-----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, DmsYhIudze2Xt9WOMC1/gxlTdzLRqAu9GYc+G7OYcUvFKNcdd5MNcgioOEaDS79P Uu4B663zV6KWkD1M42Y1RA== 0000912057-01-506551.txt : 20010409 0000912057-01-506551.hdr.sgml : 20010409 ACCESSION NUMBER: 0000912057-01-506551 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEAPOD INC CENTRAL INDEX KEY: 0001036992 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 364118175 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-22557 FILM NUMBER: 1592175 BUSINESS ADDRESS: STREET 1: 9933 WOODS DR STREET 2: STE 375 CITY: SKOKIE STATE: IL ZIP: 60077 BUSINESS PHONE: 8475839400 MAIL ADDRESS: STREET 1: 9933 WOODS DRIVE STREET 2: STE 375 CITY: SKOKIE STATE: IL ZIP: 60077 10-K 1 a2043710z10-k.txt 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NUMBER 0-22557
------------------------ PEAPOD, INC. (Exact name of Registrant as specified in its charter) DELAWARE 36-4118175 (State or other jurisdiction (IRS Employer Identification No.) of Incorporation or Organization)
9933 WOODS DRIVE, SKOKIE, ILLINOIS 60077 (Address of principal executive offices) (ZIP Code) (847) 583-9400 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, par value $0.01 per share, including associated Preferred Stock Purchase Rights ------------------------ 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of the registrant's common stock held by non-affiliates as of March 26, 2001: $14,473,266 based on a closing price of $1.25 of the registrant's common stock on the Nasdaq National Market. This calculation does not reflect a determination that persons are affiliates for any other purpose. The number of shares outstanding of the registrant's common stock as of March 26, 2001 was 17,989,525. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Proxy Statement for the 2001 Annual Meeting of Stockholders (to be filed on or before April 30, 2001) are incorporated by reference into Part III, as indicated herein. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PEAPOD, INC. FORM 10-K ANNUAL REPORT--2000 TABLE OF CONTENTS CAUTIONARY STATEMENTS.......................................................... 1 PART I......................................................................... 1 Item 1. Business.................................................... 1 Item 2. Properties.................................................. 9 Item 3. Legal Proceedings........................................... 9 Item 4. Submission of Matters to a Vote of Security Holders......... 10 PART II........................................................................ 10 Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters....................................... 10 Item 6. Selected Financial Data..................................... 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 12 Item 7a. Quantitative and Qualitative Disclosure about Market Risk... 27 Item 8. Financial Statements and Supplementary Data................. 27 PART III....................................................................... 48 Item 10. Directors and Executive Officers of the Registrant.......... 48 Item 11. Executive Compensation...................................... 50 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................ 50 Item 13. Certain Relationships and Related Transactions.............. 50 PART IV........................................................................ 50 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................................. 50 SIGNATURES..................................................................... 57
i CAUTIONARY STATEMENTS This report contains certain forward-looking statements (as such term is defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) and information relating to the Company that are based on the current beliefs of the management of the Company as well as assumptions made by and information currently available to the management of the Company, including statements related to the timing and amount of the Company's capital expenditures and financing needs, expected changes in the Company's future operating expenses, the Company's competitive strengths and market position, the Company's business strategy, markets for the Company's products, the timing and amount of capital expenditures, general trends and trends in the Company's operations or financial results, the Company's sufficiency of capital resources and ability to obtain financing and the Company's future prospects and profitability. In addition, when used in this report, the words "likely," "will," "suggests," "may," "would," "could," "anticipate," "believe," "estimate," "expect," "intend," "plan," "predict" and similar expressions and their variants, as they relate to the Company or the management of the Company, may identify forward-looking statements. Forward-looking statements contained in this report reflect the judgement of the company as of the date of this report with respect to future events, the outcome of which are subject to certain risks, including the factors described in this report under "Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Factors," which may have a significant impact on the Company's business, operating results or financial condition. Investors are cautioned that these forward-looking statements are inherently uncertain. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described herein. The Company undertakes no obligation to update forward-looking statements. PART I ITEM 1. BUSINESS THE COMPANY Peapod-Registered Trademark- is one of America's leading Internet grocers and a provider of targeted media and research services. Peapod's "SMART SHOPPING FOR BUSY PEOPLE-REGISTERED TRADEMARK-" solution provides consumers with time savings and convenience through a user-friendly, highly functional virtual supermarket, personalized shopping and delivery services, and responsive telephonic and e-mail support. Peapod provides consumer goods companies with a forum for targeted interactive advertising, high-impact electronic couponing and extensive product research by linking together customers from multiple markets into a national online network and collecting substantial data regarding customers' purchase intentions, purchasing behavior and demographics. From its founding in 1989 until 1998, the Company serviced consumers exclusively in partnership with traditional grocery retailers by fulfilling orders through the retail partners' physical stores. In 1997, the Company determined that, in order to satisfy increasing consumer demand and to ensure high quality service, it would shift to a dedicated fulfillment model. In April 2000, international food provider Koninklijke Ahold N.V. ("Ahold"), based in Zandaam, The Netherlands, purchased a majority stake in Peapod and currently owns approximately 57 percent of the outstanding voting securities of the Company. In strategic partnership with Ahold, Peapod is pursuing a "clicks and bricks" business strategy in which the Company works closely with Ahold USA supermarket companies to bring Peapod's online shopping and delivery service to metropolitan areas where Ahold USA supermarket companies are well established. This strategic relationship includes a supply and services agreement with Ahold that enables Peapod to leverage Ahold's purchasing power to procure goods at a lower cost than would be possible without the relationship. In addition, it offers opportunities to leverage the brand equity of the local 1 Ahold supermarket through co-branding and co-marketing with Peapod's online shopping and delivery service. The focused business strategy Peapod is pursuing with Ahold led the Company to enter two new markets (Southern Connecticut and Washington, D.C.) in 2000 in partnership with Ahold retailers, and to exit four markets in late 2000 (Columbus, Ohio, and Houston, Austin and Dallas, Texas) and one market in early 2001 (San Francisco) where it could not capitalize on the advantages of the Ahold relationship. In addition, exiting the Texas and Ohio markets completed the Company's transition to its dedicated fulfillment model. This model is key to the Company's business strategy and is employed today in every market in which the Company operates. This model has two formats: free-standing centers for larger markets and smaller, "fast-pick" centers adjacent to the stores of Ahold retail partners for smaller markets. At the same time it exited the four markets in late 2000, Peapod purchased the operations of Streamline.com, Inc. ("Streamline") in two markets: Chicago and Washington, D.C. Peapod acquired two free-standing, state-of-the-art fulfillment centers, as well as the employees and customer bases of Streamline. This enabled the Company to enter the Washington, D.C. market sooner than anticipated and to add capacity in the Chicago market. Presently, Peapod works closely with Ahold USA supermarket companies in four markets. In Boston, Long Island and Southern Connecticut, the Ahold retail partner is The Stop & Shop Supermarket Company. In the Washington, D.C., metropolitan area, the Ahold retail partner is Giant Food Inc. In Peapod's fifth market, Chicago, Ahold does not have a supermarket presence; however, supply and service arrangements enable Peapod to procure certain dry goods and health and beauty aids from Ahold-owned Tops Market warehouses in Cleveland. Peapod's technology is central to its business model, and integrates proprietary and commercial systems in a manner specifically tailored to the consumer direct business. Peapod's sophisticated Website enables its customers to shop at home or at work in a personalized manner with the benefit of more extensive product and price information than is otherwise practically available. In addition, Peapod's systems efficiently link its product database and merchandising systems, providing dynamic pricing and promotional information to its customers. Peapod has designed its fulfillment management and transportation applications on the basis of many years of picking, packing and delivering grocery orders to incorporate operating methods that are cost-efficient and ensure high quality. The Company believes that its proprietary technology and operating experience provide it several competitive advantages. Peapod's technology integrates the complex requirements of online shopping, grocery merchandising and fulfillment of high-volume, multi-temperature, custom-picked orders. The Company's technology and operating processes for picking, packing, routing (using its proprietary SmartMile-TM- software) and delivering products, as well as its customer support capabilities, have been refined over its years of experience to be efficient and ensure high levels of customer service. The Company's Website and merchandise offerings reflect extensive and continuous learning regarding the preferences, habits and decision-making processes of online grocery consumers. Peapod also provides consumer goods companies with a forum for targeted interactive advertising, high-impact electronic couponing and cost-effective product research by linking together customers from multiple markets into a national online network. Peapod's database creates extensive customer profiles by collecting data from multiple sources, including online shopping behavior, purchase histories, online attitudinal surveys and demographic data that it may purchase from other parties. On the basis of this data, Peapod's proprietary targeting engine delivers customized, one-to-one advertising and promotions. This business offers attractive profit margins relative to the core grocery business, and is expected to become meaningful once Peapod's customer base begins to scale. 2 As of December 31, 2000, Peapod had 124,400 customers and offered its Internet grocery service in six metropolitan markets: Chicago, Illinois; San Francisco/San Jose, California; Boston, Massachusetts; Washington, D.C.; Long Island, New York; and Southern Connecticut. In March 2001, the Company exited the San Francisco/San Jose market, which accounted for 13,100 customers as of December 31, 2000. Peapod was incorporated in December 1996 in the State of Delaware and is a successor to a business originally founded in 1989. The Company's principal corporate offices are located in Skokie, Illinois, a suburb of Chicago. Peapod completed its initial public offering in June 1997 and its common stock is listed on the Nasdaq National Market under the symbol "PPOD". STRATEGIC BUSINESS INITIATIVES Peapod's business strategy is centered on several initiatives designed to grow the Company's business. OPTIMIZE THE MODEL FOR FULFILLMENT SERVICES. The Company has re-engineered its product distribution and order fulfillment model in order to reduce costs, improve quality and enhance volume scalability. The Company has developed warehousing and yield management (SmartMile) routing technologies, and associated operating processes, designed to increase the efficiency of Peapod's order fulfillment. Peapod will continue to pursue enhancements to its model aimed at reducing fulfillment costs while preserving service quality as its order volume increases. GROW CUSTOMER BASE AND ORDER VOLUME. Peapod plans to continue to increase revenue and realize economies of scale by growing its customer base and order volume. The Company will pursue this growth by increasing its penetration in existing markets, with particular focus on the markets in which Ahold USA supermarket companies are present, and by expanding into new markets over time. The Company believes that it can achieve competitive advantages in its various markets as the first one to build a substantial Internet customer base and achieve operating scale. PURSUE A "CLICKS AND BRICKS" BUSINESS STRATEGY. Peapod is pursuing a "clicks and bricks" business strategy in partnership with Ahold USA supermarket companies. Supply and service agreements with Ahold are now in place in all markets in which Peapod operates. Fulfillment services are proved through dedicated free-standing centers (for larger markets) or "fast-pick" centers adjacent to stores of the Ahold retail partner (for smaller markets). The Ahold relationship has provided Peapod a considerably lower cost of entry into new markets and stronger buying power versus other pure-play online grocers, who do not have purchasing power of a company the size of Ahold. The Company expects these relationships to enhance the Company's gross margin going forward. As part of the clicks and bricks strategy, the Company has co-branded its service in those markets in which Ahold USA supermarket companies operate. In Boston, Southern Connecticut and Long Island, the service is "Peapod by Stop & Shop". In Washington, D.C., the service is "Peapod by Giant". The Company believes that it can leverage the customer base of its Ahold retail partners in order to increase Peapod's customer base. BUILD LEADERSHIP IN INTERACTIVE MARKETING SERVICES. Peapod has pioneered, in partnership with consumer goods companies, innovative interactive marketing services consisting of advertising, promotion and market research services. Peapod intends to continue using the combination of its database and Internet shopping channel to create new products and services tailored to its interactive marketing clients. As Peapod's customers increase, the Company believes that consumer goods companies will increasingly view Peapod's service as a powerful advertising venue as well as a valuable research tool. 3 PROVIDE SUPERIOR SERVICE QUALITY. The Company is committed to providing its customers with superior experiences in all aspects of its services. The Company's "SMART SHOPPING FOR BUSY PEOPLE" solution includes user-friendly, highly functional and cost-effective shopping tools as well as a variety of convenient delivery services. "THE PEAPOD PROMISE" of superior service is designed to ensure customer satisfaction. The Company will continue to pursue improvements in its service quality that can be sustained as customers and orders grow aggressively. BUILD PEAPOD BRAND IDENTITY AND AWARENESS--CO-BRANDING OPPORTUNITIES. The Company intends to continue to build brand identity through the functionality, quality, convenience and value of the services it offers. Peapod also intends to market its services, through promotions and advertising, as a means to further establish name brand recognition. In addition, Peapod co-brands its service with the local Ahold USA supermarket company in each market for which it sources its products. Peapod believes that co-branding with a well respected retailer leverages the existing brand awareness, helps to overcome obstacles customers may face in trying a new service from an unknown retailer and enables Peapod to purchase media more cost-effectively than it could otherwise purchase it. The Company believes that this co-branding strategy will result in higher customer trial and lower cost of customer acquisition. PEAPOD SERVICES CONSUMER SERVICES. Peapod's "SMART SHOPPING FOR BUSY PEOPLE" solution provides consumers with time savings and convenience through its user-friendly, highly functional and information-rich virtual supermarket and personalized shopping, delivery and customer support services. With Peapod, customers are able to recapture a portion of the time typically associated with traditional grocery shopping. Rather than driving to and from the store and waiting in checkout lines, customers shop at any time of the day or night with their personal computers, and schedule delivery at a convenient time. Peapod makes available, at the customer's fingertips, up-to-date product information, including pricing and promotions, and keeps a running online tally of the customer's bill. Peapod provides further service to its customers in the form of electronic and telephonic customer support and technical assistance and honors "THE PEAPOD PROMISE," a guarantee of superior service and satisfaction with each order. Peapod is accessible through its Internet Website WWW.PEAPOD.COM. The site is highly functional, offering customers a variety of shopping methods and productivity tools to create a shopping experience based on each customer's personal preferences. Peapod customers can shop by browsing aisles (moving logically from general product category to individual items), using one or more personal lists (containing compilations of frequently purchased goods which can quickly be reviewed and considered for purchase), or conducting product searches based on brand or category names (which is particularly helpful for coupon redemption or purchasing recipe ingredients). Customers can also sort items in any product category by a wide variety of variables, such as pricing information, sale items, kosher and nutritional content (E.G., fat, calories, cholesterol and sodium). Through the use of these tools, customers can quickly identify desirable products and place them into their "virtual" shopping cart. The Company believes that its Website provides one of the most functional Internet shopping services currently available. The customer, either before or after the shopping experience, can reserve a specific delivery window, which may be on the next day or at any time within the next two weeks. Peapod currently offers two-hour delivery windows for attended delivery, or six-hour delivery windows for attended (at a small discount) and unattended delivery. The customer must be home to accept delivery of regulated products such as alcohol and tobacco. In most markets, Peapod offers delivery windows from 7:00 a.m. to 10:00 p.m. Monday through Friday and Sunday, and 7:00 a.m. to 1:00 p.m. on Saturdays. Since the customer's "shopping cart" is maintained at all times on the Company's servers, a customer can modify their order numerous times--up to twelve hours before delivery. 4 Ongoing customer support is important to Peapod's ability to establish and maintain long-term relationships with its customers. Peapod seeks frequent and meaningful communication with its customers to enable it to continually improve its service offerings. For example, a customer service representative calls each customer after the delivery of their first order to ensure his or her satisfaction. Peapod also offers numerous automated help options on the website and a rapid e-mail response service. Peapod's team of customer support and service personnel handle general customer inquiries, answer customer questions about the ordering process, and investigate the status of orders, deliveries and payments. Peapod's typical customers are females between the ages of 30 and 54, households with children and dual income households. The income levels of Peapod's customer base cover a wide range, with a median income exceeding $60,000 per year. The average Peapod order is $115, which the Company believes is five times the in-store average. As of December 31, 2000, Peapod offered its Internet grocery service in six metropolitan markets, and conducted delivery operations from 11 fulfillment centers covering 6,792,300 households, or approximately 6% of U.S. households. Peapod's service areas encompassed approximately 1,877,500 households in Chicago; 1,760,700 households in San Francisco/San Jose; 1,582,500 households in Boston; 825,600 households in Washington, D.C.; 601,100 households in Long Island; and 144,900 households in Southern Connecticut. The Company exited the San Francisco/San Jose market in March 2001. INTERACTIVE MARKETING. Peapod provides a forum for consumer package goods companies to conduct targeted interactive advertising, electronic couponing and extensive product research. Peapod links together customers from multiple markets into a national online network, and collects substantial data regarding customers' attitudes, purchasing behavior and demographics. In addition, Peapod's growing customer base has an attractive demographic profile that is difficult to reach through other direct-response media channels. Approximately three-quarters of Peapod's customers are upper middle class and approximately three-quarters are women. Peapod's Website is designed to easily accommodate a variety of media and promotional events, and is supported by a database containing extensive information about the shopping behavior and preferences of its customers that the Company believes is not readily available from other sources. This has enabled Peapod to pioneer, in partnership with consumer goods companies, innovative interactive marketing services that consist of advertising, promotion and research services. Peapod's database and customer profile enable it to deliver highly targeted, one-to-one advertising and promotion, such as electronic couponing, as well as conduct cost-effective, high-quality marketing research. Peapod's systems provide accountability for every marketing event executed on the Peapod system so that exposures, click-throughs, redemptions and sales are all captured for complete reporting of the impact of a marketing program. The accurate and comprehensive marketing feedback is a valuable tool for consumer goods companies for pre-testing and refining marketing programs for execution in more traditional media. FULFILLMENT OPERATIONS Peapod's distribution facilities are designed to be flexible to accommodate market conditions, optimize its operating efficiency, as well as to be easily replicable in order to facilitate Peapod's expansion into new markets. Peapod operates large platform warehouses that range in size from approximately 70,000 to 100,000 square feet in markets with large populations of targeted households with a high likelihood of adopting online grocery shopping. The Company leases distribution centers for its own exclusive use in storing, selecting, packing and delivering Internet grocery orders. Peapod operates fast-pick centers that range in size from approximately 8,000 square feet to 14,000 square feet in smaller markets, or in markets where its retail partners have existing available locations. Ahold and 5 Peapod have entered into a facility licensing agreement for these fast-pick centers that tend to be within existing brick and mortar stores. In large platform warehouses, Peapod employees perform all replenishment, selecting, staging and transportation activities. Large platform warehouses serve customers in Chicago, Illinois and Washington, D.C. The San Francisco warehouse was closed in March 2001, consistent with the Company's business strategy of focusing on markets in which product can be obtained from Ahold USA supermarket companies. In fast-pick centers, Ahold performs certain services for the benefit of Peapod related to Peapod's online grocery business. These fulfillment services consist of, among other things: (i) storage services; (ii) inventory management and replenishment services, including the receiving and stocking of products; (iii) specialty shop support, including the preparation of meat, seafood, deli, bakery, produce; (iv) fulfillment of Peapod's orders by selecting and packing of products for shipping and delivery to Peapod customers; and (v) certain field operations functions, including human resources services, operations support services, rollout and reset services and logistics services in markets served by these small platform warehouses. For these services, Peapod pays either a fixed charge or the actual cost of the services as well as certain incentive fees in the event that volume of revenue generated by Peapod's sale of product supplied by Ahold and the payroll cost incurred by Ahold in rendering such services reach certain levels. Small platform warehouses serve customers in Boston, Long Island, and Southern Connecticut. PRODUCT SUPPLY RELATIONSHIPS Peapod and Ahold entered into a supply and services agreement under which Peapod purchases from Ahold most of Peapod's requirements for perishables and non-perishables for sale and delivery to Peapod's customers in markets served by Ahold. The cost to Peapod of these products is the base price equal to the manufacturer's or vendor's published price. Peapod believes that the leverage it has through Ahold's purchasing power provides a sustainable competitive advantage when compared to other pure-play online grocers which do not have the purchasing power of a company the size of Ahold. The Company currently relies on Ahold and national and regional distributors for a substantial portion of its items. The Company also uses specialty suppliers or local sources for farm-fresh produce, fish, meats and gourmet foods. TECHNOLOGY Peapod has invested heavily in proprietary and third-party technologies that fully integrate its Website with warehouse management, delivery/routing systems and transactional systems. This integrated technology was designed to handle the complex logistics of thousands of available items, multiple fulfillment locations, numerous delivery windows and sophisticated yield-management (Smartmile) truck routing in a high volume, transactional environment. Peapod continuously refines and modifies its systems based on its experience and in an attempt to incorporate additional features that make order processing more efficient and the customer experience more rewarding. THE WEBSITE. The WWW.PEAPOD.COM Website is a user-friendly, informative and personalized Website that enables users to quickly and easily navigate and purchase from a wide selection of items. The highly specialized software, which is based on distributed and scalable architectures, has been designed around industry standards and provides 24-hour/7-day-per-week availability for online shopping. Shoppers have access to all of the approximately 6,000-14,000 items in stock at the appropriate fulfillment center for the customer's zip code, using an intuitively organized list of categories. The customer has an opportunity to see all products in a particular category before making a selection, similar to scanning the shelves of a traditional store. Pictures of products with nutritional information 6 and ingredients are available for most products in stock. List functions allow the customer to establish personalized shopping lists, and another list function automatically maintains a list of items purchased previously. The customer's perpetual shopping is maintained at all times with a running tally. The customer can reserve a specific delivery window, either before or after shopping, for next-day delivery or at any time within the next two weeks. Much of the functionality included within this Website is based on years of experience and customer feedback. APPLICATIONS. The Company employs a number of technologies that enable efficient system operations and a responsive consumer experience. All Website business logic is encapsulated in a set of reusable business objects that provide software developers a layer of abstraction between the page layout and the underlying data elements and database calls. This abstraction reduces the effort associated with online feature and content development along with the management required to maintain large numbers of products and their frequent pricing and availability changes. The Company's Lexicon system distributes and manages frequently accessed content and data in order to assure customers a responsive and personalized online shopping session. A key attribute of the Peapod application is its ability to target various forms of redeemable content, such as advertisements, electronic coupons, online surveys and product samples, to various customers based on a range of defined criteria. The Company has developed the Universal Event Processor, a flexible, high-performance database application, to manage the targeting and redemption of these events. The flexibility of this targeting and redemption capability enables the Company to offer sophisticated advertising and market research services to its consumer packaged goods clients. TRANSACTION SYSTEMS. The Company has deployed several enterprise transaction systems that manage the Peapod service operations and integrate with the online retailing application. The fulfillment management systems, which uses internally developed applications, reside largely in the Company's fulfillment centers and provide logistics support for order picking. Selectors use a palm pilot, a hand-held device that divides orders into various zones (I.E., temperature zone, fast-mover zone, etc.) and provides instructions from the system and directs the selector, in an efficient manner, to the location of the specific customer's item. A scanner built into the hand-held device ensures the accuracy of products selected. A combination of internally developed applications and commercially available applications, collectively referred to as SmartMile-TM-, enables Peapod to manage the routing of orders to customers' homes in a cost-effective and efficient fashion. Centralized customer support systems manage call center operations, customer billing and electronic payment processing, and provide for ongoing service policy management and customer communication. LOCATION. The Company's primary data center is housed in its corporate headquarters where systems operations personnel administer the online shopping application, network services and transaction processing systems. The continued, uninterrupted operation of the Website, fulfillment management, routing and transactional systems is essential to Peapod's business. A network operations center, staffed 24 hours a day, seven days a week, ensures to the extent possible the reliability of our Website and systems. The Company uses the services of several outside firms to provide connectivity to the Internet and its own fulfillment centers, security, network and systems monitoring, data backup and redundant power generation. MARKETING AND PROMOTION CONSUMER MARKETING. The Company's marketing objectives include increasing customer acquisition, retention, usage, and grocery order size, along with Peapod brand awareness. Peapod co-brands its service with the local Ahold retailers in each market for which it sources its products. Peapod believes that co-branding with a well-respected retailer leverages the existing brand awareness, helps to overcome obstacles customers may face in trying a new service from an unknown retailer and enables Peapod to purchase media more cost-effectively than it could otherwise purchase it. This 7 co-branding strategy is believed to translate to higher customer trial and lower cost of customer acquisition. Peapod targets consumers at home, at work, on the run and in the local community by executing an integrated, multi-media promotional plan that includes radio and newspaper advertising, direct mail, mass transit, Internet advertising and local branding on employee uniforms and delivery trucks. In addition, the Company believes that over time the extensive database and one-to-one marketing capabilities of its online system will provide it with opportunities to tailor its services to the unique needs of its customers, and thereby improve customer satisfaction. INTERACTIVE MARKETING. Peapod's interactive marketing personnel provide sales and client service support to consumer goods companies and other advertisers. The Company, from time-to-time, enters into relationships with advertising agencies and other third parties to sell certain media and promotional products on Peapod's behalf. Peapod also advertises its interactive marketing services in trade publications. COMPETITION The grocery retailing market is extremely competitive. The Company competes with a number of providers of grocery products and services, including traditional grocery retailers, other Internet-based grocery providers, and providers that fulfill orders obtained via telephone or facsimile. The Company also competes with many other companies that seek to implement advertising, promotions and research programs for consumer goods companies. Many of the Company's competitors are larger and have substantially greater resources than the Company. In addition, the Company believes that this competition will intensify as more grocery retailers, online marketing services companies and information services companies seek to offer services in competition with the Company. Companies operating in the electronic (computer, facsimile or phone) grocery shopping and delivery business compete on several factors, including the ease of use, functionality and reliability of the shopping and ordering system, product selection, price, the reliability and professionalism of delivery operations and other customer services, and general brand awareness. Peapod currently faces various degrees of competition in the markets that it currently serves. For instance, in Chicago Peapod competes with Webvan Group, Inc., and GroceryWorks.com, Inc. has announced intentions to commence operations in Chicago. In Boston and Washington, D.C., Peapod competes with Homeruns.com, Inc. Virtually all online grocery providers have announced plans to expand nationally over the next five years; thus, the number of competitors and amount of competition Peapod faces will vary over time and differ by market area. The Company believes that many large grocery retailers may initiate Internet shopping and delivery programs over time due to the large potential size of this channel, as well as the retailers' need to defend their traditional customer base. Safeway, a traditional grocery chain, recently acquired 50% of GroceryWorks.com, an Internet grocer currently serving markets in Texas and Phoenix, Arizona. In November 1999, Albertson's introduced an Internet-based service in the Seattle, Washington region, and Publix has started to offer an Internet-based service in Broward County, Florida. Additionally, new retailers are likely to emerge with warehouse-based or other distribution models in an attempt to lead the development of the new channel. Because of the large capital investments required to develop Internet grocery shopping and delivery systems and to operate the service, the Company believes that well-capitalized companies, or start-up companies with access to significant capital, pose the most significant long-term competitive threat. With respect to interactive marketing services, the Company competes with many other companies that seek to sell and execute advertising, promotions and research programs to consumer goods companies. This market is extremely competitive and includes advertising and promotional agencies, companies implementing free-standing insert ("FSI") coupon programs and in-store promotions, 8 traditional consumer product research businesses, and other electronic grocery shopping and delivery businesses. These companies also cover a variety of media, including print, television or Internet. Companies in this market compete on the basis of audience size for media exposure, demographics of the audience, effectiveness in generating sales, quality of research data and analysis, cost and other factors. Although in the early stages of growth, the Company believes that its audience and its medium offer opportunities to impact sales of consumer products to a greater degree than traditional media and promotions, and to perform higher quality and more cost-effective research. EMPLOYEES As of December 31, 2000, the Company had approximately 851 full-time and 131 part-time employees. Substantially all of the part-time employees serve in grocery picking, packing, delivery and customer support positions. Of the Company's full-time employees, approximately 709 are in field operations or customer support functions, with the remainder in information technology, sales and marketing, and general and administrative functions. None of the Company's employees is represented by a collective bargaining unit. The Company considers its relations with its employees to be good. INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS The Company believes that its success and ability to compete is somewhat dependent upon its systems and technology. The Company relies on a combination of copyright, trademark and trade secret laws as well as confidentiality agreements and other measures to establish and protect its proprietary rights. The Company has applied for a patent of its SmartMile yield management system. The Company has U.S. registrations for the "PEAPOD" service mark and associated logos, for Peapod's "SMART SHOPPING FOR BUSY PEOPLE" slogan and has applied for trademark protection for "SMARTFLOW." The Company has registered copyrights, or has applied for copyright registration, with respect to its Website and certain marketing materials. While the Company relies on trademark, trade secret and copyright laws to protect its proprietary rights, the Company believes that the technical and creative skills of its personnel, high-quality service standards, continued development of its systems and technology, and brand name recognition are more important to establish and maintain a leadership position and strengthen its brand. As part of its confidentiality procedures, the Company generally enters into agreements with its employees and strategic partners and limits access to and distribution of its software, documentation and other proprietary information. ITEM 2. PROPERTIES The following are the principal properties of the Company:
LOCATION FUNCTION OWNED/LEASED USABLE SPACE - -------- ---------------- ------------ ------------ Skokie, IL.................................... Corporate Office Leased 49,086 Niles, IL..................................... Warehouse Leased 70,958 Union City, CA................................ Warehouse Leased 46,104 Lake Zurich, IL............................... Warehouse Leased 93,000 Gaithersburg, MD.............................. Warehouse Leased 93,500
ITEM 3. LEGAL PROCEEDINGS On March 16, 2000, the Company issued a press release announcing that its CEO and President (Mr. Malloy) was departing due to health reasons, and as a result, a previously announced $120 million financing had been terminated. Subsequently, seven substantially identical cases were filed in federal district court in Chicago on various dates between March 17, 2000 and May 10, 2000. In each case, Peapod and two individual defendants (both of whom are officers of Peapod) were sued for alleged violations of Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. The seven 9 cases were consolidated on June 1, 2000. The consolidated complaint alleged that Peapod misrepresented or failed to disclose certain facts relating to the Company's liquidity, cash resources, and cash needs. The consolidated complaints were brought on behalf of a purported class of purchasers of Peapod's common stock during the period from November 8, 1999 to and including March 16, 2000, and sought to recover damages in an unspecified amount. On August 29, 2000, the plaintiffs voluntarily dismissed their complaint without prejudice. Other than the complaints identified above, the Company is not involved in any legal proceedings that management believes would have a material adverse effect on the Company's financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The principal market for Peapod's common stock is The Nasdaq National Market ("NASDAQ"). On March 26, 2001, there were approximately 317 holders of record of Peapod common stock. High and low sales prices of Peapod's common stock as reported by NASDAQ for each quarter of 1999 and 2000 follow:
1999 2000 ------------------- ------------------- HIGH LOW HIGH LOW -------- -------- -------- -------- Calendar Quarter Ended: March 31........................................ $11.250 $7.063 $11.563 $2.500 June 30......................................... 14.875 6.938 3.875 2.000 September 30.................................... 10.500 6.313 3.500 1.031 December 31..................................... 15.000 7.375 3.000 0.750
The Company has not declared any dividends on its common stock since its initial public offering. The Company does not anticipate paying cash dividends on its common stock in the foreseeable future. The terms of both the Company's credit facility with Ahold and the Company's Series C Preferred Stock restrict the Company's ability to pay dividends on the Company's common stock. Any payment of cash dividends in the future will depend upon restrictions under that credit facility and under the Series C Preferred Stock as well as on the financial condition, capital requirements and earnings of the Company, limitations on dividend payments under any other debt agreements and such other factors as the Board of Directors may deem relevant. 10 ITEM 6. SELECTED FINANCIAL DATA The selected statement of operations and balance sheet data set forth below have been derived from the historical financial statements of the Company. The historical financial statements as of December 31, 1999 and 2000, and for the years ended December 31, 1998, 1999 and 2000 have been audited by KPMG LLP, independent certified public accountants, whose report thereon appears elsewhere in this document. The selected financial and operating data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and related notes thereto appearing elsewhere in this document.
YEARS ENDED DECEMBER 31, -------------------------------------------------------------- 1996 1997 1998 1999 2000 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) STATEMENT OF OPERATIONS(1): Net sales(2)........................... $ 27,451 $ 56,549 $ 68,786 $ 72,696 $ 92,844 Cost of sales.......................... (20,485) (40,823) (53,903) (55,585) (71,646) ---------- ---------- ---------- ---------- ---------- Gross profit........................... 6,966 15,726 14,883 17,111 21,198 Operating expenses..................... (16,997) (30,666) (38,941) (46,761) (77,069) ---------- ---------- ---------- ---------- ---------- Operating loss......................... (10,031) (14,940) (24,058) (29,650) (55,871) Net loss............................... (9,566) (12,979) (21,565) (28,453) (56,758) Non-cash deemed dividend on preferred stock................................ -- -- -- -- (56,953) Preferred stock dividend and accretion............................ -- -- -- -- (3,163) ---------- ---------- ---------- ---------- ---------- Net loss available to common stockholders......................... (9,566) (12,979) (21,565) (28,453) (116,874) Basic and diluted net loss per share... $ (0.82) $ (0.87) $ (1.27) $ (1.62) $ (6.48) Shares used to compute basic and diluted net loss per share........... 11,664,956 14,915,734 16,964,439 17,542,990 18,043,749
1996 1997 1998 1999 2000 ----------- ----------- ----------- ----------- ----------- OPERATING DATA:(1) Markets(3)........................ 4 8 8 8 6 Customers(4)...................... 35,400 100,400 95,000 111,900 124,400 Orders (for the year ended)....... 201,100 396,600 494,700 571,300 772,100 Households in service area(5)..... 3,581,000 6,488,000 6,628,500 8,476,100 6,792,300 BALANCE SHEET DATA:(1) Cash and cash equivalents......... $ 13,039 $ 54,079 $ 4,341 $ 3,343 $ 14,676 Marketable securities............. -- 8,798 31,049 6,269 -- Total assets...................... 16,528 69,110 42,971 20,780 45,733 Long-term obligations............. 340 701 395 1,129 4,829 Total stockholders' equity........ 8,403 54,803 33,606 9,710 22,556
- ------------------------ (1) Prior to May 31, 1997, represents the financial and operating information of Peapod LP, the predecessor entity to the Company. (2) Net sales include: sales of groceries to customers net of promotional discounts and allowances; subscription, service and other fees paid by customers and retail partners; fees from consumer goods companies for interactive advertising, promotion and research services; and certain maintenance and licensing fees. (3) Represents the number of metropolitan markets served. (4) Represents the number of households and businesses who have transacted business within the twelve months ended December 31. (5) Represents the number of households in areas that could be served from Peapod's fulfillment centers existing at year-end (I.E., the facilities at which customer orders are picked and packed for delivery). 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the Company's financial statements including the notes thereto. Certain prior year balances have been reclassified to conform with the current year presentation (I.E., promotional discounts and allowances (sales incentives) which were previously classified as marketing expenses are now classified as a reduction of sales in accordance with recent generally accepted accounting principles; certain non-recurring general and administrative expenses have been separately reflected as non-recurring expenses; some fulfillment operations expenses that were administrative functions have been moved to general and administrative; and other expenses which were advertising related were moved to marketing and selling expenses). RESULTS OF OPERATIONS 2000 COMPARED TO 1999 NET SALES. Net sales are the sales of groceries and related products to customers net of promotional discounts and allowances, subscription, service and other fees paid by customers and retail partners, and fees from consumer goods companies for interactive advertising, promotion and research services. Net sales increased by 28% from $72,696,000 in 1999 to $92,844,000 in 2000, which includes net sales from two new markets (Southern Connecticut opened in June 2000 and Washington, D.C. opened in September 2000) and reflects the exiting of four markets in September 2000 which represented approximately 20% of grocery volume at the time of closing. Revenues from the sale of groceries and related products increased 37% from $64,617,000 in 1999 to $88,484,000 in 2000. This increase resulted from a 35% increase in the number of orders and a 2% increase in the size of the average grocery order. The total number of orders increased from 571,300 in 1999 to 772,100 in 2000. Promotional discounts and allowances, which reduce the amount a customer pays for their grocery order, increased from $438,000 in 1999 to $518,000 in 2000, an 18% increase. During 2000, fewer such discounts were required to increase product sales by 27%. Fees paid by customers and retail supply partners decreased 39% from $7,145,000 in 1999 to $4,339,000 in 2000. This decrease is attributable to (i) reduced customer fees and (ii) lower fees paid by retail supply partners as we conducted more of our business from our dedicated fulfillment centers versus retail stores. Total customers, measured as customers transacting within the last 12 months, increased 11% from 111,900 at December 31, 1999 to 124,400 at December 31, 2000. Fees from consumer goods companies for interactive advertising, promotion and research decreased 61% from $1,372,000 in 1999 to $539,000 in 2000. Because of a focus on completing financing transactions in 2000, the Company temporarily reduced its interactive advertising, promotion and research efforts. COST OF SALES. Cost of sales, which are the cost of groceries and related products, increased 29% from $55,585,000 in 1999 to $71,646,000 in 2000. This increase compares to a 37% growth in grocery and related product sales. The performance improvement is attributed to an increasing proportion of sales volumes through dedicated fulfillment centers, which generate higher margins on products sold as compared to fulfillment through physical retail stores. FULFILLMENT OPERATIONS. Fulfillment operations expenses include (i) the direct costs relating to the picking, packing and delivery of customer orders; (ii) salaries and overhead expenses of each fulfillment center; (iii) salaries and overhead expenses for each metropolitan market and (iv) salaries and overhead expenses for certain field support functions such as recruiting, training, database merchandising and customer support. Fulfillment operations expenses increased 58% from $23,580,000 in 1999 to $37,279,000 in 2000. This increase is primarily attributable to: direct costs of picking, packing and delivery given the 35% increase in volume of orders; higher grocery fulfillment costs incurred while the 12 Company builds scale in its fulfillment centers; and the September 2000 acquisition of two fulfillment centers in Chicago and Washington, D.C. At December 31, 2000, Peapod fulfilled customer orders from 11 fulfillment centers compared to 22 such centers at the end of 1999. In 2000, one new fast-pick center was opened and leases for two warehouses were acquired, while 14 fulfillment centers were closed in the four markets the Company exited. GENERAL AND ADMINISTRATIVE. General and administrative expenses, which include corporate staff, accounting and human resource functions, increased 64% from $6,958,000 in 1999 to $11,422,000 in 2000. The increase is primarily attributable to an increase in compensation-related expenses as the Company's corporate structure has expanded within the areas of executive management and operations planning. MARKETING AND SELLING. Marketing and selling expenses include the cost of customer acquisition and retention marketing, such as radio advertising and direct mail, as well as certain costs relating to interactive marketing services. Marketing and selling expenses increased by 22% from $6,730,000 in 1999 to $8,190,000 in 2000. The increase is primarily attributable to marketing expenditures in the fourth quarter of 2000 in a newly acquired market and for marketing expenditures in existing markets after branding issues were finalized with Ahold. The Company expenses all marketing and selling expenses as incurred. SYSTEM DEVELOPMENT AND MAINTENANCE. System development and maintenance expenses, which include new product development as well as the maintenance and enhancement of existing systems, increased 64% from $3,543,000 in 1999 to $5,809,000 in 2000. The increase is primarily attributable to additional resources to support the Company's new website technology, its proprietary fulfillment center technologies and additional resources necessary to support 24/7 centralized distribution center operations. DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased 91% from $2,222,000 in 1999 to $4,251,000 in 2000. This increase resulted largely from the depreciation and amortization of assets related to two warehouses acquired in September 2000 from Streamline.com, Inc. PRE-OPENING COSTS. Pre-opening costs, which include non-capitalizable costs incurred prior to opening a new market or distribution center, decreased from $898,000 in 1999 to $-0- in 2000. In 1999 the Company opened the Chicago and San Francisco/San Jose distribution centers. NON-RECURRING EXPENSES. Non-recurring expenses totaled $10,118,000 in 2000 and $2,830,000 in 1999. Non-recurring expenses in 2000 consisted of: (i) severance expenses of $1,938,000, which were incurred primarily in connection with the termination of Mr. Malloy as CEO in March, 2000 and were paid prior to December 31, 2000; (ii) impaired asset write-offs for certain long-lived assets are not expected to be recoverable based on cash flow analysis, lease termination costs, and other facilities closing costs of $4,666,000, primarily related to decisions to exit certain markets or abandon certain facilities in continuing markets; (iii) costs of transitioning to new supply and management agreements of $1,345,000; (iv) expenses attributable to a failed financing transaction of $1,037,000, consisting primarily of legal, accounting and valuation costs; (v) charges for the settlement of claims related to a prior licensing obligation of $705,000, consisting primarily of additional programming costs; and (vi) other non-recurring expenses of $427,000. The 1999 non-recurring expenses were primarily attributable to the employment of a new CEO in September 1999 (who subsequently resigned in March 2000). OTHER INCOME (EXPENSE). Other income (expense) includes interest paid on capital leases, interest on borrowings and credit facilities, and investment income and expenses. Investment income for 2000 13 was $1,079,000 compared to investment income of $1,384,000 in 1999 due to decreased invested principal for the entire year of 2000. Interest expense increased from $187,000 in 1999 to $486,000 in 2000 due to borrowings on the credit facility prior to the completion of the Ahold investment and to increased leasing activity related primarily to equipment in the acquired warehouses. Non-cash interest expense totaled $1,480,000 in 2000 and $0 in 1999 and consists of additional interest expense attributed to warrants issued in connection with the term note and the credit facility borrowings from Ahold. 1999 COMPARED TO 1998 NET SALES. Net sales increased by 6% from $68,786,000 in 1998 to $72,696,000 in 1999. Revenues from the sale of groceries and related products increased 13% from $57,305,000 in 1998 to $64,617,000 in 1999. This increase results from a 15% increase in the number of orders and was slightly offset by a 3% decrease in the size of the average grocery order. The total number of orders increased from 494,700 in 1998 to 571,300 in 1999. Fees paid by customers and retail supply partners decreased 26% from $9,650,000 in 1998 to $7,145,000 in 1999. This decrease is attributable to (i) reduced customer fees and (ii) lower fees paid by retail supply partners as we conducted more of our business from our fulfillment centers versus retail stores. Total customers, measured as customers transacting within the last 12 months, increased 18% from 95,000 at December 31, 1998 to 111,900 at December 31, 1999. Fees from consumer goods companies for interactive advertising, promotion and research decreased 6% from $1,460,000 in 1998 to $1,372,000 in 1999. This reduction is largely the result of the Company's temporarily cutting back on marketing and new customer initiatives while transitioning its fulfillment model from retail stores to fulfillment centers. Licensing revenues were $850,000 during 1998 compared to no such licensing revenue for 1999. COST OF SALES. Cost of sales increased 3% from $53,903,000 in 1998 to $55,585,000 in 1999. This increase compares to a 13% growth in grocery and related product sales. The performance improvement is attributed to an increasing proportion of sales volumes through dedicated fulfillment centers, which generate higher margins on products sold as compared to fulfillment through physical retail stores. FULFILLMENT OPERATIONS. Fulfillment operations expenses increased 41% from $16,715,000 in 1998 to $23,580,000 in 1999. This increase is attributable to higher grocery fulfillment costs while the Company built scale, gained expertise and incurred duplicative cost during the initial months of each new dedicated fulfillment center's operation. Also contributing significantly to the increase were the direct costs of picking, packing and delivery given the 15% increase in volume of orders. At December 31, 1999, Peapod fulfilled customer orders from 22 fulfillment centers compared to 36 such centers at the end of 1998. In 1999, 14 fulfillment centers were consolidated into dedicated facilities or into other existing retail stores. GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased 13%, from $8,029,000 in 1998 to $6,958,000 in 1999. This decrease is related primarily to a smaller corporate staff in 1999. MARKETING AND SELLING. Marketing and selling expenses decreased by 5% from $7,066,000 in 1998 to $6,730,000 in 1999. The decrease is primarily attributable to the Company's mid-1998 decision to limit marketing expenditures in order to focus on modifying its service model and centralizing fulfillment operations in a number of markets. The Company expenses all marketing and selling expenses as incurred. SYSTEM DEVELOPMENT AND MAINTENANCE. System development and maintenance expenses increased 5% from $3,386,000 in 1998 to $3,543,000 in 1999. The increase is primarily attributable to additional resources to support the Company's new Website technology, its proprietary fulfillment center 14 technologies and additional resources necessary to support 24/7 centralized distribution center operations. DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased 32% from $3,264,000 in 1998 to $2,222,000 in 1999. This decrease resulted largely from the fourth quarter 1998 write-off of capitalized software costs for previous versions of the Company's software and due to a 1998 change in depreciable lives of various fixed assets. PRE-OPENING COSTS. Pre-opening costs increased by 87% from $481,000 in 1998 to $898,000 in 1999. In 1998, the Company opened the New York market and was incurring costs for opening the Chicago distribution center in 1999. In 1999, the Company opened the Chicago and San Francisco/San Jose distribution centers. NON-RECURRING EXPENSES. The 1999 non-recurring expenses totaling $2,830,000 were primarily attributable to the employment of a new CEO in September 1999 (who subsequently resigned in April 2000). There were no non-recurring expenses in 1998. OTHER INCOME (EXPENSE). Interest expense decreased from $190,000 in 1998 to $187,000 in 1999. Investment income decreased from $2,683,000 in 1998 to $1,384,000 in 1999, primarily due to a reduction in invested principal. LIQUIDITY AND CAPITAL RESOURCES Cash used in operating activities increased from $25,912,000 in 1999 to $43,225,000 in 2000. The change in cash used in operating activities was primarily attributable to increased net losses. As of December 31, 2000, the Company had $14,676,000 in cash and cash equivalents and a $20,000,000 revolving credit facility with Ahold, which was unused. The Company is in compliance with all covenants of the credit facility. On February 26, 2001, the revolving credit facility with Ahold was increased to $50,000,000. The Company uses its working capital to fund ongoing operations, marketing programs and geographic expansion and to further develop its products and services. The Company expects its cash needs for the year 2001 to be approximately $50,000,000. The Company's principal sources of liquidity consist of $14,676,000 of cash as of December 31, 2000 and the $50,000,000 revolving credit facility from Ahold. Pursuant to a waiver letter (the "Waiver"), Ahold agreed to allow the Company to defer until the Company completes a financing transaction (i) payment of dividends due and that accrue with respect to shares of Series C Preferred Stock (and the previously held Series B Preferred Stock) and (ii) payment of interest under the credit facility. The dividends on the preferred stock and the interest under the credit facility will continue to accumulate in accordance with their respective terms. Further, under the terms of the Waiver, the Company will be required to pay any accumulated and unpaid dividends due on the preferred stock and any overdue interest under the credit facility with proceeds from any financing transaction that the Company completes. In addition, under the terms of the credit facility, upon completion of certain financings by the Company, the commitment under the credit facility will be permanently reduced by the amount of the net cash proceeds from such financing(s) and any amount outstanding under the Credit Facility up to the amount of such net cash proceeds will become due and payable. After completion of a financing by the Company, payment of dividends on the preferred stock and interest under the credit facility will no longer be deferred and will become due and payable in accordance with their terms. The Company anticipates, in light of the Waiver from Ahold, that the cash on hand as of December 31, 2000 together with the credit facility will be sufficient to fund the Company's operations and capital requirements for the remainder of 2001. However, no assurance can be given that changing business circumstances will not require additional capital for reasons that are not currently anticipated or that the necessary capital will then be available to the Company on favorable terms, or at all. The Company expects to require substantial additional capital to fund its cash needs beginning in 2002. The 15 Company is currently exploring financing alternatives to raise additional funds to support its business plan for 2002 and beyond. The Company cannot be certain that additional financing will be available on favorable terms or at all. The Company believes that inflation has not had a material effect on its operations. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, was issued and, as amended by SFAS No. 137, was adopted by the Company on July 1, 2000. This statement requires that an entity recognize all derivatives as either assets or liabilities and measure those instruments at fair value. The accounting for changes in fair value of a derivative instrument depends on its intended use and the resulting designation. The adoption of this statement does not impact the Company's financial statements, as the Company currently does not use derivative instruments. There are no recently issued accounting standards that are believed to have a material impact on the Company's financial statements. RISK FACTORS The Company's business presents various risks for investors and others having business dealings with the Company. These risks, including those described below, could have a material adverse effect on the Company's business, including its operating results and financial condition. The risk factors identified in this section, as well as any cautionary language in this report, provide examples of risks, uncertainties and events that may cause the Company's actual results to differ materially from the expectations described in the Company's forward-looking statements. These risk factors, together with all of the other information included in this report, should be read carefully. In addition, forward-looking statements contained in this report, including discussions concerning the Company's business and its business strategy, assume that the Company is able to obtain adequate capital resources to continue its operations and to execute its business plan. THE COMPANY WILL NEED SUBSTANTIAL ADDITIONAL CAPITAL TO FUND ITS ONGOING OPERATIONS AND EXPANSION, AND IT CANNOT BE SURE THAT ADDITIONAL FINANCING WILL BE AVAILABLE. The Company requires substantial amounts of working capital to fund its business, including the continued development of its order fulfillment and delivery systems. In addition, the opening of new distribution centers will require significant amounts of capital. The rate at which the Company's capital is utilized is affected by the extent to which its facilities become profitable on a cash-flow basis and the pace of expansion under the Company's business plan. To date, none of the Company's facilities have become profitable on a cash-flow basis and there can be no assurances that these facilities will perform at a level necessary to become profitable on a cash-flow basis or to enable the Company to become profitable on a cash-flow basis. Since its inception, the Company has experienced negative cash flow and expects to experience significant negative cash flow for the foreseeable future. In the past, the Company has funded its operating losses and capital expenditures through proceeds from equity offerings and during 2001 through its credit facility with Ahold. The Company expects to require substantial additional capital to fund its operating expenses beginning in 2002. Further, the Company's Series C Preferred Stock (and the previously held Series B Preferred Stock) will continue to accrue dividends which would require additional capital. In addition, the credit facility with Ahold matures in April 2003, which will need to be repaid or refinanced. The Company is currently exploring financing alternatives to raise additional funds to support its business plan for 2002 and beyond. The Company cannot be certain that additional financing will be available on favorable terms or at all. If the Company is unable to obtain sufficient additional capital when needed, the Company would be forced 16 to alter significantly its business strategy, which could include closing distribution centers or selling assets. Any of these events would have a material adverse effect on the Company's business, financial condition and its ability to continue operations. In addition, if the Company raises additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to those of the rights of its common stock and its stockholders may experience additional dilution. THE COMPANY ANTICIPATES FUTURE LOSSES AND NEGATIVE CASH FLOW. The Company has experienced significant net losses and negative cash flow since its inception. As of December 31, 2000, the Company had accumulated losses from June 1997 through December 2000 of $115.3 million. The Company incurred a net loss of $56.8 million for the year ended December 31, 2000. The Company will continue to incur significant capital and operating expenses over the next several years in connection with its existing facilities and planned expansion, including: - the continued expansion and development of operations at its existing distribution centers; - operating losses anticipated to be incurred at each distribution center until such time as it achieves break-even economics; - increases in personnel; - brand development, marketing and other promotional activities; - the continued development of its computer network, warehouse management and order fulfillment systems and delivery infrastructure; - the development of strategic business relationships; and - the construction of and equipment for new distribution centers in additional geographic markets. As a result, the Company expects to continue to have operating losses and negative cash flow on a quarterly and annual basis for the foreseeable future. To achieve profitability, the Company must accomplish the following objectives: - substantially increase its number of customers and the number of orders placed by its customers; - successfully integrate the Streamline facilities; - generate a sufficient average order size; - realize repeat orders from a significant number of customers; - increase gross margins; - achieve favorable operating margins by improving the productivity of facility and delivery operations; and - build additional distribution centers in new markets. There can be no assurances that the Company will be able to achieve these objectives. If the Company does achieve profitability, it cannot be certain that it would be able to sustain or increase profitability on a quarterly or annual basis in the future. If the Company cannot achieve or sustain profitability, it may not be able to meet its working capital requirements, which would have a material adverse effect on its business. Further, because of the significant capital and operating expenses associated with expansion in current and future markets, the Company's overall losses may increase significantly from current levels if such expansion is continued. 17 THE COMPANY MUST DEMONSTRATE PROFITABILITY AND THEN EFFECTIVELY MANAGE ITS GROWTH. The Company's business strategy has been focused on expanding its business, in part, by entering new markets to achieve economies of scale and leverage the Company's significant and ongoing capital investment in its proprietary business systems. While this remains an important part of the Company's long-term business strategy, the Company is presently focused on demonstrating profitability in its existing markets. The Company's continued expansion strategy is dependent in large part upon achieving profitability in existing markets and raising additional capital. The Company cannot assure that profitability in existing markets will be achieved on a timely basis, if at all, or that the Company's services will be replicable on a profitable basis in new markets. If the Company fails to resume the expansion of its services in new markets in a timely and cost-effective manner, the Company's future growth will be limited. In addition to being able to raise additional capital, the Company's ability to successfully and cost-effectively expand into new markets and to increase penetration in existing markets will depend on a number of additional factors, including: - the ability to attract and retain customers; - acceptance of its product and service offerings; - competition; - the availability of capital to fund current losses and future growth; - the availability of appropriate and affordable sites that can accommodate its distribution centers; and - its ability to successfully and cost-effectively hire and train qualified employees to operate its new distribution centers. THE COMPANY'S BUSINESS SYSTEM IS COMPLEX, AND THE COMPANY IS PERIODICALLY AFFECTED BY OPERATIONAL DIFFICULTIES. The Company's business system relies on the complex integration of numerous software and hardware systems to manage the entire process from the receipt and processing of goods at its distribution centers to the picking, packing and delivery of these goods to customers. The Company has, from time to time, experienced operational difficulties, which have resulted in order errors such as missing items and delays in deliveries, among others. The Company expects that these problems will continue to occur from time to time, and the Company cannot assure that, as a result, its operations will not be materially adversely affected. In addition, items requested by customers may occasionally be "out of stock". A substantial number of "out of stocks" may reduce customer satisfaction with its service. If the Company is unable to meet customer demand or service expectations as a result of operational issues, the Company may be unable to maintain customer relationships or develop additional customer relationships that result in repeat orders, which will adversely affect the Company's business and net sales. The Company is in the process of implementing a warehouse management system in its existing facilities. Such implementation may result in disruptions in our customers' shopping experience and increased operational costs, each of which could adversely affect the Company's business and net sales. In addition, the Company has currently closed a Streamline distribution center in order to retrofit material handling equipment and to integrate the Company's systems with certain Streamline systems. The Company's inability to successfully accomplish this may result in significant additional costs and cash requirements. This would negatively impact the Company's ability to handle additional order volume in this market, and would adversely affect the Company's business and net sales. 18 THE COMPANY HAS A LIMITED OPERATING HISTORY. Although Peapod was founded in 1989, most of its growth has occurred since September 1995. In 1997, the Company decided to shift its fulfillment to a dedicated fulfillment model. Over the past three years, the Company has opened two stand-alone fulfillment centers and has purchased two stand-alone facilities from Streamline. The Company's limited history of operating its own dedicated fulfillment centers makes an evaluation of its business and prospects very difficult. During 2000, the Company issued preferred securities and warrants to Ahold, which now owns approximately 58% of the combined voting power of the Company. This has resulted in a focus by the Company on markets served by Ahold USA supermarket companies and the exiting of five markets previously served by the Company. You must evaluate the Company's business and prospects in light of the risks and difficulties the Company encounters as a company with a limited operating history in the new and rapidly evolving market of e-commerce. These risks and difficulties include, but are not limited to: - a complex and unproven business system; - lack of sufficient cash flow; - difficulties in managing rapid growth in personnel and operations; - high capital expenditures associated with distribution center systems and technologies; - integration of systems and distribution center design of the Streamline facilities with the Company's systems and technologies; and - lack of widespread acceptance of the Internet as a means of purchasing groceries and other consumer products. The Company cannot be certain that its business strategy will be successful or that the Company will successfully address these risks. Its failure to address any of the risks described above could have a material adverse effect on its business. THE SIGNIFICANT CAPITAL INVESTMENT REQUIRED BY THE COMPANY'S BUSINESS MODEL MAY ADVERSELY AFFECT ITS ABILITY TO ENTER ADDITIONAL MARKETS IN A TIMELY AND EFFECTIVE MANNER AND COULD HARM ITS COMPETITIVE POSITION. The Company's business model requires a significant capital investment to build, equip and launch distribution centers in the markets in which the Company seeks to operate. Its competitors, both online and traditional brick-and-mortar retailers, have developed or may develop systems that are not as highly automated or capital-intensive as the Company's. This could enable them to commence operations in a particular geographic market before the Company is able to do so, which could harm its competitive position. In addition, because of the substantial capital costs associated with the development of its distribution centers, the Company will be unable to achieve profitability or reduce its operating losses if the Company does not process sufficient order volumes. IF THE COMPANY FAILS TO GENERATE SUFFICIENT LEVELS OF REPEAT ORDERS FROM ITS CUSTOMERS AND MARKET PENETRATION, ITS BUSINESS AND NET SALES WILL BE ADVERSELY AFFECTED. In the online retail industry, customer attrition rates, or the rates at which customers cancel a service, are generally high. The Company depends upon customers to continue to place orders after their initial order is placed, and the Company competes to retain customers once they have used its service. Accordingly, the Company's ability to increase the number of orders placed by its customers is dependent upon success not only in getting people to try its service and generating customer accounts, but in converting users into repeat customers who order with sufficient frequency. Even occasional failures of the Company's systems can cause variations in the levels of its operational execution, which are sufficient to materially affect the Company's ability to retain customers. The Company cannot 19 assure that its efforts to convert sufficient numbers of customers into repeat users of its service will be successful. In addition, the success of the Company's business depends on its ability to establish sufficient levels of market penetration in each market in which it operates. This in turn will depend upon the Company's ability to achieve customer loyalty by means of a high quality of customer service and operational execution. The Company cannot assure you as to the levels of penetration it will achieve in any market, and even if the Company does achieve these levels of penetration, it cannot assure you that it will achieve positive earnings. If the Company is unable to establish sufficient customer loyalty to achieve market penetration levels or if the Company experiences significant decreases in repeat customer orders as a percentage of orders delivered, the Company's business and net sales could be materially adversely affected. ITS EFFORTS TO BUILD STRONG BRAND IDENTITY AND CUSTOMER LOYALTY MAY NOT BE SUCCESSFUL. The Company believes that establishing and maintaining brand identity and brand loyalty are critical to attracting consumers. In order to attract and retain consumers, and respond to competitive pressures, the Company may increase spending substantially to create and maintain brand loyalty. In particular, the Company may expand its current advertising campaigns by conducting a variety of programs that may include radio, newspaper, online, direct mail, and television advertising campaigns. The Company believes that advertising rates, and the cost of its advertising campaigns in particular, could increase substantially in the future. If its branding efforts are not successful, its net sales and ability to attract and maintain customers will be materially and adversely affected. Promotion and enhancement of the Peapod brand will also depend on Peapod's success, as well as the success of the Ahold USA supermarket companies with whom the Company partners, in consistently providing a high-quality consumer experience for purchasing groceries and other products. If consumers, other Internet users and vendors do not perceive Peapod's service offerings to be of high quality, the value of the Peapod brand could harm Peapod's reputation, reduce its net sales and cause Peapod to lose customers. IF THE COMPANY ENTERS NEW BUSINESS CATEGORIES THAT DO NOT ACHIEVE MARKET ACCEPTANCE, ITS BRAND AND REPUTATION COULD BE DAMAGED AND THE COMPANY COULD FAIL TO ATTRACT NEW CUSTOMERS. Any new product category that is launched by the Company, which is not favorably received by consumers, could damage the Company's brand or reputation. This damage could impair the Company's ability to attract new customers, which could cause its net sales to fall below expectations. The Company may choose to expand its operations by developing other new product categories, promoting new or complementary products, expanding the breadth and depth of products and services offered or expanding its market presence through relationships with third parties. In addition, the Company may pursue the acquisition of other new or complementary businesses, products or technologies, although the Company has no present understandings, commitments or agreements with respect to any material acquisitions or investments. IF THE COMPANY IS UNABLE TO OBTAIN SUFFICIENT QUANTITIES OF PRODUCTS FROM ITS KEY VENDORS, ITS NET SALES WOULD BE ADVERSELY AFFECTED. The Company sources products from Royal Ahold and a network of manufacturers, wholesalers and distributors. The Company currently relies on Royal Ahold and national and regional distributors for a substantial portion of its items. The Company also utilizes premium specialty suppliers or local sources for gourmet foods, farm fresh produce, fresh fish and meats. From time to time, the Company may experience difficulty in obtaining sufficient product allocations from a key vendor. Many of the Company's key vendors also supply products to the retail grocery industry and to its online competitors. 20 If the Company is unable to obtain sufficient quantities of products from its key vendors to meet customer demand, its business could be materially adversely affected. THE COMPANY HAS NOT YET DEMONSTRATED PROFITABILITY, WHICH MAKES FINANCIAL FORECASTING DIFFICULT. The Company has currently not reached profitability in any of its markets. The Company's ability to reach profitability in a market depends upon its ability to increase customer order volume and per order size, and to control the costs of picking, packing and delivering these orders. Once profitability in a market is achieved, it is then necessary to further increase order volume and revenues to cover corporate overhead and start-up expenses in other markets. As a result of the Company's limited operating history and the impact on customers and order volume from competition, it is difficult to accurately forecast revenues. The Company bases its current and future expense levels on its operating plans and estimates of future revenue. Sales and operating results are difficult to forecast because they generally depend on the growth of its customer base and the volume of the orders the Company receives, as well as the mix of products sold, and the Company's ability to have the product available to match such demand. As a result, the Company may be unable to make accurate financial forecasts and adjust its spending in a timely manner to compensate for any unexpected revenue shortfall. This inability could cause its net losses in a given quarter to be greater than expected and could cause a decline in the trading price of its common stock. THE INTERNET MAY FAIL TO BECOME A WIDELY ACCEPTED MEDIUM FOR GROCERY SHOPPING. The Company relies on product orders received through its Website for sales. The market for e-commerce is new and rapidly evolving, and it is uncertain whether e-commerce will achieve and sustain high levels of demand and market acceptance, particularly with respect to the grocery industry. Its success will depend to a substantial extent on the willingness of consumers to increase their use of online services as a method to buy groceries and other products and services. Its success will also depend upon the acceptance of consumer package goods companies of the Company's online service as a significant means to market and sell their products. Moreover, its growth will depend on the extent to which an increasing number of consumers own or have access to personal computers or other systems that can access the Internet. If e-commerce in the grocery industry does not achieve high levels of demand and market acceptance, its business will be materially adversely affected. IF THE COMPANY DOES NOT RESPOND TO RAPID TECHNOLOGICAL CHANGES, ITS SERVICES COULD BECOME OBSOLETE AND THE COMPANY COULD LOSE CUSTOMERS. If the Company faces material delays in introducing new services, products and enhancements to its Website, its customers may forego the use of its services and use those of its competitors. To remain competitive, the Company must continue to enhance and improve the functionality and features of its online service. The Internet and the online commerce industry are rapidly changing. If competitors introduce new products and services embodying new technologies, or if new industry standards and practices emerge, its existing Website and proprietary technology and systems may become obsolete. Development of the Company's Website and other proprietary technology entails significant technical and business risks. The Company may use new technologies ineffectively or the Company may fail to adapt its Website, systems that the Company uses to process customers' orders and payments and its computer network to customer requirements or emerging industry standards. 21 THE COMPANY'S QUARTERLY OPERATING RESULTS ARE EXPECTED TO BE VOLATILE AND DIFFICULT TO PREDICT BASED ON A NUMBER OF FACTORS THAT WILL ALSO AFFECT ITS LONG-TERM PERFORMANCE. The Company expects its quarterly operating results to fluctuate significantly in the future based on a variety of factors. These factors are also expected to affect its long-term performance. Some of these factors include the following: - the introduction of new products or services and the market response to those introductions; - relationships with vendors; - seasonal trends and purchasing patterns; - changes in pricing policies or service offerings; 22 - increases in personnel, marketing and other operating expenses to support its anticipated growth; - the ability to obtain new customers or retain existing customers at reasonable cost; - the ability to manage distribution and delivery operations to handle significant increases in the number of customers and orders or to overcome system or technology difficulties associated with these increases; - the ability to adequately maintain, upgrade and develop service, computer network or the systems that the Company uses to process customer orders and payments; - technical difficulties, system or Website downtime or Internet brownouts; - changes in the level of marketing and other operating expenses to support future growth; - the availability and timing of capital with respect to future expansions; - the timing and nature of expansion efforts in both new and existing markets; - competitive factors; and - general economic conditions. Due to all of these factors, the Company expects its operating results to be volatile and difficult to predict. As a result, quarter-to-quarter comparisons of its operating results may not be good indicators of its future performance. In addition, it is possible that in any future quarter its operating results could be below the expectations of investors generally and any published reports or analyses on the Company. In that event, the price of the common stock could decline, perhaps substantially. THE COMPANY'S STOCK PRICE IS LIKELY TO BE VOLATILE. The stock market has experienced significant price and volume fluctuations, and the market prices of technology companies, particularly consumer-oriented, Internet-related companies, have been highly volatile. The price at which the Company's common stock trades has been and is likely to continue to be volatile and may fluctuate substantially due to factors such as: - the Company's historical and anticipated quarterly and annual operating results; - variations between the Company's actual results and the expectations of investors or published reports or analyses of the Company; - changes in analysts' estimates of the Company's performance or industry performance; - announcements by the Company or others, and developments affecting its business systems or expansion plans; - sales of large blocks of the Company's common stock; and - conditions and trends in e-commerce industries, particularly the online grocery industry. In the past, securities class-action litigation has often been instituted against companies following periods of volatility in the market price of their securities, including the Company. This type of litigation could result in substantial costs and a diversion of management's attention and resources. THE COMPANY FACES INTENSE COMPETITION FROM TRADITIONAL AND ONLINE RETAILERS OF GROCERY PRODUCTS. The grocery retailing business is extremely competitive. Local, regional, and national food chains, independent food stores and markets, as well as online grocery retailers, comprise the Company's principal competition, although the Company also faces substantial competition from convenience 22 stores, liquor retailers, membership warehouse clubs, specialty retailers, supercenters, and drugstore chains. Many of its existing and potential competitors, particularly traditional grocers and retailers, are larger and have substantially greater resources than the Company does. Recently, Safeway, a traditional grocery chain, acquired 50% of GroceryWorks.com, an Internet grocer currently serving markets in Texas and Phoenix, Arizona. In November 1999, Albertson's introduced an Internet-based service in the Seattle region, and Publix has announced its intention to offer an Internet-based service in Broward County, Florida. The Company expects this competition to intensify as more traditional retailers offer competitive services. The Company also competes with a number of online retailers including Webvan Group, Inc. and HomeRuns.com, Inc., as well as new entrants to the market. Some of these competitors have substantially greater resources than the Company. The principal competitive factors that affect its business are location, breadth of product selection, quality, service, price and consumer loyalty to traditional and online grocery retailers. If the Company fails to effectively compete in any one of these areas, the Company may lose existing and potential customers that would have a material adverse effect on its business, net sales and operating margins. THE COMPANY DEPENDS ON ITS RELATIONSHIP WITH AHOLD USA SUPERMARKET COMPANIES IN SEVERAL MARKETS. The Company depends on Ahold USA supermarket companies in several of its markets. These Ahold companies provide not only the products the Company sells to consumers, but also, in certain cases, many of the fulfillment services. Consequently, factors affecting these companies, such as labor disputes or supply problems, could have a material adverse effect on the Company's business. In addition, a substantial part of the marketing efforts for its services in some of these markets is conducted through cooperative marketing efforts with the Ahold companies. If cooperative marketing efforts are not effective to acquire or retain customers, the Company's business could be materially adversely affected. THE COMPANY'S NET SALES WOULD BE HARMED IF ITS ONLINE SECURITY MEASURES FAIL. The Company's relationships with its customers may be adversely affected if the security measures that the Company uses to protect their personal information, such as credit card numbers, are ineffective. If, as a result, the Company loses many customers, its business could be materially adversely affected. The Company relies on security protocols and encryption technology to maintain security over credit card numbers. The Company cannot predict whether events or developments will result in a compromise or breach of the technology that the Company uses to protect a customer's personal information. Furthermore, its computer servers may be vulnerable to computer viruses, physical or electronic break-ins and similar disruptions. The Company may need to expend significant additional capital and other resources to protect against a security breach or to alleviate problems caused by any breaches. There can be no assurances that the Company can prevent all security breaches, and any failure to do so could have a material adverse effect on its reputation and results of operations. THE LOSS OF THE SERVICES OF ONE OR MORE OF THE COMPANY'S KEY PERSONNEL, OR ITS FAILURE TO ATTRACT, ASSIMILATE AND RETAIN OTHER HIGHLY QUALIFIED PERSONNEL IN THE FUTURE WOULD SERIOUSLY HARM ITS BUSINESS. The Company's success will depend upon the efforts and abilities of its senior management and key employees, including its executive officers. Its future success will also depend on the ability of its management to retain key managers and employ additional qualified senior managers. If the Company loses any of its key employees, or if the Company fails to attract or retain additional qualified personnel, its business could be harmed. 23 In addition, the Company's operations require it to attract, train and retain substantial numbers of new personnel. Certain metropolitan markets served by the Company have tight labor markets. In addition, the Company employs a large number of part-time employees to perform fulfillment services, who generally have a high rate of turnover. Its software and service development efforts also require highly trained employees. If the Company was unable to recruit or retain a sufficient number of qualified employees, or the costs of compensation or employee benefits were to increase substantially, its business, results of operations or financial condition could be harmed. THE COMPANY MAY NEED TO CHANGE THE MANNER OF CONDUCTING ITS BUSINESS IF GOVERNMENT REGULATION OF THE INTERNET INCREASES OR IF REGULATION DIRECTED AT LARGE-SCALE RETAIL OPERATIONS IS DEEMED APPLICABLE TO THE COMPANY. The adoption or modification of laws or regulations relating to the Internet and large-scale retail store operations could adversely affect the manner in which the Company currently conducts its business. In addition, the growth and development of the market for online commerce may lead to more stringent consumer protection laws that may impose additional burdens on the Company. Laws and regulations directly applicable to communications or commerce over the Internet are becoming more prevalent. The United States government recently enacted Internet laws regarding privacy, copyrights, taxation and the transmission of sexually explicit material. The Federal Trade Commission has indicated that it will investigate the practices of Internet companies relating to the handling of user-specific data. The law of the Internet, however, remains largely unsettled, even in areas where there has been some legislative action. It may take years to determine whether and how existing laws such as those governing intellectual property, privacy, libel and taxation apply to the Internet. There has been a growing concern about privacy and the collection, distribution and use of information about individuals, and the Company is subject to various federal and state regulations concerning these activities. Any new federal or state laws or regulations could adversely affect its ability to collect, distribute or use consumer information. The Company has adopted policies to address certain privacy concerns, including restricting access to its database, limiting the type of information that the Company provides to third parties, requiring each employee to sign a nondisclosure and confidentiality agreement, and implementing data security systems at its data center. Additionally, pursuant to the terms of its customer agreement, each customer consents to its use of the data generated by customers on an aggregate basis. However, these policies and arrangements may not be effective, and to the extent that they are not effective, its business, results of operations or financial condition could be materially and adversely affected. Recent developments in the area of online privacy suggest that the Company will need to continue to carefully evaluate its privacy policy and practices in terms of multiple interest, including: - the need to generate customer trust and alleviate customer concerns with respect to the use of customers' personally identifiable information; - the ability to provide customers with more personalized and responsive products and services; and - the Company's formation of relations with strategic business partners. The Company cannot assure you that its current or future privacy policy will adequately balance these interests, and any failure to do so could adversely affect the Company's relations with its customers or limit its ability to improve and expand its relationships with its business partners. 24 THE COMPANY MAY INCUR SIGNIFICANT COSTS OR EXPERIENCE PRODUCT AVAILABILITY DELAYS IN COMPLYING WITH REGULATIONS APPLICABLE TO THE SALE OF FOOD PRODUCTS. Whether the handling of food items in its distribution facility, such as meat and fish, will subject the Company to USDA regulation in the future will depend on several factors, including whether the Company sells food products on a wholesale basis or whether the Company obtains food products from non-USDA-inspected facilities. Although the Company has designed its food handling operations to comply with USDA regulations, the Company cannot assure that the USDA will not require changes to its food handling operations. The Company will also be required to comply with local health regulations concerning the preparation and packaging of its prepared products and other food items. Any applicable federal, state or local regulations may cause the Company to incur substantial compliance costs or delay the availability of a number of items at one or more of its distribution centers. In addition, any inquiry or investigation from a food regulatory authority could have a negative impact on its reputation. Any of these events could have a material adverse effect on its business and expansion plans and could cause it to lose customers. THE COMPANY MAY NOT BE ABLE TO OBTAIN REQUIRED LICENSES OR PERMITS FOR THE SALE OF ALCOHOL AND TOBACCO PRODUCTS IN A COST-EFFECTIVE MANNER OR AT ALL. The Company will be required to obtain state licenses and permits for the sale of alcohol and tobacco products in each new market in which the Company seeks to open a distribution center and sell these products. The Company cannot assure that it will be able to obtain any required permits or licenses in a timely manner, or at all. The Company may be forced to incur substantial costs and experience significant delays in obtaining these permits or licenses. Changes to existing laws or its inability to obtain required permits or licenses could prevent the Company from selling alcohol or tobacco products in one or more of its geographic markets. Any of these events could substantially harm its net sales, gross profit and ability to attract and retain customers. IN THE FUTURE, THE COMPANY MAY FACE POTENTIAL PRODUCT LIABILITY CLAIMS. The Company cannot assure that the products that the Company delivers will be free from contaminants. Grocery and other related products occasionally contain contaminants due to inherent defects in the products or improper storage or handling. If any of the products that the Company sells cause harm to any of its customers, the Company could be subject to product liability lawsuits. While the Company maintains general liability insurance, coverage under these policies may not be adequate to cover any losses. If the Company is found liable under a product liability claim, or even if the Company is required to defend itself against such a claim, its reputation could suffer and customers may substantially reduce their orders or stop ordering from it. IF THE PROTECTION OF THE COMPANY'S TRADEMARKS AND PROPRIETARY RIGHTS IS INADEQUATE, ITS BUSINESS MAY BE SERIOUSLY HARMED. The Company regards copyrights, service marks, trademarks, trade secrets and similar intellectual property as important to its success. The Company relies on trademark and copyright law, trade secret protection and confidentiality or license agreements with its employees, customers, partners and others to protect its proprietary rights; however, the steps the Company takes to protect its proprietary rights may be inadequate. The Company has filed, and from time to time expects to file, patent applications directed to aspects of its proprietary technology. The Company cannot assure you that any of these applications will be approved, that any issued patents will protect its intellectual property or that any issued patents will not be challenged by third parties. In addition, other parties may independently develop similar or competing technology or design around any patents that may be issued to the Company. The Company evaluates which inventions it should file patent applications for and in what jurisdictions such applications should be filed on the basis of a number of factors such as the relative 25 benefits of trade secret and patent protection, the likelihood of a patent's issuing, the cost of prosecuting patent applications and its current assessment of the long-term value of the invention from a competitive point of view. However, the Company cannot assure you that its patent strategy will prove to be successful in best securing the competitive advantages of its technologies. The Company's failure to protect its proprietary rights could materially adversely affect its business and competitive position. INTELLECTUAL PROPERTY CLAIMS AGAINST THE COMPANY CAN BE COSTLY AND COULD RESULT IN THE LOSS OF SIGNIFICANT RIGHTS. Other parties may assert infringement or unfair competition claims against the Company that could relate to any aspect of its technologies, business processes or other intellectual property. The Company cannot predict whether third parties will assert claims of infringement against it, the subject matter of any of these claims, or whether these assertions or prosecutions will harm its business. If the Company is forced to defend itself against any of these claims, whether they are with or without merit or are determined in its favor, then the Company may face costly litigation, diversion of technical and management personnel or inability to use its current Website technology. As a result of a dispute, the Company may have to develop non-infringing technology or enter into royalty or licensing agreements. These royalty or licensing agreements, if required, may be unavailable on terms acceptable to the Company, or at all. If there is a successful claim of patent infringement against the Company and the Company is unable to develop non-infringing technology or license the infringed or similar technology on a timely basis, its business and competitive position may be materially adversely affected. ANY DEFICIENCIES IN THE COMPANY'S SYSTEMS OR THE SYSTEMS OF THIRD PARTIES ON WHICH THE COMPANY RELIES COULD ADVERSELY AFFECT ITS BUSINESS AND RESULT IN A LOSS OF CUSTOMERS. The Company may experience disruptions in service for a variety of reasons including failures or interruptions in its systems. Natural disasters, power losses, telecommunications failures, break-ins and similar events could damage its systems or cause them to fail completely. Computer viruses, electronic break-ins or other similar disruptive problems could also adversely affect its business. In addition, its users depend on Internet service providers, online service providers and other Website operators for access to its Website. Many of them have experienced significant outages in the past and could experience outages, delays and other difficulties due to system failures unrelated to the Company's systems. Moreover, the Internet infrastructure may not be able to support continued growth in its use. Any of these problems could have a material adverse effect on its business and could result in a loss of customers. The Company's communication hardware and certain of its other computer hardware operations are located at its corporate headquarters in Skokie, Illinois. Certain of its hardware for the warehouse management and materials handling systems of each distribution center is maintained at the distribution center. Fires, floods, earthquakes, power losses, telecommunications failures, break-ins and similar events could damage these systems or cause them to fail completely. The Company's business could be adversely affected if its systems were affected by any of these occurrences. Similarly, power outages on any day at a facility could adversely impact the Company's ability to fulfill its orders from that facility on that day, which would in turn impact customer satisfaction with its service. The Company's insurance policies may not adequately compensate it for any losses that may occur due to any failures or interruptions in its systems. THE COMPANY MAY BE SUBJECT TO LIABILITY FOR THE INTERNET CONTENT THAT THE COMPANY PUBLISHES. As a publisher of online content, the Company faces potential liability for negligence, copyright, patent or trademark infringement, or other claims based on the nature and content of materials that the Company publishes or distributes. If the Company faces liability, particularly liability that is not 26 covered by its insurance or is in excess of its insurance coverage, then its reputation and its business may suffer. In the past, plaintiffs have brought these types of claims and sometimes successfully litigated them against online services. The Company cannot assure that it is adequately insured to cover claims of these types or to indemnify the Company for all liability that may be imposed on it. ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK As of December 31, 2000, the Company does not have any derivative financial instruments and is not exposed to interest rate risk. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS Independent Auditors' Report................................ 28 Balance Sheets as of December 31, 2000 and 1999............. 29 Statements of Operations for the years ended December 31, 2000, 1999 and 1998....................................... 30 Statements of Comprehensive Loss for the years ended December 31, 2000, 1999 and 1998.......................... 31 Statements of Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998.......................... 32 Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998....................................... 33 Notes to Financial Statements............................... 34
27 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Peapod, Inc.: We have audited the accompanying balance sheets of Peapod, Inc. as of December 31, 2000 and 1999, and the related statements of operations, comprehensive loss, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 financial statements referred to above present fairly, in all material respects, the financial position of Peapod, Inc. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Chicago, Illinois February 9, 2001, except as to Note 16 which is as of March 11, 2001 28 PEAPOD, INC. BALANCE SHEETS DECEMBER 31, 2000 AND 1999 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2000 1999 --------- -------- ASSETS Current assets: Cash and cash equivalents................................. $ 14,676 $ 3,343 Marketable securities..................................... -- 4,704 Receivables, net of allowance for doubtful accounts of $440 and $232 as of December 31, 2000 and December 31, 1999.................................................... 397 1,478 Merchandise inventory..................................... 1,662 458 Prepaid expenses.......................................... 677 473 Other current assets...................................... 4,283 535 --------- -------- Total current assets.................................... 21,695 10,991 Property and equipment, at cost: Computer equipment and software........................... 8,212 6,737 Service equipment and other............................... 5,813 2,857 Leasehold improvements.................................... 9,007 1,332 --------- -------- Property and equipment, at cost......................... 23,032 10,926 Less accumulated depreciation and amortization............ (8,285) (4,290) --------- -------- Net property and equipment.................................. 14,747 6,636 Restricted cash............................................. -- 1,588 Non-current marketable securities........................... -- 1,565 Net goodwill and other intangibles.......................... 7,123 -- Other non-current assets.................................... 2,168 -- --------- -------- Total assets............................................ $ 45,733 $ 20,780 ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 2,064 $ 6,147 Accounts payable to related party......................... 2,891 -- Accrued compensation...................................... 1,926 497 Other accrued liabilities................................. 9,444 1,897 Deferred revenue.......................................... 58 615 Current obligations under capital lease................... 1,965 690 --------- -------- Total current liabilities............................... 18,348 9,846 Deferred revenue............................................ -- 95 Obligations under capital lease, less current portion....... 4,829 1,129 --------- -------- Total liabilities....................................... 23,177 11,070 Stockholders' equity: Preferred stock, $.01 par value, 10,000,000 shares authorized; 726,371 shares of Series C convertible preferred stock issued and outstanding at December 31, 2000 (aggregate liquidation preference of $75,543)...... 64,684 -- Common stock, $.01 par value, 100,000,000 shares authorized; 18,423,144 and 18,320,578 shares issued at December 31, 2000 and December 31, 1999................. 184 183 Additional paid-in capital................................ 74,832 71,698 Note receivable from officer.............................. -- (2,369) Accumulated other comprehensive income (loss)--unrealized holding loss on available-for-sale securities........... -- (118) Accumulated deficit....................................... (115,271) (58,513) Treasury stock, at cost, 453,640 and 141,749 shares at December 31, 2000 and December 31, 1999................. (1,873) (1,171) --------- -------- Total stockholders' equity.............................. 22,556 9,710 --------- -------- Total liabilities and stockholders' equity.............. $ 45,733 $ 20,780 ========= ========
See accompanying notes to financial statements. 29 PEAPOD, INC. STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2000 1999 1998 ----------- ----------- ----------- Gross sales........................................... $ 93,362 $ 73,134 $ 69,265 Promotional discounts and allowances.................. (518) (438) (479) ----------- ----------- ----------- Net sales............................................. 92,844 72,696 68,786 Cost of sales......................................... 71,646 55,585 53,903 ----------- ----------- ----------- Gross profit.......................................... 21,198 17,111 14,883 Operating expenses: Fulfillment operations.............................. 37,279 23,580 16,715 General and administrative.......................... 11,422 6,958 8,029 Marketing and selling............................... 8,190 6,730 7,066 System development and maintenance.................. 5,809 3,543 3,386 Depreciation and amortization....................... 4,251 2,222 3,264 Pre-opening costs................................... -- 898 481 Non-recurring expenses.............................. 10,118 2,830 -- ----------- ----------- ----------- Total operating expenses.......................... 77,069 46,761 38,941 ----------- ----------- ----------- Operating loss........................................ (55,871) (29,650) (24,058) Other income (expense): Investment income................................... 1,079 1,384 2,683 Non-cash interest expense........................... (1,480) -- -- Interest expense.................................... (486) (187) (190) ----------- ----------- ----------- Net loss.............................................. (56,758) (28,453) (21,565) Non-cash deemed dividend on preferred stock........... (56,953) -- -- Preferred stock dividend and accretion................ (3,163) -- -- ----------- ----------- ----------- Net loss available to common stockholders............. $ (116,874) $ (28,453) $ (21,565) =========== =========== =========== Net loss per share--basic and diluted................. $ (6.48) $ (1.62) $ (1.27) Shares used to compute net loss per share--basic and diluted........................ 18,043,749 17,542,990 16,964,439
See accompanying notes to financial statements. 30 PEAPOD, INC. STATEMENTS OF COMPREHENSIVE LOSS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (IN THOUSANDS)
2000 1999 1998 --------- -------- -------- Net loss.................................................... $ (56,758) $(28,453) $(21,565) Other comprehensive income (loss): Unrealized holding gain (loss) on available-for-sale securities: Unrealized holding gain (loss) arising during the period................................................ (1) (201) 83 Reclassification adjustment for losses realized during the period and included in net loss................... 119 -- -- --------- -------- -------- Comprehensive loss.......................................... $ (56,640) $(28,654) $(21,482) ========= ======== ========
See accompanying notes to financial statements. 31 PEAPOD, INC. STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
NOTE COMMON STOCK TREASURY STOCK PREFERRED STOCK ADDITIONAL RECEIVABLE --------------------- ------------------- ------------------- PAID-IN FROM SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL OFFICER ---------- -------- -------- -------- -------- -------- ---------- ---------- Balance at January 1, 1998......... 16,852,557 $169 (2,000) $ (19) -- $ -- $63,148 $ -- Issuance of stock for services rendered......................... 6,143 -- -- -- -- -- 45 -- Issuance of stock upon exercise of warrants......................... 28,793 -- -- -- -- -- 64 -- Issuance of stock upon exercise of options and for employee stock purchase plan.................... 358,335 3 -- -- -- -- 1,062 -- Treasury stock..................... -- -- (115,476) (889) -- -- -- -- Unrealized holding gain on available-for-sale securities.... -- -- -- -- -- -- -- -- Net loss........................... -- -- -- -- -- -- -- -- ---------- ---- -------- ------- ------- ------- ------- ------- Balance at December 31, 1998....... 17,245,828 172 (117,476) (908) -- -- 64,319 -- Issuance of stock.................. 300,000 3 -- -- -- -- 2,397 -- Issuance of stock for note receivable....................... 311,891 3 -- -- -- -- 2,497 (2,500) Issuance of stock for services rendered......................... 19,064 -- -- -- -- -- 140 -- Issuance of stock upon exercise of warrants......................... 27,708 1 -- -- -- -- 49 -- Issuance of stock upon exercise of options and employee stock purchase plan.................... 416,087 4 -- -- -- -- 2,296 -- Treasury stock..................... -- -- (24,273) (263) -- -- -- -- Forgiveness of debt of officer..... -- -- -- -- -- -- -- 131 Unrealized holding loss on available-for-sale securities.... -- -- -- -- -- -- -- -- Net loss........................... -- -- -- -- -- -- -- -- ---------- ---- -------- ------- ------- ------- ------- ------- Balance at December 31, 1999....... 18,320,578 183 (141,749) (1,171) -- -- 71,698 (2,369) Issuance of warrants............... -- -- -- -- -- -- 5,893 -- Accretion on redeemable preferred stock............................ -- -- -- -- -- -- (258) -- Conversion of redeemable preferred stock to preferred stock......... -- -- -- -- 726,371 64,684 -- -- Dividends on preferred stock....... -- -- -- -- -- -- (2,905) -- Issuance of stock upon exercise of options and employee stock purchase plan.................... 102,566 1 -- -- -- -- 404 -- Treasury stock..................... -- -- (311,891) (702) -- -- -- 702 Forgiveness of debt of officer..... -- -- -- -- -- -- -- 1,667 Realized holding loss on available-for-sale securities.... -- -- -- -- -- -- -- -- Net loss........................... -- -- -- -- -- -- -- -- ---------- ---- -------- ------- ------- ------- ------- ------- Balance at December 31, 2000....... 18,423,144 $184 (453,640) $(1,873) 726,371 $64,684 $74,832 $ -- ========== ==== ======== ======= ======= ======= ======= ======= ACCUMULATED OTHER COMPREHENSIVE ACCUMULATED INCOME (LOSS) DEFICIT TOTAL -------------- ------------ -------- Balance at January 1, 1998......... $ -- $ (8,495) $ 54,803 Issuance of stock for services rendered......................... -- -- 45 Issuance of stock upon exercise of warrants......................... -- -- 64 Issuance of stock upon exercise of options and for employee stock purchase plan.................... -- -- 1,065 Treasury stock..................... -- -- (889) Unrealized holding gain on available-for-sale securities.... 83 -- 83 Net loss........................... -- (21,565) (21,565) ----- --------- -------- Balance at December 31, 1998....... 83 (30,060) 33,606 Issuance of stock.................. -- -- 2,400 Issuance of stock for note receivable....................... -- -- -- Issuance of stock for services rendered......................... -- -- 140 Issuance of stock upon exercise of warrants......................... -- -- 50 Issuance of stock upon exercise of options and employee stock purchase plan.................... -- -- 2,300 Treasury stock..................... -- -- (263) Forgiveness of debt of officer..... -- -- 131 Unrealized holding loss on available-for-sale securities.... (201) -- (201) Net loss........................... -- (28,453) (28,453) ----- --------- -------- Balance at December 31, 1999....... (118) (58,513) 9,710 Issuance of warrants............... -- -- 5,893 Accretion on redeemable preferred stock............................ -- -- (258) Conversion of redeemable preferred stock to preferred stock......... -- -- 64,684 Dividends on preferred stock....... -- -- (2,905) Issuance of stock upon exercise of options and employee stock purchase plan.................... -- -- 405 Treasury stock..................... -- -- -- Forgiveness of debt of officer..... -- -- 1,667 Realized holding loss on available-for-sale securities.... 118 -- 118 Net loss........................... -- (56,758) (56,758) ----- --------- -------- Balance at December 31, 2000....... $ -- $(115,271) $ 22,556 ===== ========= ========
See accompanying notes to financial statements. 32 PEAPOD, INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (IN THOUSANDS)
2000 1999 1998 -------- -------- -------- Cash flows from operating activities: Net loss.................................................. $(56,758) $(28,453) $(21,565) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization........................... 4,251 2,222 3,264 Non-cash interest expense............................... 1,480 -- -- Stock options and warrants issued for services rendered............................................... 535 140 45 Forgiveness of note receivable from officer............. 1,667 131 -- Write-down of impaired assets........................... 2,481 -- -- Loss on disposition of fixed assets..................... 2 33 270 Changes in operating assets and liabilities, net of operations acquired: (Increase) decrease in receivables, net............... 1,138 1,038 (1,321) (Increase) decrease in merchandise inventory.......... (673) (458) -- (Increase) decrease in prepaid expenses............... (30) (287) 258 (Increase) decrease in other current assets........... (1,443) 439 (746) (Increase) decrease in restricted cash................ 1,588 (1,588) -- Increase (decrease) in accounts payable............... (1,192) 2,705 (4,072) Increase (decrease) in accrued compensation........... 1,429 (305) (456) Increase (decrease) in other accrued liabilities...... 2,951 (791) 1,762 Increase (decrease) in deferred revenue............... (651) (738) (1,733) -------- -------- -------- Net cash used in operating activities............... (43,225) (25,912) (24,294) Cash flows from investing activities: Property and equipment purchased.......................... (3,464) (3,042) (2,346) Acquisition of Streamline warehouses...................... (11,612) -- -- Capitalized software development costs.................... -- -- (513) Purchases of marketable securities........................ -- (8,770) (53,352) Maturities and sales of marketable securities............. 6,269 33,349 31,184 Proceeds from sale of property and equipment.............. -- 14 117 -------- -------- -------- Net cash provided by (used in) investing activities....... (8,807) 21,551 (24,910) Cash flows from financing activities: Proceeds from issuance of stock, net of offering costs.... 64,428 2,400 -- Proceeds from issuance of stock upon exercise of warrants................................................ -- 50 64 Proceeds from issuance of stock upon exercise of options and employee stock purchase plan........................ 405 2,037 176 Payments on capital lease obligations..................... (1,468) (1,124) (774) -------- -------- -------- Net cash provided by (used in) financing activities....... 63,365 3,363 (534) -------- -------- -------- Net increase (decrease) in cash and cash equivalents........ 11,333 (998) (49,738) Cash and cash equivalents at beginning of year.............. 3,343 4,341 54,079 -------- -------- -------- Cash and cash equivalents at end of year.................... $ 14,676 $ 3,343 $ 4,341 ======== ======== ======== Supplemental disclosure of cash flows information--interest paid...................................................... $ 486 $ 236 $ 159 Supplemental disclosures of non-cash investing and financing activity: Issuance of common stock for note......................... -- 2,500 -- Acquisition of treasury stock from settlement of note receivable from officer................................. (702) -- -- Equipment on capital leases............................... 173 1,957 331 Options and warrants exercised by sale of stock to the Company................................................. -- 263 889 Warrants issued for deferred financing costs.............. 5,358 -- -- Preferred stock dividend and accretion.................... 3,163 -- -- Capital lease obligation assumed through acquisition...... 6,271 -- --
See accompanying notes to financial statements. 33 PEAPOD, INC. NOTES TO FINANCIAL STATEMENTS (1) DESCRIPTION OF THE COMPANY AND BASIS OF PRESENTATION Peapod, Inc. ("the Company") is a Delaware corporation and was incorporated on December 5, 1996, and is the successor to a business originally founded in 1989 as a Delaware corporation and operated since 1992 through an Illinois limited partnership ("Peapod LP"). On June 10, 1997, the Company completed its initial public offering and issued 4,000,000 shares of common stock. On June 30, 2000, the Company issued preferred securities and warrants under the terms of a purchase agreement, dated April 14, 2000, (the "Purchase Agreement") with Koninklijke Ahold N.V. ("Ahold"). At December 31, 2000, Ahold owned approximately 58% of the combined voting power of the Company through its ownership of 726,371 shares of Series C preferred stock (representing approximately 52% of the voting power) and 2,331,917 shares of common stock (representing approximately 6% of the voting power), without giving effect to its outstanding warrants to acquire 36,560,937 shares of common stock. The Company is an interactive online grocery shopping and delivery service, which as of December 31, 2000 operated in the Chicago, Illinois; San Francisco/San Jose, California; Boston, Massachusetts; Long Island, New York; Southern Connecticut; and Washington, D.C. metropolitan markets. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REVENUE RECOGNITION Product sales are recognized when the grocery order is delivered to the customer. Interactive marketing revenues are recognized over the life of the contract as services are provided. Customer and retailer revenues consist of grocery retailer fees and fees from consumers. Grocery retailer fees consist of contractual fees which are recognized on a straight-line basis over the life of the contract. Fees from consumers are recognized as earned. Licensing revenues are recognized as such services are provided. During the fourth quarter of 2000, Emerging Issues Task Force Issue No. 00-14 ("EITF 00-14"), "Accounting for Certain Sales Incentives," became effective. This requires that certain incentives, previously accounted for by the Company as marketing costs, be accounted for as a reduction of sales. Prior period balances, including the quarters presented in Note 15, have been reclassified to reflect the adoption of EITF 00-14. COST OF SALES Cost of sales consists of the cost of groceries and other products sold. CUSTOMER ACQUISITION COSTS Customer acquisition costs are expensed as incurred. CASH AND CASH EQUIVALENTS Cash and cash equivalents are comprised of highly liquid investments with original maturities of three months or less. 34 PEAPOD, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) MARKETABLE SECURITIES Investments in marketable securities are classified as "held-to-maturity" securities or as "available-for-sale" securities. Held-to-maturity securities are reported at amortized cost and available-for-sale securities are reported at fair value, based on the quoted market price of each individual security on the balance sheet date. Unrealized gains and losses on available-for-sale securities are excluded from earnings and are included in stockholders' equity as "accumulated other comprehensive income (loss)--unrealized holding gain (loss) on available-for-sale securities." MERCHANDISE INVENTORY Merchandise inventory consists of grocery and other products for sale to the Company's customers. Merchandise inventory is stated at the lower of cost or market, with cost determined on an average cost basis. PROPERTY AND EQUIPMENT Property and equipment is recorded at cost and depreciated on a straight-line basis over the estimated useful lives of the related assets, generally three to five years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets. INTANGIBLE ASSETS Intangible assets consist of: goodwill, which is being amortized over its estimated useful life of five years; customer lists, which is being amortized over its estimated useful life of three years; and employee workforce, which is being amortized over its estimated useful life of two years. CAPITALIZED SOFTWARE DEVELOPMENT COSTS The costs of software for internal use are accounted for in accordance with Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. Capitalized software costs are generally depreciated over an estimated useful life of three years. The Company's development cycle for its consumer product website is subject to the rapid changes in internet technology. As the Company's consumer product website is continuously updated and the technology is constantly changing, the Company has charged these costs to expense as incurred. INCOME TAXES The Company accounts for income taxes in accordance with SFAS No. 109, ACCOUNTING FOR INCOME TAXES. Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to the 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. 35 PEAPOD, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) STOCK OPTION PLANS The Company accounts for its option plans in accordance with SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which permits entities to recognize as expense over the vesting period the fair value of all equity-based awards on the date of grant. Alternatively, SFAS No. 123 allows entities to continue to apply the provisions of Accounting Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations, and provide pro forma disclosures for employee stock option grants as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosures required by SFAS No. 123. Stock options and warrants granted to non-employees are recorded at the imputed fair value in accordance with the provisions of SFAS No. 123. FINANCIAL INSTRUMENTS The fair values of the Company's financial instruments do not materially vary from the carrying values of such instruments due to the short-term nature of the instruments. NON-RECURRING EXPENSES The Company separately classifies as non-recurring expense items that arise outside of the normal course of business and that are expected to be one-time expenses. LONG-LIVED ASSETS Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount be evaluated. Impairment is measured by comparing the carrying value to the estimated net future cash flows expected to result from the use of the assets and their eventual disposition. USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATIONS Certain prior year balances have been reclassified to conform with the current year presentation. EARNINGS PER SHARE The Company applies SFAS No. 128, EARNINGS PER SHARE, in computing earnings per share. Basic net loss per share is computed using the weighted average number of common shares outstanding. Diluted net loss per share is computed using the weighted average number of common shares outstanding and equivalent shares based on the assumed exercise of stock options and warrants (using the treasury stock method). However, since the diluted net loss per share would be anti-dilutive, the basic net loss per share is used. 36 PEAPOD, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Potentially dilutive options and warrants to acquire 40,342,000, 4,293,000 and 2,655,000 shares of common stock were outstanding at December 31, 2000, 1999 and 1998, respectively. Series C convertible preferred stock was convertible into 19,369,873 shares of common stock at December 31, 2000. The potentially dilutive securities were not included in the earnings per share calculation because the effect would be anti-dilutive. (3) EQUITY On June 30, 2000, the Company issued preferred securities and warrants under the Purchase Agreement with Ahold. Pursuant to the terms of the Purchase Agreement, the Company agreed to sell 726,371 shares of the Company's series B convertible redeemable preferred stock, par value $.01 per share (the "Series B Preferred Stock") and warrants (the "Warrants") to purchase 32,894,270 shares of the Company's common stock for an aggregate purchase price of $72,637,024. All of the outstanding shares of Series B Preferred Stock were exchanged on October 12, 2000 for shares of series C convertible preferred stock, par value $.01 per share (the "Series C Preferred Stock). The Series C Preferred Stock has the same terms as the Series B Preferred Stock except that, in lieu of a provision for mandatory redemption by the Company of the Series B Preferred Stock, the Series C Preferred Stock provides for an increase in the dividend rate in the Series C Preferred Stock beginning on June 30, 2008. The Series C Preferred Stock is convertible into 19,369,873 shares of common stock, subject to adjustment for certain dilutive issuances, which represents approximately 52% of the Company's common stock outstanding as of December 31, 2000. The Series C Preferred Stock ranks senior to the common stock with respect to dividends and liquidation payments, and has a liquidation preference of $100.00 per share, plus all then accrued and unpaid dividends. The Series C Preferred Stock accrues cumulative dividends, payable quarterly, at the rate of 8% per annum. The Series C preferred stockholder is entitled to vote together with the holders of the common stock as a single class on all matters submitted for a vote of holders of common stock. The Series C Preferred Stock is redeemable at the option of the Company for cash on the earlier of specified redemption events or April 14, 2008, at a price per share equal to the liquidation value ($72,637,024) plus all accrued and unpaid dividends ($2,905,484 at December 31, 2000). In the case of a redemption event only, the holder of the preferred stock has the option of not having the preferred stock redeemed in connection with such redemption event. The difference between the net issuance price and the redemption value of the redeemable preferred stock, assuming redemption on April 14, 2008, was accreted (based on the eight-year period to redemption) through charges to additional paid in capital prior to conversion of the Series B Preferred Stock to the Series C Preferred Stock. The Company may optionally redeem the outstanding shares of Series C Preferred Stock at any time after April 14, 2008 at a redemption price per share equal to 103% of the $100 liquidation preference for the Series C Preferred Stock, plus the amount of any accrued and unpaid dividends as of the date of the redemption. The Warrants have an exercise price of $3.75, subject to adjustment, and are immediately exercisable. The imputed fair value of the warrants was calculated to be $56,953,000 using the Black-Scholes option-pricing model and was recognized in the second quarter as a deemed dividend on the Series B Preferred Stock, increasing the net loss available to common stockholders. (4) RELIANCE ON CERTAIN RELATIONSHIPS In certain markets, the Company purchases groceries from 100%-owned subsidiaries of Ahold. Prior to the investment by Ahold on June 30, 2000, all such purchases were made under existing arm's- 37 PEAPOD, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (4) RELIANCE ON CERTAIN RELATIONSHIPS (CONTINUED) length contracts. Beginning on July 1, 2000, purchases of groceries in these markets have transitioned to new terms negotiated in conjunction with the Purchase Agreement which are believed to be at arm's-length terms. Cost of goods sold for the period from July 1, 2000 to December 31, 2000 includes $13,551,000 of groceries purchased from Ahold. At December 31, 2000, $2,891,000 was owed to subsidiaries of Ahold and is presented as accounts payable to related party. (5) CREDIT FACILITY On April 14, 2000, simultaneous with the signing of the Purchase Agreement, the Company entered into a $20 million secured revolving credit facility with Ahold maturing in April 2003. Pursuant to security agreements entered into in connection with the credit facility, the Company's obligations under the credit facility are secured by a lien on all of the Company's personal property, including its intellectual property. In connection with the credit and security agreements, the Company issued to Ahold warrants to purchase an aggregate of 3,666,667 shares of common stock at an initial exercise price of $3.00, subject to adjustment, which are immediately exercisable. The imputed fair value of the warrants was calculated to be $5,358,000 using the Black-Scholes option-pricing model and is being recognized as non-cash interest expense over the life of the credit facility (at December 31, 2000, $1,734,000 and $2,168,000 is recorded as other current assets and other non-current assets, respectively, and $1,480,000 was recognized as non-cash interest expense in the twelve months ended December 31, 2000). There are no outstanding borrowings under the credit facility as of December 31, 2000. The Company is in compliance with all covenants of the credit facility. If Ahold exercises any of its warrants prior to April 2003, the credit facility will be reduced dollar-for-dollar for the exercise price received. Total warrants issued to Ahold, if exercised, would represent an additional approximately 21% of the common stock outstanding as of December 31, 2000. As of December 31, 2000, no warrants have been exercised by Ahold. See further discussion of the revolving credit facility in Note 16. (6) ACQUISITION OF STREAMLINE WAREHOUSES On September 7, 2000, the Company acquired from Streamline.com, Inc. substantially all of the assets and product on hand of two warehouses, located in Lake Zurich, Illinois, and Gaithersburg, Maryland, for $11,612,000 in cash and the assumption of capital leases and other obligations in the amount of $6,659,000. The acquisition was accounted for under the purchase method. Accordingly, the purchase price has been allocated to identifiable tangible and intangible assets and liabilities assumed based on their estimated fair values. The excess of cost over net tangible assets acquired has been allocated to customer lists and employee workforce (approximately $2.4 million) which will be amortized over two to three years and to goodwill (approximately $5.4 million) which are being amortized over five years. The consolidated statements of operations reflect the results of operations of the warehouses since the effective date of acquisition. 38 PEAPOD, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (6) ACQUISITION OF STREAMLINE WAREHOUSES (CONTINUED) The following summary presents information concerning the purchase price allocation for the warehouse acquisitions (in thousands): Tangible assets............................................. $10,452 Goodwill and other intangibles.............................. 7,819 ------- Purchase price.............................................. 18,271 Less liabilities assumed.................................... (6,659) ------- Payment for acquisitions.................................... $11,612 =======
The following unaudited pro forma summary presents Peapod's results of operations as if the acquisition of the warehouses had occurred at the beginning of each period. This summary is provided for information purposes only. It does not necessarily reflect the actual results that would have occurred had the acquisition been made as of the those dates, or of results that may occur in the future (in thousands, except per share data):
DECEMBER 31, DECEMBER 31, 2000 1999 ------------- ------------- Net sales........................................... $ 104,587 $ 80,656 Net loss............................................ (72,643) (40,355) Net loss available to common stockholders........... (132,759) (40,855) Basic and diluted net loss per share available to common stockholders............................... (7.36) (2.33)
(7) MARKETABLE SECURITIES At December 31, 2000, the Company had no marketable securities. At December 31, 1999, the Company's marketable securities consisted of the following (in thousands):
GROSS GROSS UNREALIZED UNREALIZED AMORTIZED HOLDING HOLDING DECEMBER 31, 1999 COST GAINS LOSSES FAIR VALUE - ----------------- --------- ---------- ---------- ---------- Current investments: Securities available-for-sale: Corporate debt securities.......................... $4,787 $ 8 $(91) $4,704 ------ ---- ---- ------ $4,787 $ 8 $(91) $4,704 ====== ==== ==== ====== Non-current investments: Securities available-for-sale: Government obligations............................. $1,600 $ -- $(35) $1,565 ------ ---- ---- ------ $1,600 $ -- $(35) $1,565 ====== ==== ==== ======
Using the specific identification method, the gross realized gains and gross realized losses on the sale of available-for-sale securities were approximately $0 and $119,000 respectively, for the year ended 39 PEAPOD, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (7) MARKETABLE SECURITIES (CONTINUED) December 31, 2000; $18,000 and $38,000, respectively, for the year ended December 31, 1999; and $33,000 and $0, respectively, for the year ended December 31, 1998. (8) LEASES CAPITAL LEASES The Company has capitalized certain equipment and furniture acquired through leases. The future minimum lease payments as of December 31, 2000 are as follows (in thousands): 2001........................................................ $2,643 2002........................................................ 2,297 2003........................................................ 1,270 2004........................................................ 1,165 2005........................................................ 1,120 2006........................................................ 133 ------ 8,628 Less amount representing interest........................... 1,834 ------ 6,794 Less current obligations.................................... 1,965 ------ $4,829 ======
Costs and related accumulated amortization for equipment under capital leases totaled $10,490,000 and $2,092,000, respectively, as of December 31, 2000; and $3,785,000 and $1,541,000, respectively, as of December 31, 1999. Amortization expense totaled $773,000, $590,000 and $757,000 for the years ended December 31, 2000, 1999 and 1998, respectively. OPERATING LEASES The Company leases its office facilities, warehouses, trucks and various equipment under non-cancelable operating leases. Rent expense and sublease income on operating leases totaled $1,771,000 and $144,000, respectively, for the year ended December 31, 2000; $1,549,000 and $35,000, respectively, for the year ended December 31, 1999; and $823,000 and $0, respectively, for the year ended December 31, 1998. The total future minimum non-cancelable operating lease obligation is as follows (in thousands):
LEASE SUBLEASE PAYMENTS INCOME -------- -------- 2001...................................................... $ 2,953 $(150) 2002...................................................... 2,974 (155) 2003...................................................... 2,564 (161) 2004...................................................... 2,279 (166) 2005...................................................... 1,483 -- 2006 and beyond........................................... 5,932 -- ------- ----- $18,185 $(632) ======= =====
40 PEAPOD, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (9) NOTE RECEIVABLE FROM OFFICER The Company entered into a Separation Agreement with William Malloy dated March 15, 2000. Effective as of that date, Mr. Malloy resigned from his position as President and Chief Executive Officer and his employment agreement was terminated. Under the terms of the Separation Agreement, the Company paid Mr. Malloy's salary through April 30, 2000. The options to purchase 1,100,000 and 500,000 shares of the Company's common stock, respectively, which were granted to Mr. Malloy pursuant to his employment agreement, were cancelled, unexercised, and the option agreements relating to those option grants were terminated. The $2,500,000 Note Receivable from Officer, which had been extended to Mr. Malloy in September of 1999 for the purchase of 311,891 shares of the Company's common stock, was cancelled, and the purchase of common stock was rescinded and cancelled. The Company recognized a non-recurring expense in the first quarter of 2000 of $1,584,000 representing the difference between the balance of the Note Receivable from Officer and the fair market value of the 311,891 shares on the date the Separation Agreement was executed. Mr. Malloy returned those shares to the Company and they became treasury stock on April 24, 2000. Under the terms of the Separation Agreement, Mr. Malloy's Severance Agreement was terminated, except as to the Company's obligation to maintain directors and officers liability insurance for Mr. Malloy for a period of three years. In addition, Mr. Malloy retains certain contractual rights to indemnification as a former officer and director. The terms of the Separation Agreement provide that Mr. Malloy continues to be subject to an agreement not to compete with the Company or to solicit its customers and employees for a year following the termination of his employment and not to disclose the Company's proprietary information. Both the Company and Mr. Malloy signed general releases of any and all existing claims related to Mr. Malloy's employment by the Company. (10) STOCK OPTIONS The Company has option plans providing for the issuance of options to eligible employees, directors, advisors and consultants. These plans permit the Company to issue options on terms that the Company determines appropriate, subject to a maximum life of 10 years. Such terms include the exercise price, number of shares, vesting arrangements and other terms. The Company applies APB Opinion No. 25 and related interpretations in accounting for its plans. Had compensation cost for the Company's option plans been determined consistent with SFAS No. 123, the net loss would have been adjusted to the pro forma amounts indicated below (in thousands, except per share data):
2000 1999 1998 --------- -------- -------- Net loss available to common stockholders: As reported............................................... $(116,874) $(28,453) $(21,565) Pro forma................................................. (114,324) (33,566) (25,124) Net loss per share: As reported--basic and diluted............................ $ (6.48) $ (1.62) $ (1.27) Pro forma--basic and diluted.............................. $ (6.34) $ (1.91) $ (1.48)
Net loss available to common stockholders as reported exceeds the pro forma net loss in 2000 due to significant option forfeitures and cancellations during 2000. Under the option plans, the exercise price of each option equals the fair market value of the stock on the date of grant. For purposes of calculating the compensation costs consistent with SFAS No. 123, 41 PEAPOD, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (10) STOCK OPTIONS (CONTINUED) the fair value of each grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in fiscal 2000, 1999 and 1998, respectively: no expected dividend yield; expected volatility of 50%; risk-free interest rates of 6.5%, 5.5% and 6.5% respectively, and expected lives of five years in 2000 and seven years in 1999 and 1998. The weighted average fair value of options granted was $1.59 in 2000, $4.90 in 1999 and $3.81 in 1998. Additional information on stock options is as follows:
2000 1999 1998 --------------------- -------------------- -------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ---------- -------- --------- -------- --------- -------- Outstanding at beginning of year........................... 4,189,925 $7.01 2,623,664 $5.76 2,573,956 $ 7.60 Granted.......................... 1,999,708 3.80 2,367,559 8.15 1,352,979 7.00 Forfeited/cancelled.............. (2,531,883) 7.38 (395,089) 7.03 (961,149) 13.31 Exercised........................ (80,401) 4.48 (406,209) 5.51 (342,122) 2.87 ---------- --------- --------- Outstanding at year-end.......... 3,577,349 $5.02 4,189,925 $7.01 2,623,664 $ 5.76 ---------- ----- --------- ----- --------- ------ Options exercisable at year-end....................... 1,547,067 $5.85 1,724,515 $5.64 1,328,505 $ 4.37 ========== ===== ========= ===== ========= ======
The following table summarizes information about stock options outstanding at December 31, 2000.
AVERAGE WEIGHTED REMAINING WEIGHTED AVERAGE OPTIONS CONTRACTUAL AVERAGE OPTIONS EXERCISE RANGE OF EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE PRICE - ------------------------ ----------- ----------- -------------- ----------- -------- $ 1.19 - 1.76 ............................................ 594,544 3.4 years $ 1.47 482,544 $ 1.52 1.77 - 3.52 ............................................ 293,243 5.4 2.39 153,704 2.50 3.53 - 5.28 ............................................ 1,403,500 5.6 3.76 -- -- 5.29 - 7.04 ............................................ 455,050 4.1 6.30 291,830 6.27 7.05 - 8.80 ............................................ 487,487 3.2 7.72 406,935 7.70 8.81 - 10.56 ............................................ 56,858 7.3 9.58 23,504 9.43 10.56 - 12.32 ............................................ 141,667 2.9 11.02 58,134 11.09 15.84 - 17.60 ............................................ 145,000 3.8 16.20 130,416 16.19 --------- --------- 3,577,349 4.6 years $ 5.02 1,547,067 $ 5.85 ========= ========= ====== ========= ======
42 PEAPOD, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (11) WARRANTS The imputed fair value of the warrants granted is calculated using the Black-Scholes option-pricing model. 100,000 warrants issued during 2000 related to a contractual obligation and were accounted for as a non-recurring expense. 3,666,667 warrants were issued during 2000 to Ahold related to the credit facility and are being expensed over the life of the credit facility as non-cash interest expense. 32,894,270 warrants were issued during 2000 to Ahold related to the preferred stock investment and were accounted for as a non-cash deemed dividend. All warrants expire by June 2010. Company stock warrant activity for the years ended December 31, 2000, 1999 and 1998 is summarized below:
WEIGHTED AVERAGE EXERCISE EXERCISE WARRANTS PRICE PRICE ---------- -------- ---------------- Outstanding on January 1, 1998........................................ 59,716 $2.40 $1.33 - 7.00 Exercised............................................................. (28,793) 2.21 2.21 ---------- Outstanding on December 31, 1998...................................... 30,923 2.57 1.33 - 7.00 Granted............................................................... 100,000 9.35 9.35 Exercised............................................................. (27,708) 2.06 1.33 - 2.25 ---------- Outstanding on December 31, 1999...................................... 103,215 9.28 7.00 - 9.35 Granted............................................................... 36,660,937 3.71 3.00 - 15.34 ---------- Outstanding and exercisable on December 31, 2000...................... 36,764,152 $3.72 $3.00 - 15.34 ==========
(12) INCOME TAXES There is no provision for income taxes for the years ended December 31, 2000, 1999 and 1998 due to the Company's loss before income taxes. The effective tax rate differs from the U.S. statutory rate. The following table reconciles the provision for income taxes using the U.S. statutory rate with the effective rate (in thousands):
2000 1999 1998 -------- -------- -------- Tax benefit at U.S. federal income tax rate of 34%....... $(19,298) $(9,674) $(7,332) Increase (reduction) in taxes resulting from: State income tax benefit, net of federal effect........ (3,405) (1,707) (1,294) Increase in valuation allowance, primarily related to net operating losses................................. 20,361 12,502 9,865 Other.................................................. 2,342 (1,121) (1,239) -------- ------- ------- Income tax provision..................................... $ -- $ -- $ -- ======== ======= =======
43 PEAPOD, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (12) INCOME TAXES (CONTINUED) Significant components of the Company's deferred tax assets and liabilities at December 31, 2000 and 1999 are as follows (in thousands):
2000 1999 -------- -------- Deferred tax assets: Allowance for doubtful accounts........................... $ 176 $ 93 Deferred revenues......................................... 10 213 Fixed asset depreciation.................................. 43 -- Other..................................................... 2,983 457 Net operating loss........................................ 43,728 25,850 -------- -------- Gross deferred tax assets............................... 46,940 26,613 Less valuation allowance................................ (46,940) (26,579) -------- -------- Net deferred tax assets............................... -- 34 -------- -------- Deferred tax liabilities: Fixed asset depreciation.................................. -- (34) -------- -------- Gross deferred tax liabilities.......................... -- (34) -------- -------- Deferred income taxes....................................... $ -- $ -- ======== ========
The net change in the total valuation allowance for the years ended December 31, 2000, 1999 and 1998 was an increase of $20,361,000, $12,502,000 and $9,865,000, respectively. As of December 31, 2000, the Company has approximately $107,600,000 of net operating loss carryforwards which expire from 2012 through 2020. (13) EMPLOYEE BENEFIT PLANS Effective September 1, 1995, the Company implemented a 401(k) savings plan ("Savings Plan"). Qualified employees may participate in the Savings Plan by contributing up to 15% of their gross wages. The Company may elect to make matching contributions at the discretion of the Board of Directors of the Company. The Company has made no contributions through December 31, 2000. In 1997, the Company implemented an employee stock purchase plan ("Purchase Plan"). The Company's Purchase Plan provides that eligible employees may contribute up to $6,250 of their base earnings per quarter towards the quarterly purchase of the Company's common stock. The employee's purchase price is 85% of the lesser of the fair market value of the stock on the first business day or the last business day of the quarterly offering period. The total number of shares issuable under the Purchase Plan is 150,000. During 2000, 22,165 shares were issued under the Purchase Plan at prices ranging from $1.15 to $7.33. During 1999, 9,878 shares were issued under the Purchase Plan at prices ranging from $4.17 to $6.91. During 1998, 16,213 shares were issued under the Purchase Plan at prices ranging from $4.46 to $5.95. (14) NON-RECURRING EXPENSES Non-recurring expenses in 2000 consist of: (i) severance expenses of $1,938,000, which were incurred primarily in connection with the termination of Mr. Malloy as CEO in March, 2000, and were paid prior to December 31, 2000; (ii) impaired asset write-offs for certain long-lived assets that are not 44 PEAPOD, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (14) NON-RECURRING EXPENSES (CONTINUED) expected to be recoverable based on cash flow analysis, lease termination costs, and other facilities closing costs of $4,666,000, primarily related to decisions to exit certain markets or abandon certain facilities in continuing markets; (iii) costs of transitioning to new supply and management agreements of $1,345,000; (iv) expenses attributable to a failed financing transaction of $1,037,000, consisting primarily of legal, accounting and valuation costs; (v) charges for the settlement of claims related to a prior licensing obligation of $705,000, consisting primarily of additional programming costs; and (vi) other non-recurring expenses of $427,000. Additional severance and related expenses are expected to be incurred in 2001 related to the decision to exit certain markets and abandon certain facilities in continuing markets. The amount of such additional costs is not known at the present time. The following table depicts the exit charges and related liability balances as of and for the year ended December 31, 2000, primarily related to the decisions to exit certain markets and abandon certain facilities in continuing markets (in thousands):
BALANCE IN PAYMENTS ACCRUED IMPAIRED THROUGH EXPENSES TOTAL EXIT ASSET DECEMBER 31, AT DECEMBER 31, COSTS WRITE-OFFS 2000 2000 ---------- ---------- ------------- ---------------- Impaired asset write-offs...................... $2,481 $2,481 $ -- $ -- Lease termination costs........................ 839 -- 494 345 Other facilities closing costs................. 1,346 -- 1,046 300 ------ ------ ------ ---- $4,666 $2,481 $1,540 $645 ====== ====== ====== ====
The 1999 non-recurring expenses were primarily attributable to the employment of Mr. Malloy as CEO in September 1999 (who subsequently resigned in March 2000). 45 PEAPOD, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (15) QUARTERLY RESULTS (UNAUDITED) The following provides an unaudited summary of quarterly financial data. Certain amounts previously presented in the Company's quarterly reports on Form 10-Q have been reclassified below to conform to the presentation in the accompanying 2000 statement of operations.
2000 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) ----------------------------------------------------- 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ----------- ----------- ----------- ----------- Net sales..................................... $ 24,774 $ 22,632 $ 21,706 $ 23,732 Cost of sales................................. 19,216 17,574 17,293 17,563 ---------- ---------- ---------- ---------- Gross profit.................................. 5,558 5,058 4,413 6,169 Operating expenses: Fulfillment operations...................... 8,931 7,796 7,919 12,633 General and administrative.................. 2,039 2,150 2,768 4,465 Marketing and selling....................... 1,200 987 1,341 4,662 System development and maintenance.......... 1,189 1,469 1,490 1,661 Depreciation and amortization............... 664 737 942 1,908 Non-recurring expenses...................... 4,118 1,490 -- 4,510 ---------- ---------- ---------- ---------- Total operating expenses.................. 18,141 14,629 14,460 29,839 ---------- ---------- ---------- ---------- Operating loss................................ (12,583) (9,571) (10,047) (23,670) Other income (expense): Investment income........................... (103) 16 776 390 Interest expense............................ (56) (218) (94) (118) Non-cash interest expense................... -- (616) (431) (433) ---------- ---------- ---------- ---------- Net loss...................................... (12,742) (10,389) (9,796) (23,831) Non-cash deemed dividend on preferred stock... -- (56,953) -- -- Preferred stock dividend and accretion........ -- -- (1,710) (1,453) ---------- ---------- ---------- ---------- Net loss available to common stockholders..... $ (12,742) $ (67,342) $ (11,506) $ (25,284) ========== ========== ========== ========== Basic and diluted net loss per share.......... $ (0.70) $ (3.73) $ (0.64) $ (1.41) Shares used to compute basic and diluted net loss per share:............................. 18,207,875 18,044,710 17,957,148 17,967,948
46 PEAPOD, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (15) QUARTERLY RESULTS (UNAUDITED) (CONTINUED)
1999 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) ----------------------------------------------------- 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ----------- ----------- ----------- ----------- Net sales..................................... $ 17,977 $ 16,934 $ 16,351 $ 21,434 Cost of sales................................. 14,366 12,903 12,241 16,075 ---------- ---------- ---------- ---------- Gross profit.................................. 3,611 4,031 4,110 5,359 Operating expenses: Fulfillment operations...................... 4,872 5,017 5,571 8,120 General and administrative.................. 1,573 1,679 2,155 1,551 Marketing and selling....................... 1,207 1,051 1,523 2,949 System development and maintenance.......... 723 787 916 1,117 Depreciation and amortization............... 474 604 525 619 Pre-opening costs........................... 280 360 188 70 Non-recurring expenses...................... -- -- 2,830 -- ---------- ---------- ---------- ---------- Total operating expenses.................. 9,129 9,498 13,708 14,426 ---------- ---------- ---------- ---------- Operating loss................................ (5,518) (5,467) (9,598) (9,067) Other income (expense): Investment income........................... 478 586 288 32 Interest expense............................ (29) (44) (42) (72) ---------- ---------- ---------- ---------- Net loss...................................... $ (5,069) $ (4,925) $ (9,352) $ (9,107) ---------- ---------- ---------- ---------- Basic and diluted net loss per share.......... $ (0.29) $ (0.28) $ (0.53) $ (0.50) Shares used to compute basic and diluted net loss per share.............................. 17,188,508 17,403,382 17,498,863 18,071,984
(16) SUBSEQUENT EVENTS On February 26, 2001, the revolving credit facility with Ahold was increased from $20,000,000 to $50,000,000 on substantially identical terms as the original facility. On February 21, 2001, the Company announced that it was closing its San Francisco distribution center in order to focus on markets where product could be obtained from Ahold-owned companies. The San Francisco distribution center was closed on March 11, 2001. 47 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT This information contained under the headings "Election of Directors" and "Executive Officers" in the Proxy Statement (which Proxy Statement will be filed with the Securities and Exchange Commission on or before April 30, 2001) is incorporated herein by reference. (a) Information about directors and nominees required by this item is incorporated by reference to the information under the caption "Election of Directors" in the Registrant's definitive proxy statement to be filed on or before April 30, 2001 in connection with its 2001 Annual Meeting of Stockholders. (b) Information regarding compliance with Section 16(a) reporting requirements, to the extent required to be disclosed, is incorporated by reference to the information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the Registrant's definitive proxy statement to be filed on or before April 30, 2001 in connection with its 2001 Annual Meeting of Stockholders. (c) The following sets forth certain information concerning each of the Company's executive officers. MARC C. VAN GELDER, age 39, serves as President and Chief Executive Officer, and as a director. He joined the Company in May 2000. Prior to joining Peapod, Mr. van Gelder held the position of Senior Vice President, Logistics and Supply Chain Management, for the Stop & Shop Supermarket Company, a wholly-owned subsidiary of Ahold. Prior to joining Stop & Shop, Mr. van Gelder held the position of Program Director, Business Development for Ahold in the Netherlands from 1996 through 1998, and prior to that, of Senior Manager for McKinsey & Company from 1990 through 1996. ANDREW B. PARKINSON, age 43, is a co-founder of the Company and currently serves as the Company's Chief Financial Officer and as its Chairman. He served as Peapod's President and Chief Executive Officer from its founding until 1999. Prior to founding Peapod, Mr. Parkinson held various brand and product management positions with Kraft Foods, Inc. and Procter & Gamble Co. THOMAS L. PARKINSON, age 41, is a co-founder of the Company and has been its Senior Vice President--Chief Technology Officer since its founding in 1989. He has had primary responsibility for directing consumer product development and technology research and development, and he is the principal architect of Peapod's software. Prior to founding Peapod, Mr. Parkinson held various field sales and sales management positions with Procter & Gamble Co. Thomas Parkinson is the brother of Andrew Parkinson, the Company's Chairman. MICHAEL P. BRENNAN, age 37, currently serves as Senior Vice President--Marketing and Product Management. He joined Peapod in 1997 as Director--Grocery Formats. Prior to joining Peapod, from 1990 through 1997, Mr. Brennan was with the management consulting firm A.T. Kearney, most recently as a Principal. JOHN R. BROWN, age 38, serves as Senior Vice President--Human Resources. He joined Peapod in August 2000 from Ahold's Bi-Lo division, where he was Vice President--Human Resources since January 1999. Prior to transferring to Bi-Lo, he spent two years as Director-Human Resources with Ahold's American Sales Company, its HBC/GM/RX procurement and distribution company. Before joining Ahold, Mr. Brown spent eight years in Human Resources in retail and distribution with Hannaford Bros. Company, a New England supermarket operator, and Cliffstar Corporation, a privately held private label juice manufacturer. EARL W. RACHOWICZ, age 49, currently serves as Vice President and Controller, functioning as Peapod's principal accounting officer, and is also responsible for financial aspects of system and process re-engineering to support Peapod's growth. He is also the Treasurer and Assistant Secretary. In the 48 past, he has served as Secretary and Assistant Treasurer. He joined Peapod as Controller in 1993 and in 1994 became Vice President and Controller. Prior to joining Peapod he was a self-employed Certified Public Accountant, after spending 11 years with the public accounting firm of Ernst & Young. JOHN BURCHARD, age 41, currently serves as Senior Vice President and Chief Information Officer. Prior to this, he was President of Split Pea Software, Inc. ("SplitPea"), the technology licensing company established by Peapod, where he was active in the target marketing of the Split Pea system in many countries. He also helped establish the Split Pea solution in Australia via a software licensing agreement with Coles Myer, one of the largest retailers in that country. Mr. Burchard joined Peapod from America Online, where he served as the central region sales manager for the company's business-to-business division, AOL Enterprise. Prior to AOL, he sold turnkey enterprise computing solutions for IDX Corporation, a health-care information systems company. He also worked at CompuServe, Inc. as regional sales manager responsible for selling data network solutions to Fortune 1000 companies based in the Western United States. ANTHONY G. STALLONE, age 45, is Vice President--Perishables Procurement, is responsible for quality, profitability and consumer education for Peapod's produce and other fresh product lines. He joined Peapod in September 2000 through the Company's acquisition of Streamline.com, Inc.'s ("Streamline") Chicago operations, where he held a similar position. He became involved in the online grocery industry in 1996 while a consultant for the fresh markets area of Scotty's Home Market ("Scotty's", which subsequently became Streamline's Chicago operations). Mr. Stallone joined Scotty's on a full-time basis in 1999 as Vice President of Fresh Markets. He has over 25 years of experience in the produce industry, where he was President of Tony Stallone Co. (a consulting company) from 1996 to 1999, and President of A. Stallone Produce from 1984 to 1995. JONATHAN C. WILSON, age 36, currently serves as Vice President--Database and Business System Development. He is responsible for the development and operations of all Peapod database systems, the development and support of the business logic and data access routines within all Peapod consumer applications, and all systems used to support the Peapod business. Mr. Wilson joined Peapod in 1995 as Team Leader: Technical Architecture Group and has served as Manager, Senior Manager and Director--Database and Business System Development. Prior to joining Peapod, he spent over six years at Andersen Consulting, most recently as a systems consulting manager in their food and retail practice. ROBERT DEFEO, age 56, is Vice President--General Manager and is responsible for operations in Peapod's Washington, D.C. market. He joined Peapod in September 2000 through the Company's acquisition of Streamline's Washington, D.C. operations, where he held a similar position. Prior to joining Streamline, Mr. DeFeo held various senior management positions at Staples, Inc. from 1986 to 1998, including his role as the company's first director when the chain began its national expansion. He also has over twenty years of experience in the supermarket industry where he held key management positions. SCOTT DEGRAEVE, age 44, is Vice President--General Manager and is responsible for operations in Peapod's Chicago market and the Company's corporate merchandising function. He joined Peapod in September 2000 through the Company's acquisition of Streamline's Chicago operations, where he held a similar position. Prior to this, in 1991 he founded Scotty's Home Market, a Chicago-based online grocer and the first in the industry to distribute from a dedicated warehouse model. He managed Scotty's through the start-up and funding phase until it was acquired by Streamline in early 2000. Mr. DeGraeve also spent 12 years with Motorola in various operational finance positions, including Group Controller for its cellular telephone group and was involved in several of Motorola's start-up businesses. 49 ITEM 11. EXECUTIVE COMPENSATION Except for information referred to in Item 402(a)(8) of Regulation S-K, the information contained under the headings "Election of Directors" and "Executive Compensation and Other Information" in the Proxy Statement (which Proxy Statement will be filed with the Securities and Exchange Commission on or before April 30, 2001) is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information contained under the heading "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement (which Proxy Statement will be filed with the Securities and Exchange Commission on or before April 30, 2001) is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information contained under the heading "Certain Relationships and Related Transactions" in the Proxy Statement (which Proxy Statement will be filed with the Securities and Exchange Commission on or before April 30, 2001) is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) FINANCIAL STATEMENTS The following financial statements are filed as part of this report: Independent Auditors' Report. Balance Sheets as of December 31, 2000 and 1999. Statements of Operations for the years ended December 31, 2000, 1999 and 1998. Statements of Comprehensive Loss for the years ended December 31, 2000, 1999 and 1998. Statements of Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998. Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998. Notes to Financial Statements. (a)(2) FINANCIAL STATEMENT SCHEDULE Report of Independent Public Accountants on Financial Statement Schedule. Schedule II--Valuation and Qualifying Accounts. All other schedules are omitted because of the absence of conditions under which they would have been required or because the required information is disclosed in the financial statements or notes thereto. (a)(3) EXHIBITS The following exhibits are filed herewith or are incorporated herein:
EXHIBIT NO. DESCRIPTION ------- ----------- 2.1 Conversion Agreement and Plan of Reorganization (incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-1, as amended (Registration No. 333-24341) (the "Registration Statement"))
50
EXHIBIT NO. DESCRIPTION ------- ----------- 2.2 Asset Purchase Agreement, dated as of September 7, 2000, among Streamline.com, Inc., Beacon Home Direct, Inc., Streamline Mid-Atlantic, Inc. and Peapod, Inc. (incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K filed on September 12, 2000) 3.1-- Certificate of Amendment of Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of the Registration Statement) 3.2-- Certificate of Amendment of Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K filed on July 7, 2000) 3.3-- Restated By-Laws of the Company (incorporated by reference to Exhibit 99.2 of the Current Report on Form 8-K filed on July 7, 2000) 4.1-- Amended and Restated Stockholders Rights Agreement (amended and restated as of October 12, 2000) between Peapod, Inc. and First Chicago Trust Company of New York, a Division of Equiserv (incorporated by reference to Exhibit 4.1 of the Company's Quarterly Report on Form 10-Q, as amended, for the quarter ended September 30, 2000) 4.2-- Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 4.2 of the Registration Statement) 4.3 Certificate of Designation of Series C Convertible Preferred Stock (incorporated by reference to Exhibit 99.2 of the Current Report on Form 8-K filed on October 18, 2000) 4.4 Exchange Agreement and First Amendment to Purchase Agreement (dated April 14, 2000) by and among Peapod, Inc. and Koninklijke Ahold N.V., dated October 12, 2000 (incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K filed on October 18, 2000) 10.1-- Lease of the Company's principal offices located in Skokie, Illinois (incorporated by reference to Exhibit 10.1 of the Registration Statement) *10.2-- Employment Agreement between the Company and Andrew B. Parkinson, dated June 9, 1997 (incorporated by reference to Exhibit 10.4 of the Registration Statement) *10.3-- Employment Agreement between the Company and Thomas L. Parkinson, dated June 9, 1997 (incorporated by reference to Exhibit 10.5 of the Registration Statement) *10.6-- Employment Agreement between the Company and John A. Furton, dated June 9, 1997 (incorporated by reference to Exhibit 10.8 of the Registration Statement) *10.8-- Form of Severance Agreement between the Company and each of Andrew B. Parkinson, Thomas L. Parkinson, John A. Furton and Marc van Gelder *10.9-- Form of Severance Agreement between the Company and each of Dan Rabinowitz, Michael Brennan, Raymond Britt, John Caltagirone and Toya Campbell
51
EXHIBIT NO. DESCRIPTION ------- ----------- 10.10-- Amended and Restated Investors Agreement, dated April 1, 1997, among the Company and certain investors (incorporated by reference to Exhibit 10.10 of the Registration Statement) 10.11-- Unitholders Agreement among Peapod LP, the General Partners and certain investors, as amended (incorporated by reference to Exhibit 10.11 of the Registration Statement) 10.12-- Parkinson Registration Rights Agreement among the Company, Andrew B. Parkinson and Thomas L. Parkinson, dated May 30, 1997 (incorporated by reference to Exhibit 10.12 of the Registration Statement) 10.13-- Tasso H. Coin Registration Rights Agreement between the Company and Tasso H. Coin, dated May 31, 1997 (incorporated by reference to Exhibit 10.13 of the Registration Statement) +*10.14-- Amended and Restated 1997 Long-Term Incentive Plan, modified as of July 11, 2000 *10.15-- Employee Stock Purchase Plan (incorporated by reference to Exhibit 10 of the Registration Statement on Form S-8 dated September 11, 1997) *10.16-- Form of Indemnification Agreement between the Company and each of its directors and certain executive officers (and the following former directors and executive officers: William Malloy, Dan Rabinowitz, Tasso H. Coin, Seth L. Pierrepont and Robert Goodale) *10.17-- Executive Employment Agreement dated as of September 27, 1999 between William Malloy and the Company 10.18-- Nonsolicitation and Noncompete Agreement dated as of September 27, 1999 between William Malloy and the Company *10.19-- Basic Stock Option Agreement dated as of September 27, 1999 between William Malloy and the Company *10.20-- Performance Accelerated Stock Option Agreement dated as of September 27, 1999 between William Malloy and the Company 10.21-- Severance Agreement dated as of September 27, 1999 between William Malloy and the Company 10.22-- Amended and Restated Severance Agreement dated as of February 17, 2000 between William Malloy and the Company *10.23-- Promissory Note dated September 27, 1999 executed by William Malloy in favor of the Company *10.24-- Amendment No. 1 to Promissory Note dated as of March 3, 2000 between William Malloy and the Company 10.25-- Purchase Agreement dated April 14, 2000 between the Company and Koninklijke Ahold N.V. (incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K dated April 28, 2000)
52
EXHIBIT NO. DESCRIPTION ------- ----------- 10.26-- Credit Agreement dated April 14, 2000 between the Company and Koninklijke Ahold N.V. (incorporated by reference to Exhibit 99.2 of the Current Report on Form 8-K dated April 28, 2000) 10.27-- Amended and Restated Security Agreement dated as of April 5, 2000 by the Company to BEW, Inc. and Koninklijke Ahold N.V. (incorporated by reference to Exhibit 99.3 of the Current Report on Form 8-K dated April 28, 2000) 10.28-- Amended and Restated Collateral Assignment of Intellectual Property Agreement dated as of April 14, 2000 by the Company to BEW, Inc. and Koninklijke Ahold N.V. (incorporated by reference to Exhibit 99.4 of the Current Report on Form 8-K dated April 28, 2000) 10.29-- Registration Rights Agreement dated April 14, 2000 between the Company and Koninklijke Ahold N.V. (incorporated by reference to Exhibit 99.5 of the Current Report on Form 8-K dated April 28, 2000) 10.30-- Supply and Services Agreement dated April 14, 2000 between the Company and Koninklijke Ahold N.V. (incorporated by reference to Exhibit 99.6 of the Current Report on Form 8-K dated April 28, 2000) 10.31-- Voting Agreement dated April 14, 2000 among Thomas L. Parkinson, Andrew B. Parkinson, Trygve E. Myhren, Robert S. Goodale, Tasso H. Coin, Seth L. Pierrepont, Mark Van Stekelenburg, Drayton McLane and Koninklijke Ahold N.V. (incorporated by reference to Exhibit 99.7 of the Current Report on Form 8-K dated April 28, 2000) 10.32-- Voting Agreement dated April 14, 2000 among Tribune National Marketing Company, Nevis Capital Management, Inc. and Koninklijke Ahold N.V. (incorporated by reference to Exhibit 99.8 of the Current Report on Form 8-K dated April 28, 2000) 10.33-- Warrant to Purchase 100,000 shares of Common Stock of the Company issued April 10, 2000 to Koninklijke Ahold N.V. (incorporated by reference to Exhibit 99.9 of the Current Report on Form 8-K dated April 28, 2000) 10.34-- Warrant to Purchase 3,566,667 shares of Common Stock of the Company to Koninklijke Ahold N.V. (incorporated by reference to Exhibit 99.10 of the Current Report on Form 8-K dated April 28, 2000) 10.35-- Form of Warrant to Purchase 32,894,270 shares of Common Stock of the Company to Koninklijke Ahold N.V. (incorporated by reference to Exhibit 99.11 of the Current Report on Form 8-K dated April 28, 2000) 10.36-- Promissory Note issued by the Company to BEW, Inc. on April 5, 2000 in the amount of $3,000,000 (incorporated by reference to Exhibit 99.13 of the Current Report on Form 8-K dated April 28, 2000) +*10.37-- Executive Employment Agreement dated as of May 1, 2000 between Marc van Gelder and the Company +*10.38-- Year 2000 Long-Term Incentive Plan, modified as of July 11, 2000 +*10.39-- Employee Incentive Plan (2000) +*10.40-- CEO Plan (2000)
53
EXHIBIT NO. DESCRIPTION ------- ----------- 10.41-- First Amendment to Credit Agreement between the Company and Koninklijke Ahold N.V. dated February 26, 2001 (incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K dated March 2, 2001). +10.42-- Second Amendment to Credit Agreement between the Company and Koninklijke Ahold N.V. dated March 30, 2001 +23.-- Independent Auditors' Consent +24.-- Powers of Attorney
- ------------------------ + Filed herewith * Represents management contract or compensatory plan (b) REPORTS ON FORM 8-K On October 18, 2000, the Company filed a Form 8-K announcing that on October 12, 2000, the Company entered into the Exchange Agreement with Ahold. Under the Exchange Agreement, Ahold agreed to exchange 726,371 shares of the Registrant's Series B Preferred Stock held by Ahold for 726,371 shares of the Registrant's Series C Preferred Stock. The Series C Preferred Stock has the same terms as the Series B Preferred Stock except that, in lieu of a provision for mandatory redemption by the Registrant of the Series B Preferred Stock, the Series C Preferred Stock provides for an increase in the dividend rate on the Series C Preferred Stock beginning on June 30, 2008. On November 21, 2000, the Company filed a Form 8-K/A, amending its September 12, 2000 Form 8K, to include required financial disclosures related to the acquisition of operations from Streamline.com, Inc. On March 2, 2001, the Company filed a Form 8-K announcing that on February 26, 2001, the Company entered into a First Amendment to Credit Agreement (the "Amendment") with Koninklijke Ahold N.V. ("Ahold"). Under the Amendment, Ahold agreed to increase its commitment under the Credit Agreement dated April 14, 2000 from $20,000,000 to $50,000,000. 54 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Peapod, Inc.: Under date of February 9, 2001, except as to Note 16 which is as of March 11, 2001, we reported on the accompanying balance sheets of Peapod, Inc. as of December 31, 2000 and 1999, and the related statements of operations, comprehensive loss, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2000. In connection with our audits of the aforementioned financial statements, we also audited the related financial statement schedule. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects, the information set forth therein. /s/KPMG LLP Chicago, Illinois February 9, 2001 55 PEAPOD, INC. SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS Represents allowance for doubtful accounts (in thousands).
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ----------------------------------------------- ------------ ---------- ---------- -------------- BALANCE AT CHARGED TO BEGINNING OF COSTS AND BALANCE AT END YEAR EXPENSES DEDUCTIONS OF YEAR - ----------------------------------------------- ------------ ---------- ---------- -------------- Year ended December 31, 1998................... $352 $318 $(383) $287 Year ended December 31, 1999................... 287 244 (299) 232 Year ended December 31, 2000................... 232 468 (260) 440
56 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PEAPOD, INC. March 30, 2001 By: /s/ ANDREW B. PARKINSON ------------------------------------------ Andrew B. Parkinson CHAIRMAN
We the undersigned officers and directors of Peapod, Inc., hereby severally constitute and appoint Andrew B. Parkinson and Earl W. Rachowicz, and each of them singly, our true and lawful attorneys, with full power to them and each of them singly, to sign for us in our names in the capacities indicated below, all amendments to this Annual Report on Form 10-K, and generally to do all things in our names and on our behalf in such capacities to enable Peapod, Inc. to comply with the provisions of the Securities Act of 1934, as amended, and all requirements of the Securities and Exchange Commission. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons, in the capacities indicated, on this 30th day of March, 2001.
SIGNATURE TITLE DATE --------- ----- ---- /s/ ANDREW B. PARKINSON Chairman and Chief Financial Officer March 30, 2001 - ------------------------------------ Andrew B. Parkinson * President-- March 30, 2001 - ------------------------------------ Chief Executive Officer and Marc van Gelder Director /s/ EARL W. RACHOWICZ Vice President and Controller March 30, 2001 - ------------------------------------ (principal accounting officer) Earl W. Rachowicz * Director March 30, 2001 - ------------------------------------ Maarten Dorhout Mees * Director March 30, 2001 - ------------------------------------ William J. Grize * Director March 30, 2001 - ------------------------------------ Brian Hotarek * Director March 30, 2001 - ------------------------------------ Drayton McLane * Director March 30, 2001 - ------------------------------------ Trygve E. Myhren * Director March 30, 2001 - ------------------------------------ Gary Preston
57
SIGNATURE TITLE DATE --------- ----- ---- * Director March 30, 2001 - ------------------------------------ Marc E. Smith * Director March 30, 2001 - ------------------------------------ Mark Van Stekelenburg * Director March 30, 2001 - ------------------------------------ Ronald van Solt
* By: /s/ ANDREW B. PARKINSON ------------------------------- Andrew B. Parkinson Attorney-in-Fact
58 EX-10.14 2 a2043710zex-10_14.txt 1997 LONG-TERM INCENTIVE PLAN EXHIBIT 10.14 [Modified as of July 11, 2000] PEAPOD, INC. 1997 LONG-TERM INCENTIVE PLAN I. INTRODUCTION 1.1 PURPOSES. The purposes of the 1997 Long-Term Incentive Plan (the "Plan") of Peapod, Inc. (the "Company"), and its subsidiaries from time to time (individually a "Subsidiary" and collectively the "Subsidiaries"), are (a) to align the interests of the Company's stockholders and the recipients of awards under this Plan by increasing the proprietary interest of such recipients in the Company's growth and success, (b) to advance the interests of the Company by attracting and retaining officers and other key employees, and well-qualified persons who are not officers or employees of the Company ("non-employee directors") for service as independent contractors, consultants or directors of the Company and (c) to motivate such employees, independent contractors, consultants and non-employee directors to act in the long-term best interests of the Company's stockholders. For purposes of this Plan, references to employment by the Company shall also mean employment by a Subsidiary. 1.2 CERTAIN DEFINITIONS. "AFFILIATE" and "ASSOCIATE" shall have the respective meanings ascribed to such terms in Rule 12b-2, as in effect on the effective date of this Plan, under the Exchange Act; PROVIDED, HOWEVER, that no director or officer of the Company shall be deemed an Affiliate or Associate of any other director or officer of the Company solely as a result of his or her being a director or officer of the Company. "AGREEMENT" shall mean the written agreement evidencing an award hereunder between the Company and the recipient of such award. "BENEFICIAL OWNER" (including the terms "BENEFICIALLY OWN" and "BENEFICIAL OWNERSHIP"), when used with respect to any Person, shall be deemed to include any securities which: (a) such Person or any of such Person's Affiliates or Associates beneficially owns, directly or indirectly (determined as provided in Rule 13d-3, as in effect on the effective date of this Plan, under the Exchange Act); (b) such Person or any of such Person's Affiliates or Associates, directly or indirectly, has: (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time or upon the satisfaction of any conditions, or both) pursuant to any written or oral agreement, arrangement or understanding (other than customary agreements with and among underwriters and selling group members with respect to a bona fide public offering of securities), upon the exercise of any options, warrants, rights or conversion or exchange privileges or otherwise; PROVIDED, HOWEVER, that a Person shall not be deemed the Beneficial Owner of, or to Beneficially Own securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (ii) the right to vote pursuant to any written or oral agreement, arrangement or understanding; PROVIDED, HOWEVER, that a Person shall not be deemed the Beneficial Owner of, or to Beneficially Own, any security otherwise subject to this item (ii) if such agreement, arrangement or understanding to vote (1) arises solely from a revocable proxy or consent given to such Person or any of such Person's Affiliates or Associates in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations under the Exchange Act and (2) is not also then reportable by such Person on Schedule 13D (or any comparable or successor report then in effect) under the Exchange Act; or (iii) the right to dispose of pursuant to any written or oral agreement, arrangement or understanding (other than customary agreements with and among underwriters and selling group members with respect to a bona fide public offering of securities); or (c) are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any written or oral agreement, arrangement or understanding (other than customary agreements with and among underwriters and selling group members with respect to a bona fide public offering of securities) for the purpose of acquiring, holding, voting (except to the extent contemplated by the proviso to item (ii) of subparagraph (b) of the first paragraph of this definition) or disposing of any securities of the Company. Notwithstanding the first paragraph of this definition, no director or officer of the Company shall be deemed to be the "Beneficial Owner" of, or to "Beneficially Own," shares of Common Stock or other securities of the Company beneficially owned by any other director or officer of the Company solely as a result of his or her being a director or officer of the Company. "BOARD" shall mean the Board of Directors of the Company. "BONUS STOCK" shall mean shares of Common Stock which are not subject to a Restriction Period or Performance Measures. "BONUS STOCK AWARD" shall mean an award of Bonus Stock under this Plan. "CAUSE" shall mean embezzlement or misappropriation of corporate funds, other act of dishonesty, significant activities harmful to the reputation of the Company, willful refusal to perform or substantial disregard of an employee's duties or significant violation of any statutory or common law duty of loyalty to the Company. 2 "CHANGE IN CONTROL" shall have the meaning set forth in Section 6.8(b). "CODE" shall mean the Internal Revenue Code of 1986, as amended. "COMMITTEE" shall mean the Committee designated by the Board, consisting of two or more members of the Board, each of whom shall be (a) a "Non-Employee Director" within the meaning of Rule 16b-3 under the Exchange Act and (b) an "outside director" within the meaning of Section 162(m) of the Code, subject to any transition rules applicable to the definition of outside director. "COMMON STOCK" shall mean the common stock, $.01 par value, of the Company. "CONVERSION" shall mean the conversion effected in accordance with that certain Conversion Agreement and Plan of Reorganization pursuant to which (i) all equity interests in Peapod LP, an Illinois limited partnership ("Old Peapod"), will be transferred to the Company for shares of Common Stock, (ii) Old Peapod will dissolve, (iii) all assets and liabilities of Old Peapod will be transferred to the Company and (iv) outstanding options and warrants for equity interests in Old Peapod will be converted into options and warrants for shares of Common Stock. "COMPANY" has the meaning specified in Section 1.1. "DIRECTORS OPTIONS" shall have the meaning set forth in Section 5.1. "DISABILITY" shall mean the inability for a continuous period of at least six months of the holder of an award to perform substantially such holder's duties and responsibilities, as determined solely by the Committee. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. "EXEMPT PERSON" shall mean each of Andrew B. Parkinson and Thomas L. Parkinson and each Affiliate thereof. "FAIR MARKET VALUE" shall mean, on the commencement of the Company's initial public offering of Common Stock, the initial public offering price of a share of Common Stock, and thereafter, the last sale price of a share of Common Stock as reported in the National Association of Securities Dealers Automated Quotation National Market System on the date as of which such value is being determined, or, if the Common Stock is listed on a national securities exchange, the last sale price of a share of Common Stock on the principal national stock exchange on which the Common Stock is traded on the date as of which such value is being determined, or, if there shall be no reported transactions for such date, on the next preceding date for which transactions were reported; PROVIDED, HOWEVER, that if Fair Market Value for any date cannot be so determined, Fair Market Value shall be determined by the Committee by whatever means or method as the Committee, in the good faith exercise of its discretion, shall at such time deem appropriate. 3 "FREE-STANDING SAR" shall mean an SAR which is not issued in tandem with, or by reference to, an option, which entitles the holder thereof to receive, upon exercise, shares of Common Stock (which may be Restricted Stock), cash or a combination thereof with an aggregate value equal to the excess of the Fair Market Value of one share of Common Stock on the date of exercise over the base price of such SAR, multiplied by the number of such SARs which are exercised. "INCENTIVE STOCK OPTION" shall mean an option to purchase shares of Common Stock that meets the requirements of Section 422 of the Code, or any successor provision, which is intended by the Committee to constitute an Incentive Stock Option. "INCUMBENT BOARD" shall have the meaning set forth in Section 6.8(b)(ii) hereof. "MATURE SHARES" shall mean shares of Common Stock for which the holder thereof has good title, free and clear of all liens and encumbrances and which such holder either (a) has held for at least six months or (b) has purchased on the open market. "NON-EMPLOYEE DIRECTOR" shall mean any director of the Company who is not an officer or employee of the Company or any Subsidiary (except in the definition of Committee, in which case "Non-Employee Director" shall have the meaning set forth in Rule 16b-3 under the Exchange Act). "NON-STATUTORY STOCK OPTION" shall mean a stock option which is not an Incentive Stock Option. "OLD OPTIONS" shall mean the outstanding options to purchase equity interests in Old Peapod, which options are being exchanged in the Conversion for options to purchase a like number of shares of Common Stock in the Company. "PERFORMANCE MEASURES" shall mean the criteria and objectives, established by the Committee, which shall be satisfied or met (a) as a condition to the exercisability of all or a portion of an option or SAR or (b) during the applicable Restriction Period or Performance Period as a condition to the holder's receipt, in the case of a Restricted Stock Award, of the shares of Common Stock subject to such award, or, in the case of a Performance Share Award, of payment with respect to such award. Such criteria and objectives may include one or more of the following: the attainment by a share of Common Stock of a specified Fair Market Value for a specified period of time, earnings per share, return to stockholders (including dividends), return on equity, earnings of the Company, revenues, market share, cash flows or cost reduction goals, or any combination of the foregoing. If the Committee desires that compensation payable pursuant to any award subject to Performance Measures be "qualified performance-based compensation" within the meaning of section 162(m) of the Code, the Performance Measures shall be established by the Committee no later than the end of the first quarter of the Performance Period or Restriction Period, as applicable (or such other time designated by the Internal Revenue Service). "PERFORMANCE PERIOD" shall mean any period designated by the Committee during which the Performance Measures applicable to a Performance Share Award shall be measured. 4 "PERFORMANCE SHARE" shall mean a right, contingent upon the attainment of specified Performance Measures within a specified Performance Period, to receive one share of Common Stock, which may be Restricted Stock, or in lieu thereof, the Fair Market Value of such Performance Share in cash. "PERFORMANCE SHARE AWARD" shall mean an award of Performance Shares under this Plan. "PERMANENT AND TOTAL DISABILITY" shall have the meaning set forth in Section 22(e)(3) of the Code or any successor thereto. "PERSON" shall mean any individual, firm, corporation, partnership or other entity, and shall include any successor (by merger or otherwise) of any of the forgoing. "RESTRICTED STOCK" shall mean shares of Common Stock which are subject to a Restriction Period. "RESTRICTED STOCK AWARD" shall mean an award of Restricted Stock under this Plan. "RESTRICTION PERIOD" shall mean any period designated by the Committee during which the Common Stock subject to a Restricted Stock Award may not be sold, transferred, assigned, pledged, hypothecated or otherwise encumbered or disposed of, except as provided in this Plan or the Agreement relating to such award. "SAR" shall mean a stock appreciation right which may be a Free-Standing SAR or a Tandem SAR. "STOCK AWARD" shall mean a Restricted Stock Award or a Bonus Stock Award. "SUBSTITUTE OPTIONS" shall mean the options to purchase shares of Common Stock in the Company that are being substituted in the Conversion for the outstanding options to purchase equity interests in Old Peapod. "TANDEM SAR" shall mean an SAR which is granted in tandem with, or by reference to, an option (including a Non-Statutory Stock Option granted prior to the date of grant of the SAR), which entitles the holder thereof to receive, upon exercise of such SAR and surrender for cancellation of all or a portion of such option, shares of Common Stock (which may be Restricted Stock), cash or a combination thereof with an aggregate value equal to the excess of the Fair Market Value of one share of Common Stock on the date of exercise over the base price of such SAR, multiplied by the number of shares of Common Stock subject to such option, or portion thereof, which is surrendered. "TAX DATE" shall have the meaning set forth in Section 6.5. "TEN PERCENT HOLDER" shall have the meaning set forth in Section 2.1(a). 5 1.3 ADMINISTRATION. This Plan shall be administered by the Committee. Subject to Section 6.1, any one or a combination of the following awards may be made under this Plan to eligible persons: (a) options to purchase shares of Common Stock in the form of Incentive Stock Options or Non-Statutory Stock Options, (b) SARs in the form of Tandem SARs or Free-Standing SARs, (c) Stock Awards in the form of Restricted Stock or Bonus Stock and (d) Performance Shares. The Committee shall, subject to the terms of this Plan, select eligible persons for participation in this Plan and determine the form, amount and timing of each award to such persons and, if applicable, the number of shares of Common Stock, the number of SARs and the number of Performance Shares subject to such an award, the exercise price or base price associated with the award, the time and conditions of exercise or settlement of the award and all other terms and conditions of the award, including, without limitation, the form of the Agreement evidencing the award. The Committee shall, subject to the terms of this Plan, interpret this Plan and the application thereof, establish rules and regulations it deems necessary or desirable for the administration of this Plan and may impose, incidental to the grant of an award, conditions with respect to the award, such as limiting competitive employment or other activities. All such interpretations, rules, regulations and conditions shall be conclusive and binding on all parties. The Committee may delegate some or all of its power and authority hereunder to the Chief Executive Officer or other executive officer of the Company as the Committee deems appropriate; PROVIDED, HOWEVER, that the Committee may not delegate its power and authority with regard to (a) the grant of an award under this Plan to any person who is a "covered employee" within the meaning of Section 162(m) of the Code or who, in the Committee's judgment, is likely to be a covered employee at any time during the period an award hereunder to such employee would be outstanding or (b) the selection for participation in this Plan of an officer or other person subject to Section 16 of the Exchange Act or decisions concerning the timing, pricing or amount of an award to such an officer or other person. No member of the Board of Directors or Committee, and neither the Chief Executive Officer nor any other executive officer to whom the Committee delegates any of its power and authority hereunder, shall be liable for any act, omission, interpretation, construction or determination made in connection with this Plan in good faith, and the members of the Board of Directors and the Committee and the President and Chief Executive Officer or other executive officer shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including attorneys' fees) arising therefrom to the full extent permitted by law, except as otherwise may be provided in the Company's Certificate of Incorporation and/or By-laws, as the same may be amended or restated from time to time, and under any directors' and officers' liability insurance that may be in effect from time to time. A majority of the Committee shall constitute a quorum. The acts of the Committee shall be either (a) acts of a majority of the members of the Committee present at any meeting at which a quorum is present or (b) acts approved in writing by a majority of the members of the Committee without a meeting. Notwithstanding anything to the contrary herein, any grant of awards to a Non-Employee Director shall require the approval of the Board. 6 1.4 ELIGIBILITY. Participants in this Plan shall consist of employees who are such directors, officers or other key employees of the Company and its Subsidiaries, as well as such independent contractors and consultants, as the Committee, in its sole discretion, may select from time to time. The Committee's selection of a person to participate in this Plan at any time shall not require the Committee to select such person to participate in this Plan at any other time. Non-Employee Directors shall also be eligible to participate in this Plan in accordance with Article V. 1.5 SHARES AVAILABLE. Subject to adjustment as provided in Sections 6.7 and 6.8, 4,300,000 shares of Common Stock shall be available under this Plan, reduced by the sum of the aggregate number of shares of Common Stock (a) that are issued upon the grant of a Stock Award and (b) which become subject to outstanding options, including Directors' Options, outstanding Free-Standing SARs and outstanding Performance Shares. To the extent that shares of Common Stock subject to an outstanding option (other than in connection with the exercise of a Tandem SAR), Free-Standing SAR or Performance Share are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such award or by reason of the delivery or withholding of shares of Common Stock to pay all or a portion of the exercise price of an award, if any, or to satisfy all or a portion of the tax withholding obligations relating to an award, then such shares of Common Stock shall again be available under this Plan. Shares of Common Stock to be delivered under this Plan shall be made available from authorized and unissued shares of Common Stock, or authorized and issued shares of Common Stock reacquired and held as treasury shares or otherwise or a combination thereof. To the extent required by Section 162(m) of the Code and the rules and regulations thereunder, the maximum number of shares of Common Stock with respect to which options (excluding the Substitute Options) or SARs, Stock Awards or Performance Share Awards, or a combination thereof may be granted during any calendar year to any person shall be 330,000 subject to adjustment as provided in Section 6.7. 1.6 SUBSTITUTE OPTIONS. Notwithstanding anything to the contrary herein, the exercise price, vesting schedule and expiration of the Substitute Options shall be as set forth in the new option agreements covering such Substitute Options, which agreements reflect certain terms of the Old Options. II. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS 2.1 STOCK OPTIONS. The Committee may, in its discretion, grant options to purchase shares of Common Stock to such eligible persons as may be selected by the Committee. Each option, or portion thereof, that is not an Incentive Stock Option, shall be a Non-Statutory Stock Option. Each Incentive Stock Option shall be granted within ten years of the effective date of this Plan. To the extent that the aggregate Fair Market Value (determined as of the date of grant) of shares of Common Stock with respect to which options designated as Incentive Stock Options are exercisable for the first time by a participant during any calendar year (under this Plan or any other plan of the Company, or any parent or Subsidiary) exceeds the amount 7 (currently $100,000) established by the Code, such options shall constitute Non-Statutory Stock Options. Options shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable: (a) NUMBER OF SHARES AND PURCHASE PRICE. The number of shares of Common Stock subject to an option shall be determined by the Committee. The purchase price per share of Common Stock purchasable upon exercise of the option shall be determined by the Committee; PROVIDED, HOWEVER, that the purchase price per share of Common Stock purchasable upon exercise of an option shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant of such option; PROVIDED FURTHER, that if an Incentive Stock Option shall be granted to any person who, at the time such option is granted, owns capital stock possessing more than ten percent of the total combined voting power of all classes of capital stock of the Company (or of any parent or Subsidiary) (a "Ten Percent Holder"), the purchase price per share of Common Stock shall be the price (currently 110% of Fair Market Value) required by the Code in order to constitute an Incentive Stock Option. (b) OPTION PERIOD AND EXERCISABILITY. The period during which an option may be exercised shall be determined by the Committee; PROVIDED, HOWEVER, that no Incentive Stock Option shall be exercised later than ten years after its date of grant; provided further, that if an Incentive Stock Option shall be granted to a Ten Percent Holder, such option shall not be exercised later than five years after its date of grant. The Committee may, in its discretion, establish Performance Measures which shall be satisfied or met as a condition to the grant of an option or to the exercisability of all or a portion of an option. The Committee shall determine whether an option shall become exercisable in cumulative or non-cumulative installments and in part or in full at any time. An exercisable option, or portion thereof, may be exercised only with respect to whole shares of Common Stock, except that if the remaining option then exercisable is for less than a whole share, such remaining amount may be exercised. (c) METHOD OF EXERCISE. An option may be exercised (i) by giving written notice to the Company specifying the number of whole shares of Common Stock to be purchased and accompanied by payment therefor in full (or arrangement made for such payment to the Company's satisfaction) either (1) in cash, (2) by delivery of Mature Shares having a Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable by reason of such exercise, (3) by authorizing the Company to withhold whole shares of Common Stock which would otherwise be delivered upon exercise of the option having a Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable by reason of such exercise, (4) in cash by a broker-dealer acceptable to the Company to whom the optionee has submitted an irrevocable notice of exercise or (5) a combination of (1), (2) and (3), in each case to the extent set forth in the Agreement relating to the option, (ii) if applicable, by surrendering to the Company any Tandem SARs which are canceled by reason of the exercise of the option and (iii) by executing such documents as the Company may reasonably request. The Committee shall have sole discretion to disapprove of an election pursuant to any of clauses (2)-(5). Any fraction of a share of Common Stock which would be required to pay such purchase price shall be disregarded and the remaining amount due shall be paid in cash by the optionee. 8 No certificate representing Common Stock shall be delivered until the full purchase price therefor has been paid. (d) ADDITIONAL OPTIONS. The Committee shall have the authority to include in any Agreement relating to an option a provision entitling the optionee to an additional option in the event such optionee exercises the option represented by such option agreement, in whole or in part, by delivering previously owned whole shares of Common Stock in payment of the purchase price in accordance with this Plan and such Agreement. Any such additional option shall be for a number of shares of Common Stock equal to the number of delivered shares, shall have a purchase price determined by the Committee in accordance with this Plan, shall be exercisable on the terms and subject to the conditions set forth in the Agreement relating to such additional option. 2.2 STOCK APPRECIATION RIGHTS. The Committee may, in its discretion, grant SARs to such eligible persons as may be selected by the Committee. The Agreement relating to an SAR shall specify whether the SAR is a Tandem SAR or a Free-Standing SAR. SARs shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable: (a) NUMBER OF SARS AND BASE PRICE. The number of SARs subject to an award shall be determined by the Committee. Any Tandem SAR related to an Incentive Stock Option shall be granted at the same time that such Incentive Stock Option is granted. The base price of a Tandem SAR shall be the purchase price per share of Common Stock of the related option. The base price of a Free-Standing SAR shall be determined by the Committee; PROVIDED, HOWEVER, that such base price shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant of such SAR. (b) EXERCISE PERIOD AND EXERCISABILITY. The Agreement relating to an award of SARs shall specify whether such award may be settled in shares of Common Stock (including shares of Restricted Stock) or cash or a combination thereof. The period for the exercise of an SAR shall be determined by the Committee; PROVIDED, HOWEVER, that no Tandem SAR shall be exercised later than the expiration, cancellation, forfeiture or other termination of the related option. The Committee may, in its discretion, establish Performance Measures which shall be satisfied or met as a condition to the exercisability of an SAR. The Committee shall determine whether an SAR may be exercised in cumulative or non-cumulative installments and in part or in full at any time. An exercisable SAR, or portion thereof, may be exercised, in the case of a Tandem SAR, only with respect to whole shares of Common Stock and, in the case of a Free-Standing SAR, only with respect to a whole number of SARs. If an SAR is exercised for shares of Restricted Stock, a certificate or certificates representing such Restricted Stock shall be issued in accordance with Section 3.2(c) and the holder of such Restricted Stock shall have such rights of a stockholder of the Company as determined pursuant to Section 3.2(d). Prior to the exercise of an SAR for shares of Common Stock, including Restricted Stock, the holder of such SAR shall have no rights as a stockholder of the Company with respect to the shares of Common Stock subject to such SAR. 9 (c) METHOD OF EXERCISE. A Tandem SAR may be exercised (i) by giving written notice to the Company specifying the number of whole SARs which are being exercised, (ii) by surrendering to the Company any options which are canceled by reason of the exercise of the Tandem SAR and (iii) by executing such documents as the Company may reasonably request. A Free-Standing SAR may be exercised (i) by giving written notice to the Company specifying the whole number (or if the remaining SAR then exercisable is for less then one whole share, such remaining amount) of SARs which are being exercised and (ii) by executing such documents as the Company may reasonably request. 2.3 TERMINATION OF EMPLOYMENT OR SERVICE WITH THE COMPANY. (a) DISABILITY. Subject to paragraph (f) below and Section 6.8, and unless otherwise specified in the Agreement relating to an option or SAR, as the case may be, if the employment or service with the Company of the holder of an option or SAR terminates by reason of Disability, each option and SAR held by such holder shall be exercisable only to the extent that such option or SAR, as the case may be, is exercisable on the effective date of such holder's termination of employment or service and may thereafter be exercised by such holder (or such holder's legal representative or similar person) until and including the earliest to occur of (i) the date which is three months (or such other period as set forth in the Agreement relating to such option or SAR) after the effective date of such holder's termination of employment or service and (ii) the expiration date of the term of such option or SAR. (b) RETIREMENT. Subject to paragraph (f) below and Section 6.8, and unless otherwise specified in the Agreement relating to an option or SAR, as the case may be, if the employment or service with the Company of the holder of an option or SAR terminates by reason of retirement on or after age 65 with the consent of the Company, each option and SAR held by such holder shall be exercisable only to the extent that such option or SAR, as the case may be, is exercisable on the effective date of such holder's termination of employment or service and may thereafter be exercised by such holder (or such holder's legal representative or similar person) until and including the earliest to occur of (i) the date which is three months (or such other period as set forth in the Agreement relating to such option or SAR) after the effective date of such holder's termination of employment or service and (ii) the expiration date of the term of such option or SAR. (c) DEATH. Subject to paragraph (f) below and Section 6.8, and unless otherwise specified in the Agreement relating to an option or SAR, as the case may be, if the employment or service with the Company of the holder of an option or SAR terminates by reason of death, each option and SAR held by such holder shall be exercisable only to the extent that such option or SAR, as the case may be, is exercisable on the date of such holder's death, and may thereafter be exercised by such holder's executor, administrator, legal representative, beneficiary or similar person, as the case may be, until and including the earliest to occur of (i) the date which is one year (or such other period as set forth in the Agreement relating to such option or SAR) after the date of death and (ii) the expiration date of the term of such option or SAR. (d) OTHER TERMINATION. If the employment or service with the Company of the holder of an option or SAR is terminated by the Company for Cause, each option and SAR held 10 by such holder shall terminate automatically on the effective date of such holder's termination of employment or service. Subject to paragraph (f) below and Section 6.8, and unless specified in the Agreement relating to an option or SAR, as the case may be, if the employment or service with the Company of the holder of an option or SAR terminates for any reason other than Disability, retirement on or after age 65 with the consent of the Company, death or for Cause, each option and SAR held by such holder shall be exercisable only to the extent that such option or SAR is exercisable on the effective date of such holder's termination of employment or service and may thereafter be exercised by such holder (or such holder's legal representative or similar person) until and including the earliest to occur of (i) the date which is three months (or such other period as set forth in the Agreement relating to such option or SAR) after the effective date of such holder's termination of employment or service and (ii) the expiration date of the term of such option or SAR. (e) DEATH FOLLOWING TERMINATION OF EMPLOYMENT OR SERVICE. Subject to paragraph (f) below and Section 6.8, and unless otherwise specified in the Agreement relating to an option or SAR, as the case may be, if the holder of an option or SAR dies during the three-month period following termination of employment or service by reason of Disability, or if the holder of an option or SAR dies during the three-month period following termination of employment or service by reason of retirement on or after age 65 with the consent of the Company, or if the holder of an option or SAR dies during the three-month period following termination of employment or service for any reason other than Disability or retirement on or after age 65 with the consent of the Company (or, in each case, such other period as set forth in the Agreement relating to such option or SAR), each option and SAR held by such holder shall be exercisable only to the extent that such option or SAR is exercisable on the effective date of such holder's termination and may thereafter be exercised by the holder's executor, administrator, legal representative, beneficiary or similar person, as the case may be, until and including the earliest to occur of (i) the date which is one year (or such other period as set forth in the Agreement relating to such option or SAR) after the date of death and (ii) the expiration date of the term of such option or SAR. (f) TERMINATION OF EMPLOYMENT OR SERVICE - INCENTIVE STOCK OPTIONS. Subject to Section 6.8 and unless otherwise specified in the Agreement relating to the option, if the employment or service with the Company of a holder of an incentive stock option terminates by reason of Permanent and Total Disability (as defined in Section 22(e)(3) of the Code), each incentive stock option held by such optionee shall be exercisable only to the extent that such option is exercisable on the effective date of such optionee's termination of employment or service by reason of Permanent and Total Disability, and may thereafter be exercised by such optionee (or such optionee's legal representative or similar person) until and including the earliest to occur of (i) the date which is three months (or such other period no longer than one year as set forth in the Agreement relating to such option) after the effective date of such optionee's termination of employment or service by reason of Permanent and Total Disability and (ii) the expiration date of the term of such option. Subject to Section 6.8 and unless otherwise specified in the Agreement relating to the option, if the employment or service with the Company of a holder of an Incentive Stock 11 Option terminates by reason of death, each Incentive Stock Option held by such optionee shall be exercisable only to the extent that such option is exercisable on the date of such optionee's death and may thereafter be exercised by such optionee's executor, administrator, legal representative, beneficiary or similar person until and including the earliest to occur of (i) the date which is one year (or such other period as set forth in the Agreement relating to such option) after the date of death and (ii) the expiration date of the term of such option. If the employment or service with the Company of the optionee of an Incentive Stock Option is terminated by the Company for Cause, each Incentive Stock Option held by such optionee shall terminate automatically on the effective date of such optionee's termination of employment or service. Subject to Section 6.8 and unless otherwise specified in the Agreement relating to the option, if the employment or service with the Company of a holder of an Incentive Stock Option terminates for any reason other than Permanent and Total Disability, death or Cause, each Incentive Stock Option held by such optionee shall be exercisable only to the extent such option is exercisable on the effective date of such optionee's termination of employment or service, and may thereafter be exercised by such holder (or such holder's legal representative or similar person) until and including the earliest to occur of (i) the date which is three months after the effective date of such optionee's termination of employment or service and (ii) the expiration date of the term of such option. If the holder of an Incentive Stock Option dies during the three-month period following termination of employment or service by reason of Permanent and Total Disability (or such other period as set forth in the Agreement relating to such option), or if the holder of an Incentive Stock Option dies during the three-month period following termination of employment or service for any reason other than Permanent and Total Disability, death or Cause, each Incentive Stock Option held by such optionee shall be exercisable only to the extent such option is exercisable on the effective date of such optionee's termination and may thereafter be exercised by the optionee's executor, administrator, legal representative, beneficiary or similar person until and including the earliest to occur of (i) the date which is one year (or such other period as set forth in the Agreement relating to such option) after the date of death and (ii) the expiration date of the term of such option. III. STOCK AWARDS 3.1 STOCK AWARDS. The Committee may, in its discretion, grant Stock Awards to such eligible persons as may be selected by the Committee. Subject to adjustment as provided in Sections 6.7 and 6.8 of this Plan, the aggregate number of shares of Common Stock available under this Plan for all Stock Awards shall not exceed 500,000 of the aggregate number of shares of Common Stock available under this Plan. The Agreement relating to a Stock Award shall specify whether the Stock Award is a Restricted Stock Award or Bonus Stock Award. 3.2 TERMS OF STOCK AWARDS. Stock Awards shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable. 12 (a) NUMBER OF SHARES AND OTHER TERMS. The number of shares of Common Stock subject to a Restricted Stock Award or Bonus Stock Award and the Performance Measures (if any) and Restriction Period applicable to a Restricted Stock Award shall be determined by the Committee. (b) VESTING AND FORFEITURE. The Agreement relating to a Restricted Stock Award shall provide, in the manner determined by the Committee, in its discretion, and subject to the provisions of this Plan, for the vesting of the shares of Common Stock subject to such award (i) if specified Performance Measures are satisfied or met during the specified Restriction Period or (ii) if the holder of such award remains continuously in the employment or service of the Company during the specified Restricted Period and for the forfeiture of the shares of Common Stock subject to such award (x) if specified Performance Measures are not satisfied or met during the specified Restriction Period or (y) if the holder of such award does not remain continuously in the employment or service of the Company during the specified Restriction Period. Bonus Stock Awards shall not be subject to any Performance Measures or Restriction Periods. (c) SHARE CERTIFICATES. During the Restriction Period, a certificate or certificates representing a Restricted Stock Award shall be registered in the holder's name and may bear a legend, in addition to any legend which may be required pursuant to Section 6.6, indicating that the ownership of the shares of Common Stock represented by such certificate is subject to the restrictions, terms and conditions of this Plan and the Agreement relating to the Restricted Stock Award. All such certificates shall be deposited with the Company, together with stock powers or other instruments of assignment (including a power of attorney), each endorsed in blank with a guarantee of signature if deemed necessary or appropriate by the Company, which would permit transfer to the Company of all or a portion of the shares of Common Stock subject to the Restricted Stock Award in the event such award is forfeited in whole or in part. Upon termination of any applicable Restriction Period (and the satisfaction or attainment of applicable Performance Measures), or upon the grant of a Bonus Stock Award, in each case subject to the Company's right to require payment of any taxes in accordance with Section 6.5, a certificate or certificates evidencing ownership of the requisite number of shares of Common Stock shall be delivered to the holder of such award. (d) RIGHTS WITH RESPECT TO RESTRICTED STOCK AWARDS. Unless otherwise set forth in the Agreement relating to a Restricted Stock Award, and subject to the terms and conditions of a Restricted Stock Award, the holder of such award shall have all rights as a stockholder of the Company, including, but not limited to, voting rights, the right to receive dividends and the right to participate in any capital adjustment applicable to all holders of Common Stock; PROVIDED, HOWEVER, that a distribution with respect to shares of Common Stock, other than a distribution in cash, shall be deposited with the Company and shall be subject to the same restrictions as the shares of Common Stock with respect to which such distribution was made. (e) AWARDS TO CERTAIN EXECUTIVE OFFICERS. Notwithstanding any other provision of this Article III, and only to the extent necessary to ensure the deductibility of the award to the 13 Company, the Fair Market Value of the number of shares of Common Stock subject to a Stock Award granted to a "covered employee" within the meaning of Section 162(m) of the Code shall not exceed $1,000,000 (i) at the time of grant in the case of a Stock Award granted upon the attainment of Performance Measures or (ii) in the case of a Restricted Stock Award with Performance Measures which shall be satisfied or met as a condition to the holder's receipt of the shares of Common Stock subject to such award, on the earlier of (x) the date on which the Performance Measures are satisfied or met and (y) the date the holder makes an election under Section 83(b) of the Code. 3.3 TERMINATION OF EMPLOYMENT OR SERVICE. Subject to Section 6.8 and unless otherwise set forth in the Agreement relating to a Restricted Stock Award, if the employment or service with the Company of the holder of such award terminates, the portion of such award which is subject to a Restriction Period shall terminate as of the effective date of such holder's termination of employment or service and shall be forfeited and such portion shall be canceled by the Company. IV. PERFORMANCE SHARE AWARDS 4.1 PERFORMANCE SHARE AWARDS. The Committee may, in its discretion, grant Performance Share Awards to such eligible persons as may be selected by the Committee. 4.2 TERMS OF PERFORMANCE SHARE AWARDS. Performance Share Awards shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable. (a) NUMBER OF PERFORMANCE SHARES AND PERFORMANCE MEASURES. The number of Performance Shares subject to any award and the Performance Measures and Performance Period applicable to such award shall be determined by the Committee. (b) VESTING AND FORFEITURE. The Agreement relating to a Performance Share Award shall provide, in the manner determined by the Committee, in its discretion, and subject to the provisions of this Plan, for the vesting of such award, if specified Performance Measures are satisfied or met during the specified Performance Period, and for the forfeiture of such award, if specified Performance Measures are not satisfied or met during the specified Performance Period. (c) SETTLEMENT OF VESTED PERFORMANCE SHARE AWARDS. The Agreement relating to a Performance Share Award (i) shall specify whether such award may be settled in shares of Common Stock (including shares of Restricted Stock) or cash or a combination thereof and (ii) may specify whether the holder thereof shall be entitled to receive, on a current or deferred basis, dividend equivalents, and, if determined by the Committee, interest on any deferred dividend equivalents, with respect to the number of shares of Common Stock subject to such award. If a Performance Share Award is settled in shares of Restricted Stock, a certificate or certificates representing such Restricted Stock shall be issued in accordance with Section 3.2(c) and the holder of such Restricted Stock shall have such rights of a stockholder of the Company as determined pursuant to Section 3.2(d). Prior to the settlement of a Performance Share Award in shares of Common Stock, including Restricted Stock, the holder of such award shall have no 14 rights as a stockholder of the Company with respect to the shares of Common Stock subject to such award. 4.3 TERMINATION OF EMPLOYMENT OR SERVICE. Subject to Section 6.8 and unless otherwise set forth in the Agreement relating to a Performance Share Award, if the employment or service with the Company of the holder of such award terminates, the portion of such award which is subject to a Performance Period on the effective date of such holder's termination of employment or service shall be forfeited and such portion shall be canceled by the Company. V. PROVISIONS RELATING TO NON-EMPLOYEE DIRECTORS 5.1 ELIGIBILITY. Each Non-Employee Director may be granted options to purchase shares of Common Stock in accordance with this Article V (collectively "Directors Options"). All options granted under this Article V shall constitute Non-Statutory Stock Options. 5.2 GRANTS OF STOCK OPTIONS. The Board, in its discretion, may grant Non-Statutory Stock Options to any Non-Employee Director in accordance with this Article V. The Board shall determine with respect to each Director Option (a) the number of shares of Common Stock subject to an option, (b) the purchase price per share of Common Stock purchasable upon exercise of the option, (c) the period during which an option may be exercised and (d) whether an option shall become exercisable in cumulative or non-cumulative installments and in part or in full at any time. 5.3 TERMINATION OF DIRECTORSHIP. (a) DISABILITY. Subject to Section 6.8 and unless otherwise specified in the Agreement relating to the option, if the holder of an option granted under this Article V ceases to be a director of the Company by reason of Disability, each such option held by such holder shall be exercisable only to the extent that such option is exercisable on the effective date of such holder's ceasing to be a director and may thereafter be exercised by such holder (or such holder's guardian, legal representative or similar person) until the earliest to occur of the (i) date which is three months after the effective date of such holder's ceasing to be a director and (ii) the expiration date of the term of such option. (b) RETIREMENT. Subject to Section 6.8 and unless otherwise specified in the Agreement relating to the option, if the holder of an option granted under this Article V ceases to be a director of the Company on or after age 65, each such option held by such holder shall be exercisable only to the extent that such option is exercisable on the effective date of such holder's ceasing to be a director and may thereafter be exercised by such holder (or such holder's legal representative or similar person) until the earliest to occur of the (i) date which is three months after the effective date of such holder's ceasing to be a director and (ii) the expiration date of the term of such option. (c) DEATH. Subject to Section 6.8 and unless otherwise specified in the Agreement relating to the option, if the holder of an option granted under this Article V ceases to 15 be a director of the Company by reason of death, each such option held by such holder shall be fully exercisable and may thereafter be exercised by such holder's executor, administrator, legal representative, beneficiary or similar person, as the case may be, until the earliest to occur of (i) the date which is one year after the date of death and (ii) the expiration date of the term of such option. (d) OTHER TERMINATION. Subject to Section 6.8 and unless otherwise specified in the Agreement relating to the option, if the holder of an option granted under this Article V ceases to be a director of the Company for any reason other than Disability, retirement on or after age 65 or death, each such option held by such holder shall be exercisable only to the extent such option is exercisable on the effective date of such holder's ceasing to be a director and may thereafter be exercised by such holder (or such holder's legal representative or similar person) until the earliest to occur of (i) the date which is three months after the effective date of such holder's ceasing to be a director and (ii) the expiration date of the term of such option. (e) DEATH FOLLOWING TERMINATION OF DIRECTORSHIP. Subject to Section 6.8 and unless otherwise specified in the Agreement relating to the option, if the holder of an option granted under this Article V dies during the three-month period following such holder's ceasing to be a director of the Company by reason of Disability, or if such a holder dies during the three-month period following such holder's ceasing to be a director of the Company on or after age 65, or if such a holder dies during the three-month period following such holder's ceasing to be a director for any reason other than by reason of Disability or retirement on or after age 65, each such option held by such holder shall be exercisable only to the extent that such option is exercisable on the effective date of such holder's ceasing to be a director and may thereafter be exercised by the holder's executor, administrator, legal representative, beneficiary or similar person, as the case may be, until the earliest to occur of the (i) date one year after the date of death and (ii) the expiration date of the term of such option. 5.4 DIRECTORS OPTIONS. Each Directors Option shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Board shall deem advisable: (a) OPTION PERIOD AND EXERCISABILITY. Directors Options shall become exercisable as provided in the Agreement relating to the option. Unless otherwise specified in the Agreement relating to the option, if at any time prior to the time that a Directors Option first becomes exercisable, a Non-Employee Director shall no longer be a member of the Board, such Directors Option shall become void and of no further force or effect. (b) PURCHASE PRICE. The purchase price for the shares of Common Stock subject to any Directors Option shall be equal to the purchase price determined by the Board that is set forth in the Agreement relating to the option. Such Directors Options shall be exercisable in accordance with Section 2.1(c). (c) RESTRICTIONS ON TRANSFER. Directors Options shall be subject to the transfer restrictions and other provisions of Section 6.4. 16 (d) EXPIRATION. Unless otherwise specified in the Agreement relating to the option, each Directors Option which has become exercisable pursuant to Section 5.4(a), to the extent not theretofore exercised, shall expire on the first to occur of (i) the date which is three months after the first date on which the Non-Employee Director shall no longer be a member of the Board or the Board of Directors of a Subsidiary and (ii) the tenth anniversary of the date of grant of such option; PROVIDED, HOWEVER, that if the Non-Employee Director shall die within such three-month period following the date on which he shall have ceased to serve as such a director or if the Non-Employee Director shall cease to be a director of the Company by reason of death, such option may be exercised at any time within the one-year period following the date of death to the extent not theretofore exercised (but in no event later than the tenth anniversary of the date of grant). VI. GENERAL 6.1 EFFECTIVE DATE AND TERM OF PLAN; SUBMISSION TO STOCKHOLDERS. This Plan shall be submitted to the stockholders of the Company for approval and, if approved by the affirmative vote of a majority of the voting power of the shares of capital stock of the Company entitled to vote thereon, shall become effective as of the commencement of the IPO. This Plan shall terminate ten years after its effective date unless terminated earlier by the Board. Termination of this Plan shall not affect the terms or conditions of any award granted prior to termination. Awards hereunder may be made at any time prior to the termination of this Plan, provided that no award may be made later than ten years after the effective date of this Plan. In the event that this Plan is not approved by the stockholders of the Company, this Plan and any awards hereunder shall be void and of no force or effect. 6.2 AMENDMENTS. The Board may amend this Plan as it shall deem advisable, subject to any requirement of stockholder approval required by applicable law, rule or regulation, including Section 162(m) and Section 422 of the Code; PROVIDED, HOWEVER, that no amendment shall be made without stockholder approval if such amendment would (a) reduce the minimum purchase price in the case of an option or the base price in the case of an SAR, (b) effect any change inconsistent with Section 422 of the Code or (c) extend the term of this Plan. No amendment may impair the rights of a holder of an outstanding award without the consent of such holder. 6.3 AGREEMENT. Each award under this Plan shall be evidenced by an Agreement setting forth the terms and conditions applicable to such award. No award shall be valid until an Agreement is executed by the Company and the recipient of such award and, upon execution by each party and delivery of the Agreement to the Company, such award shall be effective as of the effective date set forth in the Agreement. The Board may amend any Agreement as it shall deem advisable, provided that no such amendment (i) shall contain provisions that are inconsistent with the terms of the Plan or (ii) shall impair the rights of a holder of an outstanding award without the consent of such holder. 17 6.4 NON-TRANSFERABILITY OF STOCK OPTIONS, SARS AND PERFORMANCE SHARES. No option, SAR or Performance Share shall be transferable other than (i) by will, the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company or (ii) as otherwise set forth in the Agreement relating to such award. Each option, SAR or Performance Share may be exercised or settled during the participant's lifetime only by the holder or the holder's legal representative or similar person. Except as permitted by the second preceding sentence, no option, SAR or Performance Share may be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process, and any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of such option, SAR or Performance Share shall be null and void and of no force or effect. 6.5 TAX WITHHOLDING. The Company shall have the right to require, prior to the issuance or delivery of any shares of Common Stock or the payment of any cash pursuant to an award made hereunder, payment by the holder of such award of any Federal, state, local or other taxes which may be required to be withheld or paid in connection with such award. An Agreement may provide that (i) the Company shall withhold whole shares of Common Stock which would otherwise be delivered to a holder, having an aggregate Fair Market Value determined as of the date the obligation to withhold or pay taxes arises in connection with an award (the "Tax Date"), or withhold an amount of cash which would otherwise be payable to a holder, in the amount necessary to satisfy any such obligation or (ii) the holder may satisfy any such obligation by any of the following means: (1) a cash payment to the Company, (2) delivery to the Company of Mature Shares having an aggregate Fair Market Value, determined as of the Tax Date, equal to the amount necessary to satisfy any such obligation, (3) authorizing the Company to withhold whole shares of Common Stock which would otherwise be delivered having an aggregate Fair Market Value, determined as of the Tax Date, or withhold an amount of cash which would otherwise be payable to a holder, equal to the amount necessary to satisfy any such obligation, (4) in the case of the exercise of an option, a cash payment by a broker-dealer acceptable to the Company to whom the optionee has submitted an irrevocable notice of exercise or (5) any combination of (1), (2) and (3), in each case to the extent set forth in the Agreement relating to the award; PROVIDED, HOWEVER, that the Committee shall have sole discretion to disapprove of an election pursuant to any of clauses (2)-(5). An Agreement may provide for shares of Common Stock to be delivered or withheld having an aggregate Fair Market Value in excess of the minimum amount required to be withheld. Any fraction of a share of Common Stock which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the holder. 6.6 RESTRICTIONS ON SHARES. Each award made hereunder shall be subject to the requirement that if at any time the Company determines that the listing, registration or qualification of the shares of Common Stock subject to such award upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the delivery of shares thereunder, such shares shall not be delivered unless such listing, registration, qualification, consent, approval or other action shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company may require that certificates evidencing shares of Common Stock delivered pursuant to any award made hereunder bear a legend indicating that the sale, transfer or other disposition thereof by the holder is prohibited 18 except in compliance with the Securities Act of 1933, as amended, and the rules and regulations thereunder. 6.7 ADJUSTMENT. Except as provided in Section 6.8, in the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Common Stock other than a regular cash dividend, the number and class of securities available under this Plan, the number and class of securities subject to each outstanding option and the purchase price per security, the terms of each outstanding SAR, the number and class of securities subject to each outstanding Stock Award, and the terms of each outstanding Performance Share shall be appropriately adjusted by the Committee, such adjustments to be made in the case of outstanding options and SARs without an increase in the aggregate purchase price or base price. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. If any such adjustment would result in a fractional security being (a) available under this Plan, such fractional security shall be disregarded, or (b) subject to an award under this Plan, the Company shall pay the holder of such award, in connection with the first vesting, exercise or settlement of such award, in whole or in part, occurring after such adjustment, an amount in cash determined by multiplying (i) the fraction of such security (rounded to the nearest hundredth) by (ii) the excess, if any, of (1) the Fair Market Value on the vesting, exercise or settlement date over (2) the exercise or base price, if any, of such award. 6.8 CHANGE IN CONTROL. (a) (i) Notwithstanding any provision in this Plan or any Agreement, in the event of a Change in Control pursuant to Section (b)(iii) or (iv) below, (1) all outstanding options and SARS shall immediately become exercisable in full, (2) the Restriction Period applicable to any outstanding Restricted Stock Award shall lapse, (3) the Performance Period applicable to any outstanding Performance Share shall lapse and (4) the Performance Measures applicable to any outstanding Restricted Stock Award (if any) and to any outstanding Performance Share shall be deemed to be satisfied at the maximum level. If, in connection with such Change in Control, holders of Common Stock receive solely shares of common stock that are registered under Section 12 of the Exchange Act, there shall be substituted for each share of Common Stock available under this Plan, whether or not then subject to an outstanding award, the number and class of shares into which each outstanding share of Common Stock shall be converted pursuant to such Change in Control. If, in connection with such Change in Control, holders of Common Stock receive solely cash and shares of common stock that are registered under Section 12 of the Exchange Act, each outstanding award shall be surrendered to and canceled by the Company, and the holder shall receive, within ten days of the occurrence of such Change in Control, a proportionate amount of cash in the manner provided in Section (a)(ii) below, and there shall be substituted for the award surrendered a similar award reflecting a proportionate number of the class of shares into which each outstanding share of Common Stock shall be converted to such Change in Control. In the event of any such substitution, the proportion of cash and common stock, the purchase price per share in the case of an option and the base price in the case of an SAR, and any other terms of outstanding awards shall be appropriately adjusted by the Committee, such 19 adjustments to be made in the case of outstanding options and SARs without an increase in the aggregate purchase price or base price; PROVIDED, that the proportion of cash and common stock substituted for outstanding awards shall reflect the approximate proportion of cash and common stock received by holders of Common Stock in such Change in Control. If, in connection with a Change in Control, holders of Common Stock receive any portion of the consideration in a form other than cash or shares of common stock that are registered under Section 12 of the Exchange Act, each share of Common Stock available under this Plan, whether or not then subject to an outstanding award, shall be substituted or surrendered for such proportion of common stock, cash or other consideration as shall be determined by the Committee pursuant to Section 6.7. (ii) Notwithstanding any provision in this Plan or any Agreement, in the event of a Change in Control pursuant to Section (b)(i) or (ii) below, or in the event of a Change in Control pursuant to Section (b)(iii) or (iv) below in connection with which the holders of Common Stock receive cash, each outstanding award shall be surrendered to the Company by the holder thereof, and each such award shall immediately be canceled by the Company, and the holder shall receive, within ten days of the occurrence of a Change in Control pursuant to Section (b)(i) or (ii) below or within ten days of the approval of the stockholders of the Company contemplated by Section (b)(iii) or (iv) below, a cash payment from the Company in an amount equal to (1) in the case of an option, the number of shares of Common Stock then subject to such option, multiplied by the excess, if any, of the greater of (A) the highest per share price offered to stockholders of the Company in any transaction whereby the Change in Control takes place or (B) the Fair Market Value of a share of Common Stock on the date of occurrence of the Change in Control, over the purchase price per share of Common Stock subject to the option; (2) in the case of a Free-Standing SAR, the number of shares of Common Stock then subject to such SAR, multiplied by the excess, if any, of the greater of (A) the highest per share price offered to stockholders of the Company in any transaction whereby the Change in Control takes place or (B) the Fair Market Value of a share of Common Stock on the date of occurrence of the Change in Control, over the base price of the SAR; and (3) in the case of a Restricted Stock Award or Performance Share Award, the number of shares of Common Stock or the number of Performance Shares, as the case may be, then subject to such award, multiplied by the greater of (A) the highest per share price offered to stockholders of the Company in any transaction whereby the Change in Control takes place or (B) the Fair Market Value of a share of Common Stock on the date of occurrence of the Change in Control. In the event of a Change in Control, each Tandem SAR shall be surrendered by the holder thereof and shall be canceled simultaneously with the cancellation of the related option. Except as may be provided in an agreement relating to an award, the Company may, but is not required to, cooperate with any person who is subject to Section 16 of the Exchange Act to assure that any cash payment in accordance with the foregoing to such person is made in compliance with Section 16 and the rules and regulations thereunder. (b) "Change in Control" shall mean: (i) the acquisition by any individual, entity or group (a "Person"), including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act, of 20 Beneficial Ownership of 20% or more of either (1) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (2) the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); PROVIDING however, the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company (excluding any acquisition resulting from the exercise of an exercise, conversion or exchange privilege unless the security being so exercised, converted or exchanged was acquired directly from the Company), (B) any acquisition by the Company, (C) any acquisition by an Exempt Person, (D) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (E) any acquisition by any corporation pursuant to a transaction which complies with clauses (1), (2) and (3) of subsection (iii) of this Section 6.8(b); provided further, that for purposes of clause (B), if any Person (other than an Exempt Person, the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company) shall become the Beneficial Owner of 20% or more of the utstanding Company Common Stock or 20% or more of the Outstanding Company Voting Securities by reason of an acquisition by the Company, and such Person shall, after such acquisition by the Company, become the Beneficial Owner of any additional shares of the Outstanding Company Common Stock or any additional Outstanding Company Voting Securities and such Beneficial Ownership is publicly announced, such additional Beneficial Ownership shall constitute a Change in Control; (ii) individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided that any individual who becomes a director of the Company subsequent to the date hereof whose appointment, or whose nomination for election by the Company's stockholders, was approved by the vote of at least 66-2/3% of the directors then comprising the Incumbent Board shall be deemed a member of the Incumbent Board; and provided further, that any individual who was initially elected as a director of the Company as a result of an actual or threatened election contest (defined to be an actual or threatened solicitation by a person or group for the purpose of opposing a solicitation by any other person or group with respect to the election or removal of directors) or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board shall not be deemed a member of the Incumbent Board; (iii) approval by the stockholders of the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Corporate Transaction"); excluding, however, a Corporate Transaction pursuant to which (1) all or substantially all of the individuals or entities who are the Beneficial Owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Corporate Transaction will Beneficially Own, directly or indirectly, more than 60% of, respectively, the outstanding shares of common stock, and the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of 21 directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or indirectly) in substantially the same proportions relative to each other as their Beneficial Ownership, immediately prior to such Corporate Transaction, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (2) no Person (other than an Exempt Person; the Company; any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; the corporation resulting from such Corporate Transaction; and any Person which Beneficially Owned, immediately prior to such Corporate Transaction, directly or indirectly, 20% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) will Beneficially Own, directly or indirectly, 20% or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of directors and (3) individuals who were members of the Incumbent Board will constitute at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction; or (iv) approval by the stockholders of the Company of a plan of complete liquidation or dissolution of the Company. Notwithstanding anything to the contrary herein, no Change of Control shall be deemed to have taken place as a result of the issuance of shares of Common Stock by the Company or the sale of shares of Common Stock by its stockholders in connection with the Company's initial public offering. 6.9 NO RIGHT OF PARTICIPATION OR EMPLOYMENT/SERVICE. No person shall have any right to participate in this Plan. Neither this Plan nor any award made hereunder shall confer upon any person any right to continued employment or service by the Company, any Subsidiary or any affiliate of the Company or affect in any manner the right of the Company, any Subsidiary or any affiliate of the Company to terminate the employment or service of any person at any time without liability hereunder. 6.10 RIGHTS AS STOCKHOLDER. No person shall have any right as a stockholder of the Company with respect to any shares of Common Stock or other equity security of the Company which is subject to an award hereunder unless and until such person becomes a stockholder of record with respect to such shares of Common Stock or equity security. 6.11 GOVERNING LAW. This Plan, each award hereunder and the related Agreement, and all determinations made and actions taken pursuant thereto, to the extent not otherwise governed by the Code or the laws of the United States, shall be governed by the laws of the State of Delaware and construed in accordance therewith without giving effect to principles of conflicts of laws. 22 EX-10.37 3 a2043710zex-10_37.txt EXECUTIVE EMPLOYMENT AGREEMENT EXHIBIT 10-37 EXECUTIVE EMPLOYMENT AGREEMENT EXECUTIVE EMPLOYMENT AGREEMENT (the "AGREEMENT") dated as of May 1, 2000 between Marc van Gelder (the "EXECUTIVE") and Peapod, Inc., a Delaware corporation (the "COMPANY"). WHEREAS, the Company desires to employ the Executive as its President and Chief Executive Officer, and the Executive desires to accept such employment, for the term and upon the other conditions hereinafter set forth; and WHEREAS, the Executive and the Company are concurrently entering into a Severance Agreement (the "SEVERANCE AGREEMENT") providing for certain severance benefits. NOW, THEREFORE, in consideration of the agreements and covenants contained herein, the Executive and the Company hereby agree as follows. ARTICLE I EMPLOYMENT SECTION 1.01. POSITION AND RESPONSIBILITIES. The Company shall employ the Executive as its President and Chief Executive Officer. Subject to the authority and supervision of the Company's Board of Directors (including any committees thereof, the "Board"), the Executive shall have full responsibility and authority over the business and affairs of the Company. The Executive shall report to the Board and shall perform such other executive and administrative duties (not inconsistent with the position of President and Chief Executive Officer) as may from time to time be authorized or directed by the Board. The Executive agrees to be employed by the Company in such capacity, subject to all the covenants and conditions hereinafter set forth. SECTION 1.02. PERFORMANCE. During the term of Executive's employment, the Executive shall perform faithfully the duties assigned to the Executive hereunder to the best of his abilities and devote his full business time and attention to the transaction of the Company's business and not engage in any other business activity except with the approval of the Board. The previous sentence shall not preclude the Executive from participating in the affairs of any governmental, educational or other charitable institution so long as the Board does not determine in good faith that such activities unreasonably interfere with the business of the Company or the performance of the Executive's duties hereunder. SECTION 1.03. TERM AND TERMINATION. Employment under this Agreement shall commence as of May 1, 2000 (the "COMMENCEMENT DATE") and shall continue until terminated by written notice by either party, subject to the rights and obligations set forth in the Severance Agreement. ARTICLE II COMPENSATION SECTION 2.01. BASE COMPENSATION. As compensation for his services hereunder, the Company shall pay to the Executive a minimum annual salary of $250,000 (the "BASE SALARY"), less required or authorized deductions, payable in installments in accordance with the Company's normal payment schedule for senior management of the Company. The Executive's salary shall be reviewed in February of 2001, and at least annually thereafter, for adjustment above the Base Salary required by this Section 2.01. SECTION 2.02. INCENTIVE OPTIONS. The Executive shall receive an option to purchase 250,000 shares of Company common stock ("OPTION") at $3.75 per share as of May 1, 2000 ("OPTION GRANT DATE"). The Option shall become exercisable with respect to 25% of such shares on the first anniversary of the Option Grant Date and with respect to an additional 1/48 of such shares on the last day of each month thereafter. The Options shall be exercisable for a period of eight years from the Option Grant Date. The Options shall be subject to the terms of a Stock Option Agreement ("OPTION AGREEMENT") entered into by the parties concurrently herewith. The Executive may receive further grants under such Company stock incentive programs as may exist from time to time as determined in the absolute discretion of the Board. SECTION 2.03. BONUS PLAN. The Executive shall be entitled to participate in the Company's Executive Bonus Plan as modified by the Board from time to time. Such plan shall provide for an opportunity for the Executive to earn an annual cash bonus of up to 75% of Executive's Base Salary received for the year as to which such bonus is earned, based on meeting such individual and Company performance goals as may be set from time to time by the Board in its absolute discretion. The Executive's maximum percentage bonus of 75% is not subject to reduction without the Executive's written consent. For calender year 2000, the Company guarantees that the Executive's cash bonus will be at least equal to the cash bonus he would have received had he remained employed at Stop and Shop Supermarket Company, Inc. ("STOP AND SHOP"), LESS the appreciation, if any, in the value of the Executive's Option (determined by multiplying the number of shares covered by the Option by the amount by which the average closing price of a share of Company common stock on the NASDAQ National Market System for the last five trading days in calendar year 2000 exceeds $3.75 per share). SECTION 2.04. EMPLOYEE BENEFITS. Upon satisfaction of any eligibility requirements, the Executive shall be entitled to participate in such employee benefit plans and to receive such other fringe benefits during Executive's term of employment as are from time to time made generally available to the senior management of the Company; PROVIDED that, if a severance benefit is payable to the Executive pursuant to Section 2.06, such benefit shall be paid in lieu of any benefit otherwise payable to Executive pursuant to any Company severance plan unless such plan expressly provides that payments thereunder will be made in addition to the severance payments provided hereunder. As of the date hereof, such plans include a 401 (k) plan, health insurance plan, life insurance program and long term disability plan. The Executive's benefits shall also include the following specific benefits: a. four weeks paid vacation per year to be taken in accordance with and subject to Company vacation policy (the Company will be credited with any vacation days taken by the Executive during calender year 2000 while employed at Stop and Shop.); 2. cash reimbursement of the benefit premiums paid by the Executive under COBRA to continue coverage under Stop and Shop's health plan until the Executive satisfies Company benefit eligibility requirements; 3. cash reimbursement of amount paid by the Executive to purchase the leased vehicle presently used by the Executive (Executive shall own the vehicle and pay all maintenance, insurance and fuel costs); 4. life insurance benefits equal to the Executive's Base Salary, as adjusted, payable to the Executive's designated beneficiary; 5. payment through May 23, 2002 of the premium on the $1.5 million term life insurance policy currently covering the Executive at Stop and Shop; 6. short term and long term disability insurance benefits equal to 60% of the Executive's Base Salary, as adjusted; and 7. cash reimbursement of the Executive's relocation expenses based on Ahold USA Relocation Policy including: (i) grossed up reimbursement of any non-tax deductible expenses and (ii) lump sum payment of $5,000 to offset any miscellaneous expenses. 3 8. directors and officers liability insurance with coverage to the same extent provided other executive officers and directors of the Company. Nothing herein shall be construed to require the Company to establish, or shall preclude the Company, in its absolute discretion, from changing or amending, in whole or in part, or revoking, any one or more of Company employee benefit plans or programs without notice, PROVIDED that the benefits enumerated in subparagraphs a through h of this Section shall not be changed or amended unless replaced by substantially equivalent benefits. SECTION 2.05. EXPENSE REIMBURSEMENTS. The Company shall reimburse the Executive for all proper expenses incurred by Executive in the performance of Executive's duties hereunder in accordance with the policies and procedures established by the Board. SECTION 2.06. SEVERANCE BENEFITS. Concurrently herewith, the Executive and Peapod are entering into the Severance Agreement which provides certain severance benefits for the Executive in the event of termination of Executive's employment with the Company. The Executive shall be entitled to the benefits of such Severance Agreement as if the provisions thereof were set forth fully herein. ARTICLE III NONCOMPETITION; CONFIDENTIAL INFORMATION SECTION 3.01. NONCOMPETITION; NON-SOLICITATION. As a condition to Executive's employment and to the Company's obligations hereunder, Executive agrees to enter into, concurrently with Executive's execution of this Agreement, an Employee Nonsolicitation and Noncompete Agreement in the form attached hereto as EXHIBIT A, and the Executive agrees to comply fully with all of the terms and provisions of such Employee Nonsolicitation and Noncompete Agreement as if such terms and provisions were fully set forth in this Agreement. The covenants contained in such Employee Nonsolicitation and Noncompete Agreement shall survive the termination of this Agreement and the conclusion of the Executive's employment by the Company. 4 ARTICLE IV MISCELLANEOUS SECTION 4.01. NOTICES. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered or three (3) days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed (1) if to the Executive, to the Executive's address shown on the Company records, and if to the Company, to Peapod, Inc., 9933 Woods Drive, Skokie, Illinois 60077-1031, attention Chairman of the Board with a copy to the Secretary, or (2) to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. SECTION 4.02. EXECUTIVE'S AUTHORITY; NO CONFLICT. The Executive represents and warrants to the Company that the Executive has full right and authority to execute and deliver this Agreement and to comply with the terms and provisions hereof and that the execution and delivery of this Agreement and compliance with the terms and provisions hereof by the Executive will not conflict with or result in a breach of the terms, conditions or provisions of any agreement, restriction or obligation by which the Executive is bound. SECTION 4.03. ASSIGNMENT AND SUCCESSION. The Agreement shall be binding upon and shall operate for the benefit of the parties hereto and their respective legal representatives, legatees, distributees, heirs, and successors and assigns. Executive acknowledges that the services he renders pursuant to this Agreement are unique and personal. Accordingly, Executive may not assign any of the Executive's rights contained in this Agreement or delegate any of his duties hereunder. The Company may assign the Company's rights, duties or obligations under this Agreement to a purchaser or transferee of all or substantially all of the Company's assets. SECTION 4.04. HEADINGS. The Article, Section paragraph and subparagraph headings are for convenience of reference only and shall not define or limit the provisions hereof. SECTION 4.05. APPLICABLE LAW. This Agreement shall at all times be governed by and construed, interpreted and enforced in accordance with the internal laws (as opposed to conflict of laws provisions) of the State of Illinois. SECTION 4.06. SEVERABILITY. Whenever possible, each provision of this Agreement will be 5 interpreted in such manner as to be effective and valid under applicable law. In the event that any provision of this Agreement shall be held to be void or unenforceable, the remaining provisions of this Agreement shall continue in full force and effect. SECTION 4.07. WAIVER, ETC. The waiver of a breach of any provision of this Agreement shall not operate or be construed to be a waiver of any other breach. No delay or omission in the exercise of any power, remedy, or right herein provided or otherwise available to any party shall impair or affect the right of such party thereafter to exercise the same. Any extension of time or other indulgence granted to a party hereunder or to any other person shall not otherwise alter or affect any power, remedy or right of any other party, or obligations of the party to whom such extension or indulgence is granted except as specifically waived. SECTION 4.08. DISPUTE RESOLUTION. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association ("AAA") in accordance with its rules, to the extent not inconsistent with this provision. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Such arbitration shall be conducted in Chicago, Illinois before a single arbitrator. The parties shall select an arbitrator by mutual agreement from a panel of arbitrators experienced in arbitrating employment disputes proposed by the AAA. If the paries are unable to agree on an arbitrator, the AAA shall select an arbitrator in accordance with its procedures. Nothing herein shall preclude the Company from seeking and/or obtaining injunctive relief under the Employee Nonsolicitation and Noncompete Agreement. SECTION 4.09. ENTIRE AGREEMENT. This Agreement, together with the agreements referred to herein, contain the entire agreement of the parties relating to the subject matter hereof. This Agreement may be modified or discharged only by an agreement in writing signed by the party against whom enforcement of any modification or discharge is sought. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. PEAPOD, INC. By: /s/ ANDREW B. PARKINSON ---------------------------------- Andrew B. Parkinson Chairman of the Board 6 EXECUTIVE: /S/ MARC VAN GELDER -------------------------------------- Marc van Gelder 7 EX-10.38 4 a2043710zex-10_38.txt YEAR 2000 LONG-TERM INCENTIVE PLAN Exhibit 10.38 [Modified as of July 11, 2000] PEAPOD, INC. YEAR 2000 LONG TERM INCENTIVE PLAN I. INTRODUCTION 1.1 PURPOSES. The purposes of the Year 2000 Long-Term Incentive Plan (the "Plan") of Peapod, Inc. (the "Company"), and its subsidiaries from time to time (individually a "Subsidiary" and collectively the "Subsidiaries"), are (a) to align the interests of the Company's stockholders and the recipients of awards under this Plan by increasing the proprietary interest of such recipients in the Company's growth and success, (b) to advance the interests of the Company by attracting and retaining officers and other key employees, consultants and other persons who provide services to the Company in a capacity other than as employees and well-qualified persons who are not officers or employees of the Company ("non-employee directors") for service as directors of the Company and (c) to motivate such employees, consultants and other persons and non-employee directors to act in the long-term best interests of the Company's stockholders. For purposes of this Plan, references to employment by the Company shall also mean employment by a Subsidiary. 1.2 CERTAIN DEFINITIONS. "AFFILIATE" and "ASSOCIATE" shall have the respective meanings ascribed to such terms in Rule 12b-2, as in effect on the effective date of this Plan, under the Exchange Act; PROVIDED, HOWEVER, that no director or officer of the Company shall be deemed an Affiliate or Associate of any other director or officer of the Company solely as a result of his or her being a director or officer of the Company. "AGREEMENT" shall mean the written agreement evidencing an award hereunder between the Company and the recipient of such award. "BENEFICIAL OWNER" (including the terms "BENEFICIALLY OWN" and "BENEFICIAL OWNERSHIP"), when used with respect to any Person, shall be deemed to include any securities which: (a) such Person or any of such Person's Affiliates or Associates beneficially owns, directly or indirectly (determined as provided in Rule 13d-3, as in effect on the effective date of this Plan, under the Exchange Act); (b) such Person or any of such Person's Affiliates or Associates, directly or indirectly, has: (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time or upon the satisfaction of any conditions, or both) pursuant to any written or oral agreement, arrangement or understanding (other than customary agreements with and among underwriters and selling group members with respect to a bona fide public offering of securities), upon the exercise of any options, warrants, rights or conversion or exchange privileges or otherwise; PROVIDED, HOWEVER, that a Person shall not be deemed the Beneficial Owner of, or to Beneficially Own securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (ii) the right to vote pursuant to any written or oral agreement, arrangement or understanding; PROVIDED, HOWEVER, that a Person shall not be deemed the Beneficial Owner of, or to Beneficially Own, any security otherwise subject to this item (ii) if such agreement, arrangement or understanding to vote (1) arises solely from a revocable proxy or consent given to such Person or any of such Person's Affiliates or Associates in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations under the Exchange Act and (2) is not also then reportable by such Person on Schedule 13D (or any comparable or successor report then in effect) under the Exchange Act; or (iii) the right to dispose of pursuant to any written or oral agreement, arrangement or understanding (other than customary agreements with and among underwriters and selling group members with respect to a bona fide public offering of securities); or (c) are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any written or oral agreement, arrangement or understanding (other than customary agreements with and among underwriters and selling group members with respect to a bona fide public offering of securities) for the purpose of acquiring, holding, voting (except to the extent contemplated by the proviso to item (ii) of subparagraph (b) of the first paragraph of this definition) or disposing of any securities of the Company. Notwithstanding the first paragraph of this definition, no director or officer of the Company shall be deemed to be the "Beneficial Owner" of, or to "Beneficially Own," shares of Common Stock or other securities of the Company beneficially owned by any other director or officer of the Company solely as a result of his or her being a director or officer of the Company. "BOARD" shall mean the Board of Directors of the Company. "BONUS STOCK" shall mean shares of Common Stock which are not subject to a Restriction Period or Performance Measures. "BONUS STOCK AWARD" shall mean an award of Bonus Stock under this Plan. "CAUSE" shall mean embezzlement or misappropriation of corporate funds, other act of dishonesty, significant activities harmful to the reputation of the Company, willful refusal to perform or substantial disregard of an employee's or the other award holder's duties or significant violation of any statutory or common law duty of loyalty to the Company. 2 "CHANGE IN CONTROL" shall have the meaning set forth in Section 6.8(b). "CODE" shall mean the Internal Revenue Code of 1986, as amended. "COMMITTEE" shall mean the Committee designated by the Board, consisting of two or more members of the Board. "COMMON STOCK" shall mean the common stock, $.01 par value, of the Company. "COMPANY" has the meaning specified in Section 1.1. "DIRECTORS OPTIONS" shall have the meaning set forth in Section 5.1. "DISABILITY" shall mean the inability for a continuous period of at least six months of the holder of an award to perform substantially such holder's duties and responsibilities, as determined solely by the Committee. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. "EXEMPT PERSON" shall mean each of Andrew B. Parkinson and Thomas L. Parkinson and each Affiliate thereof. "FAIR MARKET VALUE" shall mean the last sale price of a share of Common Stock as reported in the National Association of Securities Dealers Automated Quotation National Market System on the date as of which such value is being determined, or, if the Common Stock is listed on a national securities exchange, the last sale price of a share of Common Stock on the principal national stock exchange on which the Common Stock is traded on the date as of which such value is being determined, or, if there shall be no reported transactions for such date, on the next preceding date for which transactions were reported; PROVIDED, HOWEVER, that if Fair Market Value for any date cannot be so determined, Fair Market Value shall be determined by the Committee by whatever means or method as the Committee, in the good faith exercise of its discretion, shall at such time deem appropriate. "FREE-STANDING SAR" shall mean an SAR which is not issued in tandem with, or by reference to, an option, which entitles the holder thereof to receive, upon exercise, shares of Common Stock (which may be Restricted Stock), cash or a combination thereof with an aggregate value equal to the excess of the Fair Market Value of one share of Common Stock on the date of exercise over the base price of such SAR, multiplied by the number of such SARs which are exercised. "FULLY DILUTED SHARES OUTSTANDING" shall mean the sum of the number of shares of Company Common Stock outstanding and the number of shares of Company Common Stock issuable pursuant to currently outstanding options, warrants, rights to purchase or convertible securities. 3 "INCENTIVE STOCK OPTION" shall mean an option to purchase shares of Common Stock that meets the requirements of Section 422 of the Code, or any successor provision, which is intended by the Committee to constitute an Incentive Stock Option. "INCUMBENT BOARD" shall have the meaning set forth in Section 6.8(b)(ii) hereof. "MATURE SHARES" shall mean shares of Common Stock for which the holder thereof has good title, free and clear of all liens and encumbrances and which such holder either (a) has held for at least six months or (b) has purchased on the open market. "NON-EMPLOYEE DIRECTOR" shall mean any director of the Company who is not an officer or employee of the Company or any Subsidiary (except in the definition of Committee, in which case "Non-Employee Director" shall have the meaning set forth in Rule 16b-3 under the Exchange Act). "NON-STATUTORY STOCK OPTION" shall mean a stock option which is not an Incentive Stock Option. "PERFORMANCE MEASURES" shall mean the criteria and objectives that may be established by the Committee, which, if established, shall be satisfied or met (a) as a condition to the exercisability of all or a portion of an option or SAR or (b) during the applicable Restriction Period or Performance Period as a condition to the holder's receipt, in the case of a Restricted Stock Award, of the shares of Common Stock subject to such award, or, in the case of a Performance Share Award, of payment with respect to such award. Such criteria and objectives shall include one or more of the following: the attainment by a share of Common Stock of a specified Fair Market Value for a specified period of time, earnings per share, return to stockholders (including dividends), return on equity, earnings of the Company, revenues, market share, cash flows or cost reduction goals, or any combination of the foregoing. If the Committee desires that compensation payable pursuant to any award subject to Performance Measures be "qualified performance-based compensation" within the meaning of section 162(m) of the Code, the Performance Measures shall be established by the Committee no later than the end of the first quarter of the Performance Period or Restriction Period, as applicable (or such other time designated by the Internal Revenue Service). "PERFORMANCE PERIOD" shall mean any period designated by the Committee during which the Performance Measures applicable to a Performance Share Award shall be measured. "PERFORMANCE SHARE" shall mean a right, contingent upon the attainment of specified Performance Measures within a specified Performance Period, to receive one share of Common Stock, which may be Restricted Stock, or in lieu thereof, the Fair Market Value of such Performance Share in cash. "PERFORMANCE SHARE AWARD" shall mean an award of Performance Shares under this Plan. "PERMANENT AND TOTAL DISABILITY" shall have the meaning set forth in Section 22(e)(3) of the Code or any successor thereto. 4 "PERSON" shall mean any individual, firm, corporation, partnership or other entity, and shall include any successor (by merger or otherwise) of any of the forgoing. "RESTRICTED STOCK" shall mean shares of Common Stock which are subject to a Restriction Period. "RESTRICTED STOCK AWARD" shall mean an award of Restricted Stock under this Plan. "RESTRICTION PERIOD" shall mean any period designated by the Committee during which the Common Stock subject to a Restricted Stock Award may not be sold, transferred, assigned, pledged, hypothecated or otherwise encumbered or disposed of, except as provided in this Plan or the Agreement relating to such award. "SAR" shall mean a stock appreciation right which may be a Free-Standing SAR or a Tandem SAR. "STOCK AWARD" shall mean a Restricted Stock Award or a Bonus Stock Award. "TANDEM SAR" shall mean an SAR which is granted in tandem with, or by reference to, an option (including a Non-Statutory Stock Option granted prior to the date of grant of the SAR), which entitles the holder thereof to receive, upon exercise of such SAR and surrender for cancellation of all or a portion of such option, shares of Common Stock (which may be Restricted Stock), cash or a combination thereof with an aggregate value equal to the excess of the Fair Market Value of one share of Common Stock on the date of exercise over the base price of such SAR, multiplied by the number of shares of Common Stock subject to such option, or portion thereof, which is surrendered. "TAX DATE" shall have the meaning set forth in Section 6.5. "TEN PERCENT HOLDER" shall have the meaning set forth in Section 2.1(a). 1.3 ADMINISTRATION. This Plan shall be administered by the Committee. Subject to Section 6.1, any one or a combination of the following awards may be made under this Plan to eligible persons: (a) options to purchase shares of Common Stock in the form of Incentive Stock Options or Non-Statutory Stock Options, (b) SARs in the form of Tandem SARs or Free-Standing SARs, (c) Stock Awards in the form of Restricted Stock or Bonus Stock and (d) Performance Shares. The Committee shall, subject to the terms of this Plan, select eligible persons for participation in this Plan and determine the form, amount and timing of each award to such persons and, if applicable, the number of shares of Common Stock, the number of SARs and the number of Performance Shares subject to such an award, the exercise price or base price associated with the award, the time and conditions of exercise or settlement of the award and all other terms and conditions of the award, including, without limitation, the form of the Agreement evidencing the award. The Committee shall, subject to the terms of this Plan, interpret this Plan and the application thereof, establish rules and regulations it deems necessary or desirable for the administration of this Plan and may impose, incidental to the grant of an award, conditions with respect to the award, such as limiting competitive employment or other 5 activities. All such interpretations, rules, regulations and conditions shall be conclusive and binding on all parties. The Committee may delegate some or all of its power and authority hereunder to the Chief Executive Officer or other executive officer of the Company as the Committee deems appropriate; PROVIDED, HOWEVER, that the Committee may not delegate its power and authority with regard to (a) the grant of an award under this Plan to any person who is a "covered employee" within the meaning of Section 162(m) of the Code or who, in the Committee's judgment, is likely to be a covered employee at any time during the period an award hereunder to such employee would be outstanding or (b) the selection for participation in this Plan of an officer or other person subject to Section 16 of the Exchange Act or decisions concerning the timing, pricing or amount of an award to such an officer or other person. No member of the Board of Directors or Committee, and neither the Chief Executive Officer nor any other executive officer to whom the Committee delegates any of its power and authority hereunder, shall be liable for any act, omission, interpretation, construction or determination made in connection with this Plan in good faith, and the members of the Board of Directors and the Committee and the President and Chief Executive Officer or other executive officer shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including attorneys' fees) arising therefrom to the full extent permitted by law, except as otherwise may be provided in the Company's Certificate of Incorporation and/or By-laws, as the same may be amended or restated from time to time, and under any directors' and officers' liability insurance that may be in effect from time to time. A majority of the Committee shall constitute a quorum. The acts of the Committee shall be either (a) acts of a majority of the members of the Committee present at any meeting at which a quorum is present or (b) acts approved in writing by a majority of the members of the Committee without a meeting. 1.4 ELIGIBILITY. Participants in this Plan shall consist of such employees who are directors, officers or other key employees of the Company and its Subsidiaries, as well as consultants and other persons who provide services to the Company or its Subsidiaries in a capacity other than as employees, as the Committee, in its sole discretion, may select from time to time. The Committee's selection of a person to participate in this Plan at any time shall not require the Committee to select such person to participate in this Plan at any other time. Non-Employee Directors shall also be eligible to participate in this Plan in accordance with Article V. 1.5 SHARES AVAILABLE. Subject to adjustment as provided in Sections 6.7 and 6.8, 1,070,000 shares of Common Stock shall be available under this Plan, reduced by the sum of the aggregate number of shares of Common Stock (a) that are issued upon the grant of a Stock Award and (b) which become subject to outstanding options, including Directors' Options, outstanding Free-Standing SARs and outstanding Performance Shares. The number of shares of Common Stock available for issuance under this Plan shall be subject to annual increases beginning January 1, 2001 and each anniversary thereafter equal to the lesser of (a) 1,000,000 shares (b) four percent (4%) of the Fully Diluted Shares Outstanding on each such date and (c) the number of shares determined by the Committee. To the extent that shares of Common Stock subject to an outstanding option (other than in connection with the exercise of a Tandem 6 SAR), Free-Standing SAR or Performance Share are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such award or by reason of the delivery or withholding of shares of Common Stock to pay all or a portion of the exercise price of an award, if any, or to satisfy all or a portion of the tax withholding obligations relating to an award, then such shares of Common Stock shall again be available under this Plan. Shares of Common Stock to be delivered under this Plan shall be made available from authorized and unissued shares of Common Stock, or authorized and issued shares of Common Stock reacquired and held as treasury shares or otherwise or a combination thereof. The maximum number of shares of Common Stock with respect to which options, SARs, Performance Awards, or a combination thereof, may be granted during any calendar year to any person shall be 300,000, subject to adjustment as provided in Section 6.7. II. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS 2.1 STOCK OPTIONS. The Committee may, in its discretion, grant options to purchase shares of Common Stock to such eligible persons as may be selected by the Committee, provided, however, that the Committee shall not grant an option to purchase shares of Common Stock if, as a result of such grant, the number of shares subject to outstanding options or rights to purchase shares of Common Stock equals or exceeds twenty percent (20%) of the Fully Diluted Shares Outstanding. Each option, or portion thereof, that is not an Incentive Stock Option, shall be a Non-Statutory Stock Option. Each Incentive Stock Option shall be granted within ten years of the effective date of this Plan. To the extent that the aggregate Fair Market Value (determined as of the date of grant) of shares of Common Stock with respect to which options designated as Incentive Stock Options are exercisable for the first time by a participant during any calendar year (under this Plan or any other plan of the Company, or any parent or Subsidiary) exceeds the amount (currently $100,000) established by the Code, such options shall constitute Non-Statutory Stock Options. Options shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable: (a) NUMBER OF SHARES AND PURCHASE PRICE. The number of shares of Common Stock subject to an option shall be determined by the Committee. The purchase price per share of Common Stock purchasable upon exercise of the option shall be determined by the Committee; PROVIDED, HOWEVER, that the purchase price per share of Common Stock purchasable upon exercise of an option shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant of such option; PROVIDED FURTHER, that if an Incentive Stock Option shall be granted to any person who, at the time such option is granted, owns capital stock possessing more than ten percent of the total combined voting power of all classes of capital stock of the Company (or of any parent or Subsidiary) (a "Ten Percent Holder"), the purchase price per share of Common Stock shall be the price (currently 110% of Fair Market Value) required by the Code in order to constitute an Incentive Stock Option. 7 (b) OPTION PERIOD AND EXERCISABILITY. The period during which an option may be exercised shall be determined by the Committee; PROVIDED, HOWEVER, that no Incentive Stock Option shall be exercised later than ten years after its date of grant; provided further, that if an Incentive Stock Option shall be granted to a Ten Percent Holder, such option shall not be exercised later than five years after its date of grant. The Committee may, in its discretion, establish Performance Measures which shall be satisfied or met as a condition to the grant of an option or to the exercisability of all or a portion of an option. The Committee shall determine whether an option shall become exercisable in cumulative or non-cumulative installments and in part or in full at any time. An exercisable option, or portion thereof, may be exercised only with respect to whole shares of Common Stock, except that if the remaining option then exercisable is for less than a whole share, such remaining amount may be exercised. (c) METHOD OF EXERCISE. An option may be exercised (i) by giving written notice to the Company specifying the number of whole shares of Common Stock to be purchased and accompanied by payment therefor in full (or arrangement made for such payment to the Company's satisfaction) either (1) in cash, (2) by delivery of Mature Shares having a Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable by reason of such exercise, (3) by authorizing the Company to withhold whole shares of Common Stock which would otherwise be delivered upon exercise of the option having a Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable by reason of such exercise, (4) in cash by a broker-dealer acceptable to the Company to whom the optionee has submitted an irrevocable notice of exercise or (5) a combination of (1), (2) and (3), in each case to the extent set forth in the Agreement relating to the option, (ii) if applicable, by surrendering to the Company any Tandem SARs which are canceled by reason of the exercise of the option and (iii) by executing such documents as the Company may reasonably request. The Committee shall have sole discretion to disapprove of an election pursuant to any of clauses (2)-(5). Any fraction of a share of Common Stock which would be required to pay such purchase price shall be disregarded and the remaining amount due shall be paid in cash by the optionee. No certificate representing Common Stock shall be delivered until the full purchase price therefor has been paid. (d) ADDITIONAL OPTIONS. The Committee shall have the authority to include in any Agreement relating to an option a provision entitling the optionee to an additional option in the event such optionee exercises the option represented by such option agreement, in whole or in part, by delivering previously owned whole shares of Common Stock in payment of the purchase price in accordance with this Plan and such Agreement. Any such additional option shall be for a number of shares of Common Stock equal to the number of delivered shares, shall have a purchase price determined by the Committee in accordance with this Plan, and shall be exercisable on the terms and subject to the conditions set forth in the Agreement relating to such additional option. 2.2 STOCK APPRECIATION RIGHTS. The Committee may, in its discretion, grant SARs to such eligible persons as may be selected by the Committee. The Agreement relating to an SAR shall specify whether the SAR is a Tandem SAR or a Free-Standing SAR. 8 SARs shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable: (a) NUMBER OF SARS AND BASE PRICE. The number of SARs subject to an award shall be determined by the Committee. Any Tandem SAR related to an Incentive Stock Option shall be granted at the same time that such Incentive Stock Option is granted. The base price of a Tandem SAR shall be the purchase price per share of Common Stock of the related option. The base price of a Free-Standing SAR shall be determined by the Committee; PROVIDED, HOWEVER, that such base price shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant of such SAR. (b) EXERCISE PERIOD AND EXERCISABILITY. The Agreement relating to an award of SARs shall specify whether such award may be settled in shares of Common Stock (including shares of Restricted Stock) or cash or a combination thereof. The period for the exercise of an SAR shall be determined by the Committee; PROVIDED, HOWEVER, that no Tandem SAR shall be exercised later than the expiration, cancellation, forfeiture or other termination of the related option. The Committee may, in its discretion, establish Performance Measures which shall be satisfied or met as a condition to the exercisability of an SAR. The Committee shall determine whether an SAR may be exercised in cumulative or non-cumulative installments and in part or in full at any time. An exercisable SAR, or portion thereof, may be exercised, in the case of a Tandem SAR, only with respect to whole shares of Common Stock and, in the case of a Free-Standing SAR, only with respect to a whole number of SARs. If an SAR is exercised for shares of Restricted Stock, a certificate or certificates representing such Restricted Stock shall be issued in accordance with Section 3.2(c) and the holder of such Restricted Stock shall have such rights of a stockholder of the Company as determined pursuant to Section 3.2(d). Prior to the exercise of an SAR for shares of Common Stock, including Restricted Stock, the holder of such SAR shall have no rights as a stockholder of the Company with respect to the shares of Common Stock subject to such SAR. (c) METHOD OF EXERCISE. A Tandem SAR may be exercised (i) by giving written notice to the Company specifying the number of whole SARs which are being exercised, (ii) by surrendering to the Company any options which are canceled by reason of the exercise of the Tandem SAR and (iii) by executing such documents as the Company may reasonably request. A Free-Standing SAR may be exercised (i) by giving written notice to the Company specifying the whole number (or if the remaining SAR then exercisable is for less then one whole share, such remaining amount) of SARs which are being exercised and (ii) by executing such documents as the Company may reasonably request. 2.3 TERMINATION OF EMPLOYMENT OR SERVICE WITH THE COMPANY. (a) DISABILITY. Subject to paragraph (f) below and Section 6.8, and unless otherwise specified in the Agreement relating to an option or SAR, as the case may be, if the employment or service with the Company of the holder of an option or SAR terminates by reason of Disability, each option and SAR held by such holder shall be exercisable only to the extent that such option or SAR, as the case may be, is exercisable on the effective date of such holder's termination of employment or service and may thereafter be exercised by such holder 9 (or such holder's legal representative or similar person) until and including the earliest to occur of (i) the date which is three months (or such other period as set forth in the Agreement relating to such option or SAR) after the effective date of such holder's termination of employment or service and (ii) the expiration date of the term of such option or SAR. (b) RETIREMENT. Subject to paragraph (f) below and Section 6.8, and unless otherwise specified in the Agreement relating to an option or SAR, as the case may be, if the employment or service with the Company of the holder of an option or SAR terminates by reason of retirement on or after age 65 with the consent of the Company, each option and SAR held by such holder shall be exercisable only to the extent that such option or SAR, as the case may be, is exercisable on the effective date of such holder's termination of employment or service and may thereafter be exercised by such holder (or such holder's legal representative or similar person) until and including the earliest to occur of (i) the date which is three months (or such other period as set forth in the Agreement relating to such option or SAR) after the effective date of such holder's termination of employment or service and (ii) the expiration date of the term of such option or SAR. (c) DEATH. Subject to paragraph (f) below and Section 6.8, and unless otherwise specified in the Agreement relating to an option or SAR, as the case may be, if the employment or service with the Company of the holder of an option or SAR terminates by reason of death, each option and SAR held by such holder shall be exercisable only to the extent that such option or SAR, as the case may be, is exercisable on the date of such holder's death, and may thereafter be exercised by such holder's executor, administrator, legal representative, beneficiary or similar person, as the case may be, until and including the earliest to occur of (i) the date which is one year (or such other period as set forth in the Agreement relating to such option or SAR) after the date of death and (ii) the expiration date of the term of such option or SAR. (d) OTHER TERMINATION. If the employment or service with the Company of the holder of an option or SAR is terminated by the Company for Cause, each option and SAR held by such holder shall terminate automatically on the effective date of such holder's termination of employment or service. Subject to paragraph (f) below and Section 6.8, and unless specified in the Agreement relating to an option or SAR, as the case may be, if the employment or service with the Company of the holder of an option or SAR terminates for any reason other than Disability, retirement on or after age 65 with the consent of the Company, death or for Cause, each option and SAR held by such holder shall be exercisable only to the extent that such option or SAR is exercisable on the effective date of such holder's termination of employment or service and may thereafter be exercised by such holder (or such holder's legal representative or similar person) until and including the earliest to occur of (i) the date which is three months (or such other period as set forth in the Agreement relating to such option or SAR) after the effective date of such holder's termination of employment or service and (ii) the expiration date of the term of such option or SAR. (e) DEATH FOLLOWING TERMINATION OF EMPLOYMENT OR SERVICE. Subject to paragraph (f) below and Section 6.8, and unless otherwise specified in the Agreement relating to 10 an option or SAR, as the case may be, if the holder of an option or SAR dies during the three-month period following termination of employment or service by reason of Disability, or if the holder of an option or SAR dies during the three-month period following termination of employment or service by reason of retirement on or after age 65 with the consent of the Company, or if the holder of an option or SAR dies during the three-month period following termination of employment or service for any reason other than Disability or retirement on or after age 65 with the consent of the Company (or, in each case, such other period as set forth in the Agreement relating to such option or SAR), each option and SAR held by such holder shall be exercisable only to the extent that such option or SAR is exercisable on the effective date of such holder's termination and may thereafter be exercised by the holder's executor, administrator, legal representative, beneficiary or similar person, as the case may be, until and including the earliest to occur of (i) the date which is one year (or such other period as set forth in the Agreement relating to such option or SAR) after the date of death and (ii) the expiration date of the term of such option or SAR. (f) TERMINATION OF EMPLOYMENT OR SERVICE - INCENTIVE STOCK OPTIONS. Subject to Section 6.8 and unless otherwise specified in the Agreement relating to the option, if the employment or service with the Company of a holder of an incentive stock option terminates by reason of Permanent and Total Disability (as defined in Section 22(e)(3) of the Code), each incentive stock option held by such optionee shall be exercisable only to the extent that such option is exercisable on the effective date of such optionee's termination of employment or service by reason of Permanent and Total Disability, and may thereafter be exercised by such optionee (or such optionee's legal representative or similar person) until and including the earliest to occur of (i) the date which is three months (or such other period no longer than one year as set forth in the Agreement relating to such option) after the effective date of such optionee's termination of employment or service by reason of Permanent and Total Disability and (ii) the expiration date of the term of such option. Subject to Section 6.8 and unless otherwise specified in the Agreement relating to the option, if the employment or service with the Company of a holder of an Incentive Stock Option terminates by reason of death, each Incentive Stock Option held by such optionee shall be exercisable only to the extent that such option is exercisable on the date of such optionee's death and may thereafter be exercised by such optionee's executor, administrator, legal representative, beneficiary or similar person until and including the earliest to occur of (i) the date which is one year (or such other period as set forth in the Agreement relating to such option) after the date of death and (ii) the expiration date of the term of such option. If the employment or service with the Company of a holder of an Incentive Stock Option is terminated by the Company for Cause, each Incentive Stock Option held by such optionee shall terminate automatically on the effective date of such optionee's termination of employment or service. Subject to Section 6.8 and unless otherwise specified in the Agreement relating to the option, if the employment or service with the Company of a holder of an Incentive Stock Option terminates for any reason other than Permanent and Total Disability, death or Cause, each Incentive Stock Option held by such optionee shall be exercisable only to the extent such option is exercisable on the effective date of such optionee's termination of employment or service, and 11 may thereafter be exercised by such holder (or such holder's legal representative or similar person) until and including the earliest to occur of (i) the date which is three months after the effective date of such optionee's termination of employment or service and (ii) the expiration date of the term of such option. If the holder of an Incentive Stock Option dies during the three-month period following termination of employment or service by reason of Permanent and Total Disability (or such other period as set forth in the Agreement relating to such option), or if the holder of an Incentive Stock Option dies during the three-month period following termination of employment or service for any reason other than Permanent and Total Disability, death or Cause, each Incentive Stock Option held by such optionee shall be exercisable only to the extent such option is exercisable on the effective date of such optionee's termination and may thereafter be exercised by the optionee's executor, administrator, legal representative, beneficiary or similar person until and including the earliest to occur of (i) the date which is one year (or such other period as set forth in the Agreement relating to such option) after the date of death and (ii) the expiration date of the term of such option. III. STOCK AWARDS 3.1 STOCK AWARDS. The Committee may, in its discretion, grant Stock Awards to such eligible persons as may be selected by the Committee. The Agreement relating to a Stock Award shall specify whether the Stock Award is a Restricted Stock Award or Bonus Stock Award. 3.2 TERMS OF STOCK AWARDS. Stock Awards shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable. (a) NUMBER OF SHARES AND OTHER TERMS. The number of shares of Common Stock subject to a Restricted Stock Award or Bonus Stock Award and the Performance Measures (if any) and Restriction Period applicable to a Restricted Stock Award shall be determined by the Committee. (b) VESTING AND FORFEITURE. The Agreement relating to a Restricted Stock Award shall provide, in the manner determined by the Committee, in its discretion, and subject to the provisions of this Plan, for the vesting of the shares of Common Stock subject to such award (i) if specified Performance Measures are satisfied or met during the specified Restriction Period or (ii) if the holder of such award remains continuously in the employment or service of the Company during the specified Restricted Period and for the forfeiture of the shares of Common Stock subject to such award (x) if specified Performance Measures are not satisfied or met during the specified Restriction Period or (y) if the holder of such award does not remain continuously in the employment or service of the Company during the specified Restriction Period. Bonus Stock Awards shall not be subject to any Performance Measures or Restriction Periods. 12 (c) SHARE CERTIFICATES. During the Restriction Period, a certificate or certificates representing a Restricted Stock Award shall be registered in the holder's name and may bear a legend, in addition to any legend which may be required pursuant to Section 6.6, indicating that the ownership of the shares of Common Stock represented by such certificate is subject to the restrictions, terms and conditions of this Plan and the Agreement relating to the Restricted Stock Award. All such certificates shall be deposited with the Company, together with stock powers or other instruments of assignment (including a power of attorney), each endorsed in blank with a guarantee of signature if deemed necessary or appropriate by the Company, which would permit transfer to the Company of all or a portion of the shares of Common Stock subject to the Restricted Stock Award in the event such award is forfeited in whole or in part. Upon termination of any applicable Restriction Period (and the satisfaction or attainment of applicable Performance Measures), or upon the grant of a Bonus Stock Award, in each case subject to the Company's right to require payment of any taxes in accordance with Section 6.5, a certificate or certificates evidencing ownership of the requisite number of shares of Common Stock shall be delivered to the holder of such award. (d) RIGHTS WITH RESPECT TO RESTRICTED STOCK AWARDS. Unless otherwise set forth in the Agreement relating to a Restricted Stock Award, and subject to the terms and conditions of a Restricted Stock Award, the holder of such award shall have all rights as a stockholder of the Company, including, but not limited to, voting rights, the right to receive dividends and the right to participate in any capital adjustment applicable to all holders of Common Stock; PROVIDED, HOWEVER, that a distribution with respect to shares of Common Stock, other than a distribution in cash, shall be deposited with the Company and shall be subject to the same restrictions as the shares of Common Stock with respect to which such distribution was made. (e) AWARDS TO CERTAIN EXECUTIVE OFFICERS. Notwithstanding any other provision of this Article III, and only to the extent necessary to ensure the deductibility of the award to the Company, the Fair Market Value of the number of shares of Common Stock subject to a Stock Award granted to a "covered employee" within the meaning of Section 162(m) of the Code shall not exceed $1,000,000 (i) at the time of grant in the case of a Stock Award granted upon the attainment of Performance Measures or (ii) in the case of a Restricted Stock Award with Performance Measures which shall be satisfied or met as a condition to the holder's receipt of the shares of Common Stock subject to such award, on the earlier of (x) the date on which the Performance Measures are satisfied or met and (y) the date the holder makes an election under Section 83(b) of the Code. 3.3 TERMINATION OF EMPLOYMENT OR SERVICE. Subject to Section 6.8 and unless otherwise set forth in the Agreement relating to a Restricted Stock Award, if the employment or service with the Company of the holder of such award terminates, the portion of such award which is subject to a Restriction Period shall terminate as of the effective date of such holder's termination of employment or service and shall be forfeited and such portion shall be canceled by the Company. IV. PERFORMANCE SHARE AWARDS 13 4.1 PERFORMANCE SHARE AWARDS. The Committee may, in its discretion, grant Performance Share Awards to such eligible persons as may be selected by the Committee. 4.2 TERMS OF PERFORMANCE SHARE AWARDS. Performance Share Awards shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable. (a) NUMBER OF PERFORMANCE SHARES AND PERFORMANCE MEASURES. The number of Performance Shares subject to any award and the Performance Measures and Performance Period applicable to such award shall be determined by the Committee. (b) VESTING AND FORFEITURE. The Agreement relating to a Performance Share Award shall provide, in the manner determined by the Committee, in its discretion, and subject to the provisions of this Plan, for the vesting of such award, if specified Performance Measures are satisfied or met during the specified Performance Period, and for the forfeiture of such award, if specified Performance Measures are not satisfied or met during the specified Performance Period. (c) SETTLEMENT OF VESTED PERFORMANCE SHARE AWARDS. The Agreement relating to a Performance Share Award (i) shall specify whether such award may be settled in shares of Common Stock (including shares of Restricted Stock) or cash or a combination thereof and (ii) may specify whether the holder thereof shall be entitled to receive, on a current or deferred basis, dividend equivalents, and, if determined by the Committee, interest on any deferred dividend equivalents, with respect to the number of shares of Common Stock subject to such award. If a Performance Share Award is settled in shares of Restricted Stock, a certificate or certificates representing such Restricted Stock shall be issued in accordance with Section 3.2(c) and the holder of such Restricted Stock shall have such rights of a stockholder of the Company as determined pursuant to Section 3.2(d). Prior to the settlement of a Performance Share Award in shares of Common Stock, including Restricted Stock, the holder of such award shall have no rights as a stockholder of the Company with respect to the shares of Common Stock subject to such award. 4.3 TERMINATION OF EMPLOYMENT OR SERVICE. Subject to Section 6.8 and unless otherwise set forth in the Agreement relating to a Performance Share Award, if the employment or service with the Company of the holder of such award terminates, the portion of such award which is subject to a Performance Period on the effective date of such holder's termination of employment or service shall be forfeited and such portion shall be canceled by the Company. V. PROVISIONS RELATING TO NON-EMPLOYEE DIRECTORS 5.1 ELIGIBILITY. Each Non-Employee Director may be granted options to purchase shares of Common Stock in accordance with this Article V (collectively "Directors Options"). All options granted under this Article V shall constitute Non-Statutory Stock Options. 5.2 GRANTS OF STOCK OPTIONS. The Board, in its discretion, may grant Non-Statutory Stock Options to any Non-Employee Director in accordance with this Article V. The 14 Board shall determine with respect to each Directors Option (a) the number of shares of Common Stock subject to an option, (b) the purchase price per share of Common Stock purchasable upon exercise of the option, (c) the period during which an option may be exercised and (d) whether an option shall become exercisable in cumulative or non-cumulative installments and in part or in full at any time. 5.3 TERMINATION OF DIRECTORSHIP. (a) DISABILITY. Subject to Section 6.8 and unless otherwise specified in the agreement relating to the option, if the holder of an option granted under this Article V ceases to be a director of the Company by reason of Disability, each such option held by such holder shall be exercisable only to the extent that such option is exercisable on the effective date of such holder's ceasing to be a director and may thereafter be exercised by such holder (or such holder's guardian, legal representative or similar person) until the earliest to occur of the (i) date which is three months after the effective date of such holder's ceasing to be a director and (ii) the expiration date of the term of such option. (b) RETIREMENT. Subject to Section 6.8 and unless otherwise specified in the agreement relating to the option, if the holder of an option granted under this Article V ceases to be a director of the Company on or after age 65, each such option held by such holder shall be exercisable only to the extent that such option is exercisable on the effective date of such holder's ceasing to be a director and may thereafter be exercised by such holder (or such holder's legal representative or similar person) until the earliest to occur of the (i) date which is three months after the effective date of such holder's ceasing to be a director and (ii) the expiration date of the term of such option. (c) DEATH. Subject to Section 6.8 and unless otherwise specified in the agreement relating to the option, if the holder of an option granted under this Article V ceases to be a director of the Company by reason of death, each such option held by such holder shall be fully exercisable and may thereafter be exercised by such holder's executor, administrator, legal representative, beneficiary or similar person, as the case may be, until the earliest to occur of (i) the date which is one year after the date of death and (ii) the expiration date of the term of such option. (d) OTHER TERMINATION. Subject to Section 6.8 and unless otherwise specified in the agreement relating to the option, if the holder of an option granted under this Article V ceases to be a director of the Company for any reason other than Disability, retirement on or after age 65 or death, each such option held by such holder shall be exercisable only to the extent such option is exercisable on the effective date of such holder's ceasing to be a director and may thereafter be exercised by such holder (or such holder's legal representative or similar person) until the earliest to occur of (i) the date which is three months after the effective date of such holder's ceasing to be a director and (ii) the expiration date of the term of such option. (e) DEATH FOLLOWING TERMINATION OF DIRECTORSHIP. Subject to Section 6.8 and unless otherwise specified in the agreement relating to the option, if the holder of an option granted under this Article V dies during the three-month period following such holder's ceasing to be a director of the Company by reason of Disability, or if such a holder dies during the three- 15 month period following such holder's ceasing to be a director of the Company on or after age 65, or if such a holder dies during the three-month period following such holder's ceasing to be a director for any reason other than by reason of Disability or retirement on or after age 65, each such option held by such holder shall be exercisable only to the extent that such option is exercisable on the effective date of such holder's ceasing to be a director and may thereafter be exercised by the holder's executor, administrator, legal representative, beneficiary or similar person, as the case may be, until the earliest to occur of the (i) date one year after the date of death and (ii) the expiration date of the term of such option. 5.4 DIRECTORS OPTIONS. Each Directors Option shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Board shall deem advisable: (a) OPTION PERIOD AND EXERCISABILITY. Directors Options shall become exercisable as provided in the agreement relating to the option. Unless otherwise specified in the Agreement relating to the option, if at any time prior to the time that a Directors Option first becomes exercisable, a Non-Employee Director shall no longer be a member of the Board, such Directors Option shall become void and of no further force or effect. (b) PURCHASE PRICE. The purchase price for the shares of Common Stock subject to any Directors Option shall be equal to the purchase price determined by the Board that is set forth in the Agreement relating to the option. Such Directors Options shall be exercisable in accordance with Section 2.1(c). (c) RESTRICTIONS ON TRANSFER. Directors Options shall be subject to the transfer restrictions and other provisions of Section 6.4. (d) EXPIRATION. Unless otherwise specified in the agreement relating to the option, each Directors Option which has become exercisable pursuant to Section 5.4(a), to the extent not theretofore exercised, shall expire on the first to occur of (i) the date which is three months after the first date on which the Non-Employee Director shall no longer be a member of the Board or the Board of Directors of a Subsidiary and (ii) the tenth anniversary of the date of grant of such option; PROVIDED, HOWEVER, that if the Non-Employee Director shall die within such three-month period following the date on which he shall have ceased to serve as such a director or if the Non-Employee Director shall cease to be a director of the Company by reason of death, such option may be exercised at any time within the one-year period following the date of death to the extent not theretofore exercised (but in no event later than the tenth anniversary of the date of grant). VI. GENERAL 6.1 EFFECTIVE DATE AND TERM OF PLAN; SUBMISSION TO STOCKHOLDERS. This Plan shall be submitted to the stockholders of the Company for approval and, if approved by the affirmative vote of a majority of the voting power of the shares of capital stock of the Company entitled to vote thereon, shall become effective as of April 28, 2000. This Plan shall terminate ten years after its effective date unless terminated earlier by the Board. Termination of this Plan shall not affect the terms or conditions of any award granted prior to termination. 16 Awards hereunder may be made at any time prior to the termination of this Plan, provided that no award may be made later than ten years after the effective date of this Plan. In the event that this Plan is not approved by the stockholders of the Company, this Plan and any awards hereunder shall be void and of no force or effect. 6.2 AMENDMENTS. The Board may amend this Plan as it shall deem advisable, subject to any requirement of stockholder approval required by applicable law, rule or regulation, including Section 162(m) and Section 422 of the Code; PROVIDED, HOWEVER, that no amendment shall be made without stockholder approval if such amendment would (a) reduce the minimum purchase price in the case of an option or the base price in the case of an SAR, (b) effect any change inconsistent with Section 422 of the Code or (c) extend the term of this Plan. No amendment may materially impair the rights of a holder of an outstanding award without the consent of such holder. 6.3 AGREEMENT. Each award under this Plan shall be evidenced by an Agreement setting forth the terms and conditions applicable to such award. No award shall be valid until an Agreement is executed by the Company and the recipient of such award and, upon execution by each party and delivery of the Agreement to the Company, such award shall be effective as of the effective date set forth in the Agreement. The Board may amend any Agreement as it shall deem advisable, provided that no such amendment (i) shall contain provisions that are inconsistent with the terms of the Plan or (ii) shall materially impair the rights of a holder of an outstanding award without the consent of such holder. 6.4 NON-TRANSFERABILITY OF STOCK OPTIONS, SARS AND PERFORMANCE SHARES. No option, SAR or Performance Share shall be transferable other than (i) by will, the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company or (ii) as otherwise set forth in the Agreement relating to such award. Each option, SAR or Performance Share may be exercised or settled during the participant's lifetime only by the holder or the holder's legal representative or similar person. Except as permitted by the second preceding sentence, no option, SAR or Performance Share may be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process, and any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of such option, SAR or Performance Share shall be null and void and of no force or effect. 6.5 TAX WITHHOLDING. The Company shall have the right to require, prior to the issuance or delivery of any shares of Common Stock or the payment of any cash pursuant to an award made hereunder, payment by the holder of such award of any Federal, state, local or other taxes which may be required to be withheld or paid in connection with such award. An Agreement may provide that (i) the Company shall withhold whole shares of Common Stock which would otherwise be delivered to a holder, having an aggregate Fair Market Value determined as of the date the obligation to withhold or pay taxes arises in connection with an award (the "Tax Date"), or withhold an amount of cash which would otherwise be payable to a holder, in the amount necessary to satisfy any such obligation or (ii) the holder may satisfy any such obligation by any of the following means: (1) a cash payment to the Company, (2) delivery to the Company of Mature Shares having an aggregate Fair Market Value, determined as of the Tax Date, equal to the amount necessary to satisfy any such obligation, (3) authorizing the 17 Company to withhold whole shares of Common Stock which would otherwise be delivered having an aggregate Fair Market Value, determined as of the Tax Date, or withhold an amount of cash which would otherwise be payable to a holder, equal to the amount necessary to satisfy any such obligation, (4) in the case of the exercise of an option, a cash payment by a broker-dealer acceptable to the Company to whom the optionee has submitted an irrevocable notice of exercise or (5) any combination of (1), (2) and (3), in each case to the extent set forth in the Agreement relating to the award; PROVIDED, HOWEVER, that the Committee shall have sole discretion to disapprove of an election pursuant to any of clauses (2)-(5). Shares of Common Stock to be delivered or withheld may not have an aggregate Fair Market Value in excess of the amount determined by applying the minimum statutory withholding rate. Any fraction of a share of Common Stock which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the holder. 6.6 RESTRICTIONS ON SHARES. Each award made hereunder shall be subject to the requirement that if at any time the Company determines that the listing, registration or qualification of the shares of Common Stock subject to such award upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the delivery of shares thereunder, such shares shall not be delivered unless such listing, registration, qualification, consent, approval or other action shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company may require that certificates evidencing shares of Common Stock delivered pursuant to any award made hereunder bear a legend indicating that the sale, transfer or other disposition thereof by the holder is prohibited except in compliance with the Securities Act of 1933, as amended, and the rules and regulations thereunder. 6.7 ADJUSTMENT. Except as provided in Section 6.8, in the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Common Stock other than a regular cash dividend, the number and class of securities available under this Plan, the number and class of securities subject to each outstanding option and the purchase price per security, the terms of each outstanding SAR, the number and class of securities subject to each outstanding Stock Award, and the terms of each outstanding Performance Share shall be appropriately adjusted by the Committee, such adjustments to be made in the case of outstanding options and SARs without an increase in the aggregate purchase price or base price. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. If any such adjustment would result in a fractional security being (a) available under this Plan, such fractional security shall be disregarded, or (b) subject to an award under this Plan, the Company shall pay the holder of such award, in connection with the first vesting, exercise or settlement of such award, in whole or in part, occurring after such adjustment, an amount in cash determined by multiplying (i) the fraction of such security (rounded to the nearest hundredth) by (ii) the excess, if any, of (1) the Fair Market Value on the vesting, exercise or settlement date over (2) the exercise or base price, if any, of such award. 6.8 CHANGE IN CONTROL. 18 (a) (i) Notwithstanding any provision in this Plan or any Agreement, in the event of a Change in Control pursuant to Section (b)(iii) or (iv) below, (1) all outstanding options and SARS shall immediately become exercisable in full, (2) the Restriction Period applicable to any outstanding Restricted Stock Award shall lapse, (3) the Performance Period applicable to any outstanding Performance Share shall lapse and (4) the Performance Measures applicable to any outstanding Restricted Stock Award (if any) and to any outstanding Performance Share shall be deemed to be satisfied at the maximum level. If, in connection with such Change in Control, holders of Common Stock receive solely shares of common stock that are registered under Section 12 of the Exchange Act, there shall be substituted for each share of Common Stock available under this Plan, whether or not then subject to an outstanding award, the number and class of shares into which each outstanding share of Common Stock shall be converted pursuant to such Change in Control. If, in connection with such Change in Control, holders of Common Stock receive solely cash and shares of common stock that are registered under Section 12 of the Exchange Act, each outstanding award shall be surrendered to and canceled by the Company, and the holder shall receive, within ten days of the occurrence of such Change in Control, a proportionate amount of cash in the manner provided in Section (a)(ii) below, and there shall be substituted for the award surrendered a similar award reflecting a proportionate number of the class of shares into which each outstanding share of Common Stock shall be converted to such Change in Control. In the event of any such substitution, the proportion of cash and common stock, the purchase price per share in the case of an option and the base price in the case of an SAR, and any other terms of outstanding awards shall be appropriately adjusted by the Committee, such adjustments to be made in the case of outstanding options and SARs without an increase in the aggregate purchase price or base price; PROVIDED, that the proportion of cash and common stock substituted for outstanding awards shall reflect the approximate proportion of cash and common stock received by holders of Common Stock in such Change in Control. If, in connection with a Change in Control, holders of Common Stock receive any portion of the consideration in a form other than cash or shares of common stock that are registered under Section 12 of the Exchange Act, each share of Common Stock available under this Plan, whether or not then subject to an outstanding award, shall be substituted or surrendered for such proportion of common stock, cash or other consideration as shall be determined by the Committee pursuant to Section 6.7. (ii) Notwithstanding any provision in this Plan or any Agreement, in the event of a Change in Control pursuant to Section (b)(i) or (ii) below, or in the event of a Change in Control pursuant to Section (b)(iii) or (iv) below in connection with which the holders of Common Stock receive cash, each outstanding award shall be surrendered to the Company by the holder thereof, and each such award shall immediately be canceled by the Company, and the holder shall receive, within ten days of the occurrence of a Change in Control pursuant to Section (b)(i) or (ii) below or within ten days of the approval of the stockholders of the Company contemplated by Section (b)(iii) or (iv) below, a cash payment from the Company in an amount equal to (1) in the case of an option, the number of shares of Common Stock then subject to such option, multiplied by the excess, if any, of the greater of (A) the highest per share price offered to stockholders of the Company in any transaction whereby the Change in Control takes place or (B) the Fair Market Value of a share of Common Stock on the date of occurrence of the Change 19 in Control, over the purchase price per share of Common Stock subject to the option; (2) in the case of a Free-Standing SAR, the number of shares of Common Stock then subject to such SAR, multiplied by the excess, if any, of the greater of (A) the highest per share price offered to stockholders of the Company in any transaction whereby the Change in Control takes place or (B) the Fair Market Value of a share of Common Stock on the date of occurrence of the Change in Control, over the base price of the SAR; and (3) in the case of a Restricted Stock Award or Performance Share Award, the number of shares of Common Stock or the number of Performance Shares, as the case may be, then subject to such award, multiplied by the greater of (A) the highest per share price offered to stockholders of the Company in any transaction whereby the Change in Control takes place or (B) the Fair Market Value of a share of Common Stock on the date of occurrence of the Change in Control. In the event of a Change in Control, each Tandem SAR shall be surrendered by the holder thereof and shall be canceled simultaneously with the cancellation of the related option. Except as may be provided in an agreement relating to an award, the Company may, but is not required to, cooperate with any person who is subject to Section 16 of the Exchange Act to assure that any cash payment in accordance with the foregoing to such person is made in compliance with Section 16 and the rules and regulations thereunder. (b) "Change in Control" shall mean: (i) the acquisition by any individual, entity or group (a "Person"), including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act, of Beneficial Ownership of 20% or more of either (1) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (2) the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); PROVIDING however, the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company (excluding any acquisition resulting from the exercise of an exercise, conversion or exchange privilege unless the security being so exercised, converted or exchanged was acquired directly from the Company), (B) any acquisition by the Company, (C) any acquisition by an Exempt Person, (D) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (E) any acquisition by any corporation pursuant to a transaction which complies with clauses (1), (2) and (3) of subsection (iii) of this Section 6.8(b); provided further, that for purposes of clause (B), if any Person (other than an Exempt Person, the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company) shall become the Beneficial Owner of 20% or more of the Outstanding Company Common Stock or 20% or more of the Outstanding Company Voting Securities by reason of an acquisition by the Company, and such Person shall, after such acquisition by the Company, become the Beneficial Owner of any additional shares of the Outstanding Company Common Stock or any additional Outstanding Company Voting Securities and such Beneficial Ownership is publicly announced, such additional Beneficial Ownership shall constitute a Change in Control; 20 (ii) individuals who, as of the effective date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided that any individual who becomes a director of the Company subsequent to the date hereof whose appointment, or whose nomination for election by the Company's stockholders, was approved by the vote of at least 66-2/3% of the directors then comprising the Incumbent Board shall be deemed a member of the Incumbent Board; and provided further, that any individual who was initially elected as a director of the Company as a result of an actual or threatened election contest (defined to be an actual or threatened solicitation by a person or group for the purpose of opposing a solicitation by any other person or group with respect to the election or removal of directors) or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board shall not be deemed a member of the Incumbent Board; (iii) approval by the stockholders of the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Corporate Transaction"); excluding, however, a Corporate Transaction pursuant to which (1) all or substantially all of the individuals or entities who are the Beneficial Owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Corporate Transaction will Beneficially Own, directly or indirectly, more than 60% of, respectively, the outstanding shares of common stock, and the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or indirectly) in substantially the same proportions relative to each other as their Beneficial Ownership, immediately prior to such Corporate Transaction, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (2) no Person (other than an Exempt Person; the Company; any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; the corporation resulting from such Corporate Transaction; and any Person which Beneficially Owned, immediately prior to such Corporate Transaction, directly or indirectly, 20% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) will Beneficially Own, directly or indirectly, 20% or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of directors and (3) individuals who were members of the Incumbent Board will constitute at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction; or (iv) approval by the stockholders of the Company of a plan of complete liquidation or dissolution of the Company. 6.9 NO RIGHT OF PARTICIPATION OR EMPLOYMENT/SERVICE. No person shall have any right to participate in this Plan. Neither this Plan nor any award made hereunder shall 21 confer upon any person any right to continued employment or service by the Company, any Subsidiary or any affiliate of the Company or affect in any manner the right of the Company, any Subsidiary or any affiliate of the Company to terminate the employment or service of any person at any time without liability hereunder. 6.10 RIGHTS AS STOCKHOLDER. No person shall have any right as a stockholder of the Company with respect to any shares of Common Stock or other equity security of the Company which is subject to an award hereunder unless and until such person becomes a stockholder of record with respect to such shares of Common Stock or equity security. 6.11 GOVERNING LAW. This Plan, each award hereunder and the related Agreement, and all determinations made and actions taken pursuant thereto, to the extent not otherwise governed by the Code or the laws of the United States, shall be governed by the laws of the State of Delaware and construed in accordance therewith without giving effect to principles of conflicts of laws. 22 EX-10.39 5 a2043710zex-10_39.txt EMPLOYEE INCENTIVE PLAN (2000) Exhibit 10.39 PEAPOD, INC. EMPLOYEE INCENTIVE PLAN (2000) I. INTRODUCTION 1.1 PURPOSES. The purposes of the Employee Incentive Plan (2000) (the "Plan") of Peapod, Inc. (the "Company"), and its subsidiaries from time to time (individually a "Subsidiary" and collectively the "Subsidiaries"), are (a) to align the interests of the Company's stockholders and the recipients of awards under this Plan by increasing the proprietary interest of such recipients in the Company's growth and success, (b) to advance the interests of the Company by attracting and retaining officers and other employees, and well-qualified persons who are not officers or employees of the Company ("non-employee directors") for service as directors of the Company and (c) to motivate such employees, consultants and other persons and non-employee directors to act in the long-term best interests of the Company's stockholders. For purposes of this Plan, references to employment by the Company shall also mean employment by a Subsidiary. 1.2 CERTAIN DEFINITIONS. "AFFILIATE" and "ASSOCIATE" shall have the respective meanings ascribed to such terms in Rule 12b-2, as in effect on the effective date of this Plan, under the Exchange Act; PROVIDED, HOWEVER, that no director or officer of the Company shall be deemed an Affiliate or Associate of any other director or officer of the Company solely as a result of his or her being a director or officer of the Company. "AGREEMENT" shall mean the written agreement evidencing an award hereunder between the Company and the recipient of such award. "BENEFICIAL OWNER" (including the terms "BENEFICIALLY OWN" and "BENEFICIAL OWNERSHIP"), when used with respect to any Person, shall be deemed to include any securities which: (a) such Person or any of such Person's Affiliates or Associates beneficially owns, directly or indirectly (determined as provided in Rule 13d-3, as in effect on the effective date of this Plan, under the Exchange Act); (b) such Person or any of such Person's Affiliates or Associates, directly or indirectly, has: (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time or upon the satisfaction of any conditions, or both) pursuant to any written or oral agreement, arrangement or understanding (other than customary agreements with and among underwriters and selling group members with respect to a bona fide public offering of securities), upon the exercise of any options, warrants, rights or conversion or exchange privileges or otherwise; PROVIDED, HOWEVER, that a Person shall not be deemed the Beneficial Owner of, or to Beneficially Own securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (ii) the right to vote pursuant to any written or oral agreement, arrangement or understanding; PROVIDED, HOWEVER, that a Person shall not be deemed the Beneficial Owner of, or to Beneficially Own, any security otherwise subject to this item (ii) if such agreement, arrangement or understanding to vote (1) arises solely from a revocable proxy or consent given to such Person or any of such Person's Affiliates or Associates in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations under the Exchange Act and (2) is not also then reportable by such Person on Schedule 13D (or any comparable or successor report then in effect) under the Exchange Act; or (iii) the right to dispose of pursuant to any written or oral agreement, arrangement or understanding (other than customary agreements with and among underwriters and selling group members with respect to a bona fide public offering of securities); or (c) are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any written or oral agreement, arrangement or understanding (other than customary agreements with and among underwriters and selling group members with respect to a bona fide public offering of securities) for the purpose of acquiring, holding, voting (except to the extent contemplated by the proviso to item (ii) of subparagraph (b) of the first paragraph of this definition) or disposing of any securities of the Company. Notwithstanding the first paragraph of this definition, no director or officer of the Company shall be deemed to be the "Beneficial Owner" of, or to "Beneficially Own," shares of Common Stock or other securities of the Company beneficially owned by any other director or officer of the Company solely as a result of his or her being a director or officer of the Company. "BOARD" shall mean the Board of Directors of the Company. "BONUS STOCK" shall mean shares of Common Stock which are not subject to a Restriction Period or Performance Measures. "BONUS STOCK AWARD" shall mean an award of Bonus Stock under this Plan. "CAUSE" shall mean embezzlement or misappropriation of corporate funds, other act of dishonesty, significant activities harmful to the reputation of the Company, willful refusal to perform or substantial disregard of an employee's or the other award holder's duties or significant violation of any statutory or common law duty of loyalty to the Company. 2 "CHANGE IN CONTROL" shall have the meaning set forth in Section 6.8(b). "CODE" shall mean the Internal Revenue Code of 1986, as amended. "COMMITTEE" shall mean the Committee designated by the Board, consisting of two or more members of the Board. "COMMON STOCK" shall mean the common stock, $.01 par value, of the Company. "COMPANY" has the meaning specified in Section 1.1. "DIRECTORS OPTIONS" shall have the meaning set forth in Section 5.1. "DISABILITY" shall mean the inability for a continuous period of at least six months of the holder of an award to perform substantially such holder's duties and responsibilities, as determined solely by the Committee. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. "EXEMPT PERSON" shall mean each of Andrew B. Parkinson and Thomas L. Parkinson and each Affiliate thereof. "FAIR MARKET VALUE" shall mean the last sale price of a share of Common Stock as reported in the National Association of Securities Dealers Automated Quotation National Market System on the date as of which such value is being determined, or, if the Common Stock is listed on a national securities exchange, the last sale price of a share of Common Stock on the principal national stock exchange on which the Common Stock is traded on the date as of which such value is being determined, or, if there shall be no reported transactions for such date, on the next preceding date for which transactions were reported; PROVIDED, HOWEVER, that if Fair Market Value for any date cannot be so determined, Fair Market Value shall be determined by the Committee by whatever means or method as the Committee, in the good faith exercise of its discretion, shall at such time deem appropriate. "FREE-STANDING SAR" shall mean an SAR which is not issued in tandem with, or by reference to, an option, which entitles the holder thereof to receive, upon exercise, shares of Common Stock (which may be Restricted Stock), cash or a combination thereof with an aggregate value equal to the excess of the Fair Market Value of one share of Common Stock on the date of exercise over the base price of such SAR, multiplied by the number of such SARs which are exercised. "INCENTIVE STOCK OPTION" shall mean an option to purchase shares of Common Stock that meets the requirements of Section 422 of the Code, or any successor provision, which is intended by the Committee to constitute an Incentive Stock Option. 3 "INCUMBENT BOARD" shall have the meaning set forth in Section 6.8(b)(ii) hereof. "MATURE SHARES" shall mean shares of Common Stock for which the holder thereof has good title, free and clear of all liens and encumbrances and which such holder either (a) has held for at least six months or (b) has purchased on the open market. "NON-EMPLOYEE DIRECTOR" shall mean any director of the Company who is not an officer or employee of the Company or any Subsidiary (except in the definition of Committee, in which case "Non-Employee Director" shall have the meaning set forth in Rule 16b-3 under the Exchange Act). "NON-STATUTORY STOCK OPTION" shall mean a stock option which is not an Incentive Stock Option. "PERFORMANCE MEASURES" shall mean the criteria and objectives that may be established by the Committee, which, if established, shall be satisfied or met (a) as a condition to the exercisability of all or a portion of an option or SAR or (b) during the applicable Restriction Period or Performance Period as a condition to the holder's receipt, in the case of a Restricted Stock Award, of the shares of Common Stock subject to such award, or, in the case of a Performance Share Award, of payment with respect to such award. Such criteria and objectives shall include one or more of the following: the attainment by a share of Common Stock of a specified Fair Market Value for a specified period of time, earnings per share, return to stockholders (including dividends), return on equity, earnings of the Company, revenues, market share, cash flows or cost reduction goals, or any combination of the foregoing. If the Committee desires that compensation payable pursuant to any award subject to Performance Measures be "qualified performance-based compensation" within the meaning of section 162(m) of the Code, the Performance Measures shall be established by the Committee no later than the end of the first quarter of the Performance Period or Restriction Period, as applicable (or such other time designated by the Internal Revenue Service). "PERFORMANCE PERIOD" shall mean any period designated by the Committee during which the Performance Measures applicable to a Performance Share Award shall be measured. "PERFORMANCE SHARE" shall mean a right, contingent upon the attainment of specified Performance Measures within a specified Performance Period, to receive one share of Common Stock, which may be Restricted Stock, or in lieu thereof, the Fair Market Value of such Performance Share in cash. "PERFORMANCE SHARE AWARD" shall mean an award of Performance Shares under this Plan. "PERMANENT AND TOTAL DISABILITY" shall have the meaning set forth in Section 22(e)(3) of the Code or any successor thereto. "PERSON" shall mean any individual, firm, corporation, partnership or other entity, and shall include any successor (by merger or otherwise) of any of the forgoing. 4 "RESTRICTED STOCK" shall mean shares of Common Stock which are subject to a Restriction Period. "RESTRICTED STOCK AWARD" shall mean an award of Restricted Stock under this Plan. "RESTRICTION PERIOD" shall mean any period designated by the Committee during which the Common Stock subject to a Restricted Stock Award may not be sold, transferred, assigned, pledged, hypothecated or otherwise encumbered or disposed of, except as provided in this Plan or the Agreement relating to such award. "SAR" shall mean a stock appreciation right which may be a Free-Standing SAR or a Tandem SAR. "STOCK AWARD" shall mean a Restricted Stock Award or a Bonus Stock Award. "TANDEM SAR" shall mean an SAR which is granted in tandem with, or by reference to, an option (including a Non-Statutory Stock Option granted prior to the date of grant of the SAR), which entitles the holder thereof to receive, upon exercise of such SAR and surrender for cancellation of all or a portion of such option, shares of Common Stock (which may be Restricted Stock), cash or a combination thereof with an aggregate value equal to the excess of the Fair Market Value of one share of Common Stock on the date of exercise over the base price of such SAR, multiplied by the number of shares of Common Stock subject to such option, or portion thereof, which is surrendered. "TAX DATE" shall have the meaning set forth in Section 6.5. "TEN PERCENT HOLDER" shall have the meaning set forth in Section 2.1(a). 1.3 ADMINISTRATION. This Plan shall be administered by the Committee. Subject to Section 6.1, any one or a combination of the following awards may be made under this Plan to eligible persons: (a) options to purchase shares of Common Stock in the form of Incentive Stock Options or Non-Statutory Stock Options, (b) SARs in the form of Tandem SARs or Free-Standing SARs, (c) Stock Awards in the form of Restricted Stock or Bonus Stock and (d) Performance Shares. The Committee shall, subject to the terms of this Plan, select eligible persons for participation in this Plan and determine the form, amount and timing of each award to such persons and, if applicable, the number of shares of Common Stock, the number of SARs and the number of Performance Shares subject to such an award, the exercise price or base price associated with the award, the time and conditions of exercise or settlement of the award and all other terms and conditions of the award, including, without limitation, the form of the Agreement evidencing the award. The Committee shall, subject to the terms of this Plan, interpret this Plan and the application thereof, establish rules and regulations it deems necessary or desirable for the administration of this Plan and may impose, incidental to the grant of an award, conditions with respect to the award, such as limiting competitive employment or other activities. All such interpretations, rules, regulations and conditions shall be conclusive and binding on all parties. 5 The Committee may delegate some or all of its power and authority hereunder to the Chief Executive Officer or other executive officer of the Company as the Committee deems appropriate; PROVIDED, HOWEVER, that the Committee may not delegate its power and authority with regard to (a) the grant of an award under this Plan to any person who is a "covered employee" within the meaning of Section 162(m) of the Code or who, in the Committee's judgment, is likely to be a covered employee at any time during the period an award hereunder to such employee would be outstanding or (b) the selection for participation in this Plan of an officer or other person subject to Section 16 of the Exchange Act or decisions concerning the timing, pricing or amount of an award to such an officer or other person. No member of the Board of Directors or Committee, and neither the Chief Executive Officer nor any other executive officer to whom the Committee delegates any of its power and authority hereunder, shall be liable for any act, omission, interpretation, construction or determination made in connection with this Plan in good faith, and the members of the Board of Directors and the Committee and the President and Chief Executive Officer or other executive officer shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including attorneys' fees) arising therefrom to the full extent permitted by law, except as otherwise may be provided in the Company's Certificate of Incorporation and/or By-laws, as the same may be amended or restated from time to time, and under any directors' and officers' liability insurance that may be in effect from time to time. A majority of the Committee shall constitute a quorum. The acts of the Committee shall be either (a) acts of a majority of the members of the Committee present at any meeting at which a quorum is present or (b) acts approved in writing by a majority of the members of the Committee without a meeting. 1.4 ELIGIBILITY. Participants in this Plan shall consist of such employees who are directors, officers or other employees of the Company and its Subsidiaries as the Committee, in its sole discretion, may select from time to time; PROVIDED, HOWEVER, that officers and directors (collectively) shall only be eligible to receive awards under the Plan representing no more than 50% of the shares of Common Stock available under the Plan. The Committee's selection of a person to participate in this Plan at any time shall not require the Committee to select such person to participate in this Plan at any other time. Non-Employee Directors shall also be eligible to participate in this Plan in accordance with Article V. 1.5 SHARES AVAILABLE. Subject to adjustment as provided in Sections 6.7 and 6.8, 560,000 shares of Common Stock shall be available under this Plan, reduced by the sum of the aggregate number of shares of Common Stock (a) that are issued upon the grant of a Stock Award and (b) which become subject to outstanding options, including Directors' Options, outstanding Free-Standing SARs and outstanding Performance Shares. To the extent that shares of Common Stock subject to an outstanding option (other than in connection with the exercise of a Tandem SAR), Free-Standing SAR or Performance Share are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such award or by reason of the delivery or withholding of shares of Common Stock to pay all or a portion of the exercise price of an award, if any, or to satisfy all or a portion of the tax withholding obligations relating to an award, then such shares of Common Stock shall again be available under this Plan. 6 Shares of Common Stock to be delivered under this Plan shall be made available from authorized and unissued shares of Common Stock, or authorized and issued shares of Common Stock reacquired and held as treasury shares or otherwise or a combination thereof. The maximum number of shares of Common Stock with respect to which options, SARs, Performance Awards, or a combination thereof, may be granted during any calendar year to any person shall be 300,000, subject to adjustment as provided in Section 6.7. II. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS 2.1 STOCK OPTIONS. Subject to Section 1.4, the Committee may, in its discretion, grant options to purchase shares of Common Stock to such eligible persons as may be selected by the Committee. Each option, or portion thereof, that is not an Incentive Stock Option, shall be a Non-Statutory Stock Option. Each Incentive Stock Option shall be granted within ten years of the effective date of this Plan. To the extent that the aggregate Fair Market Value (determined as of the date of grant) of shares of Common Stock with respect to which options designated as Incentive Stock Options are exercisable for the first time by a participant during any calendar year (under this Plan or any other plan of the Company, or any parent or Subsidiary) exceeds the amount (currently $100,000) established by the Code, such options shall constitute Non-Statutory Stock Options. Options shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable: (a) NUMBER OF SHARES AND PURCHASE PRICE. The number of shares of Common Stock subject to an option shall be determined by the Committee, subject to Section 1.4. The purchase price per share of Common Stock purchasable upon exercise of the option shall be determined by the Committee; PROVIDED, HOWEVER, that the purchase price per share of Common Stock purchasable upon exercise of an option shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant of such option; PROVIDED FURTHER, that if an Incentive Stock Option shall be granted to any person who, at the time such option is granted, owns capital stock possessing more than ten percent of the total combined voting power of all classes of capital stock of the Company (or of any parent or Subsidiary) (a "Ten Percent Holder"), the purchase price per share of Common Stock shall be the price (currently 110% of Fair Market Value) required by the Code in order to constitute an Incentive Stock Option. (b) OPTION PERIOD AND EXERCISABILITY. The period during which an option may be exercised shall be determined by the Committee; PROVIDED, HOWEVER, that no Incentive Stock Option shall be exercised later than ten years after its date of grant; provided further, that if an Incentive Stock Option shall be granted to a Ten Percent Holder, such option shall not be exercised later than five years after its date of grant. The Committee may, in its discretion, establish Performance Measures which shall be satisfied or met as a condition to the grant of an option or to the exercisability of all or a portion of an option. The Committee shall determine whether an option shall become exercisable in cumulative or non-cumulative installments and in part or in full at any time. An exercisable option, or portion thereof, may be exercised only with 7 respect to whole shares of Common Stock, except that if the remaining option then exercisable is for less than a whole share, such remaining amount may be exercised. (c) METHOD OF EXERCISE. An option may be exercised (i) by giving written notice to the Company specifying the number of whole shares of Common Stock to be purchased and accompanied by payment therefor in full (or arrangement made for such payment to the Company's satisfaction) either (1) in cash, (2) by delivery of Mature Shares having a Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable by reason of such exercise, (3) by authorizing the Company to withhold whole shares of Common Stock which would otherwise be delivered upon exercise of the option having a Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable by reason of such exercise, (4) in cash by a broker-dealer acceptable to the Company to whom the optionee has submitted an irrevocable notice of exercise or (5) a combination of (1), (2) and (3), in each case to the extent set forth in the Agreement relating to the option, (ii) if applicable, by surrendering to the Company any Tandem SARs which are canceled by reason of the exercise of the option and (iii) by executing such documents as the Company may reasonably request. The Committee shall have sole discretion to disapprove of an election pursuant to any of clauses (2)-(5). Any fraction of a share of Common Stock which would be required to pay such purchase price shall be disregarded and the remaining amount due shall be paid in cash by the optionee. No certificate representing Common Stock shall be delivered until the full purchase price therefor has been paid. (d) ADDITIONAL OPTIONS. The Committee shall have the authority to include in any Agreement relating to an option a provision entitling the optionee to an additional option in the event such optionee exercises the option represented by such option agreement, in whole or in part, by delivering previously owned whole shares of Common Stock in payment of the purchase price in accordance with this Plan and such Agreement. Any such additional option shall be for a number of shares of Common Stock equal to the number of delivered shares, shall have a purchase price determined by the Committee in accordance with this Plan, and shall be exercisable on the terms and subject to the conditions set forth in the Agreement relating to such additional option. 2.2 STOCK APPRECIATION RIGHTS. The Committee may, in its discretion, grant SARs to such eligible persons as may be selected by the Committee. The Agreement relating to an SAR shall specify whether the SAR is a Tandem SAR or a Free-Standing SAR. SARs shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable: (a) NUMBER OF SARS AND BASE PRICE. The number of SARs subject to an award shall be determined by the Committee, subject to Section 1.4. Any Tandem SAR related to an Incentive Stock Option shall be granted at the same time that such Incentive Stock Option is granted. The base price of a Tandem SAR shall be the purchase price per share of Common Stock of the related option. The base price of a Free-Standing SAR shall be determined by the Committee; PROVIDED, HOWEVER, that such base price shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant of such SAR. 8 (b) EXERCISE PERIOD AND EXERCISABILITY. The Agreement relating to an award of SARs shall specify whether such award may be settled in shares of Common Stock (including shares of Restricted Stock) or cash or a combination thereof. The period for the exercise of an SAR shall be determined by the Committee; PROVIDED, HOWEVER, that no Tandem SAR shall be exercised later than the expiration, cancellation, forfeiture or other termination of the related option. The Committee may, in its discretion, establish Performance Measures which shall be satisfied or met as a condition to the exercisability of an SAR. The Committee shall determine whether an SAR may be exercised in cumulative or non-cumulative installments and in part or in full at any time. An exercisable SAR, or portion thereof, may be exercised, in the case of a Tandem SAR, only with respect to whole shares of Common Stock and, in the case of a Free-Standing SAR, only with respect to a whole number of SARs. If an SAR is exercised for shares of Restricted Stock, a certificate or certificates representing such Restricted Stock shall be issued in accordance with Section 3.2(c) and the holder of such Restricted Stock shall have such rights of a stockholder of the Company as determined pursuant to Section 3.2(d). Prior to the exercise of an SAR for shares of Common Stock, including Restricted Stock, the holder of such SAR shall have no rights as a stockholder of the Company with respect to the shares of Common Stock subject to such SAR. (c) METHOD OF EXERCISE. A Tandem SAR may be exercised (i) by giving written notice to the Company specifying the number of whole SARs which are being exercised, (ii) by surrendering to the Company any options which are canceled by reason of the exercise of the Tandem SAR and (iii) by executing such documents as the Company may reasonably request. A Free-Standing SAR may be exercised (i) by giving written notice to the Company specifying the whole number (or if the remaining SAR then exercisable is for less then one whole share, such remaining amount) of SARs which are being exercised and (ii) by executing such documents as the Company may reasonably request. 2.3 TERMINATION OF EMPLOYMENT OR SERVICE WITH THE COMPANY. (a) DISABILITY. Subject to paragraph (f) below and Section 6.8, and unless otherwise specified in the Agreement relating to an option or SAR, as the case may be, if the employment or service with the Company of the holder of an option or SAR terminates by reason of Disability, each option and SAR held by such holder shall be exercisable only to the extent that such option or SAR, as the case may be, is exercisable on the effective date of such holder's termination of employment or service and may thereafter be exercised by such holder (or such holder's legal representative or similar person) until and including the earliest to occur of (i) the date which is three months (or such other period as set forth in the Agreement relating to such option or SAR) after the effective date of such holder's termination of employment or service and (ii) the expiration date of the term of such option or SAR. (b) RETIREMENT. Subject to paragraph (f) below and Section 6.8, and unless otherwise specified in the Agreement relating to an option or SAR, as the case may be, if the employment or service with the Company of the holder of an option or SAR terminates by reason of retirement on or after age 65 with the consent of the Company, each option and SAR held by such holder shall be exercisable only to the extent that such option or SAR, as the case may be, is exercisable on the effective date of such holder's termination of employment or service and may thereafter be exercised by such holder (or such holder's legal representative or 9 similar person) until and including the earliest to occur of (i) the date which is three months (or such other period as set forth in the Agreement relating to such option or SAR) after the effective date of such holder's termination of employment or service and (ii) the expiration date of the term of such option or SAR. (c) DEATH. Subject to paragraph (f) below and Section 6.8, and unless otherwise specified in the Agreement relating to an option or SAR, as the case may be, if the employment or service with the Company of the holder of an option or SAR terminates by reason of death, each option and SAR held by such holder shall be exercisable only to the extent that such option or SAR, as the case may be, is exercisable on the date of such holder's death, and may thereafter be exercised by such holder's executor, administrator, legal representative, beneficiary or similar person, as the case may be, until and including the earliest to occur of (i) the date which is one year (or such other period as set forth in the Agreement relating to such option or SAR) after the date of death and (ii) the expiration date of the term of such option or SAR. (d) OTHER TERMINATION. If the employment or service with the Company of the holder of an option or SAR is terminated by the Company for Cause, each option and SAR held by such holder shall terminate automatically on the effective date of such holder's termination of employment or service. Subject to paragraph (f) below and Section 6.8, and unless specified in the Agreement relating to an option or SAR, as the case may be, if the employment or service with the Company of the holder of an option or SAR terminates for any reason other than Disability, retirement on or after age 65 with the consent of the Company, death or for Cause, each option and SAR held by such holder shall be exercisable only to the extent that such option or SAR is exercisable on the effective date of such holder's termination of employment or service and may thereafter be exercised by such holder (or such holder's legal representative or similar person) until and including the earliest to occur of (i) the date which is three months (or such other period as set forth in the Agreement relating to such option or SAR) after the effective date of such holder's termination of employment or service and (ii) the expiration date of the term of such option or SAR. (e) DEATH FOLLOWING TERMINATION OF EMPLOYMENT OR SERVICE. Subject to paragraph (f) below and Section 6.8, and unless otherwise specified in the Agreement relating to an option or SAR, as the case may be, if the holder of an option or SAR dies during the three-month period following termination of employment or service by reason of Disability, or if the holder of an option or SAR dies during the three-month period following termination of employment or service by reason of retirement on or after age 65 with the consent of the Company, or if the holder of an option or SAR dies during the three-month period following termination of employment or service for any reason other than Disability or retirement on or after age 65 with the consent of the Company (or, in each case, such other period as set forth in the Agreement relating to such option or SAR), each option and SAR held by such holder shall be exercisable only to the extent that such option or SAR is exercisable on the effective date of such holder's termination and may thereafter be exercised by the holder's executor, administrator, legal representative, beneficiary or similar person, as the case may be, until and including the earliest to occur of (i) the date which is one year (or such other period as set forth 10 in the Agreement relating to such option or SAR) after the date of death and (ii) the expiration date of the term of such option or SAR. (f) TERMINATION OF EMPLOYMENT OR SERVICE - INCENTIVE STOCK OPTIONS. Subject to Section 6.8 and unless otherwise specified in the Agreement relating to the option, if the employment or service with the Company of a holder of an incentive stock option terminates by reason of Permanent and Total Disability (as defined in Section 22(e)(3) of the Code), each incentive stock option held by such optionee shall be exercisable only to the extent that such option is exercisable on the effective date of such optionee's termination of employment or service by reason of Permanent and Total Disability, and may thereafter be exercised by such optionee (or such optionee's legal representative or similar person) until and including the earliest to occur of (i) the date which is three months (or such other period no longer than one year as set forth in the Agreement relating to such option) after the effective date of such optionee's termination of employment or service by reason of Permanent and Total Disability and (ii) the expiration date of the term of such option. Subject to Section 6.8 and unless otherwise specified in the Agreement relating to the option, if the employment or service with the Company of a holder of an Incentive Stock Option terminates by reason of death, each Incentive Stock Option held by such optionee shall be exercisable only to the extent that such option is exercisable on the date of such optionee's death and may thereafter be exercised by such optionee's executor, administrator, legal representative, beneficiary or similar person until and including the earliest to occur of (i) the date which is one year (or such other period as set forth in the Agreement relating to such option) after the date of death and (ii) the expiration date of the term of such option. If the employment or service with the Company of a holder of an Incentive Stock Option is terminated by the Company for Cause, each Incentive Stock Option held by such optionee shall terminate automatically on the effective date of such optionee's termination of employment or service. Subject to Section 6.8 and unless otherwise specified in the Agreement relating to the option, if the employment or service with the Company of a holder of an Incentive Stock Option terminates for any reason other than Permanent and Total Disability, death or Cause, each Incentive Stock Option held by such optionee shall be exercisable only to the extent such option is exercisable on the effective date of such optionee's termination of employment or service, and may thereafter be exercised by such holder (or such holder's legal representative or similar person) until and including the earliest to occur of (i) the date which is three months after the effective date of such optionee's termination of employment or service and (ii) the expiration date of the term of such option. If the holder of an Incentive Stock Option dies during the three-month period following termination of employment or service by reason of Permanent and Total Disability (or such other period as set forth in the Agreement relating to such option), or if the holder of an Incentive Stock Option dies during the three-month period following termination of employment or service for any reason other than Permanent and Total Disability, death or Cause, each Incentive Stock Option held by such optionee shall be exercisable only to the extent such option is exercisable on the effective date of such optionee's termination and may thereafter be 11 exercised by the optionee's executor, administrator, legal representative, beneficiary or similar person until and including the earliest to occur of (i) the date which is one year (or such other period as set forth in the Agreement relating to such option) after the date of death and (ii) the expiration date of the term of such option. III. STOCK AWARDS 3.1 STOCK AWARDS. Subject to Section 1.4, the Committee may, in its discretion, grant Stock Awards to such eligible persons as may be selected by the Committee. The Agreement relating to a Stock Award shall specify whether the Stock Award is a Restricted Stock Award or Bonus Stock Award. 3.2 TERMS OF STOCK AWARDS. Stock Awards shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable. (a) NUMBER OF SHARES AND OTHER TERMS. The number of shares of Common Stock subject to a Restricted Stock Award or Bonus Stock Award and the Performance Measures (if any) and Restriction Period applicable to a Restricted Stock Award shall be determined by the Committee, subject to Section 1.4. (b) VESTING AND FORFEITURE. The Agreement relating to a Restricted Stock Award shall provide, in the manner determined by the Committee, in its discretion, and subject to the provisions of this Plan, for the vesting of the shares of Common Stock subject to such award (i) if specified Performance Measures are satisfied or met during the specified Restriction Period or (ii) if the holder of such award remains continuously in the employment or service of the Company during the specified Restricted Period and for the forfeiture of the shares of Common Stock subject to such award (x) if specified Performance Measures are not satisfied or met during the specified Restriction Period or (y) if the holder of such award does not remain continuously in the employment or service of the Company during the specified Restriction Period. Bonus Stock Awards shall not be subject to any Performance Measures or Restriction Periods. (c) SHARE CERTIFICATES. During the Restriction Period, a certificate or certificates representing a Restricted Stock Award shall be registered in the holder's name and may bear a legend, in addition to any legend which may be required pursuant to Section 6.6, indicating that the ownership of the shares of Common Stock represented by such certificate is subject to the restrictions, terms and conditions of this Plan and the Agreement relating to the Restricted Stock Award. All such certificates shall be deposited with the Company, together with stock powers or other instruments of assignment (including a power of attorney), each endorsed in blank with a guarantee of signature if deemed necessary or appropriate by the Company, which would permit transfer to the Company of all or a portion of the shares of Common Stock subject to the Restricted Stock Award in the event such award is forfeited in whole or in part. Upon termination of any applicable Restriction Period (and the satisfaction or attainment of applicable Performance Measures), or upon the grant of a Bonus Stock Award, in 12 each case subject to the Company's right to require payment of any taxes in accordance with Section 6.5, a certificate or certificates evidencing ownership of the requisite number of shares of Common Stock shall be delivered to the holder of such award. (d) RIGHTS WITH RESPECT TO RESTRICTED STOCK AWARDS. Unless otherwise set forth in the Agreement relating to a Restricted Stock Award, and subject to the terms and conditions of a Restricted Stock Award, the holder of such award shall have all rights as a stockholder of the Company, including, but not limited to, voting rights, the right to receive dividends and the right to participate in any capital adjustment applicable to all holders of Common Stock; PROVIDED, HOWEVER, that a distribution with respect to shares of Common Stock, other than a distribution in cash, shall be deposited with the Company and shall be subject to the same restrictions as the shares of Common Stock with respect to which such distribution was made. (e) AWARDS TO CERTAIN EXECUTIVE OFFICERS. Notwithstanding any other provision of this Article III, and only to the extent necessary to ensure the deductibility of the award to the Company, the Fair Market Value of the number of shares of Common Stock subject to a Stock Award granted to a "covered employee" within the meaning of Section 162(m) of the Code shall not exceed $1,000,000 (i) at the time of grant in the case of a Stock Award granted upon the attainment of Performance Measures or (ii) in the case of a Restricted Stock Award with Performance Measures which shall be satisfied or met as a condition to the holder's receipt of the shares of Common Stock subject to such award, on the earlier of (x) the date on which the Performance Measures are satisfied or met and (y) the date the holder makes an election under Section 83(b) of the Code. 3.3 TERMINATION OF EMPLOYMENT OR SERVICE. Subject to Section 6.8 and unless otherwise set forth in the Agreement relating to a Restricted Stock Award, if the employment or service with the Company of the holder of such award terminates, the portion of such award which is subject to a Restriction Period shall terminate as of the effective date of such holder's termination of employment or service and shall be forfeited and such portion shall be canceled by the Company. IV. PERFORMANCE SHARE AWARDS 4.1 PERFORMANCE SHARE AWARDS. Subject to Section 1.4, the Committee may, in its discretion, grant Performance Share Awards to such eligible persons as may be selected by the Committee. 4.2 TERMS OF PERFORMANCE SHARE AWARDS. Performance Share Awards shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable. (a) NUMBER OF PERFORMANCE SHARES AND PERFORMANCE MEASURES. The number of Performance Shares subject to any award and the Performance Measures and Performance Period applicable to such award shall be determined by the Committee, subject to Section 1.4. (b) VESTING AND FORFEITURE. The Agreement relating to a Performance Share Award shall provide, in the manner determined by the Committee, in its discretion, and subject 13 to the provisions of this Plan, for the vesting of such award, if specified Performance Measures are satisfied or met during the specified Performance Period, and for the forfeiture of such award, if specified Performance Measures are not satisfied or met during the specified Performance Period. (c) SETTLEMENT OF VESTED PERFORMANCE SHARE AWARDS. The Agreement relating to a Performance Share Award (i) shall specify whether such award may be settled in shares of Common Stock (including shares of Restricted Stock) or cash or a combination thereof and (ii) may specify whether the holder thereof shall be entitled to receive, on a current or deferred basis, dividend equivalents, and, if determined by the Committee, interest on any deferred dividend equivalents, with respect to the number of shares of Common Stock subject to such award. If a Performance Share Award is settled in shares of Restricted Stock, a certificate or certificates representing such Restricted Stock shall be issued in accordance with Section 3.2(c) and the holder of such Restricted Stock shall have such rights of a stockholder of the Company as determined pursuant to Section 3.2(d). Prior to the settlement of a Performance Share Award in shares of Common Stock, including Restricted Stock, the holder of such award shall have no rights as a stockholder of the Company with respect to the shares of Common Stock subject to such award. 4.3 TERMINATION OF EMPLOYMENT OR SERVICE. Subject to Section 6.8 and unless otherwise set forth in the Agreement relating to a Performance Share Award, if the employment or service with the Company of the holder of such award terminates, the portion of such award which is subject to a Performance Period on the effective date of such holder's termination of employment or service shall be forfeited and such portion shall be canceled by the Company. V. PROVISIONS RELATING TO NON-EMPLOYEE DIRECTORS 5.1 ELIGIBILITY. Subject to Section 1.4, each Non-Employee Director may be granted options to purchase shares of Common Stock in accordance with this Article V (collectively "Directors Options"). All options granted under this Article V shall constitute Non-Statutory Stock Options. 5.2 GRANTS OF STOCK OPTIONS. The Committee, in its discretion, may grant Non-Statutory Stock Options to any Non-Employee Director in accordance with this Article V. The Board shall determine with respect to each Directors Option (a) the number of shares of Common Stock subject to an option, (b) the purchase price per share of Common Stock purchasable upon exercise of the option, (c) the period during which an option may be exercised and (d) whether an option shall become exercisable in cumulative or non-cumulative installments and in part or in full at any time. 5.3 TERMINATION OF DIRECTORSHIP. (a) DISABILITY. Subject to Section 6.8 and unless otherwise specified in the agreement relating to the option, if the holder of an option granted under this Article V ceases to be a director of the Company by reason of Disability, each such option held by such holder shall be exercisable only to the extent that such option is exercisable on the effective date of such 14 holder's ceasing to be a director and may thereafter be exercised by such holder (or such holder's guardian, legal representative or similar person) until the earliest to occur of the (i) date which is three months after the effective date of such holder's ceasing to be a director and (ii) the expiration date of the term of such option. (b) RETIREMENT. Subject to Section 6.8 and unless otherwise specified in the agreement relating to the option, if the holder of an option granted under this Article V ceases to be a director of the Company on or after age 65, each such option held by such holder shall be exercisable only to the extent that such option is exercisable on the effective date of such holder's ceasing to be a director and may thereafter be exercised by such holder (or such holder's legal representative or similar person) until the earliest to occur of the (i) date which is three months after the effective date of such holder's ceasing to be a director and (ii) the expiration date of the term of such option. (c) DEATH. Subject to Section 6.8 and unless otherwise specified in the agreement relating to the option, if the holder of an option granted under this Article V ceases to be a director of the Company by reason of death, each such option held by such holder shall be fully exercisable and may thereafter be exercised by such holder's executor, administrator, legal representative, beneficiary or similar person, as the case may be, until the earliest to occur of (i) the date which is one year after the date of death and (ii) the expiration date of the term of such option. (d) OTHER TERMINATION. Subject to Section 6.8 and unless otherwise specified in the agreement relating to the option, if the holder of an option granted under this Article V ceases to be a director of the Company for any reason other than Disability, retirement on or after age 65 or death, each such option held by such holder shall be exercisable only to the extent such option is exercisable on the effective date of such holder's ceasing to be a director and may thereafter be exercised by such holder (or such holder's legal representative or similar person) until the earliest to occur of (i) the date which is three months after the effective date of such holder's ceasing to be a director and (ii) the expiration date of the term of such option. (e) DEATH FOLLOWING TERMINATION OF DIRECTORSHIP. Subject to Section 6.8 and unless otherwise specified in the agreement relating to the option, if the holder of an option granted under this Article V dies during the three-month period following such holder's ceasing to be a director of the Company by reason of Disability, or if such a holder dies during the three-month period following such holder's ceasing to be a director of the Company on or after age 65, or if such a holder dies during the three-month period following such holder's ceasing to be a director for any reason other than by reason of Disability or retirement on or after age 65, each such option held by such holder shall be exercisable only to the extent that such option is exercisable on the effective date of such holder's ceasing to be a director and may thereafter be exercised by the holder's executor, administrator, legal representative, beneficiary or similar person, as the case may be, until the earliest to occur of the (i) date one year after the date of death and (ii) the expiration date of the term of such option. 5.4 DIRECTORS OPTIONS. Each Directors Option shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable: 15 (a) OPTION PERIOD AND EXERCISABILITY. Directors Options shall become exercisable as provided in the agreement relating to the option. Unless otherwise specified in the Agreement relating to the option, if at any time prior to the time that a Directors Option first becomes exercisable, a Non-Employee Director shall no longer be a member of the Board, such Directors Option shall become void and of no further force or effect. (b) PURCHASE PRICE. The purchase price for the shares of Common Stock subject to any Directors Option shall be equal to the purchase price determined by the Committee that is set forth in the Agreement relating to the option. Such Directors Options shall be exercisable in accordance with Section 2.1(c). (c) RESTRICTIONS ON TRANSFER. Directors Options shall be subject to the transfer restrictions and other provisions of Section 6.4. (d) EXPIRATION. Unless otherwise specified in the agreement relating to the option, each Directors Option which has become exercisable pursuant to Section 5.4(a), to the extent not theretofore exercised, shall expire on the first to occur of (i) the date which is three months after the first date on which the Non-Employee Director shall no longer be a member of the Board or the Board of Directors of a Subsidiary and (ii) the tenth anniversary of the date of grant of such option; PROVIDED, HOWEVER, that if the Non-Employee Director shall die within such three-month period following the date on which he shall have ceased to serve as such a director or if the Non-Employee Director shall cease to be a director of the Company by reason of death, such option may be exercised at any time within the one-year period following the date of death to the extent not theretofore exercised (but in no event later than the tenth anniversary of the date of grant). VI. GENERAL 6.1 EFFECTIVE DATE AND TERM OF PLAN; SUBMISSION TO STOCKHOLDERS. This Plan shall be effective as of April 28, 2000. This Plan shall terminate ten years after its effective date unless terminated earlier by the Board. Termination of this Plan shall not affect the terms or conditions of any award granted prior to termination. Awards hereunder may be made at any time prior to the termination of this Plan, provided that no award may be made later than ten years after the effective date of this Plan. In the event that this Plan is not approved by the stockholders of the Company, this Plan and any awards hereunder shall be void and of no force or effect. 6.2 AMENDMENTS. The Board may amend this Plan as it shall deem advisable, subject to any requirement of stockholder approval required by applicable law, rule or regulation, including Section 162(m) and Section 422 of the Code; PROVIDED, HOWEVER, that no amendment shall be made without stockholder approval if such amendment would (a) reduce the minimum purchase price in the case of an option or the base price in the case of an SAR, (b) effect any change inconsistent with Section 422 of the Code or (c) extend the term of this Plan. No amendment may materially impair the rights of a holder of an outstanding award without the consent of such holder. 16 6.3 AGREEMENT. Each award under this Plan shall be evidenced by an Agreement setting forth the terms and conditions applicable to such award. No award shall be valid until an Agreement is executed by the Company and the recipient of such award and, upon execution by each party and delivery of the Agreement to the Company, such award shall be effective as of the effective date set forth in the Agreement. The Board may amend any Agreement as it shall deem advisable, provided that no such amendment (i) shall contain provisions that are inconsistent with the terms of the Plan or (ii) shall materially impair the rights of a holder of an outstanding award without the consent of such holder. 6.4 NON-TRANSFERABILITY OF STOCK OPTIONS, SARS AND PERFORMANCE SHARES. No option, SAR or Performance Share shall be transferable other than (i) by will, the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company or (ii) as otherwise set forth in the Agreement relating to such award. Each option, SAR or Performance Share may be exercised or settled during the participant's lifetime only by the holder or the holder's legal representative or similar person. Except as permitted by the second preceding sentence, no option, SAR or Performance Share may be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process, and any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of such option, SAR or Performance Share shall be null and void and of no force or effect. 6.5 TAX WITHHOLDING. The Company shall have the right to require, prior to the issuance or delivery of any shares of Common Stock or the payment of any cash pursuant to an award made hereunder, payment by the holder of such award of any Federal, state, local or other taxes which may be required to be withheld or paid in connection with such award. An Agreement may provide that (i) the Company shall withhold whole shares of Common Stock which would otherwise be delivered to a holder, having an aggregate Fair Market Value determined as of the date the obligation to withhold or pay taxes arises in connection with an award (the "Tax Date"), or withhold an amount of cash which would otherwise be payable to a holder, in the amount necessary to satisfy any such obligation or (ii) the holder may satisfy any such obligation by any of the following means: (1) a cash payment to the Company, (2) delivery to the Company of Mature Shares having an aggregate Fair Market Value, determined as of the Tax Date, equal to the amount necessary to satisfy any such obligation, (3) authorizing the Company to withhold whole shares of Common Stock which would otherwise be delivered having an aggregate Fair Market Value, determined as of the Tax Date, or withhold an amount of cash which would otherwise be payable to a holder, equal to the amount necessary to satisfy any such obligation, (4) in the case of the exercise of an option, a cash payment by a broker-dealer acceptable to the Company to whom the optionee has submitted an irrevocable notice of exercise or (5) any combination of (1), (2) and (3), in each case to the extent set forth in the Agreement relating to the award; PROVIDED, HOWEVER, that the Committee shall have sole discretion to disapprove of an election pursuant to any of clauses (2)-(5). Shares of Common Stock to be delivered or withheld may not have an aggregate Fair Market Value in excess of the amount determined by applying the minimum statutory withholding rate. Any fraction of a share of Common Stock which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the holder. 17 6.6 RESTRICTIONS ON SHARES. Each award made hereunder shall be subject to the requirement that if at any time the Company determines that the listing, registration or qualification of the shares of Common Stock subject to such award upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the delivery of shares thereunder, such shares shall not be delivered unless such listing, registration, qualification, consent, approval or other action shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company may require that certificates evidencing shares of Common Stock delivered pursuant to any award made hereunder bear a legend indicating that the sale, transfer or other disposition thereof by the holder is prohibited except in compliance with the Securities Act of 1933, as amended, and the rules and regulations thereunder. 6.7 ADJUSTMENT. Except as provided in Section 6.8, in the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Common Stock other than a regular cash dividend, the number and class of securities available under this Plan, the number and class of securities subject to each outstanding option and the purchase price per security, the terms of each outstanding SAR, the number and class of securities subject to each outstanding Stock Award, and the terms of each outstanding Performance Share shall be appropriately adjusted by the Committee, such adjustments to be made in the case of outstanding options and SARs without an increase in the aggregate purchase price or base price. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. If any such adjustment would result in a fractional security being (a) available under this Plan, such fractional security shall be disregarded, or (b) subject to an award under this Plan, the Company shall pay the holder of such award, in connection with the first vesting, exercise or settlement of such award, in whole or in part, occurring after such adjustment, an amount in cash determined by multiplying (i) the fraction of such security (rounded to the nearest hundredth) by (ii) the excess, if any, of (1) the Fair Market Value on the vesting, exercise or settlement date over (2) the exercise or base price, if any, of such award. 6.8 CHANGE IN CONTROL. (a) (i) Notwithstanding any provision in this Plan or any Agreement, in the event of a Change in Control pursuant to Section (b)(iii) or (iv) below, (1) all outstanding options and SARS shall immediately become exercisable in full, (2) the Restriction Period applicable to any outstanding Restricted Stock Award shall lapse, (3) the Performance Period applicable to any outstanding Performance Share shall lapse and (4) the Performance Measures applicable to any outstanding Restricted Stock Award (if any) and to any outstanding Performance Share shall be deemed to be satisfied at the maximum level. If, in connection with such Change in Control, holders of Common Stock receive solely shares of common stock that are registered under Section 12 of the Exchange Act, there shall be substituted for each share of Common Stock available under this Plan, whether or not then subject to an outstanding award, the number and class of shares into which each outstanding share of Common Stock shall be converted pursuant to such Change in Control. If, in connection with such Change in Control, holders of 18 Common Stock receive solely cash and shares of common stock that are registered under Section 12 of the Exchange Act, each outstanding award shall be surrendered to and canceled by the Company, and the holder shall receive, within ten days of the occurrence of such Change in Control, a proportionate amount of cash in the manner provided in Section (a)(ii) below, and there shall be substituted for the award surrendered a similar award reflecting a proportionate number of the class of shares into which each outstanding share of Common Stock shall be converted to such Change in Control. In the event of any such substitution, the proportion of cash and common stock, the purchase price per share in the case of an option and the base price in the case of an SAR, and any other terms of outstanding awards shall be appropriately adjusted by the Committee, such adjustments to be made in the case of outstanding options and SARs without an increase in the aggregate purchase price or base price; PROVIDED, that the proportion of cash and common stock substituted for outstanding awards shall reflect the approximate proportion of cash and common stock received by holders of Common Stock in such Change in Control. If, in connection with a Change in Control, holders of Common Stock receive any portion of the consideration in a form other than cash or shares of common stock that are registered under Section 12 of the Exchange Act, each share of Common Stock available under this Plan, whether or not then subject to an outstanding award, shall be substituted or surrendered for such proportion of common stock, cash or other consideration as shall be determined by the Committee pursuant to Section 6.7. (ii) Notwithstanding any provision in this Plan or any Agreement, in the event of a Change in Control pursuant to Section (b)(i) or (ii) below, or in the event of a Change in Control pursuant to Section (b)(iii) or (iv) below in connection with which the holders of Common Stock receive cash, each outstanding award shall be surrendered to the Company by the holder thereof, and each such award shall immediately be canceled by the Company, and the holder shall receive, within ten days of the occurrence of a Change in Control pursuant to Section (b)(i) or (ii) below or within ten days of the approval of the stockholders of the Company contemplated by Section (b)(iii) or (iv) below, a cash payment from the Company in an amount equal to (1) in the case of an option, the number of shares of Common Stock then subject to such option, multiplied by the excess, if any, of the greater of (A) the highest per share price offered to stockholders of the Company in any transaction whereby the Change in Control takes place or (B) the Fair Market Value of a share of Common Stock on the date of occurrence of the Change in Control, over the purchase price per share of Common Stock subject to the option; (2) in the case of a Free-Standing SAR, the number of shares of Common Stock then subject to such SAR, multiplied by the excess, if any, of the greater of (A) the highest per share price offered to stockholders of the Company in any transaction whereby the Change in Control takes place or (B) the Fair Market Value of a share of Common Stock on the date of occurrence of the Change in Control, over the base price of the SAR; and (3) in the case of a Restricted Stock Award or Performance Share Award, the number of shares of Common Stock or the number of Performance Shares, as the case may be, then subject to such award, multiplied by the greater of (A) the highest per share price offered to stockholders of the Company in any transaction whereby the Change in Control takes place or (B) the Fair Market Value of a share of Common Stock on the date of occurrence of the Change in Control. In the event of a Change in Control, each Tandem SAR shall be surrendered by the holder thereof and shall be canceled simultaneously with the 19 cancellation of the related option. Except as may be provided in an agreement relating to an award, the Company may, but is not required to, cooperate with any person who is subject to Section 16 of the Exchange Act to assure that any cash payment in accordance with the foregoing to such person is made in compliance with Section 16 and the rules and regulations thereunder. (b) "Change in Control" shall mean: (i) the acquisition by any individual, entity or group (a "Person"), including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act, of Beneficial Ownership of 20% or more of either (1) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (2) the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); PROVIDING however, the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company (excluding any acquisition resulting from the exercise of an exercise, conversion or exchange privilege unless the security being so exercised, converted or exchanged was acquired directly from the Company), (B) any acquisition by the Company, (C) any acquisition by an Exempt Person, (D) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (E) any acquisition by any corporation pursuant to a transaction which complies with clauses (1), (2) and (3) of subsection (iii) of this Section 6.8(b); provided further, that for purposes of clause (B), if any Person (other than an Exempt Person, the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company) shall become the Beneficial Owner of 20% or more of the Outstanding Company Common Stock or 20% or more of the Outstanding Company Voting Securities by reason of an acquisition by the Company, and such Person shall, after such acquisition by the Company, become the Beneficial Owner of any additional shares of the Outstanding Company Common Stock or any additional Outstanding Company Voting Securities and such Beneficial Ownership is publicly announced, such additional Beneficial Ownership shall constitute a Change in Control; (ii) individuals who, as of the effective date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided that any individual who becomes a director of the Company subsequent to the date hereof whose appointment, or whose nomination for election by the Company's stockholders, was approved by the vote of at least 66-2/3% of the directors then comprising the Incumbent Board shall be deemed a member of the Incumbent Board; and provided further, that any individual who was initially elected as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board shall not be deemed a member of the Incumbent Board; (iii) approval by the stockholders of the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the 20 Company (a "Corporate Transaction"); excluding, however, a Corporate Transaction pursuant to which (1) all or substantially all of the individuals or entities who are the Beneficial Owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Corporate Transaction will Beneficially Own, directly or indirectly, more than 60% of, respectively, the outstanding shares of common stock, and the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or indirectly) in substantially the same proportions relative to each other as their Beneficial Ownership, immediately prior to such Corporate Transaction, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (2) no Person (other than an Exempt Person; the Company; any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; the corporation resulting from such Corporate Transaction; and any Person which Beneficially Owned, immediately prior to such Corporate Transaction, directly or indirectly, 20% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) will Beneficially Own, directly or indirectly, 20% or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of directors and (3) individuals who were members of the Incumbent Board will constitute at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction; or (iv) approval by the stockholders of the Company of a plan of complete liquidation or dissolution of the Company. 6.9 NO RIGHT OF PARTICIPATION OR EMPLOYMENT/SERVICE. No person shall have any right to participate in this Plan. Neither this Plan nor any award made hereunder shall confer upon any person any right to continued employment or service by the Company, any Subsidiary or any affiliate of the Company or affect in any manner the right of the Company, any Subsidiary or any affiliate of the Company to terminate the employment or service of any person at any time without liability hereunder. 6.10 RIGHTS AS STOCKHOLDER. No person shall have any right as a stockholder of the Company with respect to any shares of Common Stock or other equity security of the Company which is subject to an award hereunder unless and until such person becomes a stockholder of record with respect to such shares of Common Stock or equity security. 6.11 GOVERNING LAW. This Plan, each award hereunder and the related Agreement, and all determinations made and actions taken pursuant thereto, to the extent not otherwise governed by the Code or the laws of the United States, shall be governed by the laws of the State of Delaware and construed in accordance therewith without giving effect to principles of conflicts of laws. 21 EX-10.40 6 a2043710zex-10_40.txt CEO PLAN (2000) EXHIBIT 10.40 PEAPOD, INC. STOCK OPTION AGREEMENT FOR MARC VAN GELDER Pursuant to the provisions of the Executive Employment Agreement and related agreements (collectively the "EMPLOYMENT AGREEMENT") entered concurrently herewith by Peapod, Inc., a Delaware corporation (the "COMPANY") and Marc Van Gelder (the "OPTIONEE"), the Company hereby grants to the Optionee as of May 1, 2000 (the "OPTION DATE") a non-qualified option to purchase from the Company (the "Option") 250,000 shares ("OPTION SHARES") of its Common Stock, $0.01 par value ("STOCK"), at the price of $3.75 per share upon and subject to the terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Employment Agreement. 1. OPTION SUBJECT TO ACCEPTANCE OF AGREEMENT. The Option shall be null and void unless the Optionee shall accept this Agreement by executing it in the space provided below and returning such original execution copy to the Company. 2. TIME AND MANNER OF EXERCISE OF OPTION. 2.1 MAXIMUM TERM OF OPTION. In no event may the Option be exercised, in whole or in part, after May 1, 2008 (the "EXPIRATION DATE"). 2.2 EXERCISE OF OPTION. The Option shall become exercisable on the first anniversary of the Option Date with respect to 62,500 of the Option Shares and, thereafter, on the last day of each month with respect to an additional 5208.33 of the Option Shares (provided that, there shall be no vesting with respect to any fraction of an Option Share, and such fraction shall be carried over and aggregated with other Option Share fractions that would have otherwise vested, so that vesting takes place with respect to a whole Share). Notwithstanding the foregoing, the Option shall become fully exercisable upon a "Change in Control," upon termination of the Optionee's employment without "Cause," or upon the Optionee's termination of his employment for "Good Reason" as those terms are defined in the Severance Agreement entered into by the Company and the Optionee concurrently with the Employment Agreement ("SEVERANCE AGREEMENT") and, upon termination of Optionee's employment with the Company, the Option shall be exercisable only as follows: (a) If the Optionee's employment terminates by reason of death, the Option shall be exercisable only to the extent that the Option is exercisable on the date of death and may thereafter be exercised by the Optionee's Legal Representative until and including the earliest to occur of (i) one year after the date of death and (ii) the Expiration Date. (b) If the Optionee's employment is terminated by the Company for Cause as defined in the Severance Agreement, the Option shall terminate immediately and shall not be exercisable. (c) If the Optionee's employment terminates for any reason other than death or Cause, the Option shall be exercisable only to the extent such Option is exercisable on the effective date of the Optionee's termination of employment (including any accelerated exercise rights under Section 2.2), and may thereafter be exercised by the Optionee or his Legal Representative until and including the earliest to occur of (i) three months after the effective date of the Optionee's termination of employment and (ii) the Expiration Date. (d) Notwithstanding Section 2.2(c), if the Optionee dies during the three-month period following termination of employment for any reason other than Cause, the Option shall be exercisable only to the extent such Option is exercisable on the effective date of such Optionee's termination of employment and may thereafter be exercised by the Optionee's Legal Representative until and including the earliest to occur of (i) one year after the date of death and (ii) the Expiration Date. 2.3 METHOD OF EXERCISE. (a) Subject to the limitations set forth in this Agreement, the Option may be exercised in whole or in part by the Optionee (1) by giving written notice to the Company specifying the number of whole shares of Stock to be purchased and accompanied by payment therefor in full (or arrangement made for such payment to the Company's satisfaction) either (i) in cash, (ii) by delivery of previously owned whole shares of Stock (which the Optionee has held for at least six months prior to the delivery of such shares or which the Optionee purchased on the open market and for which the Optionee has good title, free and clear of all liens and encumbrances ("MATURE SHARES")) having a Fair Market Value (defined below), determined as of the date of exercise, equal to the aggregate purchase price payable pursuant to the Option by reason of such exercise, (iii) by authorizing the Company to withhold whole shares of Stock which would otherwise be delivered upon exercise of the Option having a Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable pursuant to the Option by reason of such exercise, (iv) in cash by a broker-dealer acceptable to the Company to whom the Optionee has submitted an irrevocable notice of exercise or (v) a combination of (i), (ii) and (iii), and (2) by executing such documents as the Company may reasonably request. The Board shall have sole discretion to disapprove of an election pursuant to clauses (ii) through (v) and, if the Optionee is subject to Section 16 of the Securities Exchange Act of 1934, as amended ("Exchange Act"), the Company may require that the method of making such payment be in compliance with Section 16 and the rules and regulations thereunder. Any fraction of a share of Stock which would be required to pay such purchase price shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a share of Stock shall be delivered until the full purchase price therefor has been paid. (b) In the event that, prior to the termination of Optionee's employment with the Company, Optionee exercises the Option, in whole or in part, by delivering a whole number of Mature Shares in accordance with Section 2.3(ii) in payment of the purchase price payable by reason of such exercise, Optionee may elect, and upon such election shall be entitled to receive upon payment in full of such purchase price in Mature Shares, a replacement option (a "REPLACEMENT OPTION"). Such Replacement Option: (i) shall be for a number of shares of Stock equal to the total of the number of whole Mature Shares delivered to satisfy the purchase price payable by reason of such exercise or as payment for withholding taxes under Section 3.3 plus the number of whole shares of Stock, if any, withheld by the Company as payment for such withholding taxes; (ii) shall have an option grant date that is the date of such exercise of the original Option (or portion thereof); (iii) shall be immediately exercisable, and have an exercise price equal to the Fair Market Value of a share of Stock on the option grant date of the Replacement Option; (iv) shall in no event be exercised, in whole or in part, after the Expiration Date; (v) shall be subject to all other terms of the Option not inconsistent with the foregoing; and (vi) shall not be designated as an incentive Stock Option. (c) "FAIR MARKET VALUE" shall mean the last sale price of a share of Stock as reported in the National Association of Securities Dealers Automated Quotation National Market System on the date as of which such value is being determined, or, if the Stock is listed on a national securities exchange, the last sale price of a share of Stock on the principal national stock exchange on which the Stock is traded, or, if there shall be no reported transactions for such date, on the next preceding date for which transactions were reported; PROVIDED that, if Fair Market Value for any date cannot be so determined, Fair Market Value shall be determined by the Board by whatever means the Board, in the good faith exercise of its discretion, shall deem appropriate. 2.4 TERMINATION OF OPTION. (a) In no event may the Option be exercised after it terminates as set forth in this Section 2.4. The Option shall terminate, to the extent not exercised pursuant to Section 2.3 or earlier terminated pursuant to Section 2.2, on the Expiration Date. (b) In the event that rights to purchase all or a portion of the shares of Stock subject to the Option expire or are exercised, cancelled or forfeited, the Optionee shall, upon the Company's request, promptly return this Agreement to the Company for full or partial cancellation, as the case may be. Such cancellation shall be effective regardless of whether the Optionee returns this Agreement. If the Optionee continues to have rights to purchase shares of Stock hereunder, the Company shall, within ten days of the Optionee's delivery of this Agreement to the Company, either (i) mark this Agreement to indicate the extent to which the Option has expired or been exercised, cancelled or forfeited or (ii) issue to the Optionee a substitute option agreement applicable to such rights, which agreement shall otherwise be at least as favorable to the Optionee as this Agreement in form and substance. 3. ADDITIONAL TERMS AND CONDITIONS OF OPTION. 3.1 NONTRANSFERRABILITY OF OPTION. The Option may not be transferred by the Optionee other than by will or the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company. Except to the extent permitted by the foregoing sentence, during the Optionee's lifetime the Option is exercisable only by the Optionee or the Optionee's Legal Representative. Except to the extent permitted by the foregoing, the Option may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of the Option shall be null and void and of no force or effect. 3.2 INVESTMENT REPRESENTATION. The Optionee hereby represents and covenants that (a) any share of Stock purchased upon exercise of the Option will be purchased for investment and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (the "SECURITIES ACT"), unless such purchase has been registered under the Securities Act and any applicable state securities laws; (b) any subsequent sale of any such shares shall be made either pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or pursuant to an opinion of counsel reasonably acceptable to the Company that such registration is not required; and (c) if requested by the Company, the Optionee shall submit a written statement in form satisfactory to the Company, to the effect that such representation (x) is true and correct as of the date of purchase of any shares hereunder or (y) is true and correct as of the date of any sale of any such shares, as applicable. As a further condition precedent to any exercise of the Option, the Optionee shall comply with all regulations and requirements of 3 any regulatory authority having control of or supervision over the issuance or delivery of the shares and, in connection therewith, shall execute any documents which the Board shall in its reasonable judgment deem necessary or advisable to comply with the Securities Act, applicable state securities laws or the regulations or requirements of any such regulatory authority. 3.3 WITHHOLDING TAXES. (a) As a condition precedent to the delivery of Stock upon exercise of the Option, the Optionee shall, upon request by the Company, pay to the Company in addition to the purchase price of the shares, such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the "REQUIRED TAX PAYMENTS") with respect to such exercise of the Option. If the Optionee shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to the Optionee. (b) The Optionee may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company pursuant to Section 3.3(a), (2) delivery to the Company of previously owned Mature Shares having a Fair Market Value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Option (the "TAX DATE"), equal to the Required Tax Payments, (3) authorizing the Company to withhold whole shares of Stock which would otherwise be delivered to the Optionee upon exercise of the Option having a Fair Market Value, determined as of the Tax Date, equal to the Required Tax Payments, (4) a cash payment by a broker-dealer acceptable to the Company to whom the Optionee has submitted an irrevocable notice of exercise or (5) any combination of (1), (2) and (3). The Board shall have sole discretion to disapprove of an election pursuant to any of clauses (2)-(5) and, if the Optionee is subject to Section 16 of the Exchange Act, the Company may require that the method of making such payment be in compliance with Section 16 and the rules and regulations thereunder. Shares of Stock to be delivered or withheld may have a Fair Market Value in excess of the minimum amount of the Required Tax Payments, but not in excess of the amount determined by applying the Optionee's maximum marginal tax rate. Any fraction of a share of Stock which would be required to satisfy any such obligation shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a share of Stock shall be delivered until the Required Tax Payments have been satisfied in full. 3.4 ADJUSTMENT. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Stock other than a regular cash dividend, the number and class of securities subject to the Option and the purchase price per security shall be appropriately adjusted by the Board (such adjustment to be made reasonably and in good faith by the Board) without an increase in the aggregate purchase price. If any adjustment would result in a fractional security being subject to the Option, the Company shall pay the Optionee, in connection with the first exercise of the Option, in whole or in part, occurring after such adjustment, an amount in cash determined by multiplying (i) the fraction of such security (rounded to the nearest hundredth) by (ii) the excess, if any, of (A) the Fair Market Value on the exercise date over (B) the exercise price of the Option. Such a decision of the Board regarding 4 any such adjustment shall be final, binding and conclusive. 3.5 COMPLIANCE WITH APPLICABLE LAW. The Option is subject to the condition that if the listing, registration or qualification of the shares subject to the Option upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the purchase or delivery of shares hereunder, the Option may not be exercised, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained, free of any conditions not approved by the Company (which approval will not be unreasonably withheld). The Company agrees to file a registration statement on Form S-8 with the Securities and Exchange Commission to register the Option Shares, and to use all reasonable efforts to effect or obtain any other necessary listing, registration, qualification, consent or approval. 3.6 DELIVERY OF CERTIFICATES. Upon the exercise of the Option, in whole or in part, the Company shall deliver or cause to be delivered one or more certificates representing the number of shares purchased against full payment therefor. The Company shall pay all original issue or transfer taxes and all fees and expenses incident to such delivery, except as otherwise provided in Section 3.3. Each share certificate representing Shares not registered under the Securities Act shall bear the following legend to the extent applicable: "The Shares represented by this certificate have not been registered under the Securities Act of 1933 or under any state securities laws and may not be sold, encumbered or otherwise transferred in the absence of such registration or an opinion of counsel reasonably acceptable to the Company that such registration is not required." 3.7 OPTION CONFERS NO RIGHTS AS STOCKHOLDER. The Optionee shall not be entitled to any privileges of ownership with respect to shares of Stock subject to the Option unless and until purchased and delivered upon the exercise of the Option, in whole or in part, and the Optionee becomes a stockholder of record with respect to such delivered shares; and the Optionee shall not be considered a stockholder of the Company with respect to any such shares not so purchased and delivered. 3.8 DECISIONS OF BOARD. The Board shall have the right to resolve all questions and make all determinations which may arise in connection with the Option or its exercise (which rights the Board shall exercise reasonably and in good faith), and any interpretation, determination or other action so made or taken by the Board regarding this Agreement shall be final, binding and conclusive. 4. MISCELLANEOUS PROVISIONS. 4.1 DESIGNATION AS NONQUALIFIED STOCK OPTION. The Option is hereby designated as not constituting an "incentive stock option" within the meaning of section 422 of the Internal Revenue Code of 1986, as amended (the "Code"); this Agreement shall be interpreted and treated consistently with such designation. 4.2 MEANING OF CERTAIN TERMS. (a) References in this Agreement to sections of the Code shall be deemed to refer to any successor section of the Code or any successor internal revenue law. 5 (b) As used herein, the term "LEGAL REPRESENTATIVE" shall include an executor, administrator, legal representative, guardian or similar person. 4.3 SUCCESSORS. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of the Optionee, acquire any rights hereunder in accordance with this Agreement. 4.4 NOTICES. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to Peapod, Inc., Attention: Treasurer, and if to the Optionee, Marc van Gelder at his address on the records of the Company. All notices, requests or other communications provided for in this Agreement shall be made in writing either (a) by personal delivery to the party entitled thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the United States mails to the last known address of the party entitled thereto or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission or upon receipt by the party entitled thereto if by United States mail or express courier service; PROVIDED, HOWEVER, that if a notice, request or other communication is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. 4.5 GOVERNING LAW. This Agreement, the Option and all determinations made and actions taken pursuant hereto and thereto, to the extent not governed by the laws of the United States, shall be governed by the laws of the State of Delaware and construed in accordance therewith without giving effect to principles of conflicts of laws. 4.6 COUNTERPARTS. This Agreement may be executed in two counterparts each of which shall be deemed an original and both of which together shall constitute one and the same instrument. PEAPOD, INC. By: /s/ Earl W. Rachowicz ------------------------------- Earl W. Rachowicz, Treasurer Accepted as of the 1st day of May, 2000. /s/ Marc van Gelder - ---------------------------- Marc van Gelder 6 EX-10.42 7 a2043710zex-10_42.txt SECOND AMEND. TO CREDIT AGREEMENT EXHIBIT 10.42 SECOND AMENDMENT TO CREDIT AGREEMENT SECOND AMENDMENT TO CREDIT AGREEMENT (this "SECOND AMENDMENT"), dated as of March 30, 2001, among PEAPOD, INC., a Delaware corporation (the "BORROWER"), and KONINKLIJKE AHOLD NV (the "LENDER"). All capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to them in the Credit Agreement referred to below. W I T N E S S E T H: ------------------- WHEREAS, the Borrower and the Lender are parties to a Credit Agreement dated as of April 14, 2000, as amended by the First Amendment to the Credit Agreement dated as of February 26, 2001 (such amendment, the "FIRST AMENDMENT" and, together with credit agreement, the "CREDIT AGREEMENT"); WHEREAS, the Borrower desires to, from the effective date of this Second Amendment until the date of receipt of cash proceeds from a debt or equity financing transaction including, without limitation, a public offering of capital stock of the Company (the "FINANCING TRANSACTION"), increase the amount of Loans it can incur in any one calendar month under the Credit Agreement from $3,000,000 to $6,000,000, and the Lender is willing to consent to such increase; WHEREAS, the Borrower has requested that the Lender waive the condition under the First Amendment that the Borrower shall have delivered mortgages with respect to leasehold interests of the Borrower prior to the Borrower making additional borrowings in excess of $6,000,000 in the aggregate and $3,000,000 in any one month, and the Lender is willing to consent to such waiver on the terms and conditions set forth below; and WHEREAS, the parties hereto wish to amend the Credit Agreement and the First Amendment to reflect such changes; NOW, THEREFORE, it is agreed that: 1. AMENDMENTS. ---------- (a) Section 1.01(b) of the Credit Agreement is hereby amended to read in its entirety as follows: "1.01(b) The Borrower may not (i) (A) prior to the date of receipt of cash proceeds by the Borrower from a debt or equity financing transaction including, without limitation, a public offering of capital stock of the Company (the "FINANCING TRANSACTION"), incur Loans in excess of $6,000,000 (exclusive of Loans made to repay the Term Note or other obligations owing to the Lender or its Affiliates) in principal amount in any calendar month (or such greater amount as the Lender and the Borrower shall agree), and (B) after the Financing Transaction, incur Loans in excess of $3,000,000 (exclusive of Loans made to repay the Term Note or other obligations owing to the Lender or its Affiliates) in principal amount in any calendar month (or such greater amount as the Lender and the Borrower shall agree), (ii) incur Loans more than four times in any calendar month and (iii) incur Loans in excess of the amount of the budgeted cash flow requirements of the Borrower for its operations for the two week period following the Borrowing thereof, as set forth in a budget provided by the Borrower to the Lender and reasonably acceptable to the Lender; PROVIDED, HOWEVER, it being understood that the Lender shall not object to the amount of the Borrowing request on the Second Borrowing Date to the extent such request is for an amount not to exceed $1,500,000." (b) Section 6 of the Credit Agreement is hereby amended by inserting therein the following new Section 6.12: "6.12 LEASEHOLD MORTGAGES. The Borrower shall, as promptly as practicable, but in no event later than the date of the Financing Transaction (i) duly execute and deliver to the Lender Mortgages with respect to real estate leasehold interests of the Borrower, and shall use commercially reasonable efforts to obtain consent and execution of such Mortgages by the owner/lessor of the leased real proprtery, as reasonably specified by the Lender in proper form for filing or recording in each appropriate public office, (ii) deliver to the Lender an opinion of counsel to the Borrower, in form and substance satisfactory to the Lender, as to the Mortgages and as to such other customary matters as the Lender shall specify, and (iii) deliver to the Lender such other documents and instruments as the Lender shall reasonably specify with respect to the Mortgages.". (c) The following new definition is hereby added, in appropriate and alphabetical sequence, in Section 9 of the Credit Agreement: " `FINANCING TRANSACTION' shall have the meaning provided in Section 1.01(b)." (d) Section 2(a) of the First Amendment is hereby amended to read in its entirety as follows: "(a) the Borrower has full power and authority to execute, deliver and perform this Amendment and each Mortgage (collectively, together with the UCC financing statements referred to in Section 3 below, the `AMENDMENT DOCUMENTS')". (e) Section 3 of the First Amendment is hereby amended to read in its entirety as follows: "3. CONDITIONS TO EFFECTIVENESS AND TO ADDITIONAL BORROWINGS. (a) Section 1 hereof, and the amendments to the Credit Agreement made pursuant thereto, shall become effective upon the execution and delivery of counterparts of this Amendment by the Borrower and the Lender; PROVIDED, HOWEVER, that until the delivery to the Lender of all documents and instruments specified in paragraphs (i) through (vi) below, in form and -2- substance satisfactory to the Lender, the Lender shall not hereafter be obligated to lend to the Borrower more than $6,000,000 in aggregate principal amount or more than $3,000,000 in any one month (and the obligation to make any such Loans shall in any event be subject to the satisfaction of the conditions precedent set forth in Section 4B of the Credit Agreement before giving effect to the amendments to the Credit Agreement provided for herein): (i) UCC-11 search results for the Borrower and its subsidiaries in each jurisdiction specified by the Lender; (ii) UCC financing statements with respect to the Collateral, listing the Borrower and/or its subsidiaries, as specified by the Lender, as debtor and the Lender as secured party and in proper form for filing in each jurisdiction specified by the Lender; (iii) Patent, trademark and copyright collateral assignments with respect to any registered patents, trademarks and copyrights of the Borrower and its subsidiaries specified by the Lender; (iv) Resolutions of the Board of Directors of the Borrower authorizing the execution, delivery and performance of each Amendment Document; (v) Opinion of Sidley & Austin, counsel to the Borrower, in form and substance satisfactory to the Lender, as to the Amendment Documents, the transaction contemplated thereby and as to such other customary matters as the Lender shall specify; and (vi) Such other documents and instruments as the Lender shall reasonably specify.". 3. REPRESENTATIONS AND WARRANTIES. The Borrower repeats and reaffirms the representations and warranties made by it in Section 5 of the Credit Agreement with the same effect as though such representations and warranties were made on and as of the date hereof (and for such purpose all references in said representations and warranties to "this Agreement" shall refer to the Credit Agreement as amended hereby), and the Borrower hereby further represents and warrants to the Lender that (a) the Borrower has full power and authority to execute, deliver and perform this Second Amendment; (b) this Second Amendment has been duly executed and delivered by the Borrower and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms; (c) the execution, delivery and performance by the Borrower of this Second Amendment does not violate, conflict with or constitute a breach of the Borrower's articles or certificate of incorporation or By-law, any law applicable to it or any court order, contract or agreement by which it or its properties are bound; and (d) no consent, approval or authorization of, or filing with, any governmental authority, and no consent of any other Person, is required in connection with the Borrower's execution, delivery, and performance of this Second Amendment, except for those already duly obtained. -3- 4. CONDITIONS TO EFFECTIVENESS AND TO ADDITIONAL BORROWINGS. Section 1 hereof, and the amendments to the Credit Agreement made pursuant thereto, shall become effective upon the execution and delivery of counterparts of this Second Amendment by the Borrower and the Lender and delivery to the Lender of all documents and instruments specified in paragraphs (a) through (c) below, in form and substance satisfactory to the Lender: (a) Resolutions of the Board of Directors of the Borrower authorizing the execution, delivery and performance of this Second Amendment; (b) Opinion of Sidley & Austin, counsel to the Borrower, in form and substance satisfactory to the Lender, as to this Second Amendment and as to such other customary matters as the Lender shall specify; and (c) Such other documents and instruments as the Lender shall reasonably specify. 5. MISCELLANEOUS. ------------- (a) EXPENSES. Without limiting the Borrower's obligations under Section 10.01 of the Credit Agreement, the Borrower agrees to pay all costs and expenses incurred by the Lender (including, without limitation, reasonable fees and disbursements of counsel to the Agent) in connection with the preparation, filing and recordation of this Second Amendment. (b) WAIVER OF JURY TRIAL. THE BORROWER WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY CLAIM, COUNTERCLAIM, ACTION OR OTHER PROCEEDING ARISING UNDER OR RELATING TO THIS SECOND AMENDMENT AND THE CREDIT AGREEMENT AS AMENDED HEREBY. (c) WAIVER OF CERTAIN CLAIMS. THE BORROWER HEREBY IRREVOCABLY WAIVES AND RELEASES ANY CLAIMS FOR PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES (OR SIMILAR CLAIMS) WHICH IT MAY NOW OR AT ANY TIME HEREAFTER HAVE AGAINST THE LENDER HEREUNDER, UNDER ANY CREDIT DOCUMENT OR IN CONNECTION WITH ANY TRANSACTION CONTEMPLATED HEREIN OR THEREIN. (d) GOVERNING LAW. This Second Amendment shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflict of laws rules thereof which would make the laws of any other jurisdiction applicable to this Second Amendment. (e) CONTINUING EFFECTIVENESS OF CREDIT AGREEMENT. Except as expressly amended hereby, all terms, conditions, covenants, representations and warranties contained in the Credit Agreement or any other Credit Document, and all rights of the Lender and obligations of the Borrower thereunder, shall remain in full force and effect. The Borrower confirms that the Credit Agreement and all other Credit Documents are in full force and effect and that the Borrower has no defenses, setoffs or counterclaims whatsoever to its obligations thereunder. -4- (f) NO THIRD PARTY BENEFICIARIES. No Person other than the parties hereto shall have any rights hereunder or be entitled to rely on this Second Amendment, and all third-party beneficiary rights are hereby expressly disclaimed. (g) REFERENCE IN CREDIT DOCUMENTS. From and after the date this Second Amendment becomes effective, all references to "Credit Agreement" in any Credit Document shall be to the Credit Agreement as amended hereby and as it may be further amended, modified, supplemented or restated hereafter. (h) EFFECTIVENESS. This Second Amendment shall become effective when counterparts of this Second Amendment are signed and delivered (including delivery by facsimile transmission) by each party hereto. (i) COUNTERPARTS. This Second Amendment may be executed in any number of separate counterparts, all of which taken together shall be deemed to constitute one and the same instrument, and all signatures need not appear on any one counterpart. Any party hereto may execute and deliver a counterpart of this Second Amendment by delivering to the other party, by facsimile transmission, the signature page of this Second Amendment signed by such party. Any party so delivering by facsimile transmission a counterpart of this Second Amendment signed by it shall promptly thereafter also deliver a manually signed counterpart of this Second Amendment to the other party. * * * * * -5- IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Second Amendment as of the date first above written. BORROWER PEAPOD, INC. By: /s/ Marc van Gelder ------------------------ Name: Marc van Gelder Title: President and Chief Executive Officer -6- IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Second Amendment as of the date first above written. LENDER KONINKLIJKE AHOLD NV By: /s/ A. Michael Meurs ------------------------ Name: A. Michael Meurs Title: Executive Vice President -7- EX-23 8 a2043710zex-23.txt INDEPENDENT AUDITORS' CONSENT EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT The Board of Directors and Stockholders Peapod, Inc.: We consent to incorporation by reference in the registration statements (No. 333-35405, No. 333-35445 and No. 333-58012) on Form S-8 of Peapod, Inc. of our reports dated February 9, 2001, except as to Note 16 which is as of March 11, 2001, related to the balance sheets of Peapod, Inc. as of December 31, 2000 and 1999, and the related statements of operations, comprehensive loss, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2000, and the related financial statement schedule, which reports appear in the December 31, 2000 annual report on Form 10-K of Peapod, Inc. /s/KPMG LLP Chicago, Illinois March 30, 2001 59 EX-24 9 a2043710zex-24.txt POWER OF ATTORNEY Exhibit 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints Andrew B. Parkinson and Earl Rachowicz, and each of them, with full power to act without the other, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him in his name, place and stead, in any and all capacities, (i) to sign a registration statement on Form S-8 relating to the registration by Peapod, Inc. (the "Company") of shares of Common Stock and associated Preferred Stock Purchase Rights in connection with the Company's Year 2000 Long Term Incentive Plan, Employee Incentive Plan (2000) and CEO Plan (2000), and any and all amendments (including post-effective amendments) to such registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission (the "SEC"); (ii) to sign the Company's annual report on Form 10-K for the year ended December 31, 2000, and any and all amendments to such annual report, and to file the same with all exhibits thereto, and other documents in connection therewith, with the SEC; and (iii) to sign a proxy statement on Schedule 14A relating to the 2001 Annual Meeting of the stockholders of the Company and any and all amendments to such proxy statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, granting unto such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has signed his name this 13th day of February, 2001. /s/ Gary W. Preston --------------------------------------- Gary W. Preston POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints Andrew B. Parkinson and Earl Rachowicz, and each of them, with full power to act without the other, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him in his name, place and stead, in any and all capacities, (i) to sign a registration statement on Form S-8 relating to the registration by Peapod, Inc. (the "Company") of shares of Common Stock and associated Preferred Stock Purchase Rights in connection with the Company's Year 2000 Long Term Incentive Plan, Employee Incentive Plan (2000) and CEO Plan (2000), and any and all amendments (including post-effective amendments) to such registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission (the "SEC"); (ii) to sign the Company's annual report on Form 10-K for the year ended December 31, 2000, and any and all amendments to such annual report, and to file the same with all exhibits thereto, and other documents in connection therewith, with the SEC; and (iii) to sign a proxy statement on Schedule 14A relating to the 2001 Annual Meeting of the stockholders of the Company and any and all amendments to such proxy statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, granting unto such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has signed his name this 13th day of February, 2001. /s/ Drayton McLane, Jr. --------------------------------------- Drayton McLane, Jr. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints Andrew B. Parkinson and Earl Rachowicz, and each of them, with full power to act without the other, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him in his name, place and stead, in any and all capacities, (i) to sign a registration statement on Form S-8 relating to the registration by Peapod, Inc. (the "Company") of shares of Common Stock and associated Preferred Stock Purchase Rights in connection with the Company's Year 2000 Long Term Incentive Plan, Employee Incentive Plan (2000) and CEO Plan (2000), and any and all amendments (including post-effective amendments) to such registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission (the "SEC"); (ii) to sign the Company's annual report on Form 10-K for the year ended December 31, 2000, and any and all amendments to such annual report, and to file the same with all exhibits thereto, and other documents in connection therewith, with the SEC; and (iii) to sign a proxy statement on Schedule 14A relating to the 2001 Annual Meeting of the stockholders of the Company and any and all amendments to such proxy statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, granting unto such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has signed his name this 13th day of February, 2001. /s/ Brian Hotarek --------------------------------------- Brian Hotarek POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints Andrew B. Parkinson and Earl Rachowicz, and each of them, with full power to act without the other, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him in his name, place and stead, in any and all capacities, (i) to sign a registration statement on Form S-8 relating to the registration by Peapod, Inc. (the "Company") of shares of Common Stock and associated Preferred Stock Purchase Rights in connection with the Company's Year 2000 Long Term Incentive Plan, Employee Incentive Plan (2000) and CEO Plan (2000), and any and all amendments (including post-effective amendments) to such registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission (the "SEC"); (ii) to sign the Company's annual report on Form 10-K for the year ended December 31, 2000, and any and all amendments to such annual report, and to file the same with all exhibits thereto, and other documents in connection therewith, with the SEC; and (iii) to sign a proxy statement on Schedule 14A relating to the 2001 Annual Meeting of the stockholders of the Company and any and all amendments to such proxy statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, granting unto such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has signed his name this 13th day of February, 2001. /s/ William Grize --------------------------------------- William Grize POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints Andrew B. Parkinson and Earl Rachowicz, and each of them, with full power to act without the other, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him in his name, place and stead, in any and all capacities, (i) to sign a registration statement on Form S-8 relating to the registration by Peapod, Inc. (the "Company") of shares of Common Stock and associated Preferred Stock Purchase Rights in connection with the Company's Year 2000 Long Term Incentive Plan, Employee Incentive Plan (2000) and CEO Plan (2000), and any and all amendments (including post-effective amendments) to such registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission (the "SEC"); (ii) to sign the Company's annual report on Form 10-K for the year ended December 31, 2000, and any and all amendments to such annual report, and to file the same with all exhibits thereto, and other documents in connection therewith, with the SEC; and (iii) to sign a proxy statement on Schedule 14A relating to the 2001 Annual Meeting of the stockholders of the Company and any and all amendments to such proxy statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, granting unto such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has signed his name this 13th day of February, 2001. /s/ Trygve E. Myhren --------------------------------------- Trygve E. Myhren POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints Andrew B. Parkinson and Earl Rachowicz, and each of them, with full power to act without the other, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him in his name, place and stead, in any and all capacities, (i) to sign a registration statement on Form S-8 relating to the registration by Peapod, Inc. (the "Company") of shares of Common Stock and associated Preferred Stock Purchase Rights in connection with the Company's Year 2000 Long Term Incentive Plan, Employee Incentive Plan (2000) and CEO Plan (2000), and any and all amendments (including post-effective amendments) to such registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission (the "SEC"); (ii) to sign the Company's annual report on Form 10-K for the year ended December 31, 2000, and any and all amendments to such annual report, and to file the same with all exhibits thereto, and other documents in connection therewith, with the SEC; and (iii) to sign a proxy statement on Schedule 14A relating to the 2001 Annual Meeting of the stockholders of the Company and any and all amendments to such proxy statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, granting unto such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has signed his name this 13th day of February, 2001. /s/ Maarten Dorhout Mees --------------------------------------- Maarten Dorhout Mees POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints Andrew B. Parkinson and Earl Rachowicz, and each of them, with full power to act without the other, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him in his name, place and stead, in any and all capacities, (i) to sign a registration statement on Form S-8 relating to the registration by Peapod, Inc. (the "Company") of shares of Common Stock and associated Preferred Stock Purchase Rights in connection with the Company's Year 2000 Long Term Incentive Plan, Employee Incentive Plan (2000) and CEO Plan (2000), and any and all amendments (including post-effective amendments) to such registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission (the "SEC"); (ii) to sign the Company's annual report on Form 10-K for the year ended December 31, 2000, and any and all amendments to such annual report, and to file the same with all exhibits thereto, and other documents in connection therewith, with the SEC; and (iii) to sign a proxy statement on Schedule 14A relating to the 2001 Annual Meeting of the stockholders of the Company and any and all amendments to such proxy statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, granting unto such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has signed his name this 13th day of February, 2001. /s/ Mark Van Stekelenburg --------------------------------------- Mark Van Stekelenburg POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints Andrew B. Parkinson and Earl Rachowicz, and each of them, with full power to act without the other, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him in his name, place and stead, in any and all capacities, (i) to sign a registration statement on Form S-8 relating to the registration by Peapod, Inc. (the "Company") of shares of Common Stock and associated Preferred Stock Purchase Rights in connection with the Company's Year 2000 Long Term Incentive Plan, Employee Incentive Plan (2000) and CEO Plan (2000), and any and all amendments (including post-effective amendments) to such registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission (the "SEC"); (ii) to sign the Company's annual report on Form 10-K for the year ended December 31, 2000, and any and all amendments to such annual report, and to file the same with all exhibits thereto, and other documents in connection therewith, with the SEC; and (iii) to sign a proxy statement on Schedule 14A relating to the 2001 Annual Meeting of the stockholders of the Company and any and all amendments to such proxy statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, granting unto such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has signed his name this 13th day of February, 2001. /s/ Andrew B. Parkinson --------------------------------------- Andrew B. Parkinson POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints Andrew B. Parkinson and Earl Rachowicz, and each of them, with full power to act without the other, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him in his name, place and stead, in any and all capacities, (i) to sign a registration statement on Form S-8 relating to the registration by Peapod, Inc. (the "Company") of shares of Common Stock and associated Preferred Stock Purchase Rights in connection with the Company's Year 2000 Long Term Incentive Plan, Employee Incentive Plan (2000) and CEO Plan (2000), and any and all amendments (including post-effective amendments) to such registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission (the "SEC"); (ii) to sign the Company's annual report on Form 10-K for the year ended December 31, 2000, and any and all amendments to such annual report, and to file the same with all exhibits thereto, and other documents in connection therewith, with the SEC; and (iii) to sign a proxy statement on Schedule 14A relating to the 2001 Annual Meeting of the stockholders of the Company and any and all amendments to such proxy statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, granting unto such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has signed his name this 13th day of February, 2001. /s/ Marc Smith --------------------------------------- Marc Smith POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints Andrew B. Parkinson and Earl Rachowicz, and each of them, with full power to act without the other, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him in his name, place and stead, in any and all capacities, (i) to sign a registration statement on Form S-8 relating to the registration by Peapod, Inc. (the "Company") of shares of Common Stock and associated Preferred Stock Purchase Rights in connection with the Company's Year 2000 Long Term Incentive Plan, Employee Incentive Plan (2000) and CEO Plan (2000), and any and all amendments (including post-effective amendments) to such registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission (the "SEC"); (ii) to sign the Company's annual report on Form 10-K for the year ended December 31, 2000, and any and all amendments to such annual report, and to file the same with all exhibits thereto, and other documents in connection therewith, with the SEC; and (iii) to sign a proxy statement on Schedule 14A relating to the 2001 Annual Meeting of the stockholders of the Company and any and all amendments to such proxy statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, granting unto such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has signed his name this 13th day of February, 2001. /s/ Marc van Gelder --------------------------------------- Marc van Gelder POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints Andrew B. Parkinson and Earl Rachowicz, and each of them, with full power to act without the other, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him in his name, place and stead, in any and all capacities, (i) to sign a registration statement on Form S-8 relating to the registration by Peapod, Inc. (the "Company") of shares of Common Stock and associated Preferred Stock Purchase Rights in connection with the Company's Year 2000 Long Term Incentive Plan, Employee Incentive Plan (2000) and CEO Plan (2000), and any and all amendments (including post-effective amendments) to such registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission (the "SEC"); (ii) to sign the Company's annual report on Form 10-K for the year ended December 31, 2000, and any and all amendments to such annual report, and to file the same with all exhibits thereto, and other documents in connection therewith, with the SEC; and (iii) to sign a proxy statement on Schedule 14A relating to the 2001 Annual Meeting of the stockholders of the Company and any and all amendments to such proxy statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, granting unto such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has signed his name this 13th day of February, 2001. /s/ Ronald van Solt --------------------------------------- Ronald van Solt -----END PRIVACY-ENHANCED MESSAGE-----