-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rh5pymqX5giz/jwhoU+IPgtUaFtruAYk9QJf5DS7WLHLx/EQwzLE6vM3By8nH2kY XpkJb9nJf5+9M5qVlxl4/g== 0000927016-99-002017.txt : 19990517 0000927016-99-002017.hdr.sgml : 19990517 ACCESSION NUMBER: 0000927016-99-002017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEERLINGS & WADE INC CENTRAL INDEX KEY: 0000922810 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 042935863 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24048 FILM NUMBER: 99623575 BUSINESS ADDRESS: STREET 1: 960 TURNPIKE ST CITY: CANTON STATE: MA ZIP: 02021 BUSINESS PHONE: 6178214152 MAIL ADDRESS: STREET 1: 960 TURNPIKE ST CITY: CANTON STATE: MA ZIP: 02021 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 OR [ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-24048 GEERLINGS & WADE, INC. (Exact name of registrant as specified in its charter) Massachusetts 04-2935863 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 960 Turnpike Street, Canton, MA 02021 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code): (781) 821-4152 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: Par Value Date Number of Shares --------- ---- ---------------- Common Stock $ .01 May 14, 1999 3,846,550 GEERLINGS & WADE, INC. INDEX
Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets as of December 31, 1998 and March 31, 1999 (Unaudited)............................................ 2 Statements of Operations for the Quarters Ended March 31, 1998 and March 31, 1999 (Unaudited)............................................ 3 Statements of Cash Flows for the Three Months Ended March 31, 1998 and March 31, 1999 (Unaudited)............................................ 4 Notes to Financial Statements......................................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................... 6 PART II. OTHER INFORMATION Item 4. Submissions of Matters to a Vote of Stockholders...................... 10 Item 6. Exhibits and Reports on Form 8-K...................................... 10 SIGNATURES ........................................................................................ 11
1 PART I. FINANCIAL INFORMATION Item 1. Financial Statements GEERLINGS & WADE, INC. BALANCE SHEETS (Unaudited)
December 31, March 31, 1998 1999 --------------------------- --------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 4,289,646 $ 3,297,216 Accounts receivable 610,382 863,949 Inventory 8,213,801 10,321,055 Prepaid mailing costs 1,357,950 1,196,286 Prepaid expenses and other assets 833,376 684,474 Deferred income taxes 87,119 87,119 ----------- ----------- Total Current Assets 15,392,274 16,450,099 ----------- ----------- PROPERTY AND EQUIPMENT, AT COST 2,514,299 2,790,664 Less--Accumulated Depreciation 1,646,580 1,748,417 ----------- ----------- 867,719 1,042,247 ----------- ----------- DEFERRED INCOME TAXES, NET 493,436 493,436 ----------- ----------- OTHER ASSETS 451,799 415,288 ----------- ----------- $17,205,228 $18,401,070 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Line of credit $ --- $ --- Accounts payable 3,401,392 5,112,581 Current portion of deferred revenue 1,089,659 989,280 Accrued expenses 924,561 321,004 ----------- ----------- Total Current Liabilities 5,415,612 6,422,865 ----------- ----------- DEFERRED REVENUE, LESS CURRENT PORTION 384,940 592,834 ----------- ----------- STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value - Authorized-1,000,000 shares Outstanding-none --- --- Common stock, $.01 par value- Authorized-10,000,000 shares- Issued and outstanding-3,789,495 and 3,846,550 shares in 1998 and 1999, respectively 37,895 38,466 Additional paid-in capital 9,759,371 10,021,823 Retained earnings 1,607,410 1,325,082 ----------- ----------- Total Stockholders' Equity 11,404,676 11,385,371 ----------- ----------- $17,205,228 $18,401,070 =========== ===========
The accompanying notes are an integral part of these financial statements. 2 GEERLINGS & WADE, INC. STATEMENTS OF OPERATIONS (Unaudited)
Quarter Ended March 31, March 31, 1998 1999 --------------------- ---------------------- Sales $7,391,066 $8,529,923 Cost of Sales 3,930,623 4,427,900 ---------- ---------- Gross Profit 3,460,443 4,102,023 Selling, general and administrative expenses 3,299,012 4,603,760 ---------- ---------- Income (loss) from operations 161,431 (501,737) Interest income 118 15,010 Interest expense 20,574 --- ---------- ---------- Income (loss) before income taxes 140,975 (486,727) Provision (benefit) for income taxes 57,000 (204,400) ---------- ---------- Net income (loss) $ 83,975 $ (282,327) ========== ========== Net income (loss) per share Basic $0.02 $(0.07) ========== ========== Diluted $0.02 $(0.07) ========== ========== Weighted average common and common equivalent shares outstanding Basic 3,782,932 3,827,979 ========== ========== Diluted 3,800,644 3,827,979 ========== ==========
The accompanying notes are an integral part of these financial statements. 3 GEERLINGS & WADE, INC. STATEMENT OF CASH FLOWS (Unaudited)
Quarter Ended March 31, March 31, 1998 1999 -------------------------- ----------------------------- CASH FLOW FROM OPERATING ACTIVITIES: Net Income (Loss) $ 83,975 $ (282,327) Adjustments to reconcile net income (loss) to net cash used in operating activities -- Depreciation and amortization 125,404 113,925 Changes in current assets and liabilities -- Accounts receivable 313,397 (253,567) Inventory 674,944 (2,107,254) Prepaid mailing costs 369,278 161,665 Prepaid expenses 72,239 160,761 Accounts payable (35,532) 1,711,189 Deferred revenue 909 107,516 Accrued expenses (718,121) (603,557) ----------- ----------- Net cash (used in) provided by operating activities 886,493 (991,649) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment, net (7,962) (276,364) Receipts from a return of fixed assets 63,333 --- Change in other assets --- 12,560 ----------- ----------- Net cash provided by (used in) investing activities 55,371 (263,804) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on line of credit 1,651,090 --- Repayments on line of credit (2,633,485) --- Proceeds from stock award plans 13,931 263,023 ----------- ----------- Net cash provided by (used in) financing activities (968,464) 263,023 ----------- ----------- NET CHANGE IN CASH AND CASH EQUIVALENTS (26,600) (992,430) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 358,043 4,289,646 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 331,443 $ 3,297,216 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period - Income Taxes $ 403,850 $ 260,500 =========== =========== Interest $ 20,574 $ --- =========== ===========
The accompanying notes are an integral part of these financial statements. 4 Notes to Financial Statements 1. Basis of Presentation --------------------- The interim period information set forth in these financial statements is unaudited and may be subject to normal year-end adjustments. In the opinion of management, the information reflects all adjustments, which consist of normal recurring accruals that are considered necessary to present a fair statement of the results of operations of Geerlings & Wade, Inc. (the "Company") for the interim periods presented. The operating results for the quarter ended March 31, 1999 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 1999. The financial statements presented herein should be read in conjunction with the financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. Certain information in these footnote disclosures normally included in financial statements has been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission. 2. Basic and Diluted Net Income (Loss) Per Common Share ---------------------------------------------------- The Company applies the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share that Statement establishes standards for computing and presenting earnings per share. For the quarters ending March 31, 1998 and March 31, 1999, 248,828 and 325,001 of anti-dilutive shares, respectively, have been excluded from the weighted average number of common and dilutive potential common shares outstanding. Basic and diluted net income (loss) per share is as follows:
Quarter Ended March 31, 1998 1999 -------------------- ------------------- Net income (loss) $ 83,975 $ (282,327) ========== ========== Basic weighted average shares outstanding 3,782,932 3,827,979 Weighted average common equivalent shares computed under the treasury stock method 17,712 --- ---------- ---------- Diluted weighted average shares outstanding 3,800,644 3,827,979 ========== ========== Basic net income (loss) per share $ 0.02 $ (0.07) ========== ========== Diluted net income (loss) per share $ 0.02 $ (0.07) ========== ==========
3. Comprehensive Income --------------------- SFAS No. 130, Comprehensive Income, requires that all items recognized under accounting standards as components of comprehensive income be reported in financial statements. It also requires that an entity classify items of other comprehensive income (e.g., foreign currency translation adjustments and unrealized gains and losses on certain marketable securities) by their nature in its financial statements. The Company did not have any items of comprehensive income for the quarters ended March 31, 1998 and March 31, 1999, and therefore, total comprehensive income was the same as reported net income for those periods. 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General Geerlings & Wade, Inc. (the "Company") is a direct marketer of premium wines and wine-related merchandise to retail consumers. The Company currently maintains licensed facilities in fifteen states. Federal, state and local laws strictly govern the sale of wine in each market served by the Company. Important Factors Regarding Forward-Looking Statements The Company may occasionally make forward-looking statements and estimates such as forecasts and projections of the Company's future performance or statements of management's plans and objectives. These forward-looking statements may be contained in SEC filings, press releases and oral statements, among others, made by the Company. Actual results could differ materially from those in such forward-looking statements. Therefore, no assurance can be given that the results in such forward-looking statements will be achieved. Important factors could cause the Company's actual results to differ from those contained in such forward-looking statements, including, among other things, the factors mentioned in the Company's Annual Report on Form 10-K for the year ended December 31, 1998 on file with the U.S. Securities and Exchange Commission. Quarters Ended March 31, 1998 and March 31, 1999 Sales Sales increased $1,139,000, or 15.4%, from $7,391,000 in the quarter ended March 31, 1998 to $8,530,000 in the quarter ended March 31, 1999. Sales levels largely depend on response rates and circulation (number) of "house mailings" which are product offerings sent via the U.S. Postal Service to existing customers and of "acquisition mailings" which are product offerings sent via the U.S. Postal Service to potential new customers. Catalog, retail and Internet sales also contribute to total sales. The increase in sales resulted from mailing an accessories only catalog with a circulation of 310,000 and a wine and accessories catalog with a circulation of 329,000, adding Passport Wine Club which was acquired in July 1998, and new sales from www.geerwade.com which was ---------------- launched in May 1998. About 70% of the Internet sales come from existing customers. Sales from house mailings, acquisition mailings, and special letters to preferred customers generated comparable sales to the sales from these types of promotions mailed in the first quarter of 1998. Sales, exclusive of wine accessory sales, increased 10.1% in markets, defined by the shipping region of each warehouse, in which the Company has been open at least one year. The number of twelve-bottle equivalent cases ("cases"), exclusive of Bordeaux future sales, sold by the Company increased by 11,786, or 17.1%, from 68,875 in the quarter ended March 31, 1998 to 80,661 in the quarter ended March 31, 1999. The average case price, exclusive of Bordeaux future sales, decreased by $1.53, or 1.5%, from $102.81 in the quarter ended March 31, 1998 to $101.28 in the quarter ended March 31, 1999. The average case price decreased principally as a result of sales from acquisition mailings, which feature lower cost wines. The average number of cases purchased per customer order was 1.07 in the quarter ended March 31, 1999 compared to 1.10 in the same fiscal period of 1998. This decrease resulted primarily from continuity sales made by Passport Wine. These continuity orders include 2, 4 or 6 bottles per shipment as compared to the Company's 6-bottle minimum for other types of orders. Gross Profit Gross profit increased $642,000, or 18.6%, from $3,460,000 in the quarter ended March 31, 1998 to $4,102,000 in the quarter ended March 31, 1999. Gross profit as a percentage of sales increased from 46.8% in the quarter ended March 31, 1998 to 48.1% in the quarter ended March 31, 1999. Gross profit attributable to wine sales increased $2.71 per case, or 5.6%, from $48.29 per case in the quarter ended March 31, 1998 to $51.00 per case in the quarter ended March 31, 1999. The increase in gross margin percentage and average gross profit resulted primarily from improved purchasing by the Company and lower domestic wine costs. Selling, General and Administrative Expenses Selling, general and administrative expenses increased $1,305,000, or 39.6%, from $3,299,000 in the quarter ended March 31, 1998 to $4,604,000 in the quarter ended March 31, 1999 and increased as a percentage of sales from 44.6% in the quarter ended March 31, 1998 to 54.0% in the quarter ended March 31, 1999. The net increase in selling, general and administrative expenses is largely attributable to higher marketing costs due to mailing 639,000 catalogs (no catalogs were mailed in the quarter ended March 31, 1998) and additional 2,241,000 acquisition mailing pieces. Also, overhead expense was higher resulting from operating new facilities including Passport Wine Club, the Newbury Street store, the Texas retail facility and the Internet operations. 6 Interest Interest income increased from $118 in the quarter ended March 31, 1998 to $15,000 in the quarter ended March 31, 1999. This increase in interest income was due to having higher cash balances invested during the first quarter of 1999 as compared to the first quarter of 1998. There was no interest expense for the first quarter of 1999 and $21,000 of interest for the first quarter of 1998. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Provision for Income Taxes The Company's provision (benefit) for income taxes for the quarter ended March 31, 1999 reflects an approximate 42.0% effective income tax rate anticipated for the full year ended December 31, 1999. During the quarter ended March 31, 1999, the Company recorded a benefit for income taxes of $204,000. Liquidity and Capital Resources The Company's primary working capital needs include purchases of inventory and the cost of acquisition mailings and other expenses associated with promoting sales. As of March 31, 1999, the Company had cash and cash equivalents totaling $3,297,000. In addition, the Company has a credit facility with BankBoston comprised of a revolving, discretionary, demand line of credit in the maximum principal amount equal to the lesser of 50% of qualifying inventory or $5.0 million (the "Line of Credit"). The Line of Credit bears interest at BankBoston's base rate (which approximates the prime rate) plus one- half of a percent and is collateralized by substantially all of the assets of the Company. As of March 31, 1999, the Company had no outstanding balance under the Line of Credit. For the year to date ending March 31, 1999, net cash of $992,000 was used by operating activities, resulting principally from increase in inventory and accounts receivable and a decrease in accrued expenses, which reductions were offset by an increase in accounts payable and a decrease in prepaid mailings costs and prepaid expense. The Company invested $277,000 in computer hardware and software for the Company in general and in equipment and furniture for the Texas retail facility. At December 31, 1998 and March 31, 1999, the Company had working capital of $9,977,000 and $10,027,000, respectively. The increase in working capital was primarily due to a decrease in accounts receivable and inventory and a decrease in accrued expenses and was offset by a decrease in accounts payable. The Company presently believes that cash flows from operations and current cash balances, together with the Line of Credit, will be sufficient to meet the Company's working capital and capital expenditure requirements for the foreseeable future. Exchange Rates The Company engages, from time to time, in currency-hedging activities related to firm commitments for the purchase of inventories in an effort to fix costs and manage the impact of exchange rate fluctuations. The Company has two foreign exchange lines of credit, which allow the Company to enter into forward currency exchange contracts of up to $1,000,000 maturing on any one day. As of March 31, 1999, the Company had obligations of $727,000 with respect to forward currency exchange contracts. Year 2000 Compliance Year 2000 Compliance. The year 2000 issue relates to computer programs and systems that recognize dates using two digit year data rather than four digit year data. As a result, such programs and systems may fail or provide incorrect information when using dates after December 31, 1999. If the year 2000 issue were to cause disruptions to the Company's internal information technology systems or to the information technology systems of entities with whom the Company has commercial relationships, material adverse effects to the Company's operations could result. The Company's internal computer programs and operating systems consist of programs and systems relating to virtually all segments of the Company's business, including merchandising, customer database management and marketing, order-processing, fulfillment, inventory management, customer service and financial reporting. These programs and systems are primarily comprised of: 7 "Front-end" systems. These systems automate and manage business functions such as order-taking and order-processing, inventory management, fulfillment operations at the Company's retail facilities and financial reporting. Users within the Company interface with these systems through personal computers via a local area network and from distant locations through a private network using the Internet. These users also use and access through their personal computers off-the-shelf e-mail, word processing, spreadsheet and other commercial software applications. Customer database management systems. These systems facilitate the storage of customer data and direct response and catalog mailings for the Company. Currently, the Company's internal customer database management system is integrated with the existing front-end system of the Company. Telecommunications systems. These systems enable the Company to manage their order-taking and customer service functions. Voicemail systems. These systems are used for receiving and storing messages to employees at various Company facilities. Ancillary services systems. These include such systems as heating, ventilation and air conditioning control systems and security systems. The Company has completed detailed reviews of its internal front-end systems, its customer database management systems, and its personal computers and local area networks, to assess the potential impact of the year 2000 issue. These reviews were completed by the Company's existing workforce at no identifiable incremental cost. Based upon these reviews, the Company believes that all of these systems and equipment will operate correctly after minor software patches are installed when processing data that include dates after December 31, 1999 except for its front-end processing system. The Company believes that minor remediation or expenditures are required to ensure continued proper operation of such systems and equipment other than the front-end processing system. The Company has purchased a replacement software system for front-end processing and a new production database that are year 2000 compliant. This system includes the Catman Catalog software that is developed and sold by Axexxis Corporation and runs on the Universe data base that is sold by Ardent Software, Inc. Both of these systems process dates based on a system that adds or subtracts days from a starting date, which is time zero. Therefore, the system does not rely on years stored as either 2 or 4 digit number such as "99" or "1999" and, as represented to the Company, will not fail to function when January 1, 2000 arrives. The Company has also purchased a new server for this software which the vendor represents is Year 2000 compliant. In addition to addressing the year 2000 issue, this new software and hardware system will enhance the functionality and capability of the Company's entire computer system. The Company plans to conduct further reviews and tests of its systems and equipment to insure that all potential year 2000 issues have been addressed. The approximate cost to purchase this new system, including any necessary hardware, and to program the new Websites planned for the Company will be between $800,000 and $1,000,000. The Company has not yet completed reviews of its internal telecommunications systems and its internal voicemail and ancillary services systems. Based on its preliminary reviews, the Company has been advised by its telephone system vendor that a $3,000 software update can be purchased to bring the Company's telephone system into compliance. The Company intends to purchase such software. The Company does not anticipate that upon further reviews that any remediation relating to such other systems that might be necessary will cause the Company to incur material costs or present implementation challenges that cannot be addressed prior to the end of calendar year 1999. The Company expects to complete its reviews of these systems in the first half of calendar year 1999. The computer programs and operating systems used by entities with whom the Company has commercial relationships also pose potential problems relating to the year 2000 issue, which may affect the Company's operations in a variety of ways. These risks are more difficult to assess than those posed by internal programs and systems, and the Company has not yet completed a plan for assessing them. The Company believes that the programs and operating systems used by entities with which it has commercial relationships generally fall into two categories: First, the Company relies on programs and systems used by providers of services necessary to it to reach and communicate with its customers. Examples of such providers include the United States Postal Service, UPS, telephone companies, customer list processors and rental agencies, printers and banks. Services provided by such entities affect almost all facets of the Company's operations, including processing of orders, printing and mailing of direct response mail and catalogs, shipping of goods and certain financial services (e.g., credit card processing). Programs and services in this first category generally are not specific to the Company's business and disruptions in their availability would likely have a 8 negative impact on most enterprises within the direct marketing industry and on many enterprises outside the direct marketing industry. The Company believes that all of the most reasonably likely worst case scenarios involving disruptions to its operations stemming from the year 2000 issue relate to programs and systems in this first category. The Company intends to include an evaluation of such scenarios in its plan for assessing the programs and systems of the entities with which it has commercial relationships. Second, the Company relies on programs and systems used by a variety of vendors of the products it markets (in 1998, the Company purchased goods from many vendors). In the case of risks posed by the year 2000 issue relating to programs and systems in this second category that are used by product vendors, such risks are minimal and correctable since these vendors are relatively small companies and generally rely on off-the-shelf software programs and hardware. The Company intends to include in its plan for assessing the programs and systems of the entities with whom it has commercial relationships the solicitation of assurances of year 2000 compliance from each vendor that is significant to the Company. The Company expects to complete its plan for assessing the programs and systems of the entities with whom it has commercial relationships by the end of May 1999 and the identification of related risks and uncertainties by the end of the second quarter of fiscal 1999. Once such identification has been completed, the Company intends to resolve any material risks and uncertainties that are identified by communicating further with the relevant vendors, by working internally to identify alternative sourcing and by formulating contingency plans to deal with such matters. The Company expects the resolution of such matters to continue until all year 2000 problems are resolved satisfactorily. Item 3: Quantitative and Qualitative Disclosure about Market Risk The following discussion about the Company's market risk disclosures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. The Company is exposed to market risk related to foreign currency exchange rates. The Company does not use derivative financial instruments for speculative or trading purposes. The Company enters into foreign exchange forward contracts to reduce its exposure to currency fluctuations on vendor accounts payable denominated in foreign currencies. The objective of these contracts is to neutralize the impact of foreign currency exchange rate movements on the Company's operating results. The gains and losses on these contracts are included in earnings when the underlying foreign currency denominated transaction is recognized. Gains and losses related to these instruments for the quarters ended March 31, 1999 and 1998 were not material to the Company. Looking forward, the Company does not anticipate any material adverse effect on its financial position, results of operations or cash flows resulting from the use of these instruments. However, there can be no assurance that these strategies will be effective or that transaction losses can be minimized or forecasted accurately. 9 PART II. OTHER INFORMATION Item 4. SUBMISSIONS OF MATTERS TO A VOTE OF STOCKHOLDERS (a) The Company held its annual meeting on May 11, 1999. (b) At the annual meeting, stockholders elected Messrs. James C. Curvey and Mr. Phillip D. Wade as a director. Messrs. Gordon R. Cooke, Huib E. Geerlings, John M. Connors, Jr. and Robert Webb and Jay L. Essa continued serving their terms of office after the annual meeting. (c) Results of annual meeting votes:
Proposal For Against Withheld Abstentions Broker Non-votes - ---------------------------------------------------------------------------------------------------- To elect as director James C. Curvey 3,429,799 130,912 - ---------------------------------------------------------------------------------------------------- To elect as director Phillip D. Wade 3,430,849 129,862 - ---------------------------------------------------------------------------------------------------- To approve an increase of 150,000 3,340,498 217,313 2,900 shares reserved for issuance under the Company's Stock Option Plan and to approve an increase to 250,000 as the number of options which may be granted to an individual employee under the Company's Stock Option Plan - ---------------------------------------------------------------------------------------------------- To ratify the appointment of Arthur 3,550,019 9,072 1,620 Andersen LLP as independent auditors of the Company - ----------------------------------------------------------------------------------------------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.39 Severance Agreement dated April 2, 1999 between the Company and Jay L. Essa 27 Financial Data Schedule (b) No reports on Form 8-K were filed during the quarter ended March 31, 1999. 10 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GEERLINGS & WADE, INC. (Registrant) By: /s/ Jay L. Essa ---------------------------- Name: Jay L. Essa Title: President and Chief Executive Officer By: /s/ David R. Pearce ---------------------------- Name: David R. Pearce Title: Vice President and Chief Financial Officer Dated: May 14, 1999 11 EX-10.39 2 SEVERANCE AGREEMENT EXHIBIT 10.39 Severance Agreement ------------------- This Agreement, dated as of April 2, 1999, is between Geerlings & Wade, Inc., a Massachusetts corporation (the "Company") and Jay L. Essa (the "Executive"). Whereas, effective on September 9, 1996, the Executive and the Company entered into a letter agreement (the "Employment Agreement") pursuant to which the Executive agreed to serve as the Company's President and Chief Executive Officer. The Employment Agreement provides for a base salary of $200,000 and is terminable at will at the option of the Company or the Executive. Whereas, the Executive is currently the President and Chief Executive Officer of the Company. Whereas, the Company has agreed to provide the Executive with a severance arrangement in consideration to the Executive's acceptance not to compete with the business of the Company for a period of one year after the termination of his employment with the Company. NOW, THEREFORE, in consideration of the foregoing recitals, the mutual promises and conditions set forth in this Agreement, the parties hereby agree: 1. Termination of Employment. If the Executive's employment is terminated by ------------------------- the Company for any reason other than for Cause, the Executive shall receive a severance payment of $200,000 for a period of 12 months following the date of termination (the "Severance Period") payable in equal monthly installments, provided, however, that if the Executive obtains employment of any kind during - -------- ------- the Severance Period, the amount payable to the Executive under this Section 1 shall be reduced by 50% of the total of W-2 income received or deferred by the Executive with respect to the Severance Period from such other employment, provided, further, that the amount payable to Executive under this Section shall - -------- ------- not be reduced to less than $100,000. The following as determined by the Board of Directors of the Company, shall constitute Cause for termination: i. Material breach by the Executive of any provision of this Agreement; or ii. Other conduct by the Executive that is materially harmful to the business, interests or reputation of the Company; 2. Non-Competition --------------- During the Executive's employment and for a period of twelve months after his employment terminates, the Executive agrees that he shall not, directly or indirectly, whether as an employee, consultant, agent, partner, owner, investor or otherwise, compete with the Company or engage in any manner in any activity that involves the retail sale of wine or wine accessories via the mails or the Internet. 3. Non-Disclosure and Non-Use of Confidential Information. ------------------------------------------------------ The Executive agrees that he shall not disclose (except as required by law or in connection with the performance of his duties and responsibilities to the Company), or use for his own benefit or gain, any confidential information that is not generally known by others with whom the Company does, or plans to, compete or do business ("Confidential Information"). Confidential Information includes without limitation such information relating to (i) the development, research, testing, manufacturing and marketing activities of the Company, (ii) all the products researched, developed, planned, tested, manufactured, sold, licensed, leased or otherwise distributed or put into use by the Company, together with all services provided or planned by the Company during the term of Executive's employment, (iii) the costs, sources of supply and strategic plans of the Company, (iv) the identity and special needs of the customers of the Company, and (v) people and organizations with whom the Company has business relationship and those relationships. Confidential Information also includes comparable information that the Company may receive or has received belonging to customers or others who do business with the Company. 4. Withholding. ----------- All payments made by the Company under this Agreement shall be reduced by any tax or other amounts required to be withheld by the Company under applicable law. 5. Entire Agreement. ---------------- This Agreement constitutes the entire agreement between the parties and supersedes any prior communications, agreements and understandings, written or oral, with respect to the terms and conditions of Executive's severance arrangement. 6. Amendment. --------- This Agreement may be amended or modified only by a written instrument signed by Executive and by a duly authorized representative of the Company. 7. Governing Law. ------------- This contract shall be construed and enforced under and be governed in all respects by the laws of the Commonwealth of Massachusetts without regard to the conflict of laws principles thereof. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as a binding contract as of the date first above written. Executive: /s/ Jay L. Essa -------------------------------- Jay L. Essa GEERLINGS & WADE, INC.: By: /s/ Huib Geerlings ----------------------------- Title: Chairman ------------------------- EX-27 3 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 3,297,216 0 863,949 0 10,321,055 16,450,099 2,790,664 1,748,417 18,401,070 6,422,865 0 0 0 38,466 11,346,905 18,401,070 8,529,923 8,529,923 4,427,900 4,427,900 0 0 0 (486,727) 204,400 (282,327) 0 0 0 (282,327) (.07) (.07)
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