<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-22557
PEAPOD, INC.
(Exact name of Registrant as specified in its charter)
Delaware 36-4118175
---------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of Incorporation or
Organization)
9933 Woods Drive, Skokie, Illinois 60077
(Address of principal executive offices) (ZIP Code)
(847) 583-9400
(Registrant's telephone number, including area code)
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 [ ]
The number of shares outstanding of the registrant's common stock, $0.01
par value ("Common Stock") as of May 5, 2000 was 17,952,965.
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements.
<PAGE>
PEAPOD, INC.
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
Assets (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................... $ 3,770 $ 3,343
Marketable securities.......................................... 350 4,704
Receivables, net of bad debt allowance of $241 and $232 as
of March 31, 2000 and December 31, 1999...................... 1,315 1,478
Merchandise inventory.......................................... 544 458
Prepaid expenses............................................... 443 473
Other current assets........................................... 1,567 535
-------- --------
Total current assets....................................... 7,989 10,991
Property and equipment:
Computer equipment and software................................ 7,282 6,737
Service equipment and other.................................... 2,925 2,857
Leasehold improvements......................................... 1,375 1,332
-------- --------
Property and equipment, at cost.................................. 11,582 10,926
Accumulated depreciation....................................... (4,952) (4,290)
-------- --------
Net property and equipment....................................... 6,630 6,636
Restricted cash.................................................. 1,589 1,588
Non-current marketable securities................................ 490 1,565
-------- --------
Total assets............................................... $ 16,698 $ 20,780
======== ========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable............................................... $ 10,134 $ 6,147
Accrued compensation........................................... 1,181 497
Other accrued liabilities...................................... 4,082 1,897
Current deferred revenue....................................... 552 615
Current obligations under capital lease........................ 612 690
-------- --------
Total current liabilities.................................. 16,561 9,846
Deferred revenue................................................. 38 95
Obligations under capital lease, less current portion............ 988 1,129
-------- --------
Total liabilities.......................................... 17,587 11,070
Stockholders' equity (deficit):
Preferred stock, $.01 par value, authorized 5,000,000 shares,
none issued and outstanding.................................. -- --
Common stock, $.01 par value, 50,000,000 shares authorized,
18,402,591 and 18,320,578 shares issued at March 31, 2000
and December 31, 1999........................................ 184 183
Additional paid-in capital..................................... 72,069 71,698
Note receivable from officer................................... (702) (2,369)
Accumulated other comprehensive income -
Unrealized holding loss on available-for-sale securities..... (14) (118)
Accumulated deficit............................................ (71,255) (58,513)
Treasury stock, at cost, 141,749 shares at March 31, 2000
and December 31, 1999........................................ (1,171) (1,171)
-------- --------
Total stockholders' equity (deficit)....................... (889) 9,710
Total liabilities and stockholders' equity (deficit)....... $ 16,698 $ 20,780
======== ========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
PEAPOD, INC.
STATEMENTS OF OPERATIONS
(in thousands, except for share and per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net sales....................................... $ 24,914 $ 18,008
Cost of sales................................... 19,216 14,366
----------- -----------
Gross profit.................................... 5,698 3,642
Operating expenses:
Fulfillment operations........................ 8,931 4,872
General and administrative.................... 2,039 1,573
Marketing and selling......................... 1,340 1,238
System development and maintenance............ 1,189 723
Depreciation and amortization................. 664 474
Pre-opening costs............................. -- 280
Nonrecurring expenses......................... 4,118 --
----------- -----------
Total operating expenses................... 18,281 9,160
----------- -----------
Operating loss.................................. (12,583) (5,518)
Other income (expense):
Investment income (expense)................... (103) 478
Interest expense.............................. (56) (29)
----------- -----------
Net loss........................................ $ (12,742) $ (5,069)
=========== ===========
Net loss per share:
Basic......................................... $ (0.70) $ (0.29)
Diluted....................................... $ (0.70) $ (0.29)
Shares used to compute net loss per share:
Basic......................................... 18,207,875 17,188,508
Diluted....................................... 18,207,875 17,188,508
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
PEAPOD, INC.
STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
2000 1999
-------- -------
<S> <C> <C>
Net loss............................................................. $(12,742) $(5,069)
Other comprehensive income:
Unrealized holding gain (loss) on available-for-sale securities..
Unrealized holding loss arising during the period............ (1) (101)
Reclassification adjustment for losses realized during the
period and included in net loss............................ 105 2
-------- -------
Comprehensive loss................................................... $(12,638) $(5,168)
======== =======
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
PEAPOD, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss....................................................... $(12,742) $(5,069)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization................................ 664 474
(Gain) loss on sales of marketable securities................ 105 2
Forgiveness of debt of officer............................... 1,667 --
Changes in operating assets and liabilities:
(Increase) decrease in receivables, net.................... 163 702
(Increase) decrease in merchandise inventory............... (86) --
(Increase) decrease in prepaid expenses.................... 30 44
(Increase) decrease in other current assets................ (1,032) 123
(Increase) decrease in restricted cash..................... (1) --
Increase (decrease) in accounts payable.................... 3,987 243
Increase (decrease) in accrued compensation................ 684 62
Increase (decrease) in other accrued liabilities........... 2,185 (1,072)
Increase (decrease) in deferred revenue.................... (120) (24)
-------- -------
Net cash used in operating activities................... (4,496) (4,515)
Cash flows from investing activities:
Property and equipment purchased............................... (658) (956)
Purchases of marketable securities............................. -- (4,976)
Sales of marketable securities................................. 5,428 10,495
-------- -------
Net cash provided by investing activities............... 4,770 4,563
Cash flows from financing activities:
Proceeds from issuance of stock upon exercise of warrants...... -- 50
Proceeds from issuance of stock upon exercise of options and
employee stock purchase plan................................ 372 703
Payments on capital lease obligations.......................... (219) (199)
-------- -------
Net cash provided by financing activities............... 153 554
-------- -------
Net increase in cash and cash equivalents........................ 427 602
Cash and cash equivalents at beginning of period................. 3,343 4,341
-------- -------
Cash and cash equivalents at end of period....................... $ 3,770 $ 4,943
======== =======
Supplemental disclosure of cash flows information--interest paid. $ 40 $ 37
Supplemental disclosures of noncash investing and financing
activity:
Options exercised by sale of stock to the Company.............. -- 263
Equipment on capital leases.................................... -- 494
======== =======
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
PEAPOD, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation. The unaudited interim financial statements included
herein have been prepared by the Company, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain notes and
other information normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted from the interim financial statements presented in this quarterly
report on Form 10-Q in accordance with such rules and regulations. In the
opinion of the Company's management, the accompanying financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary to state fairly the financial position of the Company as of March
31, 2000, and the results of its operations and cash flows for the periods
indicated. The results of operations for the periods covered are not
necessarily indicative of the results to be expected for the full year.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto of the Company for the year ended
December 31, 1999, which are included in the Company's Annual Report on Form
10-K, as amended, filed with the Securities and Exchange Commission.
2. Reclassifications. Certain prior year balances have been reclassified to
conform with the current year presentation.
3. Termination of Employment. The Company entered into a Separation Agreement
with William Malloy dated March 15, 2000. Effective as of that date, William
Malloy resigned from his position as President and Chief Executive Officer
and his employment agreement was terminated. Under the terms of the
Separation Agreement, the Company will continue to pay Mr. Malloy's salary
through April 30, 2000. The options to purchase 1,100,000 and 500,000 shares
of the Company common stock, respectively, which were granted to Mr. Malloy
pursuant to his employment agreement, were cancelled, unexercised, and the
option agreements relating to those option grants were terminated. The
$2,500,000 loan, which had been extended to Mr. Malloy in September of 1999
for the purchase of 311,891 shares of Company common stock, was cancelled,
and the purchase of common stock was rescinded and cancelled. The Company has
recognized a loss of $1,584,000 representing the difference between the
balance of the Note Receivable From Officer and the fair market value of the
311,891 shares on the date the Separation Agreement was executed. Mr. Malloy
returned those shares to the Company and they became treasury stock on April
24, 2000. Under the terms of the Separation Agreement, Mr. Malloy's Severance
Agreement was terminated, except as to the Company's obligation to maintain
directors and officers liability insurance for Mr. Malloy for a period of
three years. In addition, Mr. Malloy retains certain contractual rights to
indemnification as a former officer and director. The terms of the Separation
Agreement provide that Mr. Malloy continues to be subject to an agreement not
to compete with the Company or to solicit its customers and employees for a
year following the termination of his employment and not to disclose the
Company's proprietary information. Both the Company and Mr. Malloy signed
general releases of any and all existing claims related to Mr. Malloy's
employment by the Company.
4. Financing and Change in Control. On April 14, 2000, the Company entered into
a Purchase Agreement (the "Purchase Agreement") with Koninklijke Ahold N.V.
("Ahold"). Under the Purchase Agreement, subject to certain conditions,
including approval of the transaction by the Company's stockholders, the
Company agreed to issue and sell to Ahold, and Ahold agreed to purchase from
the Company (in one or more, but no more than three issuances), 726,371
shares of the Company's series B Convertible Preferred Stock, par value $.01
per share (the "Series B Preferred Stock"), for an aggregate purchase price
of $72,637,024, and warrants (the "Warrants") to purchase 32,894,270 shares
of the Company's common stock. The Series B Preferred Stock is initially
convertible into 19,369,873 shares of common stock, which represents
approximately 51% of the common stock outstanding as of April 14, 2000 (for
this purpose, treating as outstanding the shares of common stock subject to
the Series B Preferred Stock). The Warrants have an exercise price of $3.75,
subject to adjustment, and are exercisable into approximately 24% of the
common stock outstanding as of April 14, 2000, (for this purpose, treating as
outstanding the shares of common stock subject to the Series B Preferred
Stock and the Warrants). Under the Purchase Agreement, prior to the receipt
of stockholder approval of the transaction, Ahold has the right, but not the
obligation, to purchase shares of Series B Preferred Stock and Warrants up to
the maximum amount permitted under the NASD rules and regulations without
obtaining stockholder approval. The final closing (if there is more than one
closing) of the issuance of Series B Preferred Stock is to occur as soon as
practicable (but not more than three business days) after the satisfaction or
waiver of all of the closing conditions set forth in the Purchase Agreement,
including receipt of stockholder approval.
7
<PAGE>
Simultaneously with the signing of the Purchase Agreement, the Company
entered into a $20 million secured revolving credit facility with Ahold
maturing in April 2003. The initial borrowings under the credit facility
refinanced $3 million in secured term loans provided to the Company by an
affiliate of Ahold in early April 2000. Pursuant to security agreements
entered into in connection with the credit facility, the Company's
obligations under the credit facility are secured by a lien on all of the
Company's personal property, including its intellectual property. In
connection with the credit and security agreements, the Company issued to
Ahold warrants to purchase an aggregate of 3,666,667 shares of common stock
at an initial exercise price of $3.00, subject to adjustment.
5. Restricted cash. The Company's restricted cash is primarily in support of two
letters of credit. On March 20, 2000, the Company's bank notified the Company
and its two lessors that the Company was in default of its convenants 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 April 4, one lessor drew approximately $333,000 under a
letter of credit. The bank has used $333,000 of the restricted cash in
satisfaction of the debt obligation created by the draw down of the letter of
credit.
6. Nonrecurring expenses. Nonrecurring expenses totaled $4,118,000 for the
quarter ended March 31, 2000 and result from severance expenses of
$1,890,000, which was incurred primarily in connection with William Malloy's
termination of employment - see Note 3; expenses attributable to a failed
financing transaction of $1,000,000; impaired asset write-offs of $832,000
related to cancelled and deferred initiatives; and other nonrecurring
expenses.
7. Litigation. On March 16, 2000, the Company issued a press release announcing
that its CEO and President (Mr. Malloy) was departing due to health reasons,
and as a result, a previously announced $120 million financing had been
terminated. Subsequently, seven substantially identical cases were filed in
federal district court in Chicago on various dates between March 17, 2000 and
May 10, 2000. In each case, Peapod and two individual defendants (both of
whom are officers of Peapod) have been sued for alleged violations of Section
10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. Each
complaint alleges that Peapod misrepresented or failed to disclose certain
facts relating to the Company's liquidity, cash resources, and cash needs.
Each case is brought on behalf of a purported class of purchasers of Peapod's
common stock during the period from November 8, 1999 to and including March
16, 2000, and seeks to recover damages in an unspecified amount. 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.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
The following table sets forth certain unaudited financial information from
the Statements of Operations as a percentage of net sales:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Net sales...................................... 100 % 100 %
Cost of sales.................................. 77 80
--- ---
Gross profit................................... 23 20
Operating expenses:
Fulfillment operations....................... 36 27
General and administrative................... 8 9
Marketing and selling........................ 5 7
System development and maintenance........... 5 4
Depreciation and amortization................ 3 3
Pre-opening expenses......................... * 1
Nonrecurring expenses........................ 17 *
--- ---
Total operating expenses.................. 74 51
--- ---
Operating loss................................. (51) (31)
Other income (expense):
Investment income (expense).................. * 3
Interest expense............................. * *
Net loss....................................... (51)% (28)%
=== ===
* - Less than 1%
</TABLE>
Comparison of Three Months Ended March 31, 2000 and March 31, 1999
- ------------------------------------------------------------------
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 38% from $18,008,000 in the
quarter ended March 31, 1999 to $24,914,000 in the quarter ended March 31, 2000.
Revenues from the sale of groceries increased from $15,743,000 in the quarter
ended March 31, 1999 to $22,850,000 in the quarter ended March 31, 2000. Orders
increased from 135,200 in the quarter ended March 31, 1999 to 205,500 in the
quarter ended March 31, 2000, while average order size decreased 5%. Fees paid
by customers and retail partners decreased from $2,059,000 in the quarter ended
March 31, 1999 to $1,744,000 in the quarter ended March 31, 2000. This decrease
is attributable to (i) lower fees paid by retail supply partners and (ii)
reduced customer fees. Customers, measured as customers transacting within the
last 12 months, increased 40% from 92,600 at March 31, 1999 to 129,800 at March
31, 2000.
Fees from consumer goods companies for interactive advertising, promotion and
research increased from $206,000 in the quarter ended March 31, 1999 to $320,000
in the quarter ended March 31, 2000. The increase is largely the result of
increased sales of the Company's proprietary media research products.
9
<PAGE>
Cost of sales. Cost of sales are the cost of groceries and other products sold
to customers. Cost of sales increased 34% from $14,366,000 in the quarter ended
March 31, 1999 to $19,216,000 in the quarter ended March 31, 2000. The increase
results from the previously mentioned 45% increase in groceries sales and was
partially offset by improved margins.
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 83% from $4,872,000 for the quarter ended March 31, 1999 to $8,931,000
for the quarter ended March 31, 2000. This increase is attributable to the
increase in the direct costs of picking, packing and delivering given the 52%
increase in volume of orders and to higher fulfillment costs incurred while the
Company builds scale in its centralized fulfillment centers.
At March 31, 2000, the Company fulfilled customer orders from 22 fulfillment
centers across eight metropolitan markets covering 8,586,000 households. This
compares to 32 fulfillment centers across eight metropolitan markets at March
31, 1999 covering 7,110,000 households.
General and administrative. General and administrative expenses, which include
corporate staff, accounting and human resource functions, and occupancy
expenses, increased 30% from $1,573,000 in the quarter ended March 31, 1999 to
$2,039,000 in the quarter ended March 31, 2000. The increase is primarily
attributable to an increase in compensation related expenses as the Company's
corporate structure has expanded within the areas of executive management and
operations planning.
Marketing and selling. Marketing and selling expenses include the cost of
customer acquisition and retention marketing, such as radio advertising and
direct mail, as well as certain costs relating to public relations and
interactive marketing services. The Company expenses all such costs as incurred.
Marketing and selling expenses increased by 8% from $1,238,000 for the quarter
ended March 31, 1999 to $1,340,000 for the quarter ended March 31, 2000,
primarily attributable to the Company's initiation of unattended delivery in the
quarter ended March 31, 2000.
System development and maintenance. System development and maintenance
expenses, which include new product development as well as the maintenance and
enhancement of existing systems, increased 64% from $723,000 for the quarter
ended March 31, 1999 to $1,189,000 for the quarter ended March 31, 2000. The
increase is attributable to compensation expenses and outside services for
additional resources to support the Company's new warehouse management system
implementation, to develop and support the Company's website technology, and for
additional resources to support the Company's 24/7 centralized distribution
center operations.
Depreciation and amortization. Depreciation and amortization increased 40%
from $474,000 for the quarter ended March 31, 1999 to $664,000 for the quarter
ended March 31, 2000. This increase primarily results from equipment and
leasehold improvements in centralized distribution centers opened in 1999.
Pre-opening costs. During the quarter ended March 31, 1999, pre-opening costs
of $280,000 were incurred related to a centralized distribution center opening
in June 1999. No such costs were incurred in the quarter ended March 31, 2000.
Nonrecurring expenses. Nonrecurring expenses totaled $4,118,000 for the
quarter ended March 31, 2000 and result from severance expenses of $1,890,000,
which was incurred primarily in connection with William Malloy's termination of
employment - see Notes to Financial Statements; expenses attributable to a
failed financing transaction of $1,000,000; impaired asset write-offs of
$832,000 related to cancelled and deferred initiatives; and other nonrecurring
expenses.
Other income (expense). Other income (expense) includes interest paid on
capital leases and investment income and expense. Interest expense increased
from $29,000 for the quarter ended March 31, 1999 to $56,000 in the quarter
ended March 31, 2000. Investment income for the quarter ended March 31, 1999 was
$478,000 compared to investment expense of $103,000 for the quarter ended March
31, 2000. The expense in 2000 was primarily attributable to the liquidation of
investments at a loss, offset by a reduced amount of interest income as
marketable securities have decreased from March 31, 1999.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities decreased slightly from $4,515,000 in the
first three months of 1999 to $4,496,000 in the first three months of 2000. As
of March 31, 2000, the Company had $3,770,000 in cash and cash equivalents,
$840,000 in marketable securities, and $1,589,000 in restricted cash. The
Company uses its working capital to fund ongoing operations, marketing programs,
geographic expansion and to further develop its products and services.
On April 14, 2000, Koninklijke Ahold N.V. ("Ahold"), the international food
provider and Peapod, Inc. jointly announced that they entered into definitive
agreement creating a mutually beneficial partnership to leverage and accelerate
their combined e-commerce grocery initiatives. Under the agreement, Peapod
continues as a stand-alone company. Ahold will initially invest approximately
$73,000,000 in a newly issued series of convertible preferred Peapod stock at a
price of $3.75 per share, representing on an as converted basis, 51% of Peapod's
outstanding common stock. Included also in this transaction are warrants
immediately exercisable for additional shares of common stock which would
increase Ahold's holding of Peapod's voting stock to approximately 75%. In
addition, Ahold committed to a $20 million revolving credit facility expiring in
April 2003. As of May 10, 2000, Peapod has borrowed $6,200,000 under this credit
facility.
The purchase of the convertible preferred stock is subject to customary
conditions, including regulatory approval and the approval of a majority of
Peapod's common stockholders. Peapod stockholders will be asked to consider the
transaction at Peapod's annual meeting of stockholders, expected to be held this
summer. In connection with the entry into the definitive agreements, certain
principal stockholders and directors of Peapod, holding approximately 40.6% of
Peapod's outstanding shares in the aggregate, have agreed to vote in favor of
the transaction, however, there can be no assurances that the stockholders will
approve the transaction. The Company believes that the credit facility with
Ahold provides it with adequate capital resources through the stockholders'
meeting. Assuming the stockholders approve the transaction, the Company believes
that it will have adequate capital resources for the foreseeable future.
However, in the event that the stockholders do not approve the transaction, the
credit facility with Ahold will terminate 45 days after such vote and all
amounts owed by Peapod to Ahold under the credit facility will become due upon
such termination. If the credit facility is terminated, Peapod will have limited
funds available with which to continue to finance its operation and will be
forced to seek additional and alternative financing. Peapod cannot give any
assurance that additional or alternative financing will be available or that, if
available, the additional or alternative financing could be obtained on terms
and conditions that are as favorable to Peapod as the Ahold credit facility.
The Company believes that inflation has not had a material effect on its
operations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board Interpretation No. 44 (FIN No. 44),
"Accounting for Certain Transactions Involving Stock Compensation," an
interpretation of Accounting Principles Board Opinion No. 25, is effective for
financial statements beginning after July 1, 2000. FIN No. 44 establishes
accounting and reporting standards for transactions involving stock
compensation. The Company does not believe that FIN No. 44 will have a
significant impact on its financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company does not have any derivative financial instruments as of March 31,
2000. As of March 31, 2000, the Company had marketable securities of $840,000,
all of which were sold in early May resulting in a realized loss of $14,000.
Borrowings under the credit facility bears interest from the date of borrowing
at the higher of (i) the rate, which is 1/2 of 1% in excess of the Federal Funds
Rate and (ii), the Prime Lending Rate.
11
<PAGE>
PART II
OTHER INFORMATION
Item 1. Litigation
On March 16, 2000, the Company issued a press release announcing that its
CEO and President (Mr. Malloy) was departing due to health reasons, and as a
result, a previously announced $120 million financing had been terminated.
Subsequently, seven substantially identical cases were filed in federal district
court in Chicago on various dates between March 17, 2000 and May 10, 2000. In
each case, Peapod and two individual defendants (both of whom are officers of
Peapod) have been sued for alleged violations of Section 10(b) of the Securities
Exchange Act of 1934 and SEC Rule 10b-5. Each complaint alleges that Peapod
misrepresented or failed to disclose certain facts relating to the Company's
liquidity, cash resources, and cash needs. Each case is brought on behalf of a
purported class of purchasers of Peapod's common stock during the period from
November 8, 1999 to and including March 16, 2000, and seeks to recover damages
in an unspecified amount. 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 5. Other Information
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995.
Certain statements in this report relative to markets for the Company's
products 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 expressions, constitute
"forward-looking statements" under The Private Securities Litigation Reform Act
of 1995. Such forward-looking statements are contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and in
other portions of this report. 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. Factors that would cause actual results to differ materially
from Peapod's current expectations include, among other things: (1) failure to
complete the proposed transaction with Ahold, and if such transaction is not
completed, failure to obtain additional or alternative financing on terms and
conditions that are acceptable to Peapod; (2) the developing nature of the
markets for the Company's services and the rapid technological change relating
thereto; (3) the Company's relationship with its retail partners and its
interactive marketing services and research customers; (4) the Company's ability
to execute its growth strategies, including effectively implementing a
centralized fulfillment distribution model; (5) the extent to which the Company
is able to attract and retain key personnel; (6) competition; (7) general
economic conditions; (8) regulations; and (9) the risk factors or uncertainties
listed from time to time in the Company's filings with the Securities and
Exchange Commission.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - The following exhibits are filed herewith or are incorporated
herein:
Exhibit
No. Description
------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K - During the quarter ended March 31, 2000, the
Registrant filed a Form 8-K on February 18, 2000 reporting that the
Registrant had issued press releases announcing letters of intent with
Apollo Management L.P., The Yucaipa Companies, Pequot Capital Management,
Inc. and GRP II, L.P., and Parande, an affiliate of Groupe Rallye
(collectively, the "Initial Investors"), pursuant to which the Initial
Investors would invest an aggregate of $120 million of equity in the
Registrant.
On March 16, 2000 the Registrant filed a Form 8-K announcing that William
Malloy, Peapod's President and CEO, would no longer be able to continue his
involvement with the Company. As a result of this decision, the Initial
Investors declined to move forward with their investment. The Form 8-K also
indicates that the Board of Directors of Peapod directed its financial
advisors to explore strategic alternatives available to the Registrant,
including possible alternative financing or a possible sale of the
Registrant.
12
<PAGE>
SIGNATURE
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.
Peapod, Inc.
-------------
(Registrant)
May 15, 2000 /s/ Dan Rabinowitz
----------------------------
Dan Rabinowitz
Chief Financial Officer
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