, Applicable
Eurodollar Margin and Applicable Commitment Fee Percentage that the Leverage
Ratio was greater than 3.0 to 1.0. Notwithstanding anything herein to the
contrary, from the Closing Date to but not including the fifth Business Day
following receipt of the Borrower's financial statements in accordance
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with Section 7.1(A)(i) for the fiscal quarter ending December 31, 1997, the
Applicable Eurodollar Margin and Applicable Commitment Fee Percentage shall be
determined based upon an assumption that the Leverage Ratio is greater than 3.0
to 1.0.
(E) Taxes.
(i) Any and all payments by the Borrower hereunder shall be
made free and clear of and without deduction for any and all present
or future taxes, levies, imposts, deductions, charges or other
governmental withholdings with respect thereto including those arising
after the date hereof as a result of the adoption of or any
change in any law, treaty, rule, regulation, guideline or
determination of a Governmental Authority or any change in the
interpretation or application thereof by a Governmental Authority but
excluding, in the case of each Lender and the Agent, such taxes
(including income taxes, franchise taxes and branch profit taxes) as
are imposed on or measured by such Lender's or Agent's, as the case
may be, income by the United States of America or any subdivision
thereof or any Governmental Authority of the jurisdiction under the
laws of which such Lender or Agent, as the case may be, is organized
or maintains a Lending Installation (all such non-excluded taxes,
levies, imposts, deductions, charges and withholdings being
hereinafter referred to as "TAXES"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum
payable hereunder or under the other Loan Documents to any Lender or
the Agent, (i) the sum payable shall be increased as may be necessary
so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.15(E)) such
Lender or the Agent (as the case may be) receives an amount equal to
the sum it would have received had no such deductions been made, (ii)
the Borrower shall make such deductions, and (iii) the Borrower shall
pay the full amount deducted to the relevant taxation authority or
other authority in accordance with applicable law. If a withholding
tax of the United States of America or any other Governmental
Authority shall be or become applicable (y) after the date of this
Agreement, to such payments by the Borrower made to the Lending
Installation or any other office that a Lender may claim as its
Lending Installation, or (z) after such Lender's selection and
designation of any other Lending Installation, to such payments made
to such other Lending Installation, such Lender shall use reasonable
efforts to make, fund and maintain its Loans through another Lending
Installation of such Lender in another jurisdiction so as to reduce
the Borrower's liability hereunder, if the making, funding or
maintenance of such Loans through such other Lending Installation of
such Lender does not, in the judgment of such Lender, otherwise
adversely affect such Loans, or obligations under the Revolving Loan
Commitments or such Lender.
(ii) In addition, the Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property
taxes, charges, or similar levies which arise from any payment made
hereunder, from the issuance of Letters of Credit hereunder, or from
the execution, delivery or registration of, or otherwise with respect
to, this Agreement, the other Loan Documents, the Revolving Loan
Commitments, the
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Term Loan Commitments, the Loans or the Letters of Credit (hereinafter
referred to as "OTHER TAXES"); provided, however, that the Borrower
shall not be required to pay (or otherwise indemnify any Lender or
the Agent for) any Other Taxes incurred as a result of an assignment
pursuant to Section 13.3 hereof.
(iii) The Borrower indemnifies each Lender and the Agent for
the full amount of Taxes and Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed by any Governmental
Authority on amounts payable under this Section 2.15(E)) paid by such
Lender or the Agent (as the case may be) and any liability (including
penalties, interest, and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. This indemnification shall be made within thirty
(30) days after the date such Lender or the Agent (as the case may be)
makes written demand therefor. A certificate as to any additional
amount payable to any Lender or the Agent under this Section 2.15(E)
submitted to the Borrower and the Agent (if a Lender is so submitting)
by such Lender or the Agent shall show in reasonable detail the amount
payable and the calculations used to determine such amount and shall,
absent manifest error, be final, conclusive and binding upon all
parties hereto. With respect to such deduction or withholding for or
on account of any Taxes and to confirm that all such Taxes have been
paid to the appropriate Governmental Authorities, the Borrower shall
promptly (and in any event not later than thirty (30) days after
receipt) furnish to each Lender and the Agent such certificates,
receipts and other documents as are available from the relevant
Governmental Authority in respect of the Taxes or Other Taxes withheld
or deduced and as may be required (in the judgment of such Lender or
the Agent) to establish any tax credit to which such Lender or the
Agent may be entitled.
(iv) Without prejudice to the survival of any other agreement
of the Borrower hereunder, the agreements and obligations of the
Borrower contained in this Section 2.15(E) shall survive the
payment in full of principal and interest hereunder, the termination
of the Letters of Credit and the termination of this Agreement.
(v) Each Lender that is not created or organized under the
laws of the United States of America or a political subdivision
thereof shall deliver to the Borrower and the Agent on or before the
Closing Date, or, if later, the date on which such Lender becomes a
Lender pursuant to Section 13.3, a true and accurate certificate
executed in duplicate by a duly authorized officer of such Lender, in
a form satisfactory to the Borrower and the Agent, to the effect that
such Lender is eligible under the provisions of an applicable tax
treaty concluded by the United States of America (in which case the
certificate shall be accompanied by two executed copies of Form 1001
of the IRS) or under Section 1442 of the Code (in which case the
certificate shall be accompanied by two copies of Form 4224 of the
IRS) to receive payments of interest hereunder without deduction or
withholding of United States federal income tax. Each such Lender
further agrees to deliver to the Borrower and the Agent from time to
time a true and accurate certificate executed in duplicate by a duly
authorized officer of such
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Lender substantially in a form satisfactory to the Borrower and the
Agent, before or promptly upon the occurrence of any event requiring a
change in the most recent certificate previously delivered by it to
the Borrower and the Agent pursuant to this Section 2.15(E)(v).
Further, each Lender which delivers a certificate accompanied by Form
1001 of the IRS covenants and agrees to deliver to the Borrower and
the Agent within fifteen (15) days prior to January 1, 1998, and every
third (3rd) anniversary of such date thereafter on which this
Agreement is still in effect, another such certificate and two
accurate and complete original signed copies of Form 1001 (or any
successor form or forms required under the Code or the applicable
regulations promulgated thereunder), and each Lender that delivers a
certificate accompanied by Form 4224 of the IRS covenants and agrees
to deliver to the Borrower and the Agent within fifteen (15) days
prior to the beginning of each subsequent taxable year of such Lender
during which this Agreement is still in effect, another such
certificate and two accurate and complete original signed copies of
IRS Form 4224 (or any successor form or forms required under the Code
or the applicable regulations promulgated thereunder). Each
certificate delivered pursuant to either of the two immediately
preceding sentences shall certify as to one of the following:
(a) that such Lender is eligible to receive payments
of interest hereunder without deduction or withholding of
United States federal income tax;
(b) that such Lender is not eligible to receive
payments of interest hereunder without deduction or
withholding of United States federal income tax as specified
therein but is capable of recovering the full amount of any
such deduction or withholding from a source other than the
Borrower and will not seek any such recovery from the
Borrower; or
(c) that, as a result of the adoption of or any
change in any law, treaty, rule, regulation, guideline or
determination of a Governmental Authority or any change in the
interpretation or application thereof by a Governmental
Authority after the date such Lender became a party hereto,
such Lender is not eligible to receive payments of interest
hereunder without deduction or withholding of United States
federal income tax as specified therein and that it is not
capable of recovering the full amount of the same from a
source other than the Borrower.
Each Lender shall promptly furnish to the Borrower and the Agent such
additional documents as may be reasonably required by the Borrower or
the Agent to establish any exemption from or reduction of any Taxes or
Other Taxes required to be deducted or withheld and which may be
obtained without undue expense to such Lender. The Borrower shall not
indemnify any Lender or make any increased payment to any
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<PAGE> 45
Lender under this Section 2.15 in respect of any United States federal
income tax if such Lender delivers a certificate described in the
preceding clause (b).
(F) Loan Account. Each Lender shall maintain in accordance with its
usual practice an account or accounts (a "LOAN ACCOUNT") evidencing the
Obligations of the Borrower to such Lender owing to such Lender from time to
time, including the amount of principal and interest payable and paid to such
Lender from time to time hereunder and under the Notes.
(G) Control Account. The Register maintained by the Agent pursuant
to Section 13.3(C) shall include a control account, and a subsidiary account
for each Lender, in which accounts (taken together) shall be recorded (i) the
date and amount of each Advance made hereunder, the type of Loan comprising
such Advance and any Interest Period applicable thereto, (ii) the effective
date and amount of each Assignment Agreement delivered to and accepted by it
and the parties thereto pursuant to Section 13.3, (iii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder or under the Notes, (iv) the amount of any
sum received by the Agent from the Borrower hereunder and each Lender's share
thereof, and (v) all other appropriate debits and credits as provided in this
Agreement, including, without limitation, all fees, charges, expenses and
interest.
(H) Entries Binding. The entries made in the Register and each Loan
Account shall be conclusive and binding for all purposes, absent manifest
error, unless the Borrower objects to information contained in the Register and
each Loan Account within thirty (30) days of the Borrower's receipt of such
information.
2.16 Notification of Advances, Interest Rates, Prepayments and
Aggregate Revolving Loan Commitment Reductions. Promptly after receipt
thereof, the Agent will notify each Lender of the contents of each Aggregate
Revolving Loan Commitment reduction notice, Borrowing Notice,
Continuation/Conversion Notice, and repayment notice received by it hereunder.
The Agent will notify each Lender of the interest rate applicable to each
Eurodollar Rate Loan promptly upon determination of such interest rate and will
give each Lender prompt notice of each change in the Alternate Base Rate.
2.17 Lending Installations. Each Lender may book its Loans at any
Lending Installation selected by such Lender and may change its Lending
Installation from time to time. All terms of this Agreement shall apply to any
such Lending Installation and the Notes shall be deemed held by each Lender for
the benefit of such Lending Installation. Each Lender may, by written or
facsimile notice to the Agent and the Borrower, designate a Lending
Installation through which Loans will be made by it and for whose account Loan
payments are to be made.
2.18 Non-Receipt of Funds by the Agent. Unless the Borrower or a
Lender, as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (i) in the case of a Lender, the
proceeds of a Loan or (ii) in the case of the
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Borrower, a payment of principal, interest or fees to the Agent for the account
of the Lenders, that it does not intend to make such payment, the Agent may
assume that such payment has been made. The Agent may, but shall not be
obligated to, make the amount of such payment available to the intended
recipient in reliance upon such assumption. If such Lender or the Borrower, as
the case may be, has not in fact made such payment to the Agent, the recipient
of such payment shall, on demand by the Agent, repay to the Agent the amount so
made available together with interest thereon in respect of each day during the
period commencing on the date such amount was so made available by the Agent
until the date the Agent recovers such amount at a rate per annum equal to (i)
in the case of payment by a Lender, the Federal Funds Effective Rate for such
day or (ii) in the case of payment by the Borrower, the interest rate
applicable to the relevant Loan.
2.19 Termination Date. This Agreement shall be effective until the
Termination Date. Notwithstanding the termination of this Agreement on the
Termination Date, until all of the Obligations (other than contingent indemnity
obligations) shall have been fully and indefeasibly paid and satisfied, all
financing arrangements among the Borrower and the Lenders with respect to the
transactions contemplated herein and in the other Loan Agreements shall have
been terminated (other than under Interest Rate Agreements or other agreements
with respect to Hedging Obligations) and all of the Letters of Credit shall
have expired, been canceled or terminated, all of the rights and remedies under
this Agreement and the other Loan Documents shall survive. Upon the
termination of this Agreement and payment in full of the Obligations (i) all
security interests created pursuant to any Collateral Document shall terminate
and all rights to the Collateral shall automatically revert to the Borrower and
(ii) each of the Lenders will, upon the Borrower's request and at the
Borrower's expense, (A) return to the Borrower such of the Collateral as shall
not have been sold or otherwise disposed of or applied pursuant to the terms
thereof and (B) execute and deliver to the Borrower such documents as the
Borrower shall reasonably request to evidence such termination.
2.20 Replacement of Certain Lenders. In the event a Lender ("AFFECTED
LENDER") shall have: (i) failed to fund its Pro Rata Share of any Advance
requested by the Borrower, or to fund a Revolving Loan in order to repay Swing
Line Loans pursuant to Section 2.3(D), which such Lender is obligated to fund
under the terms of this Agreement and which failure has not been cured within
five Business Days, (ii) requested compensation from the Borrower under
Sections 2.15(E), 4.1 or 4.2 to recover Taxes, Other Taxes or other additional
costs incurred by such Lender which are not being incurred generally by the
other Lenders, (iii) delivered a notice pursuant to Section 4.3 claiming that
such Lender is unable to extend Eurodollar Rate Loans to the Borrower for
reasons not generally applicable to the other Lenders or (iv) has invoked
Section 10.2, then, in any such case, the Borrower or the Agent may make
written demand on such Affected Lender (with a copy to the Agent in the case of
a demand by the Borrower and a copy to the Borrower in the case of a demand by
the Agent) for the Affected Lender to assign, and such Affected Lender shall
use its best efforts to assign pursuant to one or more duly executed Assignment
Agreements five (5) Business Days after the date of such demand, to one or more
financial institutions that comply with the provisions of Section 13.3(A) which
the Borrower or the Agent, as the case may be, shall have engaged
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for such purpose ("REPLACEMENT LENDER"), all of such Affected Lender's rights
and obligations under this Agreement and the other Loan Documents (including,
without limitation, its Revolving Loan Commitment, all Loans owing to it, all
of its participation interests in existing Letters of Credit, and its
obligation to participate in additional Letters of Credit hereunder) in
accordance with Section 13.3. The Agent agrees, upon the occurrence of such
events with respect to an Affected Lender and upon the written request of the
Borrower, to use its reasonable efforts to obtain the commitments from one or
more financial institutions to act as a Replacement Lender. The Agent is
authorized to execute one or more of such assignment agreements as
attorney-in-fact for any Affected Lender failing to execute and deliver the
same within five (5) Business Days after the date of such demand. Further,
with respect to such assignment the Affected Lender shall have concurrently
received, in cash, all amounts due and owing to the Affected Lender hereunder
or under any other Loan Document, including, without limitation, the aggregate
outstanding principal amount of the Loans owed to such Lender, together with
accrued interest thereon through the date of such assignment, amounts payable
under Sections 2.15(E), 4.1, and 4.2 with respect to such Affected Lender and
compensation payable under Section 2.15(C) in the event of any replacement of
any Affected Lender under clause (ii) or clause (iii) of this Section 2.20;
provided that upon such Affected Lender's replacement, such Affected Lender
shall cease to be a party hereto but shall continue to be entitled to the
benefits of Sections 2.15(E), 4.1, 4.2, 4.4, and 10.7, as well as to any fees
accrued for its account hereunder and not yet paid, and shall continue to be
obligated under Section 11.8. Upon the replacement of any Affected Lender
pursuant to this Section 2.20, the provisions of Section 9.2 shall continue to
apply with respect to Borrowings which are then outstanding with respect to
which the Affected Lender failed to fund its Pro Rata Share and which failure
has not been cured.
ARTICLE III: THE LETTER OF CREDIT FACILITY
3.1 Obligation to Issue. Subject to the terms and conditions of this
Agreement and in reliance upon the representations, warranties and covenants of
the Borrower herein set forth, each Issuing Bank hereby agrees to issue for the
account of the Borrower through such Issuing Bank's branches as it and the
Borrower may jointly agree, one or more Letters of Credit denominated in
Dollars in accordance with this Article III, from time to time during the
period, commencing on the date hereof and ending on the Business Day prior to
the Termination Date.
3.2 Transitional Provision. Schedule 3.2 contains a schedule of
certain letters of credit issued for the account of the Borrower prior to the
Closing Date. Subject to the satisfaction of the conditions contained in
Sections 5.1 and 5.2, as applicable, from and after the Closing Date such
letters of credit shall be deemed to be Letters of Credit issued pursuant to
this Article III.
3.3 Types and Amounts. No Issuing Bank shall have any obligation to
and no Issuing Bank shall:
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(i) issue any Letter of Credit if on the date of issuance,
before or after giving effect to the Letter of Credit requested
hereunder, (a) the Revolving Credit Obligations at such time would
exceed the Aggregate Revolving Loan Commitment at such time, or (b)
the aggregate outstanding amount of the L/C Obligations would exceed
$15,000,000; or
(ii) except as set forth in Schedule 3.3, issue any Letter of
Credit which has an expiration date later than the date which is the
earlier of one (1) year after the date of issuance thereof (except
that any such Letter of Credit may provide for automatic annual
extension of such expiration date upon notice to or from the Issuing
Bank) or five (5) Business Days immediately preceding the Termination
Date.
3.4 Conditions. In addition to being subject to the satisfaction of
the conditions contained in Sections 5.1 and 5.2, the obligation of an Issuing
Bank to issue any Letter of Credit is subject to the satisfaction in full of
the following conditions:
(i) the Borrower shall have delivered to the applicable
Issuing Bank at such times and in such manner as such Issuing Bank may
reasonably prescribe, a request for issuance of such Letter of Credit
in substantially the form of Exhibit D hereto, duly executed
applications for such Letter of Credit, and such other documents,
instructions and agreements as may be required pursuant to the terms
thereof, and the proposed Letter of Credit shall be reasonably
satisfactory to such Issuing Bank as to form and content; and
(ii) as of the date of issuance no order, judgment or decree
of any court, arbitrator or Governmental Authority shall purport by
its terms to enjoin or restrain the applicable Issuing Bank from
issuing such Letter of Credit and no law, rule or regulation
applicable to such Issuing Bank and no request or directive (whether
or not having the force of law) from a Governmental Authority with
jurisdiction over such Issuing Bank shall prohibit or request that
such Issuing Bank refrain from the issuance of Letters of Credit
generally or the issuance of that Letter of Credit.
3.5 Procedure for Issuance of Letters of Credit. (a) Subject to the
terms and conditions of this Article III and provided that the applicable
conditions set forth in Sections 5.1 and 5.2 hereof have been satisfied, the
applicable Issuing Bank shall, on the requested date, issue a Letter of Credit
on behalf of the Borrower in accordance with such Issuing Bank's usual and
customary business practices and, in this connection, such Issuing Bank may
assume that the applicable conditions set forth in Section 5.2 hereof have been
satisfied unless it shall have received notice to the contrary from the Agent
or a Lender or has knowledge that the applicable conditions have not been met.
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(b) The applicable Issuing Bank shall give the Agent written or telex
notice, or telephonic notice confirmed promptly thereafter in writing, of the
issuance of a Letter of Credit, provided, however, that the failure to provide
such notice shall not result in any liability on the part of such Issuing Bank.
(c) No Issuing Bank shall extend or amend any Letter of Credit unless
the applicable requirements of this Section 3.5 are met as though a new Letter
of Credit was being requested and issued.
3.6 Letter of Credit Participation. Immediately upon the issuance of
each Letter of Credit hereunder, each Lender shall be deemed to have
automatically, irrevocably and unconditionally purchased and received from the
applicable Issuing Bank an undivided interest and participation in and to such
Letter of Credit, the obligations of the Borrower in respect thereof, and the
liability of such Issuing Bank thereunder (collectively, an "L/C INTEREST") in
an amount equal to the amount available for drawing under such Letter of Credit
multiplied by such Lender's Pro Rata Share. Each Issuing Bank will notify each
Lender promptly upon presentation to it of an L/C Draft or upon any other draw
under a Letter of Credit. On or before the Business Day on which an Issuing
Bank makes payment of each such L/C Draft or, in the case of any other draw on
a Letter of Credit, on demand by the Agent or the applicable Issuing Bank, each
Lender shall make payment to the applicable Issuing Bank, as directed by such
Issuing Bank, in immediately available funds in an amount equal to such
Lender's Pro Rata Share of the amount of such payment or draw. The obligation
of each Lender to reimburse the Issuing Banks under this Section 3.6 shall be
unconditional, continuing, irrevocable and absolute. In the event that any
Lender fails to make payment of any amount due under this Section 3.6, the
Agent shall be entitled to receive, retain and apply against such obligation
the principal and interest otherwise payable to such Lender hereunder until the
Agent receives such payment from such Lender or such obligation is otherwise
fully satisfied; provided, however, that nothing contained in this sentence
shall relieve such Lender of its obligation to reimburse the applicable Issuing
Bank for such amount in accordance with this Section 3.6.
3.7 Reimbursement Obligation. The Borrower agrees unconditionally,
irrevocably and absolutely to pay immediately to the applicable Issuing Bank or
to the Agent, for the account of the Lenders, the amount of each advance which
may be drawn under or pursuant to a Letter of Credit related thereto (such
obligation of the Borrower to reimburse the applicable Issuing Bank or the
Agent for an advance made under a Letter of Credit being hereinafter referred
to as a "REIMBURSEMENT OBLIGATION" with respect to such Letter of Credit). If
the applicable Issuing Bank or the Agent makes demand before 2:00 p.m. (Chicago
time), payment shall be due from the Borrower on same day as demand; if demand
is made after 2:00 p.m. (Chicago time), payment shall be due from the Borrower
on the next Business Day. If the Borrower at any time fails to repay a
Reimbursement Obligation pursuant to this Section 3.7, the Borrower shall be
deemed to have elected to borrow Revolving Loans from the Lenders, as of the
date of the payment giving rise to the Reimbursement Obligation, equal in
amount to the amount of the unpaid Reimbursement Obligation. Such Revolving
Loans shall be made as of the date of
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the payment giving rise to such Reimbursement Obligation, automatically,
without notice and without any requirement to satisfy the conditions precedent
otherwise applicable to an Advance of Revolving Loans, provided that the
Issuing Bank shall use reasonable efforts to provide notice of such
Reimbursement Obligation to the Borrower. Such Revolving Loans shall
constitute a Floating Rate Advance, the proceeds of which Advance shall be used
to repay such Reimbursement Obligation. If, for any reason, the Borrower fails
to repay a Reimbursement Obligation on the day such Reimbursement Obligation
arises and, for any reason, the Lenders are unable to make or have no
obligation to make Revolving Loans, then such Reimbursement Obligation shall
bear interest from and after such day, until paid in full, at the interest rate
applicable to a Floating Rate Advance.
3.8 Letter of Credit Fees. The Borrower agrees to pay (i) quarterly,
in arrears, no later than the tenth Business Day following the last day of each
quarter, to the Agent for the ratable benefit of the Lenders, except as set
forth in Section 9.2, a letter of credit fee at a rate per annum equal to the
Applicable L/C Fee Percentage on the average daily outstanding face amount
available for drawing under all Letters of Credit, (ii) quarterly, in arrears,
to the applicable Issuing Bank, a letter of credit fronting fee at such
percentage rate as may be agreed between the Borrower and each Issuing Bank on
the average daily outstanding face amount available for drawing under all
Letters of Credit issued by such Issuing Bank, and (iii) to the applicable
Issuing Bank, all customary fees and other issuance, amendment, document
examination, negotiation and presentment expenses and related charges in
connection with the issuance, amendment, presentation of L/C Drafts, and the
like customarily charged by such Issuing Banks with respect to standby and
commercial Letters of Credit in general to comparable customers under
comparable circumstances, including, without limitation, standard commissions
with respect to commercial Letters of Credit, payable at the time the invoice
of such amounts is received by the Borrower.
3.9 Issuing Bank Reporting Requirements. In addition to the notices
required by Section 3.5(C), each Issuing Bank shall, no later than the fifth
Business Day following the last day of each month, provide to the Agent, upon
the Agent's request, schedules, in form and substance reasonably satisfactory
to the Agent, showing the date of issue, account party, amount, expiration date
and the reference number of each Letter of Credit issued by it outstanding at
any time during such month. In addition, upon the request of the Agent, each
Issuing Bank shall furnish to the Agent copies of any Letter of Credit and any
application for or reimbursement agreement with respect to a Letter of Credit
to which the Issuing Bank is party and such other documentation as may
reasonably be requested by the Agent. Upon the request of any Lender, the
Agent will provide to such Lender information concerning such Letters of
Credit.
3.10 Indemnification; Exoneration. (A) In addition to amounts
payable as elsewhere provided in this Article III, the Borrower hereby agrees
to protect, indemnify, pay and save harmless the Agent, each Issuing Bank and
each Lender from and against any and all liabilities and costs which the Agent,
such Issuing Bank or such Lender may incur or be subject to as a consequence,
direct or indirect, of (i) the issuance of any Letter of Credit other than, in
the
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case of the applicable Issuing Bank, as a result of its Gross Negligence or
willful misconduct, as determined by the final judgment of a court of competent
jurisdiction, or (ii) the failure of the applicable Issuing Bank to honor a
drawing under a Letter of Credit as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto Governmental
Authority (all such acts or omissions herein called "GOVERNMENTAL ACTS").
(B) As among the Borrower, the Lenders, the Agent and the Issuing
Banks, the Borrower assumes all risks of the acts and omissions of, or misuse
of such Letter of Credit by, the beneficiary of any Letters of Credit. In
furtherance and not in limitation of the foregoing, subject to the provisions
of the Letter of Credit applications and Letter of Credit reimbursement
agreements executed by the Borrower at the time of request for any Letter of
Credit, neither the Agent, any Issuing Bank nor any Lender shall be responsible
(in the absence of Gross Negligence or willful misconduct in connection
therewith, as determined by the final judgment of a court of competent
jurisdiction): (i) for the form, validity, sufficiency, accuracy, genuineness
or legal effect of any document submitted by any party in connection with the
application for and issuance of the Letters of Credit, even if it should in
fact prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (ii) for the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign a Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, which may prove to be invalid or ineffective for any reason; (iii) for
failure of the beneficiary of a Letter of Credit to comply duly with conditions
required in order to draw upon such Letter of Credit; (iv) for errors,
omissions, interruptions or delays in transmission or delivery of any messages,
by mail, cable, telegraph, telex, or other similar form of teletransmission or
otherwise; (v) for errors in interpretation of technical trade terms; (vi) for
any loss or delay in the transmission or otherwise of any document required in
order to make a drawing under any Letter of Credit or of the proceeds thereof;
(vii) for the misapplication by the beneficiary of a Letter of Credit of the
proceeds of any drawing under such Letter of Credit; and (viii) for any
consequences arising from causes beyond the control of the Agent, the Issuing
Banks and the Lenders, including, without limitation, any Governmental Acts.
None of the above shall affect, impair, or prevent the vesting of any Issuing
Bank's rights or powers under this Section 3.10.
(C) In furtherance and extension and not in limitation of the
specific provisions hereinabove set forth, any action taken or omitted by any
Issuing Bank under or in connection with the Letters of Credit or any related
certificates, in accordance with the terms thereof, shall not, in the absence
of Gross Negligence or willful misconduct, as determined by the final judgment
of a court of competent jurisdiction, put the applicable Issuing Bank, the
Agent or any Lender under any resulting liability to the Borrower or relieve
the Borrower of any of its obligations hereunder to any such Person.
(D) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 3.10 shall survive the payment in full of principal and interest
hereunder, the termination of the Letters of Credit and the termination of this
Agreement.
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3.11 Cash Collateral. Notwithstanding anything to the contrary herein
or in any application for a Letter of Credit, after the occurrence and during
the continuance of a Default, the Borrower shall, upon the Agent's written
demand, deliver to the Agent for the benefit of the Lenders and the Issuing
Banks, cash, or other collateral of a type satisfactory to the Required
Lenders, having a value, as reasonably determined in good faith by such
Lenders, equal to the aggregate outstanding L/C Obligations. In addition, if
the Revolving Credit Availability is at any time less than the amount of
contingent L/C Obligations outstanding at any time, the Borrower shall deposit
cash collateral with the Agent in an amount equal to the amount by which such
L/C Obligations exceed such Revolving Credit Availability. Any such collateral
shall be held by the Agent in a separate account appropriately designated as a
cash collateral account in relation to this Agreement and the Letters of Credit
and retained by the Agent for the benefit of the Lenders and the Issuing Banks
as collateral security for the Borrower's obligations in respect of this
Agreement and each of the Letters of Credit and L/C Drafts. Such amounts shall
be applied to reimburse the Issuing Banks for drawings or payments under or
pursuant to Letters of Credit or L/C Drafts, or if no such reimbursement is
required and a Default has occurred and is continuing, to payment of such of
the other Obligations as the Agent shall determine. If no Default shall be
continuing, amounts remaining in any cash collateral account established
pursuant to this Section 3.11 which are not to be applied to reimburse an
Issuing Bank for amounts actually paid or to be paid by such Issuing Bank in
respect of a Letter of Credit or L/C Draft, shall be returned to the Borrower
(after deduction of the Agent's expenses incurred in connection with such cash
collateral account).
ARTICLE IV: CHANGE IN CIRCUMSTANCES
4.1 Yield Protection. If any law or any governmental or
quasi-governmental rule, regulation, policy, guideline or directive (whether or
not having the force of law) adopted after the date of this Agreement and
having general applicability to all banks within the jurisdiction in which such
Lender operates (excluding, for the avoidance of doubt, the effect of and
phasing in of capital requirements or other regulations or guidelines passed
prior to the date of this Agreement), or, after the date of this Agreement, any
interpretation or application thereof by any Governmental Authority charged
with the interpretation or application thereof, or the compliance of any Lender
therewith,
(i) subjects any Lender or any applicable Lending
Installation to any tax, duty, charge or withholding on or from
payments due from the Borrower (excluding any tax, duty, charge or
withholding in respect of net income of any Lender or applicable
Lending Installation, branch profits taxes and Taxes covered by
Section 2.15(E) hereof), or changes the basis of taxation of payments
to any Lender in respect of its Loans, its L/C Interests, the Letters
of Credit or other amounts due it hereunder, or
(ii) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement
against assets of, deposits with
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or for the account of, or credit extended by, any Lender or any
applicable Lending Installation (other than reserves and assessments
taken into account in determining the interest rate applicable to
Eurodollar Rate Loans) with respect to its Loans, L/C Interests or the
Letters of Credit, or
(iii) imposes any other condition the result of which is to
increase the cost to any Lender or any applicable Lending Installation
of making, funding or maintaining the Loans, the L/C Interests or the
Letters of Credit or reduces any amount received by any Lender or any
applicable Lending Installation in connection with Loans or Letters of
Credit, or requires any Lender or any applicable Lending Installation
to make any payment calculated by reference to the amount of Loans or
L/C Interests held or interest received by it or by reference to the
Letters of Credit, by an amount deemed material by such Lender;
and the result of any of the foregoing is to increase the cost to that Lender
of making, renewing or maintaining its Loans, L/C Interests or Letters of
Credit or to reduce any amount received under this Agreement, then, within 15
days after receipt by the Borrower of written demand by such Lender pursuant to
Section 4.5, the Borrower shall pay such Lender that portion of such increased
expense incurred or reduction in an amount received which such Lender
determines is attributable to making, funding and maintaining its Loans, L/C
Interests, Letters of Credit and its Revolving Loan Commitment. If any Lender
fails to give the notice described in this Section 4.1 within 90 days after it
obtains such actual knowledge of the event required to be described in such
notice, such Lender shall, with respect to any compensation that would
otherwise be owing to such Lender under such Section, only be entitled to
payment for increased costs incurred from and after the date that is 90 days
prior to the date such Lender does give such notice.
4.2 Changes in Capital Adequacy Regulations. If a Lender determines
(i) the amount of capital required or expected to be maintained by such Lender,
any Lending Installation of such Lender or any corporation controlling such
Lender is increased as a result of a "Change" (as defined below), and (ii)
such increase in capital will result in an increase in the cost to such Lender
of maintaining its Loans, L/C Interests, the Letters of Credit or its
obligation to make Loans hereunder, then, within 15 days after receipt by the
Borrower of written demand by such Lender pursuant to Section 4.5, the Borrower
shall pay such Lender the amount necessary to compensate for any shortfall in
the rate of return on the portion of such increased capital which such Lender
determines is attributable to this Agreement, its Loans, its L/C Interests, the
Letters of Credit or its obligation to make Loans hereunder (after taking into
account such Lender's policies as to capital adequacy). "CHANGE" means (i) any
change after the date of this Agreement in the "Risk-Based Capital Guidelines"
(as defined below) excluding, for the avoidance of doubt, the effect of any
phasing in of such Risk-Based Capital Guidelines or any other capital
requirements passed prior to the date hereof, or (ii) any adoption of or change
in any other law, governmental or quasi-governmental rule, regulation, policy,
guideline, interpretation, or directive (whether or not having the force of
law) after the date of this Agreement and having general applicability to all
banks and financial institutions
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within the jurisdiction in which such Lender operates which affects the amount
of capital required or expected to be maintained by any Lender or any Lending
Installation or any corporation controlling any Lender. "RISK-BASED CAPITAL
GUIDELINES" means (i) the risk-based capital guidelines in effect in the United
States on the date of this Agreement, including transition rules, and (ii) the
corresponding capital regulations promulgated by regulatory authorities outside
the United States implementing the July 1988 report of the Basle Committee on
Banking Regulation and Supervisory Practices Entitled "International
Convergence of Capital Measurements and Capital Standards," including
transition rules, and any amendments to such regulations adopted prior to the
date of this Agreement. If any Lender fails to give the notice described in
this Section 4.2 within 90 days after it obtains such actual knowledge of the
event required to be described in such notice, such Lender shall, with respect
to any compensation that would otherwise be owing to such Lender under such
Section, only be entitled to payment for increased costs incurred from and
after the date that is 90 days prior to the date such Lender does give such
notice.
4.3 Availability of Types of Advances. If (i) any Lender determines
that maintenance of its Eurodollar Rate Loans at a suitable Lending
Installation would violate any applicable law, rule, regulation or directive,
whether or not having the force of law, or (ii) the Required Lenders determine
that prior to the first day of any Interest Period (x) deposits of a type and
maturity appropriate to match fund Eurodollar Rate Advances are not available
or (y) the interest rate applicable to a Eurodollar Rate Advance does not
accurately reflect the cost of making or maintaining such an Advance, then the
Agent shall suspend the availability of Eurodollar Rate Advances and, in the
case of any occurrence set forth in clause (i) require any Eurodollar Rate
Advances to be converted to Floating Rate Loans at the end of the then-current
Interest Period or sooner if so required by law.
4.4 Funding Indemnification. If any payment of a Eurodollar Rate
Advance occurs on a date which is not the last day of the applicable Interest
Period, whether because of acceleration, prepayment, or otherwise, or a
Eurodollar Rate Advance is not made on the date specified by the Borrower for
any reason other than default by the Agent or the Lenders, the Borrower shall
indemnify each Lender for any loss or cost incurred by it resulting therefrom,
including, without limitation, any loss or cost in liquidating or employing
deposits acquired to fund or maintain the Eurodollar Rate Advance. In
connection with any assignment by any Lender of any portion of the Loans made
pursuant to Section 13.3 and made during the Syndication Period, and if,
notwithstanding the provisions of Section 2.4, the Borrower has requested and
the Agent has consented to the use of the Eurodollar Rate, the Borrower shall
be deemed to have repaid all outstanding Eurodollar Rate Advances as of the
effective date of such assignment and reborrowed such amount as a Floating Rate
Advance and/or Eurodollar Rate Advance (chosen in accordance with the
provisions of Section 2.4) and the indemnification provisions under this
Section 4.4 shall apply. The Agent shall exercise its reasonable best efforts
to make any such assignment during the Syndication Period at the end of the 14
day Interest Period selected by the Borrower.
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4.5 Lender Statements; Survival of Indemnity. Each Lender shall use
its reasonable efforts to designate an alternate Lending Installation with
respect to its Eurodollar Rate Loans to reduce any liability of the Borrower to
such Lender under Sections 4.1 and 4.2 or to avoid the unavailability of a Type
of Advance under Section 4.3, so long as such designation is not
disadvantageous to such Lender. Each Lender requiring compensation pursuant to
Section 2.15(E) or to this Article IV shall with reasonable promptness notify
the Borrower and the Agent in writing of any Change, law, policy, rule,
guideline or directive giving rise to such demand for compensation not later
than ninety (90) days following the date upon which the responsible account
officer of such Lender knows or should have known of such Change, law, policy,
rule, guideline or directive. Any demand for compensation pursuant to this
Article IV shall be in writing and shall state the amount due, if any, under
Section 4.1, 4.2 or 4.4 and shall set forth in reasonable detail the reasons
for and the calculations upon which such Lender determined such amount. Such
written demand shall be rebuttably presumed correct for all purposes.
Determination of amounts payable under such Sections in connection with a
Eurodollar Rate Loan shall be calculated as though each Lender funded its
Eurodollar Rate Loan through the purchase of a deposit of the type and maturity
corresponding to the deposit used as a reference in determining the Eurodollar
Rate applicable to such Loan, whether in fact that is the case or not. The
obligations of the Borrower under Sections 4.1, 4.2 and 4.4 shall survive
payment of the Obligations and termination of this Agreement.
ARTICLE V: CONDITIONS PRECEDENT
5.1 Initial Advances and Letters of Credit. The Lenders shall not be
required to make the initial Loans or issue any Letters of Credit unless the
Borrower has furnished to the Agent each of the following, with sufficient
copies for the Lenders, all in form and substance satisfactory to the Agent and
the Lenders:
(1) Copies of the Articles of Incorporation of the Borrower,
together with all amendments and a certificate of good standing, both
certified by the appropriate governmental officer in its jurisdiction
of incorporation;
(2) Copies, certified by the Secretary or Assistant Secretary
of the Borrower, of its By-Laws and of its Board of Directors'
resolutions (and resolutions of other bodies, if any are reasonably
deemed necessary by counsel for any Lender) authorizing the execution
of the Loan Documents;
(3) An incumbency certificate, executed by the Secretary or
Assistant Secretary of the Borrower, which shall identify by name and
title and bear the signature of the officers of the Borrower
authorized to sign the Loan Documents and to make borrowings
hereunder, upon which certificate the Lenders shall be entitled to
rely until informed of any change in writing by the Borrower;
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(4) A certificate, in form and substance satisfactory to the
Agent, signed by the chief financial officer of the Borrower, stating
that on Closing Date no Default or Unmatured Default has occurred and
is continuing;
(5) A written opinion of the Borrower's counsel, addressed to
the Agent and the Lenders, addressing the issues identified in
Exhibit F hereto containing assumptions and qualifications acceptable to the
Agent and the Lenders;
(6) Notes payable to the order of each of the applicable
Lenders;
(7) Written money transfer instructions reasonably requested
by the Agent, addressed to the Agent and signed by an Authorized
Officer; and
(8) Such other documents as the Agent or any Lender or its
counsel may have reasonably requested, including, without limitation
all of the documents reflected on the List of Closing Documents
attached as Exhibit G to this Agreement.
5.2 Each Advance and Letter of Credit. The Lenders shall not be
required to make any Advance or issue any Letter of Credit, unless on the
applicable Borrowing Date, or in the case of a Letter of Credit, the date on
which the Letter of Credit is to be issued:
(i) There exists no Default or Unmatured Default; and
(ii) The representations and warranties contained in Article
VI are true and correct as of such Borrowing Date except to the extent
such representations and warranties relate solely to an earlier date
and except for changes in the Schedules to this Agreement reflecting
transactions permitted by or not in violation of this Agreement.
Each Borrowing Notice with respect to each such Advance and the letter
of credit application with respect to a Letter of Credit shall constitute a
representation and warranty by the Borrower that the conditions contained in
Sections 5.2(i) and (ii) have been satisfied in all material respects. Any
Lender may, with reasonable advance notice to the Borrower, require a duly
completed officer's certificate in substantially the form of Exhibit H hereto
and/or a duly completed compliance certificate in substantially the form of
Exhibit I hereto as a condition to making an Advance.
ARTICLE VI: REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and the Lenders to enter into this
Agreement and to make the Loans and the other financial accommodations to the
Borrower and to issue the Letters of Credit described herein, the Borrower
represents and warrants as follows to each Lender and
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the Agent as of the Closing Date, and thereafter on each date as required by
and to the extent set forth in Section 5.2(ii):
6.1 Organization; Corporate Powers. Holdings, the Borrower and each
of its Subsidiaries (i) is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization, (ii)
is duly qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction in which failure to be so
qualified and in good standing could not reasonably be expected to have a
Material Adverse Effect, and (iii) has all requisite corporate power and
authority to own, operate and encumber its property and to conduct its business
as presently conducted and as proposed to be conducted to the extent the
failure to do so is reasonably likely to result in a Material Adverse Effect.
6.2 Authority.
(A) Holdings, the Borrower and each of the Borrower's Subsidiaries
has the requisite corporate power and authority to execute, deliver and perform
each of the Loan Documents.
(B) The execution, delivery and performance of each of the Loan
Documents and the consummation of the transactions contemplated thereby, have
been duly approved by the respective boards of directors and, if necessary, the
shareholders of Holdings, the Borrower and the Borrower's Subsidiaries, and
such approvals have not been rescinded. No other corporate action or
proceedings on the part of Holdings, the Borrower or the Borrower's
Subsidiaries are necessary to consummate such transactions.
(C) Each of the Loan Documents to which Holdings, the Borrower or any
of the Borrower's Subsidiaries is a party has been duly executed and delivered
by it and constitutes its legal, valid and binding obligation, enforceable
against it in accordance with its terms (except as enforceability may be
limited by bankruptcy, insolvency, fraudulent transfer, or similar laws
affecting the enforcement of creditors' rights generally and by principles of
equity in effect from time to time), and no Unmatured Default or Default by any
such party exists thereunder.
6.3 No Conflict; Governmental Consents. The execution, delivery and
performance of each of the Loan Documents to which Holdings, the Borrower or
any of the Borrower's Subsidiaries is a party do not and will not (i) conflict
with the certificate or articles of incorporation or by-laws of Holdings, the
Borrower or any such Subsidiary, (ii) constitute a tortious interference with
any Contractual Obligation to which it is bound or conflict with, result in a
breach of or constitute (with or without notice or lapse of time or both) a
default under any Requirement of Law (including, without limitation, any
Environmental Property Transfer Act) or Contractual Obligation of Holdings, the
Borrower or any such Subsidiary, or require termination of any Contractual
Obligation, except such interference, breach, default or termination which
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect, (iii) with respect to the Loan Documents, constitute
a tortious
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interference with any Contractual Obligation of any Person or conflict with,
result in a breach of or constitute (with or without notice or lapse of time or
both) a default under any Requirement of Law (including, without limitation,
any Environmental Property Transfer Act) or Contractual Obligation of Holdings,
the Borrower or any such Subsidiary, or require termination of any Contractual
Obligation, except such interference, breach, default or termination which
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect, (iv) result in or require the creation or imposition
of any Lien whatsoever upon any of the property or assets of Holdings, the
Borrower or any such Subsidiary, other than Liens permitted by the Loan
Documents, or (v) require any approval of Holdings', the Borrower's or any such
Subsidiary's shareholders except such as have been obtained. Except as set
forth on Schedule 6.3 to this Agreement, the execution, delivery and
performance of each of the Loan Documents to which the Borrower or any of its
Subsidiaries is a party do not and will not require any registration with,
consent or approval of, or notice to, or other action to, with or by any
Governmental Authority, including under any Environmental Property Transfer
Act, except filings, consents, approvals, notices and other actions which have
been made, obtained, given, or taken or which, if not made, obtained, given, or
taken individually or in the aggregate could not reasonably be expected to have
a Material Adverse Effect.
6.4 Financial Statements.
(A) The pro forma balance sheet of the Borrower and its Subsidiaries,
copies of which are attached hereto as Schedule 6.4(A)(i) to this Agreement,
present on a pro forma basis the financial condition of the Borrower and such
Subsidiaries as of September 30, 1997, and reflect on a pro forma basis those
liabilities reflected in the notes thereto and the payment or accrual of all
transaction costs payable on the Closing Date with respect to any of the
foregoing. The projections attached hereto as Schedule 6.4(A)(ii) were
prepared in good faith and represent management's opinion based on the
information available to the Borrower at the time so furnished.
(B) Complete and accurate copies of the following financial
statements and the following related information have been delivered to the
Agent: (1) the balance sheet of the Borrower as at June 30, 1997; and the
related combined statements of income, changes in stockholders' equity and cash
flows of the Borrower for the fiscal year then ended, and the audit report
related thereto; and (2) the unaudited balance sheet of the Borrower for the
fiscal period ended September 30, 1997, and the related statements of
operations, changes in stockholder's equity and cash flows of the Borrower for
the fiscal quarter then ended.
6.5 No Material Adverse Change. (a) Since June 30, 1997 up to the
Closing Date, there has occurred no change in the business, properties,
condition (financial or otherwise) or results of operations of the Borrower, or
the Borrower and its Subsidiaries taken as a whole or any other event which has
had or could reasonably be expected to have a Material Adverse Effect.
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(b) Since the Closing Date, there has occurred no change in the
business, properties, condition (financial or otherwise) or results of
operations of the Borrower or the Borrower and its Subsidiaries taken as a
whole or any other event which has had or could reasonably be expected to have
a Material Adverse Effect.
6.6 Taxes.
(A) Tax Examinations. All material deficiencies which have been
asserted against the Borrower or any of the Borrower's Subsidiaries as a result
of any federal, state, local or foreign tax examination for each taxable year
in respect of which an examination has been conducted have been fully paid or
finally settled or are being contested in good faith, and as of the Closing
Date no material issue has been raised by any taxing authority in any such
examination which, by application of similar principles, reasonably can be
expected to result in assertion by such taxing authority of a material
deficiency for any other year not so examined which has not been reserved for
in the Borrower's consolidated financial statements to the extent, if any,
required by Agreement Accounting Principles. Except as permitted pursuant to
Section 7.2(D), neither the Borrower nor any of the Borrower's Subsidiaries
anticipates any material tax liability with respect to the years which have not
been closed pursuant to applicable law.
(B) Payment of Taxes. All tax returns and reports of the Borrower
and its Subsidiaries required to be filed have been timely filed, and all
taxes, assessments, fees and other governmental charges thereupon and upon
their respective property, assets, income and franchises which are shown in
such returns or reports to be due and payable have been paid except those items
which are being contested in good faith and have been reserved for in
accordance with Agreement Accounting Principles. The Borrower has no knowledge
of any proposed tax assessment against the Borrower or any of its Subsidiaries
that will have or could reasonably be expected to have a Material Adverse
Effect.
6.7 Litigation; Loss Contingencies and Violations. Except as set
forth in Schedule 6.7 to this Agreement, there is no action, suit, proceeding,
arbitration or (to the Borrower's knowledge) investigation before or by any
Governmental Authority or private arbitrator pending or, to the Borrower's
knowledge, threatened against the Borrower or any of its Subsidiaries or any
property of any of them which will have or could reasonably be expected to have
a Material Adverse Effect. There is no material loss contingency within the
meaning of Agreement Accounting Principles which has not been reflected in the
consolidated financial statements of the Borrower prepared and delivered
pursuant to Section 7.1(A) to the extent required by such Agreement Accounting
Principles for the fiscal period during which such material loss contingency
was incurred. Neither the Borrower nor any of its Subsidiaries is (A) in
violation of any applicable Requirements of Law which violation will have or
could reasonably be expected to have a Material Adverse Effect, or (B) subject
to or in default with respect to any final judgment, writ, injunction,
restraining order or order of any nature, decree, rule or regulation of any
court or Governmental Authority which will have or could reasonably be expected
to have a Material Adverse Effect.
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6.8 Subsidiaries. As of the Closing Date, Schedule 6.8 to this
Agreement (i) contains a description of the corporate structure of Holdings,
the Borrower, its Subsidiaries and any other Person in which the Borrower or
any of its Subsidiaries holds an Equity Interest; and (ii) accurately sets
forth (A) the correct legal name, the jurisdiction of incorporation, (B) the
authorized, issued and outstanding shares of each class of Capital Stock of
Holdings, the Borrower and each of its Subsidiaries and the owners of such
shares (both as of the Closing Date and on a fully-diluted basis), and (C) a
summary of the direct and indirect partnership, joint venture, or other Equity
Interests, if any, of Holdings, the Borrower and each Subsidiary of the
Borrower in any Person that is not a corporation. None of the issued and
outstanding Capital Stock of Holdings, the Borrower or any of its Subsidiaries
is subject to any vesting, redemption, or repurchase agreement, and there are
no warrants or options outstanding with respect to such Capital Stock. The
outstanding Capital Stock of Holdings, the Borrower and each of the Borrower's
Subsidiaries is duly authorized, validly issued, fully paid and nonassessable.
6.9 ERISA. Except as disclosed on Schedule 6.9, no Benefit Plan has
incurred any accumulated funding deficiency (as defined in Sections 302(a)(2)
of ERISA and 412(a) of the Code) whether or not waived. Neither the Borrower
nor any member of the Controlled Group has incurred any liability to the PBGC
which remains outstanding other than the payment of premiums, and there are no
premium payments which have become due which are unpaid. Schedule B to the
most recent annual report filed with the IRS with respect to each Benefit Plan
and furnished to the lenders is complete and accurate. Since the date of each
such Schedule B, there has been no material adverse change in the funding
status or financial condition of the Benefit Plan relating to such Schedule B.
Neither the Borrower nor any member of the Controlled Group has (i) failed to
make a required contribution or payment to a Multiemployer Plan or (ii) made a
complete or partial withdrawal under Sections 4203 or 4205 of ERISA from a
Multiemployer Plan. Neither the Borrower nor any member of the Controlled
Group has failed to make a required installment or any other required payment
under Section 412 of the Code on or before the due date for such installment or
other payment. Neither the Borrower nor any member of the Controlled Group is
required to provide security to a Benefit Plan under Section 401(a)(29) of the
Code due to a Plan amendment that results in an increase in current liability
for the plan year. Except as disclosed on Schedule 6.9, neither the Borrower
nor any of its Subsidiaries maintains or contributes to any employee welfare
benefit plan within the meaning of Section 3(1) of ERISA which provides
benefits to employees after termination of employment other than as required by
Section 601 of ERISA. Each Plan which is intended to be qualified under
Section 401(a) of the Code as currently in effect is so qualified, and each
trust related to any such Plan is exempt from federal income tax under Section
501(a) of the Code as currently in effect. The Borrower and all Subsidiaries
are in compliance in all material respects with the responsibilities,
obligations and duties imposed on them by ERISA and the Code with respect to
all Plans. Neither the Borrower nor any of its Subsidiaries nor any fiduciary
of any Plan has engaged in a nonexempt prohibited transaction described in
Sections 406 of ERISA or 4975 of the Code which could reasonably be expected to
subject the Borrower to liability in excess of $1,000,000. Neither the
Borrower nor any member of the Controlled Group has
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taken or failed to take any action which would constitute or result in a
Termination Event, which action or inaction could reasonably be expected to
subject the Borrower to liability in excess of $1,000,000. Neither the
Borrower nor any Subsidiary is subject to any liability under Sections 4063,
4064, 4069, 4204 or 4212(c) of ERISA and no other member of the Controlled
Group is subject to any liability under Sections 4063, 4064, 4069, 4204 or
4212(c) of ERISA which could reasonably be expected to subject the Borrower to
liability in excess of $1,000,000. Neither the Borrower nor any of its
Subsidiaries has, by reason of the transactions contemplated hereby, any
obligation to make any payment to any employee pursuant to any Plan or existing
contract or arrangement.
6.10 Accuracy of Information. The information, exhibits and reports
furnished by or on behalf of the Borrower and any of its Subsidiaries to the
Agent or to any Lender in connection with the negotiation, execution and
delivery of, or compliance with, the Loan Documents, the representations and
warranties of the Borrower and its Subsidiaries contained in the Loan
Documents, and all certificates and documents delivered to the Agent and the
Lenders pursuant to the terms thereof, taken as a whole, do not contain as of
the date furnished any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading in any material respect.
6.11 Securities Activities. Neither the Borrower nor any of its
Subsidiaries is engaged in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
6.12 Material Agreements. Neither the Borrower nor any Subsidiary is
a party to any Contractual Obligation or subject to any charter or other
corporate restriction which individually or in the aggregate will have or could
reasonably be expected to have a Material Adverse Effect. Neither the Borrower
nor any of its Subsidiaries has received written notice or has actual knowledge
that (i) it is in default in the performance, observance or fulfillment of any
of the obligations, covenants or conditions contained in any Contractual
Obligation applicable to it, or (ii) any condition exists which, with the
giving of notice or the lapse of time or both, would constitute a default with
respect to any such Contractual Obligation, in each case, except where such
default or defaults, if any, individually or in the aggregate will not have or
could not reasonably be expected to have a Material Adverse Effect.
6.13 Compliance with Laws. The Borrower and its Subsidiaries are in
compliance with all Requirements of Law applicable to them and their respective
businesses, in each case where the failure to so comply individually or in the
aggregate could reasonably be expected to have a Material Adverse Effect.
6.14 Assets and Properties. The Borrower and each of its Subsidiaries
has good and marketable title to all of its material assets and properties
(tangible and intangible, real or personal) owned by it or a valid leasehold
interest in all of its leased assets (except insofar as marketability may be
limited by any laws or regulations of any Governmental Authority affecting such
assets), and all such assets and property are free and clear of all Liens,
except
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Liens permitted under Section 7.3(C). Substantially all of the material assets
and properties owned by, leased to or used by the Borrower and/or each such
Subsidiary of the Borrower are in adequate operating condition and repair,
ordinary wear and tear excepted. Neither this Agreement nor any other Loan
Document, nor any transaction contemplated under any such agreement, will
affect any right, title or interest of the Borrower or such Subsidiary in and
to any of such assets in a manner that would have or could reasonably be
expected to have a Material Adverse Effect.
6.15 Statutory Indebtedness Restrictions. Neither the Borrower nor
any of its Subsidiaries is subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce
Act, or the Investment Company Act of 1940, or any other federal or state
statute or regulation which limits its ability to incur indebtedness or its
ability to consummate the transactions contemplated hereby.
6.16 Insurance. Schedule 6.16 to this Agreement accurately sets forth
as of the Closing Date all insurance policies and programs currently in effect
with respect to the respective properties and assets and business of the
Borrower and its Subsidiaries, specifying, for each such policy and program,
(i) the amount thereof, (ii) the risks insured against thereby, (iii) the name
of the insurer and each insured party thereunder, (iv) the policy or other
identification number thereof, and (v) the expiration date thereof. Such
insurance policies and programs reflect coverage that is reasonably consistent
with prudent industry practice for Persons in comparable circumstances as the
Borrower and its Subsidiaries taken as a whole.
6.17 Labor Matters.
As of the Closing Date, no attempt to organize the employees of the
Borrower, and no labor disputes, strikes or walkouts affecting the operations
of the Borrower or any of its Subsidiaries, is pending, or, to the Borrower's
knowledge, threatened, planned or contemplated.
6.18 Environmental Matters. (A) Except as disclosed on Schedule 6.18
to this Agreement
(i) the operations of the Borrower and its Subsidiaries
comply in all material respects with Environmental, Health or Safety
Requirements of Law;
(ii) the Borrower and its Subsidiaries have all material
permits, licenses or other authorizations required under
Environmental, Health or Safety Requirements of Law and are in
material compliance with such permits;
(iii) neither the Borrower, any of its Subsidiaries nor any
of their respective present property or operations, or, to the
Borrower's or any of its Subsidiaries' knowledge, any of their
respective past property or operations, are subject to or the subject
of, any investigation known to the Borrower or any of its
Subsidiaries, any
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judicial or administrative proceeding, order, judgment, decree,
settlement or other agreement respecting: (A) any material violation
of Environmental, Health or Safety Requirements of Law; (B) any
material remedial action; or (C) any material claims or liabilities
arising from the Release or threatened Release of a Contaminant into
the environment;
(iv) there is not now, nor to the Borrower's or any of its
Subsidiaries' knowledge has there ever been on or in the property of
the Borrower or any of its Subsidiaries any landfill, waste pile,
underground storage tanks, aboveground storage tanks, surface
impoundment or hazardous waste storage facility of any kind, any
polychlorinated biphenyls (PCBs) used in hydraulic oils, electric
transformers or other equipment, or any asbestos containing material
in violation of any Environmental, Health or Safety Requirements of
Law in any material respect; and
(v) neither the Borrower nor any of its Subsidiaries has any
material Contingent Obligation in connection with any Release or
threatened Release of a Contaminant into the environment.
(B) For purposes of this Section 6.18 "material" means any
noncompliance or basis for liability which could reasonably be likely to
subject the Borrower to liability in excess of $1,000,000.
6.19 Solvency. After giving effect to the (i) Loans to be made on the
Closing Date or such other date as Loans requested hereunder are made and (ii)
the payment and accrual of all transaction costs with respect to the foregoing,
the Borrower and its Subsidiaries taken as a whole is Solvent.
ARTICLE VII : COVENANTS
The Borrower covenants and agrees that so long as any Commitments are
outstanding and thereafter until payment in full of all of the Obligations
(other than contingent indemnity obligations), unless the Required Lenders
shall otherwise give prior written consent:
7.1 Reporting. The Borrower shall:
(A) Financial Reporting. Furnish to the Agent (with sufficient copies
for each of the Lenders):
(i) Quarterly Reports. As soon as practicable, and in any
event within fifty (50) days after the end of each of the first three
fiscal quarters in each fiscal year, the consolidated balance sheet of
Holdings and its Subsidiaries as at the end of such period and the
related consolidated statements of income and cash flows of the
Borrower and its Subsidiaries for each such fiscal quarters and for
the period from the beginning of
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the then current fiscal year to the end of such fiscal quarters,
certified by the chief financial officer of the Borrower on behalf of
the Borrower as fairly presenting the consolidated financial position
of the Borrower and its Subsidiaries as at the dates indicated and the
results of their operations and cash flows for the periods indicated
in accordance with Agreement Accounting Principles, subject to normal
year end adjustments.
(ii) Annual Reports. As soon as practicable, and in any
event within one- hundred and five (105) days after the end of each
fiscal year, (a) the consolidated balance sheet of Holdings and its
Subsidiaries as at the end of such fiscal year and the related
consolidated statements of income, stockholders' equity and cash flows
of the Borrower and its Subsidiaries for such fiscal year, and in
comparative form the corresponding figures for the previous fiscal
year along with schedules in form and substance sufficient to
calculate the financial covenants set forth in Section 7.4, and (b) an
audit report on the items listed in clause (a) hereof of independent
certified public accountants of recognized national standing, which
audit report shall be unqualified and shall state that such financial
statements fairly present the consolidated financial position of the
Borrower and its Subsidiaries as at the dates indicated and the
results of their operations and cash flows for the periods indicated
in conformity with Agreement Accounting Principles and that the
examination by such accountants in connection with such consolidated
financial statements has been made in accordance with generally
accepted auditing standards. The deliveries made pursuant to this
clause (ii) shall be accompanied by (x) any management letter prepared
by the above-referenced accountants, and (y) a certificate of such
accountants that, in the course of their examination necessary for
their certification of the foregoing, they have obtained no knowledge
of any Default or Unmatured Default with respect to the financial
covenants set forth in Section 7.4, or if, in the opinion of such
accountants, any Default or Unmatured Default shall exist, stating the
nature and status thereof.
(iii) Officer's Certificate. Together with each delivery of
any financial statement (a) pursuant to clauses (i), and (ii)
of this Section 7.1(A), an Officer's Certificate of the Borrower,
substantially in the form of Exhibit H attached hereto and made a part
hereof, stating that no Default or Unmatured Default exists, or if any
Default or Unmatured Default exists, stating the nature and status
thereof and (b) pursuant to clauses (i) and (ii) of this Section
7.1(A), a compliance certificate, substantially in the form of
Exhibit I attached hereto and made a part hereof, signed by the
Borrower's Chief Financial Officer or Treasurer, setting forth
calculations for the period then ended for Section 2.5(B), if
applicable, which demonstrate compliance, when applicable, with the
provisions of Section 7.4, and which calculate the Leverage Ratio for
purposes of determining the then Applicable Floating Rate Margin,
Applicable Eurodollar Margin and Applicable Commitment Fee Percentage.
(iv) Budgets; Business Plans; Financial Projections. As soon
as practicable and in any event not later than sixty (60) days after
the beginning of each fiscal year, a
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copy of the plan and forecast (including a projected balance sheet,
income statement and a statement of cash flow) of Holdings and its
Subsidiaries for such fiscal year prepared in such detail as shall be
reasonably satisfactory to the Agent together with Holdings' plan and
projections for the succeeding four (4) years.
(B) Notice of Default. Promptly upon any of the chief executive
officer, chief operating officer, chief financial officer, treasurer or
controller of the Borrower obtaining knowledge (i) of any condition or event
which constitutes a Default or Unmatured Default, or becoming aware that any
Lender or Agent has given any written notice with respect to a claimed Default
or Unmatured Default under this Agreement, or (ii) that any Person has given
any written notice to the Borrower or any Subsidiary of the Borrower or taken
any other action with respect to a claimed default or event or condition of the
type referred to in Section 8.1(E) with respect to Indebtedness the outstanding
principal amount of which is in excess of $5,000,000, deliver to the Agent and
the Lenders an Officer's Certificate specifying (a) the nature and period of
existence of any such claimed default, Default, Unmatured Default, condition or
event, (b) the notice given or action taken by such Person in connection
therewith, and (c) what action the Borrower has taken, is taking and proposes
to take with respect thereto.
(C) Lawsuits. (i) Promptly upon the Borrower obtaining knowledge of
the institution of, or written threat of, any action, suit, proceeding,
governmental investigation or arbitration against or affecting the Borrower or
any of its Subsidiaries or any property of the Borrower or any of its
Subsidiaries not previously disclosed pursuant to Section 6.7, which action,
suit, proceeding, governmental investigation or arbitration exposes, or in the
case of multiple actions, suits, proceedings, governmental investigations or
arbitrations arising out of the same general allegations or circumstances which
expose, in the Borrower's reasonable judgment, the Borrower or any of its
Subsidiaries to liability in an amount aggregating $1,000,000 or more
(exclusive of claims covered by insurance policies of the Borrower or any of
its Subsidiaries unless the insurers of such claims have disclaimed coverage or
reserved the right to disclaim coverage on such claims and exclusive of claims
covered by the indemnity of a financially responsible indemnitor in favor of
the Borrower or any of its Subsidiaries unless the indemnitor has disclaimed or
reserved the right to disclaim coverage thereof), give written notice thereof
to the Agent and the Lenders and provide such other information as may be
reasonably available to enable each Lender and the Agent and its counsel to
evaluate such matters; and (ii) in addition to the requirements set forth in
clause (i) of this Section 7.1(C), upon request of the Agent or the Required
Lenders, promptly give written notice of the status of any action, suit,
proceeding, governmental investigation or arbitration covered by a report
delivered pursuant to clause (i) above and provide such other information as
may be reasonably available to it that would not violate any attorney-client
privilege by disclosure to the Lenders to enable each Lender and the Agent and
its counsel to evaluate such matters.
(D) ERISA Notices. Deliver or cause to be delivered to the Agent and
the Lenders, at the Borrower's expense, the following information and notices
as soon as reasonably possible, and in any event:
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(i) (a) within ten (10) Business Days after the Borrower
obtains knowledge that a Termination Event has occurred, a written
statement of the chief financial officer of the Borrower describing
such Termination Event and the action, if any, which the Borrower has
taken, is taking or proposes to take with respect thereto, and when
known, any action taken or threatened by the IRS, DOL or PBGC with
respect thereto and (b) within ten (10) Business Days after any member
of the Controlled Group obtains knowledge that a Termination Event has
occurred which could reasonably be expected to subject the Borrower to
liability in excess of $1,000,000, a written statement of the chief
financial officer of the Borrower describing such Termination Event
and the action, if any, which the member of the Controlled Group has
taken, is taking or proposes to take with respect thereto, and when
known, any action taken or threatened by the IRS, DOL or PBGC with
respect thereto;
(ii) within ten (10) Business Days after the Borrower or any
of its Subsidiaries obtains knowledge that a prohibited transaction
(defined in Sections 406 of ERISA and Section 4975 of the Code) has
occurred, a statement of the chief financial officer of the Borrower
describing such transaction and the action which the Borrower or such
Subsidiary has taken, is taking or proposes to take with respect
thereto;
(iii) within ten (10) Business Days after the material
increase in the benefits of any existing Benefit Plan or the
establishment of any new Benefit Plan or the commencement of, or
obligation to commence, contributions to any Benefit Plan or
Multiemployer Plan to which the Borrower or any member of the
Controlled Group was not previously contributing, notification of such
increase, establishment, commencement or obligation to commence and
the amount of such contributions provided that such increase,
establishment, commencement or obligation could reasonably be expected
to subject the Borrower to liability in excess of $1,000,000;
(iv) within ten (10) Business Days after the Borrower or any
of its Subsidiaries receives notice of any unfavorable determination
letter from the IRS regarding the qualification of a Plan under
Section 401(a) of the Code, copies of each such letter;
(v) within ten (10) Business Days after the establishment of
any foreign employee benefit plan or the commencement of, or
obligation to commence, contributions to any foreign employee benefit
plan to which the Borrower or any Subsidiary was not previously
contributing, notification of such establishment, commencement or
obligation to commence and the amount of such contributions provided
that such establishment, commencement or obligation could reasonably
be expected to subject the Borrower to liability in excess of
$1,000,000;
(vi) within ten (10) Business Days after the filing thereof
with the DOL, IRS or PBGC, copies of each annual report (form 5500
series), including Schedule B thereto, filed with respect to each
Benefit Plan;
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(vii) within ten (10) Business Days after receipt by the
Borrower or any member of the Controlled Group of each actuarial
report for any Benefit Plan or Multiemployer Plan and each annual
report for any Multiemployer Plan, copies of each such report;
(viii) within ten (10) Business Days after the filing thereof
with the IRS, a copy of each funding waiver request filed with respect
to any Benefit Plan and all communications received by the Borrower or
a member of the Controlled Group with respect to such request;
(ix) within ten (10) Business Days after receipt by the
Borrower or any member of the Controlled Group of the PBGC's intention
to terminate a Benefit Plan or to have a trustee appointed to
administer a Benefit Plan, copies of each such notice;
(x) within ten (10) Business Days after receipt by the
Borrower or any member of the Controlled Group of a notice from a
Multiemployer Plan regarding the imposition of withdrawal liability,
copies of each such notice;
(xi) within ten (10) Business Days after the Borrower or any
member of the Controlled Group fails to make a required installment or
any other required payment under Section 412 of the Code on or before
the due date for such installment or payment, a notification of such
failure; and
(xii) within ten (10) Business Days after the Borrower or any
member of the Controlled Group knows or has reason to know that (a) a
Multiemployer Plan has been terminated, (b) the administrator or plan
sponsor of a Multiemployer Plan intends to terminate a Multiemployer
Plan, or (c) the PBGC has instituted or will institute proceedings
under Section 4042 of ERISA to terminate a Multiemployer Plan.
For purposes of this Section 7.1(D), the Borrower, any of its Subsidiaries and
any member of the Controlled Group shall be deemed to know all facts known by
the Administrator of any Plan of which the Borrower or any member of the
Controlled Group or such Subsidiary is the plan sponsor.
(E) Labor Matters. Notify the Agent and the Lenders in writing,
promptly upon the Borrower's learning thereof, of (i) any material labor
dispute to which the Borrower or any of its Subsidiaries may become a party,
including, without limitation, any strikes, lockouts or other disputes relating
to such Persons' plants and other facilities and (ii) any Worker Adjustment and
Retraining Notification Act liability incurred with respect to the closing of
any plant or other facility of the Borrower or any of its Subsidiaries, in each
case which is reasonably likely to result in a Material Adverse Effect.
(F) Other Indebtedness. Deliver to the Agent (i) a copy of each
regular written report, notice or communication regarding potential or actual
defaults (including any accompanying
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officer's certificate) delivered by or on behalf of the Borrower to the holders
of funded Indebtedness in a principal amount in excess of $500,000 pursuant to
the terms of the agreements governing such Indebtedness, such delivery to be
made at the same time and by the same means as such notice or other
communication is delivered to such holders, and (ii) a copy of each notice or
other communication received by the Borrower from the from the holders of
funded Indebtedness in a principal amount in excess of $500,000 pursuant to the
terms of such Indebtedness, such delivery to be made promptly after such notice
or other communication is received by the Borrower.
(G) Other Reports. Deliver or cause to be delivered to the Agent and
the Lenders copies of all financial statements, reports and notices, if
any, sent or made available generally by the Borrower to its securities holders
or filed with the Commission by the Borrower, all press releases made available
generally by the Borrower or any of the Borrower's Subsidiaries to the public
concerning material developments in the business of the Borrower or any such
Subsidiary and all material notifications received from the Commission by the
Borrower or its Subsidiaries pursuant to the Securities Exchange Act of 1934
and the rules promulgated thereunder.
(H) Environmental Notices. As soon as possible and in any event
within ten (10) days after receipt by the Borrower, a copy of (i) any notice or
claim to the effect that the Borrower or any of its Subsidiaries is or may be
liable to any Person as a result of the Release by the Borrower, any of its
Subsidiaries, or any other Person of any Contaminant into the environment, and
(ii) any written notice alleging any violation of any Environmental, Health or
Safety Requirements of Law by the Borrower or any of its Subsidiaries if, in
either case, such notice or claim relates to an event which could reasonably be
expected to subject the Borrower to liability in excess of $1,000,000.
(I) Other Information. Promptly upon receiving a written request
therefor from the Agent, prepare and deliver to the Agent and the Lenders such
other information with respect to the Borrower, any of its Subsidiaries, or the
Collateral, including, without limitation, schedules identifying and describing
the Collateral and any dispositions thereof or any Asset Sale or Financing (and
the use of the Net Cash Proceeds thereof), as from time to time may be
reasonably requested by the Agent.
7.2 Affirmative Covenants.
(A) Corporate Existence, Etc. The Borrower shall, and shall cause
each of its Subsidiaries to, at all times maintain its corporate existence (it
being understood that this clause (A) shall not prevent any Subsidiary of the
Borrower from merging or consolidating with or into the Borrower (as long as
the Borrower is the surviving corporation) or any other Subsidiary of the
Borrower) and preserve and keep, or cause to be preserved and kept, in full
force and effect its rights and franchises material to its businesses.
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(B) Corporate Powers; Conduct of Business. The Borrower shall, and
shall cause each of its Subsidiaries to, qualify and remain qualified to do
business in each jurisdiction in which the nature of its business requires it
to be so qualified and where the failure to be so qualified will have or could
reasonably be expected to have a Material Adverse Effect. The Borrower will,
and will cause each Subsidiary to, carry on and conduct its business in
substantially the same manner and in substantially the same fields of
enterprise as it is presently conducted.
(C) Compliance with Laws, Etc. The Borrower shall, and shall cause
its Subsidiaries to, (a) comply with all Requirements of Law and all
restrictive covenants material to the business, properties, assets or
operations of the Borrower, and (b) obtain as needed all permits material to
its operations and maintain such permits in good standing.
(D) Payment of Taxes and Claims; Tax Consolidation. The Borrower
shall pay, and cause each of its Subsidiaries to pay, (i) all taxes,
assessments and other governmental charges imposed upon it or on any of its
properties or assets or in respect of any of its franchises, business, income
or property before any penalty or interest accrues thereon, and (ii) all claims
(including, without limitation, claims for labor, services, materials and
supplies) for sums which have become due and payable and which by law have or
may become a Lien (other than a Lien permitted by Section 7.3(C)) upon any of
the Borrower's or such Subsidiary's property or assets, prior to the time when
any penalty or fine shall be incurred with respect thereto; provided, however,
that no such taxes, assessments and governmental charges referred to in clause
(i) above or claims referred to in clause (ii) above (and interest, penalties,
fines or other amounts relating thereto) need be paid if being contested in
good faith by appropriate proceedings diligently instituted and conducted and
if such reserve or other appropriate provision, if any, as shall be required in
conformity with Agreement Accounting Principles shall have been made therefor.
(E) Insurance. The Borrower shall maintain for itself and its
Subsidiaries, or shall cause each of its Subsidiaries to maintain in full force
and effect, the insurance policies and programs listed on Schedule 6.16 to this
Agreement or substantially similar policies and programs or other policies and
programs as reflect coverage that is reasonably consistent with prudent
industry practice. The Borrowers shall deliver to the Agent endorsements (y)
to all "All Risk" physical damage insurance policies on all of the Borrowers'
tangible real and personal property and assets and business interruption
insurance policies naming the Agent loss payee, and (z) to all general
liability and other liability policies naming the Agent an additional insured.
In the event the Borrower or any of its Subsidiaries at any time or times
hereafter shall fail to obtain or maintain any of the policies or insurance
required herein or to pay any premium in whole or in part relating thereto,
then the Agent, without waiving or releasing any obligations or resulting
Default hereunder, may at any time or times thereafter (but shall be under no
obligation to do so) obtain and maintain such policies of insurance and pay
such premiums and take any other action with respect thereto which the Agent
deems advisable. All sums so disbursed by the Agent shall constitute part of
the Obligations, payable as provided in this Agreement.
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(F) Inspection of Property; Books and Records; Discussions. The
Borrower shall permit and cause each of the Borrower's Subsidiaries to permit,
any authorized representative(s) designated by either the Agent or any Lender
to visit and inspect any of the properties of the Borrower or any of its
Subsidiaries, to examine, audit, check and make copies of their respective
financial and accounting records, books, journals, orders, receipts and any
correspondence and other data relating to their respective businesses or the
transactions contemplated hereby (including, without limitation, in connection
with environmental compliance, hazard or liability), and to discuss their
affairs, finances and accounts with their officers and independent certified
public accountants, all upon reasonable notice and at such reasonable times
during normal business hours, as often as may be reasonably requested. The
Borrower shall keep and maintain, and cause each of the Borrower's Subsidiaries
to keep and maintain, in all material respects, proper books of record and
account in which entries in conformity with Agreement Accounting Principles
shall be made of all dealings and transactions in relation to their respective
businesses and activities. If a Default has occurred and is continuing, the
Borrower, upon the Agent's request, shall turn over copies of any such records
to the Agent or its representatives.
(G) ERISA Compliance. The Borrower shall, and shall cause each of
the Borrower's Subsidiaries to, establish, maintain and operate all Plans to
comply in all material respects with the provisions of ERISA, the Code, all
other applicable laws, and the regulations and interpretations thereunder and
the respective requirements of the governing documents for such Plans.
(H) Maintenance of Property. The Borrower shall cause all property
used or useful in the conduct of its business or the business of any Subsidiary
to be maintained and kept in good condition, repair and working order and
supplied with all necessary equipment and shall cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as
in the judgment of the Borrower may be necessary so that the business carried
on in connection therewith may be properly and advantageously conducted at all
times; provided, however, that nothing in this Section 7.2(H) shall prevent the
Borrower from discontinuing the operation or maintenance of any of such
property if such discontinuance is, in the judgment of the Borrower, desirable
in the conduct of its business or the business of any Subsidiary.
(I) Environmental Compliance. The Borrower and its Subsidiaries
shall comply with all Environmental, Health or Safety Requirements of Law,
except where noncompliance will not have or is not reasonably likely to subject
the Borrower to liability in excess of $1,000,000.
(J) Use of Proceeds. The Borrower shall use the proceeds of the
Revolving Loans and the Term Loans to (i) purchase or prepay Subordinated Notes
and make all payments related thereto, including, without limitation, payments
of premiums and interest in connection therewith, (ii) repay existing
Indebtedness, and (iii) provide funds for the additional working capital needs
and other general corporate purposes of the Borrower and its Subsidiaries. The
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Borrower will not, nor will it permit any Subsidiary to, use any of the
proceeds of the Loans to purchase or carry any Margin Stock or to make any
Acquisition, other than a Permitted Acquisition pursuant to Section 7.3(G).
7.3 Negative Covenants.
(A) Indebtedness. Neither Holdings, nor the Borrower nor any of the
Borrower's Subsidiaries shall directly or indirectly create, incur, assume or
otherwise become or remain directly or indirectly liable with respect to any
Indebtedness, except:
(i) the Obligations;
(ii) the Subordinated Notes (including all interest, premiums,
fees and other amounts due and owing with respect thereto pursuant to
the Indenture);
(iii) Permitted Existing Indebtedness and any refinancings,
refundings, renewals or extensions thereof (without any increase in
the principal amount thereof);
(iv) Indebtedness in respect of obligations secured by Liens
permitted by Section 7.3(C);
(v) Indebtedness constituting Contingent Obligations
permitted by Section 7.3(E);
(vi) Indebtedness arising from intercompany loans from any
Subsidiary to the Borrower or any wholly-owned Subsidiary;
(vii) Indebtedness arising from intercompany loans from the
Borrower to any wholly-owned Subsidiary in an aggregate amount not to
exceed $5,000,000;
(viii) secured or unsecured purchase money Indebtedness
(including Capitalized Leases) incurred by the Borrower or any of its
Subsidiaries after the Closing Date to finance the acquisition of
fixed assets, if (1) at the time of such incurrence, no Default has
occurred and is continuing or would result from such incurrence, (2)
such Indebtedness has a scheduled maturity and is not due on demand,
(3) such Indebtedness does not exceed the lower of the fair market
value or the cost of the applicable fixed assets on the date acquired,
(4) such Indebtedness does not exceed $5,000,000 in the aggregate
outstanding at any time, and (5) any Lien securing such Indebtedness
is permitted under Section 7.3(C) (such Indebtedness being referred to
herein as "PERMITTED PURCHASE MONEY INDEBTEDNESS");
(ix) Indebtedness with respect to surety, appeal and
performance bonds obtained by the Borrower or any of its Subsidiaries
in the ordinary course of business;
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(x) Indebtedness incurred by the Borrower to the seller in
any Permitted Acquisition as part of the consideration therefor,
provided that such Indebtedness does not exceed $10,000,000 in the
aggregate outstanding at any time, is unsecured and is subordinated to
the Obligations on terms reasonably acceptable to the Agent;
(xi) Indebtedness in addition to that referred to elsewhere
in this Section 7.3(A) in an amount not to exceed $1,000,000 at any
time; and
(xii) Indebtedness in respect of Hedging Obligations
permitted under Section 7.3(P).
(B) Sales of Assets. Neither Holdings nor any of its Subsidiaries
shall sell, assign, transfer, lease, convey or otherwise dispose of any
property, whether now owned or hereafter acquired, or any income or profits
therefrom, or enter into any agreement to do so, except:
(i) sales of Inventory in the ordinary course of business;
(ii) the disposition in the ordinary course of business of
equipment that is obsolete, excess or no longer useful in the
Borrower's business;
(iii) sales, assignments, transfers, leases, conveyances or
other dispositions of other assets if such transaction (a) is for
consideration consisting at least 75% of cash or Cash Equivalents, (b)
is for not less than fair market value, and (c) when combined with all
such other transactions (each such transaction being valued at book
value) (i) during the immediately preceding twelve-month period,
represents the disposition of not greater than ten percent (10%) of
the Borrower's Consolidated Assets at the end of the fiscal year
immediately preceding that in which such transaction is proposed to be
entered into, and (ii) during the period from the Closing Date to the
date of such proposed transaction, represents the disposition of not
greater than twenty percent (20%) of the Borrower's Consolidated
Assets at the end of the fiscal year immediately preceding that in
which such transaction is proposed to be entered into;
(iv) the sale or issuance of any of the Capital Stock of a
Subsidiary of the Borrower to the Borrower or its Subsidiaries which
have executed and delivered a guaranty and security agreement
satisfactory in form and substance to the Agent;
(v) transfers resulting from casualty or condemnation of
property or assets;
(vi) licenses or sublicenses of intellectual property and
general intangibles and licenses, leases or subleases or other
property in the ordinary course of business which do not materially
interfere with the Borrower's business;
(vii) consignment or similar arrangements in the ordinary
course of business;
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(viii) the lease of real or personal property in the ordinary
course of business;
(ix) discounts or sale of overdue accounts receivable for
collection in the ordinary course of business; and
(x) sale or other disposition of assets to a Subsidiary that
has executed and delivered a guaranty and security agreement
satisfactory in form and substance to the Agent.
(C) Liens. Neither Holdings nor any of its Subsidiaries shall
directly or indirectly create, incur, assume or permit to exist any Lien on or
with respect to any of their respective property or assets except:
(i) Liens securing the Secured Obligations;
(ii) Permitted Existing Liens;
(iii) Customary Permitted Liens;
(iv) purchase money Liens (including the interest of a lessor
under a Capitalized Lease and Liens to which any property is subject
at the time of the Borrower's acquisition thereof) securing Permitted
Purchase Money Indebtedness; provided that such Liens shall not apply
to any property of the Borrower or its Subsidiaries other than that
purchased or subject to such Capitalized Lease; and
(v) Liens not otherwise permitted by this Section 7.3(C) so
long as neither (i) the aggregate outstanding principal amount of the
obligations secured thereby nor (ii) the aggregate fair market value
(as determined as of the date such Lien is incurred) of the assets
subject thereto exceeds (as to the Borrower and its Subsidiaries)
$1,000,000 at any one time.
In addition, neither Holdings nor any of its Subsidiaries shall become a party
to any agreement, note, indenture or other instrument, or take any other
action, which would prohibit the creation of a Lien on any of its properties or
other assets in favor of the Agent for the benefit of itself and the Lenders,
as collateral for the Obligations; provided that any agreement, note, indenture
or other instrument in connection with Permitted Purchase Money Indebtedness
(including Capitalized Leases) may prohibit the creation of a Lien in favor of
the Agent for the benefit of itself and the Lenders on the items of property
obtained with the proceeds of such Permitted Purchase Money Indebtedness.
(D) Investments. Except to the extent permitted pursuant to paragraph
(G) below, neither Holdings nor any of its Subsidiaries shall directly or
indirectly make or own any Investment except:
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(i) Investments in cash and Cash Equivalents;
(ii) Permitted Existing Investments, and any refinancings,
renewals, replacements, modifications, restatements or extensions
thereof, in an amount not greater than the amount thereof on the
Closing Date;
(iii) Investments in trade receivables or received in
connection with the bankruptcy or reorganization of suppliers and
customers and in settlement of delinquent obligations of, and other
disputes with, customers and suppliers arising in the ordinary course
of business;
(iv) Investments consisting of deposit accounts maintained by
the Borrower;
(v) Investments consisting of non-cash consideration from a
sale, assignment, transfer, lease, conveyance or other disposition of
property permitted by Section 7.3(B);
(vi) Investments consisting of intercompany loans from any
Subsidiary to the Borrower or any other Subsidiary permitted by
Section 7.3(A)(vi);
(vii) Investments consisting of intercompany loans from the
Borrower to any wholly-owned Subsidiary permitted by Section
7.3(A)(vii);
(viii) Investments constituting Permitted Acquisitions;
(ix) Investments constituting Indebtedness permitted by
Section 7.3(A) or Contingent Obligations permitted by Section 7.3(E)
or Restricted Payments permitted by Section 7.3(F);
(x) Investments consisting of loans or advances made by the
Borrower and its Subsidiaries to employees of Holdings or its
Subsidiaries, other than those permitted by
Section 7.3(D)(xi), in an aggregate
amount outstanding at any one time not in excess of $1,000,000.
(xi) loans and advances to officers or other employees of
Holdings or its Subsidiaries in connection with such officers' or
employees' acquisition of shares of Holdings' common stock in an
aggregate amount outstanding at any one time not in excess of
$1,000,000; and
(xii) Investments in addition to those referred to elsewhere
in this Section 7.3(D) in an amount not to exceed $5,000,000 in the
aggregate at any time outstanding;
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provided, however, that the Investments described in clause (viii) above shall
not be permitted if either a Default or an Unmatured Default shall have
occurred and be continuing on the date thereof or would result therefrom.
(E) Contingent Obligations. Neither Holdings nor any of its
Subsidiaries shall directly or indirectly create or become or be liable with
respect to any Contingent Obligation, except: (i) recourse obligations
resulting from endorsement of negotiable instruments for collection in the
ordinary course of business; (ii) Permitted Existing Contingent Obligations;
(iii) obligations, warranties, and indemnities, not relating to Indebtedness of
any Person, which have been or are undertaken or made in the ordinary course of
business and not for the benefit of or in favor of an Affiliate of Holdings or
such Subsidiary; (iv) additional Contingent Obligations which do not exceed
$1,000,000 in the aggregate at any time; and (v) Contingent Obligations with
respect to surety, appeal and performance bonds obtained by Holdings or any
Subsidiary in the ordinary course of business.
(F) Restricted Payments. Neither Holdings nor any of its
Subsidiaries shall declare or make any Restricted Payment, except:
(i) the defeasance, redemption or repurchase of the
Subordinated Notes outstanding as of the Closing Date, including
premiums and interest;
(ii) management fees in an amount not to exceed $2,000,000 in
any one fiscal year pursuant to the Management Consulting Services
Agreement dated December 18, 1994 among Holdings, Perry Principals,
L.L.C., Bain Capital, Inc. and Fleet Growth Resources, Inc. (the
"Management Consulting Services Agreement"), provided, however, that
if Holdings is prohibited from paying all or any portion of such
management fees in any particular fiscal year, and such prohibition
ceases to be applicable for any reason, then the portion of such
management fees which was permitted to be paid pursuant to this
Agreement but which Holdings was otherwise prohibited from paying may
be paid in the immediately following fiscal year, but not thereafter;
(iii) the reimbursement of Perry Principals, L.L.C., Bain
Capital, Inc. and Fleet Growth Resources, Inc. or any of their
respective successors or assigns for their reasonable out-of-pocket
expenses permitted pursuant to the Management Consulting Services
Agreement not to exceed $150,000 per annum incurred by them in
connection with performing management services to the Borrower and its
Subsidiaries;
(iv) additional Restricted Payments which do not exceed, for
the period commencing with the Borrower's fiscal year ending June 30,
1998, and ending on the last day of the last quarter ending prior to
such Restricted Payment, the sum of (a) fifty percent (50.0%) of Net
Income for such period (or, if Net Income for such period is a
deficit, less 100% of such deficit) and (b) the aggregate Net Cash
Proceeds from the
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sale or issuance of Equity Interests (other than Disqualified Stock)
of Holdings or the Borrower for such period;
(v) the repurchase or redemption of Capital Stock or options
to purchase Capital Stock of Holdings held by employees or former
employees of Holdings and its Subsidiaries in an aggregate amount not
in excess of $1,000,000 plus the proceeds received by the Borrower or
Holdings from the sale of any management or employee Capital Stock or
other rights;
(vi) the repurchase or redemption of Capital Stock or options
to purchase Capital Stock of Holdings held by retail florist shops
which are current or former members of FTD Association, an Ohio
non-profit corporation structured as a member-owned trade association,
and its predecessor in an aggregate amount not in excess of
$2,000,000;
(vii) the Borrower may pay cash dividends to Holdings so long
as Holdings uses such proceeds for the purposes described in the
immediately preceding clauses (v) and (vi) and subject to the limits
contained therein; and
(viii) any Subsidiary of the Borrower may make Restricted
Payments to the Borrower or any wholly-owned Subsidiary of the
Borrower.
provided, however, that the Restricted Payments described in clauses (i), (ii)
and (iv) above shall not be permitted if either a Default or an Unmatured
Default shall have occurred and be continuing at the date of declaration or
payment thereof or would result therefrom.
(G) Conduct of Business; Subsidiaries; Acquisitions. Neither the
Borrower nor any of its Subsidiaries shall engage in any business other than
the businesses engaged in by the Borrower on the date hereof and any business
or activities which are substantially similar, related or incidental thereto.
Holdings shall not create, capitalize, acquire or own any Subsidiary other than
the Borrower unless such Subsidiary executes and delivers a guaranty and
security agreement satisfactory in form and substance to the Agent. Holdings
shall not conduct any business other than owning the stock of the Borrower or
such other Subsidiaries and such other activities as are customary for holding
companies and providing guaranties of obligations of the Borrower and its
Subsidiaries which are permitted hereunder. The Borrower shall not create,
acquire or any Subsidiary after the date hereof unless such Subsidiary executes
a guaranty and security agreement satisfactory in form and substance to the
Agent. The Borrower shall not make any Acquisitions, other than Acquisitions
meeting the following requirements or otherwise approved by the Required
Lenders (each such Acquisition constituting a "PERMITTED ACQUISITION"):
(i) no Default or Unmatured Default shall have occurred and
be continuing or would result from such Acquisition or the incurrence
of any Indebtedness in connection therewith;
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(ii) the Acquisition shall be consummated pursuant to
acquisition documents reasonably satisfactory to the Agent with
representations, indemnities and opinions reasonably satisfactory to
the Agent and results of due diligence reasonably satisfactory to the
Agent, it being understood that the Agent shall not unreasonably
withhold its consent to any such Acquisition and shall respond and
cause its representatives and agents to respond with comments to any
such documents within a reasonable time period under the
circumstances;
(iii) the businesses being acquired shall be substantially
similar to the businesses or activities engaged in by the Borrower or
its Subsidiaries on the Closing Date; and
(iv) prior to each such Acquisition, the Borrower shall
deliver to the Agent and the Lenders a certificate from one of the
Authorized Officers, demonstrating to the satisfaction of the Agent
that after giving effect to such Acquisition and the incurrence of any
Indebtedness permitted by Section 7.3(A) in connection therewith, on a
pro forma basis using historical audited and reviewed unaudited
financial statements obtained form the seller, broken down by fiscal
quarter in the Borrower's reasonable judgment, as if the Acquisition
and such incurrence of Indebtedness had occurred on the first day of
the twelve-month period ending on the last day of the Borrower's most
recently completed fiscal quarter, the Borrower would have been in
compliance with the financial covenants in Section 7.4 and not
otherwise in Default and the Borrower's Leverage Ratio would not have
exceeded 3.25 to 1.0 if such Acquisition occurs prior to the second
anniversary of the Closing Date or 2.75 to 1.0 if such Acquisition
occurs after the second anniversary of the Closing Date.
(H) Transactions with Shareholders and Affiliates. Neither the
Borrower nor any of its Subsidiaries shall directly or indirectly enter into or
permit to exist any transaction (including, without limitation, the purchase,
sale, lease or exchange of any property or the rendering of any service) with
any Affiliate of the Borrower which is not its Subsidiary, on terms that are
less favorable to the Borrower or any of its Subsidiaries, as applicable, than
those that might be obtained in an arm's length transaction at the time from
Persons who are not an Affiliate, except for (i) Restricted Payments permitted
by Section 7.3(F), including, without limitation performance of the management
agreements for which management fees and expenses are permitted pursuant to
such Section 7.3(F), and (ii) any tax sharing or tax allocation agreements
entered into by Holdings or any of its Subsidiaries.
(I) Restriction on Fundamental Changes. Neither the Borrower nor any
of its Subsidiaries shall enter into any merger or consolidation, or liquidate,
wind-up or dissolve (or suffer any liquidation or dissolution), or convey,
lease, sell, transfer or otherwise dispose of, in one transaction or series of
transactions, all or substantially all of the Borrower's or any such
Subsidiary's business or property, whether now or hereafter acquired, except
transactions permitted under Sections 7.3(B) or 7.3(G) and provided that (i)
any Subsidiary of the Borrower may be merged or consolidated with or into the
Borrower (provided the Borrower shall be the continuing or surviving
corporation) or with or into any other Subsidiary that has
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signed a guaranty and security agreement satisfactory in form and substance to
the Agent (provided such Subsidiary shall be the continuing or surviving
corporation) and (ii) any Subsidiary of the Borrower may sell, lease, transfer
or otherwise dispose of any or all of its assets (upon voluntary liquidation or
otherwise) to the Borrower or any Subsidiary that has signed a guaranty and
security agreement satisfactory in form and substance to the Agent.
(J) Sales and Leasebacks. Neither the Borrower nor any of its
Subsidiaries shall become liable, directly, by assumption or by Contingent
Obligation, with respect to any lease, whether an operating lease or a
Capitalized Lease, of any property (whether real or personal or mixed) (i)
which it or one of its Subsidiaries sold or transferred or is to sell or
transfer to any other Person, or (ii) which it or one of its Subsidiaries
intends to use for substantially the same purposes as any other property which
has been or is to be sold or transferred by it or one of its Subsidiaries to
any other Person in connection with such lease, unless in either case the sale
involved is not prohibited under Section 7.3(B) and the lease involved is not
prohibited under Section 7.3(A).
(K) Margin Regulations. Neither the Borrower nor any of its
Subsidiaries, shall use all or any portion of the proceeds of any credit
extended under this Agreement to purchase or carry Margin Stock.
(L) ERISA. The Borrower shall not
(i) engage, or permit any of its Subsidiaries to engage, in
any prohibited transaction described in Sections 406 of ERISA or 4975
of the Code for which a statutory or class exemption is not available
or a private exemption has not been previously obtained from the DOL;
(ii) permit to exist any accumulated funding deficiency (as
defined in Sections 302 of ERISA and 412 of the Code), with respect to
any Benefit Plan, whether or not waived;
(iii) fail, or permit any Controlled Group member to fail, to
pay timely required contributions or annual installments due with
respect to any waived funding deficiency to any Benefit Plan;
(iv) terminate, or permit any Controlled Group member to
terminate, any Benefit Plan which would result in any liability of the
Borrower or any Controlled Group member under Title IV of ERISA in
excess of $1,000,000;
(v) fail to make any contribution or payment to any
Multiemployer Plan which the Borrower or any Controlled Group member
may be required to make under any agreement relating to such
Multiemployer Plan, or any law pertaining thereto;
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(vi) fail, or permit any Controlled Group member to fail, to
pay any required installment or any other payment required under
Section 412 of the Code on or before the due date for such installment
or other payment; or
(vii) amend, or permit any Controlled Group member to amend,
a Plan resulting in an increase in current liability for the plan year
such that the Borrower or any Controlled Group member is required to
provide security to such Plan under Section 401(a)(29) of the Code.
(M) Corporate Documents. Neither the Borrower nor any of its
Subsidiaries shall amend, modify or otherwise change any of the terms or
provisions in any of their respective constituent documents as in effect on the
date hereof that is reasonably likely to result in a Material Adverse Effect,
without the prior written consent of the Required Lenders.
(N) Fiscal Year. Neither the Borrower nor any of its consolidated
Subsidiaries shall change its fiscal year for accounting or tax purposes from a
period consisting of the 12-month period ending on the last day of June of each
year.
(O) Subsidiary Covenants. Except as herein provided, the Borrower
will not permit any Subsidiary to, create or otherwise cause to become
effective any consensual encumbrance or restriction of any kind on the ability
of any Subsidiary to pay dividends or make any other distribution on its stock,
or make any other Restricted Payment, pay any Indebtedness or other Obligation
owed to the Borrower or any other Subsidiary, make loans or advances or other
Investments in the Borrower or any other Subsidiary, or sell, transfer or
otherwise convey any of its property to the Borrower or any other Subsidiary.
(P) Hedging Obligations. The Borrower shall not and shall not permit
any of its Subsidiaries to enter into any interest rate, commodity or foreign
currency exchange, swap, collar, cap or similar agreements evidencing Hedging
Obligations, other than interest rate, foreign currency or commodity exchange,
swap, collar, cap or similar agreements entered into by the Borrower pursuant
to which the Borrower has hedged its actual interest rate, foreign currency or
commodity exposure. Such permitted hedging agreements are sometimes referred
to herein as "HEDGING AGREEMENTS."
7.4 Financial Covenants. Holdings and the Borrower shall comply with
the following:
(A) Minimum Fixed Charge Coverage Ratio. Holdings and its
consolidated Subsidiaries shall maintain a ratio ("FIXED CHARGE COVERAGE
RATIO") of (i) the sum of the amounts of (a) EBITDA for Holdings and its
consolidated Subsidiaries minus (b) Capital Expenditures for Holdings and its
consolidated Subsidiaries plus (c) Rentals for Holdings and its consolidated
Subsidiaries to (ii) the sum of the amounts of (a) Interest Expense for
Holdings and its consolidated Subsidiaries plus (b) scheduled amortization of
the principal portion of the Term Loans and scheduled amortization of the
principal portion of all other Indebtedness for borrowed money of Holdings and
its consolidated Subsidiaries plus (c) Rentals of Holdings or
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any of its consolidated Subsidiaries plus (d) cash taxes paid by Holdings and
its consolidated Subsidiaries during such period plus (e) Restricted Payments
paid by Holdings or any of its consolidated Subsidiaries pursuant to Section
7.3(F)(ii), (iii), (iv), (v) and (vi) during such period of at least 1.25 to
1.00 for each fiscal quarter until the Termination Date.
In each case, the Fixed Charge Coverage Ratio shall be determined as of the
last day of each fiscal quarter for the four fiscal quarter period ending on
such day, calculated, with respect to Permitted Acquisitions, on a pro forma
basis using historical audited and reviewed unaudited financial statements
obtained from the seller, broken down by fiscal quarter in Holdings' reasonable
judgment.
(B) Maximum Leverage Ratio. Holdings and its consolidated
Subsidiaries shall not permit the ratio (the "LEVERAGE RATIO") of (i) the sum
of (a) Indebtedness for borrowed money of Holdings and its consolidated
Subsidiaries and (b) Capitalized Lease Obligations of Holdings and its
consolidated Subsidiaries to (ii) EBITDA of Holdings and its consolidated
Subsidiaries to be greater than:
(i) 3.5 to 1.00 for each fiscal quarter for the period
commencing with the fiscal quarter ending December 31, 1997 through
the fiscal quarter ending September 30, 1999; and
(ii) 3.0 to 1.00 for each fiscal quarter thereafter until
the Termination Date.
The Leverage Ratio shall be calculated, in each case, determined as of the last
day of each fiscal quarter based upon (a) for Indebtedness for borrowed money
and Capitalized Lease Obligations, Indebtedness for borrowed money and
Capitalized Lease Obligations as of the last day of each such fiscal quarter;
and (b) for EBITDA, the actual amount for the four-quarter period ending on
such day, calculated, with respect to Permitted Acquisitions, on a pro forma
basis using historical audited and reviewed unaudited financial statements
obtained from the seller, broken down by fiscal quarter in Holdings' reasonable
judgment.
(C) Minimum Consolidated Adjusted Net Worth. Holdings shall not
permit its Consolidated Adjusted Net Worth at any time to be less than the sum
of (a) $20,055,000, plus (b) fifty percent (50%) of Net Income (if positive)
calculated separately for each fiscal quarter ending after December 31, 1997,
plus (c) one hundred percent (100%) of the net cash proceeds resulting from the
issuance by the Borrower or Holdings of any Capital Stock.
(D) Capital Expenditures. Holdings will not, nor will it permit any
Subsidiary to, expend, or be committed to expend, for Capital Expenditures in
the acquisition of fixed assets in any fiscal year, on a non-cumulative basis,
in the aggregate for Holdings and its Subsidiaries, in excess of the greater of
(i) $7,500,000 or (ii) an amount equal to twenty-five percent (25%) of
Holdings' Consolidated Adjusted Net Worth as at the end of the most recently
completed fiscal year.
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ARTICLE VIII: DEFAULTS
8.1 Defaults. Each of the following occurrences shall constitute a
Default under this Agreement:
(A) Failure to Make Payments When Due. The Borrower shall (i) fail
to pay when due any of the Obligations consisting of principal with respect to
the Loans or (ii) shall fail to pay within three (3) Business Days of the date
when due any of the other Obligations under this Agreement or the other Loan
Documents.
(B) Breach of Certain Covenants. The Borrower shall fail duly and
punctually to perform or observe any agreement, covenant or obligation binding
on the Borrower under:
(i) Section 7.1 or 7.2 and such failure shall continue
unremedied for thirty (30) days after the Borrower has knowledge of
such failure; or
(ii) Section 7.3(D)(i)-(vii), (E), (H), (K), (L), (M), (N) or
(O) and such failure shall continue unremedied for fifteen (15) days
after the Borrower has knowledge of such failure; or
(iii) Section 7.3(A), (B), (C), (D)(viii)-(xii), (F), (G),
(I), (J) or (P) or 7.4.
(C) Breach of Representation or Warranty. Any representation or
warranty made or deemed made by the Borrower to the Agent or any Lender herein
or by the Borrower or any of its Subsidiaries in any of the other Loan
Documents or in any certificate at any time given by any such Person pursuant
to any of the Loan Documents shall be false or misleading in any material
respect on the date as of which made (or deemed made).
(D) Other Defaults. The Borrower shall default in the performance of
or compliance with any term contained in this Agreement (other than as covered
by paragraphs (A), (B) or (C) of this Section 8.1), or the Borrower or any of
its Subsidiaries shall default in the performance of or compliance with any
term contained in any of the other Loan Documents, and such default shall
continue for thirty (30) days after the occurrence thereof.
(E) Default as to Other Indebtedness. The Borrower or any of its
Subsidiaries shall fail to make any payment when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), and such
failure shall continue beyond any applicable grace period, with respect to any
Indebtedness the outstanding principal amount of which Indebtedness is in
excess of $5,000,000 (excluding the Subordinated Notes at all times that the
unfunded Aggregate Term Loan Commitment is at least equal to seventy-five
percent of the outstanding principal amount of the Subordinated Notes); or any
breach, default or event of default shall occur and continue beyond any
applicable grace period, or any other condition shall exist under any
instrument, agreement or indenture pertaining to any such Indebtedness, if the
effect thereof is to cause an acceleration, mandatory redemption, a requirement
that the
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Borrower offer to purchase such Indebtedness or other required repurchase of
such Indebtedness, or permit the holder(s) of such Indebtedness to accelerate
the maturity of any such Indebtedness or require a redemption or other
repurchase of such Indebtedness; or any such Indebtedness shall be otherwise
declared to be due and payable (by acceleration or otherwise) or required to be
prepaid, redeemed or otherwise repurchased by the Borrower or any of its
Subsidiaries (other than by a regularly scheduled required prepayment) prior to
the stated maturity thereof.
(F) Involuntary Bankruptcy; Appointment of Receiver, Etc.
(i) An involuntary case shall be commenced against the
Borrower or any of the Borrower's Subsidiaries and the petition shall
not be dismissed, stayed, bonded or discharged within sixty (60) days
after commencement of the case; or a court having jurisdiction in the
premises shall enter a decree or order for relief in respect of the
Borrower or any of the Borrower's Subsidiaries in an involuntary case,
under any applicable bankruptcy, insolvency or other similar law now
or hereinafter in effect; or any other similar relief shall be granted
under any applicable federal, state, local or foreign law.
(ii) A decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator, sequestrator,
trustee, custodian or other officer having similar powers over the
Borrower or any of the Borrower's Subsidiaries or over all or a
substantial part of the property of the Borrower or any of the
Borrower's Subsidiaries shall be entered; or an interim receiver,
trustee or other custodian of the Borrower or any of the Borrower's
Subsidiaries or of all or a substantial part of the property of the
Borrower or any of the Borrower's Subsidiaries shall be appointed or a
warrant of attachment, execution or similar process against any
substantial part of the property of the Borrower or any of the
Borrower's Subsidiaries shall be issued and any such event shall not
be stayed, dismissed, bonded or discharged within sixty (60) days
after entry, appointment or issuance.
(G) Voluntary Bankruptcy; Appointment of Receiver, Etc. The Borrower
or any of the Borrower's Subsidiaries shall (i) commence a voluntary case under
any applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, (ii) consent to the entry of an order for relief in an involuntary
case, or to the conversion of an involuntary case to a voluntary case, under
any such law, (iii) consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of its
property, (iv) make any assignment for the benefit of creditors or (v) take any
corporate action to authorize any of the foregoing.
(H) Judgments and Attachments. Any money judgment(s) (other than a
money judgment covered by insurance as to which the insurance company has not
disclaimed or reserved the right to disclaim coverage), writ or warrant of
attachment, or similar process against the Borrower or any of its Subsidiaries
or any of their respective assets involving in
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any single case or in the aggregate an amount in excess of $2,500,000 is or are
entered and shall remain undischarged, unvacated, unbonded or unstayed for a
period of sixty (60) days or in any event later than fifteen (15) days prior to
the date of any proposed sale thereunder.
(I) Dissolution. Any order, judgment or decree shall be entered
against the Borrower decreeing its involuntary dissolution or split up and such
order shall remain undischarged and unstayed for a period in excess of sixty
(60) days; or the Borrower shall otherwise dissolve or cease to exist in
violation of this Agreement.
(J) Loan Documents. At any time, for any reason, any Loan Document
as a whole that materially affects the ability of the Agent, or any of the
Lenders to enforce the Obligations ceases to be in full force and effect or the
Borrower or any of the Borrower's Subsidiaries party thereto seeks to repudiate
its obligations thereunder.
(K) Termination Event. Any Termination Event occurs which the
Required Lenders believe is reasonably likely to subject the Borrower to
liability in excess of $1,000,000.
(L) Waiver of Minimum Funding Standard. If the plan administrator of
any Plan applies under Section 412(d) of the Code for a waiver of the minimum
funding standards of Section 412(a) of the Code and any Lender believes the
substantial business hardship upon which the application for the waiver is
based could reasonably be expected to subject either the Borrower or any
Controlled Group member to liability in excess of $1,000,000.
(M) Change of Control. A Change of Control shall occur after the
Closing Date.
(N) Hedging Agreements. Nonpayment by the Borrower of any obligation
in excess of $1,000,000 under any Hedging Agreement with any Person other than
a Lender or the breach by the Borrower of any term, provision or condition
contained in any such Hedging Agreement resulting in liability to the Borrower
in excess of $1,000,000.
(O) Environmental Matters. The Borrower or any of its Subsidiaries
shall be the subject of any proceeding or investigation pertaining to (i) the
Release by the Borrower or any of its Subsidiaries of any Contaminant into the
environment, (ii) the liability of the Borrower or any of its Subsidiaries
arising from the Release by any other Person of any Contaminant into the
environment, or (iii) any violation of any Environmental, Health or Safety
Requirements of Law which by the Borrower or any of its Subsidiaries, which, in
any case, has or is reasonably likely to subject the Borrower to liability in
excess of $1,000,000.
(P) Liens. Any Environmental Lien or Liens or any Liens in favor of
the IRS or the PBGC which, individually or in the aggregate, secure claims in
excess of $1,000,000, are filed publicly unless each such Lien has been
subordinated or released within sixty (60) days of the date it is filed
publicly or unless such Lien is being contested in good faith by appropriate
proceedings properly instituted and diligently conducted and with respect to
which adequate
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reserves or other appropriate provisions are being maintained in accordance
with Agreement Accounting Principles in an amount and on a basis reasonably
acceptable to the Agent.
A Default shall be deemed "continuing" until cured or until waived in
writing in accordance with Section 9.3.
ARTICLE IX: ACCELERATION, DEFAULTING LENDERS; WAIVERS, AMENDMENTS AND REMEDIES
9.1 Termination of Commitments; Acceleration. If any Default
described in Section 8.1(F) or 8.1(G) occurs with respect to the Borrower, the
obligations of the Lenders to make Loans hereunder and the obligation of the
Agent to issue Letters of Credit hereunder shall automatically terminate and
the Obligations shall immediately become due and payable without any election
or action on the part of the Agent or any Lender. If any other Default occurs,
the Required Lenders may terminate or suspend the obligations of the Lenders to
make Loans hereunder and the obligation of the Issuing Banks to issue Letters
of Credit hereunder, or declare the Obligations to be due and payable, or both,
whereupon the Obligations shall become immediately due and payable, without
presentment, demand, protest or notice of any kind, all of which the Borrower
expressly waives.
9.2 Defaulting Lender. In the event that any Lender fails to fund
its Pro Rata Share of any Advance requested or deemed requested by the
Borrower, which such Lender is obligated to fund under the terms of this
Agreement (the funded portion of such Advance being hereinafter referred to as
a "NON PRO RATA LOAN"), until the earlier of such Lender's cure of such failure
and the termination of the Revolving Loan Commitments, the proceeds of all
amounts thereafter repaid to the Agent by the Borrower and otherwise required
to be applied to such Lender's share of all other Obligations pursuant to the
terms of this Agreement shall be advanced to the Borrower by the Agent on
behalf of such Lender to cure, in full or in part, such failure by such Lender,
but shall nevertheless be deemed to have been paid to such Lender in
satisfaction of such other Obligations. Notwithstanding anything in this
Agreement to the contrary:
(i) the foregoing provisions of this Section 9.2 shall apply
only with respect to the proceeds of payments of Obligations and shall
not affect the conversion or continuation of Loans pursuant to Section
2.10;
(ii) any such Lender shall be deemed to have cured its
failure to fund its Pro Rata Share of any Advance at such time as an
amount equal to such Lender's original Pro Rata Share of the requested
principal portion of such Advance is fully funded to the Borrower,
whether made by such Lender itself or by operation of the terms of
this Section 9.2, and whether or not the Non Pro Rata Loan with
respect thereto has been repaid, converted or continued;
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(iii) amounts advanced to the Borrower to cure, in full or in
part, any such Lender's failure to fund its Pro Rata Share of any
Advance ("CURE LOANS") shall bear interest at the rate applicable to
Floating Rate Loans in effect from time to time, and for all other
purposes of this Agreement shall be treated as if they were Floating
Rate Loans;
(iv) regardless of whether or not a Default has occurred or
is continuing, and notwithstanding the instructions of the Borrower as
to its desired application, all repayments of principal which, in
accordance with the other terms of this Agreement, would be applied to
the outstanding Floating Rate Loans shall be applied first, ratably to
all Floating Rate Loans constituting Non Pro Rata Loans, second,
ratably to Floating Rate Loans other than those constituting Non Pro
Rata Loans or Cure Loans and, third, ratably to Floating Rate Loans
constituting Cure Loans;
(v) for so long as and until the earlier of any such Lender's
cure of the failure to fund its Pro Rata Share of any Advance and the
termination of the Revolving Loan Commitments, the term "Required
Lenders" for purposes of this Agreement shall mean Lenders (excluding
all Lenders whose failure to fund their respective Pro Rata Shares of
such Advance have not been so cured) whose Pro Rata Shares represent
greater than fifty percent (50%) of the aggregate Pro Rata Shares of
such Lenders; and
(vi) for so long as and until any such Lender's failure to
fund its Pro Rata Share of any Advance is cured in accordance with
Section 9.2(ii), (A) such Lender shall not be entitled to any
commitment fees with respect to its Revolving Loan Commitment and (B)
such Lender shall not be entitled to any letter of credit fees, which
commitment fees and letter of credit fees shall accrue in favor of the
Lenders which have funded their respective Pro Rata Share of such
requested Advance, shall be allocated among such performing Lenders
ratably based upon their relative Revolving Loan Commitments, and
shall be calculated based upon the average amount by which the
aggregate Revolving Loan Commitments of such performing Lenders
exceeds the sum of (I) the outstanding principal amount of the Loans
owing to such performing Lenders, plus (II) the outstanding
Reimbursement Obligations owing to such performing Lenders, plus (III)
the aggregate participation interests of such performing Lenders
arising pursuant to Section 3.6 with respect to undrawn and
outstanding Letters of Credit.
9.3 Amendments. Subject to the provisions of this Article IX, the
Required Lenders (or the Agent with the consent in writing of the Required
Lenders) and the Borrower may enter into agreements supplemental hereto for the
purpose of adding or modifying any provisions to the Loan Documents or changing
in any manner the rights of the Lenders or the Borrower hereunder or waiving
any Default hereunder; provided, however, that no such
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supplemental agreement shall, without the consent of each Lender (which is not
a defaulting Lender under the provisions of Section 9.2) affected thereby:
(i) Postpone or extend the Revolving Loan Termination Date or
Term Loan Termination Date or any other date fixed for any payment of
principal of, or interest on, the Loans, the Reimbursement Obligations
or any fees or other amounts payable to such Lender (except with
respect to (a) any modifications of the provisions relating to
prepayments of Loans and other Obligations and (b) a waiver of the
application of the default rate of interest pursuant to
Section 2.11 hereof).
(ii) Reduce the principal amount of any Loans or L/C
Obligations, or reduce the rate or extend the time of payment of
interest or fees thereon.
(iii) Reduce the percentage specified in the definition of
Required Lenders or any other percentage of Lenders specified to be
the applicable percentage in this Agreement to act on specified
matters.
(iv) Increase the amount of the Revolving Loan Commitment of
any Lender hereunder.
(v) Permit the Borrower to assign its rights under this
Agreement.
(vi) Amend this Section 9.3.
No amendment of any provision of this Agreement relating to (a) the Agent shall
be effective without the written consent of the Agent, and (b) Swing Line Loans
shall be effective without the written consent of the Swing Line Bank. The
Agent may waive payment of the fee required under Section 13.3(B) without
obtaining the consent of any of the Lenders.
9.4 Preservation of Rights. No delay or omission of the Lenders or
the Agent to exercise any right under the Loan Documents shall impair such
right or be construed to be a waiver of any Default or an acquiescence therein,
and the making of a Loan or the issuance of a Letter of Credit notwithstanding
the existence of a Default or the inability of the Borrower to satisfy the
conditions precedent to such Loan or issuance of such Letter of Credit shall
not constitute any waiver or acquiescence. Any single or partial exercise of
any such right shall not preclude other or further exercise thereof or the
exercise of any other right, and no waiver, amendment or other variation of the
terms, conditions or provisions of the Loan Documents whatsoever shall be valid
unless in writing signed by the Lenders required pursuant to Section 9.3, and
then only to the extent in such writing specifically set forth. All remedies
contained in the Loan Documents or by law afforded shall be cumulative and all
shall be available to the Agent and the Lenders until the Obligations have been
paid in full.
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ARTICLE X: GENERAL PROVISIONS
10.1 Survival of Representations. All representations and warranties
of the Borrower contained in this Agreement shall survive delivery of the Notes
and the making of the Loans herein contemplated.
10.2 Governmental Regulation. Anything contained in this Agreement to
the contrary notwithstanding, no Lender shall be obligated to extend credit to
the Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
10.3 Performance of Obligations. The Borrower agrees that the Agent
may, but shall have no obligation, after the occurrence and during the
continuance of a Default, to make any other payment or perform any act required
of the Borrower under any Loan Document if the Borrower fails to do so. The
Agent shall use its reasonable efforts to give the Borrower notice of any
action taken under this Section 10.3 prior to the taking of such action or
promptly thereafter provided the failure to give such notice shall not affect
the Borrower's obligations in respect thereof. The Borrower agrees to pay the
Agent, upon demand, the principal amount of all funds advanced by the Agent
under this Section 10.3, together with interest thereon at the rate from time
to time applicable to Floating Rate Loans from the date of such advance until
the outstanding principal balance thereof is paid in full. If the Borrower
fails to make payment in respect of any such advance under this Section 10.3
within one (1) Business Day after the date the Borrower receives written demand
therefor from the Agent, the Agent shall promptly notify each Lender and each
Lender agrees that it shall thereupon make available to the Agent, in Dollars
in immediately available funds, the amount equal to such Lender's Pro Rata
Share of such advance. If such funds are not made available to the Agent by
such Lender within one (1) Business Day after the Agent's demand therefor, the
Agent will be entitled to recover any such amount from such Lender together
with interest thereon at the Federal Funds Effective Rate for each day during
the period commencing on the date of such demand and ending on the date such
amount is received. The failure of any Lender to make available to the Agent
its Pro Rata Share of any such unreimbursed advance under this Section 10.3
shall neither relieve any other Lender of its obligation hereunder to make
available to the Agent such other Lender's Pro Rata Share of such advance on
the date such payment is to be made nor increase the obligation of any other
Lender to make such payment to the Agent. All outstanding principal of, and
interest on, advances made under this Section 10.3 shall constitute
Obligations.
10.4 Headings. Section headings in the Loan Documents are for
convenience of reference only, and shall not govern the interpretation of any
of the provisions of the Loan Documents.
10.5 Entire Agreement. The Loan Documents embody the entire agreement
and understanding among the Borrower, the Agent and the Lenders and supersede
all prior
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agreements and understandings among the Borrower, the Agent and the Lenders
relating to the subject matter thereof.
10.6 Several Obligations; Benefits of this Agreement. The respective
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other Lender (except to the extent to
which the Agent is authorized to act as such). The failure of any Lender to
perform any of its obligations hereunder shall not relieve any other Lender
from any of its obligations hereunder. This Agreement shall not be construed
so as to confer any right or benefit upon any Person other than the parties to
this Agreement and their respective successors and assigns.
10.7 Expenses; Indemnification.
(A) Expenses. The Borrower shall reimburse the Agent and the
Arranger for any reasonable costs, internal charges and out-of-pocket expenses
(including reasonable attorneys' and paralegals' fees and time charges of
attorneys and paralegals for the Agent, which attorneys and paralegals may be
employees of the Agent) paid or incurred by the Agent or the Arranger in
connection with the preparation, negotiation, execution, delivery, syndication,
amendment, modification, and administration of the Loan Documents. The
Borrower also agrees to reimburse the Agent and the Arranger and the Lenders
for any reasonable costs, internal charges and out-of-pocket expenses
(including reasonable attorneys' and paralegals' fees and time charges of
attorneys and paralegals for the Agent and the Arranger and the Lenders, which
attorneys and paralegals may be employees of the Agent or the Arranger or the
Lenders) paid or incurred by the Agent or the Arranger or any Lender in
connection with the collection of the Obligations and enforcement of the Loan
Documents. In addition to expenses set forth above, the Borrower agrees to
reimburse the Agent, promptly after the Agent's request therefor, for each
audit, or other business analysis performed by or for the benefit of the
Lenders in connection with this Agreement or the other Loan Documents in an
amount equal to the Agent's then reasonable and customary charges for each
person employed to perform such audit or analysis (it being understood each
such audit and analysis shall be reasonably staffed), plus all reasonable costs
and expenses (including without limitation, travel expenses) incurred by the
Agent in the performance of such audit or analysis. Unless a Default shall
have occurred and be continuing, no such right to perform any such audit or
analysis shall be exercised by any of the Agent, any Lender or any
representative of any of them more than once in any year. Agent shall provide
the Borrower with a detailed statement of all reimbursements requested under
this Section 10.7(A).
(B) Indemnity. The Borrower further agrees to defend, protect,
indemnify, and hold harmless the Agent, the Arranger and each and all of the
Lenders and each of their respective Affiliates, and each of such Agent's,
Arranger's, Lender's, or Affiliate's respective officers, directors, employees,
attorneys and agents (including, without limitation, those retained in
connection with the satisfaction or attempted satisfaction of any of the
conditions set forth in Article V) (collectively, the "INDEMNITEES") from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses of
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any kind or nature whatsoever (including, without limitation, the reasonable
fees and disbursements of counsel for such Indemnitees in connection with any
related investigative, administrative or judicial proceeding, whether or not
such Indemnitees shall be designated a party thereto), imposed on, incurred by,
or asserted against such Indemnitees in any manner relating to or arising out
of:
(i) this Agreement, the other Loan Documents, or any act,
event or transaction related or attendant thereto or to the making of
the Loans, and the issuance of and participation in Letters of Credit
hereunder, the management of such Loans or Letters of Credit, the use
or intended use of the proceeds of the Loans or Letters of Credit
hereunder, or any of the other transactions contemplated by the Loan
Documents; or
(ii) any liabilities, obligations, responsibilities, losses,
damages, personal injury, death, punitive damages, economic damages,
consequential damages, treble damages, intentional, willful or wanton
injury, damage or threat to the environment, natural resources or
public health or welfare, costs and expenses (including, without
limitation, attorney, expert and consulting fees and costs of
investigation, feasibility or remedial action studies), fines,
penalties and monetary sanctions, interest, direct or indirect, known
or unknown, absolute or contingent, past, present or future relating
to violation of any Environmental, Health or Safety Requirements of
Law arising from or in connection with the past, present or future
operations of the Borrower, its Subsidiaries or any of their
respective predecessors in interest, or, the past, present or future
environmental, health or safety condition of any respective property
of the Borrower or its Subsidiaries, the presence of
asbestos-containing materials at any respective property of the
Borrower or its Subsidiaries or the Release or threatened Release of
any Contaminant into the environment (collectively, the "INDEMNIFIED
MATTERS");
provided, however, the Borrower shall have no obligation to an Indemnitee
hereunder with respect to Indemnified Matters caused solely by or resulting
solely from the willful misconduct or Gross Negligence of such Indemnitee or
breach of contract by such Indemnitee with respect to the Loan Documents or any
other agreements, documents or instruments, in each case, as determined by the
final non-appealed judgment of a court of competent jurisdiction. If the
undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative of any law or public
policy, the Borrower shall contribute the maximum portion which it is permitted
to pay and satisfy under applicable law, to the payment and satisfaction of all
Indemnified Matters incurred by the Indemnitees.
(C) Waiver of Certain Claims; Settlement of Claims. The Borrower
further agrees to assert no claim against any of the Indemnitees on any theory
of liability for consequential, special, indirect, exemplary or punitive
damages. No settlement shall be entered into by the Borrower or any if its
Subsidiaries with respect to any claim, litigation, arbitration or other
proceeding relating to or arising out of the transactions evidenced by this
Agreement or the other Loan Documents (whether or not the Agent or any Lender
or any Indemnitee is a party
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thereto) unless such settlement releases all Indemnitees from any and all
liability with respect thereto.
(D) Survival of Agreements. The obligations and agreements of the
Borrower under this Section 10.7 shall survive the termination of this
Agreement.
10.8 Numbers of Documents. All statements, notices, closing
documents, and requests hereunder shall be furnished to the Agent with
sufficient counterparts so that the Agent may furnish one to each of the
Lenders.
10.9 Accounting. Except as provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with Agreement Accounting
Principles. If any changes in generally accepted accounting principles are
hereafter required or permitted and are adopted by the Borrower with the
agreement of its independent public accountants and such changes result in a
change in the method of calculation of any of the financial covenants,
restrictions or standards herein or in the related definitions or terms used
therein ("Accounting Changes"), the parties hereto agree to enter into
negotiations, in good faith, in order to amend such provisions in a credit
neutral manner so as to reflect equitably such Accounting Changes with the
desired result that the criteria for evaluating the Borrower's financial
condition shall be the same after such changes as if such changes had not been
made; provided, however, until such provisions are amended in a manner
reasonably satisfactory to the Agent and the Required Lenders, no Accounting
Change shall be given effect in such calculations and all financial statements
and reports required to be delivered hereunder shall be prepared in accordance
with Agreement Accounting Principles without taking into account such
Accounting Changes. In the event such amendment is entered into with respect
to any Accounting Changes, all references to this Agreement to Agreement
Accounting Principles shall mean generally accepted accounting principles as of
the date of such amendment.
10.10 Severability of Provisions. Any provision in any Loan Document
that is held to be inoperative, unenforceable, or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable, or invalid
without affecting the remaining provisions in that jurisdiction or the
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of all Loan Documents are declared
to be severable.
10.11 Nonliability of Lenders. The relationship between the Borrower
and the Lenders and the Agent shall be solely that of borrower and lender.
Neither the Agent nor any Lender shall have any fiduciary responsibilities to
the Borrower. Neither the Agent nor any Lender undertakes any responsibility
to the Borrower to review or inform the Borrower of any matter in connection
with any phase of the Borrower's business or operations.
10.12 GOVERNING LAW. THE AGENT ACCEPTS THIS AGREEMENT, ON BEHALF OF
ITSELF AND THE LENDERS, AT CHICAGO, ILLINOIS BY ACKNOWLEDGING AND AGREEING TO
IT THERE. ANY DISPUTE BETWEEN
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THE BORROWER AND THE AGENT OR ANY LENDER ARISING OUT OF, CONNECTED WITH,
RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN
CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, AND WHETHER
ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN
ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT REGARD TO THE CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF ILLINOIS.
10.13 CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL.
(A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B),
EACH OF THE PARTIES HERETO AGREES THAT ALL DISPUTES AMONG THEM ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG
THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS
WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED
EXCLUSIVELY BY STATE OR FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS, BUT THE
PARTIES HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE
HEARD BY A COURT LOCATED OUTSIDE OF CHICAGO, ILLINOIS. EACH OF THE PARTIES
HERETO WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO THIS SUBSECTION (A) ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE
DISPUTE.
(B) OTHER JURISDICTIONS. THE BORROWER AGREES THAT THE AGENT, OR ANY
LENDER SHALL HAVE THE RIGHT TO PROCEED AGAINST THE BORROWER OR ITS PROPERTY IN
A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN PERSONAL
JURISDICTION OVER THE BORROWER OR (2) REALIZE ON ANY SECURITY FOR THE
OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF
SUCH PERSON. THE BORROWER AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE
COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON TO REALIZE ON ANY
SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF SUCH PERSON. THE BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO
THE LOCATION OF THE COURT IN WHICH SUCH PERSON HAS COMMENCED A PROCEEDING
DESCRIBED IN THIS SUBSECTION (B).
(C) VENUE. THE BORROWER IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING,
WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER
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INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH
IN ANY JURISDICTION SET FORTH ABOVE.
(D) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY
WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH,
RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO
AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR
RIGHT TO TRIAL BY JURY.
ARTICLE XI: THE AGENT
11.1 Appointment; Nature of Relationship. The First National Bank of
Chicago is appointed by the Lenders as the Agent hereunder and under each other
Loan Document, and each of the Lenders irrevocably authorizes the Agent to act
as the contractual representative of such Lender with the rights and duties
expressly set forth herein and in the other Loan Documents. The Agent agrees
to act as such contractual representative upon the express conditions contained
in this Article XI. Notwithstanding the use of the defined term "Agent," it is
expressly understood and agreed that the Agent shall not have any fiduciary
responsibilities to any Lender by reason of this Agreement and that the Agent
is merely acting as the representative of the Lenders with only those duties as
are expressly set forth in this Agreement and the other Loan Documents. In its
capacity as the Lenders' contractual representative, the Agent (i) does not
assume any fiduciary duties to any of the Lenders, (ii) is a "representative"
of the Lenders within the meaning of Section 9-105 of the Uniform Commercial
Code and (iii) is acting as an independent contractor, the rights and duties of
which are limited to those expressly set forth in this Agreement and the other
Loan Documents. Each of the Lenders agrees to assert no claim against the
Agent on any agency theory or any other theory of liability for breach of
fiduciary duty, all of which claims each Lender waives.
11.2 Powers. The Agent shall have and may exercise such powers under
the Loan Documents as are specifically delegated to the Agent by the terms of
each thereof, together with such powers as are reasonably incidental thereto.
The Agent shall have no implied duties or fiduciary duties to the Lenders, or
any obligation to the Lenders to take any action
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hereunder or under any of the other Loan Documents except any action
specifically provided by the Loan Documents required to be taken by the Agent.
11.3 General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Borrower, the Lenders or
any Lender for any action taken or omitted to be taken by it or them hereunder
or under any other Loan Document or in connection herewith or therewith except
to the extent such action or inaction is found in a final judgment by a court
of competent jurisdiction to have arisen solely from the Gross Negligence or
willful misconduct of such Person.
11.4 No Responsibility for Loans, Creditworthiness, Recitals, Etc.
Neither the Agent nor any of its directors, officers, agents or employees shall
be responsible for or have any duty to ascertain, inquire into, or verify (i)
any statement, warranty or representation made in connection with any Loan
Document or any borrowing hereunder; (ii) the performance or observance of any
of the covenants or agreements of any obligor under any Loan Document; (iii)
the satisfaction of any condition specified in Article V, except receipt of
items required to be delivered solely to the Agent; (iv) the existence or
possible existence of any Default or (v) the validity, effectiveness or
genuineness of any Loan Document or any other instrument or writing furnished
in connection therewith. The Agent shall not be responsible to any Lender for
any recitals, statements, representations or warranties herein or in any of the
other Loan Documents, or for the execution, effectiveness, genuineness,
validity, legality, enforceability, collectibility, or sufficiency of this
Agreement or any of the other Loan Documents or the transactions contemplated
thereby, or for the financial condition of any guarantor of any or all of the
Obligations, the Borrower or any of its Subsidiaries.
11.5 Action on Instructions of Lenders. The Agent shall in all cases
be fully protected in acting, or in refraining from acting, hereunder and under
any other Loan Document in accordance with written instructions signed by the
Required Lenders, and such instructions and any action taken or failure to act
pursuant thereto shall be binding on all of the Lenders and on all holders of
Notes. The Agent shall be fully justified in failing or refusing to take any
action hereunder and under any other Loan Document unless it shall first be
indemnified to its satisfaction by the Lenders pro rata against any and all
liability, cost and expense that it may incur by reason of taking or continuing
to take any such action.
11.6 Employment of Agents and Counsel. The Agent may execute any of
its duties as the Agent hereunder and under any other Loan Document by or
through employees, agents, and attorney-in-fact and shall not be answerable to
the Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning the contractual arrangement between the Agent and the
Lenders and all matters pertaining to the Agent's duties hereunder and under
any other Loan Document.
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11.7 Reliance on Documents; Counsel. The Agent shall be entitled to
rely upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
11.8 The Agent's Reimbursement and Indemnification. The Lenders agree
to reimburse and indemnify the Agent ratably in proportion to their respective
Revolving Loan Commitments (i) for any amounts not reimbursed by the Borrower
for which the Agent is entitled to reimbursement by the Borrower under the Loan
Documents, (ii) for any other expenses incurred by the Agent on behalf of the
Lenders, in connection with the preparation, execution, delivery,
administration and enforcement of the Loan Documents and (iii) for any
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind and nature whatsoever which
may be imposed on, incurred by or asserted against the Agent in any way
relating to or arising out of the Loan Documents or any other document
delivered in connection therewith or the transactions contemplated thereby, or
the enforcement of any of the terms thereof or of any such other documents,
provided that no Lender shall be liable for any of the foregoing to the extent
any of the foregoing is found in a final non-appealable judgment by a court of
competent jurisdiction to have arisen solely from the Gross Negligence or
willful misconduct of the Agent.
11.9 Rights as a Lender. With respect to its Revolving Loan
Commitment, its Term Loan Commitment, Loans made by it and the Notes issued to
it, the Agent shall have the same rights and powers hereunder and under any
other Loan Document as any Lender and may exercise the same as through it were
not the Agent, and the term "Lender" or "Lenders" shall, unless the context
otherwise indicates, include the Agent in its individual capacity. The Agent
may accept deposits from, lend money to, and generally engage in any kind of
trust, debt, equity or other transaction, in addition to those contemplated by
this Agreement or any other Loan Document, with the Borrower or any of its
Subsidiaries in which such Person is not prohibited hereby from engaging with
any other Person.
11.10 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on the financial statements prepared by the Borrower and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and the other Loan Documents. Each
Lender also acknowledges that it will, independently and without reliance upon
the Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under this Agreement and the other Loan
Documents.
11.11 Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Lenders and the Borrower. Upon any such
resignation, the Required Lenders shall have the right to appoint, on behalf of
the Borrower and the Lenders, a successor Agent. If no successor Agent shall
have been so appointed by the Required Lenders and shall have
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accepted such appointment within thirty days after the retiring Agent's giving
notice of resignation, then the retiring Agent may appoint, on behalf of the
Borrower and the Lenders, a successor Agent. Notwithstanding anything herein
to the contrary, so long as no Default has occurred and is continuing, each
such successor Agent shall be subject to approval by the Borrower, which
approval shall not be unreasonably withheld. Such successor Agent shall be a
commercial bank having capital and retained earnings of at least $500,000,000.
Upon the acceptance of any appointment as the Agent hereunder by a successor
Agent, such successor Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations hereunder
and under the other Loan Documents. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Article XI shall continue in effect
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as the Agent hereunder and under the other Loan Documents.
No resignation of any Agent shall be effective until another person qualified
hereunder has accepted its appointment to act as successor Agent hereunder.
ARTICLE XII: SETOFF; RATABLE PAYMENTS
12.1 Setoff. In addition to, and without limitation of, any rights of
the Lenders under applicable law, if any Default occurs and is continuing, any
indebtedness from any Lender to the Borrower (including all account balances,
whether provisional or final and whether or not collected or available) may be
offset and applied toward the payment of the Obligations owing to such Lender,
whether or not the Obligations, or any part hereof, shall then be due.
12.2 Ratable Payments. If any Lender, whether by setoff or otherwise,
has payment made to it upon its Loans (other than payments received pursuant to
Sections 4.1, 4.2 or 4.4) in a greater proportion than that received by any
other Lender, such Lender agrees, promptly upon demand, to purchase a portion
of the Loans held by the other Lenders so that after such purchase each Lender
will hold its ratable proportion of Loans. If any Lender, whether in
connection with setoff or amounts which might be subject to setoff or
otherwise, receives collateral or other protection for its Obligation or such
amounts which may be subject to setoff, such Lender agrees, promptly upon
demand, to take such action necessary such that all Lenders share in the
benefits of such collateral ratably in proportion to the obligations owing to
them. In case any such payment is disturbed by legal process, or otherwise,
appropriate further adjustments shall be made.
12.3 Application of Payments. Subject to the provisions of Section
9.2, the Agent shall, unless otherwise specified at the direction of the
Required Lenders which direction shall be consistent with the last sentence of
this Section 12.3, apply all payments and prepayments in respect of any
Obligations in the following order:
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(A) first, to pay interest on and then principal of any
portion of the Loans which the Agent may have advanced on behalf
of any Lender for which the Agent has not then been reimbursed by such
Lender or the Borrower;
(B) second, to pay interest on and then principal of any
advance made under Section 10.3 for which the Agent has not then
been paid by the Borrower or reimbursed by the Lenders;
(C) third, to pay Obligations in respect of any fees, expense
reimbursements or indemnities then due to the Agent;
(D) fourth, to pay Obligations in respect of any fees,
expenses, reimbursements or indemnities then due to the Lenders and
the issuer(s) of Letters of Credit;
(E) fifth, to pay interest due in respect of Swing Line Loans;
(F) sixth, to pay interest due in respect of Loans (other than
Swing Line Loans) and L/C Obligations;
(G) seventh, to the ratable payment or prepayment of principal
outstanding on Swing Line Loans;
(H) eighth, to the ratable payment or prepayment of principal
outstanding on Loans (other than Swing Line Loans), Reimbursement
Obligations and Hedging Obligations under Interest Rate Agreements
in such order as the Agent may determine in its sole discretion;
(I) ninth, to provide required cash collateral, if required
pursuant to Section 3.11 and
(J) tenth, to the ratable payment of all other Obligations.
Unless otherwise designated (which designation shall only be applicable prior
to the occurrence of a Default) by the Borrower, all principal payments in
respect of Loans (other than Swing Line Loans) shall be applied first, to repay
outstanding Floating Rate Loans, and then to repay outstanding Eurodollar Rate
Loans with those Eurodollar Rate Loans which have earlier expiring Interest
Periods being repaid prior to those which have later expiring Interest Periods.
The order of priority set forth in this Section 12.3 and the related provisions
of this Agreement are set forth solely to determine the rights and priorities
of the Agent, the Lenders, the Swing Line Bank and the issuer(s) of Letters of
Credit as among themselves. The order of priority set forth in clauses (D)
through (J) of this Section 12.3 may at any time and from time to time be
changed by the Required Lenders without necessity of notice to or consent of or
approval by the Borrower, or any other Person; provided, that the order of
priority of payments in respect of Swing Line Loans may be changed only with
the prior written consent
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of the Swing Line Bank. The order of priority set forth in clauses (A) through
(C) of this Section 12.3 may be changed only with the prior written consent of
the Agent.
12.4 Relations Among Lenders.
(A) Except with respect to the exercise of set-off rights of any
Lender in accordance with Section 12.1, the proceeds of which are applied
in accordance with this Agreement, and except as set forth in the following
sentence, each Lender agrees that it will not take any action, nor institute
any actions or proceedings, against the Borrower or any other obligor hereunder
or with respect to any Loan Document, without the prior written consent of the
Required Lenders or, as may be provided in this Agreement or the other Loan
Documents, at the direction of the Agent.
(B) The Lenders are not partners or co-venturers, and no Lender shall
be liable for the acts or omissions of, or (except as otherwise set forth
herein in case of the Agent) authorized to act for, any other Lender. The
Agent shall have the exclusive right on behalf of the Lenders to enforce on the
payment of the principal of and interest on any Loan after the date such
principal or interest has become due and payable pursuant to the terms of this
Agreement.
ARTICLE XIII: BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
13.1 Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and
the Lenders and their respective successors and assigns, except that (i) the
Borrower shall not have the right to assign its rights or obligations under the
Loan Documents and (ii) any assignment by any Lender must be made in compliance
with Section 13.3 hereof. Notwithstanding clause (ii) of this Section 13.1,
any Lender may at any time, without the consent of the Borrower or the Agent,
assign all or any portion of its rights under this Agreement and its Notes to a
Federal Reserve Bank; provided, however, that no such assignment shall release
the transferor Lender from its obligations hereunder. The Agent may treat the
payee of any Note as the owner thereof for all purposes hereof unless and until
such payee complies with Section 13.3 hereof in the case of an assignment
thereof or, in the case of any other transfer, a written notice of the transfer
is filed with the Agent. Any assignee or transferee of a Note agrees by
acceptance thereof to be bound by all the terms and provisions of the Loan
Documents. Any request, authority or consent of any Person, who at the time of
making such request or giving such authority or consent is the holder of any
Note, shall be conclusive and binding on any subsequent holder, transferee or
assignee of such Note or of any Note or Notes issued in exchange therefor.
13.2 Participations.
(A) Permitted Participants; Effect. Subject to the terms set forth
in this Section 13.2, any Lender may, in the ordinary course of its business
and in accordance with applicable law, at any time sell to one or more banks or
other entities ("PARTICIPANTS") participating interests
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in any Loan owing to such Lender, any Note held by such Lender, any Revolving
Loan Commitment of such Lender, any L/C Interest of such Lender or any other
interest of such Lender under the Loan Documents on a pro rata or non-pro rata
basis. Notice of such participation to the Borrower and the Agent shall be
required prior to any participation becoming effective with respect to a
Participant which is not a Lender or an Affiliate thereof. In the event of any
such sale by a Lender of participating interests to a Participant, such
Lender's obligations under the Loan Documents shall remain unchanged, such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, such Lender shall remain the holder of any
such Note for all purposes under the Loan Documents, all amounts payable by the
Borrower under this Agreement shall be determined as if such Lender had not
sold such participating interests, and the Borrower and the Agent shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under the Loan Documents except that, for
purposes of Article IV hereof, the Participants shall be entitled to the same
rights as if they were Lenders; provided, however, that such Participant shall
have complied with all requirements required to be complied with by any Lender
under such Article IV and provided further, however, that no Participant shall
be entitled to receive any greater amount pursuant to such Article IV than the
transferor Lender would have been entitled to receive in respect to the amount
of the participation transferred by such transferor Lender to such Participant
had no such transfer occurred.
(B) Voting Rights. Each Lender shall retain the sole right to
approve, without the consent of any Participant, any amendment, modification or
waiver of any provision of the Loan Documents other than any amendment,
modification or waiver with respect to any Loan or Revolving Loan Commitment in
which such Participant has an interest which forgives principal, interest or
fees or reduces the interest rate or fees payable pursuant to the terms of this
Agreement with respect to any such Loan or Revolving Loan Commitment, postpones
any date fixed for any regularly-scheduled payment of principal of, or interest
or fees on, any such Loan or Revolving Loan Commitment, or releases all or
substantially all of the Collateral, if any, securing any such Loan.
(C) Benefit of Setoff. The Borrower agrees that each Participant
shall be deemed to have the right of setoff provided in Section 12.1 hereof in
respect to its participating interest in amounts owing under the Loan Documents
to the same extent as if the amount of its participating interest were owing
directly to it as a Lender under the Loan Documents, provided that each Lender
shall retain the right of setoff provided in Section 12.1 hereof with respect
to the amount of participating interests sold to each Participant except to the
extent such Participant exercises its right of setoff. The Lenders agree to
share with each Participant, and each Participant, by exercising the right of
setoff provided in Section 12.1 hereof, agrees to share with each Lender, any
amount received pursuant to the exercise of its right of setoff, such amounts
to be shared in accordance with Section 12.2 as if each Participant were a
Lender.
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13.3 Assignments.
(A) Permitted Assignments. Any Lender may, in the ordinary course of
its business and in accordance with applicable law, at any time assign to one
or more banks or other entities ("PURCHASERS") all or a portion of its rights
and obligations under this Agreement (including, without limitation, its
Revolving Loan Commitment, all Loans owing to it, all of its participation
interests in existing Letters of Credit, and its obligation to participate in
additional Letters of Credit hereunder) in accordance with the provisions of
this Section 13.3. Each assignment shall be of a constant, and not a varying,
ratable percentage of all of the assigning Lender's rights and obligations
under this Agreement. Such assignment shall be substantially in the form of
Exhibit E hereto and shall not be permitted hereunder unless such assignment is
either for all of such Lender's rights and obligations under the Loan Documents
or, without the prior written consent of the Agent, involves loans and
commitments in an aggregate amount of at least $5,000,000 (which minimum amount
may be waived by the Required Lenders after the occurrence of a Default or
Unmatured Event of Default). The consent of the Agent and, prior to the
occurrence of a Default or Unmatured Default, the Borrower (which consent, in
each such case, shall not be unreasonably withheld), shall be required prior to
an assignment becoming effective with respect to a Purchaser which is not a
Lender or an Affiliate thereof.
(B) Effect; Effective Date. Upon (i) delivery to the Agent of a
notice of assignment, substantially in the form attached as Appendix I to
Exhibit E hereto (a "NOTICE OF ASSIGNMENT"), together with any consent required
by Section 13.3.(A) hereof, and (ii) payment of a $3,500 fee to the Agent for
processing such assignment, such assignment shall become effective on the
effective date specified in such Notice of Assignment. The Notice of
Assignment shall contain a representation by the Purchaser to the effect that
none of the consideration used to make the purchase of the Commitment, Loans
and L/C Obligations under the applicable assignment agreement are "plan assets"
as defined under ERISA and that the rights and interests of the Purchaser in
and under the Loan Documents will not be "plan assets" under ERISA. On and
after the effective date of such assignment, such Purchaser, if not already a
Lender, shall for all purposes be a Lender party to this Agreement and any
other Loan Documents executed by the Lenders and shall have all the rights and
obligations of a Lender under the Loan Documents, to the same extent as if it
were an original party hereto, and no further consent or action by the
Borrower, the Lenders or the Agent shall be required to release the transferor
Lender with respect to the percentage of the Aggregate Revolving Loan
Commitment, Loans and Letter of Credit participations assigned to such
Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to
this Section 13.3(B), the transferor Lender, the Agent and the Borrower shall
make appropriate arrangements so that replacement Notes are issued to such
transferor Lender, the Notes being replaced are canceled and the originals
thereof delivered to the Borrower and new Notes or, as appropriate, replacement
Notes, are issued to such Purchaser, in each case in principal amounts
reflecting their Revolving Loan Commitment and their Term Loans, as adjusted
pursuant to such assignment.
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(C) The Register. The Agent shall maintain at its address referred
to in Section 14.1 a copy of each assignment delivered to and accepted by it
pursuant to this Section 13.3 and a register (the "REGISTER") for the
recordation of the names and addresses of the Lenders and the Revolving Loan
Commitment of and principal amount of the Loans owing to, each Lender from time
to time and whether such Lender is an original Lender or the assignee of
another Lender pursuant to an assignment under this Section 13.3. The entries
in the Register shall be conclusive and binding for all purposes, absent
manifest error, and the Borrower and each of its Subsidiaries, the Agent and
the Lenders may treat each Person whose name is recorded in the Register as a
Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower or any Lender at any reasonable time
and from time to time upon reasonable prior notice.
13.4 Confidentiality. Subject to Section 13.5, the Agent and the
Lenders shall hold all nonpublic information obtained pursuant to the
requirements of this Agreement and identified as such by the Borrower in
confidence and in accordance with such Person's customary procedures for
handling confidential information of this nature and in accordance with safe
and sound banking practices and in any event may make disclosure reasonably
required by a prospective Transferee in connection with the contemplated
participation or assignment or as required or requested by any Governmental
Authority or representative thereof or pursuant to legal process and shall
require any such Transferee to agree (and require any of its Transferees to
agree) to comply with this Section 13.4. In no event shall the Agent or any
Lender be obligated or required to return any materials furnished by the
Borrower; provided, however, each prospective Transferee shall be required to
agree that if it does not become a participant or assignee it shall return all
materials furnished to it by or on behalf of the Borrower in connection with
this Agreement.
13.5 Dissemination of Information. The Borrower authorizes each
Lender to disclose to any Participant or Purchaser or any other Person
acquiring an interest in the Loan Documents by operation of law (each a
"TRANSFEREE") and any prospective Transferee any and all information in such
Lender's possession concerning the Borrower and its Subsidiaries; provided that
prior to any such disclosure, such prospective Transferee shall agree to
preserve in accordance with Section 13.4 the confidentiality of any
confidential information described therein.
ARTICLE XIV: NOTICES
14.1 Giving Notice. Except as otherwise permitted by Section 2.14
with respect to borrowing notices, all notices and other communications
provided to any party hereto under this Agreement or any other Loan Documents
shall be in writing or by telex or by facsimile and addressed or delivered to
such party at its address set forth below its signature hereto or at such other
address as may be designated by such party in a notice to the other parties.
Any notice, if mailed and properly addressed with postage prepaid, shall be
deemed given when
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received; any notice, if transmitted by telex or facsimile, shall be deemed
given when transmitted (answerback confirmed in the case of telexes).
14.2 Change of Address. The Borrower, the Agent and any Lender may
each change the address for service of notice upon it by a notice in writing
to the other parties hereto.
ARTICLE XV: COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one agreement, and any of the parties
hereto may execute this Agreement by signing any such counterpart. This
Agreement shall be effective when it has been executed and delivered by the
Borrower, the Agent and the Lenders.
[Remainder of This Page Intentionally Blank]
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IN WITNESS WHEREOF, the Borrower, Holdings, the Lenders, Michigan
National Bank and the Agent have executed this Agreement as of the date first
above written.
FLORISTS' TRANSWORLD DELIVERY,
INC., as the Borrower
By: ___________________________
Francis C. Piccirillo
Chief Financial Officer
Address:
3113 Woodcreek Drive
Downers Grove, IL 60515
Attention: Francis C. Piccirillo
Telephone No.: 630-719-6986
Facsimile No.: 630-719-6183
FTD CORPORATION
By:____________________________
Francis C. Piccirillo
Treasurer
Address:
3113 Woodcreek Drive
Downers Grove, IL 60515
Attention: Francis C. Piccirillo
Telephone No.: 630-719-6986
Facsimile No.: 630-719-6183
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THE FIRST NATIONAL BANK OF
CHICAGO, as Agent, a Lender and
an Issuing Bank
By: ___________________________
Frank L. Grossman
Authorized Agent
Address:
One First National Plaza
Suite 0353
Agency Division
Syndications and Placements Department
Chicago, Illinois 60670
Facsimile No.: 312-732-2038
and
NBD Bank
611 Woodward Avenue
Detroit, Michigan 48226
Attention: Teresa Kalil
Facsimile No.: 313-225-2290
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<PAGE> 104
MICHIGAN NATIONAL BANK,
as an Issuing Bank
By: ___________________________
Name:
Title:
Address:
___________________________
___________________________
___________________________
Attention: ________________
Telephone No.: ____________
Facsimile No.: ____________
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EXHIBIT 10.2
EXECUTION COPY
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (the "Pledge Agreement"), dated as of
November 20, 1997, is executed by and between Florists' Transworld Delivery,
Inc., a Michigan corporation (the "Pledgor"), and The First National Bank of
Chicago, as contractual representative (the "Agent") for itself and for the
"Holders of Secured Obligations" under the Credit Agreement defined below.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings ascribed to such terms in the "Credit Agreement" (as
defined below).
WITNESSETH:
WHEREAS, the Pledgor, FTD Corporation, a Delaware corporation,
the Agent and certain financial institutions (the "Lenders") have entered into
a certain Credit Agreement of even date herewith (as amended, restated,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
pursuant to which the Lenders have agreed, subject to certain conditions
precedent, to make loans and other financial accommodations to the Pledgor from
time to time;
WHEREAS, the Pledgor owns all of the issued and outstanding
capital stock of FTD Holdings, Incorporated and Florists' Transworld
Association of Canada, Limited; and
WHEREAS, the Agent and the Lenders have required, as a
condition to their entering into the Credit Agreement, that the Pledgor execute
and deliver this Pledge Agreement;
NOW, THEREFORE, for and in consideration of the foregoing and
of any financial accommodations or extensions of credit (including, without
limitation, any loan or advance by renewal, refinancing or extension of the
agreements described hereinabove or otherwise) heretofore, now or hereafter
made to or for the benefit of the Pledgor pursuant to the Credit Agreement or
any other agreement, instrument or document executed pursuant to or in
connection therewith, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Pledgor and the
Agent hereby agree as follows:
1. Pledge. The Pledgor hereby pledges to the Agent, for
the benefit of the Agent and the Holders of Secured Obligations, and grants to
the Agent for the benefit of the Agent and the Holders of Secured Obligations,
a security interest in, the following (collectively, the "Pledged Collateral"):
(a) One hundred percent of the shares of the capital stock of FTD
Holdings, Incorporated and sixty-five percent (65%) of the shares of the
capital stock of Florists'
<PAGE> 2
Transworld Association of Canada, Limited, now or at any time or times
hereafter owned by the Pledgor, and the certificates representing the
shares of such capital stock (such now-owned shares being identified
on Exhibit A attached hereto and made a part hereof), all options and
warrants for the purchase of shares of the stock of FTD Holdings,
Incorporated and such rights for up to 65% of the capital stock of
Florists' Transworld Association of Canada, Limited, now or hereafter
held in the name of the Pledgor (all of said capital stock, options
and warrants and all capital stock held in the name of the Pledgor as
a result of the exercise of such options or warrants being hereinafter
collectively referred to as the "Pledged Stock"), herewith delivered
to the Agent accompanied by stock powers in the form of Exhibit B
attached hereto and made a part hereof (the "Powers") duly executed in
blank, and all dividends, cash, instruments and other property from
time to time received, receivable or otherwise distributed in respect
of, or in exchange for, any or all of the Pledged Stock;
(b) All additional shares of stock of FTD Holdings,
Incorporated and 65% of all additional shares of stock of Florists'
Transworld Association of Canada, Limited, from time to time acquired
by the Pledgor in any manner, and the certificates representing such
additional shares (any such additional shares shall constitute part of
the Pledged Stock and the Agent is irrevocably authorized to amend
Exhibit A from time to time to reflect such additional shares), and
all options, warrants, dividends, cash, instruments and other rights
and options from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such
shares;
(c) The property and interests in property described in
Section 3 below; and
(d) All proceeds of the foregoing.
2. Security for Liabilities. The Pledged Collateral secures the
prompt payment, performance and observance of (i) the Pledgor's obligations and
liabilities under the Credit Agreement and the Loan Documents and (ii) the
Pledgor's obligations and liabilities under this Pledge Agreement and each
agreement, document or instrument executed pursuant to or in connection with
this Pledge Agreement (all such obligations and liabilities of the Pledgor now
or hereafter existing being hereinafter referred to as the "Liabilities").
3. Pledged Collateral Adjustments. If, during the term of this
Pledge Agreement:
(a) Any stock dividend, reclassification, readjustment or
other change is declared or made in the capital structure of FTD
Holdings, Incorporated and Florists' Transworld Association of Canada,
Limited, or any option included within the Pledged Collateral is
exercised, or both, or
(b) Any subscription warrants or any other rights or options
shall be issued in connection with the Pledged Collateral,
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<PAGE> 3
then all new, substituted and additional shares, warrants, rights,
options or other securities, issued by reason of any of the foregoing
(or in the case of Florists' Transworld Association of Canada,
Limited, 65% of such new, substituted and additional share or other
securities, warrants, rights and options for up to 65% of the capital
stock of Florists' Transworld Association of Canada, Limited), shall
be immediately delivered to and held by the Agent under the terms of
this Pledge Agreement and shall constitute Pledged Collateral
hereunder; provided, however, that nothing contained in this Section 3
shall be deemed to permit any stock dividend, issuance of additional
stock, warrants, rights or options, reclassification, readjustment or
other change in the capital structure of FTD Holdings, Incorporated
and Florists' Transworld Association of Canada, Limited, which is
prohibited by the Credit Agreement.
4. Subsequent Changes Affecting Pledged Collateral. The Pledgor
represents and warrants that it has made its own arrangements for keeping
itself informed of changes or potential changes affecting the Pledged
Collateral (including, but not limited to, rights to convert, rights to
subscribe, payment of dividends, reorganization or other exchanges, tender
offers and voting rights), and the Pledgor agrees that neither the Agent nor
any of the Holders of Secured Obligations shall have any obligation to inform
the Pledgor of any such changes or potential changes or to take any action or
omit to take any action with respect thereto. The Agent may, after the
occurrence of a Default, without notice and at its option, transfer or register
the Pledged Collateral or any part thereof into its or its nominee's name with
or without any indication that such Pledged Collateral is subject to the
security interest hereunder. In addition, the Agent may at any time exchange
certificates or instruments representing or evidencing Pledged Shares for
certificates or instruments of smaller or larger denominations.
5. Representations and Warranties. The Pledgor represents and
warrants as follows:
(a) The Pledgor is the sole legal and beneficial owner of
100% of the issued and outstanding common stock of FTD Holdings,
Incorporated and Florists' Transworld Association of Canada, Limited,
free and clear of any Lien;
(b) The Pledgor has full corporate power and authority to
enter into this Pledge Agreement;
(c) There are no restrictions upon the voting rights
associated with, or upon the transfer of, any of the Pledged
Collateral;
(d) The Pledgor has the right to vote, pledge and grant a
security interest in or otherwise transfer such Pledged Collateral
free of any Liens;
(e) No authorization, approval, or other action by, and no
notice to or filing with, any governmental authority or regulatory
body which has not been obtained or taken is required either (i) for
the pledge of the Pledged Collateral pursuant to this Pledge Agreement
or for the execution, delivery or performance of this Pledge Agreement
by the
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<PAGE> 4
Pledgor or (ii) for the exercise by the Agent of the voting or other
rights provided for in this Pledge Agreement or the remedies in
respect of the Pledged Collateral pursuant to this Pledge Agreement
(except as may be required in connection with such disposition by laws
affecting the offering and sale of securities generally);
(f) The pledge of the Pledged Collateral pursuant to this
Pledge Agreement creates a valid and perfected first priority security
interest in the Pledged Collateral, in favor of the Agent for the
benefit of the Agent and the Holders of Secured Obligations, securing
the payment and performance of the Liabilities; and
(g) The Powers are duly executed and give the Agent the
authority they purport to confer.
6. Voting Rights. During the term of this Pledge Agreement,
and except as provided in this Section 6 below, the Pledgor shall have the
right to vote the Pledged Stock on all corporate questions in a manner not
inconsistent with the terms of this Pledge Agreement, the Credit Agreement and
any other Loan Document. After the occurrence and during the continuance of a
Default, the Agent or the Agent's nominee may, at the Agent's or such nominee's
option and following written notice from the Agent to the Pledgor, exercise all
voting powers pertaining to the Pledged Collateral, including the right to take
action by shareholder consent. Such authorization shall constitute an
irrevocable voting proxy from the Pledgor to the Agent or, at the Agent's
option, to the Agent's nominee.
7. Dividends and Other Distributions. (a) So long as no
Default has occurred and is continuing under the Credit Agreement:
(i) The Pledgor shall be entitled to receive and retain any and
all dividends and interest paid in respect of the Pledged Collateral,
provided, however, that any and all
(A) dividends and interest paid or payable other than in cash
with respect to, and instruments and other property received,
receivable or otherwise distributed with respect to, or in exchange
for, any of the Pledged Collateral;
(B) dividends and other distributions paid or payable in cash
with respect to any of the Pledged Collateral on account of a partial
or total liquidation or dissolution or in connection with a reduction
of capital, capital surplus or paid-in surplus; and
(C) cash paid, payable or otherwise distributed with respect
to principal of, or in redemption of, or in exchange for, any of the
Pledged Collateral;
shall be Pledged Collateral, and shall be forthwith delivered to the
Agent to hold, for the benefit of the Agent and the Holders of
Secured Obligations, as Pledged Collateral and
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shall, if received by the Pledgor, be received in trust for the Agent,
for the benefit of the Agent and the Holders of Secured Obligations,
be segregated from the other property or funds of the Pledgor, and be
delivered immediately to the Agent as Pledged Collateral in the same
form as so received (with any necessary endorsement); and
(ii) The Agent shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose of
enabling the Pledgor to receive the dividends or interest payments
which it is authorized to receive and retain pursuant to clause (i)
above.
(b) After the occurrence and during the continuance of a Default:
(i) All rights of the Pledgor to receive the dividends and
interest payments which it would otherwise be authorized to receive
and retain pursuant to Section 7(a)(i) hereof shall thereupon become
vested in the Agent, for the benefit of the Agent and the Holders of
Secured Obligations, which shall thereupon have the sole right to
receive and hold as Pledged Collateral such dividends and interest
payments;
(ii) All dividends and interest payments which are received
by the Pledgor contrary to the provisions of clause (i) of this
Section 7(b) shall be received in trust for the Agent, for the
benefit of the Agent and the Holders of Secured Obligations, shall be
segregated from other funds of the Pledgor and shall be paid over
immediately to the Agent as Pledged Collateral in the same form as so
received (with any necessary endorsements).
8. Transfers and Other Liens. The Pledgor agrees that it
will not (i) sell or otherwise dispose of, or grant any option with respect to,
any of the Pledged Collateral without the prior written consent of the Agent,
or (ii) create or permit to exist any Lien upon or with respect to any of the
Pledged Collateral, except for the security interest under this Pledge
Agreement and Liens permitted by the Credit Agreement.
9. Remedies. (a) The Agent shall have, in addition to any
other rights given under this Pledge Agreement or by law, all of the rights and
remedies with respect to the Pledged Collateral of a secured party under the
Uniform Commercial Code as in effect in the State of Illinois. After the
occurrence and during the continuance of a Default and following written notice
to the Pledgor, the Agent (personally or through an agent) is hereby authorized
and empowered to transfer and register in its name or in the name of its
nominee the whole or any part of the Pledged Collateral, to exercise all voting
rights with respect thereto and to otherwise act with respect to the Pledged
Collateral as though the Agent were the outright owner thereof, the Pledgor
hereby irrevocably constituting and appointing the Agent as the proxy and
attorney-in-fact of the Pledgor, with full power of substitution to do so, such
proxy becoming effective upon the occurrence and during the continuance of a
Default and following written notice thereof; provided, however, that the Agent
shall have no duty to exercise any such right or to preserve the same and shall
not be liable for any failure to do so or for any delay in doing so.
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In addition, after the occurrence and during the continuance of a Default, the
Agent shall have such powers of sale and other powers as may be conferred by
applicable law. With respect to the Pledged Collateral or any part thereof
which shall then be in or shall thereafter come into the possession or custody
of the Agent or which the Agent shall otherwise have the ability to transfer
under applicable law, the Agent may, in its sole discretion, without notice
except as specified below, after the occurrence and during the continuance of a
Default, sell or cause the same to be sold, in compliance with applicable law,
at any exchange, broker's board or at public or private sale, in one or more
sales or lots, at such price as the Agent reasonably deems best, for cash or on
credit or for future delivery, without assumption of any credit risk, and the
purchaser of any or all of the Pledged Collateral so sold shall thereafter own
the same, absolutely free from any claim, encumbrance or right of any kind
whatsoever. The Agent and each of the Holders of Secured Obligations may, in
its own name, or in the name of a designee or nominee, buy the Pledged
Collateral at any public sale and, if permitted by applicable law, buy the
Pledged Collateral at any private sale. The Pledgor will pay to the Agent all
reasonable expenses (including, without limitation, court costs and reasonable
attorneys' and paralegals' fees and expenses) of, or incidental to, the
enforcement of any of the provisions hereof. The Agent agrees to distribute
any proceeds of the sale of the Pledged Collateral in accordance with the
Credit Agreement and the Pledgor shall remain liable for any deficiency
following the sale of the Pledged Collateral.
(b) Unless any of the Pledged Collateral threatens to decline
speedily in value or is or becomes of a type sold on a recognized market, the
Agent will give the Pledgor reasonable notice of the time and place of any
public sale thereof, or of the time after which any private sale or other
intended disposition is to be made. Any sale of the Pledged Collateral
conducted in conformity with reasonable commercial practices of banks,
commercial finance companies, insurance companies or other financial
institutions disposing of property similar to the Pledged Collateral shall be
deemed to be commercially reasonable. Notwithstanding any provision to the
contrary contained herein, the Pledgor agrees that any requirements of
reasonable notice shall be met if such notice is received by the Pledgor as
provided in Section 25 below at least ten (10) Business Days before the time of
the sale or disposition; provided, however, that Agent may give any shorter
notice that is commercially reasonable under the circumstances. Any other
requirement of notice, demand or advertisement for sale is waived, to the
extent permitted by law.
(c) In view of the fact that federal and state securities
laws may impose certain restrictions on the method by which a sale of the
Pledged Collateral may be effected after a Default, the Pledgor agrees that
after the occurrence and during the continuance of a Default, the Agent may,
from time to time, attempt to sell all or any part of the Pledged Collateral by
means of a private placement restricting the bidders and prospective purchasers
to those who are qualified and will represent and agree that they are
purchasing for investment only and not for distribution. In so doing, the
Agent may solicit offers to buy the Pledged Collateral, or any part of it, from
a limited number of investors deemed by the Agent, in its reasonable judgment,
to be financially responsible parties who might be interested in purchasing the
Pledged Collateral.
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10. Security Interest Absolute. All rights of the Agent and
security interests hereunder, and all obligations of the Pledgor hereunder,
shall be absolute and unconditional irrespective of:
(i) Any lack of validity or enforceability of the Credit
Agreement or any other agreement or instrument relating thereto;
(ii) Any change in the time, manner or place of payment of,
or in any other term of, all or any part of the Liabilities, or any
other amendment or waiver of or any consent to any departure from the
Credit Agreement;
(iii) Any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to
departure from any guaranty, for all or any part of the Liabilities;
or
(iv) any other circumstance which might otherwise constitute
a defense available to, or a discharge of, the Pledgor in respect of
the Liabilities or of this Pledge Agreement.
11. Agent Appointed Attorney-in-Fact. The Pledgor hereby
appoints the Agent its attorney-in-fact, with full authority, in the name of
the Pledgor or otherwise, after the occurrence and during the continuance of a
Default, from time to time in the Agent's sole discretion, to take any action
and to execute any instrument which the Agent reasonably deems necessary or
advisable to accomplish the purposes of this Pledge Agreement, including,
without limitation, to receive, endorse and collect all instruments made
payable to the Pledgor when such Default shall be a Default representing any
dividend, interest payment or other distribution in respect of the Pledged
Collateral or any part thereof and to give full discharge for the same and to
arrange for the transfer of all or any part of the Pledged Collateral on the
books of the Borrower to the name of the Agent or the Agent's nominee.
12. Waivers. (i) The Pledgor waives presentment and demand
for payment of any of the Liabilities, protest and notice of dishonor or
Default with respect to any of the Liabilities and all other notices to which
the Pledgor might otherwise be entitled except as otherwise expressly provided
herein or in the other Loan Documents.
(ii) The Pledgor understands and agrees that its obligations
and liabilities under this Pledge Agreement shall remain in full force and
effect, notwithstanding foreclosure of any real property securing all or any
part of the Secured Obligations by trustee sale or any other reason impairing
the right of the Pledgor, the Agent or any of the Holders of Secured
Obligations to proceed against the Pledgor, any other guarantor or the
Pledgor's or such guarantor's property. The Pledgor agrees that all of its
obligations under this Pledge Agreement shall remain in full force and effect
without defense, offset or counterclaim of any kind, notwithstanding that the
Pledgor's rights against the Pledgor may be impaired, destroyed or otherwise
affected by reason of any action or inaction on the part of the Agent or any
Holder of Secured Obligations.
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13. Term. This Pledge Agreement shall remain in full force
and effect until the Liabilities (other than Liabilities consisting of
contingent obligations) have been fully and indefeasibly paid and the Credit
Agreement has terminated pursuant to its terms. Upon the termination of this
Pledge Agreement as provided above (other than as a result of the sale of the
Pledged Collateral), the Agent will release the security interest created
hereunder and, if it then has possession of the Pledged Stock, will deliver the
Pledged Stock and the Powers to the Pledgor and take such other actions as
reasonably requested by the Pledgor in connection with the release of such
security interest.
14. Definitions. The singular shall include the plural and
vice versa and any gender shall include any other gender as the context may
require.
15. Successors and Assigns. This Pledge Agreement shall be
binding upon and inure to the benefit of the Pledgor, the Agent, for the
benefit of itself and the Holders of Secured Obligations, and their respective
successors and assigns. The Pledgor's successors and assigns shall include,
without limitation, a receiver, trustee or debtor-in-possession of or for the
Pledgor.
16. GOVERNING LAW. THIS PLEDGE AGREEMENT HAS BEEN EXECUTED
AND DELIVERED BY THE PARTIES HERETO IN CHICAGO, ILLINOIS. ANY DISPUTE BETWEEN
THE AGENT AND THE PLEDGOR ARISING OUT OF OR RELATED TO THE RELATIONSHIP
ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS PLEDGE AGREEMENT OR ANY OTHER
LOAN DOCUMENT TO WHICH THE PLEDGOR IS A PARTY, AND WHETHER ARISING IN CONTRACT,
TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL
LAWS, AND NOT THE CONFLICTS OF LAW PROVISIONS, OF THE STATE OF ILLINOIS.
17. Consent to Jurisdiction; Counterclaims; Forum Non
Conveniens. (a) Exclusive Jurisdiction. Except as provided in subsection (b)
of this Section 17, the Agent, on behalf of itself and the Holders of Secured
Obligations, and the Pledgor agree that all disputes between them arising out
of or related to the relationship established between them in connection with
this Pledge Agreement or any other Loan Document to which the Pledgor is a
party, whether arising in contract, tort, equity, or otherwise, shall be
resolved only by state or federal courts located in Chicago, Illinois, but the
parties acknowledge that any appeals from those courts may have to be heard by
a court located outside of Chicago, Illinois.
(b) Other Jurisdictions. The Agent shall have the right to
proceed against the Pledgor or its real or personal property in a court in any
location to enable the Agent to obtain personal jurisdiction over the Pledgor,
to realize on the Pledged Collateral or any other security for the Liabilities
or to enforce a judgment or other court order entered in favor of the Agent.
The Pledgor shall not assert any permissive counterclaims in any proceeding
brought by the Agent arising out of or relating to this Pledge Agreement.
(c) Venue; Forum Non Conveniens. Each of the Pledgor and the
Agent waives any objection that it may have (including, without limitation, any
objection to the laying of venue or based on forum non conveniens) to the
location of the court in which any proceeding is commenced in accordance with
this Section 17.
-8-
<PAGE> 9
18. Service of Process. The Pledgor waives personal service
of any process upon it and, consents to service by United States Mail in
connection with any dispute between the Pledgor and the Agent arising out of or
related to the relationship established between them in connection with this
Pledge Agreement or any other Loan Document to which the Pledgor is a party.
19. WAIVER OF JURY TRIAL. EACH OF THE PLEDGOR AND THE AGENT
WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY DISPUTE, WHETHER SOUNDING IN CONTRACT,
TORT, OR OTHERWISE, BETWEEN THE AGENT AND THE PLEDGOR ARISING OUT OF OR RELATED
TO THE TRANSACTIONS CONTEMPLATED BY THIS PLEDGE AGREEMENT, ANY LOAN DOCUMENT TO
WHICH THE PLEDGOR IS A PARTY OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION THEREWITH. EITHER THE PLEDGOR OR THE AGENT
MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS PLEDGE AGREEMENT WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.
20. Waiver of Bond. The Pledgor waives the posting of any
bond otherwise required of the Agent in connection with any judicial process or
proceeding to realize on the Collateral or any other security for the
Liabilities.
21. Advice of Counsel. The Pledgor represents and warrants
to the Agent and the Holders of Secured Obligations that it has consulted with
its legal counsel regarding all waivers under this Pledge Agreement, including
without limitation those under Section 12 and Sections 16 through 20 hereof,
that it believes that it fully understands all rights that it is waiving and
the effect of such waivers, that it assumes the risk of any misunderstanding
that it may have regarding any of the foregoing, and that it intends that such
waivers shall be a material inducement to the Agent and the Holders of Secured
Obligations to extend the indebtedness secured hereby.
22. Severability. Whenever possible, each provision of this
Pledge Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but, if any provision of this Pledge Agreement
shall be held to be prohibited or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining
provisions of this Pledge Agreement.
23. Further Assurances. The Pledgor agrees that it will
cooperate with the Agent and will execute and deliver, or cause to be executed
and delivered, all such other stock powers, proxies, instruments and documents,
and will take all such other actions, including, without limitation, the
execution and filing of financing statements, as the Agent may reasonably
request from time to time in order to carry out the provisions and purposes of
this Pledge Agreement.
24. The Agent's Duty of Care. The Agent shall not be liable
for any acts, omissions, errors of judgment or mistakes of fact or law
including, without limitation, acts, omissions, errors or mistakes with respect
to the Pledged Collateral, except for those arising out
-9-
<PAGE> 10
of or in connection with the Agent's (i) gross negligence or willful
misconduct, or (ii) failure to use reasonable care with respect to the safe
custody of the Pledged Collateral in the Agent's possession. Without limiting
the generality of the foregoing, the Agent shall be under no obligation to take
any steps necessary to preserve rights in the Pledged Collateral against any
other parties but may do so at its option. All reasonable expenses incurred in
connection therewith shall be for the sole account of the Pledgor, and shall
constitute part of the Liabilities secured hereby.
25. Notices. All notices and other communications required
or desired to be served, given or delivered hereunder shall be made in writing
or by a telecommunications device capable of creating a written record and
shall be addressed to the party to be notified as follows:
if to the Pledgor, at
Florists' Transworld Delivery, Inc.
3113 Woodcreek Drive
Downers Grove, IL 60515-5420
Attention: General Counsel
Telecopy No.: (630) 719-6183
if to the Agent, at
The First National Bank of Chicago
One First National Plaza
Suite 0353
Chicago, Illinois 60670
Attention: Agency Division, Syndications, Placement Department
Telecopy No.: (312) 732-7655
with a copy to,
Teresa Kalil
NBD Bank
611 Woodward Avenue
Detroit, MI 48226
Telecopy No.: (313) 225-2290
or, as to each party, at such other address as designated by such party in a
written notice to the other party. All such notices and communications shall
be deemed to be validly served, given or delivered (i) three (3) days following
deposit in the United States mails, with proper postage prepaid; (ii) upon
delivery thereof if delivered by hand to the party to be notified; (iii) upon
delivery thereof to a reputable overnight courier service, with delivery
charges prepaid; or (iv) upon transmission thereof with confirmation of
successful transmission from the sending telecommunications device, if sent by
telecommunications device.
-10-
<PAGE> 11
26. Amendments, Waivers and Consents. No amendment or waiver
of any provision of this Pledge Agreement nor consent to any departure by the
Pledgor herefrom, shall in any event be effective unless the same shall be in
writing and signed by the Agent pursuant to the terms of the Credit Agreement,
and then such amendment, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
27. Section Headings. The section headings herein are for
convenience of reference only, and shall not affect in any way the
interpretation of any of the provisions hereof.
28. Execution in Counterparts. This Pledge Agreement may be
executed in any number of counterparts, each of which shall be an original, but
all of which shall together constitute one and the same agreement.
29. Merger. This Pledge Agreement represents the final
agreement of the Pledgor with respect to the matters contained herein and may
not be contradicted by evidence of prior or contemporaneous agreements, or
subsequent oral agreements, between the Pledgor and the Agent or any Holder of
Secured Obligations.
30. No Strict Construction. The parties hereto have
participated jointly in the negotiation and drafting of this Pledge Agreement.
In the event an ambiguity or question of intent or interpretation arises, this
Pledge Agreement shall be construed as if drafted jointly by the parties hereto
and no presumption or burden of proof shall arise favoring or disfavoring any
party by virtue of the authorship of any provisions of this Pledge Agreement.
-11-
<PAGE> 12
IN WITNESS WHEREOF, the Pledgor and the Agent have executed
this Pledge Agreement as of the date set forth above.
FLORISTS' TRANSWORLD DELIVERY, INC.
By:_________________________
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
By:_________________________
Name:
Title:
-12-
<PAGE> 13
ACKNOWLEDGMENT
The undersigned hereby acknowledges receipt of a copy of the
foregoing Pledge Agreement, agrees promptly to note on its books the security
interests granted under such Pledge Agreement, and waives any rights or
requirement at any time hereafter to receive a copy of such Pledge Agreement in
connection with the registration of any Pledged Collateral in the name of the
Agent or its nominee or the exercise of voting rights by the Agent or its
nominee.
FTD HOLDINGS, INCORPORATED
By:________________________
Name:
Title:
<PAGE> 14
ACKNOWLEDGMENT
The undersigned hereby acknowledges receipt of a copy of the
foregoing Pledge Agreement, agrees promptly to note on its books the security
interests granted under such Pledge Agreement, and waives any rights or
requirement at any time hereafter to receive a copy of such Pledge Agreement in
connection with the registration of any Pledged Collateral in the name of the
Agent or its nominee or the exercise of voting rights by the Agent or its
nominee.
FLORISTS' TRANSWORLD ASSOCIATION OF
CANADA, LIMITED
By:________________________
Name:
Title:
<PAGE> 15
EXHIBIT A
to
PLEDGE AGREEMENT
dated as of November 20, 1997
Pledged Stock Certificates
<TABLE>
<CAPTION>
Percentage of Shares of Common
Issued and Outstanding Stock owned by
Common Stock owned the Pledgor Subject
Name by the Pledgor to Pledge
<S> <C> <C>
FTD Holdings, Incorporated 100% 3,000
Florists' Transworld 65% 15
Association of
Canada, Limited
</TABLE>
<PAGE> 16
EXHIBIT B
to
PLEDGE AGREEMENT
dated as of November 20, 1997
Form of Stock Power
STOCK POWER
FOR VALUE RECEIVED, the undersigned does hereby sell, assign
and transfer to _____________________________ _____ Shares of Common Stock of
[__________________], a ______ corporation represented by Certificate No. __
(the "Stock"), standing in the name of the undersigned on the books of said
corporation and does hereby irrevocably constitute and appoint
____________________________ as the undersigned's true and lawful attorney, for
it and in its name and stead, to sell, assign and transfer all or any of the
Stock, and for that purpose to make and execute all necessary acts of
assignment and transfer thereof; and to substitute one or more persons with
like full power, hereby ratifying and confirming all that said attorney or
substitute or substitutes shall lawfully do by virtue hereof.
Dated: _______________
FLORISTS' TRANSWORLD DELIVERY, INC.
By:_________________________
Name:
Title:
<PAGE> 17
STOCK POWER
FOR VALUE RECEIVED, the undersigned does hereby sell, assign
and transfer to _____________________________ 15 Shares of Common Stock of
Florists' Transworld Association of Canada, Limited, a ________ corporation
represented by Certificate No. 1 (the "Stock"), standing in the name of the
undersigned on the books of said corporation and does hereby irrevocably
constitute and appoint __________________________ as the undersigned's true and
lawful attorney, for it and in its name and stead, to sell, assign and transfer
all or any of the Stock, and for that purpose to make and execute all necessary
acts of assignment and transfer thereof; and to substitute one or more persons
with like full power, hereby ratifying and confirming all that said attorney or
substitute or substitutes shall lawfully do by virtue hereof.
Dated: _______________
FLORISTS' TRANSWORLD DELIVERY, INC.
By:_________________________
Name:
Title:
<PAGE> 18
STOCK POWER
FOR VALUE RECEIVED, the undersigned does hereby sell, assign
and transfer to _____________________________ 1 Share of Common Stock of FTD
Holdings, Incorporated, a Delaware corporation represented by Certificate No. 1
(the "Stock"), standing in the name of the undersigned on the books of said
corporation and does hereby irrevocably constitute and appoint
__________________________ as the undersigned's true and lawful attorney, for
it and in its name and stead, to sell, assign and transfer all or any of the
Stock, and for that purpose to make and execute all necessary acts of
assignment and transfer thereof; and to substitute one or more persons with
like full power, hereby ratifying and confirming all that said attorney or
substitute or substitutes shall lawfully do by virtue hereof.
Dated: _______________
FLORISTS' TRANSWORLD DELIVERY, INC.
By:_________________________
Name:
Title:
<PAGE> 19
STOCK POWER
FOR VALUE RECEIVED, the undersigned does hereby sell, assign
and transfer to _____________________________ 2,999 Shares of Common Stock of
FTD Holdings, Incorporated, a Delaware corporation represented by Certificate
No. 2 (the "Stock"), standing in the name of the undersigned on the books of
said corporation and does hereby irrevocably constitute and appoint
__________________________ as the undersigned's true and lawful attorney, for
it and in its name and stead, to sell, assign and transfer all or any of the
Stock, and for that purpose to make and execute all necessary acts of
assignment and transfer thereof; and to substitute one or more persons with
like full power, hereby ratifying and confirming all that said attorney or
substitute or substitutes shall lawfully do by virtue hereof.
Dated: _______________
FLORISTS' TRANSWORLD DELIVERY, INC.
By:_________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.3
SECURITY AGREEMENT
DATED AS OF NOVEMBER 20, 1997
between
FLORISTS' TRANSWORLD DELIVERY, INC.
AND
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. Grant of Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 3. Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 4. Grantor Remains Liable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 5. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 6. Perfection and Maintenance of Security Interest and Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 7. Financing Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 8. Filing Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 9. Schedule of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 10. Equipment and Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 11. Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 12. Leased Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 13. General Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 14. Agent Appointed Attorney-in-Fact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 15. Agent May Perform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 16. Agent's Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 17. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 18. Exercise of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 19. License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 20. Injunctive Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 21. Interpretation and Inconsistencies; Merger; No Strict Construction . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 22. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 23. Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 24. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 25. Continuing Security Interest; Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 26. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 27. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 28. CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(A) EXCLUSIVE JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(B) OTHER JURISDICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(C) SERVICE OF PROCESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(D) WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(E) WAIVER OF BOND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(F) ADVICE OF COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
EXHIBITS AND SCHEDULES
EXHIBITS
EXHIBIT A-1 -- Form of Landlord Agreement
EXHIBIT A-2 -- Form of Mortgagee Agreement
EXHIBIT B -- Form of Bailee Letter
<PAGE> 4
SCHEDULES
Schedule 1 -- Pledged Debt
Schedule 2 -- Locations of Collateral
Schedule 2-A -- Third Party Locations
Schedule 2-B -- Financing Statement Filing Locations
Schedule 3 -- Trade Names
<PAGE> 5
SECURITY AGREEMENT
This SECURITY AGREEMENT ("Agreement"), dated as of November 20, 1997
is made by FLORISTS' TRANSWORLD DELIVERY, INC., a Michigan corporation
("Grantor"), in favor of THE FIRST NATIONAL BANK OF CHICAGO (the "Agent"), for
its benefit and for the benefit of the "Holders of Secured Obligations" (as
defined below) who are, or may hereafter become, parties to the Credit Agreement
referred to below.
PRELIMINARY STATEMENT
Grantor has entered into a certain Credit Agreement of even date
herewith among Grantor, FTD Corporation, a Delaware corporation, the financial
institutions from time to time party thereto (the "Lenders") and the Agent, as
the contractual representative for the Lenders (as the same may be amended,
restated, supplemented or otherwise modified from time to time, the "Credit
Agreement"), providing for the making of loans, advances and other financial
accommodations (including, without limitation issuing letters of credit) (all
such loans, advances and other financial accommodations being hereinafter
referred to collectively as the "Loans") to or for the benefit of Grantor. It
is a condition precedent to the making of the Loans under the Credit Agreement
that Grantor shall have granted the security interest contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the premises set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Defined Terms. Unless otherwise defined herein, terms
defined in the Credit Agreement are used herein as therein defined, and the
following terms shall have the following meanings (such meanings being equally
applicable to both the singular and the plural forms of the terms defined):
"Agreement" shall mean this Security Agreement, as the same may from
time to time be amended, restated, modified or supplemented, and shall refer to
this Agreement as the same may be in effect at the time such reference becomes
operative.
"UCC" shall mean the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of Illinois; provided, however, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the Agent's and the Holders of Secured
Obligations' security interest in any Collateral is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than the State of Illinois,
the term "UCC" shall mean the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating to such attachment,
perfection or priority and for purposes of definitions related to such
provisions.
SECTION 2. Grant of Security. To secure the prompt and complete
payment, observance and performance of the Secured Obligations, Grantor hereby
assigns and pledges to Agent, for the benefit of itself and the Holders of
Secured Obligations, and hereby grants to Agent, for the benefit of itself and
the Holders of Secured Obligations, a security interest in all of Grantor's
right, title and interest in and
<PAGE> 6
to the following, whether now owned or existing or hereafter arising or acquired
and wheresoever located:
ACCOUNTS: All "accounts" as such term is defined in Section 9-106 of
the UCC, whether now owned or hereafter acquired or arising; Grantor intends
that the term "accounts", as used herein, be construed in its broadest sense,
and such term shall include, without limitation, all present and future
accounts, accounts receivable and other rights of Grantor to payment for goods
sold or leased or for services rendered (except those evidenced by instruments
or chattel paper), whether now existing or hereafter arising and wherever
arising, and whether or not they have been earned by performance (collectively,
"Accounts");
INVENTORY: All "inventory" as defined in Section 9-109(4) of the UCC,
whether now owned or hereafter acquired or arising; Grantor intends that the
term "inventory", as used herein, be construed in its broadest sense, and such
term shall include, without limitation, all goods now owned or hereafter
acquired by Grantor (wherever located, whether in the possession of Grantor or
of a bailee or other person for sale, storage, transit, processing, use or
otherwise and whether consisting of whole goods, spare parts, components,
supplies, materials, or consigned, returned or repossessed goods) which are held
for sale or lease, which are to be furnished (or have been furnished) under any
contract of service or which are raw materials, work in process or materials
used or consumed in Grantor's business (collectively, "Inventory");
EQUIPMENT: All "equipment" as such term is defined in Section
9-109(2) of the UCC, whether now owned or hereafter acquired or arising; Grantor
intends that the term "equipment", as used herein, be construed in its broadest
sense, and such term shall include, without limitation, all machinery, all
manufacturing, distribution, selling, data processing and office equipment, all
furniture, furnishings, appliances, fixtures and trade fixtures, tools, tooling,
molds, dies, vehicles, vessels, trucks, buses, motor vehicles and all other
goods of every type and description (other than Inventory), in each instance
whether now owned or hereafter acquired by Grantor and wherever located
(collectively, "Equipment");
GENERAL INTANGIBLES: All "general intangibles" as defined in Section
9-106 of the UCC, whether now owned or hereafter acquired or arising; Grantor
intends that the term "general intangibles", as used herein, be construed in its
broadest sense, and such term shall include, without limitation, all rights,
interests, choses in action, causes of actions, claims and all other intangible
property of Grantor of every kind and nature (other than Accounts), in each
instance whether now owned or hereafter acquired by Grantor and however and
whenever arising, including, without limitation, all corporate and other
business records; all loans, royalties, and other obligations receivable;
customer lists, credit files, correspondence, and advertising materials; firm
sale orders, other contracts and contract rights; all interests in partnerships
and joint ventures; all tax refunds and tax refund claims; all right, title and
interest under leases, subleases, licenses and concessions and other agreements
relating to real or personal property; all payments due or made to Grantor in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of any property by any person or governmental authority; all deposit
accounts (general or special) with any bank or other financial institution,
including, without limitation, any deposits or other sums at any time credited
by or due to Grantor from any of the Holders of Secured Obligations or any of
their respective Affiliates with the same rights therein as if the deposits or
other sums were credited by or due from such Holder of Secured Obligations; all
credits with and other claims against carriers and shippers; all rights to
indemnification; all patents, and patent applications (including all reissues,
divisions, continuations and extensions); all service marks and service mark
applications;
-2-
<PAGE> 7
all trade secrets and inventions; all copyrights and copyright applications
(including all computer software and related documentation); all rights and
interests in and to trademarks, trademark registrations and applications
therefor, trade names, corporate names, brand names, slogans, all goodwill
associated with the foregoing; all license agreements and franchise agreements,
all reversionary interests in pension and profit sharing plans and
reversionary, beneficial and residual interest in trusts; all proceeds of
insurance of which Grantor is beneficiary; and all letters of credit,
guaranties, liens, security interests and other security held by or granted to
Grantor; and all other intangible property, whether or not similar to the
foregoing;
CONTRACT RIGHTS: All rights and interests in and to any pending or
executory contracts, requests for quotations, invitations for bid, agreements,
leases and arrangements of which Grantor is a party to or in which Grantor has
an interest.
CHATTEL PAPER, INSTRUMENTS AND DOCUMENTS: All chattel paper, leases,
all instruments, including, without limitation, the notes and debt instruments
described in Schedule 1 (the "Pledged Debt"), and all payments thereunder and
instruments and other property from time to time delivered in respect thereof or
in exchange therefor, and all bills of sale, bills of lading, warehouse receipts
and other documents of title, in each instance whether now owned or hereafter
acquired by Grantor;
INTEREST AND CURRENCY CONTRACTS: Any and all interest rate, commodity
or currency exchange agreements or derivative agreements, including without
limitation, cap, collar, floor, forward or similar agreements or other rate,
currency or price protection arrangements;
INVESTMENT PROPERTY: Any and all investment property of the Grantor,
including any instruments, certificates of deposit, equity interests or
investments of any kind; and
OTHER PROPERTY: All property or interests in property now owned or
hereafter acquired by Grantor which now may be owned or hereafter may come into
the possession, custody or control of Agent or any of the Holders of Secured
Obligations or any agent or Affiliate of any of them in any way and for any
purpose (whether for safekeeping, deposit, custody, pledge, transmission,
collection or otherwise); and all rights and interests of Grantor, now existing
or hereafter arising and however and wherever arising, in respect of any and all
(i) notes, drafts, letters of credit, stocks, bonds, and debt and equity
securities, whether or not certificated, investment property (as defined in
Section 9-115(1)(f) of the UCC) and warrants, options, puts and calls and other
rights to acquire or otherwise relating to the same; (ii) money; (iii) proceeds
of loans, including, without limitation, loans made under the Credit Agreement;
and (iv) insurance proceeds and books and records relating to any of the
property covered by this Agreement; together, in each instance, with all
accessions and additions thereto, substitutions therefor, and replacements,
proceeds and products thereof. Notwithstanding the foregoing or anything herein
or in any other Loan Document to the contrary, nothing hereunder or thereunder
constitutes or shall be deemed to constitute the grant of a security interest in
favor of Agent or any Lender with respect to Grantor's interest in any contract
right, any license agreement or any other general intangible (each such contract
right, license agreement and other general intangible being hereinafter referred
to as "Excluded Property"), if the granting of a security interest therein by
Grantor to Agent or any Lender is prohibited by the terms and provisions of the
written agreement, document, or instrument creating, evidencing or granting a
security interest in such Excluded Property or rights related thereto, provided,
however, that if and when the prohibition which prevents the granting by Grantor
to Agent of a security
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<PAGE> 8
interest in any Excluded Property is removed or otherwise terminated, Agent will
be deemed to have, and at all times to have had, a security interest in such
Excluded Property.
SECTION 3. Authorization. Grantor hereby authorizes Agent to retain
and each Holder of Secured Obligations, and each Affiliate of Agent and of each
Holder of Secured Obligations, to pay or deliver to Agent, for the benefit of
the Holders of Secured Obligations, without any necessity on any Holder of
Secured Obligation's part to resort to other security or sources of
reimbursement for the Secured Obligations, at any time following the occurrence
and during the continuance of any Default, and without further notice to Grantor
(such notice being expressly waived), any of the deposits referred to in Section
2 (whether general or special, time or demand, provisional or final) or other
sums or property held by such Person, for application against any portion of the
Secured Obligations, irrespective of whether any demand has been made or whether
such portion of the Secured Obligations is mature. Agent will promptly notify
Grantor of Agent's receipt of such funds or other property for application
against the Secured Obligations, but failure to do so will not affect the
validity or enforceability thereof. Agent may give notice of the above grant of
security interest and assignment of the aforesaid deposits and other sums, and
authorization, to, and make any suitable arrangements with, any such Holder of
Secured Obligations for effectuation thereof, and Grantor hereby irrevocably
appoints Agent as its attorney to collect, following the occurrence and during
the continuance of a Default, any and all such deposits or other sums to the
extent any such payment is not made to Agent by such Holder of Secured
Obligations or Affiliate thereof.
SECTION 4. Grantor Remains Liable. Anything herein to the contrary
notwithstanding, (a) Grantor shall remain solely liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by Agent of any of its rights
hereunder shall not release Grantor from any of its duties or obligations under
the contracts and agreements included in the Collateral, and (c) neither Agent
nor the Holders of Secured Obligations shall have any responsibility, obligation
or liability under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall Agent or the Holders of Secured Obligations
be required or obligated, in any manner, to (i) perform or fulfill any of the
obligations or duties of Grantor thereunder, (ii) make any payment, or make any
inquiry as to the nature or sufficiency of any payment received by Grantor or
the sufficiency of any performance by any party under any such contract or
agreement or (iii) present or file any claim, or take any action to collect or
enforce any claim for payment assigned hereunder.
SECTION 5. Representations and Warranties. Grantor represents and
warrants, as of the date of this Agreement and as of the date of each Advance
(except for changes permitted or contemplated by this Agreement and except as
any representation and warranty expressly relates to a specific date) until
termination of this Agreement pursuant to Section 25:
(a) The correct corporate name of Grantor is set forth in the first
paragraph of this Agreement. The locations listed on Schedule 2 constitute all
locations at which any material Inventory and/or Equipment is located and
Grantor has exclusive possession and control of such Equipment and Inventory,
except in each case for such Inventory and Equipment which is (i) in transit
between such locations, or (ii) stored with third parties or held by third
parties for storage, processing, manufacturing, engineering, evaluation, or
repair, the corporate names of such third parties (which Grantor in good faith
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<PAGE> 9
believes are correct), the location of such Inventory and/or Equipment, and the
nature of the relationship between Grantor and such third parties is set forth
in Schedule 2-A. Schedule 2-A may be amended to reflect additional locations.
The chief place of business and chief executive office of Grantor are located
at the address of Grantor set forth below the Grantor's signature on the Credit
Agreement. All records concerning any Accounts and all originals of all
chattel paper which evidence any Account are located at the addresses listed on
Schedule 2 and none of the Accounts is evidenced by a promissory note or other
instrument in excess of $100,000 in the aggregate except for such notes and
other instruments delivered to Agent as Pledged Debt listed on Schedule 1.
(b) Grantor is the legal and beneficial owner of the Collateral free
and clear of all Liens except for Liens permitted by the Credit Agreement.
Grantor currently conducts business under the trade names listed on Schedule 3.
As of the date hereof, the Grantor uses no trade names or fictitious names,
except as set forth on Schedule 3.
(c) This Agreement creates in favor of Agent a legal, valid and
enforceable security interest in the Collateral. When financing statements have
been filed in the appropriate offices against Grantor in the locations listed on
Schedule 2-B, Agent will have a fully perfected first priority lien on, and
security interest in, the Collateral in which a security interest may be
perfected by such filing, subject only to Liens permitted by the Credit
Agreement (except as enforceability may be limited by bankruptcy, insolvency,
fraudulent transfer or similar laws affecting the enforcement of creditors'
rights generally and by principles of equity in effect from time to time).
(d) No authorization, approval or other action by, and no notice to
or filing with, any Governmental Authority that has not already been taken or
made and which is in full force and effect, is required (i) for the grant by
Grantor of the security interest in the Collateral granted hereby; (ii) for the
execution, delivery or performance of this Agreement by Grantor; or (iii) for
the exercise by Agent of any of its rights or remedies hereunder, except the
filing under the Uniform Commercial Code as in effect in the applicable
jurisdiction of the financing statements in the locations described in Schedule
2-B and any filings made in connection with the Patent Security Agreement and
the Trademark Security Agreement of even date herewith between the parties
hereto.
(e) The Pledged Debt issued by any Affiliate of Grantor, and to
Grantor's knowledge, all other Pledged Debt, has been duly authorized, issued
and delivered, and is the legal, valid, binding and enforceable obligation of
the respective issuer thereof.
SECTION 6. Perfection and Maintenance of Security Interest and Lien.
Grantor agrees that until all of the Secured Obligations (other than contingent
Obligations) have been fully satisfied and the Credit Agreement has been
terminated, Agent's security interests in and Liens on and against the
Collateral and all proceeds and products thereof, shall continue in full force
and effect. Prior to such time, Grantor shall perform any and all steps
reasonably requested by Agent to perfect, maintain and protect Agent's security
interests in and Liens on and against the Collateral granted or purported to be
granted hereby or to enable Agent to exercise its rights and remedies hereunder
with respect to any Collateral, including, without limitation, (i) executing and
filing financing or continuation statements, or amendments thereof, in form and
substance reasonably satisfactory to Agent, (ii) delivering to Agent upon
request all certificates, notes and other instruments (including, without
limitation, all letters of credit on which Grantor is named as a beneficiary)
representing or evidencing Collateral, which certificates, notes and other
instruments have been duly endorsed and are accompanied by duly executed
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instruments of transfer or assignment, including, but not limited to, note
powers, all in form and substance satisfactory to Agent, (iii) delivering to
Agent warehouse receipts covering that portion of the Collateral, if any,
located in warehouses and for which warehouse receipts are issued, (iv) after
the occurrence and during the continuance of a Default, taking such steps as
are reasonably deemed necessary by Agent to maintain Agent's control of the
Inventory and Equipment, (v) use commercially reasonable efforts to obtain,
upon the occurrence and during the continuance of a Default, upon the written
request of Agent,
(a) waivers of Liens and access agreements in substantially the form
of Exhibit A-1 hereto (or such other form as may be agreed to by Agent) from
landlords with respect to Grantor's leased premises where the Agent reasonably
determines that the value of the leasehold in respect of the premises leased by
Grantor from such landlord is material to the operations of Grantor or deem such
leased premises to be integral to the Grantor's day-to-day operations, (b)
mortgagee agreements in substantially the form of Exhibit A-2 hereto (or such
other form as may be agreed to by Agent) from mortgagees with respect to all
leases executed after the Closing Date where the Agent reasonably determines
such leasehold to be material based on the value of the leasehold or such leased
premises is integral to Grantor's day-to-day operations, (c) waivers of Liens
and access agreements in substantially the form of Exhibit B hereto (or such
other form as may be agreed to by Agent) from the appropriate Person with
respect to all arrangements pursuant to which Inventory will be temporarily held
by third parties for storage, processing, engineering, evaluation, or repair
after the Closing Date (in connection with which Grantor shall be permitted to
and hereby required to update Schedule 2-A ) where: (1) the Equipment located at
any one premises owned or operated by any such Person has a value in the
aggregate of $500,000 or greater or (2) the aggregate value of the Equipment
located at all premises owned or operated by any such Person is $2,500,000 or
greater, and (d) waivers of Liens and access agreements in substantially the
form of Exhibit B hereto (or such other form as may be agreed to by Agent) from
the appropriate Person with respect to all arrangements pursuant to which
Inventory will be temporarily held by third parties for storage, processing,
engineering, evaluation, or repair or otherwise in the ordinary course of
business after the Closing Date (in connection with which Grantor shall be
permitted to and hereby required to update Schedule 2-A) where: (1) the
Inventory and Equipment located at any one premises owned or operated by any
such Person has a value in the aggregate of $500,000 or greater or (2) the
aggregate value of the Equipment located at all premises owned or operated by
any such Person is $2,500,000 or greater, and (vi) executing and delivering all
further instruments and documents, and taking all further action, as Agent may
reasonably request.
SECTION 7. Financing Statements. To the extent permitted by
applicable law, Grantor hereby authorizes Agent to file one or more financing or
continuation statements and amendments thereto, disclosing the security interest
granted to Agent under this Agreement without Grantor's signature appearing
thereon and Agent agrees to notify Grantor when such a filing has been made.
Grantor agrees that a carbon, photographic, photostatic, or other reproduction
of this Agreement or of a financing statement is sufficient as a financing
statement. If any Inventory or Equipment is in the possession or control of any
warehouseman or Grantor's agents or processors, Grantor shall, upon Agent's
written request, notify such warehouseman, agent or processor of Agent's
security interest in such Inventory and Equipment and, upon Agent's request,
instruct them to hold all such Inventory or Equipment for Agent's account and
subject to Agent's instructions.
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SECTION 8. Filing Costs. Grantor shall pay the costs of, or
incidental to, all recordings or filings of all financing statements, including,
without limitation, any filing expenses incurred by Agent pursuant to Section 7.
SECTION 9. Schedule of Collateral. Grantor shall, at the written
request of the Agent, furnish to Agent from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Agent may reasonably request, all
in reasonable detail, provided, however, Agent shall not make such request more
than one time per calendar quarter as long as no Default has occurred and is
continuing.
SECTION 10. Equipment and Inventory. Grantor covenants and agrees
with Agent that from the date of this Agreement and until termination of this
Agreement, including pursuant to Section 25, Grantor shall:
(a) Keep the Equipment and Inventory (other than Equipment or
Inventory sold or disposed of as permitted by the Credit Agreement or in the
ordinary course of business) at the places specified in Section 5(a), except for
Equipment and Inventory (i) in transit between such locations or (ii) held by
third parties for storage, processing, engineering, manufacturing, evaluation,
or repair and set forth on Schedule 2- A and in connection with which the
Grantor has complied with the requirements set forth in Section 6, to the extent
applicable, and, to the extent practicable, deliver written notice to Agent at
least thirty (30) days (or such shorter period, if not practicable) prior to
establishing any other location at which or third party with which it reasonably
expects to maintain Inventory and/or Equipment in which location or with which
third party all action required by this Agreement shall have been taken with
respect to all such Equipment and Inventory;
(b) Comply with the terms of the Credit Agreement with respect to
such Equipment and Inventory, including, without limitation, the maintenance and
insurance provisions set forth in Section 7.2(E), and (H) of the Credit
Agreement.
SECTION 11. Accounts. Grantor covenants and agrees with Agent that
from and after the date of this Agreement and until termination of this
Agreement, including pursuant to Section 25, Grantor shall:
(a) Keep its chief place of business and chief executive office and
the office where it keeps its records concerning the Accounts at its address set
forth below the Grantor's signature on the Credit Agreement, and keep the
offices where it keeps all originals of all chattel paper which evidence
Accounts at the locations therefor specified in Section 5(a) or, upon thirty
(30) days' (or any shorter period to the extent not practicable) prior written
notice to Agent, at such other locations within the United States in a
jurisdiction where all actions required by Section 6 shall have been taken with
respect to the Accounts. Grantor will hold and preserve such records (in
accordance with Grantor's usual document retention practices) and chattel paper
and will permit representatives of Agent, during normal business hours and on
reasonable notice, to inspect and make abstracts from such records and chattel
paper in accordance with the provisions of Section 6.3(F) of the Credit
Agreement; and
(b) In any suit, proceeding or action brought by Agent under any
Account comprising part of the Collateral during the continuance of a Default,
Grantor will save, indemnify and keep each of the Holders of Secured Obligations
harmless from and against all reasonable and documented expenses, loss or damage
suffered by reason of any defense, setoff, counterclaim, recoupment or reduction
of liability
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<PAGE> 12
whatsoever of the obligor thereunder, arising out of a breach by Grantor of any
obligation or arising out of any other agreement, indebtedness or liability at
any time owing to or in favor of such Holder of Secured Obligations from
Grantor, and all such obligations of Grantor shall be and shall remain
enforceable against and only against Grantor and shall not be enforceable
against any of the Holders of Secured Obligations, unless such expense, loss or
damage is caused by either wilful misconduct or gross negligence on the part of
the indemnified party.
SECTION 12. Leased Real Property. Grantor covenants and agrees with
Agent that from and after the date of this Agreement and until termination of
this Agreement, including pursuant to Section 25, that:
(a) Promptly following, but not later than ninety (90) days after
entering into any leases meeting the criteria set forth in Section 6(v), Grantor
will furnish to Agent a report certified to be true and correct by Grantor
setting forth a description of the leased premises related thereto; the name or
names of all owners; rentals being paid; and whether Grantor has obtained
waivers of Liens and access agreements from landlords and mortgagees with
respect to such premises in accordance with Section 6 to the extent required to
do so thereunder;
(b) Grantor agrees that, from and after the occurrence and during
continuance of a Default, Agent may, but need not, make any payment or perform
any act hereinbefore required of Grantor with respect to the Grantor's leased
premises in any form and manner deemed expedient. All money paid for any of the
purposes herein authorized and all other moneys advanced by Agent as herein
permitted to protect the lien hereof shall be additional Secured Obligations
secured hereby and shall become immediately due and payable without notice and
shall bear interest thereon at the then applicable default interest rate with
respect to Floating Rate Loans as provided in Section 2.11 of the Credit
Agreement until paid to Agent in full; and
(c) Grantor agrees that it will not amend any lease in a manner that
is reasonable likely to result in a Material Adverse Effect without the Agent's
prior written consent (such consent not to be unreasonably withheld).
SECTION 13. General Covenants. Grantor covenants and agrees with
Agent that from and after the date of this Agreement and until termination of
this Agreement, including pursuant to Section 25, Grantor shall:
(a) Keep and maintain at Grantor's own cost and expense reasonably
satisfactory and reasonably complete records of Grantor's Collateral in a manner
consistent with Grantor's business practice from time to time. Grantor shall,
for Agent's further security, deliver and turn over to Agent or Agent's
designated representatives at any time following the occurrence and during the
continuation of a Default, copies of any such books and records (including,
without limitation, any and all computer tapes, programs and source and object
codes relating to such Collateral in which Grantor has an interest or any part
or parts thereof); and
(b) Grantor will not create, permit or suffer to exist, and will
defend the Collateral against, and take such other action as is necessary to
remove, any Lien on such Collateral other than Liens permitted under the Credit
Agreement, and will make commercially reasonable efforts to defend the right,
title and
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interest of Agent in and to Grantor's rights to such Collateral, including,
without limitation, the proceeds and products thereof, against the material
claims and demands of all Persons whatsoever.
SECTION 14. Agent Appointed Attorney-in-Fact. Upon the occurrence and
during the continuance of a Default, Grantor hereby irrevocably appoints Agent
as Grantor's attorney-in-fact, with full authority in the place and stead of
Grantor and in the name of Grantor or otherwise, from time to time in Agent's
discretion, to take any action and to execute any instrument which Agent may
reasonably deem necessary or advisable to accomplish the purposes of this
Agreement, including, without limitation, following the occurrence and during
the continuance of a Default, to:
(i) obtain and adjust insurance required to be paid to the Agent
or any Holders of Secured Obligations pursuant to the Credit
Agreement;
(ii) ask, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due
under or in respect of any of the Collateral;
(iii) receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with clause
(i) or (ii) above;
(iv) file any claims or take any action or institute any
proceedings which Agent may deem necessary or desirable for the
collection of any of the Collateral, or otherwise to enforce the
rights of Agent with respect to any of the Collateral;
(v) obtain access to records maintained for Grantor by computer
services companies and other service companies or bureaus;
(vi) to send requests under Grantor's, the Agent's or a
fictitious name to Grantor's customers or account debtors for
verification of Accounts provided that the Agent gives the Grantor
written notice prior to initiating any such verifications; and
(vii) do all other things consistent with the terms of this
Agreement as may be reasonably necessary to carry out the terms
hereof.
SECTION 15. Agent May Perform. If Grantor fails to perform any
agreement contained herein or in the Credit Agreement, Agent may, upon five days
prior written notice to the Grantor, perform, or cause performance of, such
agreement, and the reasonable and documented expenses of Agent incurred in
connection therewith shall be payable by Grantor under Section 22.
SECTION 16. Agent's Duties. The powers conferred on Agent hereunder
are solely to protect its interest in the Collateral and shall not impose any
duty upon it to exercise any such powers. Except for the safe custody of any
Collateral in its possession and the accounting for moneys actually received by
it hereunder and as otherwise provide by law, Agent shall not have any duty as
to any Collateral. Agent shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that which Agent accords
its own property, it being understood that Agent shall be under no obligation to
take any
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necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral, but may do so at its option, and all reasonable
expenses incurred in connection therewith shall be for the sole account of
Grantor and shall be added to the Secured Obligations.
SECTION 17. Remedies. (a) If any Default shall have occurred and be
continuing:
(i) Agent shall have, in addition to other rights and remedies
provided for herein or otherwise available to it, all the rights and remedies of
a secured party upon default under the UCC and further, Agent may, without
notice, demand or legal process of any kind (except as may be required by law),
all of which Grantor waives, at any time or times, (x) enter Grantor's owned or
leased premises and take physical possession of the Collateral and maintain such
possession on Grantor's owned or leased premises, at no cost to Agent or any of
the Holders of Secured Obligations, or remove the Collateral, or any part
thereof, to such other place(s) as Agent may desire, (y) require Grantor to, and
Grantor hereby agrees that it will at its expense and upon request of Agent
forthwith, assemble all or any part of the Collateral as directed by Agent and
make it available to Agent at a place to be designated by Agent which is
reasonably convenient to Agent and (z) without notice except as specified below,
sell, lease, assign, grant an option or options to purchase or otherwise dispose
of the Collateral or any part thereof at public or private sale, at any
exchange, broker's board or at any of the offices of Agent or elsewhere, for
cash, on credit or for future delivery, and upon such other terms as Agent may
deem commercially reasonable. Grantor agrees that, to the extent notice of sale
shall be required by law, at least ten (10) days' notice to Grantor of the time
and place of any public sale or the time after which any private sale is to be
made shall constitute reasonable notification. Agent shall not be obligated to
make any sale of Collateral regardless of notice of sale having been given.
Agent may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned;
(ii) Agent shall apply all cash proceeds received by Agent in respect
of any sale of, collection from, or other realization upon all or any part of
the Collateral (after payment of any amounts payable to Agent pursuant to
Section 22), for the benefit of the Holders of Secured Obligations, against all
or any part of the Secured Obligations in such order as may be required by the
Credit Agreement or, to the extent not specified therein, as is determined by
the Required Lenders. Any surplus of such cash or cash proceeds held by Agent
and remaining after payment in full of all the Secured Obligations shall be paid
over to Grantor or to whomsoever may be lawfully entitled to receive such
surplus;
(b) Grantor waives all claims, damages and demands against Agent
arising out of the repossession, retention or sale of any of the Collateral or
any part or parts thereof, except any such claims, damages and awards arising
out of the Gross Negligence or willful misconduct of Agent or any of the Holders
of Secured Obligations, as the case may be, as determined in a final
non-appealed judgment of a court of competent jurisdiction; and
(c) The rights and remedies provided under this Agreement are
cumulative and may be exercised singly or concurrently and are not exclusive of
any rights and remedies provided by law or equity.
SECTION 18. Exercise of Remedies. In connection with the exercise
of its remedies pursuant to Section 17, Agent may, (i) exchange, enforce, waive
or release any portion of the Collateral and any other security for the Secured
Obligations; (ii) apply such Collateral or security and direct the order or
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<PAGE> 15
manner of sale thereof as Agent may, from time to time, determine; and (iii)
settle, compromise, collect or otherwise liquidate any such Collateral or
security in any manner following the occurrence of a Default, without
affecting or impairing Agent's right to take any other further action with
respect to any Collateral or security or any part thereof.
SECTION 19. License. Solely for the purpose of enabling Agent to
exercise rights and remedies hereunder during the continuance of a Default, and
for no other purpose, Agent is hereby granted a license or other right to use,
following the occurrence and during the continuance of a Default, without
charge, (a) Grantor's labels, patents, copyrights, trade secrets, trade names,
trademarks, service marks, customer lists and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral, provided that
Agent uses quality standards at least substantially equivalent to those of
Grantor for the manufacture, advertising, sale and distribution of Grantor's
products and services and (b) Grantor's rights under all licenses where Grantor
is licensor, except to the extent such licenses by their terms prohibit the
granting of such rights, and all franchise agreements shall inure to Agent's
benefit. Notwithstanding any provision to the contrary contained in this
Agreement or any other Loan Document, license agreements under which Grantor is
licensee shall be excluded from the Collateral.
SECTION 20. Injunctive Relief. Grantor recognizes that in the event
Grantor fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any remedy of law may prove to be inadequate
relief to the Holders of Secured Obligations; therefore, Grantor agrees that the
Holders of Secured Obligations, if Agent so determines and requests, shall be
entitled to temporary and permanent injunctive relief in any such case without
the necessity of proving actual damages.
SECTION 21. Interpretation and Inconsistencies; Merger; No Strict
Construction.
(a) The rights and duties created by this Agreement shall, in all
cases, be interpreted consistently with, and shall be in addition to (and not in
lieu of), the rights and duties created by the Credit Agreement and the other
Loan Documents. In the event that any provision of this Agreement shall be
inconsistent with any provision of any other Loan Document, such provision of
the other Loan Document shall govern.
(b) Except as provided in subsection (a) above, this Agreement
represents the final agreement of the Grantor and the Agent with respect to the
matters contained herein and may not be contradicted by evidence of prior or
contemporaneous agreements, or subsequent oral agreements, between the Grantor
and the Agent or any other Holder of Secured Obligations.
(c) The parties hereto have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties hereto and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any provisions
of this Agreement.
SECTION 22. Expenses. Grantor will upon demand pay to Agent and/or
the Holders of Secured Obligations the amount of any and all reasonable and
documented expenses, including the reasonable fees and disbursements of their
counsel and of any experts and agents, as provided in Section 10.7 of the Credit
Agreement.
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SECTION 23. Amendments, Etc. No amendment or waiver of any provision
of this Agreement nor consent to any departure by Grantor herefrom shall in any
event be effective unless the same shall be in writing and signed by Agent and
Grantor, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 24. Notices. All notices and other communications provided
for hereunder shall be delivered in the manner set forth in Section 14.1 of the
Credit Agreement.
SECTION 25. Continuing Security Interest; Termination. (a) Except as
provided in Section 25(b), this Agreement shall create a continuing security
interest in the Collateral and shall (i) remain in full force and effect until
the later of the payment or satisfaction in full of the Secured Obligations
(other than contingent indemnity obligations) and the termination of the Credit
Agreement, (ii) be binding upon Grantor, its successors and assigns and (iii)
except to the extent that the rights of any transferor, or assignor are limited
or prohibited by the terms of the Credit Agreement, inure, together with the
rights and remedies of Agent hereunder, to the benefit of Agent and any of the
Holders of Secured Obligations. Nothing set forth herein or in any other Loan
Document is intended or shall be construed to give any other Person any right,
remedy or claim under, to or in respect of this Agreement or any other Loan
Document or any Collateral. Grantor's successors and assigns shall include,
without limitation, a receiver, trustee or debtor-in-possession thereof or
therefor.
(b) Upon the payment in full of the Secured Obligations (other than
contingent obligations) and the termination of the Credit Agreement, this
Agreement and the security interest granted hereby shall automatically terminate
and all rights to the Collateral shall revert to Grantor. Upon any such
termination of security interest, Grantor shall be entitled to the return, upon
its request and at its expense, of such of the Collateral held by Agent as shall
not have been sold or otherwise applied pursuant to the terms hereof and Agent
will, at Grantor's expense, promptly execute and deliver to Grantor such other
documents as Grantor shall reasonably request to evidence such termination. In
connection with any sales of assets permitted under the Credit Agreement, the
liens and security interests granted under this Agreement will automatically
release and terminate with respect to such assets and the Agent shall promptly
make all filings necessary to reflect such release and termination.
SECTION 26. Severability. It is the parties' intention that this
Agreement be interpreted in such a way that it is valid and effective under
applicable law. However, if one or more of the provisions of this Agreement
shall for any reason be found to be invalid or unenforceable, the remaining
provisions of this Agreement shall be unimpaired.
SECTION 27. GOVERNING LAW. THE AGENT ACCEPTS THIS AGREEMENT, ON
BEHALF OF ITSELF AND THE LENDERS, AT CHICAGO, ILLINOIS BY ACKNOWLEDGING AND
AGREEING TO IT THERE. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT REGARD TO CONFLICTS OF
LAW PROVISIONS) OF THE STATE OF ILLINOIS. WITHOUT LIMITING THE FOREGOING, ANY
DISPUTE BETWEEN THE GRANTOR AND THE AGENT, ANY LENDER, OR ANY OTHER HOLDER OF
SECURED OBLIGATIONS ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO
THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT,
AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED
IN ACCORDANCE WITH THE
-12-
<PAGE> 17
INTERNAL LAWS (WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE
OF ILLINOIS.
SECTION 28. CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL.
(A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B),
EACH OF THE PARTIES HERETO AGREES THAT ALL DISPUTES BETWEEN THEM ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, WHETHER ARISING IN CONTRACT,
TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY BY STATE OR FEDERAL
COURTS LOCATED IN CHICAGO, ILLINOIS, BUT THE PARTIES HERETO ACKNOWLEDGE THAT ANY
APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF
CHICAGO, ILLINOIS.
(B) OTHER JURISDICTIONS. GRANTOR AGREES THAT THE AGENT, ANY LENDER
OR ANY HOLDER OF SECURED OBLIGATIONS SHALL HAVE THE RIGHT TO PROCEED AGAINST
GRANTOR OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1)
OBTAIN PERSONAL JURISDICTION OVER THE GRANTOR OR (2) REALIZE ON THE COLLATERAL
OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER ENTERED IN FAVOR OF SUCH PERSON. GRANTOR AGREES THAT IT WILL NOT
ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON TO
REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON.
(C) VENUE. GRANTOR IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING,
WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS
OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF
ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH
IN ANY JURISDICTION SET FORTH ABOVE AND EACH OF THE OTHER PARTIES HERETO WAIVES
IN ALL DISPUTES BROUGHT PURSUANT TO SUBSECTION (A) ANY OBJECTION THAT IT MAY
HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE.
(D) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY
WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH,
RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES
AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
-13-
<PAGE> 18
(E) WAIVER OF BOND. GRANTOR WAIVES THE POSTING OF ANY BOND OTHERWISE
REQUIRED OF ANY PARTY HERETO IN CONNECTION WITH ANY JUDICIAL PROCESS OR
PROCEEDING TO REALIZE ON THE COLLATERAL (INCLUDING, WITHOUT LIMITATION, THE REAL
PROPERTY COLLATERAL) OR ANY OTHER SECURITY FOR THE SECURED OBLIGATIONS OR TO
ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PARTY, OR TO
ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER, PRELIMINARY OR
PERMANENT INJUNCTION, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.
(F) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENTS TO EACH OTHER
PARTY HERETO THAT IT HAS DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE
PROVISIONS OF THIS SECTION 28, WITH ITS COUNSEL.
-14-
<PAGE> 19
IN WITNESS WHEREOF, Grantor has caused this Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
FLORISTS' TRANSWORLD DELIVERY, INC.
By:_______________________________
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
as AGENT
By:_______________________________
Name:
Title:
Signature Page to Security Agreement
dated November 20, 1997
<PAGE> 20
EXHIBIT A-1
To
Security Agreement
Form of Landlord Agreement
The First National Bank
of Chicago, as Agent
One First National Plaza]
Chicago, Illinois 60670
Ladies and Gentlemen:
FLORISTS' TRANSWORLD DELIVERY, INC., a Michigan corporation
("Borrower"), the lessee under that certain lease dated ___________ between the
Borrower, and the undersigned, covering certain premises owned by the
undersigned and located at _________________ (the "Premises") more fully
described in the lease attached hereto as Exhibit A (the "Lease"). Borrower has
certain of its assets located on the Premises.
Borrower has entered into certain financing arrangements with a group
of lenders ("Lenders") including The First National Bank of Chicago, as
contractual representative for the Lenders (the "Agent") and the Agent and the
Lenders require, among other things, that Borrower grant liens in favor of the
Agent for the benefit of itself and the Lenders on all of Borrower's property
located on the Premises ("Collateral").
To induce the Agent and the Lenders (together with their respective
agents, successors and assigns) to enter into said financing arrangements, and
for other good and valuable consideration, the undersigned hereby agrees that:
(i) it will not assert against any of Borrower's assets any
statutory or possessory liens, including, without limitation, rights
of levy or distraint for rent, all of which it hereby waives;
(ii) none of the Collateral located on the Premises shall be
deemed to be fixtures;
[(iii) it will allow Agent thirty (30) days from the Agent's
receipt of notice in which to cure or cause Borrower to cure any
defaults on Borrower's lease obligations to the undersigned; provided
if such default cannot reasonably be cured within the thirty (30) day
period, and provided the Agent is diligently pursuing a cure, then
Agent shall have a reasonable period to cure such default;]
[(iv) if, for any reason whatsoever, the undersigned either deems
itself entitled to redeem or to take possession of the Premises during
the term of Borrower's lease or intends to sell or otherwise transfer
all or any part of its interest in the Premises, the undersigned will
notify Agent five (5) days before taking such action;]
<PAGE> 21
(v) if Borrower defaults on its obligations to the Agent or any
Lender and, as a result, the Agent undertakes to enforce its security
interest in the Collateral, the undersigned will cooperate with the
Agent in its efforts to assemble all of the Collateral located on the
Premises, will permit Agent to remain on the Premises for ninety (90)
days after the Agent gives the undersigned notice of default, provided
Agent pays the rental payments due under the Lease for the period of
time Agent uses the Premises, or, at Agent's option, to remove the
Collateral from the Premises within a reasonable time, not to exceed
ninety (90) days after the Agent gives the undersigned notice of
default, provided Agent pays the rental payments due under the Lease
for the period of time Agent uses the Premises, and will not hinder
Agent's actions in enforcing its liens on the Collateral;
(vi) the undersigned shall accept performance by the Agent of the
Borrower's obligations under the Lease as though the same had been
performed by the holder of the Borrower's interest therein at the time
of such performance. Upon the cure of any such default, any notice
advising of any default or any action of the undersigned to terminate
the Lease or to interfere with the occupancy, use or enjoyment of the
Premises by reason thereof, which action has not been completed, shall
be deemed rescinded and the Lease shall continue in full force and
effect. The undersigned shall not be required to continue any
possession or continue any action to obtain possession upon the cure
of any such default;
Any notice(s) required or desired to be given hereunder shall be
directed to the party to be notified at the address stated herein.
The agreements contained herein shall continue in force until all of
Borrower's obligations and liabilities to the Agent and the Lenders are paid
and satisfied in full and all financing arrangements among the Agent, the
Lenders and Borrower have been terminated.
The undersigned will use reasonable efforts to notify all successor
owners, transferees, purchasers and mortgagees of the existence of this waiver.
The agreements contained herein may not be modified or terminated orally and
shall be binding upon the successors, assigns and personal representatives of
the undersigned, upon any successor owner or transferee of the Premises, and
upon any purchasers, including any mortgagee, from the undersigned.
The undersigned agrees that nothing contained in this waiver shall be
construed as an assumption by the Agent or any of the other lenders of any
obligations of Borrower contained in the Lease.
Executed and delivered this ____ day of __________, 1997, at
_________________________________.
THIS WAIVER SHALL NOT IMPAIR OR OTHERWISE AFFECT BORROWER'S
OBLIGATIONS TO PAY RENT AND ANY OTHER SUMS PAYABLE BY BORROWER OR TO OTHERWISE
PERFORM ITS OBLIGATIONS TO THE LESSOR PURSUANT TO THE TERMS OF THE LEASE.
[Name of Lessor]
<PAGE> 22
By:___________________________
Title:________________________
Address:
_______________________
_______________________
_______________________
AGREED &ACKNOWLEDGED:
[___________________]
By:_________________
Title:______________
Address: ___________________
___________________
<PAGE> 23
[ACKNOWLEDGMENT (CORPORATE)
STATE OF ________________ )
) SS.
COUNTY OF _______________ )
Before me, a Notary Public in and for said County, personally appeared
____________________________________, a ________________ ___________________
corporation, by the _____________________________________ of such corporation,
who acknowledged that (s)he did sign the foregoing instrument on behalf of said
corporation and that said instrument is the voluntary act and deed of said
corporation and his/her voluntary act and deed as such officer of said
corporation.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed
my official seal this _____ day of _______________________ ____, 199_ at
_____________________, ____________________________________.
____________________________
Notary Public
My Commission Expires:]
(Notarial Seal)
<PAGE> 24
[ACKNOWLEDGMENT (CORPORATE)
STATE OF ____________________ )
) SS.
COUNTY OF ___________________ )
Before me, a Notary Public in and for said County, personally appeared
[____________________________], a Michigan corporation, by the
_____________________________________ of such corporation, who acknowledged that
(s)he did sign the foregoing instrument on behalf of said corporation and that
said instrument is the voluntary act and deed of said corporation and his/her
voluntary act and deed as such officer of said corporation.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed
my official seal this _____ day of _______________________ ____, 199_ at
_____________________, ____________________________________.
_________________________
Notary Public
My Commission Expires:]
(Notarial Seal)
<PAGE> 25
EXHIBIT A-2
To
Security Agreement
Form of Mortgagee Agreement
The First National Bank
of Chicago, as Agent
One First National Plaza
Chicago, Illinois 60670
Ladies and Gentlemen:
FLORISTS' TRANSWORLD DELIVERY, INC., a Michigan corporation
("Borrower"), is the lessee under that certain lease dated ___________ between
the Borrower, and ____________________ (the "Landlord[s]"), covering certain
premises located at _________________ (the "Premises") as more fully described
on Exhibit A 1 attached hereto (the "Lease"). The undersigned is the mortgagee
under a mortgage between the Landlord[s] and the undersigned covering the
Premises (the "Mortgage"). The undersigned is the sole mortgagee of the
Premises. Borrower has certain of its assets located on the Premises.
Borrower has entered into certain financing arrangements with a group
of lenders ("Lenders") including The First National Bank of Chicago, as
contractual representative for the Lenders (the "Agent") and the Agent and the
Lenders require, among other things, that Borrower grant liens in favor of the
Agent for the benefit of itself and the Lenders on all of Borrower's property
located on the Premises ("Collateral").
By its signature below, the undersigned agrees that:
(i) it will not assert against any of the Collateral any
statutory or possessory liens, including, without limitation, rights
of levy or distraint for rent, all of which it hereby waives;
(ii) none of the Collateral located on the Premises shall be
deemed to be fixtures;
[(iii) it will allow Agent thirty (30) days from the Agent's
receipt of notice in which to cure or cause Borrower to cure any such
defaults on its mortgage obligations; provided if such default cannot
reasonably be cured within the thirty (30) day period, and provided
the Agent is diligently pursuing a cure, then Agent shall have a
reasonable period to cure such default;]
[(iv) if, for any reason whatsoever, the undersigned either
deems itself entitled to take possession of the Premises during the
term of the Mortgage or intends to sell or
_____________________
1Please attach legal description of premises for recordation purposes.
<PAGE> 26
otherwise transfer all or any part of its interest in the Premises,
the undersigned will notify Agent five (5) days before taking such
action;]
(v) if Borrower defaults on its obligations to the Agent or any
Lender and, as a result, the Agent undertakes to enforce its security
interest in the Collateral, the undersigned will cooperate with the
Agent in its efforts to assemble all of the Collateral located on the
Premises, will permit Agent to remain on the Premises for ninety (90)
days after Agent gives the undersigned notice of default, provided
Agent pays the Lease payments to the Landlord[s] due under the Lease
for the period of time Agent uses the Premises, or, at Agent's option,
to remove the Collateral from the Premises within a reasonable time,
not to exceed ninety (90) days after Agent gives the undersigned
notice of default, provided Agent pays the rental payments to the
Landlord[s] due under the Lease for the period of time Agent uses the
Premises, and will not hinder Agent's actions in enforcing its liens
on the Collateral; and
Any notice(s) required or desired to be given hereunder shall be
directed to the party to be notified at the address stated herein.
The agreements contained herein shall continue in force until all of
Borrower's obligations and liabilities to the Agent and the Lenders are paid and
satisfied in full and all financing arrangements among the Agent, the Lenders
and Borrower have been terminated.
The undersigned will notify all successor owners, transferees,
purchasers and mortgagees of the existence of this waiver. The agreements
contained herein may not be modified or terminated orally and shall be binding
upon the successors, assigns and personal representatives of the undersigned,
upon any successor owner or transferee of the Premises, and upon any purchasers,
including any mortgagee, from the undersigned.
[The undersigned consents to the granting of the Leasehold Mortgage to
the Agent and to the liens, security interests and encumbrances created by and
resulting from the Leasehold Mortgage or other documents collateral thereto in
the form attached hereto as Exhibit B.]
The undersigned agrees that nothing contained in this waiver shall be
construed as an assumption by the agent or any of the other lenders of any
obligations of the landlord contained in the mortgage.
Executed and delivered this ____ day of __________, 199_, at
_________________________________.
THIS WAIVER SHALL NOT IMPAIR OR OTHERWISE AFFECT BORROWER'S
OBLIGATIONS TO PAY RENT AND ANY OTHER SUMS PAYABLE BY BORROWER OR TO OTHERWISE
PERFORM ITS OBLIGATIONS TO THE LANDLORD PURSUANT TO THE TERMS OF THE LEASE.
<PAGE> 27
[Name of Mortgagee]
By:__________________________
Title:_______________________
Address:
______________________
______________________
______________________
AGREED & ACKNOWLEDGED:
[____________________]
By:__________________
Title:_______________
Address: _______________
_______________
<PAGE> 28
[STATE OF ____________ )
) SS
COUNTY OF ___________ )
The foregoing letter agreement was acknowledged before me this ___ day of
_____________, 199_, by _____________________, a _______________ of
__________________, a ____________________, on behalf of such
__________________.
_____________________________
Notary Public
________ County, _____________
My commission expires:_______]
<PAGE> 29
EXHIBIT B
TO
SECURITY AGREEMENT
Form of Bailee Letter
The First National Bank
of Chicago, as Agent
One First National Plaza
Chicago, Illinois 60670
Ladies and Gentlemen:
FLORISTS' TRANSWORLD DELIVERY, INC., a Michigan corporation (the
"Borrower"), now does or hereafter may store certain of its merchandise,
inventory, or other of its personal property at premises located at
_______________ (the "Premises") owned or leased by the undersigned.
Borrower has entered into certain financing arrangements with a group of
lenders (the "Lenders") including The First National Bank of Chicago, as
contractual representative for the Lenders (the "Agent") and the Agent and the
Lenders require, among other things, that Borrower grant liens in favor of the
Agent for the benefit of itself and the Lenders on all of Borrower's property
located on the Premises ("Collateral").
To induce the Agent and the Lenders (together with their respective agents,
successors and assigns) to enter into said financing arrangements, and for other
good and valuable consideration, the undersigned hereby agrees that:
(i) it will not assert against any of Borrower's assets any
statutory or possessory liens, including, without limitation, rights
of levy or distraint for rent, all of which it hereby waives;
[(ii) the Collateral shall be identifiable as being owned by
Borrower and kept reasonably separate and distinct from other property
in our possession;]
(iii) if Borrower defaults on its obligations to the Lenders or
the Agent and, as a result, the Agent undertakes to enforce its
security interest in the Collateral, the undersigned will cooperate
with the Agent in its efforts to assemble all of the Collateral
located on the Premises and will permit the Agent to either remain on
the Premises provided that the Agent pay the undersigned rent for such
period at the rate the Borrower is obligated to pay for ninety (90)
days after the Agent gives the undersigned notice of default or, at
the Agent's option, to remove the Collateral from the Premises within
a reasonable time, not to exceed ninety (90) days after the Agent
gives the undersigned notice of default, provided that the Agent
leaves the Premises
<PAGE> 30
in the same condition as existed immediately prior to such ninety (90)
day period, and shall indemnify the undersigned for any damages
arising solely out of its occupancy of the Premises, and this will not
hinder the Agent's actions in enforcing its liens on the Collateral.
Any notice(s) required or desired to be given hereunder shall be
directed to the party to be notified at the address stated herein.
The agreements contained herein shall continue in force until all of
Borrower's obligations and liabilities to the Agent and Lenders are paid and
satisfied in full and all financing arrangements among the Agent, the Lenders
and Borrower have been terminated.
The undersigned will notify all successor owners, transferees,
purchasers and mortgagees of the existence of this agreement. The agreements
contained herein may not be modified or terminated orally and shall be binding
upon the successors, assigns and personal representatives of the undersigned,
upon any successor owner or transferee of any of the Premises, and upon any
purchasers, including any mortgagee, from the undersigned.
Executed and delivered this ____ day of __________, 199_, at
_______________________.
[Name and Address of Bailee]
(By)_______________________
<PAGE> 31
SCHEDULE 1
TO
SECURITY AGREEMENT
Pledged Debt:
<PAGE> 32
SCHEDULE 2
TO
SECURITY AGREEMENT
Locations of Collateral:
<PAGE> 33
SCHEDULE 2-A
TO
SECURITY AGREEMENT
Third Party Locations:
<TABLE>
<CAPTION>
Corporate Name of Description Maximum
Third Party Address of Relationship Amount
- ----------------- ------- --------------- -----------
<S> <C> <C> <C>
</TABLE>
<PAGE> 34
SCHEDULE 2-B
TO
SECURITY AGREEMENT
Financing Statement Filing Locations:
<PAGE> 35
SCHEDULE 3
TO
SECURITY AGREEMENT
Trade Names:
<PAGE> 1
EXHIBIT 23.1
KPMG Letterhead
Board of Directors
FTD Corporation:
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
(signed) KPMG Peat Marwick LLP
Detroit, Michigan
January 9, 1998
