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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, 1999 Commission file number 0-22557
PEAPOD, INC.
(Exact name of Registrant as specified in its charter)
Delaware 36-4118175
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(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 27, 2000: $38,591,248 based on a closing price of
$2.9375 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 27, 2000 was 18,402,591.
Documents Incorporated by Reference
Portions of the registrant's Proxy Statement for the 2000 Annual Meeting of
Stockholders (to be filed on or before April 28, 2000) are incorporated by
reference into Part III, as indicated herein.
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PEAPOD, INC.
Form 10-K Annual Report -- 1999
Table of Contents
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Forward-Looking Statements........................................................................... 1
Risk Factors......................................................................................... 1
PART I............................................................................................... 10
Item 1. Business.............................................................................. 10
Item 2. Properties............................................................................ 16
Item 3. Legal Proceedings..................................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders................................... 16
PART II.............................................................................................. 16
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters............. 16
Item 6. Selected Financial Data............................................................... 17
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations. 18
Item 7a. Quantitative and Qualitative Disclosure about Market Risk............................. 21
Item 8. Financial Statements and Supplementary Data........................................... 22
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.. 40
PART III............................................................................................. 41
Item 10. Directors and Executive Officers of the Registrant.................................... 41
Item 11. Executive Compensation................................................................ 42
Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 42
Item 13. Certain Relationships and Related Transactions........................................ 42
PART IV.............................................................................................. 42
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................... 42
SIGNATURES........................................................................................... 47
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FORWARD-LOOKING STATEMENTS
All statements in this report, other than statements of historical fact,
including statements regarding the Company's competitive strengths, the
Company's business strategy, markets for the Company's products, general trends
and trends in the Company's operations or financial results, as well as other
statements including words such as "anticipate," "believe," "plan," "estimate,"
"expect," "intend" or other similar expression, constitute "forward-looking
statements" under The Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are contained in "Business," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," in other
portions of this report and in the Company's 1999 annual report to
shareholders. Such forward-looking statements are subject to known and unknown
risks, uncertainties and other factors which may cause actual results to be
materially different from those contemplated by the forward-looking statements.
Important factors that could cause actual results to differ materially from our
expectations are disclosed under "Risk Factors" and elsewhere in this report and
expressly qualify all forward-looking statements.
RISK FACTORS
The Company's business presents various risks for its shareholders 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
listed 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, assumes
that the Company is able to obtain adequate capital resources to continue its
operations and to execute its business plan.
The Company has limited capital resources making its ability to continue
operations uncertain; independent auditors' report contains uncertainty
paragraph.
On March 16, 2000, the Company issued a press release announcing that its CEO
and President was departing due to health reasons, and as a result, a previously
announced $120 million financing had been terminated. The Company has
experienced recurring losses from operations since its inception and has limited
resources. The Company has historically relied upon equity financings to fund
its operations because its internally generated cash flows from operations have
historically been, and continue to be, insufficient for its cash needs.
Because of its limited resources, the viability of Peapod is dependent upon its
ability to quickly raise sufficient capital to meet its cash requirements. Its
financial advisors are currently exploring strategic alternatives available to
the Company, including possible financings or a possible sale of Peapod.
However, there can be no assurances that the Company will be successful in
finding or completing a transaction or that its resources will be sufficient to
enable it to continue operations during this process. The accompanying
financial statements have been prepared assuming that the Company will continue
as a going concern. However, the accompanying Independent Auditors' Report
states that Peapod has experienced recurring losses from operations which have
adversely affected Peapod's liquidity and that these conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
In addition, if the Company completes a financing 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 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
centralized, dedicated distribution model. Over the past two years, the Company
has opened two centralized distribution centers and has signed a lease for a
third center. The Company intends to centralize all operations over time. Its
limited operating history and its recent
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shift to a centralized distribution model make an evaluation of its business and
prospects very difficult. You must consider 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 its distribution centers;
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 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 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, its ability to maintain customer
relationships or develop additional customer relationships that result in repeat
orders will be materially adversely affected.
The Company must effectively manage its growth and successfully implement its
expansion strategy.
The Company's recent growth has placed, and is expected to continue to place,
a significant strain on its managerial, operational, technical and financial
resources. As of December 31, 1998, the Company had approximately 240 full-time
and 1,125 part-time employees, as compared to the approximately 610 full-time
and 410 part-time employees as of December 31, 1999. During this period, the
number of its customers grew from 95,000 to 111,900. The Company expects
operating expenses and staffing levels to increase substantially in the future
as it expands into new markets and increases penetration in existing markets.
To manage its growth, the Company must expand its operational and technical
capabilities; increase, train and manage its employee base; and manage multiple
relationships with various retailers and other third parties. If the Company
fails to implement effective management and operating systems, add resources on
a cost-effective basis or effectively manage its expansion, its business may be
materially adversely affected.
A critical part of its business strategy is to expand its business by opening
additional distribution centers in new and existing markets to achieve economies
of scale. Its ability to successfully and cost-effectively expand its business
to additional geographic markets will depend upon a number of factors,
including:
. the availability of capital to fund growth;
. the availability of appropriate and affordable sites that can
accommodate its distribution centers;
. its ability to successfully and cost-effectively hire and train
qualified employees to operate new distribution centers;
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. its ability to develop relationships with local and regional
distributors, vendors and other product providers;
. acceptance of its product and service offerings; and
. competition.
The number and timing of its expansion into new markets and the opening of
new distribution centers are dependent on these factors and are therefore
subject to considerable uncertainty.
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 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.
To develop its 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.
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, 1999, the Company had an accumulated
deficit of $58,513,000, representing losses from June 1997 through December
1999. The Company incurred net losses of $28,453,000 for the year ended December
31, 1999. The Company will continue to incur significant capital and operating
expenses over the next several years in connection with its planned expansion,
including:
. the construction of and equipment for new distribution centers in
additional geographic markets;
. the continued expansion and development of operations at its
existing distribution centers;
. the conversion of existing markets from a retailer partnership
model to a centralized distribution model;
. increases in personnel;
. brand development, marketing and other promotional activities;
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. the continued development of its computer network, warehouse
management and order fulfillment systems and delivery
infrastructure; and
. the development of strategic business relationships.
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;
. generate a sufficient average order size;
. realize repeat orders from a significant number of customers;
. increase gross margins;
. build additional distribution centers in new markets; and
. convert existing markets from the retailer partnership model to the
centralized distribution model.
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.
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 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.
The Company faces intense competition from traditional and online retailers of
grocery products.
The grocery retailing market is extremely competitive. Local, regional, and
national food chains, independent food stores and markets, as well as online
grocery retailers comprise its principal competition, although the Company also
faces substantial competition from convenience 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. The Company expects this competition to
intensify as more traditional and online grocery retailers offer competitive
services.
The Company also competes with a number of online retailers including Webvan
Group, Inc., NetGrocer.com, Inc., HomeGrocer.com, Inc., HomeRuns.com, Inc.,
Streamline.com, Inc., ShopLink.com, Inc. and GroceryWorks.com, Inc., as well as
new entrants to the market. Many 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 which would have a material adverse effect on
its business, net sales and operating margins.
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If the Company fails to generate sufficient levels of repeat orders from its
customers, 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 aggressively
markets its service to reduce customer attrition and increase customer usage.
However, its marketing efforts may not be successful. High rates of customer
attrition could have a material adverse effect on its business.
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 its vendors' acceptance of its
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.
Its efforts to build strong brand identity and customer loyalty may not be
successful.
As more competitors emerge in the online grocery retailer market, the Company
will need to strengthen its brand identity and brand loyalty. In order to
attract and retain consumers and vendors, and respond to competitive pressures,
the Company may increase spending substantially to create and maintain brand
loyalty among these groups. In particular, the Company may expand its current
advertising campaigns by conducting online 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.
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 a network of manufacturers, wholesalers and
distributors. The Company currently relies on retailers 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. In addition, its key vendors may establish their own online retailing
efforts, which may impact its ability to get sufficient product allocations from
these vendors. Many of its key vendors also supply products to the retail
grocery industry and its online competitors. 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 depends on its retail partners in several markets
The Company depends on its retail partners in several of its markets. These
retail partners provide not only the products the Company sells to consumers,
but also, in certain cases, many of the fulfillment services. Consequently,
factors affecting its retail partners, such as labor disputes or supply
problems, could have a material adverse effect on its 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 its retail
partners. If cooperative marketing efforts are not effective to acquire or
retain customers, its business could be materially adversely affected. In
addition, agreements with its retail partners are generally terminable by either
party upon notice to the other party. If any of its retail partners were to
terminate its relationship at a time when the Company did not have an
alternative arrangement in place, or during a period of transition by the
Company to the use of a distribution center, the Company's business could be
materially adversely affected.
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The Company may need substantial additional capital to fund its planned
expansion, and it cannot be sure that additional financing will be available.
The Company requires substantial amounts of working capital to fund its
business. In addition, the opening of new distribution centers and the continued
development of its order fulfillment and delivery systems requires significant
amounts of capital. Since its inception, the Company has experienced negative
cash flow from operations and expects to experience significant negative cash
flow from operations for the foreseeable future. In the past, the Company has
funded its operating losses and capital expenditures through proceeds from
equity offerings. The Company expects to require substantial additional capital
to fund its expansion program and operating expenses. Its future capital needs
will be highly dependent on the number of additional distribution centers the
Company opens, the timing of openings and the success of its facilities once
they are launched. Therefore, the Company may need to raise additional capital
to fund its planned expansion. The Company cannot be certain that additional
financing will be available on favorable terms when required, or at all. If the
Company is unable to obtain sufficient additional capital when needed, the
Company could be forced to alter its business strategy, delay or abandon some of
its expansion plans or sell assets. Any of these events would have a material
adverse effect on its business, financial condition and its ability to reduce
losses or generate profits. 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's limited operating history makes financial forecasting difficult.
As a result of the Company's limited operating history, it is difficult to
accurately forecast its revenue. The Company bases its current and future
expense levels on its operating plans and estimates of future revenue, and its
expenses are dependent in large part upon its facilities and product costs.
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. 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 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 timing and nature of expansion efforts in both new and existing
markets;
. the conversion of existing markets to the centralized distribution
model;
. 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;
. increases in personnel, marketing and other operating expenses to
support its anticipated growth;
. its inability to obtain new customers or retain existing customers
at reasonable cost;
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. its inability to manage its 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;
. its inability to adequately maintain, upgrade and develop its
service, its computer network or the systems that the Company use
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;
. 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 of its company. In that event, the price of the common stock could
decline, perhaps substantially.
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
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 assurance 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.
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,
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the growth and development of the market for online commerce may lead to more
stringent consumer protection laws which 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 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. In addition, the Governor of California recently vetoed legislation
which would have prohibited a public agency from authorizing retail store
developments exceeding 100,000 square feet if more than a small portion of the
store were devoted to the sale of non-taxable items, such as groceries. While it
is not clear whether its operations would be considered a retail store for
purposes of this kind of legislation, there can be no assurances that other
state or local governments will not seek to enact similar laws or that the
Company would be successful if forced to challenge the applicability of this
kind of legislation to its distribution facilities. The expenses associated with
any challenge to this kind of legislation could be material. If the Company is
required to comply with new regulations or legislation or new interpretations of
existing regulations or legislation, this compliance could cause the Company to
incur additional expenses or alter its business model.
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.
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 the Company 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
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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. Its 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 insurance policies may not adequately compensate 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
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.
9
<PAGE>
Certain provisions in the Company's charter, by-laws and Delaware law may make
it more difficult for a third party to acquire control of it.
Certain provisions of its charter and by-laws and certain sections of the
Delaware General Corporation Law may discourage takeover attempts not first
approved by the Board of Directors, including takeovers which some stockholders
may deem to be in their best interests. These provisions could delay or
frustrate the removal of incumbent directors or the assumption of control by an
acquirer, even if such removal or assumption of control would be beneficial to
stockholders. These provisions also could discourage or make more difficult a
merger, tender offer or proxy contest, even if such events would be beneficial
to the interest of stockholders. These provisions include, among other things: a
classified Board of Directors serving staggered three-year terms; the
elimination of stockholder voting by consent; a provision providing that only
the President or Board of Directors may call special meetings of stockholders;
the removal of directors without cause only by the holders of at least 75% of
the shares entitled to vote; a provision permitting the Board of Directors to
take into account factors in addition to potential economic benefits to
stockholders and certain advance notice requirements for stockholder proposals
and nominations for election to the Board of Directors. The Company is also
subject to Section 203 of the Delaware General Corporation Law which, in
general, imposes restrictions upon certain acquirers (including their affiliates
and associates) of 15% or more of its common stock. In addition, its
stockholders rights plan may discourage or prevent takeover attempts that are
not first approved by the Board of Directors (including takeovers which certain
stockholders may deem to be in their best interests).
PART I
Item 1. Business
The Company
Peapod(R) is one of America's leading Internet grocers and a provider of
targeted media and research services. Peapod's "Smart Shopping for Busy
People(R)" 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 email 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. The Company
partnered with a retailer in each market, and fulfilled customer orders through
a network of existing retail stores. In 1997, the Company determined that, in
order to satisfy increasing consumer demand, ensure high quality service and
reduce its cost structure, it would shift its fulfillment to a centralized,
dedicated distribution model. The Company has opened new distribution centers in
Chicago and San Francisco and has signed a lease for a third center in Dallas.
The Company intends to centralize all operations over time, and will enter new
markets only with centralized, dedicated distribution.
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, for both in-store and warehouse-based fulfillment, 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 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
10
<PAGE>
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.
As of December 31, 1999, Peapod had 111,900 customers and offered its
Internet grocery service in eight metropolitan markets: Chicago, IL; San
Francisco/San Jose, CA; Columbus, OH; Boston, MA; Houston, Dallas and Austin,
TX, and Long Island, NY.
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 around 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 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 that will reduce 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 it operates its
new centralized model, 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.
Leverage Local Fulfillment Infrastructure. Peapod has the opportunity to
leverage its local fulfillment capabilities, including its facilities, efficient
picking systems and home deliveries, to provide additional products and services
to its customer base. For example, Peapod has launched a nationwide delivery
program, offering thousands of non-perishable grocery items and household goods
that are drop-shipped on a national basis from an existing Peapod warehouse. As
a component of this service, the Company has developed a bundled goods program
called "Peapod Packages" to deliver customized bundles of non-perishable grocery
items for special occasions, including new baby packages and college care
packages. The Company's national delivery program is expected to increase
Peapod's product revenues, while requiring little additional overhead, since the
inventory and fulfillment operations are conducted from existing market
warehouses. Peapod can also use the program to promote the Company's brand name
on a national basis and to identify potential new markets by evaluating regional
demand for its service. Over time, this service can be expanded to include
gourmet foods, menu and recipe fulfillment, and specialized gift services.
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.
11
<PAGE>
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. 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. The Internet will be an increasingly important marketing medium
for building brand awareness and attracting new customers.
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 the store and waiting in check-out
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.
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 $123, which the Company believes
is five times the in-store average.
As of December 31, 1999, Peapod offered its Internet grocery service in eight
metropolitan markets, and conducted delivery operations from 22 fulfillment
centers covering 8,476,100 households, or approximately 8% of U.S. households.
Peapod's service areas encompassed approximately 1,759,000 households in
Chicago, 1,747,800 households in San Francisco/San Jose, 407,300 households in
Columbus, 1,531,600 households in Boston, 1,076,800 households in Houston,
1,098,300 households in Dallas, 307,700 households in Austin and 547,600
households in Long Island.
Product Supply Relationships. From its founding in 1989 until 1998, the
Company serviced consumers exclusively in partnership with traditional grocery
retailers. The Company partnered with a retailer in each market, and fulfilled
customer orders through a network of existing retail stores. In 1997, the
Company determined that, in order to satisfy increasing consumer demand, ensure
high quality service and reduce its cost structure, it would shift its
fulfillment to a centralized, dedicated distribution model. During 1999, Peapod
transitioned in San Francisco and Chicago to the "centralized distribution
model" and has begun the process of transitioning its operations in the Texas
markets. In addition, Peapod's Long Island market has utilized the centralized
distribution model, although at smaller scale, since it opened in late 1998.
12
<PAGE>
In the centralized distribution model, the Company constructs a distribution
center for its own exclusive use in storing, picking, packing and delivering
Internet grocery orders. The Company purchases products on a wholesale basis
for the distribution center from a variety of suppliers, including in some cases
traditional retailers. Supplier relationships in our centralized facilities
include Jewel/Osco in Chicago; Certified Grocers of California, Walgreen Co.,
and Andronico's Market in San Francisco; and Giant Food Stores, Inc. in Long
Island.
The centralized distribution model supports specialized product offerings and
delivery efficiencies by allowing "perimeter" retailers (e.g. HBA, perishables)
to cross-dock products on the day of delivery, thus eliminating the need to
warehouse additional products. The centralized distribution model, in
conjunction with Peapod's SmartFlow(TM) supply/demand management technology, is
designed to improve profitability by allowing Peapod to rapidly expand the scope
of its operations, achieve lower product costs, better control its inventory,
increase efficiencies in fulfillment center overhead, enhance customer
satisfaction, and respond to increased consumer demand.
The Company continues to operate the partnership model under existing
contracts with the following retailers: in Columbus, Ohio, The Kroger Company;
in Boston, Massachusetts, The Stop & Shop Supermarket Company; and in Houston,
Dallas and Austin, Texas, Randalls Food & Drug Inc.
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. The Company has agreements to provide interactive
marketing services to a number of national consumer goods and service companies.
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.
The Company's extensive customer data profiles also allow it to provide
consumer goods companies with improved research and data products at a lower
cost than traditional research services. For example, the Company's Consumer
Directions(TM) is a research cooperative designed to provide consumer package
goods companies with information about behavior in the Internet distribution
channel. Additionally, Peapod's captive audience allows the Company to create
and maintain highly-targeted research panels at a cost the Company believes to
be substantially lower than the consumer panels of current research firms.
National Delivery Program. Peapod's national delivery program offers
thousands of non-perishable grocery items and household goods that are drop-
shipped from an existing Peapod warehouse. As a component of this service, the
Company has developed a bundled goods program called "Peapod Packages" to
deliver customized bundles of non-perishable grocery items for special
occasions, including new baby packages and college care packages. The Company's
national delivery program has the potential to increase Peapod's product
revenues, while requiring little additional overhead, since the inventory and
fulfillment operations are conducted from existing market warehouses. Peapod
can also use the program to promote the Company's brand name on a national basis
and to identify potential new markets by evaluating regional demand for its
service. Over time, this service can be expanded to include gourmet foods, menu
and recipe fulfillment, and specialized gift services.
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Technology
The Website. The www.peapod.com Website provides the Company with a
distributed, scalable, and secure online grocery retailing capability that is
accessible and easy to use for consumers. The highly specialized software has
been designed around industry standard architectures and provides 24-hour/7-day
per week availability for online shopping.
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, using a combination
of commercially-available and internally-developed applications, reside largely
in the Company's fulfillment centers and provide logistics support for order
picking and vehicle routing. 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 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 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,
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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 Scotty's Home Market, which merged
with Streamline.com, Inc. In San Francisco, Peapod competes with Webvan
Group, Inc., and Webvan has announced its intentions to commence operations in
Chicago in the third quarter of 2000. In Boston, Peapod competes with
Streamline.com, Inc., Homeruns.com, Inc., and ShopLink.com, Inc. In Dallas,
Peapod competes with GroceryWorks.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. 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, 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. See
"--Peapod Services; Interactive Marketing."
Employees
As of December 31, 1999, the Company had approximately 610 full-time and 410
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 530 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 does not have any patents. 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.
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Item 2. Properties
The following are the principal properties of the Company:
<TABLE>
<CAPTION>
Location Function Owned/Leased Usable Space
------------------ --------------------- --------------------- --------------------
<S> <C> <C> <C>
Skokie, IL Corporate Office Leased 49,086
Niles, IL Warehouse Leased 70,958
Union City, CA Warehouse Leased 46,104
</TABLE>
Item 3. Legal Proceedings
On March 17, 2000, a class action complaint was filed in the United States
District Court for the Northern District of Illinois by Lila Gold against the
Company, Thomas Parkinson and Andrew Parkinson, each in his capacity as a
director and officer, alleging violations of (i) Section 10(b) of the Exchange
Act and Rule 10b-5 thereunder and (ii) Section 20(a) of the Exchange Act. On
March 21, 2000, a class action complaint was filed in the United States District
Court for the Northern District of Illinois (Eastern Division) by Jonathan
Polansky against the Company, Thomas Parkinson and Andrew Parkinson, each in his
capacity as a director and officer, alleging violations of (i) Section 10(b) of
the Exchange Act and Rule 10b-5 thereunder and (ii) Section 20(a) of the
Exchange Act. On March 29, 2000, a class action complaint was filed in the
United States District Court for the Northern District of Illinois (Eastern
Division) against the Company, Thomas Parkinson and Andrew Parkinson, each in
his capacity as a director and officer, alleging violations of (i) Section 10(b)
of the Exchange Act and Rule 10b-5 thereunder and (ii) Section 20(a) of the
Exchange Act. None of the complaints specifies the amount of damages sought.
Although the Company intends to vigorously defend against these complaints,
there can be no assurances that the outcome of these lawsuits would not have a
material adverse effect on the Company's financial condition or results of
operations.
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 27, 2000, there were approximately 367 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 1998 and 1999 follows:
<TABLE>
<CAPTION>
1998 1999
----------------------------------- -----------------------------------
High Low High Low
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Calendar Quarter Ended:
March 31............................... $ 8.750 $4.500 $11.250 $7.063
June 30................................ 10.030 4.063 14.875 6.938
September 30........................... 8.688 4.688 10.500 6.313
December 31............................ 13.500 2.750 15.000 7.375
</TABLE>
The Company has not declared any dividends since its initial public offering.
The Company does not anticipate paying cash dividends on its common stock in the
foreseeable future. Any payment of cash dividends in the future will depend
upon the financial condition, capital requirements and earnings of the Company,
limitations on dividend payments pursuant to the terms of debt agreements and
such other factors as the Board of Directors may deem relevant.
16
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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, 1998 and 1999 and for the
years ended December 31, 1997, 1998 and 1999 have been audited by KPMG LLP,
independent certified public accountants, whose report thereon appears elsewhere
in this document. The statement of operations and balance sheet data set forth
below as of, and for the years ended, December 31, 1995 and 1996, as well as the
balance sheet data as of December 31, 1997, have been derived from the Company's
unaudited internal financial statements and reflect all adjustments which
management considers necessary for a fair and consistent presentation of the
results of operations for those periods. 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.
<TABLE>
<CAPTION>
(dollars in thousands, except Years Ended December 31,
---------------------------------------------------------------------------------
share and per-share data)
1995 1996 1997 1998 1999
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Statement of Operations:(1)
Net sales(2) $ 15,209 $ 27,642 $ 56,943 $ 69,265 $ 73,134
Cost of sales (11,997) (20,485) (40,823) (53,903) (55,585)
------------- ------------- ------------- ------------- -------------
Gross profit 3,212 7,157 16,120 15,362 17,549
Operating expenses (9,796) (17,188) (31,060) (39,420) (47,199)
------------- ------------- ------------- ------------- -------------
Operating loss (6,584) (10,031) (14,940) (24,058) (29,650)
Net loss (6,592) (9,566) (12,979) (21,565) (28,453)
Basic and diluted net loss
per share $(0.79) $(0.82) $(0.87) $(1.27) $(1.62)
Shares used to compute
basic and diluted net
loss per share 8,357,585 11,664,956 14,915,734 16,964,439 17,542,990
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Operating Data:(1)
Markets(3)......................... 2 4 8 8 8
Customers(4)....................... 13,300 35,400 100,400 95,000 111,900
Orders (for the year ended)........ 124,100 201,100 396,600 494,700 571,300
Households in service area(5)...... 2,204,200 3,581,000 6,488,000 6,628,500 8,476,100
Balance Sheet Data:(1)
Cash and cash equivalents.......... $ 2,466 $ 13,039 $ 54,079 $ 4,341 $ 4,931
Marketable securities.............. -- -- 8,798 31,049 6,269
Total assets....................... 4,531 16,528 69,110 42,971 20,780
Long-term obligations.............. 374 340 701 395 1,129
Total stockholders' equity......... 1,413 8,403 54,803 33,606 9,710
</TABLE>
(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; subscriptions; 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 can be served from
Peapod's existing fulfillment centers (i.e., the facilities at which
customer orders are picked and packed for delivery).
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., some
fulfillment operations expenses that were administrative functions have been
moved to general and administrative and others which were advertising related
were moved to marketing and selling expenses).
RESULTS OF OPERATIONS
1999 Compared to 1998
- ---------------------
Net sales. Net sales, which are the sales of groceries and related products
to customers, subscription, service and other fees paid by customers and retail
partners, and fees from consumer goods companies for interactive advertising,
promotion and research services, increased by 6% from $69,265,000 in 1998 to
$73,134,000 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 conduct more of our
business from our centralized 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
to centralized fulfillment. Licensing revenues were $850,000 during 1998
compared to no such licensing revenue for 1999.
18
<PAGE>
Cost of sales. Cost of sales, which are the cost of groceries and related
products, 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 company
volumes operating through centralized fulfillment centers which generate higher
margins on products sold.
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 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
builds scale, gains expertise, and incurs duplicative cost during the initial
months of each new centralized fulfillment center's operation. Also contributing
significantly to the increase were the direct costs of picking, packing and
delivering 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 centralized facilities or into other existing
retail stores.
General and administrative. General and administrative expenses, which
include corporate staff, accounting and human resource functions, increased 22%
from $8,029,000 in 1998 to $9,788,000 in 1999. In 1999, a special charge of
$2,830,000 is attributed to investments in senior management in support of the
centralized fulfillment model.
Marketing and selling. Marketing and selling expense 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 decreased by 5% from $7,545,000 in 1998
to $7,168,000 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, which include new product development as well as the maintenance and
enhancement of existing systems, 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 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, which include non-capitalizable costs
incurred prior to opening a new market or distribution center, 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 and is in the process of expanding the Chicago distribution
center.
Other income (expense). Other income (expense) includes interest paid on
capital leases and interest earned on cash balances. 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 principle.
1998 Compared to 1997
- ---------------------
Net sales. Net sales increased 22% from $56,943,000 in 1997 to $69,265,000 in
1998. Revenues from the sale of groceries and related products increased 32%
from $43,487,000 in 1997 to $57,305,000 in 1998. This increase was principally
due to a 25% increase in the number of orders and a 6% increase in the size of
the
19
<PAGE>
average grocery order. The total number of orders increased from 396,600 in 1997
to 494,700 in 1998. Fees paid by customers and retail supply partners decreased
14% from $11,234,000 in 1997 to $9,650,000 in 1998. This decrease is
attributable to (i) lower fees paid by retail supply partners and (ii) reduced
customer fees. Total customers at December 31, 1997 and 1998 were 100,400 and
95,000, respectively. Decreases in the Company's customer base resulted largely
from closing the Atlanta market in January 1998 and from deliberate postponement
of acquisition marketing programs in 1998 to focus resources on centralizing the
distribution fulfillment model.
Fees from consumer goods companies for interactive advertising, promotion and
research decreased 34% from $2,222,000 in 1997 to $1,460,000 in 1998. The
decrease is due to the Company's decision to limit customer acquisition spending
and geographic growth during 1998. During 1998, $850,000 of maintenance and
licensing fees were recognized relating to the licensing of the Company's
software to Coles Myer Ltd. No such fees were recognized in 1997.
Cost of Sales. Cost of sales increased 32% from $40,823,000 in 1997 to
$53,903,000 in 1998, commensurate with the increase in net product sales.
Fulfillment operations. Fulfillment operations expenses increased 16% from
$14,469,000 in 1997 to $16,715,000 in 1998. This increase is primarily
attributable to the direct costs of picking, packing and delivering the
increased volume of orders.
At December 31, 1998, Peapod fulfilled customer orders from 36 fulfillment
centers compared to 52 such centers at the end of 1997. In 1998, 15 fulfillment
centers were consolidated into existing ones and 1 in Atlanta was closed when
the market closed in early 1998. One fulfillment center was added with the
opening of the New York market.
General and administrative. General and administrative expenses increased 35%
from $5,935,000 in 1997 to $8,029,000 in 1998. This increase resulted primarily
from expenses related to being a public company such as investor relations fees,
franchise taxes, permits and licenses, legal and accounting expenses. With the
growth and relocation of the Company's headquarters, occupancy expense also
increased.
Marketing and selling. Marketing and selling expenses decreased by 2% from
$7,726,000 in 1997 to $7,545,000 in 1998. The decrease in marketing and selling
expenses was attributable to savings for compensation-related expenses and a
delay in marketing programs offset by a fourth quarter 1998 write-off of prepaid
marketing costs. During 1998, the Company focused resources on transitioning its
fulfillment operations to a centralized distribution model. During that period
the Company reduced certain customer acquisition marketing expenditures.
System development and maintenance. System development and maintenance
expenses doubled from $1,696,000 in 1997 to $3,386,000 in 1998. This increase
resulted primarily from (i) higher staffing and associated expenses required to
support the Company's growth, (ii) evolution to a new centralized fulfillment
and Internet model, and (iii) a reduced amount of software development costs
capitalized in 1998.
Pre-opening costs. Pre-opening costs were $481,000 in 1998. No pre-opening
costs were incurred in 1997. The 1998 costs were related to opening the New York
market and the Chicago distribution center that opened in 1999.
Depreciation and amortization. Depreciation and amortization increased 165%
from $1,234,000 in 1997 to $3,264,000 in 1998. This increase 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 change in depreciable
lives of various fixed assets.
Other income (expense). Interest expense increased from $83,000 in 1997 to
$190,000 in 1998 related to additional capital leases. Investment income
increased from $2,044,000 in 1997 to $2,683,000 in 1998, resulting from the
investment of proceeds from the Company's initial public offering in June 1997.
20
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities increased from $24,294,000 in 1998 to
$25,912,000 in 1999. The change in cash used in operating activities was
primarily attributable to increased net losses, an increase in accounts payable,
a decrease in receivables and an increase in restricted cash. As of December 31,
1999, the Company had $3,343,000 in cash and cash equivalents, $6,269,000 in
marketable securities and $1,588,000 in restricted cash. The Company uses its
working capital to fund ongoing operations, marketing programs and geographic
expansion and to further develop its products and services.
As of December 31, 1999, the Company's principal sources of liquidity
consisted of $9,612,000 of cash and marketable securities. On March 16, 2000,
the Company announced that its CEO and President was departing due to health
reasons and that, as a result, a previously announced $120 million financing had
been terminated. As of that date, the Company had approximately $3.0 million
cash on hand, before giving effect to outstanding trade payables. The Company
has experienced recurring losses from operations since its inception. The
Company has historically relied upon equity financings to fund its operations
because its internally generated cash flows from operations have historically
been, and continue to be, insufficient for its cash needs. Because of its
limited resources, the viability of the Company is dependent upon its ability to
quickly raise sufficient capital to meet its cash requirements. The Company's
financial advisors are currently exploring strategic alternatives available to
the Company, including possible financings or a possible sale of the Company.
However, there can be no assurances that the Company will be successful in
finding or completing a transaction or that the Company's resources will be
sufficient to enable it to continue its operations during this process. The
factors described above raise substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
The Company believes that inflation has not had a material effect on its
operations.
YEAR 2000 DISCLOSURE
The "Year 2000" problem concerned the inability of information systems to
properly recognize and process date-sensitive information beyond December 31,
1999. The Company incurred costs associated with its Year 2000 compliance
totaling less than $500,000. The Company's internal software systems and
applications are all Year 2000 compliant and performed without incident.
Furthermore, the Company utilizes third party equipment, software and
content, including non-information technology systems (such as building
equipment and security systems). These third party information systems have
operated without incident.
RECENTLY ISSUED ACCOUNTING STANDARDS
There are no recently issued accounting standards that are believed to have a
material impact on the Company's financial statements.
Item 7a. Quantitative and Qualitative Disclosure about Market Risk
The Company does not have any derivative financial instruments as of December
31, 1999. However, the Company is exposed to interest rate risk. The Company has
established policies and procedures to manage the exposure to changes in the
market risk of its marketable securities, of which $4,704,000 are current and
$1,565,000 are non-current, none of which are considered trading securities. The
Company believes that the market risk arising from its marketable securities
holdings is not material.
The table below provides information about the Company's marketable
securities, including principal cash flows for 2000 and 2001, and the related
weighted average interest rates.
21
<PAGE>
<TABLE>
Principal amounts by expected maturity (in thousands): 2000 2001
------ ------
<S> <C> <C>
Corporate debt securities:
Principal................................................ $4,700 $ --
Weighted average interest rate........................... 6.76% $ --
Government obligations:
Principal................................................ $ -- $1,600
Weighted average interest rate........................... $ -- 5.43%
</TABLE>
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report......................................................................... 17
Balance Sheets as of December 31, 1999 and 1998...................................................... 18
Statements of Operations for the years ended December 31, 1999, 1998 and 1997........................ 19
Statements of Comprehensive Income for the years ended December 31, 1999, 1998 and 1997.............. 20
Statements of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997.............. 21
Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997........................ 22
Notes to Financial Statements........................................................................ 23
</TABLE>
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Peapod, Inc.:
We have audited the accompanying balance sheets of Peapod, Inc. as of December
31, 1999 and 1998, and the related statements of operations, comprehensive
income, stockholders' equity and cash flows for each of the years in the three-
year period ended December 31, 1999. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Peapod, Inc. as of December 31,
1999 and 1998, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1999, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that Peapod,
Inc. will continue as a going concern. As more fully described in Note 1 to the
financial statements, the Company has suffered recurring losses from operations,
which have adversely affected the Company's liquidity. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ KPMG LLP
Chicago, Illinois
February 11, 2000, except as to Notes 1 and 15,
which are as of March 29, 2000
23
<PAGE>
PEAPOD, INC.
BALANCE SHEETS
December 31, 1999 and 1998
(in thousands, except share data)
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................... $ 3,343 $ 4,341
Marketable securities....................................................... 4,704 15,836
Receivables, net of allowance for doubtful accounts of $232 and
$287 in 1999 and 1998..................................................... 1,478 2,516
Merchandise inventory....................................................... 458 --
Prepaid expenses............................................................ 473 186
Other current assets........................................................ 535 974
------------------ ------------------
Total current assets................................................... 10,991 23,853
Property and equipment:
Computer equipment and software............................................. 6,737 4,010
Service equipment and other................................................. 2,857 1,248
Leasehold improvements...................................................... 1,332 899
------------------ ------------------
Property and equipment, at cost.............................................. 10,926 6,157
Accumulated depreciation and amortization................................... (4,290) (2,252)
------------------ ------------------
Net property and equipment................................................... 6,636 3,905
Restricted cash.............................................................. 1,588 --
Non-current marketable securities............................................ 1,565 15,213
------------------ ------------------
Total assets........................................................... $ 20,780 $ 42,971
================== ==================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable............................................................ $ 6,147 $ 3,442
Accrued compensation........................................................ 497 802
Other accrued liabilities................................................... 1,897 2,688
Deferred revenue............................................................ 615 1,000
Current obligations under capital lease..................................... 690 590
------------------ ------------------
Total current liabilities.............................................. 9,846 8,522
Deferred revenue............................................................. 95 448
Obligations under capital lease, less current portion........................ 1,129 395
------------------ ------------------
Total liabilities...................................................... 11,070 9,365
Stockholders' equity:
Preferred stock, $.01 par value, authorized 5,000,000
shares, none issued and outstanding...................................... -- --
Common stock, $.01 par value, 50,000,000 shares authorized;
18,320,578 and 17,245,828 shares issued in 1999 and 1998.............. 183 172
Additional paid-in capital.................................................. 71,698 64,319
Note receivable from officer................................................ (2,369) --
Accumulated other comprehensive income -
Unrealized holding gain (loss) on available-for-sale securities......... (118) 83
Accumulated deficit......................................................... (58,513) (30,060)
Treasury stock, at cost, 141,749 and 117,476 shares in 1999 and 1998 (1,171) (908)
------------------ ------------------
Total stockholders' equity............................................. 9,710 33,606
------------------ ------------------
Total liabilities and stockholders' equity............................. $ 20,780 $ 42,971
================== ==================
</TABLE>
See accompanying notes to financial statements.
24
<PAGE>
PEAPOD, INC.
STATEMENTS OF OPERATIONS
Years ended December 31, 1999, 1998 and 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
-------------- --------------- ---------------
<S> <C> <C> <C>
Net sales................................... $ 73,134 $ 69,265 $ 56,943
Cost of sales............................... 55,585 53,903 40,823
-------------- --------------- ---------------
Gross profit................................ 17,549 15,362 16,120
Operating expenses:
Fulfillment operations.................... 23,580 16,715 14,469
General and administrative................ 9,788 8,029 5,935
Marketing and selling..................... 7,168 7,545 7,726
System development and
maintenance............................. 3,543 3,386 1,696
Depreciation and amortization............. 2,222 3,264 1,234
Pre-opening costs......................... 898 481 --
-------------- --------------- ---------------
Total operating expenses............... 47,199 39,420 31,060
-------------- --------------- ---------------
Operating loss.............................. (29,650) (24,058) (14,940)
Other income (expense):
Investment income......................... 1,384 2,683 2,044
Interest expense.......................... (187) (190) (83)
-------------- --------------- ---------------
Net loss.................................... $ (28,453) $ (21,565) $ (12,979)
============== =============== ===============
Net loss per share:
Basic..................................... $ (1.62) $ (1.27) $ (0.87)
Diluted................................... $ (1.62) $ (1.27) $ (0.87)
Shares used to compute net loss per share:
Basic..................................... 17,542,990 16,964,439 14,915,734
Diluted................................... 17,542,990 16,964,439 14,915,734
</TABLE>
See accompanying notes to financial statements.
25
<PAGE>
PEAPOD, INC.
(1) STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
----------- ----------- -----------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net loss $(28,453) $(21,565) $(12,979)
Other comprehensive income:
Unrealized holding gain (loss) on available-for-sale (201) 83 --
securities
----------- ----------- -----------
Comprehensive loss $(28,654) $(21,482) $(12,979)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements
26
<PAGE>
PEAPOD, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1999, 1998 and 1997
(in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Treasury Stock
------------------- ------------------
Additional
Paid-in
Shares Amount Shares Amount Capital
---------- ------ -------- ------- ----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997.................... 12,526,812 $125 -- $ -- $ 8,279
Issuance of stock prior to May 31, 1997 for
services rendered at a discount.............. 89,080 1 -- -- 577
Issuance of stock for services rendered....... 15,000 -- -- -- 105
Issuance of stock upon exercise of warrants... 8,125 1 -- -- 17
Issuance of stock upon exercise of options.... 213,540 2 -- -- 575
Treasury stock................................ -- -- (2,000) (19) --
Initial public offering of stock, net of
offering costs............................... 4,000,000 40 -- -- 58,080
Net loss - from January 1, 1997 through May
31, 1997..................................... -- -- -- -- (4,485)
Net loss - subsequent to May 31, 1997......... -- -- -- -- --
---------- ---- -------- ------- -------
Balance at December 31, 1997.................. 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
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 for employee stock purchase plan......... 416,087 4 -- -- 2,296
Treasury stock................................ -- -- (24,273) (263) --
Forgiveness of debt of officer................ -- -- -- -- --
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
========== ==== ======== ======= =======
<CAPTION>
Accumulated
Note Other
Receivable Comprehensive Accumulated
From Officer Income Deficit Total
------------ ------------- ----------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1997.................... $ -- $ -- $ (1) $ 8,403
Issuance of stock prior to May 31, 1997 for
services rendered at a discount.............. -- -- -- 578
Issuance of stock for services rendered....... -- -- -- 105
Issuance of stock upon exercise of warrants... -- -- -- 18
Issuance of stock upon exercise of options.... -- -- -- 577
Treasury stock................................ -- -- -- (19)
Initial public offering of stock, net of
offering costs............................... -- -- -- 58,120
Net loss - from January 1, 1997 through May
31, 1997..................................... -- -- -- (4,485)
Net loss - subsequent to May 31, 1997......... -- -- (8,494) (8,494)
------- ----- -------- ---------
Balance at December 31, 1997.................. -- -- (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......... (2,500) -- -- --
Issuance of stock for services rendered....... -- -- -- 140
Issuance of stock upon exercise of warrants... -- -- -- 50
Issuance of stock upon exercise of options
and for employee stock purchase plan......... -- -- -- 2,300
Treasury stock................................ -- -- -- (263)
Forgiveness of debt of officer................ 131 -- -- 131
Unrealized holding loss on available-for-sale -- (201) -- (201)
securities...................................
Net loss...................................... -- -- (28,453) (28,453)
------- ----- -------- --------
Balance at December 31, 1999.................. $(2,369) $(118) $(58,513) $ 9,710
======= ===== ======== ========
</TABLE>
(See accompanying notes to financial statements)
27
<PAGE>
See accompanying notes to financial statements.
28
<PAGE>
PEAPOD, INC.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................. $(28,453) $(21,565) $(12,979)
Adjustments to reconcile net loss to net cash used in
Operating activities:
Depreciation and amortization.......................... 2,222 3,264 1,234
Stock and options issued for services rendered......... 140 45 533
Forgiveness of debt of officer......................... 131 -- --
Loss on disposition of fixed assets.................... 33 270 204
Changes in operating assets and liabilities:
(Increase) decrease in receivables, net.............. 1,038 (1,321) (660)
(Increase) decrease in merchandise inventory......... (458) -- --
(Increase) decrease in prepaid expenses.............. (287) 258 5
(Increase) decrease in other current assets.......... 439 (746) (39)
(Increase) decrease in restricted cash............... (1,588) -- --
Increase (decrease) in accounts payable.............. 2,705 (4,072) 4,144
Increase (decrease) in accrued compensation.......... (305) (456) 179
Increase (decrease) in other accrued liabilities..... (791) 1,762 50
Increase (decrease) in deferred revenue.............. (738) (1,733) 1,052
-------------- -------------- --------------
Net cash used in operating activities............. (25,912) (24,294) (6,277)
Cash flows from investing activities:
Property and equipment purchased......................... (3,042) (2,346) (1,515)
Capitalized software development costs................... -- (513) (849)
Purchases of marketable securities....................... (8,770) (53,352) (8,798)
Maturities and sales of marketable securities............ 33,349 31,184 --
Proceeds from sale of property and equipment............. 14 117 21
-------------- -------------- --------------
</TABLE>
29
<PAGE>
<TABLE>
<S> <C> <C> <C>
Net cash provided by (used in) investing
activities..................................... 21,551 (24,910) (11,141)
Cash flows from financing activities:
Proceeds from issuance of stock, net of offering costs..... 2,400 -- 58,270
Proceeds from issuance of stock upon exercise of warrants.. 50 64 18
Proceeds from issuance of stock upon exercise of options
and employee stock purchase plan.......................... 2,037 176 558
Payments on capital lease obligations...................... (1,124) (774) (388)
---------- ----------- -----------
Net cash provided by (used in) financing activities 3,363 (534) 58,458
---------- ----------- -----------
Net increase (decrease) in cash and cash equivalents........ (998) (49,738) 41,040
Cash and cash equivalents at beginning of year.............. 4,341 54,079 13,039
---------- ----------- -----------
Cash and cash equivalents at end of year.................... $ 3,343 $ 4,341 $ 54,079
========== =========== ===========
Supplemental disclosure of cash flows information--interest
paid....................................................... $ 236 $ 159 $ 67
Supplemental disclosures of non-cash investing and financing
activity:
Issuance of common stock for note.................. 2,500 -- --
Equipment on capital leases........................ 1,957 331 1,144
Options and warrants exercised by sale of stock to
the Company........................................ 263 889 19
</TABLE>
See accompanying notes to financial statements.
30
<PAGE>
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").
In a conversion (the "Conversion") that was effected on May 31, 1997 (i) all
of the equity interests in Peapod LP were transferred to the Company in exchange
for 12,656,417 shares of common stock, (ii) Peapod LP was dissolved, (iii) all
of the assets and liabilities of Peapod LP were transferred to the Company, and
(iv) outstanding options and warrants for equity interests in Peapod LP were
exchanged for warrants and options for shares of the Company's common stock. The
transfer of the assets and liabilities of Peapod LP to the Company has been
recorded by the Company at the historical carrying values of Peapod LP. The
financial statements are presented as if the Company were in existence
throughout all periods. Net losses incurred by Peapod LP through May 31, 1997
have been reflected in additional paid-in capital since such losses were
allocated to the partners of Peapod LP (and do not represent a component of the
Company's accumulated deficit).
On June 10, 1997, the Company completed its initial public offering and
issued 4,000,000 shares of common stock, resulting in net proceeds (after
deducting offering costs) of $58.1 million.
The Company is an interactive online grocery shopping and delivery service,
which as of December 31, 1999 operated in the Chicago, Illinois; San
Francisco/San Jose, California; Columbus, Ohio; Boston, Massachusetts; Long
Island, New York; and Dallas, Houston and Austin, Texas metropolitan markets.
The Company has experienced recurring losses from operations since its
inception. The Company has historically relied upon equity financings to fund
its operations because its internally generated cash flows from operations have
historically been, and continue to be, insufficient for its cash needs. Because
of its limited resources, the viability of the Company is dependent upon its
ability to quickly raise sufficient capital to meet its cash requirements. The
Company's financial advisors are currently exploring strategic alternatives
available to the Company, including possible financings or a possible sale of
the Company. However, there can be no assurances that the Company will be
successful in finding or completing a transaction or that the Company's
resources will be sufficient to enable it to continue its operations during this
process. The factors described above raise substantial doubt about the Company's
ability to continue as a going concern. The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
(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.
Cost of Sales
Cost of sales consists of the cost of groceries and other products sold, net
of product returns.
Customer Acquisition Costs
Customer acquisition costs are expensed as incurred.
31
<PAGE>
Cash and Cash Equivalents
Cash and cash equivalents are comprised of highly liquid investments with
original maturities of three months or less.
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 - 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.
Capitalized Software Development Costs
Software development costs are capitalized in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 86, which requires capitalization of
certain costs incurred subsequent to the establishment of technological
feasibility. The Company has determined that technological feasibility occurs in
its product development cycle when a working model exists. Capitalization ceases
and product amortization commences upon the general release of the product.
Amortization is computed on a product-by-product basis, using the lesser of the
product's estimated useful life or a period based on anticipated revenues. The
Company capitalized $513,000 and $849,000 in consumer product software
development costs in 1998 and 1997, respectively. No costs were capitalized in
1999. Amortization expense in 1998 totaled $353,000. No amortization expense was
recorded in 1999 and 1997. In December 1998, the remaining capitalized software
development costs of $1,158,000 were written-off and are included in
depreciation and amortization in the statement of operations. The write-off
included the costs associated with Version 5.0 of the Company's software which
was discontinued by the Company in early 1999. In addition, the Company's
development cycle for the HTML version has accelerated due to the rapid change
in internet technology. As the Company's HTML product is continuously updated
and the technology is constantly changing, the Company has charged these costs
to expense as incurred.
Restricted Cash
Restricted cash represents certificates of deposit in support of the
Company's letters of credit and for other purposes.
Income Taxes
Effective with the Conversion, 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.
Prior to the Conversion, Peapod LP operated in the form of a partnership and
was not subject to taxation directly as its net losses were allocated to and
included in the income tax returns of its partners.
32
<PAGE>
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 made in 1995 and future years
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.
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.
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.
Potentially dilutive securities outstanding, which include options and
warrants, were 4,293,000, 2,655,000 and 2,634,000 for the years ended December
31, 1999, 1998 and 1997, respectively.
(3) Reliance on Certain Relationships
The business of the Company is dependent upon contracts with retailers in
each metropolitan market where the Company is doing business. The continuation
and the favorable renegotiation of each of its existing contracts with retailers
are material to the Company's operations. A number of these agreements are
terminable prior to expiration by either party with short notice.
33
<PAGE>
The Company's Chicago market, serviced through an agreement with Jewel/Osco,
accounted for approximately 50%, 42%, and 44% of the Company's revenues for the
years ended December 31, 1999, 1998 and 1997, respectively.
(4) Marketable Securities
At December 31, 1999 and 1998, the Company's marketable securities consisted
of the following (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
December 31, 1999 Amortized Holding Holding Fair Value
----------------- Cost Gains Losses
--------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
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
=============== ================== ================== ==================
<CAPTION>
Gross Gross
Unrealized Unrealized
December 31, 1998 Amortized Holding Holding Fair Value
----------------- Cost Gains Losses
--------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Current investments:
Securities held-to-maturity:
Corporate debt securities............. $ 200 $ -- $ -- $ 200
Securities available-for-sale:
Government obligations................ 3,936 6 -- 3,942
Corporate debt securities............. 11,671 24 (1) 11,694
--------------- ------------------ ------------------ ------------------
$15,807 $ 30 $ (1) $15,836
=============== ================== ================== ==================
Non-current investments:
Securities available-for-sale:
Government obligations................ $ 5,561 $ 34 $(13) $ 5,582
Corporate debt securities............. 9,598 38 (5) 9,631
------------------ ------------------ ------------------ ------------------
$15,159 $ 72 $(18) $15,213
================== ================== ================== ==================
</TABLE>
At December 31, 1999, maturities of debt securities classified as available-
for-sale were as follows (in thousands):
<TABLE>
<CAPTION>
Amortized Fair Value
Cost
---------------- ---------------
<S> <C> <C>
Securities available-for-sale:
Due within one year.................................... $4,787 $4,704
Due after one year through five years.................. 1,600 1,565
---------------- ---------------
$6,387 $6,269
================ ===============
</TABLE>
Using the specific identification method, the gross realized gains and gross
realized losses on the sale of available-for-sale securities were approximately
$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. No such
securities were sold in 1997.
34
<PAGE>
(5) Commitments and Contingencies
Capital Leases
The Company has capitalized certain equipment and furniture acquired through
capital leases. The future minimum lease payments as of December 31, 1999 are as
follows (in thousands):
2000......................................... $ 837
2001......................................... 590
2002......................................... 544
2003......................................... 107
---------
2,078
Less amount representing interest............ (259)
---------
1,819
Less current obligations..................... (690)
---------
$1,129
=========
Costs and related accumulated amortization for equipment under capital leases
totaled $3,785,000 and $1,541,000, respectively, as of December 31, 1999; and
$1,828,000 and $951,000, respectively, as of December 31, 1998. Amortization
expense totaled $590,000, $757,000 and $542,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
Operating Leases
The Company leases its office facilities, warehouses and trucks under non-
cancelable operating leases. Rent expense and sublease income on operating
leases totaled $1,549,000 and $35,000, respectively, for the year ended December
31, 1999; $823,000 and $0, respectively, for the year ended December 31, 1998;
and $462,000 and $0 for the year ended December 31, 1997. Total future minimum
lease payments and sublease income under non-cancelable operating leases as of
December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Lease Payments Sublease Income
---------------- -----------------
<S> <C> <C>
2000................................ $1,839 $(144)
2001................................ 1,827 (150)
2002................................ 1,594 (155)
2003................................ 1,143 (161)
2004 and beyond..................... 788 (166)
-------------- -----------------
$7,191 $(776)
============== =================
</TABLE>
The Company maintains a letter of credit under a lease for office space
amounting to $1,200,000 as of December 31, 1999, declining at certain times
during the lease term. The letter of credit expires on November 21, 2000. The
Company also maintains a letter of credit under a lease for warehouse space
amounting to $332,000 as of December 31, 1999. The letter of credit expires on
October 15, 2000. Both letters of credit are secured by a $1,533,000
certificate of deposit with the issuing bank, which is included in restricted
cash on the accompanying balance sheet as of December 31, 1999. In connection
with the issuance of the letters of credit, the Company agreed to maintain a
level of liquidity in the bank and to obtain additional financing. See Note 15
concerning a subsequent event affecting the letters of credit.
Contingencies
The Company is involved in lawsuits and claims which arise in the ordinary
course of business. Other than the matters described in Note 15, there are no
such matters pending that the Company believes to be material in relation to its
business, financial condition, or results of operations.
35
<PAGE>
(6) Partnership Agreement
Peapod LP, in accordance with the partnership agreement, was required
to pay a management fee to the general partner. For the year ended December 31,
1997, the amount charged to general and administrative expenses totaled $73,000.
The partnership agreement was terminated upon the Conversion.
(7) Peapod LP Equity Programs
Peapod LP had a program where certain executives and advisors were
able to receive stock in lieu of compensation. The program allowed these
executives and advisors to receive stock at 85% of the estimated fair market
value. Expense was recognized based on the discount from estimated fair market
value of the stock at the date of issuance. This program was terminated in 1997
prior to the Conversion.
Peapod LP also had a director purchase plan whereby each director of
the Peapod LP was eligible to purchase stock at 85% of the estimated fair market
value, up to $50,000 annually. Expense was recognized based on the discount from
estimated fair market value of the stock at the date of issuance. This program
was terminated in 1997 prior to the Conversion.
During the first quarter of 1997, and prior to the Conversion, 89,080
shares were issued and $428,000 of expense was reflected in the financial
statements.
(8) Note Receivable from Officer
During September 1999, the Company issued a $2,500,000 loan to an
officer of the Company to purchase 311,891 shares of the Company's common stock
at fair market value on the date of purchase. The loan has an interest rate of
5.74% and matures on September 27, 2004. The Company expenses a pro-rata portion
of the loan each month for each month of service provided to the Company by the
officer until the loan's maturity date. The note receivable is reflected in the
accompanying balance sheet as a reduction of stockholders' equity.
(9) 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. Peapod LP had two option
plans which were terminated upon the Conversion. All outstanding options issued
by Peapod LP were exchanged for options for stock of the Company on terms
substantially the same as in the original option grants.
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
increased to the pro forma amounts indicated below (in thousands, except per
share data):
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net loss:
As reported........................... $(28,453) $(21,565) $(12,979)
Pro forma............................. (33,566) (25,124) (15,837)
Net loss per share:
As reported -- basic and diluted...... $ (1.62) $ (1.27) $ (0.87)
Pro forma -- basic and diluted........ (1.91) (1.48) (1.06)
</TABLE>
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, 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
36
<PAGE>
assumptions used for grants in fiscal 1999, 1998 and 1997, respectively: no
expected dividend yield; expected volatility of 50 percent; risk-free interest
rates of 6.5%, 5.5% and 6.5% respectively, and expected lives of seven years.
The weighted average fair value of options granted was $4.90 in 1999, $3.81 in
1998 and $8.10 in 1997.
Additional information on stock options is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------- ---------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------------- ------------ ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.... 2,623,664 $5.76 2,573,956 $ 7.60 1,654,946 $ 2.76
Granted............................. 2,367,559 8.15 1,352,979 7.00 1,179,200 13.70
Forfeited/cancelled................. (395,089) 7.03 (961,149) 13.31 (46,650) 12.65
Exercised........................... (406,209) 5.51 (342,122) 2.87 (213,540) 2.70
--------------- ------------ ------------
Outstanding at year-end............. 4,189,925 $7.01 2,623,664 $ 5.76 2,573,956 $ 7.60
=============== ============ ============ =========== ============ ============
Options exercisable at year-end..... 1,724,515 $5.64 1,328,505 $ 4.37 1,150,138 $ 2.45
=============== ============ ============ =========== ============ ============
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Average Weighted Weighted
Range of Options Remaining Average Options Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices Life Price Price
-------------------- --------------- --------------- ----------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
$1.33 -- 1.76 482,544 3.3 years $ 1.52 482,544 $ 1.52
1.77 -- 3.52 268,893 5.2 2.51 209,554 2.42
3.53 -- 5.28 5,000 6.7 4.88 1,562 4.88
5.29 -- 7.04 755,202 6.5 6.33 267,811 6.27
7.05 -- 8.80 2,289,386 8.7 7.97 669,774 7.91
8.81 --10.56 72,400 8.0 9.50 2,604 8.88
10.56 --12.32 171,500 7.8 11.04 250 11.50
15.84 --17.60 145,000 6.1 16.20 90,416 16.19
-------------- ------------
4,189,925 7.3 years $ 7.01 1,724,515 $ 5.64
============== ============== =============== ============ ===========
</TABLE>
(10) Warrants
Contractually, all warrants issued by Peapod LP were converted into warrants
for shares of the Company on a one-for-one basis. All warrants expire by
November 2006. Company stock warrant activity for the years ended December 31,
1999, 1998 and 1997 is summarized below:
37
<PAGE>
<TABLE>
<CAPTION>
Weighted
Average
Exercise Exercise
Warrants Price Price
------------ ------------- ---------------
<S> <C> <C> <C>
Outstanding on January 1, 1997.......................... 67,841 $2.38 $1.33--7.00
Exercised............................................... (8,125) 2.23 2.23
Outstanding on December 31, 1997........................ 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 and exercisable on December 31, 1999........ 103,215 9.28 $7.00--9.35
============
</TABLE>
(11) Income Taxes
No provision for income taxes was recorded prior to the Conversion, as such
liability was the responsibility of the partners of Peapod LP, rather than of
the Company. Upon the Conversion of Peapod LP into Peapod, Inc., the Company
recorded an initial net deferred tax asset of $839,000 which was offset in its
entirety by a valuation allowance. The remaining change in deferred income taxes
for the year ended December 31, 1997 relates to the period subsequent to the
Conversion. The provision calculations for the year ended December 31, 1997 are
based on the loss before income taxes for the period subsequent to the
Conversion of $8,494,000.
There is no provision for income taxes for the years ended December 31,
1999, 1998 and 1997 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):
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Tax benefit at U.S. Federal income tax rate of 34%......... $(9,674) $(7,332) $(2,888)
Increase (reduction) in taxes resulting from:
State income tax benefit, net of Federal effect.......... (1,707) (1,294) (506)
Increase in valuation allowance, primarily related to
net operating losses................................... 12,502 9,865 3,373
Other.................................................... (1,121) (1,239) 21
--------------- --------------- ---------------
Income tax provision....................................... $ -- $ -- $ --
=============== =============== ===============
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
at December 31, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts.......................... $ 93 $ 115
Deferred revenues........................................ 213 518
Other.................................................... 457 644
Net operating loss....................................... 25,850 12,800
---------------- ----------------
Gross deferred tax assets............................. 26,613 14,077
Less valuation allowance.............................. (26,579) (14,077)
---------------- ----------------
Net deferred tax assets............................ 34 --
---------------- ----------------
Deferred tax liabilities:
Fixed asset depreciation................................. (34) --
---------------- ----------------
Gross deferred tax liabilities (34) --
---------------- ----------------
Deferred income taxes...................................... $ -- $ --
================ ================
</TABLE>
38
<PAGE>
The net change in the total valuation allowance for the years ended December
31, 1999, 1998 and 1997 was an increase of $12,502,000, $9,865,000 and
$3,373,000, respectively. As of December 31, 1999, the Company has approximately
$64,600,000 of net operating loss carryforwards, $9,900,000 expiring in 2012,
$22,800,000 expiring in 2018 and $31,900,000 expiring in 2019.
(12) 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, 1999.
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 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. During 1997, no shares were issued in connection
with the Purchase Plan.
(13) Quarterly Results (Unaudited)
The following provides an unaudited summary of quarterly financial data.
Certain amounts presented in the Company's quarterly reports on Form 10-Q have
been reclassified below to conform to the presentation in the accompanying 1999
statement of operations.
<TABLE>
<CAPTION>
1999
(in thousands, except share and per share data)
------------------------------------------------------------------------------
1/st/ Quarter 2/nd/ Quarter 3/rd/ Quarter 4/th/ Quarter
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales.................................... $ 18,008 $ 17,073 $ 16,493 $ 21,560
Cost of sales................................ 14,366 12,903 12,241 16,075
-------------- --------------- --------------- ---------------
Gross profit................................. 3,642 4,170 4,252 5,485
Operating expenses:
Fulfillment operations..................... 4,872 5,017 5,571 8,120
General and administrative................. 1,573 1,679 4,985 1,551
Marketing and selling...................... 1,238 1,190 1,665 3,075
System development and
maintenance.............................. 723 787 916 1,117
Depreciation and amortization.............. 474 604 525 619
Pre-opening costs.......................... 280 360 188 70
-------------- --------------- --------------- ---------------
Total operating expenses................ 9,160 9,637 13,850 14,552
-------------- --------------- --------------- ---------------
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
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
1998
(in thousands, except share and per share data)
-------------------------------------------------------------------------------
1/st/ Quarter 2/nd/ Quarter 3/rd/ Quarter 4/th/ Quarter
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales.................................. $ 18,864 $ 17,530 $ 15,676 $ 17,195
Cost of sales.............................. 14,573 13,586 12,295 13,449
---------------- ---------------- --------------- ---------------
Gross profit............................... 4,291 3,944 3,381 3,746
Operating expenses:
Fulfillment operations................... 4,518 4,221 4,019 3,957
General and administrative............... 1,737 2,091 1,925 2,276
Marketing and selling.................... 1,672 1,455 1,462 2,956
System development and
maintenance............................ 610 821 999 956
Depreciation and amortization............ 463 509 529 1,763
Pre-opening costs........................ -- 41 95 345
---------------- ---------------- --------------- ---------------
Total operating expenses.............. 9,000 9,138 9,029 12,253
---------------- ---------------- --------------- ---------------
Operating loss............................. (4,709) (5,194) (5,648) (8,507)
Other income (expense):....................
Investment income........................ 783 752 609 539
Interest expense......................... (56) (33) (44) (57)
---------------- ---------------- --------------- ---------------
Net loss................................... $ (3,982) $ (4,475) $ (5,083) $ (8,025)
================ ================ =============== ===============
Basic and diluted net loss per share....... $(0.24) $(0.26) $(0.30) $(0.47)
Shares used to compute basic and diluted
net loss per share................... 16,859,437 16,925,120 17,074,771 17,066,961
</TABLE>
(14) Split Pea Software, Inc.
On December 31, 1998, the Company concluded a restructuring transaction which
established its licensing business within a newly-formed company called Split
Pea Software, Inc. ("Split Pea"). A group of Split Pea's senior managers hold
majority equity ownership of Split Pea. The Company owns a minority interest of
40% of the voting common stock of Split Pea. Included in receivables as of
December 31, 1999 and 1998 is $1,000,000 due from Split Pea, which is
collateralized by a receivable from a third party.
(15) Subsequent Events
On March 16, 2000, the Company issued a press release announcing that its CEO
and President was departing due to health reasons, and as a result, a previously
announced $120 million financing had been terminated.
On March 17, 2000, a class action complaint was filed in the United States
District Court for the Northern District of Illinois by Lila Gold against the
Company, Thomas Parkinson and Andrew Parkinson, each in his capacity as a
director and officer, alleging violations of (i) Section 10(b) of the Exchange
Act and Rule 10b-5 thereunder and (ii) Section 20(a) of the Exchange Act.
On March 20, 2000, the Company's bank notified the Company and its two
lessors that the Company was in default of its covenants under its two letters
of credit and that the bank would not renew the letters of credit upon their
expiration on November 21, 2000 and October 15, 2000, respectively.
On March 21, 2000, a class action complaint was filed in the United States
District Court for the Northern District of Illinois (Eastern Division) by
Jonathon Polansky against the Company, Thomas Parkinson and Andrew Parkinson,
each in his capacity as a director and officer, alleging violations of (i)
Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and (ii) Section
20(a) of the Exchange Act.
On March 29, 2000, a class action complaint was filed in the United States
District Court for the Northern District of Illinois (Eastern Division) against
the Company, Thomas Parkinson and Andrew Parkinson, each in his capacity as a
director and officer, alleging violations of (i) Section 10(b) of the Exchange
Act and Rule 10b-5 thereunder and (ii) Section 20(a) of the Exchange Act.
None of the complaints specifies the amount of damages sought. Although the
Company intends to vigorously defend against these complaints, there can be no
assurances that the outcome of these lawsuits would not have a material adverse
effect on the Company's financial condition or results of operations.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
40
<PAGE>
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 28, 2000) 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 28, 2000 in connection with its 2000 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 28, 2000 in connection with its 2000 Annual Meeting of
Stockholders.
(c) The following sets forth certain information concerning each of the
Company's executive officers.
Andrew B. Parkinson, age 42, is a co-founder of the Company and serves as
the Company's Chairman and acting Chief Executive Officer. Prior to the founding
of the Company, Mr. Parkinson held various brand and product management
positions with Kraft Foods, Inc. and Procter & Gamble Co.
Thomas L. Parkinson, age 39, is a co-founder of the Company and has been
its Senior Vice President-Chief Technology Officer and a director 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 the Company, 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.
John A. Furton, age 35, is a co-founder of the Company and serves as Senior
Vice President-Chief Information Officer. He joined the Company in 1990. Mr.
Furton is responsible for all enterprise technology development including
fulfillment, logistics, merchandising, administrative and financial systems as
well as the Company's data center and network operations. Prior to this, Mr.
Furton was Vice President of Operations where he managed order fulfillment
services. Mr. Furton joined the Company from Kraft Foods, Inc.
Dan Rabinowitz, age 37, serves as Senior Vice President-Chief Financial
Officer. He joined the Company in 1995 as Director of Finance. In February
1998, he became the Company's Vice President-Financial Planning & Control and
Treasurer. Prior to joining the Company, Mr. Rabinowitz served as Associate
Director for Geneva Capital Markets, a middle markets mergers and acquisitions
firm from 1993 through 1995, and Director of Finance at Technology Solutions
Company from 1991 through 1993.
Michael P. Brennan, age 36, serves as Senior Vice President-Marketing and
Product Management. He joined the Company in 1997 as Director--Grocery Formats.
From 1990 through 1997, Mr. Brennan held various positions culminating at
Principal for the management consulting firm A.T. Kearney.
Raymond E. Britt, age 39, serves as Senior Vice President-Business
Operations and Development, and joined Peapod in 1999. From 1997 to 1999, Mr.
Britt was an Associate Partner in Andersen Consulting's Strategy practice, and
prior to that he was with Mercer Management Consulting, most recently as a
Principal.
John Caltagirone, age 51, serves as Senior Vice President and Chief
Logistics & Information Officer, and is responsible for all operations and
logistics activities of the Company, which include customer service,
distribution, transportation, inventory management and training. Prior to
joining Peapod, he held senior management positions with Rand McNally, RR
Donnelley & Sons, Imrex Computer Systems, Ryder Integrated Logistics and The
Revere Group.
Toya D. Campbell, age 41, serves as Vice President-Human Resources, and is
responsible for staffing, personnel training programs, and Peapod's human
resource policy and procedure development. She joined Peapod as Director of
41
<PAGE>
Human Resources in January 1994. Prior to joining Peapod, she served as
Director of Human Resources for the Chicago Public Library System.
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 28, 2000) 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 28,
2000) 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 28, 2000)
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, 1999 and 1998.
Statements of Operations for the years ended December 31, 1999, 1998 and
1997.
Statements of Comprehensive Income for the years ended December 31,
1999, 1998 and 1997.
Statements of Stockholders' Equity for the years ended December 31,
1999, 1998 and 1997.
Statements of Cash Flows for the years ended December 31, 1999, 1998 and
1997.
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.
42
<PAGE>
(a)(3) Exhibits
--------
The following exhibits are filed herewith or are incorporated herein:
Exhibit
No. Description
--- -----------
2 -- 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"))
3.1 -- Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 of the Registration
Statement)
+3.2 -- Restated By-Laws of the Company
4.1 -- Stockholders Rights Plan (incorporated by reference to Exhibit
4.1 of the Registration Statement)
4.2 -- Certificate of Designation of Series A Junior Participating
Preferred Stock (incorporated by reference to Exhibit 4.2 of
the Registration Statement)
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 and John A. Furton
+10.9 -- Form of Severance Agreement between the Company and each of
Dan Rabinowitz, Michael Brennan, Raymond Britt, John
Caltagirone and Toya Campbell
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
43
<PAGE>
*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 executive officers
+*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.
+23 -- Independent Auditors' Consent
+24 -- Powers of Attorney (included on signature page)
+27 -- Financial Data Schedule
+ Filed herewith
* Represents management contract or compensatory plan
(b) Reports on Form 8-K
-------------------
During the last quarter of the year ended December 31, 1999 the Registrant
filed one Current Report on Form 8-K dated September 27, 1999 announcing
the hiring of Bill Malloy as Chief Executive Officer and President and
outlining the material terms of his employment arrangements.
44
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Peapod, Inc.:
We have audited the accompanying balance sheets of Peapod, Inc. as of
December 31, 1998 and 1999, and the related statements of operations,
comprehensive income, stockholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1999. In connection with our audits
of the aforementioned financial statements, we have 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 11, 2000, except as to Notes 1 and 15,
which are as of March 29, 2000
45
<PAGE>
PEAPOD, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Represents allowance for doubtful accounts.
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- --------------------------------------- ----------------- ----------------- ----------------- -----------------
Balance at Charged to
beginning of costs and Deductions Balance at end
year expenses of year
- --------------------------------------- ----------------- ----------------- ----------------- -----------------
(in thousands)
<S> <C> <C> <C> <C>
Year ended December 31, 1997 $ 42 $481 $(171) $352
Year ended December 31, 1998 352 318 (383) 287
Year ended December 31, 1999 287 244 (299) 232
</TABLE>
46
<PAGE>
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, 2000 /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 Dan Rabinowitz, 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, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Signature Title
- ----------------------- ---------------------------
/s/ Andrew B. Parkinson Chairman
- ------------------------------ Chief Executive Officer
Andrew B. Parkinson
/s/ Thomas L. Parkinson Executive Vice President -
- ------------------------------ Chief Technology Officer
Thomas L. Parkinson and Director
/s/ Dan Rabinowitz
- ------------------------------ Senior Vice President -
Dan Rabinowitz Chief Financial Officer
/s/ Earl W. Rachowicz Vice President and
- ------------------------------ Controller (principal } March 30, 2000
Earl W. Rachowicz accounting officer)
/s/ Tasso H. Coin Director
- ------------------------------
Tasso H. Coin
Director
- ------------------------------
William Malloy
/s/ Seth L. Pierrepont Director
- ------------------------------
Seth L. Pierrepont
/s/ Robert Goodale Director
- ------------------------------
Robert Goodale
/s/ Mark Van Stekelenburg Director
- ------------------------------
Mark Van Stekelenburg
47
<PAGE>
/s/ Drayton McLane Director
- ------------------------------
Drayton McLane
/s/ Trygve Myhren Director
- ------------------------------
Trygve Myhren
48
<PAGE>
Exhibit 3.2
RESTATED BY-LAWS
OF
PEAPOD, INC.
ARTICLE I
STOCKHOLDERS MEETINGS
Section 1.1 Annual Meetings.
---------------
An annual meeting of stockholders shall be held for the election of
directors at such date, time and place as may be fixed by resolution of the
Board of Directors from time to time.
Section 1.2 Special Meetings. Special meetings of stockholders for
----------------
any purpose or purposes may be called at any time only by the Chairman of the
Board, if any, the President, the Board of Directors or by a majority of the
Board of Directors, and by no other person. The business transacted at a special
meeting of stockholders shall be limited to the purpose or purposes for which
such meeting is called, except as otherwise determined by the Board of Directors
or the chairman of the meeting.
Section 1.3 Notice of Meetings. A written notice of each annual or
------------------
special meeting of stockholders shall be given stating the place, date and time
of the meeting, and, in the case of a special meeting, the purpose or purposes
for which the meeting is called. Unless otherwise provided by law, the
Certificate of Incorporation or these By-laws, as such may be amended or
restated from time to time, such notice of meeting shall be given not less than
ten nor more than 60 days before the date of the meeting to each stockholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
to be given when deposited in the mail, postage prepaid, directed to the
stockholder at such stockholder's address as it appears on the records of the
Corporation.
Section 1.4 Adjournments. Any annual or special meeting of
------------
stockholders may be adjourned from time to time to reconvene at the same or some
other place, and notice need not be given of any such adjourned meeting if the
date, time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting any business may be transacted
which might have been transacted at the original meeting. If the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the adjourned meeting in
accordance with Section 1.3.
<PAGE>
Section 1.5 Quorum. Except as otherwise provided by law, the
------
Certificate of Incorporation or these By-laws, as such may be amended or
restated from time to time, the presence in person or by proxy of the holders of
stock having a majority of the votes which could be cast by the holders of all
outstanding stock entitled to vote at the meeting shall constitute a quorum at
each meeting of stockholders. In the absence of a quorum, the stockholders so
present may, by the affirmative vote of the holders of stock having a majority
of the votes which could be cast by all such holders, adjourn the meeting from
time to time in the manner provided in Section 1.4 of these By-laws until a
quorum is present. If a quorum is present when a meeting is convened, the
subsequent withdrawal of stockholders, even though less than a quorum remains,
shall not affect the ability of the remaining stockholders lawfully to transact
business.
Section 1.6 Organization. Meetings of stockholders shall be presided
------------
over by the Chairman of the Board, if any, or if there is none or in his or her
absence, by the President, or in his or her absence, by a chairman designated by
the Board of Directors, or in the absence of such designation by a chairman
chosen at the meeting. The Secretary shall act as secretary of the meeting, but
in his or her absence the chairman of the meeting may appoint any person to act
as secretary of the meeting.
Section 1.7 Voting.
------
(a) Except as otherwise provided by the Certificate of Incorporation,
as such may be amended or restated from time to time, each stockholder entitled
to vote at any meeting of stockholders shall be entitled to one vote for each
share of stock held by such stockholder which has voting power on the matter in
question.
(b) Voting at meetings of stockholders need not be by written ballot
and need not be conducted by inspectors of election unless so required by
Section 1.9 of these By-laws or so determined by the holders of stock having a
majority of the votes which could be cast by the holders of all outstanding
stock entitled to vote which are present in person or by proxy at such meeting.
Unless otherwise provided in the Certificate of Incorporation, as such may be
amended or restated from time to time, directors shall be elected by a plurality
of the votes cast in the election of directors. Each other question shall,
unless otherwise provided by law, the Certificate of Incorporation or these By-
laws, as such may be amended or restated from time to time, be decided by the
vote of the holders of stock having a majority of the votes which could be cast
by the holders of all stock entitled to vote on such question which are present
in person or by proxy at the meeting.
(c) Stock of the Corporation standing in the name of another
corporation and entitled to vote may be voted by such officer, agent or proxy as
the by-laws or other internal regulations of such other corporation may
prescribe or, in the absence of such provision, as the board of directors or
comparable body of such other corporation may determine.
(d) Stock of the Corporation standing in the name of a deceased
person, a minor, an incompetent or a debtor in a case under Title 11, United
States Code, and entitled to vote may be voted by an administrator, executor,
guardian, conservator, debtor-in-possession or trustee, as the case may be,
either in person or by proxy, without transfer of such shares into the name of
the official or other person so voting.
2
<PAGE>
(e) A stockholder whose voting stock of the Corporation is pledged
shall be entitled to vote such stock unless on the transfer records of the
Corporation the pledgor has expressly empowered the pledgee to vote such shares,
in which case only the pledgee, or such pledgee's proxy, may represent such
shares and vote thereon.
(f) If voting stock is held of record in the names of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, tenants by the entirety or otherwise, or if two or more persons have
the same fiduciary relationship respecting the same shares, unless the Secretary
is given written notice to the contrary and is furnished with a copy of the
instrument or order appointing them or creating the relationship wherein it is
so provided, their acts with respect to voting shall have the following effect:
(i) if only one votes, such act binds all; (ii) if more than one vote, the act
of the majority so voting binds all; and (iii) if more than one votes, but the
vote is evenly split on any particular matter each faction may vote such stock
proportionally, or any person voting the shares, or a beneficiary, if any, may
apply to the Court of Chancery of the State of Delaware or such other court as
may have jurisdiction to appoint an additional person to act with the persons so
voting the stock, which shall then be voted as determined by a majority of such
persons and the person appointed by the Court. If the instrument so filed shows
that any such tenancy is held in unequal interests, a majority or even split for
the purpose of this subsection shall be a majority or even split in interest.
(g) Stock of the Corporation belonging to the Corporation, or to
another corporation a majority of the shares entitled to vote in the election of
directors of which are held by the Corporation, shall not be voted at any
meeting of stockholders and shall not be counted in the total number of
outstanding shares for the purpose of determining whether a quorum is present.
Nothing in the Section 1.7 shall limit the right of the Corporation to vote
shares of stock of the Corporation held by it in a fiduciary capacity.
3
<PAGE>
Section 1.8 Proxies.
-------
(a) Each stockholder entitled to vote at a meeting of stockholders
may authorize another person or persons to act for such stockholder by proxy
filed with the Secretary before or at the time of the meeting. No such proxy
shall be voted or acted upon after three years from its date, unless the proxy
provides for a longer period. A duly executed proxy shall be irrevocable if it
states that it is irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing with the Secretary an instrument in writing revoking the
proxy or another duly executed proxy bearing a later date.
(b) A stockholder may authorize another person or persons to act for
such stockholder as proxy (i) by executing a writing authorizing such person or
persons to act as such, which execution may be accomplished by such stockholder
or such stockholder's authorized officer, director, partner, employee or agent
(or, if the stock is held in a trust or estate, by a trustee, executor or
administrator thereof) signing such writing or causing his or her signature to
be affixed to such writing by any reasonable means, including, but not limited
to, facsimile signature, or (ii) by transmitting or authorizing the transmission
of a telegram, cablegram or other means of electronic transmission (a
"Transmission") to the person who will be the holder of the proxy or to a proxy
solicitation firm, proxy support service organization or like agent duly
authorized by the person who will be the holder of the proxy to receive such
Transmission; provided that any such Transmission must either set forth or be
submitted with information from which it can be determined that such
Transmission was authorized by such stockholder.
(c) Any inspector or inspectors appointed pursuant to Section 1.9 of
these By-Laws shall examine Transmissions to determine if they are valid. If no
inspector or inspectors are so appointed, the Secretary or such other person or
persons as shall be appointed from time to time by the Board of Directors shall
examine Transmissions to determine if they are valid. If it is determined a
Transmission is valid, the person or persons making that determination shall
specify the information upon which such person or persons relied. Any copy,
facsimile telecommunication or other reliable reproduction of such a writing or
Transmission may be substituted or used in lieu of the original writing or
Transmission for any and all purposes for which the original writing or
Transmission could be used; provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or Transmission.
4
<PAGE>
Section 1.9 Voting Procedures and Inspectors of Elections.
---------------------------------------------
(a) If the Corporation has a class of voting stock that is (i) listed
on a national securities exchange, (ii) authorized for quotation on an
interdealer quotation system of a registered national securities association or
(iii) held of record by more than 2,000 stockholders, the Board of Directors
shall, in advance of any meeting of stockholders, appoint one or more inspectors
(individually an "Inspector," and collectively the "Inspectors") to act at such
meeting and make a written report thereof. The Board of Directors may designate
one or more persons as alternate Inspectors to replace any Inspector who shall
fail to act. If no Inspector or alternate is able to act at such meeting, the
chairman of the meeting shall appoint one or more other persons to act as
Inspectors. Each Inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
Inspector with strict impartiality and according to the best of his or her
ability.
(b) The Inspectors shall (i) ascertain the number of shares of stock
of the Corporation outstanding and the voting power of each, (ii) determine the
number of shares of stock of the Corporation present in person or by proxy at
such meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the Inspectors and
(v) certify their determination of the number of such shares present in person
or by proxy at such meeting and their count of all votes and ballots. The
Inspectors may appoint or retain other persons or entities to assist them in the
performance of their duties.
(c) The date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at a meeting shall be
announced at such meeting. No ballots, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the Inspectors after the
closing of the polls unless the Court of Chancery of the State of Delaware upon
application by any stockholder shall determine otherwise.
(d) In determining the validity and counting of proxies and ballots,
the Inspectors shall be limited to an examination of the proxies, any envelopes
submitted with such proxies, any information referred to in paragraphs (b) and
(c) of Section 1.8 of these By-laws, ballots and the regular books and records
of the Corporation, except that the Inspectors may consider other reliable
information for the limited purpose of reconciling proxies and ballots submitted
by or on behalf of banks, brokers, their nominees or similar persons which
represent more votes than the holder of a proxy is authorized by a stockholder
of record to cast or more votes than such stockholder holds of record. If the
Inspectors consider other reliable information for the limited purpose permitted
herein, the Inspectors, at the time they make their certification pursuant to
paragraph (b) of this Section 1.9, shall specify the precise information
considered by them, including the person or persons from whom such information
was obtained, when and the means by which such information was obtained and the
basis for the Inspectors' belief that such information is accurate and reliable.
Section 1.10 Fixing Date of Determination of Stockholders of Record.
------------------------------------------------------
(a) In order that the corporation may determine the stockholders
entitled (i) to notice of or to vote at any meeting of stockholders or any
adjournment thereof, (ii) to receive
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payment of any dividend or other distribution or allotment of any rights, (iii)
to exercise any rights in respect of any change, conversion or exchange of stock
or (iv) to take, receive or participate in any other action, the Board of
Directors may fix a record date, which shall not be earlier than the date upon
which the resolution fixing the record date is adopted by the Board of Directors
and which (1) in the case of a determination of stockholders entitled to notice
of or to vote at any meeting of stockholders or adjournment thereof, shall,
unless otherwise required by law, be not more than 60 nor less than ten days
before the date of such meeting; (2) in the case of a determination of
stockholders entitled to express consent to corporate action in writing without
a meeting, shall be not more than ten days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors; and (3)
in the case of any other action, shall be not more than 60 days before such
action.
(b) If no record date is fixed, (i) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; and (ii) the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
(c) A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting, but the Board of Directors may fix a new record date for the adjourned
meeting.
Section 1.11 List of Stockholders Entitled to Vote. The Secretary
-------------------------------------
shall prepare, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of meeting, or, if not so specified, at the place where
the meeting is to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof and may be inspected by
any stockholder who is present. The stock ledger shall be the only evidence as
to who are the stockholders entitled to examine the stock ledger, the list of
stockholders or the books of the corporation, or to vote in person or by proxy
at any meeting of stockholders.
Section 1.12 Stockholder Proposals and Board Nominations.
-------------------------------------------
(a) At any annual meeting of the Corporation's stockholders, only
such business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be (i)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (ii) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (iii) otherwise
properly brought before the meeting by a stockholder in accordance with these
By-laws. Business may be properly brought before an annual meeting by a
stockholder only if written notice of the stockholder's intent to propose such
business has been delivered, either by personal delivery, United States mail,
first class postage prepaid, or other similar means, to the
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Secretary of the Corporation not later than 90 calendar days in advance of the
anniversary date of the release of the Corporation's proxy statement to
stockholders in connection with the preceding year's annual meeting of
stockholders, except that if no annual meeting was held in the previous year or
the date of the annual meeting has been changed by more than 30 calendar days
from the anniversary of the annual meeting date stated in the previous year's
proxy statement, a stockholder proposal shall be received by the Corporation a
reasonable time before the solicitation is made.
(b) Each notice of new business must set forth: (i) the name and
address of the stockholder who intends to raise the new business; (ii) the
business desired to be brought forth at the meeting and the reasons for
conducting such business at the meeting; (iii) a representation that the
stockholder is a holder of record of stock of the Corporation entitled to vote
with respect to such business and intends to appear in person or by proxy at the
meeting to move the consideration of such business; (iv) such stockholder's
total beneficial ownership of the Corporation's voting stock; and (v) such
stockholder's interest in such business. The chairman of the meeting may refuse
to acknowledge a motion to consider any business that he determines was not made
in compliance with the foregoing procedures.
(c) An adjourned meeting, if notice of the adjourned meeting is not
required to be given to stockholders, shall be regarded as a continuation of the
original meeting, and any notice of new business must have met the foregoing
requirements as of the date of the original meeting. In the event of an
adjourned meeting where notice of the adjourned meeting is required to be given
to stockholders, any notice of new business made by a stockholder with respect
to the adjourned meeting must meet the foregoing requirements based upon the
date on which notice of the date of the adjourned meeting was given.
(d) Nominations for the election of directors may be made by the
Board of Directors or a committee appointed by the Board of Directors or by any
stockholder entitled to vote in the election of directors generally. However,
any stockholder entitled to vote in the election of directors may nominate one
or more persons for election as director(s) at a meeting only if written notice
of such stockholder's intent to make such nomination or nominations has been
delivered, either by personal delivery, United States mail, first class postage
prepaid, or other similar means, to the Secretary of the Corporation not later
than (i) with respect to an election to be held at an annual meeting of
stockholders, 90 calendar days in advance of the anniversary date of the release
of the Corporation's proxy statement to stockholders in connection with the
preceding year's annual meeting of stockholders, except that if no annual
meeting was held in the previous year or the date of the annual meeting has been
changed by more than 30 calendar days from the anniversary of the annual meeting
date stated in the previous year's proxy statement, a nominee proposal shall be
received by the Corporation a reasonable time before the solicitation is made,
and (ii) with respect to an election to be held at a special meeting of
stockholders for the election of directors, the close of business on the 10th
day following the date on which notice of such meeting is first given to
stockholders.
(e) Each such notice shall set forth: (i) the name and address of
the stockholder who intends to make the nomination and of the person or persons
to be nominated; (ii) a representation that the stockholder is a holder of
record of stock of the Corporation entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to nominate the
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person or persons specified in the notice; (iii) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (iv) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission had the nominee been nominated, or
intended to be nominated, by the Board of Directors; and (v) the consent of each
nominee to serve as a director of the Corporation if so elected.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Number. The Board of Directors shall consist of such
------
number of directors as may be determined from time to time by resolution of the
Board of Directors.
Section 2.2 Election; Resignation; Vacancies.
--------------------------------
(a) At each annual meeting at which the term of office of a class of
directors expires, the stockholders shall elect directors of such class each to
hold office until the annual meeting at which the terms of office of such class
of directors expire and the election and qualification of his or her successor,
or until his or her earlier death, resignation or removal.
(b) Any director may resign at any time by giving written notice to
the Chairman of the Board, if any, the President or the Secretary. Unless
otherwise stated in a notice of resignation, it shall take effect when received
by the officer to whom it is directed, without any need for its acceptance.
(c) Any newly created directorship or any vacancy occurring in the
Board of Directors for any reason may be filled by a majority of the remaining
directors, although less than a quorum, or by a plurality of the votes cast in
the election of directors at a meeting of stockholders. Each director elected to
replace a former director shall hold office until the expiration of the term of
office of the director whom he or she has replaced and the election and
qualification of his or her successor, or until his or her earlier death,
resignation or removal. A director elected to fill a newly created directorship
shall serve until the annual meeting at which the term of office of the class of
directors to which he or she is assigned expires, the election and qualification
of his or her successor, or until his or her earlier death, resignation or
removal.
Section 2.3 Regular Meetings. A regular annual meeting of the Board
----------------
of Directors shall be held, without call or notice, immediately after and at the
same place as the annual meeting of stockholders, for the purpose of organizing
the Board of Directors, electing officers and transacting any other business
that may properly come before such meeting. Additional regular meetings of the
Board of Directors may be held without call or notice at such times as shall be
fixed by resolution of the Board of Directors.
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Section 2.4 Special Meetings. Special meetings of the Board of
----------------
Directors may be called by the Chairman of the Board, if any, the President, the
Secretary, or by a majority of the Board of Directors. Notice of a special
meeting of the Board of Directors shall be given by the person or persons
calling the meeting at least twenty-four hours before the special meeting. The
purpose or purposes of a special meeting need not be stated in the call or
notice.
Section 2.5 Organization. Meetings of the Board of Directors shall
------------
be presided over by the Chairman of the Board, if any, or if there is none or in
his or her absence, by the President, or in his or her absence by a chairman
chosen at the meeting. The Secretary shall act as secretary of the meeting, but
in his or her absence the chairman of the meeting may appoint any person to act
as secretary of the meeting. A majority of the directors present at a meeting,
whether or not they constitute a quorum, may adjourn such meeting to any other
date, time or place without notice other than announcement at the meeting.
Section 2.6 Quorum; Vote Required for Action. At all meetings of the
--------------------------------
Board of Directors a majority of the whole Board of Directors shall constitute a
quorum for the transaction of business. Unless the Certificate of Incorporation
or these By-laws, as such may be amended or restated from time to time,
otherwise provide, the vote of a majority of the directors present at a meeting
at which a quorum is present shall be the act of the Board of Directors.
Section 2.7 Executive Committee. The Board of Directors shall
-------------------
appoint three or more directors of the Corporation to act as an Executive
Committee. The Executive Committee shall have and may exercise all of the
powers of the Board of Directors when the Board is not in session except the
------
following powers reserved for the full Board of Directors:
(a) amending the Corporation's Restated Certificate of Incorporation;
(b) adopting an agreement of merger or consolidation;
(c) recommending to stockholders the sale, lease or exchange of all
or substantially all of the Corporation's property and assets;
(d) recommending to shareholders a dissolution of the Corporation or
a revocation of dissolution;
(e) amending these By-Laws;
(f) declaring a dividend, authorizing the issuance of stock or
adopting a certificate of ownership and merger pursuant to Section 253 of the
Delaware Corporation Law; or
(g) any other power which may from time to time be specifically
reserved to the full Board of Directors by the Delaware General Corporation Law
or these By-Laws.
Section 2.8 Compensation Committee. Two or more directors of the
----------------------
Corporation shall be appointed by the Board of Directors to act as a
Compensation Committee, each of whom shall be a director who is not an employee
of the Corporation or any subsidiary thereof. The Compensation Committee shall
have the power and authority to set the
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compensation of the officers and other employees and agents of the Company and
shall possess the power and authority to act with respect to the compensation,
option and other benefit plans of the Corporation. The Compensation Committee
shall also recommend fees to be paid to members of the Board of Directors for
services to the Corporation.
Section 2.9 Audit Committee. Two or more directors of the
---------------
Corporation shall be appointed by the Board of Directors to act as an Audit
Committee, each of whom shall be a director who is not an employee of the
Corporation or any subsidiary thereof. The Audit Committee shall have general
oversight responsibility with respect to the Corporation's financial reporting.
In performing its oversight responsibility, the Audit Committee shall make
recommendations to the Board of Directors as to the selection, retention, or
change in the independent accountants of the Corporation, review with the
independent accountants the scope of their examination and other matters
(relating to both audit and non-audit activities), and review generally the
internal auditing procedures of the Corporation. In undertaking the foregoing
responsibilities, the Audit Committee shall have unrestricted access, if
necessary, to the Corporation's personnel and documents and shall be provided
with the resources and assistance necessary to discharge its responsibilities,
including periodic reports from management assessing the impact of regulation,
accounting, and reporting of other significant matters that may affect the
Corporation. The Audit Committee shall review the financial reporting and
adequacy of internal controls of the Corporation, consult with the internal
auditors and certified public accountants, and from time to time, but not less
than annually, report to the Board of Directors.
Section 2.10 Other Committees. The Board of Directors may from time
----------------
to time, in its discretion, by resolution passed by a majority of the entire
Board of Directors, designate other committees of the Board of Directors
consisting of such number of directors as the Board of Directors shall
determine, which shall have and may exercise such lawfully delegable powers and
duties of the Board of Directors as shall be conferred or authorized by such
resolution. The Board of Directors shall have the power to change at any time
the members of any such committee, to fill vacancies and to dissolve any such
committee.
Section 2.11 Alternates. The Board of Directors may from time to
----------
time designate from among the directors alternates to serve on any committee of
the Board of Directors to replace any absent or disqualified member at any
meeting of such committee. Whenever a quorum cannot be secured for any meeting
of any committee from among the regular members thereof and designated
alternates, the member or members of such committee present at such meeting and
not disqualified from voting, whether or not constituting a quorum, may
unanimously appoint another director to act at such meeting in place of any
absent or disqualified member.
Section 2.12 Quorum and Manner of Acting-Committees. A majority of
--------------------------------------
the members of any committee of the Board of Directors shall constitute a quorum
for the transaction of business at any meeting of such committee, and the act of
a majority of the members present at any meeting at which a quorum is present
shall be the act of such committee.
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Section 2.13 Committee Chairman, Books and Records, Etc. The
-------------------------------------- ---
chairman of each committee of the Board of Directors shall be selected from
among the members of such committee by the Board of Directors.
Each committee shall keep a record of its acts and proceedings, and
all actions of each committee shall be reported to the Board of Directors when
required.
Each committee shall fix its own rules of procedure not inconsistent
with these By-laws or the resolution of the Board of Directors designating such
committee and shall meet at such times and places and upon such call or notice
as shall be provided by such rules.
Section 2.14 Telephonic Meetings. Directors, or any committee of
-------------------
directors designated by the Board of Directors, may participate in a meeting of
the Board of Directors or such committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to this
Section 2.13 shall constitute presence in person at such meeting.
Section 2.15 Informal Action by Directors. Unless otherwise
----------------------------
restricted by the Certificate of Incorporation or these By-laws, as such may be
amended or restated from time to time, any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a meeting if all members of the Board of Directors or such
committee, as the case may be, consent thereto in writing (which may be in
counterparts), and the written consent or consents are filed with the minutes of
proceedings of the Board of Directors or such committee.
Section 2.16 Reliance upon Records. Every director, and every member
---------------------
of any committee of the Board of Directors, shall, in the performance of his or
her duties, be fully protected in relying in good faith upon the records of the
Corporation and upon such information, opinions, reports or statements presented
to the Corporation by any of its officers or employees, or committees of the
Board of Directors, or by any other person as to matters the director or member
reasonably believes are within such other person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Corporation, including, but not limited to, such records, information, opinions,
reports or statements as to the value and amount of the assets, liabilities
and/or net profits of the Corporation, or any other facts pertinent to the
existence and amount of surplus or other funds from which dividends might
properly be declared and paid, or with which the Corporation's capital stock
might properly be purchased or redeemed.
Section 2.17 Interested Directors. A director who is directly or
--------------------
indirectly a party to a contract or transaction with the Corporation, or is a
director or officer of or has a financial interest in any other corporation,
partnership, association or other organization which is a party to a contract or
transaction with the Corporation, may be counted in determining whether a quorum
is present at any meeting of the Board of Directors or a committee thereof at
which such contract or transaction is considered or authorized, and such
director may participate in such meeting and vote on such authorization to the
extent permitted by applicable law, including Section 144 of the General
Corporation Law of the State of Delaware.
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Section 2.18 Compensation. Unless otherwise restricted by the
------------
Certificate of Incorporation, as such may be amended or restated from time to
time, the Board of Directors shall have the authority to fix the compensation of
directors. The directors shall be paid their reasonable expenses, if any, of
attendance at each meeting of the Board of Directors or a committee thereof and
may be paid a fixed sum for attendance at each such meeting and an annual
retainer or salary for services as a director or committee member. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
Section 2.19 Presumption of Assent. Unless otherwise provided by the
---------------------
laws of the State of Delaware, a director who is present at a meeting of the
Board of Directors or a committee thereof at which action is taken on any matter
shall be presumed to have assented to the action taken unless his or her dissent
shall be entered in the minutes of such meeting or unless he or she shall file
his or her written dissent to such action with the person acting as secretary of
such meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary immediately after the adjournment of such
meeting. Such right to dissent shall not apply to a director who voted in favor
of such action.
ARTICLE III
OFFICERS
Section 3.1 Number and Designation. The officers of the Corporation
----------------------
shall be a Chairman of the Board, a President, one or more Vice Presidents, a
Secretary and a Treasurer, and such Assistant Secretaries, Assistant Treasurers
or other officers or agents as may be elected or appointed by the Board of
Directors. Any two or more offices may be held by the same person unless the
Certificate of Incorporation or these By-laws, as such may be amended or
restated from time to time, provide otherwise.
Section 3.2 Election and Term of Office. The officers of the
---------------------------
Corporation shall be elected annually by the Board of Directors at the first
meeting of the Board of Directors held after the election of directors. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as may be convenient. Vacancies may be filled or new
offices created and filled at any meeting of the Board of Directors. Each
officer shall hold office until his or her successor shall have been duly
elected and shall have qualified or until his or her earlier death, resignation
or removal.
Section 3.3 Removal and Resignation. Any officer or agent elected or
-----------------------
appointed by the Board of Directors may be removed by the Board of Directors
whenever in its judgment the best interests of the Corporation would be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed. Any officer or agent may resign at any time by
giving written notice to the Board of Directors, to the Chairman of the Board or
to the Secretary. Any such resignation shall take effect at the time of receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, acceptance of such resignation shall not be necessary to make
it effective.
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Section 3.4 Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.
Section 3.5 President. The President shall be the chief executive
---------
officer of the Corporation and shall in general supervise and control all of the
business and affairs of the Corporation, subject to the direction of the Board
of Directors. The President may execute, alone or with the Secretary or any
other officer of the Corporation authorized by the Board of Directors, any
deeds, mortgages, bonds, contracts or other instruments which the Board of
Directors or a committee thereof has authorized to be executed, except in cases
where the execution thereof shall be expressly delegated by the Board of
Directors or a committee thereof or by these By-laws to some other officer or
agent of the Corporation, or shall be required by law to be otherwise executed,
and in general he or she shall perform all duties incident to the office of
President and such other duties as from time to time may be prescribed by the
Board of Directors or a committee thereof.
Section 3.6 Chairman of the Board. The Chairman of the Board shall
---------------------
preside at all meetings of the Board of Directors. In the absence of the
President or in the event of his or her inability to act as President, the
Chairman of the Board shall perform the duties of the President and, when so
acting, shall have all the powers of, and be subject to all the restrictions
placed upon the President. He or she may execute, alone or with the Secretary or
any other officer of the Corporation authorized by the Board of Directors, any
deeds, mortgages, bonds, contracts or other instruments which the Board of
Directors or a committee thereof has authorized to be executed, except in cases
where the execution thereof shall be expressly delegated by the Board of
Directors or a committee thereof or by these By-laws to some other officer or
agent of the Corporation, or shall be required by law to be otherwise executed,
and in general he or she shall perform all duties incident to the office of
Chairman of the Board and such other duties as from time to time may be
prescribed by the Board of Directors or a committee thereof.
Section 3.7 The Vice Presidents. In the absence of the President and
-------------------
the Chairman of the Board, or in the event of their inability to act, the Vice
President (or in the event there shall be more than one Vice President, the Vice
Presidents in the order determined by the Board of Directors or, if there shall
have been no such determination, then in the order of their election) shall
perform the duties of the President and, when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. The Board
of Directors may also designate certain Vice Presidents as being in charge of
designated divisions, plants or functions of the Corporation's business and add
appropriate descriptions to their titles. In addition, any Vice President shall
perform such duties as from time to time may be assigned to him or her by the
President or the Board of Directors or a committee thereof.
Section 3.8 The Secretary. The Secretary shall (a) keep the minutes
-------------
of proceedings of the stockholders, the Board of Directors and any committee of
the Board of Directors in one or more books provided for that purpose; (b) see
that all notices are duly given in accordance with the provisions of these By-
laws or as required by law; (c) be custodian of the corporate records and of the
seal of the Corporation; (d) affix the seal of the Corporation or a facsimile
thereof, or cause it to be affixed, and, when so affixed, attest the seal by his
or her
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signature, to all certificates for shares of capital stock of the Corporation
prior to the issue thereof and to all other documents the execution of which on
behalf of the Corporation under its seal is duly authorized by the Board of
Directors or otherwise in accordance with the provisions of these By-laws; (e)
keep a register of the post office address of each stockholder, director or
committee member, which shall be furnished to the Secretary by such stockholder,
director or member; (f) have general charge of the stock transfer books of the
Corporation; and (g) in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him or
her by the Chairman of the Board, the President or the Board of Directors.
Section 3.9 The Treasurer. The Treasurer shall have charge and
-------------
custody of and be responsible for all funds and securities of the Corporation,
receive and give receipts for moneys due and payable to the Corporation from any
source whatsoever, deposit all such moneys in the name of the Corporation in
such banks, trust companies or other depositories as shall be selected in
accordance with the provisions of Article IV of these By-laws, disburse the
funds of the Corporation as ordered by the Board of Directors or the Chairman of
the Board or as otherwise required in the conduct of the business of the
Corporation and render to the Chairman of the Board, President or the Board of
Directors, upon request, an accounting of all his or her transactions as
Treasurer and a report on the financial condition of the Corporation. The
Treasurer shall in general perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him or
her by the Chairman of the Board, President or the Board of Directors.
Section 3.10 Assistant Treasurers and Secretaries. In the absence of
------------------------------------
the Secretary or the Treasurer, as the case may be, or in the event of his or
her inability to act, the Assistant Secretaries and the Assistant Treasurers,
respectively, in the order determined by the Board of Directors (or if there
shall have been no such determination, then in the order of their election),
shall perform the duties and exercise the powers of the Secretary or the
Treasurer, as the case may be. In addition, the Assistant Secretaries and the
Assistant Treasurers shall, in general, perform such duties as may be assigned
to them by the Chairman of the Board, the President, the Secretary, the
Treasurer or the Board of Directors.
Section 3.11 Salaries. The salaries of the officers and agents of
--------
the Corporation shall be fixed from time to time by the Board of Directors or by
such officer as it shall designate for such purpose. No officer shall be
prevented from receiving such salary by reason of the fact that he or she is
also a director of the Corporation.
Section 3.12 Appointments. In addition to the elected officers
------------
described above, the Chairman of the Board may from time to time designate
persons to be appointed Vice Presidents or bear such other title or titles as
the Chairman of the Board shall specify. The powers and duties of each such
appointed person shall be as prescribed by the Chairman of the Board from time
to time. Such appointed persons shall not be deemed elected or executive
officers of the Corporation. Each such appointed person shall serve until the
successor thereof is appointed or until the earlier resignation or removal of
such appointed person.
ARTICLE IV
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STOCK CERTIFICATES AND TRANSFERS
Section 4.1 Certificate. Every holder of stock shall be entitled to
-----------
have a certificate signed by or in the name of the Corporation by the Chairman
of the Board, if any, or the President or a Vice President, and by the Secretary
or an Assistant Secretary, of the Corporation, certifying the number of shares
owned by such stockholder in the Corporation. Any of or all the signatures on
the certificate may be facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such officer, transfer agent, or registrar continued to be
such at the date of issue.
Section 4.2 Lost, Stolen or Destroyed Certificates; Issuance of New
-------------------------------------------------------
Certificates. The Corporation may issue a new certificate for stock in the
- ------------
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or such stockholder's legal representative, to
give the Corporation a bond sufficient to indemnify it against any claim that
may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate.
Section 4.3 Transfers of Stock. Upon surrender to the Corporation or
------------------
the transfer agent of the Corporation of a certificate for stock of the
Corporation duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer or, if the relevant stock certificate is
claimed to have been lost, stolen or destroyed, upon compliance with the
provisions of Section 4.2 of these By-laws, and upon payment of applicable taxes
with respect to such transfer, and in compliance with any restrictions on
transfer applicable to such stock certificate or the shares represented thereby
of which the Corporation shall have notice and subject to such rules and
regulations as the Board of Directors may from time to time deem advisable
concerning the transfer and registration of stock certificates, the Corporation
shall issue a new certificate or certificates for such stock to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books. Transfers of stock shall be made only on the books of the Corporation by
the registered holder thereof or by such holder's attorney or successor duly
authorized as evidenced by documents filed with the Secretary or transfer agent
of the Corporation. Whenever any transfer of stock shall be made for collateral
security, and not absolutely, it shall be so expressed in the entry of transfer
if, when the certificate or certificates representing such stock are presented
to the Corporation for transfer, both the transferor and transferee request the
Corporation to do so.
Section 4.4 Stockholders of Record. The Corporation shall be
----------------------
entitled to treat the holder of record of any stock of the Corporation as the
holder thereof and shall not be bound to recognize any equitable or other claim
to or interest in such stock on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise required by the
laws of the State of Delaware.
ARTICLE V
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NOTICES
Section 5.1 Manner of Notice. Except as otherwise provided by law,
----------------
the Certificate of Incorporation or these By-laws, as such may be amended or
restated from time to time, whenever notice is required to be given to any
stockholder, director or member of any committee of the Board of Directors, such
notice may be given by personal delivery or by depositing it, in a sealed
envelope, in the United States mails, first class, postage prepaid, addressed,
or by delivering it to a telegraph company, charges prepaid, for transmission,
or by transmitting it via telecopier, to such stockholder, director or member,
either at the address of such stockholder, director or member as it appears on
the records of the Corporation or, in the case of such a director or member, at
his or her business address; and such notice shall be deemed to be given at the
time when it is thus personally delivered, deposited, delivered or transmitted,
as the case may be. Such requirement for notice shall also be deemed satisfied,
except in the case of stockholder meetings, if actual notice is received orally
or by other writing by the person entitled thereto as far in advance of the
event with respect to which notice is being given as the minimum notice period
required by law or these By-laws.
Section 5.2 Dispensation with Notice.
------------------------
(a) Whenever notice is required to be given by law, the Certificate
of Incorporation or these By-laws, as such may be amended or restated from time
to time, to any stockholder to whom (i) notice of two consecutive annual
meetings of stockholders, and all notices of meetings of stockholders or of the
taking of action by stockholders by written consent without a meeting to such
stockholder during the period between such two consecutive annual meetings, or
(ii) all, and at least two, payments (if sent by first class mail) of dividends
or interest on securities of the Corporation during a 12-month period, have been
mailed addressed to such stockholder at the address of such stockholder as shown
on the records of the Corporation and have been returned undeliverable, the
giving of such notice to such stockholder shall not be required. Any action or
meeting which shall be taken or held without notice to such stockholder shall
have the same force and effect as if such notice had been duly given. If any
such stockholder shall deliver to the Corporation a written notice setting forth
the then current address of such stockholder, the requirement that notice be
given to such stockholder shall be reinstated.
(b) Whenever notice is required to be given by law, the Certificate
of Incorporation or these By-laws, as such may be amended or restated from time
to time, to any person with whom communication is unlawful, the giving of such
notice to such person shall not be required, and there shall be no duty to apply
to any governmental authority or agency for a license or permit to give such
notice to such person. Any action or meeting which shall be taken or held
without notice to any such person with whom communication is unlawful shall have
the same force and effect as if such notice had been duly given.
Section 5.3 Waivers of Notice. Any written waiver of notice, signed
-----------------
by the person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of any
16
<PAGE>
regular special meeting of the stockholders, directors, or members of a
committee or directors need be specified in any written waiver of notice.
ARTICLE VI
INDEMNIFICATION
Section 6.1 Right to Indemnification.
------------------------
(a) The Corporation shall indemnify and hold harmless, to the fullest
extent permitted by law as in effect on the date of adoption of these By-laws or
as they may thereafter be amended or restated from time to time, any person who
was or is made or is threatened to be made a party or is otherwise involved in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (including any action by or in the right of the Corporation) (a
"proceeding") by reason of the fact that he or she, or a person for whom he or
she is the legal representative, is or was a director, officer or employee of
the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture or other enterprise, against any and all liability and loss (including
judgments, fines, penalties and amounts paid in settlement) suffered or incurred
and expenses reasonably incurred by such person (including attorneys' fees and
related expenses); provided that any standard of conduct applicable to whether a
director or officer may be indemnified shall be equally applicable to an
employee under this Article VI. The Corporation shall not be required to
indemnify a person in connection with a proceeding initiated by such person,
including a counterclaim or crossclaim, unless the proceeding was authorized by
the Board of Directors.
(b) For purposes of this Article VI: (i) any reference to "other
enterprise" shall include all plans, programs, policies, agreements, contracts
and payroll practices and related trusts for the benefit of or relating to
employees of the Corporation and its related entities ("employee benefit
plans"); (ii) any reference to "fines", "penalties", "liability" and "expenses"
shall include any excise taxes, penalties, claims, liabilities and reasonable
expenses (including reasonable legal fees and related expenses) assessed against
or incurred by a person with respect to any employee benefit plan; (iii) any
reference to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation or trustee
or administrator of any employee benefit plan which imposes duties on, or
involves services by, such director, officer, employee or agent with respect to
an employee benefit plan, its participants, beneficiaries, fiduciaries,
administrators and service providers; (iv) any reference to serving at the
request of the Corporation as a director, officer, employee or agent of a
partnership or trust shall include service as a partner or trustee; and (v) a
person who acted in good faith and in a manner he or she reasonably believed to
be in the interest of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" for purposes of this Article VI.
Section 6.2 Prepayment of Expenses. The Corporation may pay or
----------------------
reimburse the reasonable expenses incurred in defending any proceeding in
advance of its final disposition if the Corporation has received in advance an
undertaking by the person receiving such payment
17
<PAGE>
or reimbursement to repay all amounts advanced if it should be ultimately
determined that he or she is not entitled to be indemnified under this Article
VI or otherwise. The Corporation may require security for any such undertaking.
Section 6.3 Claims. If a claim for indemnification or payment of
------
expenses under this Article VI is not paid in full within 30 days after a
written claim therefor has been received by the Corporation, the claimant may
file suit to recover the unpaid amount of such claim and, if successful in whole
or in part, shall be entitled to be paid the expense of prosecuting such claim.
In any such action the Corporation shall have the burden of proving that the
claimant was not entitled to the requested indemnification or payment of
expenses under applicable law.
Section 6.4 Insurance. The Corporation may purchase and maintain
---------
insurance on its own behalf and on behalf of any person who is or was a
director, officer or employee of the Corporation or was serving at the request
of the Corporation as a director, officer or employee of another corporation,
partnership, joint venture, trust or other enterprise (including service with
respect to any employee benefit plan) against any liability asserted against him
and incurred by him in any such capacity, whether or not the Corporation would
have the power to indemnify such person against such liability under this
Article VI.
Section 6.5 Non-Exclusivity of Rights. The rights conferred on any
-------------------------
person by this Article VI shall not be exclusive of any other rights which such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation or these By-laws, as such may be amended or
restated from time to time, agreement, vote of stockholders or disinterested
directors or otherwise, and shall continue as to a person who has ceased to be a
director, officer or employee and shall inure to the benefit of the heirs,
executors, administrators and personal representatives of such a person.
Section 6.6 Other Indemnification. The Corporation's obligation, if
---------------------
any, to indemnify any person who was or is serving at its request as a director,
officer, employee, partner or agent of another corporation, partnership, joint
venture or other enterprise shall be reduced by any amount such person may
collect as indemnification from such other corporation, partnership, joint
venture or other enterprise.
Section 6.7 Amendment or Repeal. Any repeal or modification of the
-------------------
foregoing provisions of this Article VI shall not adversely affect any right or
protection hereunder of any person in respect of any act or omission occurring
prior to the time of such repeal or modification.
Section 6.8 Merger or Consolidation. For purposes of this Article
-----------------------
VI, references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers and employees, so that any person who is or was a director,
officer or employee of such a constituent corporation, or is or was serving at
the request of such a constituent corporation as a director, officer or employee
of another corporation, partnership, joint venture, trust or other enterprise
(including service with respect to any employee benefit plan), shall stand in
the same position under this Article VI with respect to the resulting or
18
<PAGE>
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
Section 6.9 Indemnification of Agents. The Corporation may, to the
-------------------------
extent authorized from time to time by the Board of Directors, grant rights to
indemnification and to the advancement of expenses to any agent of the
Corporation to the fullest extent of the provisions of this Article VI with
respect to the indemnification and advancement of expenses of directors,
officers and employees of the Corporation.
ARTICLE VII
GENERAL
Section 7.1 Fiscal Year. The fiscal year of the Corporation shall be
-----------
determined by resolution of the Board of Directors. Absent such determination,
the fiscal year of the Corporation shall end on December 31 of each year.
Section 7.2 Seal. The corporate seal shall have the name of the
----
Corporation inscribed thereon and shall be in such form as may be approved from
time to time by the Board of Directors.
Section 7.3 Form of Records. Any records maintained by the
---------------
Corporation in the regular course of its business, including its stock ledger,
books of account, and minute books, may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, microphotographs, or any other information
storage device, provided that the records so kept can be converted into clearly
legible form within a reasonable time. The Corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
Section 7.4 Amendment of By-Laws by the Board of Directors. These
----------------------------------------------
By-Laws may be altered, amended or repealed, or new By-Laws may be adopted, by
the affirmative vote of a majority of the directors present at any regular or
special meeting of the Board of Directors at which a quorum is present.
Section 7.5 Amendment of the By-laws by the Stockholders. These By-
--------------------------------------------
laws may be altered, amended or repealed, or new By-Laws may be adopted, by the
affirmative vote of the holders of seventy five percent (75%) of the shares of
the capital stock of the Corporation issued and outstanding and entitled to vote
at any regular meeting of the stockholders or at any special meeting of the
stockholders, provided notice of such alteration, amendment, repeal or adoption
of new By-laws shall have been stated in the notice of such meeting.
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<PAGE>
Exhibit 10.8
FORM OF SEVERANCE AGREEMENT
THIS AMENDED AND RESTATED SEVERANCE AGREEMENT (this "Agreement") was
entered into as of the ___ day of ________, ____ and amended and restated as of
this ___ day of ________, ____, by and between Peapod, Inc., a Delaware
corporation (the "Company"), and ______________ (the "Executive").
W I T N E S S E T H
WHEREAS, the Executive currently serves as a key employee of the
Company and his services and knowledge are valuable to the Company in connection
with the management of one or more of the Company's principal operating
facilities, divisions, departments or subsidiaries; and
WHEREAS, concurrently with the execution hereof, Executive and the
Company are entering into an employment agreement, which employment agreement
provides for substantial benefits; and
WHEREAS, the Board (as defined in Section 1) has determined that it is
in the best interests of the Company and its stockholders to secure the
Executive's continued services and to ensure the Executive's continued
dedication and objectivity in the event of any threat or occurrence of, or
negotiation or other action that could lead to, or create the possibility of, a
Change in Control (as defined in Section 1) of the Company, without concern as
to whether the Executive might be hindered or distracted by personal
uncertainties and risks created by any such possible Change in Control, and to
encourage the Executive's full attention and dedication to the Company, the
Board has authorized the Company to enter into this Agreement.
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants and agreements herein contained, the Company and the Executive
hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
-----------
have the respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means (1) a willful refusal by the Executive to perform or
substantial disregard of those duties and responsibilities properly assigned to
the Executive, and if a Change of Control has occurred, if those duties and
responsibilities do not differ in any material respect from the duties and
responsibilities of the Executive during the 90-day period immediately prior to
a Change in Control (other than as a result of incapacity due to physical or
mental illness), in any
<PAGE>
case, which is not remedied in a reasonable period of time after receipt of
written notice from the Company specifying such breach, (2) embezzlement or
misappropriation of corporate funds by the Executive, other act of dishonesty by
the Executive, or significant activities by the Executive harmful to the
reputation of the Company, or (3) significant violation by the Executive of any
statutory or common law duty of loyalty to the Company.
(c) "Change in Control" means:
(1) 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
Securities Exchange Act of 1934, as amended (the "Exchange Act"), of beneficial
ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act,
of 20% or more of either (i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) 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"); provided, however, that the following acquisitions shall not
-------- -------
constitute a Change in Control: (A) any acquisition directly from the Company
(excluding any acquisition resulting from the exercise of an exercise,
conversion or exchange privilege in respect of outstanding convertible or
exchangeable securities 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, (E) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation involving the
Company, if, immediately after such reorganization, merger or consolidation,
each of the conditions described in clauses (i), (ii) and (iii) of subsection
(3) of this Section (1)(c) shall be satisfied; and provided further that, for
-------- -------
purposes of clause (B), if any Person (other than 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;
(2) individuals who, as of the date of the consummation of the
Company's initial public offering of Common Stock, constitute the Board (the
"Incumbent Board") cease for any
-2-
<PAGE>
reason to constitute at least a majority of such Board; provided, however, 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 to have been a member of the
Incumbent Board; and provided further, that no 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 be deemed to have been a member of the Incumbent Board;
(3) 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 (i) 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, (ii) 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 (iii) 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
-3-
<PAGE>
(4) approval by the stockholders of the Company of a plan of complete
liquidation or dissolution of the Company.
(d) "Company" shall have the meaning set forth in the second recital
of this Agreement.
(e) "Date of Termination" means (1) the effective date on which the
Executive's employment by the Company terminates as specified in a prior written
notice by the Company or the Executive, as the case may be, to the other,
delivered pursuant to Section 10 or (2) if the Executive's employment by the
Company terminates by reason of death, the date of death of the Executive.
(f) "Employment Agreement" means the Employment Agreement of even date
hereof between Executive and Peapod, as it may be amended from time to time.
(g) "Exempt Person" means each of Andrew B. Parkinson and Thomas L.
Parkinson and any Affiliate (as such term is defined in Rule 12b-1 under the
Securities Exchange Act of 1934, as in effect on the date hereof, "Affiliate")
thereof.
(h) "Good Reason" means, without the Executive's express written
consent, the occurrence of any of the following events.
(1) any of (i) the assignment to the Executive of any duties
inconsistent in any material respect with the Executive's position(s), duties,
responsibilities or status with the Company as provided under the Employment
Agreement or, if the Employment Agreement is no longer in effect, immediately
prior to the termination thereof or, if a Change of Control has occurred,
immediately prior to such Change in Control, (ii) a change in the Executive's
reporting responsibilities, titles or offices with the Company inconsistent with
the Employment Agreement or, if the Employment Agreement is no longer in effect,
as in effect immediately prior to the termination thereof, or, if a Change of
Control has occurred, as in effect immediately prior to such Change in Control,
or (iii) any removal or involuntary termination of the Executive from the
Company otherwise than as expressly permitted by this Agreement or any failure
to re-elect the Executive to any position with the Company held by the Executive
as provided under the Employment Agreement or, if the Employment Agreement is no
longer in effect, as in effect immediately prior to the termination thereof, or,
if a Change of Control has occurred, immediately prior to such Change in
Control;
(2) a reduction by the Company in the Executive's rate of annual base
salary as provided under the Employment Agreement
-4-
<PAGE>
or a change to Executive's bonus compensation that is adverse to the Executive
and is inconsistent with the Employment Agreement, or, if the Employment
Agreement is no longer in effect, such annual base salary or bonus compensation
plan as in effect immediately prior to the termination thereof, or, if a Change
of Control has occurred, such annual base salary or bonus compensation plan as
in effect immediately prior to such Change in Control or as the same may be
increased from time to time thereafter;
(3) any requirement of the Company that the Executive (i) be based
anywhere other than at the facility where the Executive is located at the date
of this Agreement (or a new headquarters within a 30 mile radius of the
Company's current headquarters) or, if a Change of Control has occurred, at the
time of the Change in Control, or (ii) travel on Company business to an extent
substantially more burdensome than the travel obligations of the Executive
immediately prior to the date hereof, or, if a Change of Control has occurred,
at the time of such Change in Control;
(4) if a Change of Control has occurred, the failure of the Company
to (i) continue in effect any employee benefit plan or compensation plan in
which the Executive is participating immediately prior to such Change in
Control, unless the Executive is permitted to participate in other plans
providing the Executive with substantially comparable benefits, or the taking of
any action by the Company which would adversely affect the Executive's
participation in or materially reduce the Executive's benefits under any such
plan, (ii) provide the Executive and the Executive's dependents welfare benefits
(including, without limitation, medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) in accordance with the most favorable
plans, practices, programs and policies of the Company and its affiliated
companies in effect for the Executive immediately prior to such Change in
Control, (iii) provide fringe benefits in accordance with the most favorable
plans, practices, programs and policies of the Company and its affiliated
companies in effect for the Executive immediately prior to such Change in
Control, (iv) provide an office or offices of a size and with furnishings and
other appointments, together with secretarial and other assistance, at least
equal to the most favorable of the foregoing provided to the Executive by the
Company and its affiliated companies immediately prior to such Change in
Control, (v) provide the Executive with paid vacation in accordance with the
most favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive immediately prior to such
Change in Control, or (vi) reimburse the Executive promptly for all reasonable
employment expenses incurred by the Executive in accordance with the most
favorable policies, practices and procedures of the
-5-
<PAGE>
Company and its affiliated companies in effect for the Executive immediately
prior to such Change in Control;
(5) the failure of the Company to obtain the assumption agreement
from any successor as contemplated in Section 10(b); or
(6) the Company delivers a Non-Extension Notice (as defined in the
Employment Agreement) to the Executive under Section 1.03 of the Employment
Agreement.
For purposes of this Agreement, any good faith determination of Good
Reason made by the Executive shall be conclusive; provided, however, that an
-------- -------
isolated, insubstantial and inadvertent action taken in good faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive shall not constitute Good Reason.
(i) "Nonqualifying Termination" means a termination of the
Executive's employment (1) by the Company for Cause, (2) by the Executive for
any reason other than a Good Reason, (3) as a result of the Executive's death or
(4) by the Company due to the Executive's absence from his duties with the
Company on a full-time basis for at least 180 consecutive days as a result of
the Executive's incapacity due to physical or mental illness; provided, however,
-------- -------
that a termination of the Executive's employment for any reason whatsoever
during the "Window Period" (hereinafter defined) shall not constitute a
Nonqualifying Termination.
(j) "Termination Period" means the period of time beginning with the
date hereof and ending on the earliest to occur of (1) ten years after the date
hereof, (2) Executive's death and (3) two years following a Change in Control
(the "Termination Date").
(k) "Window Period" means the 30-day period commencing one year after
the date of a Change in Control.
2. Obligations of the Executive. The Executive agrees that in the
----------------------------
event any person or group attempts a Change in Control, he shall not voluntarily
leave the employ of the Company without Good Reason (a) until such attempted
Change in Control terminates or (b) if a Change in Control shall occur, until 90
days following such Change in Control. For purposes of the foregoing subsection
(a), Good Reason shall be determined as if a Change in Control had occurred when
such attempted Change in Control became known to the Board.
-6-
<PAGE>
3. Payments Upon Termination of Employment.
---------------------------------------
(a) If during the Termination Period the employment of the Executive
shall terminate, other than by reason of a Nonqualifying Termination, then the
Company shall pay to the Executive (or the Executive's beneficiary or estate) as
compensation for services rendered to the Company (i) in the event such
employment terminates more than 60 days prior to a Change of Control, at such
intervals as Executive's base salary and at such time as Executive's annual
bonus would otherwise be paid, and (ii) in the event such employment terminates
less than 60 days prior to a Change of Control or terminates after a Change of
Control, within 30 days following the Date of Termination in a lump sum:
(1) a cash amount equal to the sum of (i) the Executive's full annual
base salary from the Company and its affiliated companies through the Date of
Termination, to the extent not theretofore paid, (ii) the Executive's annual
bonus in an amount at least equal to the higher of (x) one-half of the maximum
bonus the Executive could earn during the fiscal year during which such
termination occurs and (y) the average of the Executive's annual bonus paid or
payable, including by reason of any deferral, to the Executive by the Company
and its affiliated companies in respect of the three fiscal years of the Company
(or such portion thereof during which the Executive performed services for the
Company if the Executive shall have been employed by the Company for less than
such three fiscal year period) immediately preceding the fiscal year in which
such termination occurs, multiplied by a fraction, the numerator of which is the
number of days in the fiscal year through the Date of Termination and the
denominator of which is 365 or 366, as applicable, and (iii) any compensation
previously deferred by the Executive (together with any interest and earnings
thereon) and any accrued vacation pay, in each case to the extent not
theretofore paid; plus
(2) a cash amount (subject to any applicable payroll or other taxes
required to be withheld pursuant to Section 4) in an amount equal to (i) two (2)
times (1.5 times if a Change of Control has not occurred) the Executive's
highest annual base salary from the Company and its affiliated companies in
effect during the 12-month period prior to the Date of Termination, plus (ii)
two (2) times (1.5 times if a Change of Control has not occurred) an amount at
least equal to the higher of (x) one-half of the maximum bonus the Executive
could earn during the fiscal year during which such termination occurs and (y)
the average of the Executive's annual bonus paid or payable, including by reason
of any deferral, to the Executive by the Company and its affiliated companies in
respect of the three fiscal years of the Company (or such portion thereof during
which the Executive performed services for the Company if the Executive shall
have
-7-
<PAGE>
been employed by the Company for less than such three fiscal year period)
immediately preceding the fiscal year in which such termination in which the
termination occurs, provided, however, that in the event there are fewer than 24
-------- -------
(18 if a Change of Control has not occurred) whole months remaining from the
Date of Termination to the Termination Date, the amount calculated in accordance
with this Section 3(a)(2) shall be reduced as determined by multiplying such
amount by a fraction the numerator of which is the number of months, including
any partial month (with any partial month being expressed as a fraction the
numerator of which is the number of days remaining in such month and the
denominator of which is the number of days in such month), so remaining and the
denominator of which is 24 (18 if a Change of Control has not occurred);
provided further, that any amount paid pursuant to this Section 3(a)(2) shall be
- -------- -------
paid in lieu of any other amount of severance relating to salary or bonus
continuation to be received by the Executive upon termination of employment of
the Executive under any severance plan, policy or arrangement of the Company.
(b) If during the Termination Period the employment of the Executive
shall terminate other than by reason of a Nonqualifying Termination, in addition
to the payments to be made pursuant to paragraph (a) of this Section 3, for a
period of two years (18 months if a Change in Control has not occurred)
commencing on the Date of Termination, the Company shall continue to keep in
full force and effect all policies of medical, accident, disability and life
insurance with respect to the Executive and his dependents with the same level
of coverage, upon the same terms and otherwise to the same extent as such
policies shall have been in effect immediately prior to the Date of Termination,
and the Company and the Executive shall share the costs of the continuation of
such insurance coverage in the same proportion as such costs were shared
immediately prior to the Date of Termination; provided that, if Executive
-------- ----
becomes eligible during such period to participate in another group plan with
respect to any such policies by reason of subsequent employment or otherwise,
the Executive's coverage under the Company policies will terminate in accordance
with the transition of coverage provisions in the Company's policies.
(c) If during the Termination Period the employment of the Executive
shall terminate by reason of a Nonqualifying Termination, then the Company shall
pay to the Executive within 30 days following the Date of Termination, a cash
amount equal to the sum of (1) the Executive's full annual base salary from the
Company through the Date of Termination, to the extent not theretofore paid and
(2) any compensation previously deferred by the Executive (together with any
interest and earnings thereon) and any accrued vacation pay, in each case to the
extent not theretofore paid.
-8-
<PAGE>
4. Withholding Taxes. The Company may withhold from all payments due
-----------------
to the Executive (or his beneficiary or estate) hereunder all taxes which, by
applicable federal, state, local or other law, the Company is required to
withhold therefrom.
5. Reimbursement of Expenses. If any contest or dispute shall arise
-------------------------
under this Agreement involving termination of the Executive's employment with
the Company after a Change of Control or involving the failure or refusal of the
Company to perform fully in accordance with the terms hereof after a Change of
Control, the Company shall reimburse the Executive, on a current basis, for all
legal fees and expenses, if any, incurred by the Executive in connection with
such contest or dispute, together with interest in an amount equal to the prime
rate of The Northern Trust Company from time to time in effect, but in no event
higher than the maximum legal rate permissible under applicable law, such
interest to accrue from the date the Company receives the Executive's statement
for such fees and expenses through the date of payment thereof; provided,
--------
however, that in the event the resolution of any such contest or dispute
- -------
includes a finding denying, in total, the Executive's claims in such contest or
dispute, the Executive shall be required to reimburse the Company, over a period
of 12 months from the date of such resolution, for all sums advanced to the
Executive pursuant to this Section 5.
6. Termination of Agreement. (a) This Agreement shall be effective
------------------------
as of the date hereof and shall terminate upon the first to occur of (i) the
Termination Date and (ii) Executive's death.
7. Scope of Agreement. Nothing in this Agreement shall be deemed to
------------------
entitle the Executive to continued employment with the Company or its
subsidiaries.
8. Directors and Officers Liability Insurance; Indemnification. The
-----------------------------------------------------------
Company agrees that, notwithstanding a Termination of Executive's employment
with the Company, the Company shall, for at least three years after the Date of
Termination, use all reasonable efforts to have Executive included as a named
insured or otherwise covered for actions or failures to act by Executive in his
capacity as a director or officer of the Company to at least the same extent as
other executive officers or directors, as the case may be, of the Company under
any directors and officers liability insurance policies maintained by the
Company; provided that the additional cost of providing coverage with a
-------- ----
retroactive date including Executive's period of service or with an extended
reporting period or a combination of both does not materially increase the cost
of the Company's directors and officers insurance. The Company agrees that it
will not alter the indemnification provisions in its charter or by-laws so as to
give Executive less
-9-
<PAGE>
protection thereunder with respect to periods during which Executive served the
Company as an executive officer or other employee than is afforded to other
executive officers or peer employees, as the case may be, with respect to
periods during which they serve the Company.
9. Successors; Binding Agreement.
-----------------------------
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in paragraph (a) of this Section
9, it will cause any successor or transferee unconditionally to assume, by
written instrument delivered to the Executive (or his beneficiary or estate),
all of the obligations of the Company hereunder. Failure of the Company to
obtain such assumption prior to the effectiveness of any such merger,
consolidation or transfer of assets shall be a breach of this Agreement and
shall entitle the Executive to compensation and other benefits from the Company
in the same amount and on the same terms as the Executive would be entitled
hereunder if the Executive's employment were terminated following a Change in
Control other than by reason of a Nonqualifying Termination. For purposes of
implementing the foregoing, the date on which any such merger, consolidation or
transfer becomes effective shall be deemed the Date of Termination.
(c) This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amounts would be payable to the Executive hereunder had the
Executive continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to such person or
persons appointed in writing by the Executive to receive such amounts or, if no
person is so appointed, to the Executive's estate.
10. Notice. (a) For purposes of this Agreement, 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 five days after
deposit in the United States mail, certified and return receipt requested,
postage prepaid, addressed (1) if to the Executive, to Thomas L. Parkinson, to
the
-10-
<PAGE>
address of Mr. Parkinson as set forth in the records of the Company and if to
the Company, to Peapod, Inc., 9933 Woods Drive Skokie, Illinois 60077-1031,
attention _________________________, 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 notices of change of address shall be effective
only upon receipt.
(b) A written notice of termination of the Executive's employment by
the Company or the Executive, as the case may be, shall (i) indicate the
specific termination provision in this Agreement relied upon, (ii) to the extent
applicable, set forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated and (iii) specify the Date of Termination date (which
date shall be not less than 15 days after the giving of such notice). The
failure by the Executive or the Company to set forth in such notice any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company hereunder or preclude the
Executive or the Company from asserting such fact or circumstance in enforcing
the Executive's or the Company's rights hereunder.
11. Full Settlement; Resolution of Disputes. (a) The Company's
---------------------------------------
obligation to make any payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against the Executive or others. In no event shall the
Executive be obligated to seek other employment or take any other action by way
of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and, such amounts shall not be reduced, except as
set forth in Section 3(b), whether or not the Executive obtains other
employment.
(b) If there shall be any dispute between the Company and the
Executive in the event of any termination of the Executive's employment, then,
unless and until there is a final determination rendered as provided in Section
16 declaring that such termination was for Cause, that the determination by the
Executive of the existence of Good Reason was not made in good faith, or that
the Company is not otherwise obligated to pay any amount or provide any benefit
to the Executive and his dependents or other beneficiaries, as the case may be,
under paragraphs (a) and (b) of Section 3, the Company shall pay all amounts,
and provide all benefits, to the Executive and his dependents or other
beneficiaries, as the case may be, that the Company would be required to pay or
provide pursuant to paragraphs (a) and (b) of Section 3 as though such
termination were by the Company without Cause or by the Executive with Good
Reason; provided,
--------
-11-
<PAGE>
however, that the Company shall not be required to pay any disputed amounts
- -------
pursuant to this paragraph except upon receipt of an undertaking by or on behalf
of the Executive to repay all such amounts to which the Executive is ultimately
adjudged by such court not to be entitled.
12. Employment with Subsidiaries. Employment with the Company for
----------------------------
purposes of this Agreement shall include employment with any corporation or
other entity in which the Company has a direct or indirect ownership interest of
50% or more of the total combined voting power of the then outstanding
securities of such corporation or other entity entitled to vote generally in the
election of directors.
13. Governing Law; Validity. The interpretation, construction and
-----------------------
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Illinois without regard to the
principle of conflicts of laws. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which other provisions shall remain in
full force and effect.
14. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
15. Miscellaneous. No provision of this Agreement may be modified or
-------------
waived unless such modification or waiver is agreed to in writing and signed by
the Executive and by a duly authorized officer of the Company. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. Failure by the
Executive or the Company to insist upon strict compliance with any provision of
this Agreement or to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason, shall not be deemed to be a waiver of such
provision or right or any other provision or right of this Agreement. The
rights of, and benefits payable to, the Executive, his estate or his
beneficiaries pursuant to this Agreement are in addition to any rights of, or
benefits payable to, the Executive, his estate or his beneficiaries under any
other employee benefit plan or compensation program of the Company.
16. 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
-12-
<PAGE>
American Arbitration Association ("AAA") in accordance with its National Rules
for the Resolution of Employment Disputes, 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 AAA. If the parties are unable to
agree on an arbitrator, AAA shall select an arbitrator in accordance with its
procedures).
-13-
<PAGE>
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 ___________________________
Name:
Title:
______________________________
-14-
<PAGE>
Exhibit 10.9
FORM OF SEVERANCE AGREEMENT
---------------------------
THIS AGREEMENT (this "Agreement") is entered into as of _____________, ____
by and between Peapod, Inc., a Delaware corporation (the "Company"), and
___________________________________________________ (the "Executive");
W I T N E S S E T H
WHEREAS, the Executive is being employed or is currently employed
as_________________________________________of the Company and his services and
knowledge are valuable to the Company; and
WHEREAS, concurrently with the execution hereof, Executive and the Company
are entering into an employment agreement ("Employment Agreement"), which
Employment Agreement provides for substantial benefits; and
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained, the Company and the Executive hereby
agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
-----------
have the respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means (1) a willful refusal by the Executive to perform
or substantial disregard of those duties and responsibilities properly assigned
to the Executive, and if a Change in Control has occurred, if those duties and
responsibilities do not differ in any material respect from the duties and
responsibilities of the Executive during the ninety (90) day period immediately
prior to a Change in Control (other than as a result of incapacity due to
physical or mental illness), in any case, which is not remedied in a reasonable
period of time after receipt of written notice from the Company specifying such
breach, (2) embezzlement or misappropriation of corporate funds by the
Executive, other act of dishonesty by the Executive, or significant activities
by the Executive harmful to the reputation of the Company, or (3) significant
violation by the Executive of any statutory or common law duty of loyalty to the
Company.
(c) "Change in Control" means:
(1) 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 Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated
under the Exchange Act, of twenty percent (20%) or more of either (i) the then
outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (ii) the combined voting power of the then outstanding
<PAGE>
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
-------- -------
the following acquisitions shall not constitute a Change in Control: (A) any
acquisition directly from the Company (excluding any acquisition resulting from
the exercise of an exercise, conversion or exchange privilege in respect of
outstanding convertible or exchangeable securities 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, (E) any
acquisition by any corporation pursuant to a reorganization, merger or
consolidation involving the Company, if, immediately after such reorganization,
merger or consolidation, each of the conditions described in clauses (i), (ii)
and (iii) of subsection (3) of this Section (1)(c) shall be satisfied; and
provided further that, for purposes of clause (B), if any Person (other than
- ----------------
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 twenty percent (20%) or more of the Outstanding
Company Common Stock or twenty percent (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;
(2) individuals who, as of the date of the consummation of the
Company's initial public offering of Common Stock, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
such Board; provided, however, 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
sixty six and two-thirds percent (66-2/3%) of the directors then comprising the
Incumbent Board shall be deemed to have been a member of the Incumbent Board;
and provided further, that no 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 be deemed to have been a
member of the Incumbent Board;
(3) 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 (i) 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 sixty percent (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
2
<PAGE>
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, (ii) 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, twenty percent (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, twenty percent (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 (iii) 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 Corporation Transaction; or
(4) approval by the stockholders of the Company of a plan of
complete liquidation or dissolution of the Company.
(d) "Company" shall have the meaning set forth in the introduction to
this Agreement.
(e) "Date of Termination" means (1) the effective date on which the
Executive's employment by the Company terminates as specified in a prior written
notice by the Company or the Executive, as the case may be, to the other,
delivered pursuant to Section 10 or (2) if the Executive's employment by the
Company terminates by reason of death, the date of death of the Executive.
(f) "Employment Agreement" means the Employment Agreement of even
date hereof between Executive and Peapod, as it may be amended from time to
time.
(g) "Exempt Person" means each of Andrew B. Parkinson and Thomas L.
Parkinson and any Affiliate (as such term is defined in Rule 12b-1 under the
Securities Exchange Act of 1934, as in effect on the date hereof, "Affiliate")
thereof.
(h) "Good Reason" means, without the Executive's express written
consent, the occurrence of any of the following events:
(1) any of (i) the assignment to the Executive of any duties
inconsistent in any material respect with the Executive's position(s), duties,
responsibilities or status with the Company as provided under the Employment
Agreement or, if the Employment Agreement is no longer in effect, immediately
prior to the termination thereof or, if a Change in Control has occurred,
immediately prior to such Change in Control, (ii) a change in the Executive's
reporting responsibilities, titles or offices with the Company inconsistent with
the Employment Agreement or, if the Employment Agreement is no longer in effect,
as in effect immediately prior to the termination thereof, or, if a Change in
Control has occurred, as in effect
3
<PAGE>
immediately prior to such Change in Control, or (iii) any removal or involuntary
termination of the Executive from the Company otherwise than as expressly
permitted by this Agreement or any failure to re-elect the Executive to any
position with the Company held by the Executive as provided under the Employment
Agreement or, if the Employment Agreement is no longer in effect, as in effect
immediately prior to the termination thereof, or, if a Change in Control has
occurred, immediately prior to such Change in Control;
(2) a reduction by the Company in the Executive's rate of annual
base salary as provided under the Employment Agreement or a change to
Executive's bonus compensation that is adverse to the Executive and is
inconsistent with the Employment Agreement, or, if the Employment Agreement is
no longer in effect, such annual base salary or bonus compensation plan as in
effect immediately prior to the termination thereof, or, if a Change in Control
has occurred, such annual base salary or bonus compensation plan as in effect
immediately prior to such Change in Control or as the same may be increased from
time to time thereafter;
(3) any requirement of the Company that the Executive (i) be
based anywhere other than at the facility where the Executive is located or to
be located at the date of this Agreement (or a new headquarters within a thirty
(30) mile radius of the Company's current headquarters) or, if a Change in
Control has occurred, at the time of the Change in Control, or (ii) travel on
Company business to an extent substantially more burdensome than the travel
obligations of the Executive immediately prior to the date hereof, or, if a
Change in Control has occurred, at the time of such Change in Control;
(4) if a Change in Control has occurred, the failure of the
Company to (i) continue in effect any employee benefit plan or compensation plan
in which the Executive is participating immediately prior to such Change in
Control, unless the Executive is permitted to participate in other plans
providing the Executive with substantially comparable benefits, or the taking of
any action by the Company which would adversely affect the Executive's
participation in or materially reduce the Executive's benefits under any such
plan, (ii) provide the Executive and the Executive's dependents welfare benefits
(including, without limitation, medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) in accordance with the most favorable
plans, practices, programs and policies of the Company and its affiliated
companies in effect for the Executive immediately prior to such Change in
Control, (iii) provide fringe benefits in accordance with the most favorable
plans, practices, programs and policies of the Company and its affiliated
companies in effect for the Executive immediately prior to such Change in
Control, (iv) provide an office or offices of a size and with furnishings and
other appointments, together with secretarial and other assistance, at least
equal to the most favorable of the foregoing provided to the Executive by the
Company and its affiliated companies immediately prior to such Change in
Control, (v) provide the Executive with paid vacation in accordance with the
most favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive immediately prior such
Change in Control, or (vi) reimburse the Executive promptly for all reasonable
employment expenses incurred by the Executive in accordance with the most
favorable policies, practices and procedures of the Company and its affiliated
companies in effect for the Executive immediately prior to such Change in
Control; or
4
<PAGE>
(5) the failure of the Company to obtain the assumption agreement
from any successor as contemplated in Section 9(b).
Notwithstanding the above, an isolated action taken in good faith and which is
remedied by the Company promptly after receipt of notice from the Executive
shall not constitute Good Reason.
(i) "Nonqualifying Termination" means a termination of the
Executive's employment (1) by the Company for Cause, (2) by the Executive for
any reason other than a Good Reason, (3) as a result of the Executive's death or
(4) by the Company due to the Executive's absence from his duties with the
Company on a full-time basis for at least one hundred eighty (180) consecutive
days as a result of the Executive's incapacity due to physical or mental
illness; provided, however, that a termination of the Executive's employment
-------- -------
for any reason whatsoever during the "Window Period" (hereinafter defined) shall
not constitute a Nonqualifying Termination.
(j) "Term" means the period of time beginning with the date hereof
and ending on the earliest to occur of (1) ten years after the date hereof, (2)
Executive's death, and (3) two years following a Change in Control (the
"Agreement Termination Date").
(k) "Window Period" means the thirty (30) day period commencing one
(1) year after the date of a Change in Control.
2. Obligations of the Executive. The Executive agrees that in the event
----------------------------
any person or group attempts a Change in Control, he shall not voluntarily leave
the employ of the Company without Good Reason (a) until such attempted Change in
Control terminates or (b) if a Change in Control shall occur, until ninety (90)
days following such Change in Control. For purposes of the foregoing subsection
(a), Good Reason shall be determined as if a Change in Control had occurred when
such attempted Change in control became known to the Board.
3. Payments Upon Termination of Employment.
---------------------------------------
(a) If the employment of the Executive shall terminate other than by
reason of a Nonqualifying Termination, the Company shall pay to the Executive
(or the Executive's beneficiary or estate) as compensation for services rendered
to the Company:
(1) a cash amount payable within 30 days following the Date of
Termination equal to the sum of (i) the Executive's base salary due from the
Company through the Date of Termination (ii) the Executive's annual bonus in an
amount equal to the average of the Executive's annual bonus for the last three
(3) fiscal years (or such portion thereof during which the Executive was
employed) immediately preceding the fiscal year in which such termination
occurs, multiplied by a fraction, the numerator of which is the number of days
in the fiscal year through the Date of Termination and the denominator of which
is 365 or 366, as applicable, and (iii) any compensation previously deferred by
the Executive and any accrued vacation pay, in each case to the extent not
theretofore paid; plus
5
<PAGE>
(2) an amount equal to six (6) months of the Executive's highest
base salary in effect during the six (6) month period prior to the Date of
Termination payable at such intervals and times as the Executive's base salary
would otherwise be paid; provided, however, that any amount paid pursuant to
--------- -------
this Section 3(a)(2) shall be paid in lieu of any other amount of severance
relating to salary or bonus continuation to be received by the Executive upon
termination of employment of the Executive under any severance plan, policy or
arrangement of the Company.
(b) If the employment of the Executive shall terminate by reason of a
Nonqualifying Termination, then the Company shall pay to the Executive within
thirty (30) days following the Date of Termination, a cash amount equal to the
sum of (1) the Executive's base salary due from the Company through the Date of
Termination and (2) any compensation previously deferred by the Executive and
any accrued vacation pay, in each case to the extent not theretofore paid.
4. Withholding Taxes. The Company may withhold from all payments due to
-----------------
the Executive (or his beneficiary or estate) hereunder all taxes which, by
applicable federal, state, local or other law, the Company is required to
withhold therefrom.
5. Reimbursement of Expenses. If any contest or dispute shall arise
-------------------------
under this Agreement involving termination of the Executive's employment with
the Company after a Change in Control or involving the failure or refusal of the
Company to perform fully in accordance with the terms hereof after a Change in
Control, the Company shall reimburse the Executive, on a current basis, for all
legal fees and expenses incurred by the Executive in connection with such
contest or dispute, together with interest in an amount equal to the prime rate
of The Northern Trust Company from time to time in effect, but in no event
higher than the maximum legal rate permissible under applicable law, such
interest to accrue from the date the Company receives the Executive's statement
for such fees and expenses through the date of payment thereof; provided,
--------
however, that in the event the resolution of any such contest or dispute
- -------
includes a finding denying, in total, the Executive's claims in such contest or
dispute, the Executive shall be required to reimburse the Company, over a period
of twelve (12) months from the date of such resolution, for all sums advanced to
the Executive pursuant to this Section 5.
6. Termination of Agreement. This Agreement shall be effective as of the
------------------------
date hereof and shall terminate upon the Agreement Termination Date.
7. Scope of Agreement. Nothing in this Agreement shall be deemed to
------------------
entitle the Executive to continued employment with the Company or its
subsidiaries.
8. Directors and Officers Liability Insurance; Indemnification. The
-----------------------------------------------------------
Company agrees that, notwithstanding a termination of Executive's employment
with the Company, the Company shall, for at least three (3) years after the Date
of Termination, use all reasonable efforts to have Executive included as a named
insured or otherwise covered for actions or failures to act by Executive in his
capacity as a director or officer of the Company to at least the same extent as
other executive officers or directors, as the case may be, of the Company under
any directors and officers liability insurance policies maintained by the
Company; provided that
--------
6
<PAGE>
the additional cost of providing coverage with a retroactive date including
Executive's period of service or with an extended reporting period or a
combination of both does not materially increase the cost of the Company's
directors and officers insurance. The Company agrees that it will not alter the
indemnification provisions in its charter or by-laws so as to give Executive
less protection thereunder with respect to periods during which Executive served
the Company as an executive officer or other employee than is afforded to other
executive officers or peer employees, as the case may be, with respect to
periods during which they serve the Company.
9. Successors; Binding Agreement.
-----------------------------
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in paragraph (a) of this Section
9, it will cause any successor or transferee unconditionally to assume, by
written instrument delivered to the Executive (or his beneficiary or estate),
all of the obligations of the Company hereunder. Failure of the Company to
obtain such assumption prior to the effectiveness of any such merger,
consolidation or transfer of assets shall be a breach of this Agreement and
shall entitle the Executive to compensation and other benefits from the Company
in the same amount and on the same terms as the Executive would be entitled
hereunder if the Executive's employment were terminated following a Change in
Control other than by reason of a Nonqualifying Termination. For purposes of
implementing the foregoing, the date on which any such merger, consolidation or
transfer becomes effective shall be deemed the Date of Termination.
(c) This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amounts would be payable to the Executive hereunder had the
Executive continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to such person or
persons appointed in writing by the Executive to receive such amounts or, if no
person is so appointed, to the Executive's estate.
10. Notice.
------
(a) 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, at his address shown on the Company records, and if to the Company,
to Peapod, Inc., 9933 Woods Drive, Skokie, Illinois 60077-1031, attention
President with a copy to the Secretary, or (2) to such other address as either
party may have furnished to
7
<PAGE>
the other in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
(b) A written notice of termination of the Executive's employment by
the Company or the Executive, as the case may be, shall (i) indicate the
specific termination provision in this Agreement relied upon, (ii) to the extent
applicable, set forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated and (iii) specify the Date of Termination (which date
shall be not less than fifteen (15) days after the giving of such notice). The
failure by the Executive or the Company to set forth in such notice any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company hereunder or preclude the
Executive or the Company from asserting such fact or circumstance in enforcing
the Executive's or the Company's rights hereunder.
11. Employment with Subsidiaries. Employment with the Company for
----------------------------
purposes of this Agreement shall include employment with any corporation or
other entity in which the Company has a direct or indirect ownership interest of
fifty percent (50%) or more of the total combined voting power of the then
outstanding securities of such corporation or other entity entitled to vote
generally in the election of directors.
12. Governing Law; Validity. The interpretation, construction and
-----------------------
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Illinois without regard to the
principle of conflicts of laws. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which other provisions shall remain in
full force and effect.
13. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
14. Miscellaneous. No provision of this Agreement may be modified or
-------------
waived unless such modification or waiver is agreed to in writing and signed by
the Executive and by a duly authorized officer of the Company. No waiver by
either party hereto of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. Failure by the Executive or the
Company to insist upon strict compliance with any provision of this Agreement or
to assert any right the Executive or the Company may have hereunder, shall not
be deemed to be a waiver of such provision or right or any other provision or
right of this Agreement. The rights of, and benefits payable to, the Executive,
his estate or his beneficiaries pursuant to this Agreement are in addition to
any rights of, or benefits payable to, the Executive, his estate or his
beneficiaries under any other employee benefit plan or compensation program of
the Company.
15. 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
8
<PAGE>
Arbitration Association ("AAA") in accordance with its National Rules for the
Resolution of Employment Disputes, 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 AAA. If the parties are unable to
agree on an arbitrator, AAA shall select an arbitrator in accordance with its
procedures.
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:_______________________________________
Title:
EXECUTIVE
_________________________________________
[Name]
9
<PAGE>
Exhibit 10.14
PEAPOD, INC
AMENDED AND RESTATED 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
<PAGE>
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
<PAGE>
"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
<PAGE>
"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
<PAGE>
"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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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 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 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
21
<PAGE>
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
<PAGE>
EXHIBIT 10.16
FORM OF INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") was entered into as
of the ___ day of _____, ____ and amended and restated as of this ___ day of
_____, ____, between Peapod, Inc., a Delaware corporation (the "Company"), and
_____________ (the "Indemnitee").
WHEREAS, it is essential to the Company and its stockholders to
attract and retain qualified and capable directors, officers, employees, agents
and fiduciaries;
WHEREAS, the Restated Certificate of Incorporation of the Company (the
"Certificate of Incorporation") and Restated By-Laws (the "By-Laws") requires
the Company to indemnify, and permits the Company to advance expenses to, its
directors and officers to the extent not prohibited by law, and allows the
Company to indemnify employees and agents;
WHEREAS, in recognition of Indemnitee's need for protection against
personal liability in order to induce Indemnitee to serve or continue to serve
the Company in an effective manner, and, in the case of directors and officers,
to supplement or replace the Company's directors' and officers' liability
insurance coverage, and in part to provide Indemnitee with specific contractual
assurance that the protection promised by the Certificate of Incorporation and
By-Laws will be available to Indemnitee (regardless of, among other things, any
amendment to or revocation of the Certificate of Incorporation or By-Laws or any
change in the composition of the Company's Board of Directors or any acquisition
transaction relating to the Company), the Company, with the prior approval of
the Company's stockholders, wishes to provide the Indemnitee with the benefits
contemplated by this Agreement; and
WHEREAS, as a result of the provision of such benefits Indemnitee has
agreed to serve or to continue to serve the Company;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions. The following terms, as used herein, shall have the
-----------
following respective meanings:
(a) A Change in Control: shall be deemed to have occurred if any of
-----------------
the following shall have occurred:
(1) 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
<PAGE>
within the meaning of Rule 13d-3 promulgated under the Exchange Act, of 20% or
more of either (i) the then outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (ii) 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"); provided,
--------
however, that the following acquisitions shall not constitute a Change in
- -------
Control: (A) any acquisition directly from the Company (excluding any
acquisition resulting from the exercise of an exercise, conversion or exchange
privilege in respect of outstanding convertible or exchangeable securities
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, (E) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation involving the Company, if, immediately
after such reorganization, merger or consolidation, each of the conditions
described in clauses (i), (ii) and (iii) of subsection (3) of this Section
(1)(c) shall be satisfied; and provided further that, for purposes of clause
-------- -------
(B), if any Person (other than 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;
(2) individuals who, as of the date of the consummation of the
Company's initial public offering of Common Stock, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
such Board; provided, however, 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 to
have been a member of the Incumbent Board; and provided further, that no
-------- -------
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 be deemed to have been a member of the Incumbent
Board;
2
<PAGE>
(3) 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 (i) 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, (ii) 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 (iii) 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
(4) approval by the stockholders of the Company of a plan of complete
liquidation or dissolution of the Company.
(b) Claim: means any threatened, pending or completed action, suit,
-----
arbitration or proceeding, or any inquiry or investigation, whether brought by
or in the right of the Company or otherwise, that Indemnitee in good faith
believes might lead to the institution of any such action, suit, arbitration or
proceeding, whether civil, criminal, administrative, investigative or other, or
any appeal therefrom.
3
<PAGE>
(c) Equity Security: shall have the meaning given to such term under
---------------
Rule 3a11-1 of the General Rules and Regulations under the Exchange Act as in
effect on the date hereof.
(d) "Exempt Person" means each of Andrew B. Parkinson and Thomas L.
-------------
Parkinson and any Affiliate (as such term is defined in Rule 12b-1 under the
Securities Exchange Act of 1934, as in effect on the date hereof, "Affiliate")
thereof.
(e) Exchange Act: means the Securities and Exchange Act of 1934, as
------------
amended.
(f) D&O Insurance: means any valid directors' and officers'
-------------
liability insurance policy maintained by the Company for the benefit of the
Indemnitee, if any.
(g) Determination: means a determination, and Determined means a
------------- ----------
matter which has been determined based on the facts known at the time, by: (i)
a majority vote of a quorum of disinterested directors, or (ii) if such a quorum
is not obtainable, or even if obtainable, if a quorum of disinterested directors
so directs, by independent legal counsel in a written opinion, or, in the event
there has been a Change in Control, by the Special Independent Counsel (in a
written opinion) selected by Indemnitee as set forth in Section 6, or (iii) a
majority of the disinterested stockholders of the Company, or (iv) a final
adjudication by a court of competent jurisdiction.
(h) Excluded Claim: means any payment for Losses or Expenses in
--------------
connection with any Claim: (i) based upon or attributable to Indemnitee gaining
in fact any personal profit or advantage to which Indemnitee is not entitled; or
(ii) for the return by Indemnitee of any remuneration paid to Indemnitee without
the previous approval of the stockholders of the Company which is illegal; or
(iii) for an accounting of profits in fact made from the purchase or sale by
Indemnitee of securities of the Company within the meaning of Section 16 of the
Exchange Act or similar provisions of any state law; or (iv) resulting from
Indemnitee's knowingly fraudulent, dishonest or willful misconduct; or (v) the
payment of which by the Company under this Agreement is not permitted by
applicable law.
(i) Expenses: means any reasonable expenses incurred by Indemnitee
--------
as a result of a Claim or Claims made against Indemnitee for Indemnifiable
Events including, without limitation, attorneys' fees and all other costs,
expenses and obligations paid or incurred in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to defend, be a witness in or participate in any Claim relating to any
Indemnifiable Event.
4
<PAGE>
(j) Fines: means any fine, penalty or, with respect to an employee
-----
benefit plan, any excise tax or penalty assessed with respect thereto.
(k) Indemnifiable Event: means any event or occurrence, occurring
-------------------
prior to or after the date of this Agreement, related to the fact that
Indemnitee is, was or has agreed to serve as, a director, officer, employee,
trustee, agent or fiduciary of the Company, or is or was serving at the request
of the Company as a director, officer, employee, trustee, agent or fiduciary of
another corporation, partnership, joint venture, employee benefit plan, trust or
other enterprise, or by reason of anything done or not done by Indemnitee,
including, but not limited to, any breach of duty, neglect, error, misstatement,
misleading statement, omission, or other act done or wrongfully attempted by
Indemnitee, or any of the foregoing alleged by any claimant, in any such
capacity.
(l) Losses: means any amounts or sums which Indemnitee is legally
------
obligated to pay as a result of a Claim or Claims made against Indemnitee for
Indemnifiable Events including, without limitation, damages, judgments and sums
or amounts paid in settlement of a Claim or Claims, and Fines.
(m) Person: means any individual, partnership, corporation, business
------
trust, joint stock company, trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature.
(n) Potential Change in Control: shall be deemed to have occurred if
---------------------------
(A) the Company enters into an agreement, the consummation of which would result
in the occurrence of a Change in Control; (B) any Person (including the Company)
publicly announces an intention to take or to consider taking actions which if
consummated would constitute a Change in Control; or (C) the Board of Directors
adopts a resolution to the effect that, for purposes of this Agreement, a
Potential Change in Control has occurred.
(o) Relative: means a Person's spouse, parents, children, siblings,
--------
mother- and father-in-law, sons- and daughters-in-law, and brothers- and
sisters-in-law.
(p) Reviewing Party: means any appropriate person or body consisting
---------------
of a member or members of the Company's Board of Directors or any other person
or body appointed by the Board (including the Special Independent Counsel
referred to in Section 6) who is not a party to the particular Claim for which
Indemnitee is seeking indemnification.
5
<PAGE>
(q) Subsidiary: means any corporation of which a majority of any
----------
class of Equity Security is owned, directly or indirectly, by the Company.
(r) Trust: means the trust established pursuant to Section 7 hereof.
-----
(s) Voting Shares: means any issued and outstanding shares of
-------------
capital stock of the Company entitled to vote generally in the election of
directors.
2. Basic Indemnification Agreement. In consideration of, and as an
-------------------------------
inducement to, the Indemnitee rendering valuable services to the Company, the
Company agrees that in the event Indemnitee is or becomes a party to or witness
or other participant in, or is threatened to be made a party to or witness or
other participant in, a Claim by reason of (or arising in part out of) an
Indemnifiable Event, the Company will indemnify Indemnitee to the fullest extent
authorized by law, against any and all Losses and Expenses (including all
interest, assessments and other charges paid or payable in connection with or in
respect of such Losses and Expenses) of such Claim, whether or not such Claim
proceeds to judgment or is settled or otherwise is brought to a final
disposition, subject in each case, to the further provisions of this Agreement.
3. Limitations on Indemnification. Notwithstanding the provisions
------------------------------
of Section 2, Indemnitee shall not be indemnified and held harmless from any
Losses or Expenses (a) which have been Determined, as provided herein, to
constitute an Excluded Claim; (b) to the extent Indemnitee is indemnified by the
Company and has actually received payment pursuant to the Certificate of
Incorporation, By-Laws, D&O Insurance or otherwise; or (c) other than pursuant
to the last sentence of Section 4(d) or Section 15, in connection with any claim
initiated by Indemnitee, unless the Company has joined in or the Board of
Directors has authorized such claim.
4. Indemnification Procedures.
--------------------------
(a) Promptly after receipt by Indemnitee of notice of any Claim,
Indemnitee shall, if indemnification with respect thereto may be sought from the
Company under this Agreement, notify the Company of the commencement thereof;
provided, however, that the failure to give such notice promptly shall not
- -------- -------
affect or limit the Company's obligations with respect to the matters described
in the notice of such Claim, except to the extent that the Company is prejudiced
thereby. Indemnitee agrees further not to make any admission or effect any
settlement with respect to such Claim without the consent of the Company, except
any Claim with respect to which the Indemnitee has undertaken the defense in
accordance with the second to last sentence of Section 4(d).
6
<PAGE>
(b) If, at the time of the receipt of such notice, the Company has
D&O Insurance in effect, the Company shall give prompt notice of the
commencement of Claim to the insurers in accordance with the procedures set
forth in the respective policies. The Company shall thereafter take all
necessary or desirable action to cause such insurers to pay, on behalf of
Indemnitee, all Losses and Expenses payable as a result of such Claim.
(c) To the extent the Company does not, at the time of the Claim have
applicable D&O Insurance, or if a Determination is made that any Expenses
arising out of such Claim will not be payable under the D&O Insurance then in
effect, the Company shall be obligated to pay the Expenses of any Claim in
advance of the final disposition thereof and the Company, if appropriate, shall
be entitled to assume the defense of such Claim, with counsel satisfactory to
Indemnitee, upon the delivery to Indemnitee of written notice of its election so
to do. After delivery of such notice, the Company will not be liable to
Indemnitee under this Agreement for any legal or other Expenses subsequently
incurred by Indemnitee in connection with such defense other than reasonable
Expenses of investigation; provided that Indemnitee shall have the right to
-------- ----
employ its counsel in such Claim but the fees and expenses of such counsel
incurred after delivery of notice from the Company of its assumption of such
defense shall be at the Indemnitee's expense; provided further that if: (i) the
-------- -------
employment of counsel by Indemnitee has been previously authorized by the
Company, (ii) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (iii) the Company shall not, in fact, have employed counsel to
assume the defense of such action, the reasonable fees and expenses of counsel
shall be at the expense of the Company.
(d) All payments on account of the Company's indemnification
obligations under this Agreement shall be made within sixty (60) days of
Indemnitee's written request therefor unless a Determination is made that the
Claims giving rise to Indemnitee's request are Excluded Claims or otherwise not
payable under this Agreement, provided that all payments on account of the
-------- ----
Company's obligation to pay Expenses under Section 4(c) of this Agreement prior
to the final disposition of any Claim shall be made within 20 days of
Indemnitee's written request therefor and such obligation shall not be subject
to any such Determination but shall be subject to Section 4(e) of this
Agreement. In the event the Company takes the position that Indemnitee is not
entitled to indemnification in connection with the proposed settlement of any
Claim, Indemnitee shall have the right at his own expense to undertake defense
of any such Claim, insofar as such proceeding involves Claims against the
Indemnitee, by written notice given to the Company within 10 days
7
<PAGE>
after the Company has notified Indemnitee in writing of its contention that
Indemnitee is not entitled to indemnification; provided, however, that the
-------- -------
failure to give such notice within such 10-day period shall not affect or limit
the Company's obligations with respect to any such Claim if such Claim is
subsequently determined not to be an Excluded Claim or otherwise to be payable
under this Agreement, except to the extent that the Company is prejudiced
thereby. If it is subsequently determined in connection with such proceeding
that the Indemnifiable Events are not Excluded Claims and that Indemnitee,
therefor, is entitled to be indemnified under the provisions of Section 2
hereof, the Company shall promptly indemnify Indemnitee.
(e) Indemnitee hereby expressly undertakes and agrees to reimburse
the Company for all Losses and Expenses paid by the Company in connection with
any Claim against Indemnitee in the event and only to the extent that a
Determination shall have been made by a court of competent jurisdiction in a
decision from which there is no further right to appeal that Indemnitee is not
entitled to be indemnified by the Company for such Losses and Expenses because
the Claim is an Excluded Claim or because Indemnitee is otherwise not entitled
to payment under this Agreement.
(f) In connection with any Determination as to whether Indemnitee is
entitled to be indemnified hereunder the burden of proof shall be on the Company
to establish that Indemnitee is not so entitled.
5. Settlement. The Company shall have no obligation to indemnify
----------
Indemnitee under this Agreement for any amounts paid in settlement of any Claim
effected without the Company's prior written consent. The Company shall not
settle any Claim in which it takes the position that Indemnitee is not entitled
to indemnification in connection with such settlement without the consent of
Indemnitee, nor shall the Company settle any Claim in any manner which would
impose any Fine or any obligation on Indemnitee, without Indemnitee's written
consent. Neither the Company nor Indemnitee shall unreasonably withhold its or
his consent to any proposed settlement.
6. Change in Control; Extraordinary Transactions. The Company and
---------------------------------------------
Indemnitee agree that if there is a Change in Control of the Company (other than
a Change in Control which has been approved by a majority of the Company's Board
of Directors who were directors immediately prior to such Change in Control)
then all Determinations thereafter with respect to the rights of Indemnitee to
be paid Losses and Expenses under this Agreement shall be made only by a special
independent counsel (the "Special Independent Counsel") selected by Indemnitee
and approved by the Company (which approval shall not be unreasonably withheld)
or by a court of competent jurisdiction. The Company shall pay the
8
<PAGE>
reasonable fees of such Special Independent Counsel and shall indemnify such
Special Independent Counsel against any and all reasonable expenses (including
reasonable attorneys' fees), claims, liabilities and damages arising out of or
relating to this Agreement or its engagement pursuant hereto.
The Company covenants and agrees that, in the event of a Change in
Control which is a Corporate Transaction as defined in (3) of Section 1(a), the
Company will use its best efforts (a) to have the obligations of the Company
under this Agreement including, but not limited to those under Section 7,
expressly assumed by the surviving, purchasing or succeeding entity, or (b)
otherwise adequately to provide for the satisfaction of the Company's
obligations under this Agreement, in a manner reasonably acceptable to the
Indemnitee.
7. Establishment of Trust. In the event of a Potential Change in
----------------------
Control, the Company shall, upon written request by Indemnitee, create a trust
(the "Trust") for the benefit of Indemnitee and from time to time upon written
request of Indemnitee shall fund the Trust in an amount sufficient to satisfy
any and all Losses and Expenses which are actually paid or which Indemnitee
reasonably determines from time to time may be payable by the Company under this
Agreement. The amount or amounts to be deposited in the Trust pursuant to the
foregoing funding obligation shall be determined by the Reviewing Party, in any
case in which the Special Independent Counsel is involved. The terms of the
Trust shall provide that upon a Change in Control: (i) the Trust shall not be
revoked or the principal thereof invaded without the written consent of
Indemnitee; (ii) the trustee of the Trust shall advance, within 20 days of a
request by Indemnitee, any and all Expenses to Indemnitee (and Indemnitee hereby
agrees to reimburse the Trust under the circumstances under which Indemnitee
would be required to reimburse the Company under Section 4(e) of this
Agreement); (iii) the Company shall continue to fund the Trust from time to time
in accordance with the funding obligations set forth above; (iv) the trustee of
the Trust shall promptly pay to Indemnitee all Losses and Expenses for which
Indemnitee shall be entitled to indemnification pursuant to this Agreement; and
(v) all unexpended funds in the Trust shall revert to the Company upon a final
determination by a court of competent jurisdiction in a final decision from
which there is no further right of appeal that Indemnitee has been fully
indemnified under the terms of this Agreement. The trustee of the Trust shall
be chosen by Indemnitee.
8. No Presumption. For purposes of this Agreement, the termination
--------------
of any Claim by judgment, order, settlement (whether with or without court
approval) or conviction, or upon a plea of nolo contendere, or its equivalent,
---- ----------
shall not, of itself, create a presumption that Indemnitee did not meet any
particular
9
<PAGE>
standard of conduct or have any particular belief or that a court has determined
that indemnification is not permitted by applicable law.
9. Non-exclusivity, Etc. The rights of Indemnitee hereunder shall
---------------------
be in addition to any other rights Indemnitee may have under the Certificate of
Incorporation, the Company's By-Laws, the Delaware General Corporation Law, any
vote of stockholders or disinterested directors or otherwise, both as to action
in Indemnitee's official capacity and as to action in any other capacity by
holding such office, and shall continue after Indemnitee ceases to serve the
Company as a director, officer, employee, agent or fiduciary, for so long as
Indemnitee shall be subject to any Claim by reason of (or arising in part out
of) an Indemnifiable Event. To the extent that a change in the Delaware General
Corporation Law (whether by statute or judicial decision) permits greater
indemnification by agreement than would be afforded currently under the
Certificate of Incorporation and this Agreement, it is the intent of the parties
hereto that Indemnitee shall enjoy by this Agreement the greater benefits so
afforded by such change.
10. Liability Insurance; Notice Regarding Insurance.
-----------------------------------------------
(a) To the extent the Company maintains an insurance policy or
policies providing directors' and officers' liability insurance, Indemnitee, if
an officer or director of the Company, shall be covered by such policy or
policies, in accordance with its or their terms, to the maximum extent of the
coverage available for any director or officer of the Company.
(b) The Company shall provide notice to the Indemnitee in the event
that (i) the Company's then current D&O Insurance will not be renewed or will
lapse and the Company will not obtain new D&O Insurance in an amount not
materially less than, and with a scope of coverage not materially less than,
that of the terminating D&O Insurance or (ii) the Company's then current D&O
Insurance will be reduced to a material extent in amount or scope. Such notice
shall be provided at least thirty (30) days prior to such expiration or
reduction in amount or scope, as the case may be.
11. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
12. Partial Indemnity, Etc. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the
10
<PAGE>
Company for some or a portion of the Losses and Expenses of a Claim but not,
however, for all of the total amount thereof, the Company shall nevertheless
indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
Moreover, notwithstanding any other provision of this Agreement, to the extent
that Indemnitee has been successful on the merits or otherwise in defense of any
or all Claims relating in whole or in part to any Indemnifiable Event or in
defense of any issue or matter therein, including dismissal without prejudice,
Indemnitee shall be indemnified against all Expenses incurred in connection
therewith.
13. Contribution. If the indemnification or reimbursement provided
------------
for hereunder is finally judicially determined by a court of competent
jurisdiction to be unavailable to Indemnitee in respect of any Losses or
Expenses of a Claim (other than for any reason specified in Section 3 hereof),
then the Company agrees, to the extent permitted by applicable law, in lieu of
indemnifying Indemnitee, to contribute to the amount paid or payable by
Indemnitee as a result of such Losses or Expenses in such proportion as is
appropriate to reflect the relative benefits accruing to the Company and
Indemnitee with respect to the events giving rise to such Losses or Expenses.
If, however, the allocation provided by the immediately preceding sentence is
not permitted by applicable law, then the Company agrees to contribute to the
amount paid or payable by Indemnitee as a result of such Losses or Expenses in
such proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of the Company and of Indemnitee with respect to the
events giving rise to such Losses or Expenses. For purposes of this Section 13,
(i) the relative benefits accruing to the Company shall be deemed to be the
benefits accruing to it and to all of its directors, officers, employees and
agents (other than Indemnitee), as a group and treated as one person (the
"Company Group"), and the relative benefits accruing to Indemnitee shall be
deemed to be an amount not greater than Indemnitee's compensation from the
Company during the first year in which the events giving rise to such Losses or
Expenses are alleged to have occurred, and (ii) the relative fault of the
Company shall be deemed to be the fault of the Company Group, and the relative
fault of the Company and Indemnitee shall be determined by reference to the
relative intent, knowledge and access to information of the Company Group and
Indemnitee and their relative opportunity to have altered or prevented the
events giving rise to such Losses or Expenses.
14. Liability of Company. Indemnitee agrees that neither the
--------------------
stockholders nor the directors nor any officer, employee, representative or
agent of the Company shall be personally liable for the satisfaction of the
Company's obligations under this Agreement and Indemnitee shall look solely
11
<PAGE>
to the assets of the Company for satisfaction of any claims hereunder.
15. Enforcement.
-----------
(a) Indemnitee's right to indemnification and other rights under this
Agreement shall be specifically enforceable by Indemnitee only in the state or
Federal courts of the States of Delaware or Illinois and shall be enforceable
notwithstanding any adverse Determination by the Company's Board of Directors,
independent legal counsel, the Special Independent Counsel or the Company's
stockholders and no such Determination shall create a presumption that
Indemnitee is not entitled to be indemnified hereunder. In any such action the
Company shall have the burden of proving that indemnification is not required
under this Agreement.
(b) In the event that any action is instituted by Indemnitee under
this Agreement, or to enforce or interpret any of the terms of this Agreement,
Indemnitee shall be entitled to be paid all court costs and reasonable expenses,
including reasonable counsel fees, incurred by Indemnitee with respect to such
action, unless the court determines that each of the material assertions made by
Indemnitee as a basis for such action was not made in good faith or was
frivolous.
16. Severability. In the event that any provision of this Agreement
------------
is determined by a court to require the Company to do or to fail to do an act
which is in violation of applicable law, such provision (including any provision
within a single section, paragraph or sentence) shall be limited or modified in
its application to the minimum extent necessary to avoid a violation of law,
and, as so limited or modified, such provision and the balance of this Agreement
shall be enforceable in accordance with their terms to the fullest extent
permitted by law.
17. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware applicable to agreements
made and to be performed entirely within such State.
18. Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consents to the jurisdiction of the courts of the States of Delaware
and Illinois for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agrees that any action instituted
under this Agreement shall be brought only in the state and Federal courts of
the States of Delaware and Illinois.
19. Notices. All notices or other communications required or
-------
permitted hereunder shall be sufficiently given for
12
<PAGE>
all purposes if in writing and personally delivered, telegraphed, telexed, sent
by facsimile transmission or sent by registered or certified mail, return
receipt requested, with postage prepaid addressed as follows, or to such other
address as the parties shall have given notice of pursuant hereto:
(a) If to the Company, to:
_________________________
9933 Woods Drive
Skokie, Illinois 60077-1031
Telephone: (847) 583-9400
Facsimile: (847) 583-9540
(b) If to Indemnitee, to:
_________________________
_________________________
_________________________
_________________________
Telephone: _____________
Facsimile: _____________
20. Counterparts. This Agreement may be signed in counterparts, each
------------
of which shall be an original and all of which, when taken together, shall
constitute one and the same instrument.
21. Successors and Assigns. This Agreement shall be (i) binding upon
----------------------
all successors and assigns of the Company, including any direct or indirect
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, and (ii) binding
upon and inure to the benefit of any successors and assigns, heirs, and personal
or legal representatives of Indemnitee.
22. Amendment; Waiver. No amendment, modification, termination or
-----------------
cancellation of this Agreement shall be effective unless made in a writing
signed by each of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
13
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the day and year first above written.
PEAPOD, INC.
By:___________________________
Name:
Title:
______________________________
(Indemnitee)
14
<PAGE>
Exhibit 10.17
WILLIAM MALLOY
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") dated as of September 27,
1999 between William Malloy (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;
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; Term; Responsibilities. The Company shall employ
--------------------------------
the Executive as its President and Chief Executive Officer for a term commencing
on September 27, 1999 (the "Commencement Date") and ending on December 31, 2003
(subject to automatic extension as provided in Section 1.04, the "Employment
Period"). 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 Employment Period, the Executive
-----------
shall perform faithfully the duties assigned to him hereunder to the best of his
abilities and devote his full and undivided 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 by Executive of his duties hereunder.
Section 1.03. Election as Director. Promptly after the Commencement Date,
--------------------
the Board shall take such steps as may be necessary to create a vacancy on the
Board and shall elect the
<PAGE>
Executive to fill that vacancy. Upon expiration of the Executive's term on the
Board and while he remains President, the Company shall use all reasonable
efforts to cause the Executive to be re-elected to the Board by Company
shareholders.
Section 1.04. Automatic Extension of Employment Period Termination.
----------------------------------------------------
(a) Beginning December 31, 2000, the Employment Period shall be
automatically extended daily for an additional day so that the remaining term
will always be at least three (3) years unless and until either party has
delivered notice to the other that such automatic extension shall not continue
(a "Non-Extension Notice").
(b) The term of this Agreement shall be the Employment Period (extended as
provided in Section 1.04(a)); provided that the Company and Executive shall each
--------
have the right to terminate this Agreement at any time during the Employment
Period, subject to the rights and obligations set forth in the Severance
Agreement referred to in Section 2.07.
ARTICLE II
COMPENSATION
------------
Section 2.01. Base Compensation. As compensation for his services
-----------------
hereunder, the Company shall pay to the Executive during the Employment Period a
minimum annual salary of Three Hundred Fifty Thousand Dollars ($350,000.00) (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 may be increased from time to time above
the Base Salary required by this Section 2.01 at the discretion of the Board.
Section 2.02. Bonus Plan. Beginning in calendar year 2000, 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 a cash bonus on an annual basis, of a
target of fifty percent (50%) and a maximum of one hundred percent (100%) 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 shall
also be entitled to participate in such additional cash bonuses as may be
awarded to him in the absolute discretion of the Board.
Section 2.03. Election in Lieu of Base Salary or Bonus. The Executive may
----------------------------------------
elect to forego all or a portion of his Base Salary or any cash bonus awarded to
him in return for Company equity-based awards of equivalent value, subject to
approval of the Board and reasonable procedures required by the Board.
Section 2.04. Equity Based Incentive Compensation. The Executive shall
-----------------------------------
receive an option to purchase One Million One Hundred Thousand (1,100,000)
shares of Company common stock ("Basic Option") and an additional option to
purchase Five Hundred Thousand (500,000)
<PAGE>
shares of Company common stock ("Performance Accelerated Option"), each
exercisable subject to vesting for a period of ten (10) years after the
Commencement Date at $8.01562 per share. The shares subject to the Basic Option
shall vest with respect to Three Hundred Fifty Thousand (350,000) shares on the
Commencement Date and with respect to an additional One Hundred Eighty Seven
Thousand Five Hundred (187,500) shares on each of the first four anniversaries
of the Commencement date and shall be subject to the terms of the Basic Stock
Option Agreement executed by the Executive and the Company concurrently
herewith. The Performance Accelerated Option shall fully vest on the ninth
anniversary of the Commencement Date subject to accelerated vesting upon
increase in the market price levels of Company stock as follows:
(a) One Hundred Sixty Six Thousand Six Hundred Sixty Seven (166,667) of
such shares shall vest on the date that the market price of a share of
Company common stock shall sustain a level of Sixteen Dollars
($16.00);
(b) an additional One Hundred Sixty Six Thousand Six Hundred Sixty Seven
(166,667) of such shares shall vest on the date that the market price
of a share of Company common stock shall sustain a level of Thirty Two
Dollars ($32.00); and
(c) the remaining One Hundred Sixty Six Thousand Six Hundred Sixty Six
(166,666) shares shall vest on the date that the market price of a
share of Company common stock shall sustain a level of Fifty Dollars
($50.00).
Market price shall be deemed to have sustained required price levels on the last
day of any period of twenty (20) consecutive trading days during which the
average closing price equals or exceeds the required levels. The Performance
Accelerated Option shall be subject to the terms of the Performance Accelerated
Option Agreement executed by the Executive and the Company concurrently
herewith. The Executive may receive further grants under such Company stock
incentive programs as may exist from time to time consistent with competitive
pay practices generally and with awards made to other senior executives of the
Company, subject to and determined in the absolute discretion of the Board.
Section 2.05. 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 the Employment
Period as are from time to time made generally available, and on terms no less
favorable to the Executive than the terms offered, to the senior management of
the Company; provided that if a severance benefit is payable to the Executive
--------
pursuant to Section 2.07, 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 and provided further that the
----------------
Company shall pay the Executive a cash amount equal, on a grossed up basis, to
the benefit premiums paid by the Executive under COBRA until the Executive
satisfies benefit eligibility requirements. As of the date hereof, such plans
include a 401(k) plan, automobile allowance program, life insurance program and
long-term disability plan. Nothing herein shall be construed to require the
Company to establish, or shall preclude the Company, in its absolute
3
<PAGE>
discretion, from changing or amending, in whole or in part, or revoking, any one
or more of such employee benefit plans or programs without notice. In addition,
the Executive shall be entitled to take time off for vacation or illness in
accordance with the Company's policies with respect thereto established from
time to time with respect to the Company's senior executives.
Section 2.06. 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 2.07. Severance Benefits; Severance Agreement. Concurrently
---------------------------------------
herewith, the Executive and Peapod are entering into a severance agreement
("Severance Agreement") which provides certain substantial 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; provided
--------
that, if the terms of this Agreement would be adversely affected by or provide
greater benefits than the Severance Agreement, this Agreement shall control.
ARTICLE III
SIGNING BONUS AND INCENTIVES
----------------------------
Section 3.01. Signing Bonus. Within three (3) business days after the
-------------
Commencement Date, the Company shall make a cash payment to the Executive in the
amount stated in the Summary of Principal Terms ("Term Sheet") attached to the
Company's letter offer of September 23, 1999 and accepted by the Executive on
September 27, 1999. Such payment is not contingent on performance of services
for the Company and does not represent compensation for services rendered.
Section 3.02. Share Purchase Loan. Concurrently herewith, the Company is
-------------------
loaning the Executive the amount stated in the Term Sheet in order to purchase
shares of Company stock, and the Executive is executing a promissory note
("Note") providing for the repayment or other satisfaction of the Note on terms
and conditions contained therein. Concurrently herewith, the Executive is
applying the entire principal of such loan to purchase shares (the "Shares") of
Company common stock at $8.01562 per share. The Company shall promptly issue and
deliver the shares to the Executive or at his direction.
Section 3.03. Securities Law Compliance. The Executive represents and
-------------------------
covenants that the Shares are being purchased for investment and not with a view
to distribution thereof within the meaning of the Securities Act of 1933 as
amended (the "Securities Act") and that any subsequent sale of 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. Each share
4
<PAGE>
certificate representing the Shares shall bear the following legend:
"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."
ARTICLE IV
NONCOMPETITION; CONFIDENTIAL INFORMATION
----------------------------------------
Section 4.01. Noncompetition; Non-Solicitation. As a condition to
--------------------------------
Executive's employment hereunder and to the Company's obligations hereunder,
Executive agrees to enter into, concurrently with his 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 conclusion of the Executive's employment
by the Company as set forth therein.
ARTICLE V
MISCELLANEOUS
-------------
Section 5.01. Certain Additional Payments by the Company. In the event it
------------------------------------------
shall be determined that any payment or distribution of any type to or for the
benefit of the Executive by the Company, any of its affiliates, or any person
who acquires ownership or effective control of the Company or ownership of a
substantial portion of the Company's assets (within the meaning of Section 280G
of the Internal Revenue Code of 1986, as amended ("Code"), and the regulations
thereunder) or any affiliate of such person, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise (the "Total Payments"), is subject to the excise tax imposed by
Section 4999 of the Code or any similar successor provision or any interest or
penalties with respect to such excise tax (such excise tax, together with any
such interest and penalties, are collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional payment (a "Gross-
Up Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including any Excise Tax, imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Total Payments (not including any Gross-Up Payment). All determinations as
to whether any of the Total Payments are
5
<PAGE>
"parachute payments" (within the meaning of Section 280G of the Code), whether a
Gross-Up Payment is required and the amount of such Gross-Up Payment shall be
made by an independent accounting firm selected by the Company from among the
largest five accounting firms in the United States (the "Accounting Firm"). The
Accounting Firm shall provide its determination (the "Determination"), together
with detailed supporting calculations, regarding the amount of any Gross-Up
Payment and any other relevant matter, both to the Company and the Executive,
within fifteen (15) days of the date requested by the Company or the Executive
(if the Executive reasonably believes that any of the Total Payments may be
subject to the Excise Tax). Any Determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of uncertainty in the
application of Section 4999 of the Code at the time of the initial Determination
by the Accounting Firm hereunder, it is possible that the Company should have
made Gross-Up Payments ("Underpayment"), or that Gross-Up Payments will have
been made by the Company which should not have been made ("Overpayments"). In
either such event, the Accounting Firm shall determine the amount of the
Underpayment or Overpayment that has occurred. In the case of the Underpayment,
the amount of such Underpayment shall be promptly paid by the Company to or for
the benefit of the Executive. In the case of an Overpayment, the Executive
shall, at the direction and expense of the Company, take such steps as are
reasonably necessary (including the filing of returns and claims for refund),
follow reasonable instructions from, and procedures established by, the Company,
and otherwise reasonably cooperate with the Company to correct Overpayment.
Section 5.02. Notices. For purposes of this Agreement, 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 William Malloy at his
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 5.03. Company's Authority; No Conflict. The Company represents
--------------------------------
and warrants to the Executive that the Company 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 Company will not conflict with or result
in a breach of the terms, conditions or provisions of any agreement, restriction
or obligation by which the Company is bound.
Section 5.04. 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 5.05. Assignment and Succession. The Agreement shall be binding
-------------------------
upon and
6
<PAGE>
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, and shall require a purchaser or transferee
of all or substantially all of the Company's assets to assume, the Company's
rights, duties or obligations under this Agreement.
Section 5.06. Headings. The Article, Section paragraph and subparagraph
--------
headings are for convenience of reference only and shall not define or limit the
provisions hereof.
Section 5.07. 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 5.08. Severability. Whenever possible, each provision of this
------------
Agreement will be 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 5.09. 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 or
a subsequent 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 5.10. 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 AA. If the paries are unable to agree on an
arbitrator, 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
required hereunder to be executed by the Executive.
Section 5.11. Entire Agreement. This Agreement, together with the
----------------
agreements referred to herein, contain the entire agreement of the parties
relating to the subject matter hereof including, but not limited to, any
previous written agreements concerning Executive's employment with Company.
This Agreement may not be modified or discharged orally, but only by an
agreement in writing signed by the party against whom enforcement of any change,
modification, waiver, extension, or discharge is sought.
7
<PAGE>
Section 5.12. Legal Fees and Expenses. The Company will pay all
-----------------------
reasonable legal fees and related expenses incurred by the Executive in
connection with negotiation and preparation of this Agreement and related
documents.
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
By: /s/ William Malloy
--------------------------------------------
William Malloy
8
<PAGE>
Exhibit 10.18
NONSOLICITATION AND NONCOMPETE AGREEMENT
This agreement ("Agreement"), dated as of September 27, 1999, is being
entered into by and between Peapod, Inc., a Delaware corporation (the
"Company"), and William A. Malloy (the "Employee") as a condition of Employee's
employment with the Company.
1. Definitions. The following terms when used in this Agreement shall
-----------
have the respective meanings set forth herein.
(a) "Company" shall be deemed to include Peapod, Inc., its
successors, and any and all divisions and subsidiaries now existing or hereafter
formed.
(b) "Employment Term" means the time period during which Employee is
employed by the Company on a full or part-time basis.
(c) "Proprietary Information" means all nonpublic information
(whether or not specifically identified as confidential) that is disclosed to,
developed or learned by Employee as a result of Employee's employment by the
Company and that relates to the business, finances, products, services,
customers, research or development of the Company, in any form including
written, graphic and electronic, whether previously existing, now existing or
arising hereafter, whether conceived or developed by others or by the Employee
alone or with others, and whether or not conceived or developed during regular
working hours. Proprietary Information shall include, but not be limited to,
information regarding Work Product; access codes and security devices used in
software systems; databases of information; software (in both source and object
code versions); specifications for hardware and software systems; other
technical and scientific know-how and data; customers and customer transactions;
suppliers and other business alliances; marketing and product plans; objectives
and strategies; financial information; operating processes and techniques,
training programs and methods; and information disclosed to the Company by its
business partners, licensees, customers and clients with respect to which the
Company has an obligation of confidentiality.
Proprietary Information shall not include any information that
Employee can demonstrate (i) has become publicly known through no wrongful act
or breach of any obligation of confidentiality; (ii) was rightfully received by
Employee on a nonconfidential basis from a third party (provided that such third
party is not known to Employee to be bound by a confidentiality agreement with
the Company or another party); (iii) was lawfully known to Employee prior to the
time it was disclosed to Employee by the Company or not learned by Employee
during the Employment Term; or (iv) is approved in writing by the Company for
disclosure.
(d) "Work Product" means all tangible things which Employee authors
or otherwise develops in whole or in part while performing his or her duties for
the Company during the Employment Term including, without limitation, all
tangible embodiments of all Proprietary Information.
(e) "Competitor" means any person or entity which engages in the
business of (i) providing internet or online grocery shopping or grocery
delivery services; (ii) providing market research
<PAGE>
or media services based on data obtained from consumers who shop for groceries
via the internet, personal computer, interactive television or other electronic
means; or (iii) providing any other product or service in direct competition
with a Material Product or Service provided by the Company.
(6) "Material Product or Service" means a product or service from
-------
which the Company derived more than 5% of its gross revenue during the
immediately preceding fiscal year or is expected, based on the Company's
business plan, to represent more than 5% of the Company's gross revenue for its
current fiscal year. The determination of the preceding and current fiscal year
and expected revenues shall be made upon termination of the Employment Term.
2. Proprietary Information.
-----------------------
(a) Employee shall not during employment or thereafter (i) disclose,
directly or indirectly (except as the Employee's employment duties to the
Company may require and except as required by law), any Proprietary Information
to any person other than the Company or authorized current employees thereof, or
to such other persons to whom the Employee has been specifically instructed to
make disclosure by the Company, and in all such cases only to the extent
required in the course of the Employee's service to the Company, or (ii) use
Proprietary Information other than in furtherance of the business of the
Company. Employee agrees to keep all Proprietary Information in a fiduciary
capacity for the sole benefit of the Company.
(b) Employee acknowledges that the Company owns all copyrights,
patents, trade secrets and other proprietary rights to all Proprietary
Information and Work Product. Employee hereby assigns to the Company all right,
title and interest in all such copyrights, patents, trade secrets and other
proprietary rights that Employee may have or may hereafter acquire by operation
of law or otherwise. Such assignment obligations shall not apply to an invention
(as the term is used in The Illinois Employee Patent Act) for which no
equipment, supplies, facilities or trade secret information of the Company was
used and which was developed entirely on the Employee's own time, unless the
invention relates (i) to the Company's actual or demonstrably anticipated
research or development, or (b) the invention results from any work performed by
the Employee for the Company.
(c) Upon termination of the Employment Term or at any time upon the
Company's request, Employee shall promptly deliver to the Company without
retaining copies, all tangible things which are or contain Proprietary
Information.
3. Competition.
-----------
(a) Employee shall not during the Employment Term and for a period of
twelve (12) months after the termination of the Employment Term (irrespective of
the cause of such termination), without the prior written consent of the
Company, either directly or indirectly:
(i) be a Competitor or an employee of a Competitor, have any
interest (whether as a proprietor, partner, stockholder, principal or owner) in
any person or entity which is a Competitor (other than the ownership solely for
investment purposes of not more than one
<PAGE>
percent of the shares of any corporation, the shares of which are publicly
traded); or provide financial, technical, marketing or other assistance or act
as a representative, agent, advisor or consultant to any Competitor;
(ii) hire or otherwise engage the services of, as an employee,
consultant or in other similar capacity, any person then employed or who had
been employed during the preceding ninety (90) day period by the Company, or
solicit, directly or indirectly, such person either to terminate or diminish
employment with the Company, or to work for any other person or entity, whether
or not a Competitor; or
(iii) solicit any customer, business partner, licensee or client
of the Company to terminate or diminish its business relationship with the
Company or to purchase any product or service that is or may be used as a
substitute for any product or service of the Company.
(b) Employee acknowledges and agrees that the limitations set forth
in this Section 3 are reasonable with respect to scope and duration and are
properly required for the protection of the legitimate business interests of the
Company and do not unduly or unnecessarily inhibit employee's post-employment
opportunities.
4. Remedies for Breach. Employee acknowledges that his or her failure to
-------------------
comply with any of the terms of Sections 2 or 3 of this Agreement will result in
irreparable injury to the Company for which the remedy at law will be
inadequate. Employee agrees that, in any suit that may be brought by the Company
or its successors for Employee's violation of this Agreement, an order may be
entered enjoining Employee from violating this Agreement or continuing to
violate it. Employee further agrees that a temporary or preliminary injunction
or restraining order may be granted immediately upon the commencement of any
suit and without notice or posting of security. Any injunction will be without
prejudice to any other cause of action for money damages or otherwise which the
Company may have against Employee.
5. General.
-------
(a) Notification of Subsequent Employer. Employee agrees that the
Company may present a copy of this Agreement to any of Employee's subsequent
employers.
(b) Entire Agreement. This Agreement contains the entire agreement
between Peapod and Employee relating to the subject matter hereof and supersedes
all prior agreements and communications between such parties, oral or written,
respecting such subject matter.
(c) Severability. If any provision of this Agreement is held to be
unenforceable, for any reason, it shall be modified rather than voided, if
possible, in order to achieve the intent of the parties. In any event, such
unenforceability shall not affect the enforceability of any other provisions,
and all other provisions of this Agreement shall continue
3
<PAGE>
to be valid and enforceable.
(d) No Third Party Beneficiaries. Except as provided in this
Agreement, nothing in this Agreement shall confer any rights upon any person or
entity which is not a party hereto.
(e) Survival of Agreements. The obligations of Employee contained in
Sections 2 and 3 of the Agreement shall survive the termination of Employee's
employment with the Company.
(f) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois, without giving effect to
principles of conflict of law.
(g) Understand Agreement. EMPLOYEE REPRESENTS AND WARRANTS THAT
EMPLOYEE (a) HAS READ AND UNDERSTOOD EACH AND EVERY PROVISION OF THIS AGREEMENT,
(b) HAS HAD THE OPPORTUNITY TO OBTAIN ADVICE FROM LEGAL COUNSEL OF HIS CHOICE IN
ORDER TO INTERPRET ANY AND ALL PROVISIONS OF THIS AGREEMENT, (c) HAS HAD THE
OPPORTUNITY TO ASK THE COMPANY QUESTIONS ABOUT THIS AGREEMENT AND ANY SUCH
QUESTIONS EMPLOYEE HAS ASKED HAVE BEEN ANSWERED TO HIS OR HER SATISFACTION, AND
(d) HAS BEEN GIVEN A COPY OF THIS AGREEMENT. EMPLOYEE AGREES THAT THE
RESTRICTIONS THIS AGREEMENT CONTAINS ARE FAIR AND APPROPRIATE UNDER THE
CIRCUMSTANCES.
The parties hereby enter into this Agreement as of the date first above
written.
PEAPOD, INC.
By: /s/ Andrew B. Parkinson
----------------------------------------------------
/s/ William Malloy
----------------------------------------------------
William Malloy
4
<PAGE>
Exhibit 10.19
PEAPOD, INC.
BASIC STOCK OPTION AGREEMENT
FOR WILLIAM MALLOY
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 William Malloy (the "Optionee") the Company hereby grants to the Optionee as
of September 27, 1999 (the "Option Date") a non-qualified option to purchase
from the Company (the "Option") 1,100,000 shares ("Option Shares") of its Common
Stock, $0.01 par value ("Stock"), at the price of $8.01562 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 September 27, 2009 (the "Expiration Date").
2.2 Exercise of Option. The Option shall be exercisable only as follows.
------------------
The Optionee may exercise the Option to purchase up to 350,000 of the Option
Shares on or after the Option Date and up to an additional 187,500 of the Option
Shares on or after each of the first four anniversary dates of the Option Date;
provided, however, that, upon a "Change in Control", upon termination of
- -------- -------
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, the Option shall become fully exercisable; and provided
--------
further that:
(a) if the Optionee's employment with the Company is terminated due
to his death or disability, the Option shall be exercisable only to the extent
it would have vested and become exercisable within one year following the
effective date of termination of employment, and may thereafter be exercised by
the Optionee or his Legal Representative until and including the earliest to
occur of (i) the first anniversary of the effective date of termination of
employment and (ii) the Expiration Date, immediately after which the Option
shall terminate; and
(2) if the Optionee's employment with the Company is terminated by
the Company for "Cause" or by the Executive for any reason other than "Good
Reason," the Option shall be exercisable only to the extent it is exercisable on
the effective date of the Optionee's termination of employment 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
termination of employment and (ii) the Expiration Date, immediately
<PAGE>
after which the Option shall terminate.
(3) if the Optionee's employment with the Company is terminated for
any other (1) reason, the Option shall be exercisable only to the extent it is
exercisable on the effective date of the Optionee's termination of employment
(including any accelerated exercise rights under Section 2.2(a)) and may
thereafter be exercised by the Optionee or his Legal Representative until and
including the earliest to occur of (i) the third anniversary of the effective
date of termination of employment, (ii) a date one year after the Optionee's
death, and (iii) the Expiration Date, immediately after which the Option shall
terminate.
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) 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
Committee shall have sole discretion to disapprove of an election pursuant to
clause (iii) 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) "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
<PAGE>
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
3
<PAGE>
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 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 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) 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
4
<PAGE>
notice of exercise or (5) any combination of (1), (2) and (3). The Committee
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 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 Share, 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
------------------------
5
<PAGE>
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
---------------------------------------
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.
3.9 Company to Reserve Shares. The Company shall at all times prior to
-------------------------
the expiration or termination of the Option reserve and keep available, either
in its treasury or out of its authorized but unissued shares of Stock, the full
number of shares subject to the Option from time to time.
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
6
<PAGE>
shall be deemed to refer to any successor section of the Code or any successor
internal revenue law.
(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:
Chairman of the Board, and if to the Optionee, William Malloy 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/ Andrew B. Parkinson
-------------------------------------
Andrew B. Parkinson, Chairman of the
Board
7
<PAGE>
Board
Accepted as of the 27th
day of September, 1999.
/s/ William Malloy
- --------------------------------------
William Malloy
8
<PAGE>
Exhibit 10.20
PEAPOD, INC.
PERFORMANCE ACCELERATED STOCK OPTION AGREEMENT
FOR WILLIAM MALLOY
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 William Malloy (the "Optionee") the Company hereby grants to the Optionee as
of September 27, 1999 (the "Option Date") a non-qualified option to purchase
from the Company (the "Option") 500,000 shares ("Option Shares") of its Common
Stock, $0.01 par value ("Stock"), at the price of $8.02562 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 September 27, 2009 (the "Expiration Date").
2.2 Exercise of Option.
(a) The Option shall not be exercisable until September 27, 2008 and
shall be fully exercisable thereafter until and including the Expiration Date,
provided, however, that 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, the Option shall become fully exercisable; and provided
further that:
(i) if the market price of a share of Stock shall have sustained a
price level of Sixteen Dollars ($16.00), the Option shall thereafter be
exercisable with respect to 166,667 shares subject to the Option;
(ii) if the market price of a share of Stock shall have sustained a
price level of Thirty Two Dollars ($32.00), the Option shall thereafter be
exercisable with respect to an additional 166,667 shares subject to the Option;
(iii) if the market price of a share of Stock shall have sustained a
price level of Fifty Dollars ($50.00), the Option shall thereafter be
exercisable with respect to all of the shares subject to the Option.
The market price shall be deemed to sustained the required price levels on the
last day of any period of twenty (20) consecutive trading days during which the
average closing price of a share of Stock on the National Association of
Securities Dealers Automated Quotation National Market System ("NASDAQ"), or on
the principal securities exchange on which the Stock is then traded, equals or
exceeds the required levels.
(b) If the Optionee's employment with the Company is terminated due to
his
<PAGE>
death or disability, the Option shall be exercisable only to the extent it would
have vested and become exercisable within one year following the effective date
of termination of employment, and may thereafter be exercised by the Optionee or
his Legal Representative until and including the earliest to occur of (i) the
first anniversary of the effective date of termination of employment and (ii)
the Expiration Date, immediately after which the Option shall terminate.
(c) If the Optionee's employment with the Company is terminated by the
Company for "Cause" or by the Executive for any reason other than "Good Reason,"
the Option shall be exercisable only to the extent it is exercisable on the
effective date of the Optionee's termination of employment 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 termination of
employment and (ii) the Expiration Date, immediately after which the Option
shall terminate.
(d) If the Optionee's employment with the Company is terminated for
any other reason, the Option shall be exercisable only to the extent it is
exercisable on the effective date of the Optionee's termination of employment
(including any accelerated exercise rights under Section 2.2(a)) and may
thereafter be exercised by the Optionee or his Legal Representative until and
including the earliest to occur of (i) the third anniversary of the effective
date of termination of employment (ii) a date one year after the Optionee's
death and (iii) the Expiration Date, immediately after which the Option shall
terminate.
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) 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
Committee shall have sole discretion to disapprove of an election pursuant to
clause (iii) and if the Optionee is subject to Section 16 of the Securities
Exchange Act of 1933, 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) "Fair Market Value" shall mean the last sale price of a share of
Stock as reported on NASDAQ 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
2
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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 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.
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(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 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) 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
Committee 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 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
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and Exchange Commission to register the Option Share, 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.
3.9 Company to Reserve Shares. The Company shall at all times prior to
the expiration or termination of the Option reserve and keep available, either
in its treasury or out of its authorized but unissued shares of Stock, the full
number of shares subject to the Option from time to time.
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.
(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.
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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:
Chairman of the Board, and if to the Optionee, William Malloy 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/ Andrew B. Parkinson
--------------------------------------
Andrew B. Parkinson, Chairman of the Board
Accepted as of the 27th
day of September, 1999.
/s/ William Malloy
- ----------------------------
William Malloy
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EXHIBIT 10.21
SEVERANCE AGREEMENT
-------------------
THIS AGREEMENT (this "Agreement") was entered into as of the 27th day of
September, 1999 by and between Peapod, Inc., a Delaware corporation (the
"Company"), and William Malloy (the "Executive");
W I T N E S S E T H
WHEREAS, the Executive is being employed as President and Chief Executive
Officer of the Company and his services and knowledge are valuable to the
Company; and
WHEREAS, concurrently with the execution hereof, Executive and the Company
are entering into an employment agreement ("Employment Agreement"), which
Employment Agreement provides for substantial benefits; and
WHEREAS, the Board (as defined in Section 1) has determined that it is in
the best interests of the Company and its stockholders to secure the Executive's
continued services and to ensure the Executive's continued dedication and
objectivity in the event of any threat or occurrence of, or negotiation or other
action that could lead to, or create the possibility of, a Change in Control (as
defined in Section 1) of the Company, without concern as to whether the
Executive might be hindered or distracted by personal uncertainties and risks
created by any such possible Change in Control, and to encourage the Executive's
full attention and dedication to the Company.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained, the Company and the Executive hereby
agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have
-----------
the respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means (1) a willful refusal by the Executive to perform
or substantial disregard of those duties and responsibilities properly assigned
to the Executive, and if a Change in Control has occurred, if those duties and
responsibilities do not differ in any material respect from the duties and
responsibilities of the Executive during the ninety (90) day period immediately
prior to a Change in Control (other than as a result of incapacity due to
physical or mental illness), in any case, which is not remedied in a reasonable
period of time after receipt of written notice from the Company specifying such
breach, (2) embezzlement or misappropriation of corporate funds by the
Executive, other act of dishonesty by the Executive, or significant activities
by the Executive harmful to the reputation of the Company, or (3) significant
violation by the Executive of any statutory or common law duty of loyalty to the
Company.
(c) "Change in Control" means:
<PAGE>
(1) 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 Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated
under the Exchange Act, of twenty percent (20%) or more of either (i) the then
outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (ii) 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"); provided, however, that
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the following acquisitions shall not constitute a Change in Control: (A) any
acquisition directly from the Company (excluding any acquisition resulting from
the exercise of an exercise, conversion or exchange privilege in respect of
outstanding convertible or exchangeable securities), (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, (E) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation involving the
Company, if, immediately after such reorganization, merger or consolidation,
each of the conditions described in clauses (i), (ii) and (iii) of subsection
(3) of this Section (1)(c) shall be satisfied; and provided further that, for
----------------
purposes of clause (B), if any Person (other than 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
twenty percent (20%) or more of the Outstanding Company Common Stock or twenty
percent (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;
(2) individuals who, as of the date of the consummation of the
Company's initial public offering of Common Stock, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
such Board; provided, however, that any individual who becomes a director of the
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Company subsequent to the date hereof whose election or nomination for election
by the Company's stockholders, was approved by the vote of at least sixty six
and two-thirds percent (66-2/3%) of the directors then comprising the Incumbent
Board shall be deemed to have been a member of the Incumbent Board; and provided
--------
further, that no individual who was initially elected as a director of the
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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 be deemed to have been a member
of the Incumbent Board;
(3) 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 (i) 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
<PAGE>
Securities immediately prior to such Corporate Transaction will beneficially
own, directly or indirectly, more than sixty percent (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, (ii) 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, twenty percent (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, twenty
percent (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 (iii) 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 Corporation
Transaction; or
(4) approval by the stockholders of the Company of a plan of
complete liquidation or dissolution of the Company.
(d) "Company" shall have the meaning set forth in the second recital
of this Agreement.
(e) "Date of Termination" means (1) the effective date on which the
Executive's employment by the Company terminates as specified in a prior written
notice by the Company or the Executive, as the case may be, to the other,
delivered pursuant to Section 10 or (2) if the Executive's employment by the
Company terminates by reason of death, the date of death of the Executive.
(f) "Employment Agreement" means the Employment Agreement of even
date hereof between Executive and Peapod, as it may be amended from time to
time.
(g) "Exempt Person" means each of Andrew B. Parkinson and Thomas L.
Parkinson and any Affiliate (as such term is defined in Rule 12b-1 under the
Securities Exchange Act of 1934, as in effect on the date hereof, "Affiliate")
thereof.
(h) "Good Reason" means, without the Executive's express written
consent, the occurrence of any of the following events:
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<PAGE>
(1) any of (i) the assignment to the Executive of any duties
inconsistent in any material respect with the Executive's position(s), duties,
responsibilities or status with the Company as provided under the Employment
Agreement or, if the Employment Agreement is no longer in effect, immediately
prior to the termination thereof or, if a Change in Control has occurred,
immediately prior to such Change in Control, (ii) a change in the Executive's
reporting responsibilities, titles or offices with the Company inconsistent with
the Employment Agreement or, if the Employment Agreement is no longer in effect,
as in effect immediately prior to the termination thereof, or, if a Change in
Control has occurred, as in effect immediately prior to such Change in Control,
or (iii) any removal or involuntary termination of the Executive from the
Company otherwise than as expressly permitted by this Agreement or any failure
to re-elect the Executive to any position with the Company held by the Executive
as provided under the Employment Agreement or, if the Employment Agreement is no
longer in effect, as in effect immediately prior to the termination thereof, or,
if a Change in Control has occurred, immediately prior to such Change in
Control;
(2) a reduction by the Company in the Executive's rate of annual
base salary as provided under the Employment Agreement or a change to
Executive's bonus compensation that is adverse to the Executive and is
inconsistent with the Employment Agreement, or, if the Employment Agreement is
no longer in effect, such annual base salary or bonus compensation plan as in
effect immediately prior to the termination thereof, or, if a Change in Control
has occurred, such annual base salary or bonus compensation plan as in effect
immediately prior to such Change in Control or as the same may be increased from
time to time thereafter;
(3) any requirement of the Company that the Executive (i) be
based anywhere other than at the facility where the Executive is to be located
at the date of this Agreement (or a new headquarters within a thirty (30) mile
radius of the Company's current headquarters) or, if a Change in Control has
occurred, at the time of the Change in Control, or (ii) travel on Company
business to an extent substantially more burdensome than the travel obligations
of the Executive immediately prior to the date hereof, or, if a Change in
Control has occurred, at the time of such Change in Control;
(4) if a Change in Control has occurred, the failure of the
Company to (i) continue in effect any employee benefit plan or compensation plan
in which the Executive is participating immediately prior to such Change in
Control, unless the Executive is permitted to participate in other plans
providing the Executive with substantially comparable benefits, or the taking of
any action by the Company which would adversely affect the Executive's
participation in or materially reduce the Executive's benefits under any such
plan, (ii) provide the Executive and the Executive's dependents welfare benefits
(including, without limitation, medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) in accordance with the most favorable
plans, practices, programs and policies of the Company and its affiliated
companies in effect for the Executive immediately prior to such Change in
Control, (iii) provide fringe benefits in accordance with the most favorable
plans, practices, programs and policies of the Company and its affiliated
4
<PAGE>
companies in effect for the Executive immediately prior to such Change in
Control, (iv) provide an office or offices of a size and with furnishings and
other appointments, together with secretarial and other assistance, at least
equal to the most favorable of the foregoing provided to the Executive by the
Company and its affiliated companies immediately prior to such Change in
Control, (v) provide the Executive with paid vacation in accordance with the
most favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive immediately prior such
Change in Control, or (vi) reimburse the Executive promptly for all reasonable
employment expenses incurred by the Executive in accordance with the most
favorable policies, practices and procedures of the Company and its affiliated
companies in effect for the Executive immediately prior to such Change in
Control;
(5) the failure of the Company to obtain the assumption
agreement from any successor as contemplated in Section 10(b); or
(6) the Company delivers a Non-Extension Notice (as defined in
the Employment Agreement) to the Executive under Section 1.04 of the Employment
Agreement.
For purposes of this Agreement, any good faith determination of
Good Reason made by the Executive shall be conclusive; provided, however, that
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in an isolated, insubstantial and inadvertent action taken in good faith and
which is remedied by the Company promptly after receipt of notice thereof given
by the Executive shall not constitute Good Reason.
(i) "Nonqualifying Termination" means a termination of the
Executive's employment (1) by the Company for Cause, (2) by the Executive for
any reason other than a Good Reason, (3) as a result of the Executive's death or
(4) by the Company due to the Executive's absence from his duties with the
Company on a full-time basis for at least one hundred eighty (180) consecutive
days as a result of the Executive's incapacity due to physical or mental
illness; provided, however, that a termination of the Executive's employment for
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any reason whatsoever during the "Window Period" (hereinafter defined) shall not
constitute a Nonqualifying Termination.
(j) "Termination Period" means the period of time beginning with the
date hereof and ending on the earliest to occur of (1) ten (10) years after the
date hereof, (2) Executive's death, and (3) two (2) years following such Change
in Control (the "Termination Date").
(k) "Window Period" means the thirty (30) day period commencing one
(1) year after the date of a Change in Control.
2. Obligations of the Executive. The Executive agrees that in the event
----------------------------
any person or group attempts a Change in Control, he shall not voluntarily leave
the employ of the Company without Good Reason (a) until such attempted Change in
Control terminates or (b) if a Change in Control shall occur, until ninety (90)
days following such Change in Control. For purposes of the
5
<PAGE>
foregoing subsection (a), Good Reason shall be determined as if a Change in
Control had occurred when such attempted Change in control became known to the
Board.
3. Payments Upon Termination of Employment.
---------------------------------------
(a) If during the Termination Period the employment of the Executive
shall terminate, other than by reason of a Nonqualifying Termination, then the
Company shall pay to the Executive (or the Executive's beneficiary or estate) in
a lump sum as compensation for services rendered to the Company:
(1) a cash amount equal to the sum of (i) the Executive's full
annual base salary from the Company and its affiliated companies through the
Date of Termination, to the extent not theretofore paid, (ii) the Executive's
annual bonus in an amount equal to the higher of (x) one-half of the maximum
bonus the Executive could earn during the fiscal year during which such
termination occurs and (y) the average of the Executive's annual bonus paid or
payable, including by reason of any deferral, to the Executive by the Company
and its affiliated companies in respect of the three (3) fiscal years of the
Company (or such portion thereof during which the Executive performed services
for the Company if the Executive shall have been employed by the Company for
less than such three (3) fiscal year period) immediately preceding the fiscal
year in which such termination occurs, multiplied by a fraction, the numerator
of which is the number of days in the fiscal year through the Date of
Termination and the denominator of which is 365 or 366, as applicable, and (iii)
any compensation previously deferred by the Executive (together with any
interest and earnings thereon) and any accrued vacation pay, in each case to the
extent not theretofore paid; plus
(2) a cash amount (subject to any applicable payroll or other
taxes required to be withheld pursuant to Section 4) in an amount equal to (i)
the Executive's highest annual base salary from the Company and its affiliated
companies in effect during the twelve (12) month period prior to the Date of
Termination multiplied by the number of years (including fractions thereof)
remaining in the Executive's Employment Term as defined in the Employment
Agreement but no less than two (2) years ("Severance Multiple"), plus (ii) the
Severance Multiple times an amount equal to the higher of (x) one-half of the
maximum bonus the Executive could earn during the fiscal year during which such
termination occurs and (y) the average of the Executive's annual bonus paid or
payable, including by reason of any deferral, to the Executive by the Company
and its affiliated companies in respect of the three (3) fiscal years of the
Company (or such portion thereof during which the Executive performed services
for the Company if the Executive shall have been employed by the Company for
less than such three (3) fiscal year period) immediately preceding the fiscal
year in which such termination occurs; provided, however, that any amount paid
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pursuant to this Section 3(a)(2) shall be paid in lieu of any other amount of
severance relating to salary or bonus continuation to be received by the
Executive upon termination of employment of the Executive under any severance
plan, policy or arrangement of the Company.
6
<PAGE>
(b) If during the Termination Period the employment of the Executive
shall terminate other than by reason of a Nonqualifying Termination, in addition
to the payments to be made pursuant to paragraph (a) of this Section 3, for a
period equal to the Severance Multiple commencing on the Date of Termination,
the Company shall continue to keep in full force and effect all policies of
medical, accident, disability and life insurance with respect to the Executive
and his dependents with the same level of coverage, upon the same terms and
otherwise to the same extent as such policies shall have been in effect
immediately prior to the Date of Termination, and the Company and the Executive
shall share the costs of the continuation of such insurance coverage in the same
proportion as such costs were shared immediately prior to the Date of
Termination; provided that, if Executive becomes eligible during such period to
--------
participate in another group plan with respect to any such policies by reason of
subsequent employment or otherwise, the Executive's coverage under the Company
policies will terminate in accordance with the transition of coverage provisions
in the Company's policies.
(c) If during the Termination Period the employment of the Executive
shall terminate by reason of a Nonqualifying Termination, then the Company shall
pay to the Executive within thirty (30) days following the Date of Termination,
a cash amount equal to the sum of (1) the Executive's full annual base salary
from the Company through the Date of Termination, to the extent not theretofore
paid and (2) any compensation previously deferred by the Executive (together
with any interest and earnings thereon) and any accrued vacation pay, in each
case to the extent not theretofore paid.
4. Withholding Taxes. The Company may withhold from all payments due to
-----------------
the Executive (or his beneficiary or estate) hereunder all taxes which, by
applicable federal, state, local or other law, the Company is required to
withhold therefrom.
5. Reimbursement of Expenses. If any contest or dispute shall arise under
-------------------------
this Agreement involving termination of the Executive's employment with the
Company before a Change in Control or involving the failure or refusal of the
Company to perform fully in accordance with the terms hereof before a Change in
Control, and Executive is the prevailing party in such a contest or dispute, the
Company shall reimburse the Executive for all reasonable legal fees and
expenses. If the Executive is not the prevailing party under such circumstances,
each party shall bear its own legal fees and expenses; provided that the
--------
Executive shall reimburse the Company for all legal fees and expenses relating
solely, or allocable, to any such claim of Executive determined by the
arbitrator or court to be frivolous. If any contest or dispute shall arise under
this Agreement involving termination of the Executive's employment with the
Company after a Change in Control or involving the failure or refusal of the
Company to perform fully in accordance with the terms hereof after a Change in
Control, the Company shall reimburse the Executive, on a current basis, for all
legal fees and expenses, if any, incurred by the Executive in connection with
such contest or dispute, together with interest in an amount equal to the prime
rate of The Northern Trust Company from time to time in effect, but in no event
higher than the maximum legal rate permissible under applicable law, such
interest to accrue from the date the Company receives the Executive's statement
for such fees and expenses through the date of payment thereof; provided,
--------
however, that in the event the resolution of any such contest or dispute
- -------
includes a finding denying, in total, the Executive's claims in such contest or
dispute, the
7
<PAGE>
Executive shall be required to reimburse the Company, over a period of twelve
(12) months from the date of such resolution, for all sums advanced to the
Executive pursuant to this Section 5.
6. Termination of Agreement. This Agreement shall be effective as of the
------------------------
date hereof and shall terminate upon the first to occur of (i) the Termination
Date and (ii) Executive's death.
7. Scope of Agreement. Nothing in this Agreement shall be deemed to
------------------
entitle the Executive to continued employment with the Company or its
subsidiaries.
8. Directors and Officers Liability Insurance; Indemnification. The
-----------------------------------------------------------
Company agrees that, notwithstanding a termination of Executive's employment
with the Company, the Company shall, for at least three (3) years after the Date
of Termination, use all reasonable efforts to have Executive included as a named
insured or otherwise covered for actions or failures to act by Executive in his
capacity as a director or officer of the Company to at least the same extent as
other executive officers or directors, as the case may be, of the Company under
any directors and officers liability insurance policies maintained by the
Company; provided that the additional cost of providing coverage with a
--------
retroactive date including Executive's period of service or with an extended
reporting period or a combination of both does not materially increase the cost
of the Company's directors and officers insurance. The Company agrees that it
will not alter the indemnification provisions in its charter or by-laws so as to
give Executive less protection thereunder with respect to periods during which
Executive served the Company as an executive officer or other employee than is
afforded to other executive officers or peer employees, as the case may be, with
respect to periods during which they serve the Company.
9. Successors; Binding Agreement.
-----------------------------
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in paragraph (a) of this Section
9, it will cause any successor or transferee unconditionally to assume, by
written instrument delivered to the Executive (or his beneficiary or estate),
all of the obligations of the Company hereunder. Failure of the Company to
obtain such assumption prior to the effectiveness of any such merger,
consolidation or transfer of assets shall be a breach of this Agreement and
shall entitle the Executive to compensation and other benefits from the Company
in the same amount and on the same terms as the Executive would be entitled
hereunder if the Executive's employment were terminated following a Change in
Control other than by reason of a Nonqualifying Termination. For purposes of
implementing
8
<PAGE>
the foregoing, the date on which any such merger, consolidation or transfer
becomes effective shall be deemed the Date of Termination.
(c) This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amounts would be payable to the Executive hereunder had the
Executive continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to such person or
persons appointed in writing by the Executive to receive such amounts or, if no
person is so appointed, to the Executive's estate.
10. Notice.
------
(a) For purposes of this Agreement, 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 William Malloy at his 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.
(b) A written notice of termination of the Executive's employment by
the Company or the Executive, as the case may be, shall (i) indicate the
specific termination provision in this Agreement relied upon, (ii) to the extent
applicable, set forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated and (iii) specify the Date of Termination (which date
shall be not less than fifteen (15) days after the giving of such notice). The
failure by the Executive or the Company to set forth in such notice any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company hereunder or preclude the
Executive or the Company from asserting such fact or circumstance in enforcing
the Executive's or the Company's rights hereunder.
11. Full Settlement; Resolution of Disputes.
---------------------------------------
(a) The Company's obligation to make any payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and such amounts shall not be reduced,
except as set forth in Section 3(b), whether or not the Executive obtains other
employment.
9
<PAGE>
(b) If there shall be any dispute between the Company and the
Executive in the event of any termination of the Executive's employment, then,
unless and until there is a final determination rendered as provided in Section
16 declaring that such termination was for Cause, that the determination by the
Executive of the existence of Good Reason was not made in good faith, or that
the Company is not otherwise obligated to pay any amount or provide any benefit
to the Executive and his dependents or other beneficiaries, as the case may be,
under paragraphs (a) and (b) of Section 3, the Company shall pay all amounts,
and provide all benefits, to the Executive and his dependents or other
beneficiaries, as the case may be, that the Company would be required to pay or
provide pursuant to paragraphs (a) and (b) of Section 3 as though such
termination were by the Company without Cause or by the Executive with Good
Reason; provided, however, that the Company shall not be required to pay any
-------- -------
disputed amounts pursuant to this paragraph except upon receipt of an
undertaking by or on behalf of the Executive to repay all such amounts to which
the Executive is ultimately adjudged by such court not to be entitled.
12. Employment with Subsidiaries. Employment with the Company for
----------------------------
purposes of this Agreement shall include employment with any corporation or
other entity in which the Company has a direct or indirect ownership interest of
fifty percent (50%) or more of the total combined voting power of the then
outstanding securities of such corporation or other entity entitled to vote
generally in the election of directors.
13. Governing Law; Validity. The interpretation, construction and
-----------------------
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Illinois without regard to the
principle of conflicts of laws. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which other provisions shall remain in
full force and effect.
14. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
15. Miscellaneous. No provision of this Agreement may be modified or
-------------
waived unless such modification or waiver is agreed to in writing and signed by
the Executive and by a duly authorized officer of the Company. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. Failure by the
Executive or the Company to insist upon strict compliance with any provision of
this Agreement or to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason, shall not be deemed to be a waiver of such
provision or right or any other provision or right of this Agreement. The
rights of, and benefits payable to, the Executive, his estate or his
beneficiaries pursuant to this Agreement are in addition to any rights of, or
benefits payable to, the Executive, his estate or his beneficiaries
10
<PAGE>
under the Employment Agreement or under any employee benefit plan or
compensation program of the Company.
16. 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 National Rules for the Resolution of Employment Disputes, 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 AAA. If the parties are unable to agree on an arbitrator, AAA shall
select an arbitrator in accordance with its procedures.
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.
/s/ Andrew B. Parkinson
By:_____________________________________________
Andrew B. Parkinson,
Chairman of the Board
/s/ William Malloy
________________________________________________
William Malloy
11
<PAGE>
EXHIBIT 10.22
AMENDED AND RESTATED SEVERANCE AGREEMENT
----------------------------------------
THIS AMENDED AND RESTATED AGREEMENT (this "Agreement") was entered into as
of the 27th day of September, 1999 and amended and restated as of this 17th day
of February, 2000, by and between Peapod, Inc., a Delaware corporation (the
"Company"), and William Malloy (the "Executive");
W I T N E S S E T H
WHEREAS, the Executive is being employed as President and Chief Executive
Officer of the Company and his services and knowledge are valuable to the
Company; and
WHEREAS, concurrently with the execution hereof, Executive and the Company
are entering into an employment agreement ("Employment Agreement"), which
Employment Agreement provides for substantial benefits; and
WHEREAS, the Board (as defined in Section 1) has determined that it is in
the best interests of the Company and its stockholders to secure the Executive's
continued services and to ensure the Executive's continued dedication and
objectivity in the event of any threat or occurrence of, or negotiation or other
action that could lead to, or create the possibility of, a Change in Control (as
defined in Section 1) of the Company, without concern as to whether the
Executive might be hindered or distracted by personal uncertainties and risks
created by any such possible Change in Control, and to encourage the Executive's
full attention and dedication to the Company.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained, the Company and the Executive hereby
agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
-----------
have the respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means (1) a willful refusal by the Executive to perform or
substantial disregard of those duties and responsibilities properly assigned to
the Executive, and if a Change in Control has occurred, if those duties and
responsibilities do not differ in any material respect from the duties and
responsibilities of the Executive during the ninety (90) day period immediately
prior to a Change in Control (other than as a result of incapacity due to
physical or mental illness), in any case, which is not remedied in a reasonable
period of time after receipt of written notice from the Company specifying such
breach, (2) embezzlement or misappropriation of corporate funds by the
Executive, other act of dishonesty by the Executive, or significant activities
by the Executive harmful to the reputation of the Company, or (3) significant
violation by the Executive of any statutory or common law duty of loyalty to the
Company.
<PAGE>
(c) "Change in Control" means:
(1) 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 Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated
under the Exchange Act, of twenty percent (20%) or more of either (i) the then
outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (ii) 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"); provided, however, that
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the following acquisitions shall not constitute a Change in Control: (A) any
acquisition directly from the Company (excluding any acquisition resulting from
the exercise of an exercise, conversion or exchange privilege in respect of
outstanding convertible or exchangeable securities 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, (E) any
acquisition by any corporation pursuant to a reorganization, merger or
consolidation involving the Company, if, immediately after such reorganization,
merger or consolidation, each of the conditions described in clauses (i), (ii)
and (iii) of subsection (3) of this Section (1)(c) shall be satisfied; and
provided further that, for purposes of clause (B), if any Person (other than 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 twenty percent (20%) or more of the Outstanding Company
Common Stock or twenty percent (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;
(2) individuals who, as of the date of the consummation of the
Company's initial public offering of Common Stock, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
such Board; provided, however, 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
sixty six and two-thirds percent (66-2/3%) of the directors then comprising the
Incumbent Board shall be deemed to have been a member of the Incumbent Board;
and provided further, that no 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 be deemed to have been a
member of the Incumbent Board;
(3) 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
<PAGE>
to which (i) 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 sixty
percent (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, (ii) 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,
twenty percent (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, twenty percent (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
(iii) 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 Corporation Transaction; or
(4) approval by the stockholders of the Company of a plan of
complete liquidation or dissolution of the Company.
(d) "Company" shall have the meaning set forth in the second recital
of this Agreement.
(e) "Date of Termination" means (1) the effective date on which the
Executive's employment by the Company terminates as specified in a prior written
notice by the Company or the Executive, as the case may be, to the other,
delivered pursuant to Section 10 or (2) if the Executive's employment by the
Company terminates by reason of death, the date of death of the Executive.
(f) "Employment Agreement" means the Employment Agreement of even
date hereof between Executive and Peapod, as it may be amended from time to
time.
(g) "Exempt Person" means each of Andrew B. Parkinson and Thomas L.
Parkinson and any Affiliate (as such term is defined in Rule 12b-1 under the
Securities Exchange Act of 1934, as in effect on the date hereof, "Affiliate")
thereof.
(h) "Good Reason" means, without the Executive's express written
consent,
3
<PAGE>
the occurrence of any of the following events:
(1) any of (i) the assignment to the Executive of any duties
inconsistent in any material respect with the Executive's position(s), duties,
responsibilities or status with the Company as provided under the Employment
Agreement or, if the Employment Agreement is no longer in effect, immediately
prior to the termination thereof or, if a Change in Control has occurred,
immediately prior to such Change in Control, (ii) a change in the Executive's
reporting responsibilities, titles or offices with the Company inconsistent with
the Employment Agreement or, if the Employment Agreement is no longer in effect,
as in effect immediately prior to the termination thereof, or, if a Change in
Control has occurred, as in effect immediately prior to such Change in Control,
or (iii) any removal or involuntary termination of the Executive from the
Company otherwise than as expressly permitted by this Agreement or any failure
to re-elect the Executive to any position with the Company held by the Executive
as provided under the Employment Agreement or, if the Employment Agreement is no
longer in effect, as in effect immediately prior to the termination thereof, or,
if a Change in Control has occurred, immediately prior to such Change in
Control;
(2) a reduction by the Company in the Executive's rate of annual base
salary as provided under the Employment Agreement or a change to Executive's
bonus compensation that is adverse to the Executive and is inconsistent with the
Employment Agreement, or, if the Employment Agreement is no longer in effect,
such annual base salary or bonus compensation plan as in effect immediately
prior to the termination thereof, or, if a Change in Control has occurred, such
annual base salary or bonus compensation plan as in effect immediately prior to
such Change in Control or as the same may be increased from time to time
thereafter;
(3) any requirement of the Company that the Executive (i) be based
anywhere other than at the facility where the Executive is to be located at the
date of this Agreement (or a new headquarters within a thirty (30) mile radius
of the Company's current headquarters) or, if a Change in Control has occurred,
at the time of the Change in Control, or (ii) travel on Company business to an
extent substantially more burdensome than the travel obligations of the
Executive immediately prior to the date hereof, or, if a Change in Control has
occurred, at the time of such Change in Control;
(4) if a Change in Control has occurred, the failure of the Company to
(i) continue in effect any employee benefit plan or compensation plan in which
the Executive is participating immediately prior to such Change in Control,
unless the Executive is permitted to participate in other plans providing the
Executive with substantially comparable benefits, or the taking of any action by
the Company which would adversely affect the Executive's participation in or
materially reduce the Executive's benefits under any such plan, (ii) provide the
Executive and the Executive's dependents welfare benefits (including, without
limitation, medical, prescription, dental, disability, salary continuance,
employee life, group life, accidental death and travel accident insurance plans
and programs) in accordance with the most favorable plans, practices, programs
and policies of the Company and its affiliated companies in effect for the
4
<PAGE>
Executive immediately prior to such Change in Control, (iii) provide fringe
benefits in accordance with the most favorable plans, practices, programs and
policies of the Company and its affiliated companies in effect for the Executive
immediately prior to such Change in Control, (iv) provide an office or offices
of a size and with furnishings and other appointments, together with secretarial
and other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies
immediately prior to such Change in Control, (v) provide the Executive with paid
vacation in accordance with the most favorable plans, policies, programs and
practices of the Company and its affiliated companies as in effect for the
Executive immediately prior such Change in Control, or (vi) reimburse the
Executive promptly for all reasonable employment expenses incurred by the
Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect for the
Executive immediately prior to such Change in Control;
(5) the failure of the Company to obtain the assumption agreement
from any successor as contemplated in Section 10(b); or
(6) the Company delivers a Non-Extension Notice (as defined in
the Employment Agreement) to the Executive under Section 1.04 of the Employment
Agreement.
For purposes of this Agreement, any good faith determination of
Good Reason made by the Executive shall be conclusive; provided, however, that
-------- -------
in an isolated, insubstantial and inadvertent action taken in good faith and
which is remedied by the Company promptly after receipt of notice thereof given
by the Executive shall not constitute Good Reason.
(i) "Nonqualifying Termination" means a termination of the
Executive's employment (1) by the Company for Cause, (2) by the Executive for
any reason other than a Good Reason, (3) as a result of the Executive's death or
(4) by the Company due to the Executive's absence from his duties with the
Company on a full-time basis for at least one hundred eighty (180) consecutive
days as a result of the Executive's incapacity due to physical or mental
illness; provided, however, that a termination of the Executive's employment for
-------- -------
any reason whatsoever during the "Window Period" (hereinafter defined) shall not
constitute a Nonqualifying Termination.
(j) "Termination Period" means the period of time beginning with the
date hereof and ending on the earliest to occur of (1) ten (10) years after the
date hereof, (2) Executive's death, and (3) two (2) years following such Change
in Control (the "Termination Date").
(k) "Window Period" means the thirty (30) day period commencing one
(1) year after the date of a Change in Control.
2. Obligations of the Executive. The Executive agrees that in the event
----------------------------
any person or group attempts a Change in Control, he shall not voluntarily leave
the employ of the Company
5
<PAGE>
without Good Reason (a) until such attempted Change in Control terminates or (b)
if a Change in Control shall occur, until ninety (90) days following such Change
in Control. For purposes of the foregoing subsection (a), Good Reason shall be
determined as if a Change in Control had occurred when such attempted Change in
control became known to the Board.
3. Payments Upon Termination of Employment.
---------------------------------------
(a) If during the Termination Period the employment of the Executive
shall terminate, other than by reason of a Nonqualifying Termination, then the
Company shall pay to the Executive (or the Executive's beneficiary or estate) in
a lump sum as compensation for services rendered to the Company:
(1) a cash amount equal to the sum of (i) the Executive's full
annual base salary from the Company and its affiliated companies through the
Date of Termination, to the extent not theretofore paid, (ii) the Executive's
annual bonus in an amount equal to the higher of (x) one-half of the maximum
bonus the Executive could earn during the fiscal year during which such
termination occurs and (y) the average of the Executive's annual bonus paid or
payable, including by reason of any deferral, to the Executive by the Company
and its affiliated companies in respect of the three (3) fiscal years of the
Company (or such portion thereof during which the Executive performed services
for the Company if the Executive shall have been employed by the Company for
less than such three (3) fiscal year period) immediately preceding the fiscal
year in which such termination occurs, multiplied by a fraction, the numerator
of which is the number of days in the fiscal year through the Date of
Termination and the denominator of which is 365 or 366, as applicable, and (iii)
any compensation previously deferred by the Executive (together with any
interest and earnings thereon) and any accrued vacation pay, in each case to the
extent not theretofore paid; plus
(2) a cash amount (subject to any applicable payroll or other
taxes required to be withheld pursuant to Section 4) in an amount equal to (i)
the Executive's highest annual base salary from the Company and its affiliated
companies in effect during the twelve (12) month period prior to the Date of
Termination multiplied by the number of years (including fractions thereof)
remaining in the Executive's Employment Term as defined in the Employment
Agreement but no less than two (2) years ("Severance Multiple"), plus (ii) the
Severance Multiple times an amount equal to the higher of (x) one-half of the
maximum bonus the Executive could earn during the fiscal year during which such
termination occurs and (y) the average of the Executive's annual bonus paid or
payable, including by reason of any deferral, to the Executive by the Company
and its affiliated companies in respect of the three (3) fiscal years of the
Company (or such portion thereof during which the Executive performed services
for the Company if the Executive shall have been employed by the Company for
less than such three (3) fiscal year period) immediately preceding the fiscal
year in which such termination occurs; provided, however, that any amount paid
-------- -------
pursuant to this Section 3(a)(2) shall be paid in lieu of any other amount of
severance relating to salary or bonus continuation to be received by the
Executive upon termination of employment of the Executive under any severance
plan, policy or arrangement of
6
<PAGE>
the Company.
(b) If during the Termination Period the employment of the Executive
shall terminate other than by reason of a Nonqualifying Termination, in addition
to the payments to be made pursuant to paragraph (a) of this Section 3, for a
period equal to the Severance Multiple commencing on the Date of Termination,
the Company shall continue to keep in full force and effect all policies of
medical, accident, disability and life insurance with respect to the Executive
and his dependents with the same level of coverage, upon the same terms and
otherwise to the same extent as such policies shall have been in effect
immediately prior to the Date of Termination, and the Company and the Executive
shall share the costs of the continuation of such insurance coverage in the same
proportion as such costs were shared immediately prior to the Date of
Termination; provided that, if Executive becomes eligible during such period to
--------
participate in another group plan with respect to any such policies by reason of
subsequent employment or otherwise, the Executive's coverage under the Company
policies will terminate in accordance with the transition of coverage provisions
in the Company's policies.
(c) If during the Termination Period the employment of the Executive
shall terminate by reason of a Nonqualifying Termination, then the Company shall
pay to the Executive within thirty (30) days following the Date of Termination,
a cash amount equal to the sum of (1) the Executive's full annual base salary
from the Company through the Date of Termination, to the extent not theretofore
paid and (2) any compensation previously deferred by the Executive (together
with any interest and earnings thereon) and any accrued vacation pay, in each
case to the extent not theretofore paid.
4. Withholding Taxes. The Company may withhold from all payments due to
-----------------
the Executive (or his beneficiary or estate) hereunder all taxes which, by
applicable federal, state, local or other law, the Company is required to
withhold therefrom.
5. Reimbursement of Expenses. If any contest or dispute shall arise under
-------------------------
this Agreement involving termination of the Executive's employment with the
Company before a Change in Control or involving the failure or refusal of the
Company to perform fully in accordance with the terms hereof before a Change in
Control, and Executive is the prevailing party in such a contest or dispute,
the Company shall reimburse the Executive for all reasonable legal fees and
expenses. If the Executive is not the prevailing party under such
circumstances, each party shall bear its own legal fees and expenses; provided
--------
that the Executive shall reimburse the Company for all legal fees and expenses
relating solely, or allocable, to any such claim of Executive determined by the
arbitrator or court to be frivolous. If any contest or dispute shall arise
under this Agreement involving termination of the Executive's employment with
the Company after a Change in Control or involving the failure or refusal of the
Company to perform fully in accordance with the terms hereof after a Change in
Control, the Company shall reimburse the Executive, on a current basis, for all
legal fees and expenses, if any, incurred by the Executive in connection with
such contest or dispute, together with interest in an amount equal to the prime
rate of The Northern Trust Company from time to time in effect, but in no event
higher than the maximum legal rate permissible under applicable law, such
interest to accrue from the date the Company receives the Executive's statement
for such fees and expenses through the date of
7
<PAGE>
payment thereof; provided, however, that in the event the resolution of any such
-------- -------
contest or dispute includes a finding denying, in total, the Executive's claims
in such contest or dispute, the Executive shall be required to reimburse the
Company, over a period of twelve (12) months from the date of such resolution,
for all sums advanced to the Executive pursuant to this Section 5.
6. Termination of Agreement. This Agreement shall be effective as of the
------------------------
date hereof and shall terminate upon the first to occur of (i) the Termination
Date and (ii) Executive's death.
7. Scope of Agreement. Nothing in this Agreement shall be deemed to
------------------
entitle the Executive to continued employment with the Company or its
subsidiaries.
8. Directors and Officers Liability Insurance; Indemnification. The
-----------------------------------------------------------
Company agrees that, notwithstanding a termination of Executive's employment
with the Company, the Company shall, for at least three (3) years after the Date
of Termination, use all reasonable efforts to have Executive included as a named
insured or otherwise covered for actions or failures to act by Executive in his
capacity as a director or officer of the Company to at least the same extent as
other executive officers or directors, as the case may be, of the Company under
any directors and officers liability insurance policies maintained by the
Company; provided that the additional cost of providing coverage with a
--------
retroactive date including Executive's period of service or with an extended
reporting period or a combination of both does not materially increase the cost
of the Company's directors and officers insurance. The Company agrees that it
will not alter the indemnification provisions in its charter or by-laws so as to
give Executive less protection thereunder with respect to periods during which
Executive served the Company as an executive officer or other employee than is
afforded to other executive officers or peer employees, as the case may be, with
respect to periods during which they serve the Company.
9. Successors; Binding Agreement.
-----------------------------
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in paragraph (a) of this Section
9, it will cause any successor or transferee unconditionally to assume, by
written instrument delivered to the Executive (or his beneficiary or estate),
all of the obligations of the Company hereunder. Failure of the Company to
obtain such assumption prior to the effectiveness of any such merger,
consolidation or transfer of assets shall be a breach of this Agreement and
shall entitle the Executive to compensation and other benefits from the Company
in the same amount and on the same terms as the Executive
8
<PAGE>
would be entitled hereunder if the Executive's employment were terminated
following a Change in Control other than by reason of a Nonqualifying
Termination. For purposes of implementing the foregoing, the date on which any
such merger, consolidation or transfer becomes effective shall be deemed the
Date of Termination.
(c) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amounts would be payable to the Executive hereunder had the
Executive continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to such person or
persons appointed in writing by the Executive to receive such amounts or, if no
person is so appointed, to the Executive's estate.
10. Notice.
------
(a) For purposes of this Agreement, 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 William Malloy at his 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.
(b) A written notice of termination of the Executive's employment by
the Company or the Executive, as the case may be, shall (i) indicate the
specific termination provision in this Agreement relied upon, (ii) to the extent
applicable, set forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated and (iii) specify the Date of Termination (which date
shall be not less than fifteen (15) days after the giving of such notice). The
failure by the Executive or the Company to set forth in such notice any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company hereunder or preclude the
Executive or the Company from asserting such fact or circumstance in enforcing
the Executive's or the Company's rights hereunder.
11. Full Settlement; Resolution of Disputes.
---------------------------------------
(a) The Company's obligation to make any payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and such amounts shall not be reduced,
except as
9
<PAGE>
set forth in Section 3(b), whether or not the Executive obtains other
employment.
(b) If there shall be any dispute between the Company and the
Executive in the event of any termination of the Executive's employment, then,
unless and until there is a final determination rendered as provided in Section
16 declaring that such termination was for Cause, that the determination by the
Executive of the existence of Good Reason was not made in good faith, or that
the Company is not otherwise obligated to pay any amount or provide any benefit
to the Executive and his dependents or other beneficiaries, as the case may be,
under paragraphs (a) and (b) of Section 3, the Company shall pay all amounts,
and provide all benefits, to the Executive and his dependents or other
beneficiaries, as the case may be, that the Company would be required to pay or
provide pursuant to paragraphs (a) and (b) of Section 3 as though such
termination were by the Company without Cause or by the Executive with Good
Reason; provided, however, that the Company shall not be required to pay any
-------- -------
disputed amounts pursuant to this paragraph except upon receipt of an
undertaking by or on behalf of the Executive to repay all such amounts to which
the Executive is ultimately adjudged by such court not to be entitled.
12. Employment with Subsidiaries. Employment with the Company for
----------------------------
purposes of this Agreement shall include employment with any corporation or
other entity in which the Company has a direct or indirect ownership interest of
fifty percent (50%) or more of the total combined voting power of the then
outstanding securities of such corporation or other entity entitled to vote
generally in the election of directors.
13. Governing Law; Validity. The interpretation, construction and
-----------------------
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Illinois without regard to the
principle of conflicts of laws. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which other provisions shall remain in
full force and effect.
14. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
15. Miscellaneous. No provision of this Agreement may be modified or
-------------
waived unless such modification or waiver is agreed to in writing and signed by
the Executive and by a duly authorized officer of the Company. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. Failure by the
Executive or the Company to insist upon strict compliance with any provision of
this Agreement or to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason, shall not be deemed to be a waiver of such
provision or right or any other provision or right of this Agreement. The
rights of, and
10
<PAGE>
benefits payable to, the Executive, his estate or his beneficiaries pursuant to
this Agreement are in addition to any rights of, or benefits payable to, the
Executive, his estate or his beneficiaries under the Employment Agreement or
under any employee benefit plan or compensation program of the Company.
16. 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 National Rules for the Resolution of Employment Disputes, 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 AAA. If the parties are unable to agree on an arbitrator, AAA shall
select an arbitrator in accordance with its procedures.
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.
/s/ Andrew B. Parkinson
By:_____________________________________________
Andrew B. Parkinson,
Chairman of the Board
/s/ William Malloy
________________________________________________
William Malloy
11
<PAGE>
Exhibit 10.23
$2,500,000 September 27, 1999
Skokie, Illinois
PROMISSORY NOTE
---------------
("Note")
FOR VALUE RECEIVED, WILLIAM MALLOY (the "Executive"), promises to pay
PEAPOD, INC., a Delaware corporation, or its order (the "Company") the principal
sum of Two Million Five Hundred Thousand Dollars ($2,500,000). Payment shall be
made in lawful money of the United States of America at 9933 Woods Drive,
Skokie, Illinois 60077-1031, or such other address as the Company may designate
in a written notice to the Executive. The unpaid principal shall bear interest
the rate of eight percent (8%) per annum, compounded annually, until the
Maturity Date (defined below) and shall bear interest the rate of twelve percent
(12%) per annum, compounded annually, after the Maturity Date.
Payments of principal and interest under this Note shall be made as
follows:
(a) Subject to the reductions set forth in this paragraph, the
Executive promises to pay all principal and accrued interest on the first
to occur (the "Maturity Date") of: (i) September 27, 2004 or (ii) the
termination of the Executive's employment with the Company.
(b) All principal and accrued interest shall be forgiven by the
Company on September 27, 2004 if the Executive is employed by the Company
on that date.
(c) All principal and accrued interest shall be forgiven by the
Company on the termination of the Executive's employment with the Company
if the Executive's employment is terminated (1) by the Company without
Cause, (2) by the Executive for Good Reason, (3) as a result of the
Executive's death, (4) by the Company due to the Executive's absence from
his duties with the Company on a full-time basis for at least one hundred
eighty (180) consecutive days as a result of the Executive's incapacity due
to physical or mental illness, or (5) at any time after a Change in
Control. The terms "Cause", "Good Reason" and "Change in Control" shall
have the meanings ascribed to those terms in the Severance Agreement
between the Company and the Executive, dated September 27, 1999.
(d) In the event of a termination of the Executive's employment with
the Company prior to September 27, 2004, not described in subparagraph (c)
above, one sixtieth (1/60) of the principal and accrued interest shall be
forgiven by the Company for each full month between the date of this Note
and the date of such termination.
The Executive agrees to pay all of the Company's costs of collection,
including reasonable attorneys' fees, incurred in collection of any sums due
from the Executive to the Company.
Every right, power and discretion granted herein to the Company shall
extend and apply to and be for the benefit of any transferee, assignee or legal
holder hereof, and no delay or omission by the Company or such transferee,
assignee or legal holder in exercising any right or power
<PAGE>
hereunder shall impair such right or power or be construed to be a waiver of any
default of the Executive hereunder.
The Executive hereby waives presentment for payment, demand, notice of
dishonor, protest, notice of protest and all other notices and demands in
connection with the enforcement of the Company's rights hereunder. The Executive
waives every defense, cause of action, counterclaim or setoff which the
Executive may now have or hereafter may have to any action by the Company in
enforcing this Note.
This Note has been executed in, shall be governed by, and construed in
accordance with, the laws of the State of Illinois. This Note shall be binding
on the Executive, his successors, assigns and personal representatives.
To induce the Company to enter into the transaction evidenced by this Note,
the Executive irrevocably agrees that all actions arising directly or indirectly
as a result or in consequence of this Note shall be instituted and litigated
only in courts having its situs in the City of Chicago, Illinois, and hereby
consents to the exclusive jurisdiction and venue of any state or federal Court
located and having its situs in said city, and waives any objection based on
forum nonconveniens, and hereby waives personal service of any and all process,
and consents that all such service of process may be made by certified mail,
return receipt requested, directed to him at the address indicated in the
Company's records in the manner provided by applicable statute, law, rule of
court or otherwise.
/s/ William Malloy
__________________________________
William Malloy
2
<PAGE>
Exhibit 10.24
AMENDMENT NO. 1 TO
PROMISSORY NOTE
THIS AMENDMENT NO. 1 TO PROMISSORY NOTE (the "Amendment") is entered into
as of March 3, 2000 by and among Peapod, Inc., a Delaware corporation (the
"Company"), and William Malloy (the "Executive")
W I T N E S S E T H
WHEREAS, the Executive has executed a Promissory Note dated September 27,
1999 (the "Promissory Note") in favor of the Company;
WHEREAS, the Company and the Executive desire to amend the Promissory Note
in certain respects; and
WHEREAS, the terms used in this Amendment which are defined in the
Promissory Note shall have the respective meanings set forth in the Promissory
Note, unless otherwise defined herein;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the parties hereto hereby agree as follows:
1. The last sentence of paragraph (c) is hereby amended and restated
in its entirety to read as follows:
"The terms "Cause", "Good Reason" and "Change in Control" shall have the
meanings ascribed to those terms in the Severance Agreement between the Company
and the Executive, dated September 27, 1999 and as amended from time to time."
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the day and year first written above.
PEAPOD, INC.
/s/ Andrew Parkinson
By:____________________________
Name: Andrew Parkinson
/s/ William Malloy
_______________________________
William Malloy
1
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors of
Peapod, Inc.:
We consent to incorporation by reference in the registration statements (No.
333-35405 and No. 333-35445) on Forms S-8 of Peapod, Inc. of our reports dated
February 11, 2000, except as to Notes 1 and 15, which are as of March 29, 2000,
related to the balance sheets of Peapod, Inc. as of December 31, 1999 and 1998,
and the related statements of operations, comprehensive income, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1999, and the related financial statement schedule, which reports
appear in the December 31, 1999 annual report on Form 10-K of Peapod, Inc.
/s/ KPMG LLP
Chicago, Illinois
March 30, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet as of December 31, 1999 and the statement of operations for the twelve
months ended December 31, 1999 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 3,343
<SECURITIES> 4,704
<RECEIVABLES> 1,478
<ALLOWANCES> (232)
<INVENTORY> 458
<CURRENT-ASSETS> 10,991
<PP&E> 10,926
<DEPRECIATION> (4,290)
<TOTAL-ASSETS> 20,780
<CURRENT-LIABILITIES> 9,846
<BONDS> 0
0
0
<COMMON> 183
<OTHER-SE> 9,527
<TOTAL-LIABILITY-AND-EQUITY> 20,780
<SALES> 73,134
<TOTAL-REVENUES> 73,134
<CGS> 55,585
<TOTAL-COSTS> 102,784
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 187
<INCOME-PRETAX> (28,453)
<INCOME-TAX> 0
<INCOME-CONTINUING> (28,453)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28,453)
<EPS-BASIC> (1.62)
<EPS-DILUTED> (1.62)
</TABLE>
