Strategic Transaction | Strategic Transaction FreshRealm Transaction On May 15, 2023, the Company entered into a non-binding letter of intent with FreshRealm, which contemplated FreshRealm’s acquisition of the fulfillment equipment and other production assets of the Company and the Company’s entry into an expanded commercial relationship with FreshRealm. On the Closing Date, the Company entered into definitive agreements with FreshRealm, pursuant to which, among other things, the Company sold its production and fulfillment operational infrastructure to FreshRealm, and concurrently executed the ten year Production and Fulfillment Agreement under which FreshRealm became the exclusive supplier of the Company’s meal kits. Asset Purchase Agreement On the Closing Date, the Company, Blue Apron, LLC, the Company’s wholly owned subsidiary (“Blue Apron”), and FreshRealm entered into an asset purchase agreement (the “Asset Purchase Agreement”), pursuant to which FreshRealm purchased certain assets of the Company relating to the Company’s production and fulfillment operations (the “P&F Business”) conducted by the Company at its fulfillment facilities located in Linden, New Jersey and Richmond, California (together, the “Facilities”). Pursuant to the Asset Purchase Agreement, on the Closing Date, (i) Blue Apron transferred to FreshRealm various assets used in the P&F Business including, among others, certain of Blue Apron’s inventory and consumable supplies and the rights under warranties and indemnities related thereto, identified transferred contracts (the “Transferred Contracts”), furnishings and equipment at the Facilities, including certain operating and finance leases, permits, books and records relating to the P&F Business, and intellectual property, including certain know-how, business IT systems and any implied goodwill arising out of such assets or the P&F Business (such assets, the “Purchased Assets”), other than the assets set forth in clause (ii); (ii) Blue Apron retained various assets including certain of Blue Apron’s prepaid expenses, intellectual property, excluded contracts, the assets relating to the Company’s wine business and e-commerce marketplace business, and other assets unrelated to the P&F Business, including assets relating to the Company’s culinary, marketing and digital product, and customer service operations (such assets, the “Excluded Assets”); (iii) FreshRealm assumed certain liabilities, including liabilities relating to the ownership or use of the Purchased Assets after the Closing, the employment of the Relevant Team Employees (as defined in the Asset Purchase Agreement) after the Closing Date, and obligations under the Transferred Contracts; and (iv) Blue Apron retained certain liabilities, including trade payables in connection with the P&F Business prior to the Closing Date, liabilities relating to operation of the P&F Business prior to the Closing Date, and liabilities relating to the Excluded Assets. The Company determined that the assets sold and transferred and the assigned liabilities (collectively the "Disposal Group") did not constitute a component and did not meet the criteria for discontinued operation under ASC 205-20 as no discrete financial information is available for the Disposal Group with no cash flows that can be clearly distinguished for financial reporting purposes from the rest of Company. The Company concluded that the Disposal Group constitutes a business as it contains inputs and processes for producing outputs and, as such, the Company accounted for the sale as a disposal of a business under ASC 810-10. As of May 15, 2023, the Disposal Group met the criteria for classification as held for sale under ASC 360 with the Disposal Group subsequently being disposed of by sale on the Closing Date. The Disposal Group consisted of the following assets and liabilities: (In thousands) Sold Assets Inventories, net $ 24,990 Furnishings and equipment 44,874 Operating lease right-of-use assets 481 Finance lease right-of-use assets 463 Total Sold Assets $ 70,808 Assigned Liabilities Operating lease liabilities, current 158 Finance lease liabilities, current 93 Operating lease liabilities, long-term 314 Finance lease liabilities, long-term 381 PTO accrual - relevant Team Employees 1,442 Total Assigned Liabilities $ 2,388 Total Disposal Group $ 68,420 As consideration for the FreshRealm Transaction, on the Closing Date, FreshRealm paid to Blue Apron an amount in cash equal to $28.5 million (the "Base Sale Price"), less $3.5 million, which was paid to Blue Apron in the form of the Seller Note (as defined and described in Note 5), less an amount equal to all vacation time, sick time and other paid time off accrued by Relevant Team Employees (the "PTO Credit") in connection with the FreshRealm Transaction. Under the Asset Purchase Agreement, FreshRealm is obligated to pay to Blue Apron an aggregate of up to $4.0 million of additional cash consideration, including $3.0 million if, as of September 30, 2023, Blue Apron has achieved certain financial and cost-savings milestones and is in compliance in all material respects with its obligations under the Transition Services Agreement (as defined below), and $1.0 million if Blue Apron has achieved the aforementioned financial and cost-savings milestones and also remains in compliance with its obligations under the Transition Services Agreement as of December 31, 2023 (the "Earnout"). The Company determined the total net consideration to be equal to the Base Sale Price, minus the face amount of the Seller Note, plus the seller note receivable, net, minus the PTO Credit, minus the value of the Warrant (as described below). Purchase Consideration (In thousands) Base purchase price $ 28,500 Seller note principal (3,500) Seller note receivable, net 3,086 PTO credit - Relevant Team Employees (1,442) Warrant (6,778) Total Purchase consideration $ 19,866 For the three and six months ended June 30, 2023, the Company recognized a loss on the FreshRealm Transaction of $48.6 million, which is recorded in Loss on transaction in the accompanying consolidated statement of operations. (In thousands) Total purchase consideration $ 19,866 Total disposal group (68,420) Net loss recognized on Transaction $ (48,554) Production and Fulfillment Agreement In connection with the execution of the Asset Purchase Agreement, Blue Apron and FreshRealm entered into the Production and Fulfillment Agreement, pursuant to which Blue Apron granted FreshRealm an exclusive right to produce and fulfill all Exclusive Products (as defined in the Production and Fulfillment Agreement) at any FreshRealm facility for sale to Blue Apron (the “Exclusive Right”), including certain individual meal recipe/SKUs that comprise prepped and unprepped ingredients, fresh and/or frozen meals and/or current or future food products that are similar to the Products (as defined in the Production and Fulfillment Agreement). The Exclusive Right does not apply to Blue Apron’s non-food products, individual food or beverage ingredients, pantry items sold on the Market or Wine portion of its website or mobile applications as of the Closing Date. The Exclusive Right does not extend to non-Blue Apron products produced by any future acquirer of Blue Apron. In the event that Blue Apron acquires a third party, the exclusivity does not apply to any meal-kit or food products of such third party for a twenty-four The Production and Fulfillment Agreement also provides for up to $17.5 million of volume-based rebates during the term of the Production and Fulfillment Agreement. Blue Apron can earn these rebates based on the volume of purchases of certain products under the Production and Fulfillment Agreement above specified thresholds, as well as the achievement of certain financial targets by Blue Apron. To earn these rebates, Blue Apron must pay for the relevant products. The volume-based rebates represent a potential future gain that is contingent upon the Company (i) increasing its purchase volume from FreshRealm and (ii) achieving positive adjusted EBITDA. As the volume-based rebates act to ensure that the Company continues to purchase a substantive volume of products from FreshRealm (i.e., ensure that the interests of the Company and FreshRealm are aligned through 2025), the Company determined that the volume-based rebates relate to the ongoing future relationship with FreshRealm, and not the FreshRealm Transaction, and thus should be excluded from the measurement of the consideration. For the three and six month ended June 30, 2023 no volume-based rebates were earned. The initial term of the Production and Fulfillment Agreement is 10 years and will automatically renew for additional 2-year periods unless terminated by either party in accordance with such party’s termination rights. Following any early termination or expiration of the Production and Fulfillment Agreement, the Production and Fulfillment Agreement will continue to be in full force and effect for a period of 18 months after such termination or expiration, with the exception of the Exclusive Right, during which, among other things, Blue Apron and FreshRealm will work in good faith on a transition plan and Blue Apron will plan reductions of use of FreshRealm for manufacturing products. Subleases In connection with the execution of the Asset Purchase Agreement, Blue Apron and FreshRealm entered into sublease agreements for the Facilities (the "Sublease Agreements"). The term of the subleases commenced on the Closing Date. The Richmond, California sublease (the "CA Sublease") will expire on the earlier to occur of (i) the Triggering Date (as defined in the CA Sublease), or (ii) December 31, 2024. The CA Sublease contemplates an assignment of Blue Apron’s interest in the underlying prime lease to FreshRealm. The Linden, New Jersey sublease (the "NJ Sublease" and together with the CA Sublease, the "Subleases") will expire on December 31, 2024, unless the Triggering Date (as defined in the NJ Sublease) occurs, in which event the term shall be extended until August 31, 2026. The NJ Sublease contemplates potential extensions of the NJ Sublease term and/or an assignment of Blue Apron’s interest in the underlying Prime Lease (as defined in the NJ Sublease) to FreshRealm. The Subleases are classified as operating leases, and as the Company is not relieved of its primary obligations under the prime leases, the Company will continue to account for the prime leases as it did before the commencement of the Subleases and will continue to assess the ROU Assets for impairment. Additionally, the Company will recognize sublease income in its consolidated statement of operations over the respective sublease terms on a straight-line basis. See Note 8 for further discussion on leases. Warrant In connection with the execution of the Asset Purchase Agreement, and in consideration for the Transaction, the Company simultaneously issued to FreshRealm a warrant (the “Warrant”) to purchase 1,268,574 shares of the Company’s Class A Common Stock, at an exercise price of $0.01 per share, which represent 19.99% of the Company’s outstanding Class A Common Stock as of the Closing Date. Prior to the 7th anniversary of the Closing Date of the FreshRealm Transaction, the Warrant is exercisable at any time on or after the earlier to occur of (i) the expiration of the Standstill/Lock-up Period (as defined below) and (ii) the delisting of the Class A Common Stock from the New York Stock Exchange; provided that if the Class A Common Stock is concurrently listed on another Trading Market (as defined in the Warrant) within ninety Pursuant to the terms of the Warrant, the Company will not effect the exercise of the Warrant, and the holder will not be entitled to exercise any portion of the Warrant, that, upon giving effect to such exercise, the aggregate number of shares of Class A Common Stock beneficially owned by the holder (together with its affiliates) would exceed 19.99% of the number of shares of Class A Common Stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Warrant, which percentage may be changed at the holders election to a lower percentage upon 61 days’ notice to the Company, subject to the terms of the Warrant. In addition, pursuant to the terms of the Warrant, the holder will not, and will not cause any direct or indirect affiliate to, for a period beginning on the issuance date of the Warrant and ending 18 months after the issuance date of the Warrant (the “Standstill/Lock-up Period”), (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, the Warrant or the shares of Class A Common Stock issuable upon exercise of the Warrant ( the “Warrant Shares”), (ii) enter into any hedging, swap or other agreement or transaction that would transfer, in whole or in part, any of the economic consequences of the Warrant or Warrant Shares, whether any such transaction described in clauses (i) or (ii) is to be settled by delivery of the Warrant or Warrant Shares, in cash or otherwise, (iii) make any demand for or exercise any right under the registration rights agreement between the Company and FreshRealm with respect to the Warrant Shares or otherwise with respect to the registration of the Warrant or Warrant Shares, or (iv) publicly disclose the intention to do any of the foregoing, except as permitted by certain exceptions set forth in the Warrant. The Company assessed the classification of the Warrant as either equity-classified or liability-classified instruments based on the specific terms and applicable authoritative guidance in ASC 480 and ASC 815. The Warrant did not meet the criteria for ASC 480 or ASC 815-40 liability accounting. As the Warrant is considered indexed to the Company’s own stock and meets the requirements for equity classification, the Company is accounting for the Warrant as an equity instrument. The Company initially measured the Warrant within equity at fair value and will not subsequently remeasure the equity instrument. As of the Closing Date, the Warrant was valued at $6.8 million and was recorded to additional-paid-in capital. The Company utilized a Black-Scholes option pricing model to measure the fair value of the Warrant, using the following key assumptions: Expected volatility 134.84 % Risk-free interest rate 3.84 % Expected term (in years) 7 Dividend yield 0.00% Expected Volatility — The expected volatility was derived from the average historical stock volatility of the Company over the expected term prior to June 9, 2023. Risk‑Free Interest Rate — The risk‑free interest rate is based on the daily par yield curve rate per U.S. Treasury for constant maturity notes with terms approximately equal to the expected term. Expected Term — The expected term represents the period that the Warrant is expected to be outstanding based on the contractual terms. Dividend Yield — The expected dividend is zero as the Company has not paid and does not anticipate paying any dividends in the foreseeable future. Transition Services Agreement The Company also entered into a transition services agreement (the “Transition Services Agreement”) with FreshRealm, pursuant to which the Company will be paid to provide certain services to FreshRealm to facilitate the transition of the operations of the P&F Business to FreshRealm (such services, the “P&F Services”). The obligations of Blue Apron to provide the P&F Services shall terminate with respect to each P&F Service on the earlier of (i) the applicable Transition Date, which means initially September 30, 2023, subject to extension as mutually agreed to by the parties and provided that specific P&F Services may have specific Transition Dates, and (ii) the transition of the applicable operations or P&F Services to FreshRealm, in each case subject to further extension. In accordance with the Transition Services Agreement, the P&F Services being performed by the Company for FreshRealm are being charged to FreshRealm at cost (equal to pass-through charges and the estimated cost of personnel time and effort to perform the transition services), which the Company determined to, in all material respects, approximate fair value. The Company will recognize revenue under the Transition Services Agreement as services are provided to FreshRealm and any pass-through charges will be recorded as reduction to the relevant expenses. Technology License Agreement In connection with the execution of the Asset Purchase Agreement, the Company and FreshRealm entered into a technology license agreement (the “Technology License Agreement”), pursuant to which the Company licensed certain software and technology to FreshRealm to enable FreshRealm to perform its obligations under the Production and Fulfillment Agreement. The Technology License Agreement provides an exclusive license to the software for Blue Apron’s warehouse management system and a non-exclusive license to source code for certain other Blue Apron software used in connection with Blue Apron’s direct-to-consumer business, solely for the purpose of enabling the warehouse management system. In addition, Blue Apron received a non-exclusive license to intellectual property rights that were sold to FreshRealm in accordance with the Asset Purchase Agreement. The Technology License Agreement has certain limitations on the use of the intellectual property rights licensed to Blue Apron to prevent use of those intellectual property rights to compete with FreshRealm. There was no consideration for the technology licenses as these licenses are required in order for FreshRealm to be able to perform its obligations under the Production and Fulfillment Agreement. As software was not part of the Disposal Group, the Company assessed the remaining software for impairment under ASC 350-40 and determined there were indicators of impairment present related to certain internal-use capitalized software used in P&F Business. As there is no future utility for such internal-use capitalized software, the Company recorded a $1.7 million impairment loss in Other operating expense as of June 30, 2023, representing the remaining carrying value of these assets. Retail License Agreement In connection with the execution of the Asset Purchase Agreement, the Company and FreshRealm entered into a retail license agreement (the “Retail License Agreement”), pursuant to which the Company granted an exclusive license under certain of the Company’s trademarks and certain other specified intellectual property rights, in connection with the manufacturing, packaging, marketing, promotion, sale, and distribution of ready-to-heat, ready-to-cook and ready-to-eat meals, meal kits, and related food items and food products (the “Retail Products”) in the United States through specified sales channels other than specified direct-to-consumer channels. In addition, the Company granted FreshRealm a non-exclusive license to use the licensed intellectual property in sales presentations, business development collateral, and marketing and advertising materials related to the Retail Products. The Retail License Agreement also granted FreshRealm specified rights to sublicense the licenses for purposes of production and fulfillment of the Retail Products in the United States. Under the Retail License Agreement, FreshRealm pays certain royalties to the Company. The royalties must be spent to promote the Retail Products, although, during the term of the Retail License Agreement, a smaller proportion of the royalties must be so spent and the remainder of the royalties will be credited or paid to the Company. In addition, the Retail License Agreement grants FreshRealm a right of first refusal to obtain rights with respect to (i) new names, trademarks, or other branding assets for use in connection with Retail Products or (ii) sale of Retail Products in territories outside of the United States. The initial term of the Retail License Agreement is 10 years and will automatically renew for additional 2 year periods unless terminated by either party in accordance with such party’s termination rights. |