<PAGE>
As filed with the Securities and Exchange Commission on October 30, 2000
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM S-8/S-3
REGISTRATION STATEMENT
(Including registration of shares for resale by means of a Form S-3 Prospectus)
Under
The Securities Act of 1933
__________________________
EMACHINES, INC.
(Exact name of Registrant as specified in its charter)
__________________________
Delaware 943311182
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
14350 Myford Road, Suite 100
Irvine, California 92606
(714) 481-2828
(Address of principal executive offices, including zip code)
__________________________
eMachines 1998 Amended and Restated Stock Plan
eMachines 2000 Employee Stock Purchase Plan
FreePC 1999 Stock Plan
Options to Purchase an Aggregate of 2,358,697 Shares of Common
Stock Granted Pursuant to Individual Stock Option Agreements
(Full title of the plans)
__________________________
Stephen A. Dukker
Chief Executive Officer
14350 Myford Road, Suite 100
Irvine, California 92606
(714) 481-2828
(Name, address and telephone number, including area code, of agent for service)
__________________________
Copies to:
John A. Fore, Esq.
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
(650) 493-9300
__________________________
<PAGE>
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Maximum Maximum
Amount Offering Aggregate Amount of
Title of Securities to be Price Offering Registration
to be Registered Registered (1) Per Share Price Fee
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Common stock, $0.0000125 par value, 2,739,813 shares $3.831 $10,496,223.60 $ 2,771.00
issuable upon exercise of outstanding
options granted under the eMachines 1998
Stock Plan (as amended and restated) (2)
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Common stock, $0.0000125 par value, 2,151,882 shares $1.078 $ 2,319,728.80 $ 612.41
issuable upon exercise of options
available for future grant under the
eMachines 1998 Stock Plan (as amended
and restated) (3)
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Common stock, $0.0000125 par value, 300,000 shares $0.916 $ 274,800 $ 72.55
issuable upon exercise of options
outstanding or available for future
grant under the eMachines 2000 Employee
Stock Purchase Plan (4)
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Common stock, $0.0000125 par value, 705,725 shares $2.600 $ 1,834,885.00 $ 484.41
issuable upon exercise of outstanding
options granted under the FreePC 1999
Stock Plan (5)
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Common stock, $0.0000125 par value, 227,897 shares $ 1.61 $ 366,914.17 $ 96.87
issuable upon exercise of outstanding
options granted under an individual
option agreement in the form of Exhibit 99.5
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Common stock, $0.0000125 par value, 2,130,800 shares $8.678 $18,491,082.40 $ 4,881.65
issuable upon exercise of outstanding
options granted under individual option
agreements in the form of Exhibit 99.6 (6)
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Common stock, $0.0000125 par value, 830,774 shares $17.13 $14,231,158.62 $ 3,757.03
issuable upon the exercise of warrants
issued or issuable upon the exercise of
outstanding options granted under the
FreePC 1999 Stock Plan and the Guide.com
1998 Stock Option Plan.
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Common stock, $0.0000125 par value, 276,382 shares $1.078 $ 297,939.80 $ 78.66
issued to shareholders upon exercise of
options under the eMachines 1998 Stock
Plan, the FreePC 1999 Stock Plan and the
Guide.com 1998 Stock Option Plan (7)
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TOTAL REGISTRATION FEES $12,754.58
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</TABLE>
(1) Together with an indeterminate number of additional shares which may be
necessary to adjust the number of shares reserved for issuance pursuant to
the plans as the result of any future stock split, stock dividend or
similar adjustment to the Registrant's outstanding common stock.
(2) The computation of the Registration Fee is based upon the weighted average
exercise price per share of $3.831 as to outstanding but unexercised
options to purchase an aggregate of 2,739,813 shares of common stock
granted under the eMachines 1998 Stock Plan (as amended and restated).
(3) The Proposed Maximum Offering Price Per Share has been estimated in
accordance with Rule 457(h) under the Securities Act of 1933 as to the
remaining 2,151,882 shares of common stock authorized for issuance upon
exercise of options available for future grant under the eMachines 1998
Stock Plan (as amended and restated), solely for the purpose of calculating
the registration fee. No options have been granted with respect to such
shares. The computation is based upon the average of the high and low price
of the common stock as reported on the Nasdaq National Market on October
26, 2000 because the price at which the options to be granted in the future
may be exercised is not currently determinable.
<PAGE>
(4) The Proposed Maximum Offering Price Per Share has been estimated in
accordance with Rule 457(h) under the Securities Act of 1933 as to 300,000
shares of common stock authorized for issuance upon exercise of options
outstanding as well as available for future grant under the eMachines 2000
Employee Stock Purchase Plan, solely for the purpose of calculating the
registration fee. The computation is based upon 85% (see explanation in
following sentence) of the average of the high and low price of the common
stock as reported on the Nasdaq National Market on October 26, 2000 because
the price at which the options granted and to be granted in the future may
be exercised is not currently determinable. Pursuant to the Employee Stock
Purchase Plan, which plan is incorporated by reference herein, the Purchase
Price of a share of common stock shall mean an amount equal to 85% of the
Fair Market Value of a share of common stock on the Enrollment Date or the
Exercise Date, whichever is lower.
(5) The computation of the Registration Fee is based upon the weighted average
exercise price per share of $2.600 as to outstanding but unexercised
options to purchase an aggregate of 705,725 shares of common stock granted
under the FreePC 1999 Stock Plan.
(6) The computation of the Registration Fee is based upon the weighted average
exercise price per share of $8.678 as to outstanding but unexercised
options to purchase an aggregate of 2,130,800 shares of common stock
granted under individual option grants in the form of Exhibit 99.6.
(7) The Proposed Maximum Offering Price Per Share has been estimated in
accordance with Rule 457(h) under the Securities Act of 1933 as to the
276,382 shares of common stock to be offered for resale by the selling
stockholders solely for the purpose of calculating the registration fee.
The computation is based upon the average of the high and low price of the
common stock as reported on the Nasdaq National Market on October 26, 2000
because the price at which such shares of common stock may be offered for
resale in the future is not currently determinable.
<PAGE>
PROSPECTUS
276,382 SHARES
[LOGO OF eMACHINES]
Common Stock
----------------
This prospectus relates to 276,382 shares of our common stock that the
selling stockholders identified on page 20 may offer at one or more times for
their own accounts. We anticipate that the selling stockholders will offer the
shares for sale at prevailing prices on the Nasdaq National Market on the date
of sale. We will receive no part of the proceeds from the sales. The selling
stockholders will bear all sales commissions and similar expenses. We will bear
all of the other expenses of the registration and offering of the shares. None
of the offered shares have been registered prior to the filing of the
registration statement of which this prospectus is a part.
Our common stock is listed on the Nasdaq National Market under the symbol
EEEE. The last reported sale price of the common stock on October 27, 2000, was
$1.0625 per share.
Investing in our common stock involves risks. See "Risk Factors" on page 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
----------------
Prospectus dated October 30, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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PROSPECTUS SUMMARY......................................................... 3
RISK FACTORS............................................................... 4
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.......................... 20
USE OF PROCEEDS............................................................ 20
SELLING STOCKHOLDERS....................................................... 21
PLAN OF DISTRIBUTION....................................................... 23
INDEMNIFICATION OF DIRECTORS AND OFFICERS.................................. 25
EXPERTS.................................................................... 25
ADDITIONAL INFORMATION..................................................... 26
INCORPORATION OF INFORMATION BY REFERENCE.................................. 26
</TABLE>
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. The selling stockholders may use this document
only where it is legal to sell the shares. The information in this document may
be accurate only on the date of this document.
2
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PROSPECTUS SUMMARY
This summary highlights information we present more fully elsewhere in this
prospectus and in the documents incorporated by reference into this prospectus.
This summary does not contain all of the information that you should consider
before buying shares. You should read carefully the entire prospectus and all
of the documents incorporated by reference into this prospectus.
We sell high-quality, low-priced personal computers, or PCs, to develop
ongoing Internet-based consumer relationships designed to provide us with a
continuous stream of advertising and related revenues. We provide Internet
advertisers with an integrated approach to building their online brands that
includes our client-server software, promotional materials packaged with our
PCs and keyboards that provide one-touch access to selected Web sites.
We outsource the design and manufacturing of our PCs and monitors as well as
technical support, warehouse staffing, inspection, repair and repackaging of
returned PCs, and administration of our rebate program to third parties. As a
result, we have a relatively small internal organization that consisted of
132 employees at September 30, 2000. Our hardware outsourcing strategy enables
us to minimize capital investment and maintain a low product cost structure.
During the quarter ended July 1, 2000, we hired Alorica, Inc., to be our new
customer service and technical support provider. We plan to continue to
establish supply relationships with other PC and monitor manufacturers to
reduce our dependence on our current suppliers.
We have derived most of our revenues from the sale of PCs and monitors to a
limited number of large retailers. For the six months ended July 1, 2000,
approximately 54.8% of our gross revenues were from sales of PCs and monitors
to our three largest retail customers, and for the nine months ended September
30, 2000, approximately 56.8% of our gross revenues were from sales of PCs and
monitors to our three largest retail customers. We expect to continue to derive
a significant percentage of our gross revenues from sales of PCs and monitors
to a limited number of leading retailers, as well as an increasing portion from
Internet-related activities.
We were incorporated in September 1998 by our founding stockholders: Stephen
A. Dukker, TriGem Corporation and Korea Data Systems America. Mr. Dukker is our
Chief Executive Officer, President and a member of our board of directors.
TriGem Corporation is a wholly-owned U.S. subsidiary of TriGem Computer, the
Korea-based manufacturer of our eTower and eMonster PCs. Korea Data Systems
America is a wholly-owned U.S. subsidiary of Korea Data Systems Co., Ltd., the
Korea-based company that historically manufactured our eOne PCs, eSlate
notebook PCs and our monitors. We sold our first PC in November 1998. In March
2000 we successfully completed the initial public offering of our common stock
generating net proceeds to us of $164.8 million.
Our principal executive offices are located at 14350 Myford Road, Suite 100,
Irvine, California 92606 and our telephone number is (714) 481-2828. Our Web
site is located at www.e4me.com. Information contained on our Web is not
intended to constitute a part of this prospectus.
E-MACHINES(R) is our registered United States trademark. The "e" logo,
eMachines(TM), eTower(TM), eView(TM), eOne(TM), eSlate(TM), AdOptimizer(TM),
FreePC(TM) and FreePC Network(TM) are also our trademarks. This prospectus
contains other trademarks and trade names of other companies.
3
<PAGE>
RISK FACTORS
You should carefully consider the following risks before making an
investment decision. You should also review the other information contained in
this prospectus or in documents incorporated by reference into this prospectus,
including the discussion in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in our most recent quarterly
report on Form 10-Q or annual report on Form 10-K.
Risks Related to Our Combined Business
Because we have operated for a limited period of time and our business is
still rapidly changing, there is limited information upon which to evaluate our
business.
We were incorporated in September 1998 and sold our first PC in November
1998. Most of our revenues have been derived from the sale of PCs and monitors,
and from the provision of customer support and other technical services related
to those PC products. The acquisition of FreePC in January 2000 has allowed us
to accelerate our strategy of extending our historical business as a high-
quality, low-priced PC provider to offering computing and Internet advertising
offerings. As a result, we expect to derive increased revenues from Internet
advertising sales and recurring Internet revenues in the future, although our
ability to generate significant revenue from this business is unproven. Our
limited operating history and the limited operating history of FreePC and our
evolving businesses make it difficult to evaluate or predict our future
business prospects. Our business and prospects should be considered in light of
the risks and difficulties typically encountered by companies in the early
stages of development, particularly those in the rapidly changing PC and
Internet commerce markets.
We have incurred significant losses and expect to incur additional losses in
the future.
We have incurred net losses, and, at July 1, 2000, we had an accumulated
deficit of $86.7 million, and at September 30, 2000, we had an accumulated
deficit of $104.8 million. Although we experienced a period of rapid revenue
growth from PC sales following our incorporation, we may not be able to
maintain this revenue growth, and we expect to incur losses in the future. In
the quarter ended July 1, 2000, we experienced a decline in our PC sales due to
the retail channel oversupply of PCs resulting from decreased consumer demand
for these and other higher priced non-PC products. Further, FreePC has incurred
significant losses since its incorporation. In connection with the FreePC
acquisition, we recorded intangible assets of approximately $147 million, to be
amortized over a period of three years. This amortization will adversely affect
our earnings and profitability in the years 2000 through 2002. Our operating
costs have increased significantly as a result of the FreePC acquisition. We
have not yet generated significant revenue from our Internet business, and we
expect to experience operating losses before amortization in that business in
the future. As a result, we expect to report losses on an operating basis after
amortization of intangible assets in our combined business for at least the
next couple of years. Net loss from operations for the quarter ended July 1,
2000, before amortization of intangible assets and non-cash stock-based
compensation was $47.4 million or a loss of $0.33 per share, compared to a loss
of $2.9 million or $0.05 per share in the year-earlier period. Net loss from
operations for the quarter ended September 30, 2000, before amortization of
intangible assets and non-cash stock-based compensation was $6.1 million or a
loss of $0.04 per share, compared to a loss of $2.9 million or $0.04 per share
in the year earlier period.
Our quarterly operating results are subject to fluctuations and seasonality
that make it difficult to predict our future performance.
We expect our quarterly operating results to fluctuate significantly in the
future due to a number of factors. Because our PC business currently generates
low operating margins, a trend that we expect to continue for the foreseeable
future, slight variations in the prices of our PCs, component or manufacturing
costs or operating costs could significantly affect our operating results in
future periods. In the quarter ended July 1, 2000, PC prices decreased as a
result of significant discounts and rebates given to the retail channel to
stimulate sales.
4
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This decrease in prices, among other things, adversely affected our financial
results in the quarter ended July 1, 2000. In addition, the Internet
advertising and e-commerce market is highly competitive and subject to rapid
change and our ability to generate any significant revenue from that business
is unproven. Some of the other factors that could affect our quarterly
operating results include:
. the timing and amount of Internet advertising and e-commerce activity
generated through our hot-key enabled keyboards that provide one-touch
access to selected Web sites, our desktop client software and other
initiatives;
. acceptance by consumers of computing devices that include our Internet
offerings;
. continued acceptance and growth of the Internet as a medium for buying
and selling goods and services;
. acceptance by advertisers of the Internet as an efficient means for
reaching consumers;
. our ability or our suppliers' ability to effectively develop and support
new PC models;
. reductions in the prices of PC products, and new product or Internet
service announcements and introductions, by us or our competitors;
. fluctuations in the amount of, and the number of our PC buyers claiming
product rebates;
. popularity of the PCs and monitors we sell, and changes in our mix of
products;
. achieving and maintaining a low-cost business model in our PC business
and managing the third-party relationships necessary to do so;
. the cost of our PC products, including our key suppliers' component
costs and ability to obtain sufficient supply;
. our key suppliers' ability to manufacture and deliver sufficient
quantities of our PC products, and to maintain the quality of our PC
products;
. our Internet partners' financial viability, ability to pay us on time
and ability to provide our users with their services;
. our ability to manage inventory supply and accurately predict consumer
demand for our PC products and Internet services; and
. our ability to effectively enter new markets, including international
markets.
Our limited operating history makes it difficult for us to accurately
identify all of the possible factors and plan our operations accordingly.
Because our operating expenses are based on our expectations of future revenues
and we have recently significantly increased our operating expenses as a result
of our acquisition of FreePC, unexpected quarterly fluctuations in revenue or a
failure to generate significant revenue from our Internet business could
significantly harm our operating results. If our operating results in any
future quarter do not meet the expectations of securities analysts or
investors, the price of our common stock could significantly decline.
Seasonal fluctuations may also affect our quarterly operating results.
Historically, demand for PCs and PC-related services and consumer retail sales
have been significantly stronger in the fourth quarter of each year and weaker
in the first and second quarter of each year. We believe that the seasonal
impact on our business of these cycles will increase to the extent that PCs
continue to become more consumer-oriented or entertainment-driven products and
e-commerce continues to gain broader acceptance. As a result, we expect that
our net revenues from both our PC business and our Internet businesses
generally will be greater in the fourth quarter and lower in the first and
second quarters of each year.
If we are unable to manage our growth successfully, our business could be
significantly harmed.
Our total number of employees has grown from 10 at December 31, 1998 to 132
at September 30, 2000. Our growth has placed, and will continue to place, a
significant strain on our management systems, infrastructure, resources and
planning and management processes.
5
<PAGE>
As we continue to grow, we will need to assimilate new employees, as well as
expand, train and manage our workforce. We recently hired John Dickinson,
Senior Vice President and General Manager of our Internet Division, and Jack
Ferry, Vice President of Operations. In addition to performing their regular
duties, these individuals as well as all new employees, must spend a
significant amount of time learning our management systems and our historical
business model in order to help us extend that model to offering integrated
computing and Internet solutions. Our senior management team has limited
experience in the management and administration of a public company. If our
senior management team is unable to effectively manage our growth, integrate
new employees into our business and work together as a management team, we may
be unable to manage our business causing substantial harm to our business.
If we lose key personnel or are unable to attract and retain additional
personnel when needed, we may not be able to successfully operate our business.
Our success depends on the skills, experience and performance of our senior
management and key personnel, especially that of our president and chief
executive officer, Stephen A. Dukker. We must retain our senior management and
key personnel and be able to attract and retain additional key personnel when
needed. Competition in the PC and Internet and e-commerce markets for these
types of individuals with business and technical expertise is high. All of our
senior management and key personnel are at-will employees and may terminate
their employment with us at any time without warning. In the second quarter of
2000, several key personnel resigned from the company, including Steven H.
Miller, our Chief Financial Officer, and Donald S. LaVigne, our Executive Vice
President of Strategy and Business Development and the former CEO of FreePC.
Further, we do not maintain "key man" life insurance on any of our employees.
If we lose key personnel, especially Mr. Dukker, or if we are not able to
attract and retain additional personnel when needed, we may be unable to
successfully introduce new products and services or otherwise implement our
business strategy.
We are subject to risks associated with acquisitions, in general, and with
our acquisition of FreePC, in particular.
In January 2000, we acquired FreePC. We have experienced difficulties in
successfully integrating the additional personnel, operations, technology and
products of FreePC into our business. In particular the acquisition has placed
additional burdens on our existing financial and managerial controls and
reporting systems and procedures, and we have experienced difficulty in
retaining FreePC employees, including key personnel. Several of our officers
who joined us in connection with our acquisition of FreePC are no longer
working for us, including Donald S. LaVigne, who was our executive vice
president of strategy and business development and the former CEO of FreePC.
The acquisition of FreePC allowed us to extend our historical business as a
high-quality, low-priced PC provider to include integrated computing and
Internet advertising offerings. We may not, however, realize the expected
benefits from these offerings if we cannot successfully complete the
integration of FreePC.
We intend to continue to make investments in complementary companies,
products or technologies. If we buy a company, we could have difficulty in
integrating that company's personnel and operations. An acquired company's
employees, including key personnel, may decide not to work for us. If we make
other types of acquisitions, we could have difficulty integrating the acquired
technology or products into our operations. These difficulties could disrupt
our ongoing business, distract our management and employees and increase our
expenses. We may increase our debt or dilute our existing stockholders if we
issue equity securities to pay for future acquisitions.
If we do not maintain our reputation and expand our name recognition, we may
lose consumer and advertising customers.
Developing and maintaining awareness of our "eMachines" brand name is
critical to achieving widespread acceptance of our computing and Internet
advertising offerings. Promotion and enhancement of our brand will depend
largely on whether we cost-effectively provide reliable and desired products
and services to
6
<PAGE>
consumers and advertisers and the effectiveness of our marketing efforts.
Currently, retailers are our first points of contact with consumers. If these
retailers reduce or cease advertising our products, we may need to increase our
own sales and marketing expenses to create and maintain brand awareness among
potential consumers. If consumers do not perceive our products to be of high
quality, our brand name and reputation could be significantly harmed. If
advertisers do not perceive our reputation among consumers to be good, they may
not be willing to pay as much for our services. The importance of brand
recognition will increase as competition in the PC and Internet advertising
markets increases. If we fail to successfully promote our brand name, we may
lose PC and Internet advertising sales. We may incur significant expenses
promoting and maintaining our brand name.
If we do not continually introduce new products and services to keep pace
with rapid technological change, we may not be competitive and could experience
a decline in sales and loss of market share.
The PC and Internet advertising markets are both characterized by rapid
ongoing technological change, changes in user requirements and preferences,
frequent new service introductions embodying new processes and technologies and
evolving industry standards and practices that could render our existing
products and services obsolete. We must regularly introduce new products,
including new PC configurations, and enhanced Internet services to maintain
retailer, consumer and advertiser interest in our products and services. Any
new PC or other Internet access devices or Internet services that we introduce
may not be successful. We have announced an alliance with Microsoft under which
we will sell an Internet access device during the fourth quarter of 2000. The
success of this product is uncertain. In addition, the successful introduction
of new products or services by our competitors or us may significantly harm the
sale of, or gross margins on, our existing products or services. We may not be
able to quickly adapt to future changes in the PC and Internet access device
industry, in particular, because we do not maintain a PC or Internet access
device research and development group. Currently, we work closely with certain
of our suppliers, including TriGem Computer, one of our principal stockholders
and the manufacturer of all of our eTower and eMonster PCs, to evaluate the
latest developments in PC-related technology. If we do not have access to new
technology in the future, we may not be able to successfully incorporate new
technology into our products or deliver new products or features in a timely
and cost-effective manner.
We are involved in litigation that may be costly and time-consuming.
In July 1999, Compaq Computer Corporation filed a complaint against us,
TriGem Computer, TriGem America and Korea Data Systems as defendants in the
U.S. District Court for the Southern District of Texas based on the defendants'
alleged infringement of 13 patents held by Compaq related to improved system
processing speed, enhanced video graphics, peripheral compatibility and overall
system architecture. The complaint seeks an accounting, treble damages, a
preliminary and permanent injunction from further alleged infringement,
attorneys' fees and other unspecified damages. We filed a response in September
1999, seeking declaratory judgment of noninfringement and invalidity of
Compaq's patents and asserting counterclaims against Compaq that included false
and misleading advertising under the Lanham Act, business disparagement and
unfair competition under Texas common law. Discovery in this case is
progressing. We are currently unable to estimate total expenses, possible loss
or range of loss that may be ultimately connected with these allegations. We
are indemnified against liability under the terms of our PC supply agreement.
We cannot assure you that Compaq will not succeed in obtaining monetary damages
or an injunction against the production of our PC products. Our defense of the
claims could result in significant expenses and diversion of management's
attention and other resources. Although we believe our direct financial
exposure is limited under our indemnification arrangements, the results of
complex litigation of this sort are inherently uncertain and difficult to
predict, and we cannot guarantee that the results of this litigation will not
significantly harm our business, particularly if the results affect production
of our PCs.
Packard Bell filed a complaint on October 6, 1999 in the U.S. District Court
for the Eastern District of California, alleging patent infringement of Packard
Bell patents that it asserts relate to the (i) graphics controller, (ii)
parallel port controller, and (iii) bus interface of our eTower machine. We
filed a response in
7
<PAGE>
January 2000 disputing infringement and asserting that the patents at issue are
invalid. The Court granted NEC's motion to amend the complaint in September
2000 to add an additional claim of patent infringement against the now-
discontinued eSlate related to a sleep mode feature for laptop computers. We
are in the early stages of discovery. As a result, we are currently unable to
estimate total expenses, possible loss or range of loss that may be ultimately
connected with these allegations. We are indemnified against liability under
the terms of our PC supply agreement. We cannot assure you that Packard Bell
will not succeed in obtaining monetary damages or an injunction against the
production of our PC products. Our defense of the claims could result in
significant expenses and diversion of management's attention and other
resources. Although we believe our direct financial exposure is limited under
our indemnification arrangements, the results of complex litigation of this
sort are inherently uncertain and difficult to predict, and we cannot guarantee
that the results of this litigation will not significantly harm our business,
particularly if the results affect production of our PCs.
In October 1999, David Packard, on behalf of a putative nationwide class,
filed a complaint against us as a defendant in the U.S. District Court for the
Eastern District of Texas based on our alleged sale of defective goods.
Essentially identical complaints were filed contemporaneously against Compaq,
Hewlett-Packard and Packard Bell. The complaints claim that a chip in the
defendants' respective PC products contains a defect that may cause an error to
occur when information is written to a floppy disk. The complaint seeks
unspecified monetary damages, injunctive relief and declaratory relief. The
lawsuit against us is in the early stages and we have not yet filed a response.
Although we believe that we have meritorious defenses and intend to vigorously
defend ourselves in this action, this type of litigation is inherently complex
and unpredictable. We cannot assure you that the suit will not succeed in
obtaining unspecified monetary damages, injunctive or declaratory relief
against the production of our PC products. Our defense of the claims could
result in significant expenses and diversion of management's attention and
other resources. We cannot guarantee that the results of this litigation will
not significantly harm our business.
On September 27, 2000 Monster Cable Products, Inc. filed a complaint against
us in the U.S. District Court for the Northern District of California. The
complaint alleges trademark infringement and dilution and unfair competition
arising out of our use of the mark "EMONSTER". Monster Cable Products is
seeking monetary damages and injunctive relief. Our response to the complaint
is due November 15, 2000. Although we believe that we have meritorious defenses
and intend to defend ourselves vigorously in this action, given the early stage
of this litigation and the inherent uncertainty of any litigation, we cannot
assure you that our defense will be successful. Our defense of the claims could
result in significant expenses and diversion of management's attention and
other resources. We cannot guarantee that the results of this litigation will
not significantly harm our business.
Various other lawsuits, claims and proceedings have been or may be asserted
against us, including those related to product liability, intellectual
property, Internet content, privacy, safety and health and employment matters.
Litigation is expensive and time consuming regardless of the merits of the
claim and could divert management's attention from our business. We cannot
predict the outcome of any litigation. Some lawsuits, claims or proceedings may
be disposed of unfavorably to us, and we may incur significant costs defending
ourselves.
We may not be able to compete effectively if we are not able to protect our
intellectual property.
We rely on a combination of trademark, trade secret, patent and copyright
law and contractual restrictions to protect our intellectual property. E-
MACHINES is our registered trademark in the United States. We have also applied
to register several trademarks including eMachines and the "E" logo in the
United States. We have also applied to register marks in the European
Community, the United Kingdom, Argentina, Brazil, Chile, Colombia, Venezuela,
Japan, Taiwan, China, Canada and Mexico. We also have a United States patent
application currently pending. If we are not successful in obtaining the patent
protection we seek, our competitors may be able to replicate our ad
optimization technology and compete more effectively against us. The legal
protections described above, even if successful, would afford only limited
protection. Unauthorized parties may attempt to copy aspects of our products,
services, or otherwise attempt to obtain and use our intellectual property.
Enforcement of trademark rights against unauthorized use, particularly over the
Internet
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and in other countries, may be impractical or impossible and could generate
confusion and diminish the value of the mark. Litigation may be necessary to
enforce our intellectual property rights, to protect our trade secrets and to
determine the validity and scope of the proprietary rights of others. Any
litigation could result in substantial costs and diversion of our resources and
could seriously harm our business and operating results. Our inability to
protect our intellectual property may harm our business and financial
prospects.
Products that contain, or are rumored to contain, defects could result in
significant costs to us, decreased sales of our products, damage to our brand
and lawsuits.
The design and production of PC components is highly complex. Because we do
not design or produce our own PC products, we must rely on suppliers and
component manufacturers to provide us with high-quality products. If any of our
PC products contain defective components, we could experience delays in
shipment of these products and increased costs. The design of software is
highly complex, and software often contains defects that may be undiscovered
for long periods of time. If we or our software suppliers who have bundled
their software on our computers are not successful in designing this software,
or if defects in our or our software suppliers' software or in our PC products
are discovered after we have shipped the affected software or PC products in
volume, we could be harmed in the following ways:
. upgrades, replacements or recalls could impose substantial costs on us;
. rumors, false or otherwise, could be circulated by the press and other
media, which could cause a decrease in sales of our products and
significant damage to our brand; and
. our PC buyers could file suits against us alleging damages caused by
defective products.
For example, in October 1999, David Packard, on behalf of a putative
nationwide class, filed complaints against us, Hewlett-Packard and Compaq in
the U.S. District Court for the Eastern District of Texas based on the alleged
sale of defective goods. The complaint alleges that a chip in the respective
defendants' PC products contains a defect that causes an error to occur when
information is written to a floppy disk. For a discussion of these complaints
and the risks associated with the lawsuit against us, see the risk factor "We
are involved in litigation that may be costly and time-consuming" above.
If demand for Internet access devices, in general, and PCs, in particular,
does not continue to grow, we could have excessive inventories that could
result in write-offs.
The future success of our business model depends on the continued strong
demand for Internet access devices, generally, and for PCs, in particular.
Although we currently focus our efforts on high-quality, low-priced PC
products, we expect consumer demand for more powerful PCs and other Internet
access devices to increase with advances in technology and declines in prices.
To meet these demands, we must successfully gauge the level and timing of
consumer demand for PCs and other Internet access devices and match the supply
of each. The PC and Internet access device markets are characterized by rapid
new product and technology introductions and generally declining prices for
existing products. Demand for PCs and other Internet access devices might be
significantly reduced if consumers perceive little technological advantage in
new products or believe that the price of a new product is not worth the
perceived technical advantage. Further, if consumers view anticipated changes
as significant, such as the introduction of a new operating system or
microprocessor architecture, overall market demand for PCs and other Internet
access devices may decline because potential consumers may postpone their
purchases until release of the new product or in anticipation of lower prices
on existing products following the introduction of new models. Reduced demand
could result in excessive inventories that could lead to write-offs of some or
all of the excess inventories and could take several quarters to correct.
The success of our Internet access device is uncertain.
We have announced an alliance with Microsoft for us to sell an Internet
access device beginning in the fourth quarter of 2000 and we have entered into
supply and other agreements in connection with this device.
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The success of this device and other similar devices that we may sell in the
future is uncertain and depends on many factors, including, among others:
. The success and duration of our alliance with Microsoft and other
alliances into which we may enter in the future with respect to our
Internet access device;
. the success and continuation of efforts to promote our Internet access
device;
. Microsoft's and other potential partners' willingness to provide rebates
to the purchasers of our Internet access device;
. our purchasers' willingness to enter into contracts with and pay ISPs in
order to receive rebates; and
. the competitiveness of the price and features of our Internet access
device versus similar products from competing manufacturers.
We cannot assure you that we will be able to enter the Internet access
device market successfully or that if we enter the market successfully, our
efforts will be met with consumer acceptance.
Risks Principally Related to Our Internet Business
The Internet advertising market is new and unproven and may not continue to
develop.
The Internet has not been used as an advertising medium for a sufficient
period of time to demonstrate its effectiveness. Our business would be
adversely affected if the Internet advertising market fails to develop. Most of
our current or potential advertising customers have not devoted a significant
portion of their advertising expenditures to Internet advertising and may not
find Internet advertising to be effective for promoting their products and
services relative to advertising using traditional media.
Currently, there are no widely accepted standards for measuring the
effectiveness of Internet advertising. We cannot be certain that such standards
will develop to sufficiently support Internet advertising as a significant
advertising medium. Advertisers may not accept our or third-party measurements
of impressions or click-throughs on Web sites using our services. The
effectiveness of Internet advertising depends on the accuracy of information
contained in the databases used to target advertisements. We cannot be certain
that the information in our databases will be accurate or that advertisers will
be willing to have advertisements targeted by any database containing such
potential inaccuracies. Actual or perceived ineffectiveness of online
advertising in general, or the actual or perceived inaccuracy of measurements
or database information in particular, could limit the long-term growth of
online advertising.
The advertising links that we provide using our hot-key-enabled keyboards
and client software and the banner advertisements that we serve may not be
effective advertising methods. Other forms of Internet advertising may be more
effective or gain wider acceptance; nonetheless, we may not be able to take
advantage of these other forms of advertising. Moreover, "filter" software
programs that limit advertising from being delivered to a user's computer are
currently available. The Internet advertising market and our business could be
adversely affected if use of filter software becomes widespread.
Adoption of online direct marketing, particularly by those entities that
have historically relied upon traditional means of direct marketing, such as
telemarketing and direct mail, requires the broad acceptance of a new and
substantially different approach to direct marketing. Intensive marketing and
sales efforts may be necessary to educate prospective advertisers regarding the
uses and benefits of our direct marketing services to generate demand for such
services. Enterprises may be reluctant or slow to adopt new approaches that may
replace, limit, or compete with their existing systems. In addition, since
online direct marketing is emerging as a new and distinct market apart from
online advertising, potential adopters of online direct marketing services will
increasingly demand functionality tailored to their specific requirements.
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Our ability to generate Internet-based revenues is unproven and we may
never achieve profitability in our Internet business.
We first began bundling the eWare desktop client software with our PCs
during December 1999 and did not begin production of our first keyboard with
Internet hot-keys until January 2000. Given our limited history offering these
Internet-based services, evaluating our performance is difficult. Although
FreePC had relationships with a large number of advertisers, our business
model is significantly different than FreePC's, and many of these advertisers
have stopped doing business with us since we have discontinued distributing
free computers and providing free Internet access service. You should consider
the uncertainties that we may encounter as we develop our Internet business in
this rapidly evolving market, such as:
. consumer demand for, and acceptance of, our eWare Internet client and
hot-key-enabled keyboards;
. our ability to create user-friendly applications that appeal to
consumers;
. our ability to contract with content providers who will furnish
information that our users find attractive;
. our ability to support a large number of users;
. our ability to anticipate and adapt to a developing market and to
rapidly changing technologies;
. our unproven and evolving business model, which may not prove to be
attractive to Internet partners; and
. our need to expand significantly our internal resources to support
growth of our product and service offerings.
If we cannot successfully address these issues, we will be unable to expand
our Internet business, compete effectively or achieve profitability in the
Internet segment of our business.
Our Internet-based revenues will suffer if consumers do not use the hot-
keys, desktop client software and other Internet-related services that we
provide them.
We expect to generate future revenues from sources such as Internet
advertising, sponsorships, e-commerce and Internet application services. The
success of our Internet operations depends upon the use by our consumers of
the hot-keys on our keyboards and our desktop client software to reach
selected advertisers' Web sites. Many of our potential consumers have never
purchased Internet access service, used the Internet, e-mail or other
Internet-based applications or engaged in e-commerce transactions. Potential
users must use our desktop client software and hot-keys as part of their
Internet and e-commerce experience for us to receive recurring Internet
revenues. Because these keys and the menu bar have only been operational for a
limited period of time and because they are new methods of accessing Web sites
and Internet-based services, whether enough users of our PCs will use these
features to create a sufficiently large audience to attract advertisers is
uncertain. Use of the hot-keys and our desktop client software depends on the
appeal to our consumers of the linked Web sites. Some of our current and
future advertisers may not want to do business with us if our Internet-based
services do not prove to be effective for them. We rely on market research to
determine the categories of products and services in which consumers are
likely to be interested. Should our reliance on this research prove to be
misguided, we may fail to select relevant categories of interest to consumers
or fail to adequately provide links to superior content within these
categories. In addition, we have no control over the experience that our
consumers have while visiting these Web sites. Consumers who are not satisfied
with their experience may decide not to use our hot-keys or desktop client
software. Should this occur, our ability to generate advertising revenue will
be significantly harmed.
We face risks related to expanding into new services and business areas, in
particular, e-commerce.
To increase our revenues, we will need to expand our operations by
promoting new or complementary products and by expanding the breadth and depth
of our services. Specifically, our future success will depend,
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in part, on obtaining revenues from the facilitation of e-commerce transactions
with online and traditional retailers. The market for e-commerce services is
extremely competitive. Because we have limited experience in this market, we
may have limited success. If we expand our operations in this manner, we will
require significant resources for additional development and such expansion may
strain our management, financial and operational resources. Our expansion into
new product and service offerings may not be timely or may not generate
sufficient revenues to offset their cost. If this occurs, our business will be
seriously harmed.
If we are unable to compete successfully for users, we could experience a
loss of revenues and market share.
The markets for PCs, Internet appliances and Internet advertising are
intensely competitive, evolving and subject to rapid technological change.
These markets are characterized by an increasing number of entrants. We compete
for users, and consequently for potential electronic commerce and advertising
revenue, directly or indirectly, with the following categories of competitors:
. vendors of personal computers, such as Apple, Compaq, Dell, Gateway,
Hewlett-Packard and IBM;
. vendors of stand-alone Internet appliances, such as InfoGear, Netpliance
and WebTV, as well as other PC manufacturers who have or may be entering
into the Internet appliance market;
. Internet service providers, such as America Online, EarthLink,
Mindspring, Microsoft and NetZero;
. Internet portals, such as Excite@Home, Lycos and Yahoo!; and
. providers of Internet advertising services, such as 24/7 Media,
DoubleClick and Engage Technologies.
Virtually all of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, significantly greater name recognition and a substantially larger
installed base of customers than we do. In addition, many of our competitors
have nationally known brands or well-established relationships and have
extensive knowledge of our industry. Moreover, our current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products to
address consumer needs or to combine hardware product and Internet service
offerings.
If we are unable to sell America Online's Internet access services to our PC
buyers, our revenues and profits would be reduced.
Our future success depends, in part, on our ability to sell Internet access
services to our PC buyers. The PC industry and the Internet industry are
currently evolving and converging. We believe that this convergence will result
in the PC becoming the Internet appliance that attracts consumers to enter into
multi-year Internet access service contracts. In addition, since we receive
bounty payments and other revenues from America Online depending on the service
our PC buyers choose, our business would be harmed if the reputation of America
Online or the popularity of America Online's AOL Classic or CompuServe 2000
suffer and a significant number of buyers do not also purchase Internet access
service from America Online. If Internet access services fees decline
significantly or become free, an ISP rebate program would be unattractive to
consumers and our revenues and profits would be reduced.
Our future growth depends on the continued use of the Internet.
We believe a significant number of our PC buyers are purchasing our products
and services as a means of connecting to the Internet. As a result, our success
substantially depends upon continued growth in Internet use. The adoption of
the Internet medium for commerce and communications generally requires the
understanding and acceptance of a new way of purchasing goods and exchanging
information. The use and acceptance of the Internet may not increase for a
number of other reasons, including the following:
. actual or perceived lack of security of information, such as credit card
numbers, which are transmitted over the Internet;
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. high cost or lack of availability of access;
. congestion or traffic or other usage delays on the Internet;
. inconsistent quality of service;
. possible outages due to damage to the Internet;
. uncertainty regarding intellectual property ownership; and
. government regulation of the Internet.
Capacity constraints caused by growth in the use of the Internet may impede
further development of the Internet to the extent that users experience delays,
transmission errors and other difficulties. If the necessary infrastructure,
products, services or facilities are not developed to mitigate the effects of
these factors, or if the Internet does not become a viable and widely used
commercial and communication medium, our products and services would be less
attractive and our future growth would be impaired.
If software we develop or software developed by, or licensed from, third
parties, has any unanticipated defects or becomes unavailable, we could
experience service interruptions that could increase our repair costs or reduce
our revenues.
We have developed and are further developing two-way client software as well
as other applications that will be bundled with our PCs. Some of our Internet-
based services rely on software provided by third parties that is bundled with
our PCs. We have no control over the quality of this software or, in the case
of eWare, whether this software will be available to our users on a continuous
basis. If eWare is not available to our users, we may experience, among other
things, increased technical support costs and decreased Internet advertising
revenues, which could have a negative impact on our results of operations. Our
software and this third-party supplied software may contain undetected errors,
defects or bugs. These defects could cause service interruptions that could
damage our reputation or increase our product repair costs, prevent us from
delivering advertisements, cause us to lose revenue, delay market acceptance of
our Internet-based services or divert our development resources, any of which
could cause our business to suffer. If these problems cannot be fixed in a
timely manner, we may be unable to fulfill our obligations to our advertising
customers, which could significantly harm our business.
Our servers are located at a single site and, in the event of a natural
disaster, our client software would not operate.
We depend on the efficient and uninterrupted operations of our Web servers
and other hardware systems. Our Web servers and other hardware systems are
located in Sunnyvale, California. Our Web servers and other hardware systems
are vulnerable to damage from earthquakes, fire, floods, power loss,
telecommunications failures, and similar events. If any of these events result
in damage to our Web servers or other hardware systems, we may be unable to
deliver Internet advertising and other related Internet services for our
customers until the damage is repaired. If this occurs, we may lose customers,
users of our client software and revenue, and may incur substantial costs in
repairing any damage.
Online security breaches could result in a loss of consumer confidence in e-
commerce, which could lessen our ability to implement our business strategy.
Because many of our advertisers encourage people to use the Internet to
purchase goods and services, our business could be seriously harmed if Internet
users reduce their use of the Internet because of security concerns. We
currently ask consumers to provide us with registration and other information,
and we rely on encryption and authentication technology to securely transmit
this confidential information. A party that is able to circumvent the security
of our server systems could steal proprietary information or cause
interruptions in our operations. Our efforts to protect our server systems may
not be successful. Any well-publicized
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compromise of confidential information, whether during the transmission of data
or while it is stored on our servers, could damage our reputation, expose us to
a risk of loss, litigation or liability, and deter people from using the
Internet. Our insurance policies may not be adequate to reimburse us for losses
caused by security breaches.
We could be exposed to liability or increased costs if new case law is
decided, or new government regulation is enacted, regarding the Internet.
The law relating to our Internet business and operations is evolving, and no
clear legal precedents have been established. For example, tax authorities in a
number of states are currently reviewing the appropriate tax treatment of
companies engaged in e-commerce, and new state tax regulations may subject us
to additional state sales or other taxes. The adoption of any new Internet laws
and regulations or the application of existing laws and regulations to the
Internet and e-commerce could decrease the demand for our products and services
or increase the cost of doing business. The applicability to the Internet of
existing laws in various jurisdictions governing issues such as property
ownership, sales and other taxes, libel and personal privacy is uncertain and
may take years to resolve. If we were alleged to have violated federal, state
or foreign civil or criminal law, even if we could successfully defend such
claims, such allegations could occupy significant amounts of management's time,
harm our business reputation and negatively affect our operating results and
financial condition.
Risks Principally Related to Our PC Business
Because our business depends on outsourcing a substantial portion of our PC
operations, if we were unable to do so in the future, we could incur
significantly higher costs which would reduce our revenues and our profits.
Historically, we have had relatively low manufacturing and operating costs
because we outsource most of our operating and manufacturing functions,
including system assembly, warehouse labor, distribution, research, product
design, warranty services and customer support. We have had relatively low
distribution costs because we distribute our products primarily through a
limited number of large retailers. We may not be successful in managing our
relationships with any of these third parties, and if existing third-party
suppliers cannot provide these services at commercially reasonable prices, or
at all, and we are not able to find suitable alternative suppliers, our
business would be significantly harmed. For example, we recently transitioned
our customer support functions to a new vendor. If we cannot successfully
transition these operations, or if the new vendor cannot provide the level of
service we require, our business may be harmed. Moreover, we may not be able to
monitor or control effectively the quality of the PCs and monitors manufactured
by our suppliers. Low-quality products, poor customer service, or similar
inadequacies may harm our brand name, which would reduce our revenues and
profits.
Because we currently depend solely on one manufacturer for our PCs and one
manufacturer for our monitors, if supply is reduced or discontinued, our growth
rate would decline which would harm our business and financial results.
TriGem Computer currently manufactures all of our PCs pursuant to a supply
agreement. We currently purchase all of our monitors from a different
manufacturer pursuant to a supply agreement. We have no obligation to order,
take minimum delivery or purchase products at pre-negotiated prices from TriGem
Computer or our monitor manufacturer. Our suppliers are currently operating
below full capacity, but may operate at full capacity in the future. In order
to meet anticipated demand for our products and the products of other
customers, TriGem Computer currently utilizes an outsourcing manufacturing
contractor in Xiamen, China, to manufacture some of our low priced PC models
and its wholly-owned facility, in Shenyang, China, to manufacture our other
PCs. Both facilities are final-assembly plants with production capacity of
approximately 250,000 PC units per month. TriGem anticipates opening an
additional factory in Korea later this year, with
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expected additional capacity of approximately 200,000 PC units per month. Under
the terms of our supply agreements, TriGem Computer and our monitor
manufacturer have agreed to reserve a portion of their manufacturing capacity
at their facilities to meet our supply requirements. Some of the terms of our
supply agreements with TriGem Computer and our monitor manufacturer are subject
to periodic adjustment and there can be no assurance that renegotiation of
those terms will be favorable to us or that such renegotiation will not have a
negative impact on our results of operations. TriGem Computer and our monitor
manufacturer provide other vendors with PCs and monitors. As a result, we may
not benefit from any increased production capacity. If we are unable to obtain
a sufficient supply of PCs or monitors to meet the demand for our products, our
growth rate would decline, which could reduce our sales, revenue and market
share.
In the future, we plan to establish supply relationships with other PC and
monitor manufacturers. We recently entered into a supply agreement for the
manufacture of our Internet access device and a supply agreement for the
manufacture of our monitors. There can be no assurances that we will be able to
enter into supply or other agreements on terms acceptable to us with other
manufacturers to provide us with PCs and monitors.
Our suppliers depend on a limited number of key suppliers for
microprocessors and other components used in our products.
Our suppliers generally use standard parts and components available from a
number of vendors. However, our suppliers are dependent on Intel Corporation
and Advanced Micro Devices, Inc. for their supply of microprocessors. If our
suppliers are unable to obtain sufficient quantities of microprocessors from
Intel or Advanced Micro Devices, or if these companies stop producing
microprocessors that meet our needs, our suppliers could experience increases
in component costs or delays in product shipments that would significantly harm
our business. Even where multiple vendors are available, our suppliers'
strategy has been to concentrate purchases from a single source to obtain
favorable pricing. Our profit margins may decline and our business would be
significantly harmed if supply shortages led to price increases or production
delays for our products.
Because average selling prices of PCs decline rapidly, if we fail to
properly manage our inventory, we may be unable to meet consumer demand or we
could have excess inventories.
The average selling prices of PCs are subject to rapid declines. To address
the problems created by excess inventory in the face of rapid price decreases,
PC vendors must carefully manage their inventory. Additionally, due to our
narrow margins, we must manage our inventory more efficiently than traditional
PC vendors. From time to time in the past, our inventory has been limited by
the capacity of our manufacturers and may be limited in the future. We may be
unsuccessful in managing the supply of our PCs and monitors to meet demand in
the future. Our business is dependent on our ability to quickly sell our PC
products through the retail channel. We must carefully monitor market demand
for, and supply of, our products in an effort to match supply to consumer
demand. If we overestimate the supply needed to meet consumer demand, we could
have excess inventory and may need to liquidate such inventory, either of which
could have a material impact on our financial results. For example, due to
adverse market conditions in the second quarter of 2000, we determined that the
cost of certain of our inventory was in excess of market value and wrote down
this inventory by $21.6 million. Conversely. if we underestimate needed supply
or otherwise maintain too little inventory, we may not be able to react quickly
to sudden increases in market demand for a given product.
Retailers generally have the right to return a portion of excess inventory
purchased in the prior quarter within a limited period of time. Increased
inventory levels in our distribution channels, whether due to a decrease in
consumer demand for our products, lower-than-anticipated demand for PCs in
general, problems in managing product transitions or component pricing
movements could significantly harm our profitability. Production delays at the
beginning of a new PC product cycle could affect our sales of newer products
and how we manage the sale of older PC product inventory held by retailers. If
we are unable to sell our aging products at anticipated prices, our margins
would be reduced. In managing our supply chain, we must accurately forecast
consumer demand for our products.
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The international operations of our suppliers of PCs and monitors expose us
to currency, trade, regulatory, political and other risks.
All of our PCs and monitors are currently being manufactured in Korea,
China, Taiwan and Malaysia. Our current and potential future international
suppliers' operations, and in turn our operating results, are subject to a
number of risks associated with international operations including:
. fluctuations in currency values;
. export duties, import controls and trade barriers;
. restrictions on the transfer of funds;
. the ability of our international suppliers to timely deliver products to
us and to Dixons, which could be affected by, among other things,
adverse weather conditions and shortages of containers.
. political and economic instability; and
. compliance with foreign laws.
Our success depends on our ability to compete successfully in the PC
industry.
The PC industry is highly competitive and we expect this competition to
increase significantly, particularly in the low-priced PC market. We have been
able to gain market share by selling high-quality PCs at prices significantly
lower than those offered by established PC vendors. We expect pricing
pressures in the PC market to continue, particularly as more vendors combine
Internet access with the purchase of a PC. PC vendors may continue to reduce
their prices to compete with us at our low price points. Large PC vendors such
as Compaq, Gateway, Hewlett-Packard and IBM have significantly greater
financial, marketing and technical resources than we do and may decide to
accept lower margins or losses on a sustained basis on their low-priced PC
sales to regain market share. The introduction of low-priced PCs combined with
the brand strength, extensive distribution channels and financial resources of
the larger PC vendors may cause us to lose market share.
Most major PC vendors have begun to offer Internet access services. Some PC
vendors are trying to increase their sales of higher-priced PCs by offering
additional services, such as free Internet access for a limited period of
time. In addition, other PC vendors are adopting programs similar to ours that
rebate a portion of the purchase price of PCs in exchange for entering into
multi-year Internet access service contracts. There are relatively few
barriers preventing competitors from entering this market. As a result, new
market entrants pose a threat to our business. We do not own any patented
technology that precludes or inhibits competitors from entering the low-priced
PC market. Existing or future competitors may develop or offer products or
services that are comparable or superior to ours at a lower price, which could
erode our competitive position. For example, in the last quarter of 1999 one
retailer began offering its own branded, low-priced PCs in conjunction with
Internet access service from America Online. Our PC and monitor suppliers have
only limited obligations to meet our demand for products and can divert some
or all of their output to others, including our competitors, or sell directly
to the retail channel. If any of these events were to occur, our market share
could be reduced unless we were able to successfully compete with these
parties and source high quality PCs and monitors from other low-cost
manufacturers.
The future of our PC business depends on PCs remaining the predominant
Internet access device.
The future of our PC business depends on PCs remaining the predominant
Internet access device. Internet services are currently accessed primarily by
PCs. However, television set-top boxes, hand-held products and other non-PC
devices may increasingly be used to access the Internet. Television set-top
boxes equipped with modems and cable modems allow users to transmit data at
substantially faster speeds than the analog modems currently incorporated in
our PCs. If consumers prefer this or any other alternative devices to PCs to
access the Internet, sales of our PCs may slow. We plan to enter these markets
by introducing our own non-PC devices to access the Internet or by forming
relationships with companies that manufacture and/or sell such devices. There
can be no assurance that such efforts will be successful or that our efforts
will be met with consumer acceptance.
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Because we depend on licenses of intellectual property from third parties to
produce our PC products, the loss of any of these licenses would significantly
harm our financial results.
We are required to obtain licenses from software providers in order to
market and sell our products and services. We currently pre-install Windows
Millenium and Microsoft Works on our PCs pursuant to a license with Microsoft.
However, if we are unable to maintain these licenses, or obtain the necessary
licenses in the future, we may be forced to market products without these
technological features or software. We may also be forced to discontinue sales
of our products that incorporate allegedly protected technology for which we
have no license or defend legal actions taken against us relating to our use of
the allegedly protected technology. Our inability to obtain licenses on
competitive terms necessary to sell our PCs at a profit would significantly
harm our financial results.
Because we depend on a limited number of large retailers for a significant
portion of our revenues, the loss of any of these retailers could significantly
harm our financial results.
We depend substantially on retailers to sell our PCs and monitors. Since
inception, we have derived a significant portion of our gross revenues from
sales of our PCs and monitors to a limited number of large retailers. For the
six months ended July 1, 2000, approximately 54.8% of our gross revenues were
from sales of PCs and monitors to Best Buy, Office Depot and Circuit City, our
three largest retail customers. For the nine months ended September 30, 2000,
approximately 56.8% of our gross revenues were from sales of PCs and monitors
to Best Buy, Office Depot, and Circuit City, our three largest retail
customers. We expect to continue to derive a large percentage of our gross
revenues from sales of PCs and monitors to a limited number of leading
retailers. However, our retail customers are not contractually committed to
future purchases of our products and could discontinue carrying our products at
any time. In addition, we compete with an increasing number of companies for
access to limited shelf space with these retailers. Generally, these retailers
limit the number of PC brands they carry and may stop carrying our PCs at any
time. Any significant disruption of our relationship with any of our major
retailers, any significant reduction in purchases by them or any significant
delays in payments by them, could affect our ability to generate revenues or
results of operations.
If we are unable to monitor and manage our product rebate programs, our
revenues could decrease.
We currently offer product rebates to buyers of our PCs. We have limited
historical data to assist us in determining what percentage of consumers will
claim these product rebates. At the same time, we must approximate future
product rebate redemptions in order to price our products effectively. If an
unexpectedly large number of our PC buyers redeemed the product rebates to
which they were entitled, the effective average selling price of our products
would be reduced below the level we anticipated and our revenues would
decrease.
We rely on the availability of rebates offered by Internet service providers
to sell our PCs, and if such rebates are discontinued, our sales could
decrease.
To help sell PCs, we rely on the availability of rebates offered by Internet
service providers to purchasers of new computers who subscribe for their
Internet access services. These rebates reduce the effective price of our PC
models, making them more affordable for consumers. If these rebates were
discontinued, the effective prices of our PCs would increase, which likely
would reduce sales of our PCs. A significant decrease in sales of PCs would
harm our business.
We have announced that we will be selling our PCs in Europe through an
alliance with Dixons. Our expansion into international markets or our alliance
with Dixons may not prove to be successful.
An important element of our strategy is to expand our operations into
international markets. To this effect, we entered into an alliance with Dixons,
a European consumer electronics retailer, during the second quarter of 2000.
International sales through our relationship with Dixons began in the third
quarter of 2000 and are
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expected to account for an increasing percentage of our revenues over the
foreseeable future. We have no experience in marketing, selling and
distributing our services internationally. International sales are subject to
certain inherent risks, including unexpected changes in regulatory requirements
and tariffs, difficulties in managing foreign operations, longer payment
cycles, problems in collecting accounts receivable and potentially adverse tax
consequences.
Because our international sales are made through an alliance with Dixons,
such sales will depend on Dixons' ability to distribute and market our products
and our ability to manage our relationship with Dixons. This strategic alliance
will not be considered a success if it does not generate a significant amount
of PC sales in Europe and does not expand our business internationally.
Moreover, this relationship may adversely affect our ability to enter into
agreements with other potential distributors in Europe. Finally, if we become
dependent on Dixons for distribution of our products in Europe and, if our
relationship with Dixons terminates, we may not be able to find distributors to
replace Dixons in those markets. To the extent that we are unable to
expand international sales in a timely and cost-effective manner, our business
could be harmed and we cannot assure you that we will be able to expand
internationally. Further, our international expansion will depend, in part, on
the acceptance of the Internet abroad.
Because our international sales are expected to be denominated in U.S.
dollars, the strengthening of the U.S. dollar relative to the currencies of
other countries into which we sell our products and services could make our
products and services relatively more expensive, thereby decreasing the price-
competitiveness of our products and services.
Risks Related to Our Common Stock
Our principal stockholders can exercise a controlling influence over our
business and affairs.
Our four principal stockholders, TriGem Corporation, Korea Data Systems
America, Stephen A. Dukker and Bill Gross and his affiliated entities,
beneficially owned approximately 58% of our common stock as of September 30,
2000. If these stockholders acted or voted together, they would have the power
to elect our directors and to exercise a controlling influence over our
business and affairs. In addition, this concentration of ownership could
prevent a change in control that might otherwise be beneficial to our
stockholders.
We may have potential conflicts of interest with our principal stockholders
that could be resolved in a manner that is inconsistent with other
stockholders' interests.
Conflicts of interest may arise between us and our principal stockholders in
a number of areas relating to our present and ongoing relationships, which
could be resolved in a manner that is inconsistent with our other stockholders'
interests.
Substantial future sales of our common stock in the public market may
depress our stock price.
Our current stockholders hold a substantial number of shares of our common
stock that they will be able to sell in the public market in the future. Sales
of a substantial number of shares of our common stock in the future could cause
our stock price to fall. The sale of these shares could impair our ability to
raise capital through the sale of additional stock.
Our charter documents and Delaware law could make it more difficult for a
third party to acquire us and discourage a takeover.
Our certificate of incorporation and bylaws are designed to make it
difficult for a third party to acquire control of us, even if a change in
control would be beneficial to stockholders. As a Delaware corporation, we are
also subject to the Delaware anti-takeover statute contained in Section 203 of
the Delaware General Corporation Law. These provisions could make it more
difficult for a third party to acquire us, even if doing so would be beneficial
to our stockholders.
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Our stock price may be volatile.
The market price for our common stock is likely to be highly volatile and
subject to wide fluctuations in response to factors including those set forth
in the items under "Risks That Could Affect Our Financial Condition and Results
of Operations." An active public market for our common stock may not develop or
be sustained. The stock markets in general, and The Nasdaq National Stock
Market and technology companies in particular, have experienced extreme price
and volume fluctuations that have often been unrelated or disproportionate to
the operating performance of such companies. These broad market and industry
factors may seriously impact the market price of our common stock, regardless
of our actual operating performance.
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<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that relate to future
events or our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"intend," "potential" or "continue" or the negative of such terms or other
comparable terminology. These forward-looking statements include, but are not
limited to, statements about our plans, objectives, expectations and intentions
and other statements contained in the prospectus that are not historical facts.
These statements are only predictions. We cannot guarantee future results,
levels of activity, performance or achievements. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of various factors, including the risk outlined under "Risk Factors" and
elsewhere in this prospectus.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares by the selling
stockholders.
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SELLING STOCKHOLDERS
All of the shares of common stock owned by the selling stockholders that are
being offered for resale were issued pursuant to our 1998 Amended and Restated
Stock Plan and the FreePC 1999 Stock Plan and the Guide.com 1998 Stock Option
Plan. Beneficial ownership calculations are determined in accordance with the
rules of the Securities and Exchange Commission and are based on 145,582,427
shares outstanding as of September 30, 2000. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options or warrants held by that person that
are presently exercisable or that will become exercisable within 60 days of
September 30, 2000 are deemed outstanding for such person, but are not treated
as outstanding for the purpose of computing the percentage ownership of any
other person. Until we satisfy the requirements for use of Form S-3, which we
anticipate will occur in March 2001, the volume limitations specified in Rule
144(e) under the Securities Act of 1933 concerning the amount of securities to
be offered by each selling stockholder, and any other person with whom the
selling stockholder is acting in concert for the purpose of selling eMachines
securities, during any three-month period will limit the number of shares that
the selling stockholder may sell using this prospectus hereunder. The following
table lists the names of the selling stockholders and the number of shares of
common stock to be sold by them pursuant to this prospectus.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
of Common Stock of Common Stock
Prior to Offering Number of Shares After Offering
---------------------- of Common Stock ----------------------
Selling Stockholders(1) Number Percent Offered Number Percent
----------------------- ----------- ---------- ---------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Audrey U. Finci (1)..... 95,750 * 5,148 90,602 *
Jim Mertz (2)........... 80,000 * 80,000 0 *
Celeste Wood (3) ....... 50,289 * 35,202 15,087 *
Larry Kleinberg (4)..... 47,146 * 33,002 14,144 *
Yekaterina T. Porter
(5).................... 25,145 * 17,601 7,544 *
Jeffrey W. Yoak (6)..... 21,452 * 15,016 6,436 *
David D. Conner (7)..... 20,430 * 14,301 6,129 *
Lisa M. Minneci (8)..... 15,716 * 11,001 4,715 *
Moise Garrett (9)....... 15,716 * 11,001 4,715 *
Richard Kennedy (10).... 15,714 * 11,000 4,714 *
Ryan S. Brewer (11)..... 12,572 * 8,800 3,772 *
Michael Paull (12)...... 12,571 * 8,800 3,771 *
Scottie V. Jack (13).... 9,429 * 6,600 2,829 *
Thomas R. Tileston
(14)................... 6,914 * 4,840 2,074 *
Tzung Yin Liu (15)...... 6,286 * 4,400 1,886 *
Anthony H. Payne, Jr.
(16)................... 4,243 * 2,970 1,273 *
James C. Christensen
(17)................... 3,929 * 2,750 1,179
Lynn B. Berryessa (18).. 3,143 * 2,200 943 *
Jeffrey Wayne Su (19)... 1,257 * 880 377 *
Frank Lin (20).......... 629 * 440 189 *
Rini Viajayan (21)...... 160 * 160 0 *
Traci Mostow (22)....... 160 * 160 0 *
Albert Richardson (23).. 157 * 110 47 *
</TABLE>
--------
* Less than 1%.
(1) Mrs. Finci was our executive vice president of operations from October
1999 until May 2000. Her number of shares beneficially owned includes
28,725 shares issuable upon exercise of warrants exercisable within
60 days of September 30, 2000
(2) Mr. Mertz was our vice president of operations from September 1998 until
August 2000.
(3) Ms. Wood was our director of legal affairs from June 1999 until June 2000.
Her number of shares beneficially owned includes 15,087 shares issuable
upon exercise of warrants exercisable within 60 days of September 30,
2000.
(4) Mr. Kleinberg was our director of finance from October 1999 until May
2000. His number of shares beneficially owned includes 14,144 shares
issuable upon exercise of warrants exercisable within 60 days of September
30, 2000.
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(5) Ms. Porter was our director of development from February 1999 until July
2000. Her number of shares beneficially owned includes 7,544 shares
issuable upon exercise of warrants exercisable within 60 days of September
30, 2000.
(6) Mr. Yoak was a programmer from March 1999 until April 2000. His number of
shares beneficially owned includes 6,436 shares issuable upon exercise of
warrants exercisable within 60 days of September 30, 2000.
(7) Mr. Conner was one of our MIS engineers from April 1999 until May 2000.
His number of shares beneficially owned includes 6,129 shares issuable
upon exercise of warrants exercisable within 60 days of September 30,
2000.
(8) Ms. Minneci was one of our marketing managers from April 1999 until May
2000. Her number of shares beneficially owned includes 4,715 shares
issuable upon exercise of warrants exercisable within 60 days of September
30, 2000.
(9) Mr. Garrett was our finance manager from April 1999 until July 2000. His
number of shares beneficially owned includes 4,715 shares issuable upon
exercise of warrants exercisable within 60 days of September 30, 2000.
(10) Mr. Kennedy was our director of human resources from April 1999 until May
2000. His number of shares beneficially owned includes 4,714 shares
issuable upon exercise of warrants exercisable within 60 days of September
30, 2000.
(11) Mr. Brewer was one of our account executives from March 1999 until April
2000. His number of shares beneficially owned includes 3,772 shares
issuable upon exercise of warrants exercisable within 60 days of September
30, 2000.
(12) Mr. Paull was our director of business development from July 1999 until
July 2000. His number of shares beneficially owned includes 3,771 shares
upon exercise of warrants exercisable within 60 days of September 30,
2000.
(13) Mr. Jack was our manager of telecom operations from July 1999 until March
2000. His number of shares beneficially owned includes 2,829 shares
issuable upon exercise of warrants exercisable within 60 days of September
30, 2000.
(14) Mr. Tileston was our director of data insight from September 1999 until
April 2000. His number of shares beneficially owned includes 2,074 shares
issuable upon exercise of warrants exercisable within 60 days of September
30, 2000.
(15) Mr. Liu was one of our senior software engineers from September 1999 until
March 2000. His number of shares beneficially owned includes 1,886 shares
issuable upon exercise of warrants exercisable within 60 days of September
30, 2000.
(16) Mr. Payne was one of our software engineers from August 1999 until March
2000. His number of shares beneficially owned includes 1,273 shares
issuable upon exercise of warrants exercisable within 60 days of September
30, 2000.
(17) Mr. Christensen was our account executive from September 1999 until June
2000. His number of shares beneficially owned includes 1,179 shares
issuable upon exercise of warrants exercisable within 60 days of September
30, 2000.
(18) Ms. Berryessa was our payroll manager from June 1999 until April 2000. Her
number of shares beneficially owned includes 943 shares issuable upon
exercise of warrants exercisable within 60 days of September 30, 2000.
(19) Mr. Su was one of our programmers from August 1999 until March 2000. His
number of shares beneficially owned includes 377 shares issuable upon
exercise of warrants exercisable within 60 days of September 30, 2000.
(20) Mr. Lin is an image technician with us. His number of shares beneficially
owned includes 189 shares issuable upon exercise of warrants exercisable
within 60 days of September 30, 2000.
(21) Ms. Viajayan was our charge-back coordinator from April 1999 until July
2000.
(22) Ms. Mostow was one of our junior accountants from February 1999 until
August 2000.
(23) Mr. Richardson was our customer service lead from August 1999 until
January 2000. His number of shares beneficially owned includes 47 shares
issuable upon exercise of warrants exercisable within 60 days of September
30, 2000.
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<PAGE>
PLAN OF DISTRIBUTION
We are registering on behalf of the selling stockholders the shares that
they are offering to sell in this prospectus. We will pay all costs, expenses
and fees to register the shares covered by this prospectus. The selling
stockholders will pay any commissions and similar selling expenses of brokers
or dealers attributable to the sale of the shares.
The selling stockholders may sell or distribute some or all of the shares in
one or more transactions, which may involve block transactions, on the Nasdaq
National Market, in privately negotiated transactions, in the over-the-counter
market or in a combination of these transactions. These transactions may be
effected by the selling stockholders at market prices prevailing at the time of
sale, at negotiated prices, or at fixed prices, which may be changed. These
transactions may or may not involve brokers or dealers.
The selling stockholders may sell the shares directly to purchasers or to or
through brokers or dealers, which may act as principals or agents. These
brokers and dealers may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders, and, if they act as
agent for the purchaser of the shares, from such purchaser. This compensation
may be in excess of that customary for the type of transaction involved.
The selling stockholders and any brokers or dealers that participate in the
distribution of the shares may be considered underwriters within the meaning of
the Securities Act of 1933. Any commissions received by brokers or dealers and
any profit on the resale of the shares sold by them while acting as principals
may be considered to be underwriting discounts and commissions under the
Securities Act of 1933. We know of no existing arrangements between any selling
stockholder and any other selling stockholder or broker, dealer or other agent
for the sale or distribution of the shares. Each selling stockholder may
indemnify any broker, dealer or agent and its controlling persons against
liabilities arising from the sale of the shares, including those liabilities
arising under the Securities Act of 1933.
We have advised the selling stockholders that the anti-manipulative
provisions of Regulation M of the Securities Exchange Act of 1934 may apply to
any person engaged in the distribution of the shares. We have also informed the
selling stockholders of the possible need to deliver copies of this prospectus
to prospective purchasers of the shares.
Any securities covered by this prospectus that qualify for sale under Rule
144 of the Securities Act of 1933 may be sold in compliance with Rule 144
rather than under this prospectus. Under Rule 144, a person generally may sell,
within any three-month period, restricted shares in an amount that does not
exceed the greater of:
. 1% of our then outstanding shares of common stock; or
. the average weekly trading volume in our common stock during the four
calendar weeks preceding the sale,
if at least one year has elapsed since the shares were acquired from us or our
affiliates. Rule 144 also restricts the manner in which the shares may be sold,
may require the filing of a notice of the proposed sale of shares and requires
the availability of current public information regarding us. However, a person
who is not an affiliate of us at any time within the three months prior to a
sale may sell restricted shares without regard to the volume limitations or
these other restrictions if at least two years have elapsed since the shares
were acquired from us or our affiliates.
If a selling stockholder notifies us that the selling stockholder has
engaged a broker or dealer to sell the shares through a block trade, special
offering, exchange distribution or secondary distribution or to buy the shares,
we will supplement this prospectus as required by the Securities Act of 1933.
The supplement will disclose:
. the name of the selling stockholder and the participating broker or
dealer;
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<PAGE>
. the number of shares involved;
. the price at which the shares were sold;
. the commissions paid or the discounts or concessions allowed any broker
or dealer;
. that the broker or dealer did not conduct an investigation to verify the
information included or incorporated by reference in this prospectus;
and
. other facts material to the transaction.
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<PAGE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation to
indemnify officers, directors and third parties acting on the corporation's
behalf if the person acted in good faith and in a manner reasonably believed to
be in and not opposed to the corporation's best interest, and, with respect to
any criminal action or proceeding, the indemnified party had no reasonable
cause to believe that the party's conduct was unlawful. Section 145 also
permits a corporation to include in its charter documents, and in agreements
between the corporation and its directors and officers, provisions expanding
the scope of indemnification beyond that specifically provided by the current
law.
Article XI of our amended and restated certificate of incorporation provides
for the indemnification of directors against liability for monetary damages for
breach of fiduciary duty to the fullest extent permitted under Delaware law.
Article VI of our amended and restated bylaws provides for the
indemnification of officers and directors against liability incurred while
acting on our behalf.
We also have entered into indemnification agreements with our directors and
officers and intend to enter into indemnification agreements with any new
directors and officers in the future.
We also maintain liability insurance for the benefit of our directors and
officers.
Insofar as indemnification by us for liabilities arising under the
Securities Act of 1933 may be permitted to our directors, officers and
controlling persons pursuant to the provisions referenced in this prospectus or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission, or SEC, such indemnification is against public policy as
expressed in the Securities Act of 1933, and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by us of expenses incurred or paid by one of our directors,
officers, or controlling persons in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, we will, unless in
the opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by us is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
EXPERTS
The consolidated financial statements of eMachines, Inc. as of December 31,
1999 and for the period from September 18, 1998, our inception, to December 31,
1998 audited by Deloitte & Touche LLP, independent auditors, have been
incorporated by reference into this prospectus and the related registration
statement in reliance upon such firm's report (which report expresses an
unqualified opinion and includes an explanatory paragraph referring to the
restatement of the Company's financial statements and is incorporated by
reference into this prospectus) given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of FreePC, Inc. and Subsidiary
appearing in eMachines, Inc.'s Form S-1 filed on March 24, 2000, as amended,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference.
Such financial statements are incorporated herein in reliance upon the reports
of Ernst & Young LLP pertaining to such financial statements given on the
authority of such firm as experts in accounting and auditing.
25
<PAGE>
ADDITIONAL INFORMATION
We are subject to the informational reporting requirements of the
Securities Exchange Act of 1934, and we file reports, proxy statements and
other information with the SEC. You may read and copy any document that we
file at the SEC's public reference room at 450 Fifth Street, N.W., Washington,
D.C., 20549. You may obtain information on the operation of the public
reference room by calling the SEC at 1-800-SEC-0330. The SEC maintains a Web
site at http://www.sec.gov that contains reports, proxy and information
statements, and other information regarding issuers, such as eMachines, that
file electronically with the SEC.
This prospectus contains information concerning us and the sale of our
common stock by the selling stockholders, but does not contain all the
information set forth in the registration statement that we filed with the SEC
under the Securities Act. Statements made in this prospectus as to the
contents of any referenced contract, agreement or other document are not
necessarily complete, and such statements are qualified by reference to the
applicable contract, agreement or other document. The registration statement,
including various exhibits, may be obtained upon payment of the fee charged by
the SEC, or may be examined without charge at the SEC's office in Washington,
D.C.
INCORPORATION OF INFORMATION BY REFERENCE
We hereby incorporate by reference into this prospectus the following
documents and information that we previously filed with the SEC.
(1) Our prospectus filed on March 24, 2000, pursuant to Rule 424(b)(4)
under the Securities Act of 1933;
(2) Our quarterly reports on Form 10-Q for the quarters ended April 1,
2000, and July 1, 2000, filed under Section 13 of the Securities Exchange Act
of 1934.
(3) Our current report on Form 8-K filed on October 30, 2000, filed under
Section 13 of the Securities Exchange Act of 1934.
(4) The description of our common stock contained in the registration
statement on Form 8-A (file no. 000-29715) filed on February 25, 2000, as
amended on March 15, 2000, under Section 12(g) of the Securities Exchange Act
of 1934, including any amendments or reports filed for the purpose of updating
such description.
All documents subsequently filed by us pursuant to Sections 13(a), 13(c),
14 and 15(d) of the Securities Exchange Act of 1934, prior to the filing of a
post-effective amendment which indicates that all securities registered have
been sold or which deregisters all securities then remaining unsold, shall be
incorporated by reference into this prospectus from the date of filing of the
documents.
Any statement contained in a document incorporated by reference into this
prospectus shall be modified or superseded for purposes of this prospectus to
the extent that a statement contained in this prospectus, in a prospectus
supplement or in any other document subsequently filed with the SEC that also
is incorporated by reference into this prospectus modifies or supersedes the
statement. Any statement so modified or superseded shall not, except as so
modified or superseded, constitute a part of this prospectus.
We will provide without charge to each person to whom a copy of this
prospectus is delivered, upon written or oral request of any such person, a
copy of any document incorporated by reference in this prospectus. Requests
for such copies should be directed to Investor Relations, 14350 Myford Rd.,
Suite 100, Irvine, California 92606. Our telephone number at that location is
(714) 481-2828.
26
<PAGE>
PART II
INFORMATION REQUIRED IN REGISTRATION STATEMENT
Item 3. Incorporation of Certain Documents by Reference
The following documents filed with the Securities and Exchange Commission, or
SEC, are hereby incorporated by reference into this registration statement:
(a) The registrant's prospectus filed on March 24, 2000, pursuant to Rule
424(b)(4) under the Securities Act of 1933, or Securities Act;
(b) The registrant's quarterly reports on Form 10-Q for the quarters ended
April 1, 2000, and July 1, 2000, filed pursuant to Section 13 of the
Securities Exchange Act of 1934, or Exchange Act;
(c) The registrant's current report on Form 8-K filed on October 30, 2000,
filed pursuant to Section 13 of the Exchange Act; and
(d) The description of the registrant's common stock contained in the
registration statement on Form 8-A (File No. 000-29715) filed on
February 25, 2000, as amended on March 15, 2000, under Section 12(g)
of the Exchange Act, including any amendments or reports filed for the
purpose of updating such description.
All documents filed by the registrant pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date hereof, and prior to the filing of a
post-effective amendment which indicates that the securities offered hereby have
been sold or which deregisters the securities covered hereby then remaining
unsold, shall also be deemed to be incorporated by reference into this
registration statement and to be a part hereof commencing on the respective
dates on which such documents are filed.
Item 4. Description of Securities
Not applicable.
Item 5. Interests of Named Experts and Counsel
As of the date of this registration statement, members of Wilson Sonsini
Goodrich & Rosati, P.C. and an investment partnership composed of current and
former members of Wilson Sonsini Goodrich & Rosati, P.C. beneficially owned an
aggregate of 40,700 shares of common stock and warrants to purchase an
additional 14,145 shares of common stock.
Item 6. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits a corporation to
indemnify officers, directors and third parties acting on behalf of the
Registrant if such person acted in good faith and in a manner reasonably
believed to be in and not opposed to the best interest of the registrant, and,
with respect to any criminal action or proceeding, the indemnified party had no
reasonable cause to believe his or her conduct was unlawful. Section 145 also
permits a corporation to include in its charter documents, and in agreements
between the corporation and its directors and officers, provisions expanding the
scope of indemnification beyond that specifically provided by the current law.
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Article XI of the registrant's amended and restated certificate of
incorporation provides for the indemnification of directors against liability
for monetary damages for breach of fiduciary duty to the fullest extent
permitted under Delaware law.
Article VI of the registrant's amended and restated bylaws provides for the
indemnification of officers and directors against liability for monetary damages
for breach of fiduciary duty while acting on behalf of the Registrant.
The registrant has entered into indemnification agreements with its officers
and directors and intends to enter into indemnification agreements with any new
directors and officers in the future.
The registrant also maintains liability insurance for the benefit of its
directors and officers.
Item 7. Exemption from Registration Claimed
The issuance of the shares being offered by the Form S-3 resale prospectus
were exempt from registration under the Securities Act in reliance on Section
4(2) of the Securities Act or Rule 701 under the Securities Act.
Item 8. Exhibits
Exhibit Number Description
------------------ ----------------------------------------------------------
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, as to the legality of certain Common Stock
being registered
23.1 Consent of Deloitte & Touche LLP (Independent Accountants)
23.2 Consent of Ernst & Young LLP (Independent Auditors)
23.3 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (contained in Exhibit 5.1 hereto)
24.1 Power of Attorney (see signature page)
99.1 1998 Stock Plan (as amended and restated) and form of
agreements thereunder (incorporated by reference to
Exhibit 10.7 to the registrant's registration statement on
Form S-1 (file no. 333-86219) effective March 23, 2000
("S-1 Registration Statement"))
99.2 2000 Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.25 to the S-1 Registration
Statement)
99.3 FreePC, Inc. 1999 Stock Plan and form of agreement
thereunder (incorporated by reference to Exhibit 10.17 to
the S-1 Registration Statement)
99.4 Option to purchase Common Stock issued on August 18, 1999
to Stephen A. Dukker (incorporated by reference to Exhibit
10.14 to the S-1 Registration Statement)
99.5 Form of Stock Option Agreement (incorporated by reference
to Exhibit 10.26 to the S-1 Registration Statement)
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99.6 Form of Warrant to Purchase Shares of Common Stock issued
pursuant to the Acquisition of FreePC, Inc. (incorporated
by reference to Exhibit 10.24 to the S-1 Registration
Statement)
Item 9. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include any material
information with respect to the plan of distribution not previously disclosed in
this registration statement or any material change to such information in this
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in this registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Irvine, State of California, on October 30, 2000.
EMACHINES INC.
/s/ Stephen A. Dukker
----------------------------------------------
Stephen A. Dukker
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen A. Dukker and Corinne T. Bertrand,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any and all
amendments to this Registration Statement on Form S-8, and to file the same,
with all exhibits thereto and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto each of said attorneys-in-
fact, or his substitute or substitutes, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done to effectuate the foregoing, as fully for all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that each of
said attorneys-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
on October 30, 2000.
Signature Title
---------------------------- ---------------------------------------------
/s/ Stephen A. Dukker President, Chief Executive Officer and
----------------------------
Stephen A. Dukker Director (Principal Executive Officer)
/s/ Corinne T. Bertrand Vice President, Finance and Acting Treasurer
----------------------------
Corinne T. Bertrand (Principal Financial and Accounting Officer)
/s/ Lap Shun Hui Director
----------------------------
Lap Shun Hui
/s/ Jung Koh Director
----------------------------
Jung Koh
/s/ Hong Soon Lee Director
----------------------------
Hong Soon Lee
/s/ Nathan Morton Director
----------------------------
Nathan Morton
/s/ C. Toms Newby, III Director
----------------------------
C. Toms Newby, III
II-4
<PAGE>
/s/ Bill Gross Director
----------------------------
Bill Gross
/s/ Michael Hong Director
----------------------------
Michael Hong
II-5
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
------------ -----------------------------------------------------------------
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, as to the legality of certain Common Stock being
registered
23.1 Consent of Deloitte & Touche LLP (Independent Accountants)
23.2 Consent of Ernst & Young LLP (Independent Auditors)
23.3 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (contained in Exhibit 5.1 hereto )
24.1 Power of Attorney (see signature page)
99.1 1998 Stock Plan (as amended and restated) and form of agreements
thereunder (incorporated by reference to Exhibit 10.7 to the
registrant's registration statement on Form S-1 (file no. 333-
86219) effective March 23, 2000 ("S-1 Registration Statement"))
99.2 2000 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.25 to the S-1 Registration Statement)
99.3 FreePC, Inc. 1999 Stock Plan and form of agreement thereunder
(incorporated by reference to Exhibit 10.17 to the S-1
Registration Statement)
99.4 Option to purchase Common Stock issued on August 18, 1999 to
Stephen A. Dukker (incorporated by reference to Exhibit 10.14 to
the S-1 Registration Statement)
99.5 Form of Stock Option Agreement (incorporated by reference to
Exhibit 10.26 to the S-1 Registration Statement)
99.6 Form of Warrant to Purchase Shares of Common Stock issued
pursuant to the Acquisition of FreePC, Inc. (incorporated by
reference to Exhibit 10.24 to the S-1 Registration Statement)
