<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 26, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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WEBVAN GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7389 77-0446411
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
310 LAKESIDE DRIVE
FOSTER CITY, CA 94404
(650) 627-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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GEORGE T. SHAHEEN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WEBVAN GROUP, INC.
310 LAKESIDE DRIVE
FOSTER CITY, CA 94404
(650) 627-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
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JEFFREY D. SAPER, ESQ. DANIEL G. KELLY, JR., ESQ.
J. ROBERT SUFFOLETTA, ESQ. DAVIS POLK & WARDWELL
WILSON SONSINI GOODRICH & ROSATI 1600 EL CAMINO REAL
PROFESSIONAL CORPORATION MENLO PARK, CA 94025
650 PAGE MILL ROAD (650) 752-2000
PALO ALTO, CA 94304
(650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
Upon consummation of the merger described herein.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE(2)
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Common stock, par value $0.0001 per share............ 141,000,000 $863,625,000 $227,997
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(1) Based upon the estimated number of shares of common stock of the Registrant
to be issued to stockholders of HomeGrocer.com, Inc. pursuant to the merger
described herein based on the shares of HomeGrocer.com, Inc. common stock
outstanding on the date hereof and issuable upon the exercise of vested
options and warrants to purchase HomeGrocer.com, Inc. common stock. The
amount to be registered also includes an estimated 462,000 shares issuable
to HomeGrocer's financial advisor and legal counsel in respect of HomeGrocer
shares issued to them in partial consideration for their services in
connection with the merger.
(2) Pursuant to Rule 457(c) and (f) under the Securities Act of 1933, as
amended, the registration fee has been calculated based on the closing price
per share of Webvan Group, Inc.'s common stock on July 24, 2000 as reported
on the Nasdaq National Market.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
LOGO LOGO
JOINT PROXY STATEMENT/PROSPECTUS
WEBVAN GROUP, INC./HOMEGROCER.COM, INC.
To the Stockholders of Webvan Group, Inc. and HomeGrocer.com, Inc.:
After careful consideration, the boards of directors of Webvan and
HomeGrocer have unanimously approved a merger between Webvan and HomeGrocer.
If the merger is completed, each share of HomeGrocer will be exchanged for
1.07605 shares of Webvan common stock. Webvan common stock is traded on the
Nasdaq National Market under the trading symbol "WBVN," and on July , 2000,
the closing price of Webvan common stock was $ per share. Based on the
capitalization of the two companies as of July , 2000, shares
of Webvan common stock would be issued to HomeGrocer stockholders in connection
with the merger, representing approximately 28% of the outstanding shares of
Webvan common stock after the merger.
The merger cannot be completed unless a quorum of the outstanding shares of
Webvan and HomeGrocer are represented in person or by proxy at each of the
stockholder meetings described below, and a majority of the shares represented
at the Webvan meeting and the holders of two-thirds of the outstanding shares of
HomeGrocer vote in favor of the proposals presented relating to the merger. The
attached joint proxy statement/prospectus provides detailed information
concerning Webvan, HomeGrocer, the merger and proposals related to the merger.
Please give all of the information contained in the joint proxy
statement/prospectus your careful attention. In particular, you should carefully
consider the discussion in the section entitled "Risk Factors" beginning on page
6 of this joint proxy statement/prospectus.
AFTER CAREFUL CONSIDERATION, THE BOARDS OF DIRECTORS OF BOTH WEBVAN AND
HOMEGROCER HAVE UNANIMOUSLY DETERMINED THE MERGER TO BE FAIR TO THE STOCKHOLDERS
OF THEIR COMPANIES AND IN THEIR BEST INTERESTS. THE BOARDS OF DIRECTORS OF BOTH
COMPANIES UNANIMOUSLY RECOMMEND ITS ADOPTION TO THE STOCKHOLDERS OF THEIR
COMPANY.
Stockholders of HomeGrocer and Webvan are cordially invited to attend
stockholder meetings to vote on the merger:
- The special meeting of HomeGrocer stockholders will be held on
, 2000 at a.m. local time at ,
. Only stockholders who hold shares of HomeGrocer at the
close of business on , 2000 will be entitled to vote at this
special meeting.
- The special meeting of Webvan stockholders will be held on ,
2000 at a.m. local time at . Only
stockholders who hold shares of Webvan at the close of business on
, 2000 will be entitled to vote at this special meeting.
Please use this opportunity to take part in the affairs of Webvan and
HomeGrocer by voting on the merger. Whether or not you plan to attend the Webvan
or HomeGrocer meeting, please complete, sign, date and return the accompanying
proxy card in the enclosed self-addressed stamped envelope. Returning the proxy
card does NOT deprive you of your right to attend the appropriate meeting and to
vote your shares in person. YOUR VOTE IS VERY IMPORTANT.
We appreciate your consideration of this matter.
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George T. Shaheen Mary Alice Taylor
President and Chief Executive Officer Chairman and Chief Executive Officer
Webvan Group, Inc. HomeGrocer.com, Inc.
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS JOINT PROXY STATEMENT/ PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This joint proxy statement/prospectus is dated , 2000
and was first mailed to stockholders on or about , 2000
<PAGE> 3
WEBVAN GROUP, INC.
310 LAKESIDE DRIVE
FOSTER CITY, CA 94404
(650) 627-3000
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2000 AT A.M.
To Our Stockholders:
A Special Meeting of Stockholders of Webvan Group, Inc. will be held at
, on , 2000 at a.m., Pacific
time, for the following purposes:
1. To approve the issuance of shares of Webvan common stock in the
proposed merger of a wholly owned subsidiary of Webvan, with and into
HomeGrocer.com, Inc., as contemplated by the Agreement and Plan of
Reorganization dated as of June 25, 2000, between Webvan and HomeGrocer.
Webvan will issue 1.07605 shares of common stock in exchange for each
outstanding share of common stock of HomeGrocer and HomeGrocer will become
a wholly-owned subsidiary of Webvan.
2. To transact any other business that properly comes before the
special meeting or any adjournments or postponements thereof.
The accompanying joint proxy statement/prospectus describes the proposed
merger in more detail. We encourage you to read the entire document carefully.
We have fixed the close of business on , 2000 as the record
date for the determination of our stockholders entitled to vote at this meeting.
By Order of the Board of Directors of
Webvan Group, Inc.
George T. Shaheen
President and Chief Executive Officer
Foster City, California
, 2000
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, TO ASSURE THAT YOUR
SHARES ARE REPRESENTED AT THE MEETING, PLEASE MARK, DATE AND SIGN THE ENCLOSED
PROXY CARD AND RETURN IT IN THE ENVELOPE WHICH HAS BEEN PROVIDED. NO POSTAGE IS
REQUIRED FOR MAILING IN THE UNITED STATES. IN THE EVENT YOU ARE ABLE TO ATTEND
THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE YOUR SHARES IN PERSON.
<PAGE> 4
HOMEGROCER.COM, INC.
10230 NE POINTS DRIVE
KIRKLAND, WA 98033
(425) 201-7575
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2000 AT A.M.
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the Special Meeting of Stockholders of
HomeGrocer.com, Inc. will be held on , 2000, at a.m. at
, to:
1. Consider and vote on the proposed merger of a wholly-owned
subsidiary of Webvan Group, Inc., with and into HomeGrocer.com,
Inc., as contemplated by the Agreement and Plan of Reorganization
dated as of June 25, 2000, between Webvan and HomeGrocer. In the
merger, Webvan will issue 1.07605 shares of its common stock in
exchange for each outstanding share of common stock of HomeGrocer
and HomeGrocer will become a wholly-owned subsidiary of Webvan.
2. Transact such other business as may properly come before the
special meeting or any adjournment thereof.
The accompanying joint proxy statement/prospectus describes the proposed
merger in more detail. You are encouraged to read the entire document carefully.
The board of directors has fixed the close of business on ,
2000, as the record date for the determination of stockholders entitled to
notice of, and to vote at, the meeting.
By Order of the Board of Directors of
HomeGrocer.com, Inc.
Mary Alice Taylor
Chairman of the Board and Chief
Executive Officer
, 2000
Kirkland, Washington
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, TO ASSURE THAT YOUR
SHARES ARE REPRESENTED AT THE MEETING, PLEASE MARK, DATE AND SIGN THE ENCLOSED
PROXY CARD AND RETURN IT IN THE ENVELOPE WHICH HAS BEEN PROVIDED. NO POSTAGE IS
REQUIRED FOR MAILING IN THE UNITED STATES. IN THE EVENT YOU ARE ABLE TO ATTEND
THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE YOUR SHARES IN PERSON.
<PAGE> 5
TABLE OF CONTENTS
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PAGE
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QUESTIONS AND ANSWERS FOR WEBVAN STOCKHOLDERS AND HOMEGROCER
STOCKHOLDERS.............................................. 1
SUMMARY OF THE JOINT PROXY STATEMENT/PROSPECTUS............. 3
Forward-Looking Statements............................. 3
The Companies.......................................... 3
Summary of the Merger.................................. 4
RISK FACTORS................................................ 6
General Risks Related to the Merger.................... 6
SELECTED CONSOLIDATED FINANCIAL DATA........................ 29
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS................................................ 33
COMPARATIVE PER SHARE DATA.................................. 40
MARKET PRICE AND DIVIDEND INFORMATION....................... 41
THE WEBVAN MEETING.......................................... 42
THE HOMEGROCER MEETING...................................... 45
THE MERGER.................................................. 48
Background of the merger............................... 48
HomeGrocer's reasons for the merger.................... 51
Recommendation of the HomeGrocer Board of Directors.... 53
Webvan's reasons for the merger........................ 53
Recommendation of Webvan's Board of Directors.......... 55
Opinion of Webvan's financial advisor.................. 55
Opinion of HomeGrocer's financial advisor.............. 60
Interests of HomeGrocer directors, officers and
significant stockholders in the merger................ 66
Completion and effectiveness of the merger............. 67
Structure of the merger and conversion of HomeGrocer
common stock.......................................... 67
Exchange of HomeGrocer stock certificates for Webvan
stock certificates.................................... 67
No dividends........................................... 68
Material United States federal income tax
considerations........................................ 68
Accounting treatment for the merger.................... 70
Regulatory filings and approvals required to complete
the merger............................................ 70
Certain securities laws considerations................. 70
Dissenters' rights..................................... 70
Listing on the Nasdaq Market of Webvan common stock to
be issued in the merger............................... 71
Delisting and deregistration of HomeGrocer common stock
after the merger...................................... 71
THE MERGER AGREEMENT........................................ 72
AGREEMENTS RELATED TO THE MERGER............................ 86
WEBVAN BUSINESS............................................. 90
Webvan's Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 100
Webvan Management...................................... 107
Webvan Principal Stockholders.......................... 114
Webvan Transactions with Related Parties............... 117
HOMEGROCER BUSINESS......................................... 118
HomeGrocer Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 126
HomeGrocer Management.................................. 135
HomeGrocer Principal Stockholders...................... 137
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HomeGrocer Transactions with Related Parties........... 140
DESCRIPTION OF WEBVAN CAPITAL STOCK......................... 141
COMPARISON OF STOCKHOLDER RIGHTS AND CORPORATE GOVERNANCE
MATTERS................................................... 144
RIGHTS OF DISSENTING HOMEGROCER STOCKHOLDERS................ 153
LEGAL MATTERS............................................... 155
EXPERTS..................................................... 155
STOCKHOLDER PROPOSALS....................................... 155
WHERE YOU CAN FIND MORE INFORMATION......................... 156
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................. F-1
ANNEX A Agreement and Plan of Reorganization
ANNEX B Opinion of Webvan's Financial Advisor, Goldman,
Sachs & Co.
ANNEX C Opinion of HomeGrocer's Financial Advisor, Morgan
Stanley & Co. Incorporated
ANNEX D Amazon.com, Inc. Registration Rights Agreement
ANNEX E Chapter 23B.13 of the Washington Business
Corporation Act (Dissenters' Rights)
</TABLE>
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<PAGE> 7
QUESTIONS AND ANSWERS FOR WEBVAN STOCKHOLDERS
AND HOMEGROCER STOCKHOLDERS
Q: WHY ARE THE COMPANIES PROPOSING TO MERGE?
A: Webvan and HomeGrocer are proposing to merge because we believe the
resulting combination will create a stronger, more competitive company
capable of achieving greater financial strength, operational
efficiencies, earnings power and growth potential than either company
would have on its own.
We also believe the complementary geographical presence of the two
companies will provide an opportunity to accelerate the revenue growth of
the combined company and extend its position in the online delivery
retail marketplace.
Q: WHAT WILL BE THE EFFECT OF THE MERGER ON THE STOCKHOLDERS OF WEBVAN AND
HOMEGROCER? (SEE PAGE [ ])
A: Upon consummation of the merger, HomeGrocer will become a wholly-owned
subsidiary of Webvan. After the merger, the current stockholders of
Webvan will own approximately 72% of Webvan and the former stockholders
of HomeGrocer will own approximately 28% of Webvan.
Q: WHAT WILL HOMEGROCER COMMON STOCKHOLDERS RECEIVE IN THE MERGER?
A: When the merger is completed, holders of HomeGrocer common stock will
receive 1.07605 shares of Webvan common stock in exchange for each
outstanding share of HomeGrocer common stock. No fractional shares will
be issued. HomeGrocer common stockholders that otherwise would receive
fractional shares will instead receive cash in an amount based on the
average closing price, as reported on the Nasdaq National Market, of
Webvan common stock for the five trading days immediately preceding the
last full trading day prior to the effective date of the merger.
Upon completion of the merger, Webvan will assume options and warrants to
purchase shares of HomeGrocer common stock in connection with the merger.
The number of shares of Webvan common stock purchasable under each
post-merger option or warrant will be calculated using the merger
exchange ratio of 1.07605 shares of Webvan common stock for each share of
HomeGrocer.
Q: DOES THE BOARD OF DIRECTORS OF WEBVAN RECOMMEND VOTING IN FAVOR OF THE
ISSUANCE OF WEBVAN SHARES IN THE MERGER?
A: Yes. After careful consideration, Webvan's board of directors unanimously
recommends that its stockholders vote in favor of the issuance of Webvan
common stock to the stockholders of HomeGrocer in the merger. Certain
Webvan stockholders have agreed to vote shares totaling approximately 40%
of the outstanding shares of Webvan in favor of the share issuance.
Q: DOES THE BOARD OF DIRECTORS OF HOMEGROCER RECOMMEND VOTING IN FAVOR OF THE
MERGER?
A: Yes. After careful consideration, HomeGrocer's board of directors
unanimously recommends that its stockholders vote in favor of the merger
agreement and the proposed merger. Certain directors and their affiliated
entities have agreed to vote shares totaling approximately 55% of the
outstanding shares of HomeGrocer in favor of the merger.
Q: ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE MERGER?
A: Yes. In evaluating the merger, you should carefully consider the factors
discussed in the section entitled "Risk Factors" on page [ ].
Q: WHAT DO I NEED TO DO NOW? (SEE PAGE [ ])
A: Mail your signed proxy card in the enclosed return envelope as soon as
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<PAGE> 8
possible so that your shares may be represented at your meeting.
If you do not include instructions on how to vote your properly signed
proxy card, your common stock will be voted "FOR" approval of matters
related to the merger.
HOMEGROCER STOCKHOLDERS, PLEASE DO NOT SEND YOUR HOMEGROCER STOCK
CERTIFICATES AT THIS TIME.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE
MY SHARES FOR ME? (SEE PAGE [ ])
A: Brokers cannot vote your shares without instructions from you on how to
vote. Therefore, it is important that you follow the directions provided
by your broker regarding how to instruct your broker to vote your shares.
If you fail to provide your broker with instructions, it will have the
same effect as a vote against the merger agreement and the merger.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE? (SEE PAGE [ ])
A: If you want to change your vote, send the secretary of Webvan or
HomeGrocer, as applicable, a later-dated, signed proxy card before your
meeting or attend the meeting in person. You may also revoke your proxy
card by sending written notice to the applicable secretary before the
meeting. If you have signed a stockholder voting agreement in connection
with the merger agreement, you have agreed not to revoke your proxy.
Q: AS A HOMEGROCER STOCKHOLDER, SHOULD I SEND IN MY HOMEGROCER STOCK
CERTIFICATES NOW? (SEE PAGE [ ])
A: No. After the merger is completed, Webvan will send you written
instructions for exchanging your HomeGrocer stock certificates for Webvan
stock certificates.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED? (SEE PAGE [ ])
A: Webvan and HomeGrocer are working toward completing the merger as quickly
as possible. We hope to complete the merger late in the third calendar
quarter or early in the fourth calendar quarter of 2000.
Q: WILL I BE TAXED ON THE MERGER? (SEE PAGE [ ])
A: Webvan stockholders and HomeGrocer stockholders will not recognize gain
or loss for United States federal income tax purposes as a result of the
merger, except that HomeGrocer stockholders will recognize gain or loss
resulting from the receipt of cash instead of any fractional shares of
Webvan common stock. All stockholders are urged to consult their own tax
advisor to determine their particular tax consequences.
Q: ARE THE HOMEGROCER STOCKHOLDERS ENTITLED TO DISSENTERS' OR APPRAISAL RIGHTS?
(SEE PAGE [ ])
A: Yes, HomeGrocer stockholders have the opportunity to assert dissenters'
rights relating to the merger. To claim these rights, HomeGrocer
stockholders must comply with the requirements of Washington law. You
should read the section called Rights of Dissenting HomeGrocer
Stockholders on page .
Q: ARE THE WEBVAN STOCKHOLDERS ENTITLED TO DISSENTERS' OR APPRAISAL RIGHTS? (SEE
PAGE [ ])
A: No.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: Webvan stockholders should call Robert Okunski, at (650) 627-3944, with
any questions about the merger.
HomeGrocer stockholders should call Rob Flores, at (425) 201-7606, with
any questions about the merger.
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SUMMARY OF THE JOINT PROXY STATEMENT/PROSPECTUS
This joint proxy statement/prospectus pertains to the merger of a
wholly-owned subsidiary of Webvan with and into HomeGrocer, and it is being sent
to the holders of HomeGrocer common stock and holders of Webvan common stock.
This summary may not contain all of the information that is important to you.
You should read carefully this entire document, including the merger agreement
and other documents attached to this joint proxy statement/prospectus and the
other documents referenced in it for a more complete understanding of the
merger. In particular, you should read the merger agreement (and the exhibits
thereto), which is attached as Annex A, the opinion of Goldman, Sachs & Co.,
which is attached as Annex B, the opinion of Morgan Stanley & Co. Incorporated,
which is attached as Annex C, the Amazon.com Registration Rights Agreement,
which is attached as Annex D and Chapter 23B.13 of the Washington Business
Corporation Act relating to dissenters' rights, which is attached as Annex E.
FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus contains certain forward-looking
statements (as such term is defined in Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934) and information relating
to Webvan and HomeGrocer that are based on the beliefs of the management of
Webvan and HomeGrocer as well as assumptions made by and information currently
available to the management of Webvan and HomeGrocer including statements
related to the designed capacity of distribution facilities, the time required
for a distribution facility to operate at designed capacity, the timing and
amount of capital expenditures and financing needs, and the economics of a
distribution facility including its revenue potential, average order size,
orders processed per day, cash flow potential and operating margin. In addition,
when used in this document, the words "likely," "will," "suggests," "may,"
"would," "could," "anticipate," "believe," "estimate," "expect," "intend,"
"plan," "predict" and similar expressions and their variants, as they relate to
Webvan or HomeGrocer or the management of either company, may identify
forward-looking statements. Such statements reflect the judgment of Webvan or
HomeGrocer management as of the date of this joint proxy statement/prospectus
with respect to future events, the outcome of which is subject to certain risks,
including the risk factors set forth herein, which may have a significant impact
on the business, operating results or financial conditions of Webvan, HomeGrocer
or the combined company. Stockholders are cautioned that these forward-looking
statements are inherently uncertain. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results or outcomes may vary materially from those described herein.
Neither Webvan nor HomeGrocer undertake any obligation to update forward-looking
statements.
THE COMPANIES
WEBVAN GROUP, INC.
310 Lakeside Drive
Foster City, CA 94404
(650) 627-3000
Webvan is an Internet retailer offering delivery of consumer products
through an innovative proprietary business design which integrates its Webstore,
distribution center and delivery system. Webvan's current product offerings are
principally focused on food, non-prescription drug products and general
merchandise, such as housewares, pet supplies and books. Webvan currently has
distribution centers in Oakland, California, Atlanta, Georgia and Chicago,
Illinois. Webvan's Oakland distribution center serves the San Francisco Bay Area
and Sacramento, California markets.
HOMEGROCER.COM, INC.
10230 NE Points Drive
Kirkland, WA 98033
(425) 201-7500
HomeGrocer is a retailer of grocery and other consumer products on the
Internet. HomeGrocer operates a state-of-the-art distribution system providing
next-day home delivery of a wide range of products, including high quality food
items, at prices competitive with local supermarket prices. HomeGrocer has
rapidly expanded since its initial launch of service in June 1998, and currently
serves customers in Seattle, Washington; Portland, Oregon; Orange County, Los
Angeles, and San Diego, California; and Dallas, Texas; and San Diego,
California.
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<PAGE> 10
SUMMARY OF THE MERGER
THE MERGER (SEE PAGE )
In the merger, HomeGrocer will merge with a wholly-owned subsidiary of
Webvan. HomeGrocer will survive the merger as a wholly-owned subsidiary of
Webvan. HomeGrocer common stockholders will receive, in exchange for each of
their shares, 1.07605 shares of Webvan common stock.
The merger agreement is attached to this joint proxy statement/prospectus
as Annex A. You are encouraged to read it carefully.
CONDITIONS TO COMPLETION OF THE MERGER (SEE PAGE )
Webvan's and HomeGrocer's respective obligations to complete the merger are
subject to the satisfaction or waiver of closing conditions.
If either Webvan or HomeGrocer waives any conditions, we will each consider
the facts and circumstances at that time and make a determination whether a
resolicitation of proxies from our respective stockholders is appropriate.
VOTE REQUIRED FOR APPROVAL
The holders of a majority of the shares of Webvan common stock present or
represented by proxy at the stockholders' meeting must approve the issuance of
Webvan common stock in the merger. Webvan stockholders are entitled to cast one
vote per share of Webvan common stock owned as of the record date. Webvan
stockholders holding approximately 40% of the votes represented by outstanding
Webvan common stock as of the record date have agreed to vote their common stock
of Webvan in favor of the issuance of common stock in the merger.
The holders of two-thirds of the outstanding shares of HomeGrocer common
stock must approve the merger agreement and the merger. HomeGrocer stockholders
holding approximately 55% of the outstanding common shares as of the record date
have agreed to vote all their shares in favor of the merger agreement and the
merger.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE )
Webvan and HomeGrocer each have the right to terminate the merger agreement
under certain circumstances. In certain cases, termination of the merger
agreement will require payment of a termination fee by the terminating party.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMBINED COMPANY FOLLOWING THE MERGER
(SEE PAGE )
Following the merger, the board of directors of the combined company will
consist of the then current members of Webvan's board of directors, and James
Barksdale and Mary Alice Taylor, directors of HomeGrocer.
Following the merger, George T. Shaheen, the current President and Chief
Executive Officer of Webvan, will continue to be President and Chief Executive
Officer of the combined company.
OPINIONS OF WEBVAN'S AND HOMEGROCER'S FINANCIAL ADVISORS (SEE PAGE )
In connection with the merger, Webvan's board of directors considered the
opinion it received from its financial advisor, Goldman, Sachs & Co., as to the
fairness, from a financial point of view, to Webvan, of the exchange ratio
provided for in the merger agreement. HomeGrocer's board of directors considered
the opinion it received from its financial advisor, Morgan Stanley & Co.
Incorporated, as to the fairness, from a financial point of view, to the holders
of HomeGrocer common stock, of the exchange ratio provided for in the merger
agreement. The full text of the written opinions of the financial advisors are
attached to the back of this document as Annex B and Annex C, and should be read
carefully in their entirety to understand the procedures followed, the
assumptions made, matters considered and limitations on the review undertaken in
providing the opinions. The opinion of Goldman, Sachs & Co. is directed to the
Webvan board and the opinion of Morgan
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<PAGE> 11
Stanley & Co. Incorporated is directed to the HomeGrocer board, and these
opinions do not address the prices at which Webvan's common stock will trade
after the proposed merger and do not constitute a recommendation to any
stockholder as to how to vote with respect to any matter relating to the
proposed merger.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE )
We have structured the merger so that, in general, Webvan, Webvan's
stockholders, HomeGrocer and HomeGrocer's stockholders will not recognize gain
or loss for United States federal income tax purposes in the merger, except as a
result of cash received by HomeGrocer stockholders instead of fractional shares
of Webvan common stock.
It is a condition to the merger that both Webvan and HomeGrocer receive
legal opinions to the effect that the merger will constitute a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code.
ACCOUNTING TREATMENT OF THE MERGER (SEE PAGE )
Webvan intends to account for the merger as a "purchase" for financial
accounting purposes, in accordance with United States generally accepted
accounting principles. As a result, a significant amount of goodwill is expected
to be created, which will be amortized to expense over five years.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (SEE PAGE )
When considering the recommendations of HomeGrocer's board of directors,
you should be aware that certain HomeGrocer directors, officers and stockholders
have interests in the merger that are different from, or are in addition to,
yours. These interests include the acceleration of options, or the lapse of
HomeGrocer's right to repurchase restricted shares held by various HomeGrocer
executive officers and directors, the employment of certain HomeGrocer executive
officers by Webvan after the merger and the indemnification of directors and
officers of HomeGrocer against certain liabilities both before and after the
merger.
DISSENTERS' RIGHTS (SEE PAGE )
Under Washington law, stockholders of HomeGrocer are entitled to
dissenters' rights in connection with the merger, provided that they follow the
proper procedures to perfect their dissenters' rights.
Stockholders of Webvan are not entitled to dissenters' rights in connection
with the merger.
RESTRICTIONS ON THE ABILITY TO SELL WEBVAN STOCK (SEE PAGE )
All Webvan common stock received by HomeGrocer stockholders in connection
with the merger will be freely transferable unless the holder is considered an
affiliate of either HomeGrocer or Webvan under the Securities Act of 1933 as
amended. Shares of Webvan held by affiliates may only be sold pursuant to a
registration statement or an exemption from the registration requirements of the
Securities Act.
Certain Webvan stockholders and HomeGrocer stockholders that will hold in
the aggregate approximately 245.4 million shares of Webvan common stock
following the merger have agreed not to sell or transfer such shares for a
period of six months after the merger. In addition, Amazon.com, a HomeGrocer
stockholder that we expect will receive approximately 29.8 million shares of
Webvan common stock in the merger, has agreed not to sell or transfer any shares
of Webvan common stock it receives in the merger for a period of six months
after the merger, with the exception of up to three million shares that may be
sold in the first three months after the merger and an additional five million
shares that may be sold in the second three months after the merger. In
connection with the merger, Webvan granted Amazon.com rights to have its shares
of Webvan common stock registered for resale under the Securities Act.
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RISK FACTORS
The merger involves a high degree of risk. By voting in favor of the
merger, current HomeGrocer stockholders will be choosing to invest in Webvan
common stock, and current Webvan stockholders will face dilution of their
ownership interest in Webvan. An investment in Webvan common stock involves a
high degree of risk. In addition to the other information contained in this
joint proxy statement/prospectus, you should carefully consider all of the
following risk factors relating to the proposed merger, the combined company,
Webvan and HomeGrocer, in deciding whether to vote for the merger and the
related issuance of Webvan shares.
GENERAL RISKS RELATED TO THE MERGER
THE NUMBER OF WEBVAN SHARES TO BE RECEIVED BY HOMEGROCER STOCKHOLDERS IN THE
MERGER IS FIXED AND WILL NOT BE ADJUSTED FOR CHANGES IN THE PRICE OF WEBVAN OR
HOMEGROCER SHARES.
Webvan's stock price is volatile and the value of Webvan common stock
issued in the merger will depend on its market price at the time of the merger,
and no adjustment will be made as a result of changes in the market price of
Webvan's common stock.
At the closing of the merger, each share of HomeGrocer common stock will be
exchanged for 1.07605 shares of Webvan common stock. This exchange ratio will
not be adjusted for changes in the market price of Webvan common stock or
HomeGrocer common stock. In addition, neither Webvan nor HomeGrocer may
terminate or renegotiate the merger agreement, and HomeGrocer may not resolicit
the vote of its stockholders solely because of changes in the market price of
Webvan common stock or HomeGrocer common stock. Any reduction in Webvan's common
stock price will result in HomeGrocer stockholders receiving less value in the
merger at closing. HomeGrocer stockholders will not know the exact value of
Webvan's common stock to be issued to them in the merger at the time of the
special meeting of HomeGrocer stockholders.
The market price of Webvan's common stock, like that of the shares of many
other technology and Internet companies, has been and is expected to continue to
be volatile. For example, since Webvan's initial public offering on November 4,
1999, Webvan common stock has traded as high as $34.00 per share and as low as
$4.375 per share.
Recently, the stock market in general and the shares of Internet companies
in particular have experienced significant price fluctuations. The market price
of Webvan's common stock is expected to continue to fluctuate significantly in
response to various factors, including:
- Webvan's historical and anticipated quarterly and annual operating
results;
- Webvan's historical and anticipated operating metrics such as the number
of orders per day, the number of active customers and the frequency with
which they order, average order size, and gross margin;
- Webvan's ability to prove its business model, including the ability of a
distribution center to break even on a cash flow basis in the fifth
quarter of its operations;
- the timing and success of Webvan's expansion plans as Webvan constructs
and begins to operate new distribution centers in additional geographic
markets;
- variations between Webvan's actual results and the expectations of
investors or published reports or analyses of Webvan;
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- announcements by Webvan or others and developments affecting Webvan's
business, systems or expansion plans; and
- conditions and trends in e-commerce industries, particularly the online
grocery industry.
WEBVAN WILL FACE SIGNIFICANT CHALLENGES IN INTEGRATING WEBVAN AND HOMEGROCER
AND, AS A RESULT, MAY NOT REALIZE THE EXPECTED BENEFITS OF THE MERGER.
Integrating the operations and personnel of Webvan and HomeGrocer will be a
complex process, and Webvan is uncertain that the integration will be completed
in a timely manner or will achieve the anticipated benefits of the merger. Since
HomeGrocer is located in Kirkland, Washington, it may be more difficult to
retain employees of HomeGrocer if, after the merger, some of the activities and
management of HomeGrocer move from Kirkland, Washington to the San Francisco Bay
Area. The successful integration of Webvan and HomeGrocer will require, among
other things, integration of their finance, human resources and sales and
marketing groups and coordination of development efforts. The diversion of the
attention of Webvan's management and any difficulties encountered in the process
of combining the companies could cause the disruption of, or a loss of momentum
in, the activities of Webvan's business. Further, the process of combining
Webvan and HomeGrocer could negatively affect employee morale and the ability of
Webvan to retain some of its key employees after the merger.
Webvan's business model depends upon a high degree of technology
integration among its Webstore, merchandising, fulfillment and delivery
subsystems. Following the merger, Webvan plans to use a single technology
platform for the operation of both Webvan's distribution centers and
HomeGrocer's customer fulfillment centers in an effort to enhance the operations
of HomeGrocer fulfillment centers. The time or cost required to transition the
HomeGrocer model, which operates smaller, less automated facilities and uses
direct delivery rather than the hub and spoke delivery system used by Webvan, to
a technology platform that is common to the Webvan business model may be greater
than anticipated and will strain Webvan's limited technology resources, which
could have a material adverse effect on Webvan's business and results of
operations. Webvan cannot assure you that the proposed technology platform
integration will materially improve the operation or financial performance of
the HomeGrocer's customer fulfillment centers.
Webvan expects to incur significant costs in connection with integrating
the combined companies' operations as described in Note 2(D) of the Notes to
Unaudited Pro Forma Financial Combined Condensed Consolidated Financial
Statements on page 37 and the pro forma adjustment to which Note 2(D) relates.
Costs associated with the merger may prove to be greater than expected which
could have an adverse effect on Webvan's financial condition and available
capital resources.
In addition, Webvan will be required to determine whether to maintain or
eliminate differences in the particular features of the two companies' business
models, such as the duration of a delivery window and the selection of grocery
and other items offered. The elimination of one or more of these differences in
connection with the integration process may adversely impact customer
experiences or the productivity of facilities or delivery operations, which
could have a material adverse effect on Webvan's business and results of
operations.
The success of the merger will also depend upon Webvan's ability to
transition existing HomeGrocer customers to the Webvan brand. Webvan cannot
assure you that the proposed integration of the two businesses will not result
in disruptions in customers' shopping experiences which may have a material
adverse effect on Webvan's business and net sales.
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IF WEBVAN DOES NOT SUCCESSFULLY INTEGRATE HOMEGROCER OR THE MERGER'S BENEFITS DO
NOT MEET THE EXPECTATIONS OF INVESTORS OR FINANCIAL OR INDUSTRY ANALYSTS, THE
MARKET PRICE OF WEBVAN COMMON STOCK MAY DECLINE.
The market price of Webvan common stock may decline as a result of the
merger if:
- the combined company is unable to obtain additional capital on acceptable
terms when required;
- the integration of Webvan and HomeGrocer is not completed in a timely and
efficient manner;
- Webvan does not achieve the benefits of the merger as rapidly as, or to
the extent, anticipated by financial or industry analysts;
- Webvan's assumptions about HomeGrocer's business model and operations,
considered on a stand-alone basis, such as the rate at which a customer
fulfillment center's operations will improve, may prove incorrect,
thereby requiring additional capital to fund the operating losses of such
facilities;
- the effect of the merger on Webvan's financial results is not consistent
with the expectations of financial or industry analysts; or
- significant stockholders of Webvan following the merger may determine to
dispose of their shares because the results of the merger are not
consistent with their expectations.
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT THE MARKET PRICE OF
HOMEGROCER OR WEBVAN COMMON STOCK.
If the merger is not completed for any reason, HomeGrocer and Webvan will
be subject to a number of material risks, including:
- the provision in the merger agreement that HomeGrocer and Webvan could be
required to pay the other party a termination fee of up to $36.0 million
and/or reimburse the other party for costs and expenses incurred in
connection with the merger;
- the market price of HomeGrocer common stock or Webvan common stock may
decline to the extent that the current market price of such shares may
reflect a market assumption that the merger will be completed;
- costs related to the merger, such as legal and accounting fees and a
portion of the investment banking fees, must be paid even if the merger
is not completed;
- benefits that the companies expect to realize from the merger, such as
the potentially enhanced financial and competitive position of the
combined company, would not be realized; and
- the diversion of management attention from day-to-day business, and the
potential to disrupt employees and relationships with customers and
suppliers during the period before consummation of the merger, may affect
the financial and market position of either or both companies if the
merger does not occur.
If the merger is terminated and the HomeGrocer board of directors seeks
another merger or business combination, HomeGrocer stockholders cannot be
certain that HomeGrocer will be able to find a partner willing to pay an
equivalent or more attractive price than the price to be paid by Webvan in the
merger.
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DURING THE PENDENCY OF THE MERGER, HOMEGROCER AND WEBVAN MAY NOT BE ABLE TO
ENTER INTO A MERGER OR BUSINESS COMBINATION WITH ANOTHER PARTY AT A FAVORABLE
PRICE BECAUSE OF RESTRICTIONS IN THE MERGER AGREEMENT.
Until the merger is completed or the merger agreement is terminated,
subject to specified exceptions, HomeGrocer is prohibited from entering into or
soliciting, initiating or encouraging any inquiries or proposals that may lead
to a proposal or offer for a merger, consolidation, business combination, sale
of substantial assets, tender offer, sale of shares of capital stock or other
similar transactions with any other person. Webvan is similarly prohibited with
respect to similar transactions that are conditioned on the termination of the
merger or are structured in a manner that makes it impossible to consummate such
transaction and the merger with HomeGrocer. As a result of these prohibitions,
HomeGrocer and Webvan may not be able to enter into an alternative transaction
at a favorable price.
HOMEGROCER'S OFFICERS AND DIRECTORS HAVE CONFLICTS OF INTEREST THAT MAY
INFLUENCE THEM TO SUPPORT OR APPROVE THE MERGER.
The directors and officers of HomeGrocer participate in arrangements and
have continuing indemnification against liabilities that provide them with
interests in the merger that are different from, or in addition to, those of
other HomeGrocer stockholders, including the following:
- as of July 1, 2000, the executive officers and directors of HomeGrocer
owned stock, restricted stock or options to purchase an aggregate of
approximately 82.5 million shares of HomeGrocer common stock, of which
approximately 10.5 million are unvested or subject to a right of
HomeGrocer to repurchase the shares. If the merger were completed and an
officer terminated other than for cause, as of the above date
approximately 1.3 million of the unvested options will accelerate and
become immediately exercisable under their existing terms, and the right
to repurchase approximately 8.1 million of the unvested shares of
restricted stock will lapse under the existing terms of such shares;
- certain officers of HomeGrocer are entitled to certain benefits,
including substantial severance packages, if their employment is
terminated after a change of control of HomeGrocer, such as in the
merger;
- Webvan has entered into employment agreements with two executive officers
of HomeGrocer that take effect upon consummation of the merger and may
enter into agreements with other executive officers;
- Amazon and Webvan have entered into a registration rights agreement
providing Amazon with rights upon completion of the merger to cause
Webvan to register the shares of common stock received by Amazon in the
merger under the Securities Act; this is a right which has not been given
to other HomeGrocer stockholders; and
- Webvan has agreed to cause the surviving corporation in the merger to
indemnify each present and former HomeGrocer officer and director against
liabilities arising out of such person's services as an officer or
director. Webvan will cause the surviving corporation to maintain
officers' and directors' liability insurance to cover any such
liabilities for the next six years.
The directors and officers of HomeGrocer may therefore have been more
likely to vote to approve the merger agreement and the merger than if they did
not have these interests. HomeGrocer stockholders should consider whether these
interests may have influenced these directors and officers to support or
recommend the merger. You should read more about these interests under "The
Merger -- Interests of HomeGrocer directors, officers and significant
stockholders in the merger" on page 66.
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UNCERTAINTIES ASSOCIATED WITH THE MERGER MAY CAUSE HOMEGROCER TO LOSE KEY
PERSONNEL.
Current and prospective HomeGrocer employees may experience uncertainty
about their future roles with Webvan. This uncertainty may adversely affect
HomeGrocer's ability to attract and retain key management, sales, marketing and
technical personnel. In addition, Webvan's ability to successfully integrate the
two companies may be adversely affected if a significant number of key
HomeGrocer personnel depart prior to consummation of the merger, which would
adversely affect Webvan's business and results of operations.
RISKS RELATED TO WEBVAN AND HOMEGROCER
Except as otherwise specified, the following risk factors relate to the
businesses of Webvan and HomeGrocer prior to the merger. If the merger is not
consummated for any reason, each company expects to continue to be subject to
such risks. If the merger is consummated, the combined company will be subject
to the risks of each of Webvan and HomeGrocer.
WEBVAN AND HOMEGROCER ARE EARLY-STAGE COMPANIES OPERATING IN A NEW AND RAPIDLY
EVOLVING MARKET.
Webvan was incorporated in December 1996. From 1997 through May 1999,
Webvan was focused on developing its Webstore and constructing and equipping its
first distribution center serving the San Francisco Bay Area. Webvan did not
begin commercial operations in the San Francisco Bay Area until June 1999, in
Atlanta, Georgia until May 2000 and in Chicago, Illinois until August 1, 2000.
Webvan's experience operating multiple facilities commenced, therefore, only
very recently. Prior to June 1998, HomeGrocer was focused on developing its web
site and constructing and equipping its first customer fulfillment center
serving the Seattle, Washington area. HomeGrocer did not begin commercial
operations in the Seattle area until June 1998, the Portland, Oregon area until
May 1999, the Southern California area until September 1999 and the San Diego,
California and Dallas, Texas areas until May 2000.
The limited operating history of Webvan and HomeGrocer makes an evaluation
of their respective businesses and prospects very difficult. You must consider
their business and prospects in light of the risks and difficulties encountered
by an early stage company in the new and rapidly evolving market of e-commerce.
These risks and difficulties include, but are not limited to:
- a complex business system that is unproven at or near the order volumes
for which it is designed;
- lack of sufficient customers, orders, net sales or cash flow;
- difficulties in managing rapid growth in personnel and operations;
- high capital expenditures associated with distribution facilities,
systems and technologies; and
- lack of widespread acceptance of the Internet as a means of purchasing
groceries and other consumer products.
Neither company can be certain that its business strategy will be
successful or that it will successfully address these risks. The failure of
Webvan or HomeGrocer to address any of the risks described above could have a
material adverse effect on their businesses.
WEBVAN'S BUSINESS SYSTEM IS NEW AND UNPROVEN AT HIGH VOLUMES, AND THE ACTUAL
CAPACITY OF WEBVAN'S SYSTEM MAY BE LESS THAN ITS DESIGNED CAPACITY.
Webvan has designed a new business system which integrates its Webstore,
highly automated distribution center and complex order fulfillment and delivery
operations. Webvan has only been
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delivering products to customers commercially since it began operations from
Webvan's Oakland, California distribution center in June 1999 and the average
daily volume of orders that Webvan has had to fulfill to date has been
significantly below Webvan's designed capacity of 8,000 orders per day and
below, as well, the levels that are necessary for Webvan to achieve
profitability. Although Webvan's initial distribution center was designed to
process product volumes equivalent to approximately 18 supermarkets, as of June
30, 2000, Webvan was operating at less than 40% of such designed capacity.
HomeGrocer's current facilities were originally designed to process 2,500
orders per day in a single shift operation based on numerous assumptions. The
number of orders that can be delivered each day is sometimes constrained by the
number of delivery vehicles and employees. To date, the most orders processed in
one day by any of HomeGrocer's customer fulfillment centers is approximately
1,670. HomeGrocer has therefore not yet proven that its facilities are capable
of assembling or delivering 2,500 orders per day. During the first half of 2000,
the average number of orders per day for those customer fulfillment centers
which were opened for the entire period was 548.
Though Webvan's average order size at its prototype distribution center in
Oakland has increased in each of its first full four quarters of operation,
Webvan cannot assure you that its average order size at Webvan's Oakland
facility will remain at current levels or increase in the future. Webvan does
not expect any distribution center to operate at designed capacity for several
years following its commercial launch, and Webvan cannot assure you that any
distribution center will ever operate at or near its designed capacity.
It is not practicable to test Webvan's system at high volumes except by
processing commercial orders. As part of its testing process, Webvan voluntarily
limits the number of customer orders accepted in any given delivery window in an
effort to ensure that its systems and technologies function properly while
maintaining a high level of customer service. Webvan plans to incrementally
increase its voluntary limit on orders as Webvan's systems and technologies are
proven at each incremental volume level and as the volume of orders justifies
deployment of the resources necessary to support such higher volume levels. As a
result, the success of Webvan's system in a high order volume environment has
yet to be proven. Based on Webvan's operational experiences, Webvan refines and
modifies its business systems, operational processes and technologies in
connection with the process of scaling its business to its design capacity; such
refinements and modifications will continue to be necessary or advisable and the
costs associated with them may be material. In addition, new system and
technology features developed in response to Webvan's marketing and operational
experience have to be integrated into Webvan's systems and technologies. Webvan
cannot assure you that its business system will be able to accommodate a
significant increase in the number of customers and orders, that such an
increase in orders will be matched by the productivity increases in Webvan's
operational processes that Webvan assumed in the design of its business systems
or that Webvan's initial distribution center or other distribution centers will
in fact ever operate at or near designed capacity. If Webvan is unable to
effectively accommodate substantial increases in customer orders, Webvan may
lose existing customers or fail to add new customers, which would adversely
affect its business, net sales and operating margins.
WEBVAN'S BUSINESS SYSTEM IS COMPLEX, AND WEBVAN IS PERIODICALLY AFFECTED BY
OPERATIONAL DIFFICULTIES.
Webvan's business system relies on the complex integration of numerous
software and hardware subsystems that utilize advanced algorithms to manage the
entire process from the receipt and processing of goods at Webvan's distribution
center to the picking, packing and delivery of these goods to customers in a
30-minute delivery window. Webvan has, from time to time, experienced
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operational "bugs" in its systems and technologies which create system
instabilities and which have resulted in order errors such as missing items and
delays in deliveries. Webvan's experience to date suggests that new operational
bugs in its software and hardware subsystems are likely to be revealed as Webvan
increases the order volumes at which its systems are operated. Operational bugs
may arise from one or more factors including electro-mechanical equipment
failures, computer server or system failures, network outages, software
performance problems, power failures or failures to properly maintain software
or hardware systems. Webvan expects bugs to continue to occur from time to time,
and Webvan cannot assure you that its operations will not be adversely affected.
To date, these bugs have been corrected in a short period of time by Webvan
employees or contractors or by systems vendors and have not resulted in any long
term impact on its operations. In addition, difficulties in implementing
refinements or modifications to Webvan's systems have, from time to time, caused
Webvan to suffer unanticipated system disruptions, which impair the quality of
its service during the period of disruption. The efficient and stable operation
of Webvan's business system is critical to consumer acceptance of its service.
If Webvan is unable to meet customer demand or service expectations as a result
of operational issues, Webvan may be unable to develop customer relationships
that result in repeat orders, which would adversely affect its business and net
sales.
WEBVAN WILL NEED SUBSTANTIAL ADDITIONAL CAPITAL TO FUND ITS PLANNED EXPANSION,
AND WEBVAN CANNOT BE SURE THAT ADDITIONAL FINANCING WILL BE AVAILABLE.
Webvan requires substantial amounts of capital to fund its business
operations. In addition, the opening of new distribution centers and the
continued development of Webvan's order fulfillment and delivery systems
requires significant amounts of capital. The rate at which Webvan's capital is
utilized is affected by the pace of its expansion under Webvan's business plan.
Since Webvan's inception, Webvan has experienced negative cash flow from
operations and expects to experience significant negative cash flow from
operations for the foreseeable future. Webvan continues to evaluate alternative
means of financing to meet its needs on terms that are attractive to Webvan.
Webvan currently anticipates that, assuming no additional distribution centers
are built in 2001, its available funds will be sufficient to meet its
anticipated capital needs to fund operations and capital expenditures through
the period ending June 30, 2001. Webvan expects that it will have to raise
additional funds to fund its operations for the period after June 30, 2001.
Webvan also currently anticipates that if the merger occurs, assuming no
additional distribution centers are built in 2001, its available funds will
likewise be sufficient to meet its anticipated capital needs to fund operations
and capital expenditures through the period ending June 30, 2001 and expects
that it will have to raise additional funds to fund its operations for the
period after June 30, 2001. Webvan intends in the immediate future to raise
additional funds to support its business plan for 2001 or Webvan will curtail
its expansion plans. Webvan cannot be certain that additional financing will be
available to it on favorable terms when required, or at all. If Webvan is unable
to obtain sufficient additional capital when needed, Webvan would be forced to
alter its business strategy which could have a material adverse effect on its
business, financial condition and Webvan's ability to reduce losses or generate
profits.
In July 1999, Webvan entered into an agreement with Bechtel for the
construction of up to 26 additional distribution centers over three years.
Webvan has no obligation under the Bechtel agreement to build any or all of
these distribution centers and, consequently, no capital commitment under the
agreement until Webvan determines to proceed with the build out of a particular
distribution center. Webvan's expenditures for the design, construction and
equipping of 26 distribution centers are estimated to be approximately $1.0
billion. Specific capital commitments under this contract are incurred only as
and to the extent Webvan determines to proceed with a scheduled build out of a
distribution center.
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Webvan's future capital needs will be highly dependent on the number and
actual cost of additional distribution centers Webvan opens, the timing of
openings and the success of Webvan's facilities once they are launched. While
Webvan expects that the higher average costs of its initial distribution
centers, all of which involve retrofits of existing buildings, will be offset by
the anticipated lower average costs of subsequent distribution centers, Webvan
cannot assure you of the actual cost of its additional distribution centers.
Webvan will need to raise additional capital to fund its planned expansion of
additional distribution centers in 2001 and plans to seek to raise such capital
in the immediate future. In the past, Webvan has funded its operating losses and
capital expenditures through proceeds from equity offerings, debt financing and
equipment leases. From time to time Webvan has considered and discussed various
financing alternatives and expects to continue such efforts. There can be no
assurance that such efforts will result in additional capital on terms
acceptable to Webvan. If Webvan raises additional funds through the issuance of
equity, equity-linked or debt securities, those securities may have rights,
preferences or privileges senior to those of the rights of its common stock and
Webvan's stockholders may experience substantial dilution.
THE BUSINESS SYSTEMS USED BY WEBVAN AND HOMEGROCER MAY NOT BE READILY OR COST-
EFFECTIVELY REPLICABLE IN ADDITIONAL GEOGRAPHIC MARKETS.
A critical part of the business strategy of Webvan and HomeGrocer is to
expand their businesses by opening additional distribution facilities in new
markets to achieve economies of scale and leverage their significant and ongoing
capital investments in their proprietary business systems. Webvan currently
anticipates opening its Baltimore and New Jersey distribution centers in the
fourth quarter of 2000, and, given among other things, the pendency of the
merger, has determined to postpone the opening of its Seattle distribution
center until the first quarter of 2001. Webvan currently plans to open an
additional two distribution centers by mid-2001 if it is able to raise
sufficient additional capital. Webvan's expansion strategy is dependent upon the
ability of its proprietary business system and enabling software to be readily
replicated to facilitate expansion into additional geographic markets on a
timely and cost-effective basis. Because Webvan's business system is extremely
complex and operation of its second distribution center has only recently begun,
Webvan has not demonstrated whether its proprietary business system is in fact
readily and cost-effectively replicable. Upon the completion of the merger,
Webvan will also face the challenge of integrating HomeGrocer's systems into its
business system or replicating its own business system in HomeGrocer's
locations. The timing and/or cost of implementing this integration plan may be
greater than anticipated and may adversely effect customers' shopping
experiences which would have a material adverse effect on Webvan's business, net
sales and results of operations.
Webvan has recently determined that it can leverage Webvan's investment in,
and utilize the capacity of, certain distribution centers by serving additional
markets to the ones in which such facilities are located. While Webvan believes
that this will allow Webvan to extend its market reach without a corresponding
expenditure of capital resources, Webvan cannot assure you that the incremental
revenues associated with entry into such additional markets will warrant the
corresponding advertising and operational expenses.
The ability of Webvan and HomeGrocer to successfully and cost-effectively
replicate their business systems in additional geographic markets will also
depend upon a number of factors, including:
- the availability of appropriate and affordable sites that can accommodate
distribution facilities;
- the ability to successfully and cost-effectively hire and train qualified
employees to operate new distribution facilities;
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- the ability to develop relationships with local and regional
distributors, vendors and other product providers;
- acceptance of their product and service offerings; and
- competition.
The number, timing and cost of opening of new distribution facilities are
dependent on these factors and are therefore subject to considerable
uncertainty. If the replication element of the expansion strategy of Webvan or
HomeGrocer fails, the affected company could incur substantial additional
operating costs and be forced to delay its entrance into other markets.
Webvan currently obtains all of its carousels for Webvan's distribution
centers from Diamond Phoenix Corporation. In the event that the supply of
carousels from Diamond Phoenix was delayed or terminated for any reason, Webvan
believes that it could obtain similar carousels from other sources; however, the
integration of other carousels into the complex systems of Webvan's distribution
centers could result in construction delays and could require modifications to
Webvan's software systems. Similarly, the failure of Diamond Phoenix to support
and maintain installed carousels could result in system disruptions, which would
impair the quality of Webvan's service during the period of disruption.
Accordingly, any delay or termination of Webvan's relationship with Diamond
Phoenix could cause a material delay and increased cost in Webvan's planned
expansion program, or affect service expectations which could adversely affect
its business and sales.
WEBVAN'S EXPANSION PLANS ARE DEPENDENT ON THE PERFORMANCE OF, AND WEBVAN'S
RELATIONSHIP WITH, BECHTEL CORPORATION.
In July 1999, Webvan entered into an agreement with Bechtel, providing for
the provision of any combination of engineering, design, procurement,
construction and program management services for up to 26 additional
distribution centers over three years. Webvan expects to utilize Bechtel's
services under this agreement in connection with the construction of future
distribution centers. The success of Webvan's expansion program is highly
dependent on the success of Webvan's relationship with Bechtel and Bechtel's
ability to perform its obligations under the contract. Similarly, the failure of
the materials handling equipment systems integrator to perform on its contracts
with Webvan could adversely affect the timing and cost of Webvan's expansion.
Webvan's working relationship with Bechtel is relatively new and Webvan cannot
assure you that it will not encounter unexpected delays or design problems in
connection with the build-out of Webvan's distribution centers. Webvan also
cannot assure you that its relationship with Bechtel and Bechtel's acquisition
of experience in the construction of Webvan's distribution centers will result
in the expected cost efficiencies on which are based Webvan's estimates of the
average cost of these distribution centers. If Webvan's relationship with
Bechtel fails for any reason, Webvan would be forced to engage another
contractor, which would likely result in a significant delay in Webvan's
expansion plans and could result in increased costs of constructing and
equipping Webvan's distribution centers.
WEBVAN AND HOMEGROCER HAVE LITTLE EXPERIENCE IN MANAGING GEOGRAPHICALLY DIVERSE
OPERATIONS.
Webvan has only very recently begun operating in more than one region and
managing multiple distribution centers. HomeGrocer has operated in multiple
markets for over a year but only recently began operating in areas other than on
the West Coast. The success of each company's expansion plans will depend upon a
number of factors, including:
- the ability to integrate the operations of new distribution facilities
into existing operations;
- the ability to coordinate and manage distribution operations in multiple,
geographically distant locations;
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- the ability to respond to issues specific to other geographic areas, such
as adverse seasonal weather conditions that are not present in the
initial markets; and
- the ability to establish and maintain adequate management and information
systems and financial controls.
Any failure by Webvan or HomeGrocer to successfully address these factors;
as applicable, could have a material adverse effect on its ability to expand and
on its results of operations.
Upon completion of the merger, Webvan's ability to integrate the operations
of HomeGrocer's operations in six markets not previously served by Webvan
(Seattle, Washington; Portland, Oregon; Los Angeles, Orange County and San
Diego, California; and Dallas, Texas) will also depend on its ability to
successfully address such factors.
WEBVAN AND HOMEGROCER ANTICIPATE FUTURE LOSSES AND NEGATIVE CASH FLOW.
Webvan and HomeGrocer have experienced significant net losses and negative
cash flow since inception. As of June 30 and July 1, 2000, respectively, Webvan
had an accumulated deficit of $291.6 million and HomeGrocer had an accumulated
deficit of $195.1 million. Webvan incurred net losses of $132.2 million, $144.6
million and $12.0 million for the six months ended June 30, 2000 and the years
ended December 31, 1999 and 1998, respectively. HomeGrocer incurred net losses
of $101.9 million, $84.0 million and $7.9 million for the 26 week period ended
July 1, 2000 and the fiscal years ended January 1, 2000 and January 2, 1999,
respectively. Each of Webvan and HomeGrocer will continue to incur significant
capital and operating expenses over the next several years in connection with
planned expansion, including:
- the construction of and equipment for new Webvan distribution centers in
additional geographic markets at an estimated cost of $30.0 million to
$35.0 million per distribution center based on Webvan's experience to
date and efficiencies it expects will be progressively realized over the
course of Webvan's contract with Bechtel, such as savings associated with
procurement for multiple sites and the design of standardized
build-to-suit buildings which is expected to reduce construction time and
result in construction efficiencies;
- approximately $6.0 to $9.0 million to equip any new HomeGrocer customer
fulfillment center in additional geographic markets;
- the continued expansion and development of operations at currently
operational distribution facilities;
- increases in personnel at distribution facilities;
- brand development, customer service, marketing and other promotional
activities;
- operating losses anticipated to be incurred at each distribution facility
until such time as it achieves breakeven economics;
- the continued development of their respective computer networks,
websites, warehouse management and order fulfillment systems and delivery
infrastructure; and
- the development of strategic business relationships.
If a Webvan distribution center, viewed as a stand-alone business unit
without regard to headquarters' costs and certain promotional costs, is able to
successfully operate at the volume and cost levels expected to be reached by a
distribution center at the end of the first year of operation, Webvan expects
that the annualized earnings before interest, taxes, depreciation and
amortization for that distribution center, would be positive and the
distribution center would start to generate cash flow beginning in the fifth
quarter of operations. If a distribution center, viewed as a stand-alone
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business unit without regard to headquarters' costs, is able to operate
successfully at volumes and costs expected to be reached through the end of the
third year of operation, Webvan expects that the annualized earnings before
interest, taxes, depreciation and amortization for that distribution center,
from its launch through the end of that three-year period, would approximate the
expected costs of constructing and equipping such distribution center. Webvan
cannot assure you that its distribution centers will be able to successfully
operate at expected volume or cost levels, which are dependent upon a number of
factors including the productivity of delivery operations and the productivity
of Webvan's distribution center employees and operational processes.
As a result of the factors described above, both Webvan and HomeGrocer
expect to continue to have operating losses and negative cash flow on a
quarterly and annual basis for the foreseeable future. To achieve profitability,
the companies must accomplish the following objectives:
- substantially increase the number of customers and the number of orders
placed by its customers;
- ensure that its systems and technologies function properly at increased
volumes;
- generate a sufficient average order size;
- achieve favorable gross margins; and
- achieve favorable operating margins, including by improving the
productivity of distribution facility operations and delivery operations.
Neither Webvan nor HomeGrocer can assure you that it will be able to
achieve these objectives.
In addition, because of the substantial capital costs associated with the
development of distribution facilities, Webvan and HomeGrocer will be unable to
achieve profitability or reduce their operating losses if they do not process
sufficient order volumes. Furthermore, because of the significant capital and
operating expenses associated with expansion, the overall losses of Webvan and
HomeGrocer will increase significantly from current levels in the event of
continued expansion. If either company does achieve profitability, it cannot be
certain that it would be able to sustain or increase such profitability on a
quarterly or annual basis in the future. If either company cannot achieve or
sustain profitability, it may not be able to meet its working capital
requirements, which would have a material adverse effect on its business.
THE SIGNIFICANT CAPITAL INVESTMENT REQUIRED BY THE BUSINESS DESIGNS OF WEBVAN
AND HOMEGROCER MAY ADVERSELY AFFECT THEIR ABILITY TO ENTER ADDITIONAL MARKETS IN
A TIMELY AND EFFECTIVE MANNER AND COULD HARM THEIR COMPETITIVE POSITION.
The business designs of Webvan and HomeGrocer require a significant capital
investment to build, equip and launch distribution facilities in the markets in
which they seek to operate. Their competitors, both on-line and traditional
brick and mortar retailers, have developed or may develop systems that are not
as highly automated or capital-intensive. This could enable on-line competitors
to commence operations in, or through the use of third party delivery services,
offer their products in a particular geographic market before Webvan or
HomeGrocer is able to do so, which could harm their competitive position.
WEBVAN AND HOMEGROCER FACE INTENSE COMPETITION FROM TRADITIONAL AND ONLINE
RETAILERS OF GROCERY PRODUCTS AND OTHER PRODUCTS.
The grocery retailing business is extremely competitive. Local, regional,
and national food chains, independent food stores and markets, as well as online
grocery retailers comprise the principal competition for Webvan and HomeGrocer
as an on-line grocery retailer, although each company also faces substantial
competition from convenience stores, liquor retailers, membership warehouse
clubs,
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specialty retailers, supercenters, and drugstore chains. To the extent that
Webvan or HomeGrocer adds non-grocery store product categories, local, regional
and national retailers in those product categories, as well as online retailers
in those product categories, will provide competition in those areas. Recently,
Safeway, a traditional grocery chain, acquired securities convertible into 50%
of GroceryWorks.com, an Internet grocer currently serving markets in Texas, and
Royal Ahold, the owner of several traditional grocery chains, acquired
securities convertible into 51% of Peapod. In November 1999, Albertson's
introduced an Internet-based service in the Seattle area. Many existing and
potential competitors, particularly traditional grocers and retailers such as
Safeway, Royal Ahold and Albertson's and certain online retailers, are larger
and have substantially greater resources than Webvan or HomeGrocer do separately
or on a combined basis. Webvan and HomeGrocer expect that this competition in
the online grocery and other product categories will intensify in the coming
years.
Webvan's initial distribution center in Oakland, California operates in the
San Francisco Bay Area and Sacramento markets. In these markets, Webvan competes
primarily with traditional grocery retailers and with online grocers NetGrocer
and Peapod. In Atlanta, Georgia and Chicago, Illinois, where Webvan has recently
opened distribution centers, Webvan competes primarily with traditional grocery
retailers and online grocers Peapod and Streamline. The number and nature of
competitors and the amount of competition Webvan and HomeGrocer will experience
will vary by market. In other markets, Webvan and HomeGrocer expect to compete
with respect to supermarket offerings primarily with traditional grocery
retailers and these and other online grocers, including Albertson's, HomeRuns,
GroceryWorks, ShopLink and Streamline. The principal competitive factors that
affect Webvan and HomeGrocer's businesses are location, breadth of product
selection, quality, service, price and consumer loyalty to traditional and
online grocery retailers. If either Webvan or HomeGrocer fails to compete
effectively in any one of these areas, the affected company may lose existing
and potential customers which would have a material adverse effect on its
business, net sales and operating margins.
IF WEBVAN OR HOMEGROCER FAILS TO GENERATE SUFFICIENT LEVELS OF REPEAT ORDERS AND
MARKET PENETRATION, BUSINESS AND NET SALES WILL BE ADVERSELY AFFECTED.
In the online retail industry, customer attrition rates, or the rates at
which subscribers cancel a service, are generally high. Webvan and HomeGrocer
depend upon customers to continue to order after their initial order is placed,
and each company competes to retain customers once they have used the company's
service. Accordingly, the ability of each company to increase the number of
orders placed by its customers is dependent upon the level of success not only
in getting people to try its service and generating customer accounts, but in
converting users into repeat customers. Even occasional failures of systems can
cause variations in the levels of operational execution which are sufficient to
materially affect the ability of each company to retain customers. Webvan and
HomeGrocer cannot assure you that their efforts to convert sufficient numbers of
customers into repeat users of their service will be successful.
In addition, the success of each company's business depends on its ability
to establish sufficient levels of market penetration in each market in which
they operate. This in turn will depend upon their ability to achieve customer
loyalty by means of a high quality of customer service and operational
execution. In general, in most of the larger metropolitan areas Webvan has
targeted as initial markets, Webvan believes it will need to achieve penetration
levels of approximately 1% to 3% of the households in order for Webvan's
distribution center in a market to be successful. However, Webvan cannot assure
you as to the levels of penetration it will achieve any market, and even if
Webvan does achieve these levels of penetration, it cannot assure you that it
will achieve positive earnings. If Webvan or HomeGrocer is unable to establish
sufficient customer loyalty to achieve market penetration levels or if they
experience significant decreases in repeat customer orders as a percentage of
orders delivered, their business and net sales could be materially adversely
affected.
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THE INTERNET MAY FAIL TO BECOME A WIDELY ACCEPTED MEDIUM FOR GROCERY SHOPPING.
Webvan and HomeGrocer rely solely on product orders received through their
Webstores for sales. The market for e-commerce is new and rapidly evolving, and
it is uncertain whether e-commerce will achieve and sustain high levels of
demand and market acceptance, particularly with respect to the grocery industry.
The success of Webvan and HomeGrocer will depend to a substantial extent on the
willingness of consumers to increase their use of online services as a method to
buy groceries and other products and services. Such success will also depend
upon vendors' acceptance of Webvan's and HomeGrocer's online service as a
significant means to market and sell their products. Moreover, the growth of
Webvan and HomeGrocer will depend on the extent to which an increasing number of
consumers own or have access to personal computers or other systems that can
access the Internet. If e-commerce in the grocery industry does not achieve high
levels of demand and market acceptance, the business of Webvan and HomeGrocer
will be materially adversely affected.
WEBVAN AND HOMEGROCER MAY FAIL TO ADEQUATELY PREDICT TECHNOLOGY TRENDS.
New technologies, such as kitchen appliances, hand-held devices and
software applications for telephones, are being developed to allow consumers to
access the Internet less expensively or more conveniently than with personal
computers. Any failure to adequately or cost-effectively create systems or enter
into strategic relationships that will allow Webvan's or HomeGrocer's website to
be accessed by technologies used by consumers to access the Internet would have
a material adverse effect on the affected company's business and net sales.
THE EFFORTS OF WEBVAN AND HOMEGROCER TO BUILD STRONG BRAND IDENTITY AND CUSTOMER
LOYALTY MAY NOT BE SUCCESSFUL.
Webvan and HomeGrocer each believe that establishing and maintaining brand
identity and brand loyalty is critical to attracting consumers and vendors.
Furthermore, each company believes that the importance of brand loyalty will
increase with the proliferation of Internet retailers. In order to attract and
retain consumers and vendors, and respond to competitive pressures, each company
intends to spend substantial amounts to create and maintain brand loyalty among
these groups. Each company plans to accomplish this goal through a variety of
programs which may include radio, newspaper, online and television advertising
campaigns. Advertising rates, and the cost of advertising campaigns in
particular, could increase substantially in the future. In addition, each
company must continue to invest in the creation of a world class customer
service function as a failure of their customer service representatives to
promptly respond to customer inquiries and concerns in a helpful manner may
negatively impact customer loyalty. If these branding efforts are not successful
or either company is unable to provide high quality customer care, the company's
net sales and ability to attract customers will be materially and adversely
affected.
Promotion and enhancement of the each company's brand will also depend on
its success in consistently providing a high-quality consumer experience for
purchasing groceries and other products. If consumers, other Internet users and
vendors do not perceive either company's service offerings to be of high
quality, or if either company introduces new services that are not favorably
received by these groups, the value of the brand could be harmed. Any brand
impairment or dilution could decrease the attractiveness of such company to one
or more of these groups, which could harm the company's reputation, reduce its
net sales and cause it to lose customers. Promotion and enhancement of the
Webvan brand will also depend upon its success in identifying its website in
customers' minds as a website for non-grocery products. Failure of consumers to
perceive Webvan as other than an on-line grocery e-tailer may limit Webvan's
ability to capitalize on the potential of its distribution center
infrastructure.
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Upon completion of the merger, Webvan intends to transition the business of
HomeGrocer to the Webvan brand. The integration process may result in the
disruption of customers' shopping experience which may have a material adverse
effect on Webvan's business and net sales. In addition, the inability of
HomeGrocer to be able to offer the same breadth and depth of products from its
facilities as Webvan does may adversely impact Webvan's efforts to develop a
consistent brand which could result in one or more of the adverse effects
described above.
IF WEBVAN OR HOMEGROCER IS UNABLE TO OBTAIN SUFFICIENT QUANTITIES OF PRODUCTS
FROM APPROPRIATE VENDORS, OR RELATIONSHIPS WITH KEY CONSUMER PRODUCTS COMPANIES
ARE NOT SUCCESSFUL, AVERAGE ORDER SIZE AND NET SALES WOULD BE ADVERSELY
AFFECTED.
Each of Webvan and HomeGrocer derives a significant percentage of its net
sales of grocery products from high-volume items, well-known brand name products
and fresh foods. Each company sources these products from a network of
manufacturers, wholesalers and distributors, and currently relies on national
and regional distributors for a substantial portion of its items. Each of Webvan
and HomeGrocer also utilize premium specialty suppliers or local sources for
gourmet foods, farm fresh produce, fresh fish and meats. From time to time,
Webvan and HomeGrocer may experience difficulty in obtaining sufficient product
allocations from a key vendor. In addition, Webvan has entered into strategic
relationships with a number of the largest consumer products companies in the
U.S. in an attempt to optimize its product marketing, product assortment and
supply chain management practices. Webvan cannot assure you that these
relationships will prove successful and any failure in this regard would
adversely affect the goal of these relationships: to increase average order
sizes, improve gross margins and improve customer acquisition and retention. In
addition, key vendors of Webvan and HomeGrocer may establish their own online
retailing efforts, which may impact such company's ability to get sufficient
product allocations from these vendors. Many of the key vendors of Webvan and
HomeGrocer also supply products to their online and traditional grocery
competitors.
IF WEBVAN OR HOMEGROCER IS UNABLE TO OBTAIN SUFFICIENT QUANTITIES OF NON-GROCERY
PRODUCTS FROM ITS KEY VENDORS TO MEET CUSTOMER DEMAND, ITS NET SALES, RESULTS OF
OPERATIONS AND THE ABILITY OF THAT COMPANY TO FULFILL THE "LAST MILE" OF
E-COMMERCE WOULD BE MATERIALLY ADVERSELY AFFECTED.
Webvan and HomeGrocer must establish and maintain strategic relationships
with a number of manufacturers, wholesalers and distributors of non-grocery
products in connection with the expansion of the categories of product each
company expects to offer to their customers. The ability of Webvan and
HomeGrocer to secure the rights to sell these products or to secure favorable
pricing for these products will depend in part upon vendor perceptions of Webvan
and HomeGrocer as a distribution channel for these products. Neither Webvan nor
HomeGrocer can assure you that these vendors will view it as a suitable
distribution channel for their products or that it will be successful as a
distribution channel for a sufficient number of these products, and the
inability of either company to offer key product categories at appropriate
prices to their customers would adversely affect the company's ability to become
for its customers the preferred choice for purchases of products over the
Internet that are delivered to the home.
WEBVAN'S REVENUES ARE STILL DERIVED PRIMARILY FROM TWO DISTRIBUTION CENTERS;
HOMEGROCER OPERATES A LIMITED NUMBER OF DISTRIBUTION FACILITIES.
Webvan currently operates three distribution centers located in Oakland,
California, serving the San Francisco Bay Area and Sacramento markets, in
Suwanee, Georgia, serving Atlanta and in Carol Stream, Illinois, serving
Chicago. Because Webvan only recently opened its second and third distribution
centers, Webvan's business and operations would be materially adversely affected
if any of
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the following events affected Webvan's Oakland distribution center or the San
Francisco Bay Area: prolonged power or equipment failures; disruptions in
Webvan's website, computer network, software and Webvan's order fulfillment and
delivery systems; disruptions in the transportation infrastructure including
bridges, tunnels and roads; refrigeration failures or other failures due to
power outages; or fires, floods, earthquakes or other disasters.
Since the San Francisco Bay Area is located in an earthquake-sensitive
area, Webvan is particularly susceptible to the risk of damage to, or total
destruction of, Webvan's distribution center and the surrounding transportation
infrastructure caused by earthquakes. Webvan cannot assure you that it is
adequately insured to cover the total amount of any losses caused by any of the
above events. In addition, Webvan is not insured against any losses due to
interruptions in its business due to damage to or destruction of Webvan's
distribution center caused by earthquakes or to major transportation
infrastructure disruptions or other events that do not occur on Webvan's
premises.
HomeGrocer operates customer fulfillment centers in Seattle, Washington;
Portland, Oregon; Orange County, Los Angeles and San Diego, California; and
Dallas, Texas. The business, operations and financial results of the combined
company following the merger could be hurt if any of the external factors listed
above affect distribution facilities in any of these geographic areas.
IF THE MERGER IS NOT COMPLETED, HOMEGROCER WILL NEED SUBSTANTIAL ADDITIONAL
CAPITAL TO FUND ITS OPERATIONS AND PLANNED EXPANSION, AND HOMEGROCER CANNOT BE
SURE THAT ADDITIONAL FINANCING WILL BE AVAILABLE.
HomeGrocer requires substantial amounts of working capital to fund its
business. In addition, the opening of new customer fulfillment centers and the
continued development of HomeGrocer's order fulfillment and delivery systems
require significant amounts of capital. For example, HomeGrocer anticipates that
it will require approximately $6.0 to $9.0 million to equip each new customer
fulfillment center and approximately $5.0 to $12.0 million for brand
development, marketing and other promotional activities in each new geographic
market. In addition, HomeGrocer will need substantial additional capital to fund
growth beyond the initial phase of its expansion or if it encounters unexpected
costs in the initial phase of its expansion, such as higher than anticipated
real estate, technology or customer acquisition costs. Since its inception,
HomeGrocer has experienced negative cash flow from operations and expects to
experience significant negative cash flow from operations for the foreseeable
future. In the past, HomeGrocer has funded its operating losses and capital
expenditures through proceeds from equity offerings, debt financing and
equipment leases. Changes in the equity markets since HomeGrocer's initial
public offering on March 10, 2000 have affected the markets for debt financing
and equipment leases. HomeGrocer expects to require substantial additional
capital to fund its expansion program and operating expenses. HomeGrocer's
future capital needs will be highly dependent on the number and actual cost of
additional customer fulfillment centers it opens, the timing of openings and the
success of its facilities once they are launched. HomeGrocer cannot be certain
that additional financing will be available to it on favorable terms when
required, or at all. If HomeGrocer is unable to obtain sufficient additional
capital when needed, it could be forced to alter its business strategy, delay or
abandon some of its expansion plans or sell assets. Any of these events would
have a material adverse effect on its business, financial condition and our
ability to reduce losses or generate profits. In addition, if HomeGrocer raises
additional funds through the issuance of equity, debt or other securities, those
securities may have rights, preferences or privileges senior or equal to those
of the rights of its common stock and its stockholders may experience
substantial dilution.
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THE LIMITED OPERATING HISTORY OF WEBVAN AND HOMEGROCER MAKES FINANCIAL
FORECASTING DIFFICULT FOR EACH COMPANY AND FOR FINANCIAL ANALYSTS THAT MAY
PUBLISH ESTIMATES OF THEIR FINANCIAL RESULTS.
As a result of the limited operating history of Webvan and HomeGrocer, it
is difficult to accurately forecast either company's total revenue, revenue per
distribution facility, gross and operating margins, real estate and labor costs,
average order size, number of orders per day and other financial and operating
data. Each of Webvan and HomeGrocer has a limited amount of meaningful
historical financial data upon which to base planned operating expenses. Webvan
bases its current and future expense levels on its experience since June 1999,
Webvan's operating plans and estimates of future revenue, and Webvan's expenses
are dependent in large part upon Webvan's facilities costs, which depend in part
upon employee productivity, delivery densities, and product costs. Sales and
operating results for Webvan and HomeGrocer are difficult to forecast because
they generally depend on the growth of each company's customer base and the
volume of the orders received, the mix of products sold, and each company's
ability to match demand, which fluctuates through each day and among the days of
the week, with the resources employed to fulfill that demand. As a result, each
company may be unable to make accurate financial forecasts and adjust its
spending in a timely manner to compensate for any unexpected revenue shortfall.
These difficulties also apply to financial analysts that may publish estimates
of either company's financial results. This inability to accurately forecast
results could cause its net losses in a given quarter to be greater than
expected and could cause a decline in the trading price of the common stock of
Webvan or HomeGrocer.
THE QUARTERLY OPERATING RESULTS OF WEBVAN AND HOMEGROCER ARE EXPECTED TO BE
VOLATILE AND DIFFICULT TO PREDICT BASED ON A NUMBER OF FACTORS THAT WILL ALSO
AFFECT THE LONG-TERM PERFORMANCE OF EACH COMPANY.
Each of Webvan and HomeGrocer expects its quarterly operating results to
fluctuate significantly in the future based on a variety of factors. These
factors are also expected to affect the long-term performance of each company.
Some of these factors include the following:
- the timing of expansion plans as each company constructs and begins to
operate new distribution facilities in additional geographic markets;
- changes in pricing policies;
- changes in product and service offerings and customer acceptance of each
company as an on-line retailer of non-grocery products;
- increases in personnel, marketing and other operating expenses to support
each company's anticipated growth;
- the inability to obtain new customers or retain existing customers at
reasonable cost;
- the inability to manage distribution and delivery operations to handle
significant increases in the number of customers and orders or to
overcome system or technology difficulties associated with these
increases;
- the inability of each company to adequately maintain, upgrade and develop
its website, its computer network or the systems that it uses to process
customer orders and payments;
- competitive factors; and
- technical difficulties, system or web site downtime, denial of service
attacks or Internet brownouts.
In addition to these factors, the quarterly operating results of each of
Webvan and HomeGrocer are expected to fluctuate based upon seasonal purchasing
patterns of its customers and the mix of
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groceries and other products sold. Because of each company's short operating
history and limited geographical coverage, they may not accurately predict the
seasonal purchasing patterns of its customers and may experience unexpected
difficulties in matching inventory to demand by customers.
Due to all of these factors, each of Webvan and HomeGrocer expects its
operating results to be volatile and difficult to predict. As a result,
quarter-to-quarter comparisons of each company's operating results may not be
good indicators of its future performance. In addition, it is possible that in
any future quarter the operating results of Webvan or HomeGrocer could be below
the expectations of investors generally and any published reports or analyses of
such company. In that event, the price of such company's common stock could
decline, perhaps substantially.
IF WEBVAN OR HOMEGROCER EXPERIENCES PROBLEMS IN ITS DELIVERY OPERATIONS, ITS
BUSINESS COULD BE SERIOUSLY HARMED.
Webvan delivers products by truck from the distribution center to its local
stations and, uses its couriers to deliver from the local stations to its
customers. HomeGrocer uses its own couriers to deliver products from its
distribution facility to its customers. Webvan and HomeGrocer are each subject
to the risks associated with its ability to provide delivery services to meet
its shipping needs, including potential labor activism or employee strikes,
inclement weather, disruptions in the transportation infrastructure, including
bridges, roads and traffic congestion. While each of Webvan and HomeGrocer
strives to maintain high on-time delivery rates and order fulfillment accuracy
rates, each company has, on occasion, experienced operational "bugs" that have
resulted in a high proportion of late deliveries or order fulfillment
inaccuracies on particular days. To date, these bugs have been corrected in a
short period of time by employees or contractors and have not resulted in any
long term impact on either company's operations. Any material decrease in the
on-time delivery rate or in order fulfillment accuracy would likely have an
adverse impact on the company's consumer acceptance of its service and harm its
reputation and brand, and a prolonged decline in on-time delivery rate or in
order fulfillment accuracy would have an adverse impact on the company's
financial results.
THE NET SALES OF WEBVAN AND HOMEGROCER WOULD BE HARMED IF ONLINE SECURITY
MEASURES FAIL.
Customer relationships may be adversely affected if the security measures
that Webvan or HomeGrocer uses to protect their personal information, such as
credit card numbers, are ineffective. If, as a result, the affected company
loses many customers, its net sales and results of operations would be harmed.
Webvan relies on security and authentication technology to perform real-time
credit card authorization and verification with Webvan's bank. Webvan cannot
predict whether events or developments will result in a compromise or breach of
the technology Webvan uses to protect a customer's personal information.
Furthermore, Webvan's computer servers may be vulnerable to computer
viruses, physical or electronic break-ins and similar disruptions. Webvan and
HomeGrocer may need to expend significant additional capital and other resources
to protect against a security breach or to alleviate problems caused by any
breaches. Neither company can assure you that it can prevent all security
breaches, and any failure to do so could have a material adverse effect on its
reputation and results of operations.
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THE LOSS OF THE SERVICES OF ONE OR MORE KEY PERSONNEL, OR THE FAILURE TO
ATTRACT, INTEGRATE NEW HIRES AND RETAIN OTHER HIGHLY QUALIFIED PERSONNEL IN THE
FUTURE WOULD SERIOUSLY HARM THE BUSINESS OF WEBVAN AND HOMEGROCER.
The loss of the services of one or more key personnel of Webvan or
HomeGrocer could seriously harm its business. Each company depends on the
continued services and performance of its senior management and other key
personnel. In particular, Webvan is dependent on George T. Shaheen, Webvan's
President and Chief Executive Officer and its senior vice presidents, and
HomeGrocer is dependent on its senior executives. The future success of each
company also depends upon the continued service of its executive officers and
other key software development, merchandising, marketing and support personnel.
The competition for talented employees in the San Francisco Bay Area is intense
and Webvan's ability to retain key employees at its headquarters is a function
of a number of factors, some of which are beyond Webvan's control, such as the
value of other opportunities perceived to be available in the Bay Area. None of
Webvan's officers or key employees is bound by an employment agreement and
Webvan's relationships with these officers and key employees are at will.
Several key members of Webvan's management team have joined Webvan in the past
nine months. If Webvan does not effectively integrate these employees into its
business, if they do not work together as a management team to enable Webvan to
implement its business strategy, or if Webvan is unable to retain them for any
reason, Webvan's business will suffer. Additionally, there are low levels of
unemployment in the San Francisco Bay Area and in many of the regions in which
Webvan plans to operate. These low levels of unemployment have led to pressure
on wage rates, which can make it more difficult and costly for Webvan to attract
and retain qualified employees.
In addition, the inability of either Webvan or HomeGrocer to hire and train
qualified employees in accordance with its schedule for meeting demand at any
distribution facility as order volumes scale at that facility could have a
negative impact on its ability to attract and retain customers. Webvan plans to
open two distribution centers in the fourth quarter of 2000 and one distribution
center in January 2001, which may place a strain on Webvan's ability to properly
train employees responsible for managing the systems at those distribution
centers.
The loss of key personnel, or the failure of Webvan or HomeGrocer to
attract additional personnel, could have a material adverse effect on the
business, results of operations and performance in specific geographic markets.
WEBVAN MAY NEED TO CHANGE THE MANNER IN WHICH IT CONDUCTS ITS BUSINESS IF
GOVERNMENT REGULATION OF THE INTERNET INCREASES OR IF REGULATION DIRECTED AT
LARGE-SCALE RETAIL OPERATIONS IS DEEMED APPLICABLE TO WEBVAN.
The adoption or modification of laws or regulations relating to the
Internet and large-scale retail store operations could adversely affect the
manner in which Webvan currently conducts its business. In addition, the growth
and development of the market for online commerce may lead to more stringent
consumer protection laws which may impose additional burdens on Webvan. Laws and
regulations directly applicable to communications or commerce over the Internet
are becoming more prevalent. The United States government recently enacted
Internet laws regarding privacy, copyrights, taxation and the transmission of
sexually explicit material. The Federal Trade Commission has indicated that it
will investigate the practices of Internet companies relating to the handling of
user-specific data. The law of the Internet, however, remains largely unsettled,
even in areas where there has been some legislative action. It may take years to
determine whether and how existing laws such as those governing intellectual
property, privacy, libel and taxation apply to the Internet. In 1999, the
Governor of California vetoed legislation which would have prohibited a public
agency from authorizing retail store developments exceeding 100,000 square feet
if more than a small portion of
23
<PAGE> 30
the store were devoted to the sale of non-taxable items, such as groceries.
While it is not clear whether the operations of Webvan or HomeGrocer would be
considered a retail store for purposes of this kind of legislation, neither
company can assure you that other state or local governments will not seek to
enact similar laws or that they would be successful if forced to challenge the
applicability of this kind of legislation to its distribution facilities. The
expenses associated with any challenge to this kind of legislation could be
material. If Webvan or HomeGrocer is required to comply with new regulations or
legislation or new interpretations of existing regulations or legislation, this
compliance could cause the affected company to incur additional expenses or
alter its business model.
WEBVAN AND HOMEGROCER MAY INCUR SIGNIFICANT COSTS OR EXPERIENCE PRODUCT
AVAILABILITY DELAYS IN COMPLYING WITH REGULATIONS APPLICABLE TO THE SALE OF FOOD
PRODUCTS.
Neither Webvan nor HomeGrocer is currently subject to regulation by the
United States Department of Agriculture, or USDA. Whether the handling of food
items in either company's distribution facilities, such as meat and fish, will
subject it to USDA regulation in the future will depend on several factors,
including whether the company sells food products on a wholesale basis or
whether the company obtains food products from non-USDA inspected facilities.
Although Webvan and HomeGrocer have designed their food handling operations to
comply with USDA regulations, neither can assure you that the USDA will not
require changes to its food handling operations. Webvan and HomeGrocer will also
be required to comply with local health regulations concerning the presentation,
preparation and packaging of its prepared meals and other food items. Any
applicable federal, state or local regulations may cause Webvan and HomeGrocer
to incur substantial compliance costs, including changes to software systems or
operational processes, or delay the availability of a number of items at one or
more of the company's distribution facilities. In addition, any inquiry or
investigation from a food regulatory authority could have a negative impact on
the company's reputation. Any of these events could have a material adverse
effect on the affected company's business and expansion plans and could cause
such company to lose customers.
WEBVAN AND HOMEGROCER MAY NOT BE ABLE TO OBTAIN REQUIRED LICENSES OR PERMITS FOR
THE SALE OF ALCOHOL AND TOBACCO PRODUCTS IN A COST-EFFECTIVE MANNER OR AT ALL.
Webvan and HomeGrocer will be required to obtain state licenses and permits
for the sale of alcohol and tobacco products in each location in which they seek
to open a distribution facility. Webvan and HomeGrocer cannot assure you that
they will be able to obtain any required permits or licenses in a timely manner,
or at all. Webvan does not currently have a license for alcohol in its Atlanta
distribution center, nor does HomeGrocer have a liquor license for its customer
fulfilment center in Dallas, Texas. Webvan and HomeGrocer may be forced to incur
substantial costs and experience significant delays in obtaining permits or
licenses for these and other facilities and each company faces significant
regulatory hurdles in these locations. In addition, the United States Congress
is considering enacting legislation which would restrict the interstate sale of
alcoholic beverages over the Internet. Changes to existing laws or the inability
of Webvan or HomeGrocer to obtain required permits or licenses could prevent
such company from selling alcohol or tobacco products in one or more of its
geographic markets. Any of these events could substantially harm the affected
company's net sales, gross profit and its ability to attract and retain
customers.
ANY FAILURE OF EMPLOYEES TO ADHERE TO OPERATIONAL POLICIES MAY HAVE A NEGATIVE
IMPACT ON WEBVAN'S OR HOMEGROCER'S REPUTATION AND MAKE THAT COMPANY VULNERABLE
TO LIABILITY CLAIMS.
A number of operational processes are designed to ensure that Webvan's and
HomeGrocer's services comply with applicable law and customer expectations. For
instance, each company is required to verify the age of purchasers of alcohol
and tobacco products. If delivery personnel fail to
24
<PAGE> 31
request the proper identification or if false identification cards are presented
by the purchaser, Webvan or HomeGrocer could face substantial penalties and
legal liability for sales of alcohol and tobacco products to underage persons.
Any inquiry or investigation from a regulatory authority could have a negative
impact on the affected company's reputation and any liability claims could
require such company to spend significant time and money in litigation.
IN THE FUTURE, WEBVAN OR HOMEGROCER MAY FACE POTENTIAL PRODUCT LIABILITY CLAIMS
OR ADVERSE PUBLICITY.
Neither Webvan nor HomeGrocer can assure you that the products that it
delivers will be free from contaminants. Grocery and other related products
occasionally contain contaminants due to inherent defects in the products or
improper storage or handling. If any of the products that either company sells
cause harm or has the potential to cause harm to any of its customers, the
company could be subject to product liability lawsuits or adverse publicity. If
Webvan or HomeGrocer is found liable under a product liability claim, or even if
the company is required to defend itself against such a claim, the affected
company's reputation could suffer and customers may substantially reduce their
orders or stop ordering from such company.
THE NET SALES OF WEBVAN OR HOMEGROCER WOULD BE HARMED IF SUCH COMPANY
EXPERIENCES SIGNIFICANT CREDIT CARD FRAUD.
A failure to adequately control fraudulent credit card transactions would
harm the net sales and results of operations of Webvan or HomeGrocer because
neither company carries insurance against this risk. The affected company may
suffer losses as a result of orders placed with fraudulent credit card data even
though the associated financial institution approved payment of the orders.
Under current credit card practices, Webvan or HomeGrocer would be liable for
fraudulent credit card transactions because neither company obtains a
cardholder's signature. Because each of Webvan and HomeGrocer has had a short
operating history, they cannot predict their future levels of bad debt expense.
IF THE PROTECTION OF THE TRADEMARKS AND PROPRIETARY RIGHTS OF WEBVAN OR
HOMEGROCER IS INADEQUATE, THE AFFECTED COMPANY'S BUSINESS MAY BE SERIOUSLY
HARMED.
Each of Webvan and HomeGrocer regards patent rights, copyrights, service
marks, trademarks, trade secrets and similar intellectual property as important
to its success. Each company relies on patent, trademark and copyright law,
trade secret protection and confidentiality or license agreements with its
employees, customers, partners and others to protect its proprietary rights;
however, the steps each company takes to protect its proprietary rights may be
inadequate. Neither Webvan nor HomeGrocer currently has any patents. Each of
Webvan and HomeGrocer has filed, and from time to time expects to file, patent
applications directed to aspects of its proprietary technology. Neither company
can assure you that any of these applications will be approved, that any issued
patents will protect its intellectual property or that any issued patents will
not be challenged by third parties. In addition, other parties may independently
develop similar or competing technology or design around any patents that may be
issued to Webvan or HomeGrocer. Each company evaluates which inventions it
should file patent applications for and in what jurisdictions such applications
should be filed on the basis of a number of factors such as the relative
benefits of trade secret and patent protection, the likelihood of a patent's
issuing, the cost of prosecuting patent applications and its current assessment
of the long-term value of the invention from a competitive point of view.
However, neither company can assure you that its patent strategy will prove to
be successful in best securing the competitive advantages of its technologies.
The failure of either company to protect its proprietary rights could materially
adversely affect such company's business and competitive position.
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<PAGE> 32
INTELLECTUAL PROPERTY CLAIMS AGAINST WEBVAN OR HOMEGROCER CAN BE COSTLY AND
COULD RESULT IN THE LOSS OF SIGNIFICANT RIGHTS.
Patent, trademark and other intellectual property rights are becoming
increasingly important to Webvan, HomeGrocer and other e-commerce vendors. Many
companies are devoting significant resources to developing patents that could
affect many aspects of each company's business. Other parties may assert
infringement or unfair competition claims against Webvan or HomeGrocer that
could relate to any aspect of such company's technologies, business processes or
other intellectual property. Neither Webvan nor HomeGrocer can predict whether
third parties will assert claims of infringement against them, the subject
matter of any of these claims, or whether these assertions or prosecutions will
harm its business. If Webvan or HomeGrocer is forced to defend itself against
any of these claims, whether they are with or without merit or are determined in
such company's favor, then such company may face costly litigation, diversion of
technical and management personnel, inability to use its current web site
technology, or product shipment delays. As a result of a dispute, Webvan or
HomeGrocer may have to develop non-infringing technology or enter into royalty
or licensing agreements. These royalty or licensing agreements, if required, may
be unavailable on acceptable terms, or at all. If there is a successful claim of
patent infringement against Webvan or HomeGrocer and such company is unable to
develop non-infringing technology or license the infringed or similar technology
on a timely basis, its business and competitive position may be materially
adversely affected.
ANY DEFICIENCIES IN THE INTERNAL SYSTEMS OR THE SYSTEMS OF THIRD PARTIES ON
WHICH WEBVAN OR HOMEGROCER RELY COULD ADVERSELY AFFECT THEIR BUSINESS AND RESULT
IN A LOSS OF CUSTOMERS.
Each of Webvan's and HomeGrocer's Webstores has experienced in the past and
may experience in the future slower response times or disruptions in service for
a variety of reasons including failures or interruptions in such company's
systems. In addition, users depend on Internet service providers, online service
providers and other web site operators for access to the Webstore of each
company. Many of them have experienced significant outages in the past and could
experience outages, delays and other difficulties due to system failures
unrelated to the systems of either Webvan or HomeGrocer. Moreover, the Internet
infrastructure may not be able to support continued growth in its use. Any of
these problems could have a material adverse effect on the business of Webvan
and HomeGrocer and could result in a loss of customers.
Webvan's communications hardware and certain of Webvan's other computer
hardware operations are currently located at the facilities of AboveNet
Communications, Inc. in Santa Clara County, California. The hardware for the
warehouse management and materials handling systems of each distribution center
is maintained at that distribution center. Fires, floods, earthquakes, power
losses, telecommunications failures, break-ins and similar events could damage
these systems or cause them to fail completely. For instance, a power failure in
October 1999 at the facilities of Webvan's previous webstore server host caused
Webvan's webstore to be inaccessible for approximately two hours. To date,
Webvan has experienced several other instances when its Webstore was
inaccessible for unexpected reasons. Computer viruses, electronic break-ins or
other similar disruptive problems could also adversely affect Webvan's webstore.
Webvan's business could be adversely affected if its systems were affected by
any of these occurrences. Problems faced by AboveNet, with the
telecommunications network providers with whom it contracts or with the systems
by which it allocates capacity among its customers, including Webvan, could
adversely impact the customer shopping experience and consequently, Webvan's
business. Similarly, power outages on any day at a distribution center could
adversely impact Webvan's ability to fulfill orders from that distribution
center on that day, which would in turn impact customer satisfaction with
Webvan's service.
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<PAGE> 33
Webvan's insurance policies may not adequately compensate it for any losses that
may occur due to any failures or interruptions in Webvan's systems.
HomeGrocer's communications hardware and other computer hardware options
are located at a web site hosting provider in Seattle, Washington. The hardware
for HomeGrocer's warehouse management and inventory system is maintained in its
corporate data center in Kirkland, Washington. Fires, floods, earthquakes, power
losses, telecommunications failures, break-ins and similar events could damage
these systems or cause them to fail completely. In addition, HomeGrocer's
hosting provider is responsible for the allocation of HomeGrocer's system
capacity and any unanticipated problems with telecommunications network
providers with whom it contracts or with the systems by which it allocates
capacity among its customers could reduce its system capacity. Natural disasters
and any other unanticipated problems faced by its hosting provider could
adversely impact the customer shopping experience and, consequently, its
business.
THE STOCK PRICES OF WEBVAN AND HOMEGROCER ARE LIKELY TO BE VOLATILE AND COULD
DECLINE SUBSTANTIALLY.
The stock market has experienced significant price and volume fluctuations,
and the market prices of technology companies, particularly consumer-oriented
Internet-related companies, have been highly volatile.
For instance, prices of many "Business-to-Consumer" Internet retailer
companies have declined substantially since the initial public offerings of
Webvan and HomeGrocer. The prices at which Webvan's and HomeGrocer's common
stock trades has been and is likely to continue to be volatile and may fluctuate
substantially due to factors such as:
- the company's historical and anticipated quarterly and annual operating
results;
- variations between the company's actual results and the expectations of
investors or published reports or analyses;
- changes in analysts' estimates of the company's performance or industry
performance;
- announcements by the company or others and developments affecting its
business, systems or expansion plans;
- sales of large blocks of the company's common stock; and
- conditions and trends in e-commerce industries, particularly the online
grocery industry.
In the past, securities class action litigation has often been instituted
against companies following periods of volatility in the market price of their
securities. This type of litigation could result in substantial costs and a
diversion of management's attention and resources.
FUTURE SALES OF WEBVAN COMMON STOCK MAY CAUSE WEBVAN'S STOCK PRICE TO DECLINE.
If Webvan's stockholders sell substantial amounts of Webvan common stock in
the public market, the market price of Webvan common stock could decline. The
lock-up agreements entered into by Webvan's directors, officers and stockholders
in connection with Webvan's initial public offering contained restrictions on
the sale or other transfer of Webvan common stock expired in their entirety on
May 3, 2000.
The lock-up agreements entered into by HomeGrocer's directors, officers and
stockholders in connection with HomeGrocer's initial public offering containing
restrictions on the sale or other transfer of HomeGrocer common stock will
expire on September 6, 2000.
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<PAGE> 34
In connection with the merger, Webvan stockholders holding approximately
199 million shares have agreed not to sell or dispose of such shares for a
period of six months following the closing. In addition, HomeGrocer stockholders
that will receive an aggregate of approximately 76 million shares of Webvan
common stock in the merger have agreed not to sell or dispose of such shares for
a period of six months following the closing, except that one such stockholder,
Amazon.com, may sell up to three million shares in the first three months
following the merger and up to an additional five million shares in the second
three months following the closing of the merger. See "Agreements Related to the
Merger -- Lock-up Agreements". The market price of Webvan common stock could
decline if one or more of these significant stockholders decide for any reason
to sell substantial amounts of Webvan stock in the public market.
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<PAGE> 35
WEBVAN SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data in
conjunction with Webvan's consolidated financial statements and the notes to
those statements and "Webvan's Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing elsewhere in this joint proxy
statement/prospectus. The consolidated statement of operations data for the
period from inception through December 31, 1997 and for the years ended December
31, 1998 and 1999 and the consolidated balance sheet data as of December 31,
1998 and 1999 are derived from, and are qualified by reference to, the audited
consolidated financial statements and the notes to those statements included in
this joint proxy statement/prospectus that have been audited by Deloitte &
Touche LLP. The selected consolidated balance sheet data at December 31, 1997
has been derived from the audited financial statements of Webvan not included in
this joint proxy statement/prospectus, which has been audited by Deloitte &
Touche LLP. The consolidated statement of operations data for the six months
ended June 30, 1999 and 2000, and the consolidated balance sheet data at June
30, 2000 are derived from unaudited consolidated financial statements that
include, in the opinion of Webvan's management, all adjustments, consisting of
only normal, recurring adjustments, necessary for a fair presentation of the
information set forth therein. The consolidated results of operations for the
six months ended June 30, 2000 are not necessary indicative of future results.
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 17, SIX MONTHS ENDED
1996 (INCEPTION) YEARS ENDED DECEMBER 31, JUNE 30,
TO DECEMBER 31, ---------------------------- --------------------------
1997 1998 1999 1999 2000
----------------- ----------- ------------ ----------- ------------
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Net sales............................. $ -- $ -- $ 13,305 $ 395 $ 44,569
Cost of goods sold.................... -- -- 11,289 419 32,445
---------- ----------- ------------ ----------- ------------
Gross profit (loss)................. -- -- 2,016 (24) 12,124
Operating expenses:
Sales and marketing expenses........ -- -- 11,746 2,339 18,266
Software development................ 244 3,010 15,237 6,308 10,988
General and administrative.......... 2,612 8,825 92,406 22,957 96,883
Amortization of deferred stock
compensation...................... -- 1,060 36,520 3,953 34,494
---------- ----------- ------------ ----------- ------------
Total operating expenses........ 2,856 12,895 155,909 35,557 160,631
---------- ----------- ------------ ----------- ------------
Loss from operations.................. (2,856) (12,895) (153,893) (35,581) (148,507)
---------- ----------- ------------ ----------- ------------
Interest income....................... 85 923 11,480 1,641 16,623
Interest expense...................... 69 32 2,156 1,194 296
---------- ----------- ------------ ----------- ------------
Net interest income................. 16 891 9,324 447 16,327
---------- ----------- ------------ ----------- ------------
Net loss.............................. $ (2,840) $ (12,004) $ (144,569) $ (35,134) $ (132,180)
========== =========== ============ =========== ============
Basic and diluted net loss per
share............................... $ (0.33)(1) $ (0.31)(1) $ (1.43) $ (0.62) $ (0.41)
========== =========== ============ =========== ============
Weighted average shares outstanding --
basic and diluted................... 8,575,050(1) 39,343,747(1) 101,043,634 56,966,388 324,251,799
========== =========== ============ =========== ============
OTHER OPERATING DATA:
Capital expenditures.................. $ 265 $ 32,669 $ 64,253 $ 25,948 $ 123,216
Depreciation and amortization......... 57 1,323 44,232 6,626 44,114
</TABLE>
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<PAGE> 36
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------------- -------------------
1997 1998 1999 1999 2000
------ ------- -------- -------- --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and equivalents........................................ $2,935 $13,839 $ 60,220 $ 21,836 $ 21,221
Marketable securities....................................... 5,043 7,728 578,561 22,231 388,783
Working capital............................................. 7,693 10,923 605,618 31,773 367,286
Total assets................................................ 8,279 60,009 757,793 112,429 685,297
Long-term liabilities....................................... 17 14,337 12,147 14,216 14,272
Total stockholder's equity.................................. 7,972 33,612 705,252 79,626 613,410
</TABLE>
-------------------------
(1) As restated, see Note 15 of Notes to Consolidated Financial Statements.
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<PAGE> 37
HOMEGROCER SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with "HomeGrocer's Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements of HomeGrocer and the
related notes included elsewhere in this joint proxy statement/prospectus. The
selected statement of operations data set forth below for the period from
January 15, 1997 (inception) to January 3, 1998 and for the fiscal years ended
January 2, 1999, and January 1, 2000, and the selected balance sheet data as of
January 2, 1999 and January 1, 2000 have been derived from the audited financial
statements of HomeGrocer included elsewhere in this joint proxy
statement/prospectus, which have been audited by Ernst & Young LLP, Independent
Auditors. The selected balance sheet data as of January 3, 1998 has been derived
from the audited financial statements of HomeGrocer not included in this joint
proxy statement/prospectus, which has been audited by Ernst & Young, LLP
Independent Auditors. The unaudited financial data as of July 3, 1999, and July
1, 2000 and for the periods ended July 1, 2000 and July 3, 1999 are derived from
unaudited financial statements. The unaudited financial statements include all
adjustments, consisting of normal recurring accruals, which HomeGrocer considers
necessary for a fair presentation of the results of operations for these
periods. The historical results are not necessarily indicative of results to be
expected for any future period. Certain amounts have been reclassified to
conform with the 26 weeks ended July 1, 2000 presentation.
<TABLE>
<CAPTION>
51 WEEKS FROM
JANUARY 15, 1997 52 WEEKS 52 WEEKS 26 WEEKS 26 WEEKS
(INCEPTION) TO ENDED ENDED ENDED ENDED
JANUARY 3, 1998 JANUARY 2, 1999 JANUARY 1, 2000 JULY 3, 1999 JULY 1, 2000
---------------- ---------------- ---------------- ------------ ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................ $ -- $ 1,094 $ 21,648 $ 5,220 $ 51,008
Cost of merchandise sold......... -- 1,018 19,515 4,294 39,827
Customer fulfillment center
expenses....................... -- 1,103 18,932 3,389 40,140
Marketing expenses............... 160 1,756 9,345 2,088 21,317
Technology operations and
development expenses........... 594 2,599 12,274 3,218 14,580
Preopening expenses.............. 36 249 2,895 256 7,379
General & administrative
expenses....................... 274 1,748 15,762 2,603 17,640
Merger expenses.................. -- -- -- -- 1,487
Stock-based compensation
expense........................ 230 412 28,158 822 14,862
---------- ---------- ---------- ---------- ----------
Loss from operations............. (1,294) (7,791) (85,233) (11,450) (106,224)
Interest expense................. (61) (172) (384) (151) (997)
Interest income.................. -- 54 2,232 356 5,351
Other income/(expense)........... -- -- (608) (124) 18
---------- ---------- ---------- ---------- ----------
Net loss......................... $ (1,355) $ (7,909) $ (83,993) $ (11,369) $ (101,852)
========== ========== ========== ========== ==========
Basic and diluted net loss per
share.......................... $ (0.14) $ (0.72) $ (5.56) $ (0.85) $ (1.26)
========== ========== ========== ========== ==========
Weighted average shares
outstanding used to compute
basic and diluted net loss per
share.......................... 10,034,721 11,044,174 15,102,698 13,375,947 80,538,749
========== ========== ========== ========== ==========
</TABLE>
31
<PAGE> 38
<TABLE>
<CAPTION>
AS OF
---------------------------------------------------------------------------------
JANUARY 3, 1998 JANUARY 2, 1999 JANUARY 1, 2000 JULY 3, 1999 JULY 1, 2000
--------------- --------------- --------------- ------------ ------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and
marketable securities............ $ 313 $1,084 $ 77,568 $41,945 $158,571
Working capital (deficit).......... (1,296) 373 66,593 39,236 147,494
Total assets....................... 997 3,558 146,929 52,542 335,499
Long-term obligations, less current
portion.......................... -- 880 17,790 4,276 28,272
Total shareholders' equity
(deficit)........................ (643) 1,387 112,147 44,132 271,628
</TABLE>
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<PAGE> 39
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
OVERVIEW
On June 25, 2000, Webvan entered into an agreement to merge with HomeGrocer
in a transaction to be accounted for under the purchase method of accounting.
The terms of the merger agreement require Webvan to issue 1.07605 shares of
Webvan common stock for each share of HomeGrocer common stock outstanding as of
the effective date of the merger.
The accompanying unaudited pro forma combined condensed consolidated
balance sheet assumes that the merger took place as of June 30, 2000. The
unaudited pro forma combined condensed balance sheet combines the unaudited
consolidated balance sheet of Webvan as of June 30, 2000 and the unaudited
balance sheet of HomeGrocer as of July 1, 2000.
The accompanying unaudited pro forma combined condensed statements of
operations present the results of operations of Webvan for: (i) the year ended
December 31, 1999 combined with the statement of operations of HomeGrocer for
the fiscal year ended January 1, 2000 and: (ii) the unaudited results of
operations for Webvan for the six month period ended June 30, 2000, combined
with the unaudited results of operations for HomeGrocer for the 26 week period
ended July 1, 2000. The unaudited pro forma combined condensed consolidated
statements of operations give effect to the merger as if it had occurred as of
January 1, 1999.
The unaudited pro forma combined condensed consolidated balance sheet and
statements of operations are not necessarily indicative of the financial
position and operating results that would have been achieved had the transaction
been in effect as of the dates indicated and should not be construed as being a
representation of financial position or future operating results of the combined
companies.
The unaudited pro forma combined condensed consolidated financial
information should be read in conjunction with the audited consolidated
financial statements and related notes of Webvan and HomeGrocer which are
included elsewhere in this registration statement.
33
<PAGE> 40
UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
WEBVAN HOMEGROCER PRO FORMA
ACTUAL ACTUAL ----------------------------------
JUNE 30, 2000 JULY 1, 2000 ADJUSTMENTS COMBINED
------------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and Equivalents $ 21,221 $ 158,571 $ -- $ 179,792
Marketable Securities 388,783 -- -- 388,783
Inventories 3,226 6,890 -- 10,116
Related Party Receivable 1,248 -- -- 1,248
Prepaid Expenses and Other Current
Assets 10,423 16,373 (650) A 26,146
--------- --------- ---------- ----------
Total Current Assets 424,901 181,834 (650) 606,085
Property, Equipment and Leasehold
Improvements, Net 237,588 126,619 (48,104) A 316,103
Deposits and Other Long-term Assets 22,808 6,742 17,804 B 47,354
Restricted Cash -- 20,304 (20,304) B --
Goodwill -- -- 904,257 C 904,257
Other Intangible Assets -- -- 25,000 C 25,000
--------- --------- ---------- ----------
Total $ 685,297 $ 335,499 $ 878,003 $1,898,799
========= ========= ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 30,954 $ 4,315 $ 9,212 E $ 44,481
Accrued Liabilities 21,988 12,896 59,830 D, E 94,714
Accrued Compensation and Related
Liabilities -- 9,190 (9,190) E --
Current Portion of Capital Lease
Obligations -- 4,005 (4,005) E --
Current Portion of Long-term
Obligations 4,673 3,934 5,159 E 13,766
--------- --------- ---------- ----------
Total Current Liabilities 57,615 34,340 61,006 152,961
Capital Lease Obligations less Current
Portion -- 22,013 (22,013) E --
Long-term Obligations, less Current
Portion 14,272 6,259 22,118 E 42,649
Other Long-term Liabilities -- 1,259 (1,259) E --
--------- --------- ---------- ----------
Total Liabilities 71,887 63,871 59,852 195,610
Shareholders' Equity:
Common Stock 33 501,800 (501,786) F 47
Additional Paid-in Capital 964,864 -- 1,119,106 G 2,083,970
Notes Receivable from Officers for
Common Stock -- (3,231) 3,231 E --
Deferred Compensation (62,208) (31,744) 2,403 H (91,549)
Accumulated Deficit (291,593) (195,109) 195,109 I (291,593)
Accumulated Other Comprehensive Income
(Loss) 2,314 (88) 88 I 2,314
--------- --------- ---------- ----------
Total Shareholders' Equity 613,410 271,628 818,151 1,703,189
--------- --------- ---------- ----------
Total $ 685,297 $ 335,499 $ 878,003 $1,898,799
========= ========= ========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial
Statements.
34
<PAGE> 41
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
DECEMBER 31, 1999 JANUARY 1, 2000 PRO FORMA
WEBVAN HOMEGROCER --------------------------------
ACTUAL ACTUAL ADJUSTMENTS COMBINED
----------------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales $ 13,305 $ 21,648 $ -- $ 34,953
Cost of Goods Sold 11,289 19,515 -- 30,804
--------- -------- --------- ---------
Gross Profit 2,016 2,133 -- 4,149
--------- -------- --------- ---------
Customer Fulfillment Center
Expenses -- 18,932 (18,932) J --
Sales and Marketing Expenses 11,746 9,345 21,091
Development and Engineering
Expenses 15,237 12,274 (7,145) J, M 20,366
General and Administrative
Expenses 92,406 15,762 40,008 J, M 148,176
Amortization of Deferred
Compensation 36,520 28,158 (5,824) J, K 58,854
Amortization of intangible assets -- -- 193,351 L 193,351
Preopening Expenses -- 2,895 (2,895) J --
--------- -------- --------- ---------
Total Expenses 155,909 87,366 198,563 441,838
--------- -------- --------- ---------
Loss from Operations (153,893) (85,233) (198,563) (437,689)
Interest Income 11,480 2,232 -- 13,712
Interest Expense 2,156 384 -- 2,540
Other Expense -- 608 -- 608
--------- -------- --------- ---------
Net Interest and Other Expense 9,324 1,240 10,564
--------- -------- --------- ---------
Net Loss (144,569) (83,993) (198,563) (427,125)
Unrealized Gain (Loss) on
Marketable Securities (729) -- -- (729)
--------- -------- --------- ---------
Comprehensive Loss $(145,298) $(83,993) $(198,563) $(427,854)
========= ======== ========= =========
Basic and Diluted Net Loss Per
Share $ (1.43) $ (5.56) $ (1.79)
Weighted Average Shares
Outstanding -- Basic and
Diluted 101,044 15,103 122,681 238,828
========= ======== ========= =========
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial
Statements.
35
<PAGE> 42
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS 26 WEEKS
ENDED ENDED
JUNE 30, 2000 JULY 1, 2000
------------- ------------ PRO FORMA
WEBVAN HOMEGROCER ------------------------------
ACTUAL ACTUAL ADJUSTMENTS COMBINED
------------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales $ 44,569 $ 51,008 $ -- $ 95,577
Cost of Goods Sold 32,445 39,827 -- 72,272
--------- --------- --------- ---------
Gross Profit 12,124 11,181 -- 23,305
--------- --------- --------- ---------
Customer Fulfillment Center Expenses -- 40,140 (40,140) J --
Sales and Marketing Expenses 18,266 21,317 -- 39,583
Development and Engineering Expenses 10,988 14,580 (10,347) J, M 15,221
General and Administrative Expenses 96,883 17,640 59,544 J 174,067
Amortization of Deferred
Compensation 34,494 14,862 7,274 J, K 56,630
Amortization of Intangible Assets -- -- 96,676 L 96,676
Preopening Expenses -- 7,379 (7,379) J --
Merger Expenses -- 1,487 (1,487) J --
--------- --------- --------- ---------
Total Expenses 160,631 117,405 104,141 382,177
--------- --------- --------- ---------
Loss from Operations (148,507) (106,224) (104,141) (358,872)
Interest Income 16,623 5,351 -- 21,974
Interest Expense 296 997 -- 1,293
Other Income -- 18 -- 18
--------- --------- --------- ---------
Net Interest and Other Expense 16,327 4,372 -- 20,699
--------- --------- --------- ---------
Net Loss (132,180) (101,852) (104,141) (338,173)
Unrealized Gain (Loss) on Marketable
Securities 3,039 (887) -- 2,951
--------- --------- --------- ---------
Comprehensive Loss $(129,141) $(101,940) $(104,141) $(335,222)
========= ========= ========= =========
Basic and Diluted Net Loss Per Share $ (0.41) $ (1.26) $ (.73)
Weighted Average Shares
Outstanding -- Basic and Diluted 324,252 80,539 57,245 462,036
========= ========= ========= =========
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial
Statements.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
1. BASIS OF PRO FORMA PRESENTATION
On June 25, 2000, Webvan and HomeGrocer entered into a definitive agreement
that provides for the merger of Webvan and HomeGrocer. Under the terms of the
agreement, Webvan will issue 137.8 million shares of Webvan common stock to
HomeGrocer stockholders as of the date of the merger agreement.
The unaudited pro forma combined financial statements give effect to the
proposed merger of Webvan and HomeGrocer using the purchase method of
accounting. Under this method, the aggregate purchase price is allocated to
assets acquired and liabilities assumed based on their estimated fair values.
The pro forma adjustments are preliminary and are based on management's
36
<PAGE> 43
estimates of the value of the tangible and intangible assets acquired and
liabilities assumed. The allocation of the purchase price to the respective
assets and liabilities acquired is preliminary and subject to the completion of
a study to allocate the purchase price and finalize appropriate accruals. This
allocation should be completed soon after the consummation of the transaction.
Accordingly, the information presented herein may differ from the final purchase
price allocation; however, the allocations are not expected to differ materially
from the preliminary amounts.
The unaudited pro forma combined condensed consolidated balance sheet
assumes that the merger took place as of June 30, 2000. The unaudited pro forma
combined condensed balance sheet combines the unaudited consolidated balance
sheet of Webvan as of June 30, 2000 and the unaudited balance sheet of
HomeGrocer as of July 1, 2000.
The unaudited pro forma combined condensed statements of operations present
the results of operations of Webvan for: (i) the year ended December 31, 1999
combined with the statement of operations of HomeGrocer for the fiscal year
ended January 1, 2000 and: (ii) the unaudited results of operations for Webvan
for the six month period ended June 30, 2000, combined with the unaudited
results of operations for HomeGrocer for the 26 week period ended July 1, 2000.
The unaudited pro forma combined condensed consolidated statements of operations
give effect to the merger as if it had occurred as of January 1, 1999.
The total purchase cost of the HomeGrocer merger is estimated as follows
(in thousands):
<TABLE>
<S> <C>
Value of common shares issued............................... $ 992,792
Assumption of HomeGrocer options............................ 101,118
Estimated transaction costs and expenses.................... 5,000
----------
Total consideration....................................... $1,098,910
==========
</TABLE>
The purchase price allocation, which is preliminary and therefore subject
to change based on Webvan's final analysis, is as follows (in thousands):
<TABLE>
<S> <C>
Tangible assets............................................. $ 293,376
Intangible assets acquired:
Goodwill.................................................... 904,257
Customer lists.............................................. 2,500
Intellectual property....................................... 2,500
Workforce-in-place.......................................... 20,000
Long-term debt.............................................. (37,470)
Other liabilities........................................... (86,253)
----------
Total purchase price...................................... $1,098,910
==========
</TABLE>
HomeGrocer's tangible and specific intangible assets will be identified and
valued. The related amortization of the identifiable intangible assets is
reflected as a pro forma adjustment to the unaudited pro forma condensed
combined statements of operations. The identifiable intangible assets include
customer lists, existing technology and workforce-in-place.
The majority of acquired intellectual property relates to the website
processes. The acquired workforce in place consists of technology, marketing,
customer order fulfillment, delivery, general and administrative personnel.
2. PRO FORMA ADJUSTMENTS
The Webvan unaudited pro forma combined condensed consolidated financial
statements give effect to the allocation of the total purchase cost to the
assets and liabilities of HomeGrocer, based on their respective fair market
values and to the amortization of the fair value over the respective
37
<PAGE> 44
useful lives. The following pro forma adjustments have been made to the
unaudited pro forma combined condensed consolidated financial statements:
(A) To reflect certain prepaid expenses and property, equipment and leasehold
improvements at fair value, based on certain management assumptions as to
which acquired assets will and will not be utilized by the merged entity.
(B) To reclassify HomeGrocer restricted cash balances to conform to Webvan's
financial statement presentation of such balances offset by an adjustment
to reflect real estate deposits at fair value based on management's
assumptions regarding estimated potential impairment of such deposits for
real estate sites that will not be utilized by the merged entity.
(C) To record the estimated fair value on intangible assets resulting from the
merger including:
<TABLE>
<S> <C>
Goodwill.................................................... $904,257
Intellectual property....................................... 2,500
Customer list............................................... 2,500
Workforce-in-place.......................................... 20,000
--------
Total..................................................... $929,257
========
</TABLE>
(D) To record an estimated liability for Webvan's merger related transaction
costs, costs for disposing of real estate agreements and costs for
renegotiating or terminating vehicle, marketing and equipment agreements.
(E) To reclassify amounts to conform with the Webvan financial statement
presentation for similar amounts.
(F) To eliminate the historical common stock amount of HomeGrocer and to record
the par value of common stock of $14,000 to be issued upon closing of the
merger.
(G) To record the anticipated value of approximately 137.8 million shares of
Webvan common stock valued at $993 million, in excess of par value, plus
the fair value of approximately $130 million of Webvan stock options
granted to former HomeGrocer employees in exchange for HomeGrocer stock
options previously held by such employees, offset by stock issuance costs
incurred by Webvan and a reclassification of HomeGrocer notes receivable
from officers to conform with Webvan financial statement presentation.
(H) To record deferred compensation related to the unvested HomeGrocer stock
options assumed in the merger offset by the value of HomeGrocer stock
options cancelled in exchange for Webvan stock options issued.
(I) To eliminate the historical accumulated deficit and accumulated other
comprehensive loss of HomeGrocer.
(J) To reclassify amounts presented by HomeGrocer to general and administrative
expenses to conform with Webvan's financial statement presentation for
information technology -- operations, depreciation, customer fulfillment,
non-cash compensation, preopening costs and costs related to the merger.
(K) To record the amortization of deferred compensation as if the merger had
occurred on January 1, 1999, using the multiple grant approach.
(L) To record the amortization of goodwill and other identified intangible
assets related to the merger as if the transaction had occurred on January
1, 1999. Goodwill is amortized over five years and other intangibles are
amortized over 24 months.
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<PAGE> 45
(M) To reclassify depreciation and the cost of personnel working in information
technology -- operations to general and administrative expense to conform
with Webvan's financial statement presentation.
3. RESTRUCTURING COSTS
In connection with the merger, Webvan will incur costs associated with its
plans to exit some of its existing activities related to duplicate facilities in
accordance with Emerging Issues Task Force No. 95-3 (EITF No. 95-3),
"Recognition of Liabilities in Connection with a Purchase Business Combination".
In accordance with EITF 95-3, Webvan estimates that it will incur approximately
$16 million of restructuring costs. Of these restructuring charges,
approximately $8.5 million is expected to be paid in cash and the remaining $7.5
million will consist of assets written off at the time of disposal. These costs
relate to disposing of real estate agreements and terminating equipment
agreements within the year following consummation of the merger.
4. NEW ACCOUNTING PRONOUNCEMENTS
In December 1999 the Securities and Exchange Commission (SEC) released
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements,
which summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. Based on
these guidelines, revenue should not be recognized until it is realized or
realizable and earned. Webvan and HomeGrocer will adopt this statement in the
fourth fiscal quarter of its fiscal year ended December 31, 2000. Management
does not expect any material impact as a result of adopting the guidelines of
this standard.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation (FIN 44), that clarifies guidance for certain issues related to the
application of APB Opinion No. 25, Accounting for Stock Issued to Employees (APB
25). The new guidance under FIN 44 would not have impacted Webvan's historical
accounting for equity instruments and neither company believes that FIN 44 will
have an impact on accounting for future equity instruments.
In May 2000, the Emerging Issues Task Force reached a consensus on Issue
00-14, Accounting for Certain Sales Incentives. The issue addresses the
accounting for sales incentives by vendors without charge to customers that can
be used in a single exchange transaction. For example, certain promotional
costs, such as those relating to coupons, must be recorded as a reduction in
revenue. The consensus is required to be adopted prospectively in the first
fiscal quarter beginning after May 18, 2000. Upon adoption, Webvan will
reclassify $140,000 and $2.35 million of promotional costs previously included
in sales and marketing expense as a reduction to revenues for the year ended
December 31, 1999 and six months ended June 30, 2000, respectively. HomeGrocer
believes that its current and past accounting procedures are already in
accordance with Issue 00-14.
39
<PAGE> 46
COMPARATIVE PER SHARE DATA
The following table reflects (a) the historical net loss and book value per
share of Webvan common stock and the historical net loss and book value per
share of HomeGrocer common stock in comparison with the unaudited pro forma net
loss and book value per share after giving effect to Webvan's proposed merger
with HomeGrocer, and (b) the equivalent historical net loss and book value per
share attributable to 1.07605 shares of Webvan common stock which will be
received for each share of HomeGrocer common stock.
The historical book value per share is computed by dividing stockholders'
equity as of June 30, 2000 and July 1, 2000, by the actual common stock
outstanding. The pro forma per share loss from continuing operations is computed
by dividing the pro forma loss from continuing operations by the pro forma
weighted average number of shares outstanding, assuming Webvan had merged with
HomeGrocer at the beginning of the earliest period presented. The pro forma
combined book value per share is computed by dividing total pro forma
stockholders' equity by the pro forma number of common shares outstanding at
June 30, 2000, assuming the merger had occurred on that date. The Webvan
equivalent pro forma combined per share amounts are calculated by multiplying
the Webvan pro forma combined per share amounts by the exchange ratio of
1.07605.
The following information should be read in conjunction with the separate
audited historical consolidated financial statements and related notes of Webvan
and HomeGrocer, the unaudited pro forma condensed combined financial information
and related notes of Webvan and the selected historical and selected unaudited
pro forma financial data included elsewhere in this joint proxy
statement/prospectus. The pro forma information is presented for illustrative
purposes only and is not necessarily indicative of the operating results or
financial position that would have occurred if the merger of HomeGrocer had been
consummated as of the beginning of the earliest period presented, nor is it
necessarily indicative of the future operating results or financial position of
the combined company.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------ JUNE 30,
1997 1998 1999 2000
------ ------ ------ ----------
<S> <C> <C> <C> <C>
HISTORICAL WEBVAN:
Basic and diluted net loss per share................ $(0.33) $(0.31) $(1.43) $(0.41)
Book value per share at the end of the period....... $ 0.12 $ 0.43 $ 2.19 $ 1.84
</TABLE>
<TABLE>
<CAPTION>
51 WEEKS FROM
JANUARY 15, 1997 52 WEEKS 52 WEEKS 26 WEEKS
(INCEPTION) TO ENDED ENDED ENDED
JANUARY 3, 1998 JANUARY 2, 1999 JANUARY 1, 2000 JULY 1, 2000
---------------- --------------- --------------- ------------
<S> <C> <C> <C> <C>
HISTORICAL HOMEGROCER:
Basic and diluted net loss per
share......................... $(0.14) $(0.72) $(5.56) $(1.26)
Book value (deficit) per share at
the end of the period......... $(0.40) $ 0.11 $ 3.79 $ 2.12
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
1999 JUNE 30, 2000
------------ -------------
<S> <C> <C>
WEBVAN AND HOMEGROCER PRO FORMA COMBINED:
Pro forma net loss per Webvan share -- basic and
diluted................................................ $(1.79) $(0.73)
Pro forma net loss per equivalent HomeGrocer
share -- basic and diluted............................. $(1.93) $(0.79)
Pro forma book value per Webvan share at the end of the
period................................................. $ 3.62
Pro forma book value per equivalent HomeGrocer share at
the end of the period.................................. $ 3.89
</TABLE>
40
<PAGE> 47
MARKET PRICE AND DIVIDEND INFORMATION
Webvan common stock has been traded on the Nasdaq National Market under the
symbol "WBVN" since November 4, 1999, the date of Webvan's initial public
offering. HomeGrocer's common stock has been traded on the Nasdaq National
Market under the symbol "HOMG" since March 9, 2000, the date of HomeGrocer's
initial public offering. Prior to such dates, there was no established public
trading market for either company's capital stock. The following table sets
forth for the periods indicated the quarterly high and low sale prices per share
of Webvan common stock and HomeGrocer common stock as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
WEBVAN HOMEGROCER
---------------- ---------------
HIGH LOW HIGH LOW
------ ------ ------ -----
<S> <C> <C> <C> <C>
Fiscal Year Ended December 31, 1999:
Fourth Quarter.................................... $34.00 $15.06 N/A N/A
Fiscal Year Ended December 31, 2000:
First Quarter..................................... 18.50 7.47 $16.25 $7.94
Second Quarter.................................... 9.19 4.38 10.25 3.19
Third Quarter (through July , 2000)............. 9.38 6.69 8.00 6 .00
</TABLE>
RECENT SHARE PRICE
The table below presents the per share closing prices of Webvan common
stock and HomeGrocer common stock on the Nasdaq National Market and the pro
forma equivalent market value of Webvan common stock to be issued for HomeGrocer
common stock in the merger as of the dates specified. June 23, 2000 was the last
trading date before announcement of the merger. July , 2000 was the latest
practicable trading day before the printing of this joint proxy statement/
prospectus. The table also sets forth the equivalent per share price for
HomeGrocer common stock, which was determined by multiplying the closing prices
of the Webvan common stock as of the specified dates by the exchange ratio of
1.07605.
<TABLE>
<CAPTION>
WEBVAN
WEBVAN HOMEGROCER COMMON STOCK
COMMON STOCK COMMON STOCK EQUIVALENT VALUE
------------ ------------ ----------------
<S> <C> <C> <C>
June 23, 2000.............................. $8.72 $8.09 $9.38
, 2000........................
</TABLE>
HomeGrocer stockholders are advised to obtain current market quotations for
Webvan common stock and HomeGrocer common stock. No assurance can be given as to
the market prices of Webvan common stock or HomeGrocer common stock at any time
before the consummation of merger or as to the market price of Webvan common
stock at any time after merger. Because the exchange ratio is fixed, the
exchange ratio will not be adjusted to compensate HomeGrocer stockholders for
decreases in the market price of Webvan common stock which have and could occur
further before the merger becomes effective. In the event the market price of
Webvan common stock decreases or increases prior to the consummation of the
merger, the value of the Webvan common stock to be received in merger in
exchange for HomeGrocer common stock would correspondingly decrease or increase.
DIVIDENDS
Neither Webvan nor HomeGrocer has ever declared or paid cash dividends on
its capital stock. Pursuant to the merger agreement, each of Webvan and
HomeGrocer has agreed not to pay cash dividends pending the consummation of
merger, without the written consent of the other. If the merger is not
consummated, the HomeGrocer board anticipates that it would continue its policy
of retaining any and all earnings to finance the expansion of its business.
Webvan expects to retain all any and earnings for use in the operation and
expansion of its business and does not anticipate paying any cash dividends
before or after the merger.
41
<PAGE> 48
THE WEBVAN MEETING
DATE, TIME AND PLACE OF WEBVAN SPECIAL MEETING
The date, time and place of the special meeting of Webvan stockholders are
as follows:
, 2000
a.m. Pacific Time
PURPOSE OF THE SPECIAL MEETING
Webvan is furnishing this joint proxy statement/prospectus to its
stockholders in connection with the solicitation of proxies by Webvan's board of
directors. The Webvan board of directors will use the proxies at the special
meeting of stockholders of Webvan to be held on [ ], 2000 and at
any adjournment or postponement thereof.
The special meeting is being held so that Webvan stockholders may consider
and vote upon the following proposals:
1. To approve the issuance of shares of Webvan common stock in the proposed
merger of a wholly owned subsidiary of Webvan, with and into HomeGrocer,
as contemplated by the Agreement and Plan of Reorganization dated as of
June 25, 2000, between Webvan and HomeGrocer. Webvan will issue 1.07605
shares of common stock in exchange for each share of outstanding common
stock of HomeGrocer.
2. To transact any other business that properly comes before the special
meeting or any adjournments or postponements thereof.
RECORD DATE AND OUTSTANDING SHARES
Webvan's board of directors has fixed the close of business on
[ ], 2000 as the record date for the special meeting. Only holders
of record of Webvan's common stock at the close of business on the record date
are entitled to notice of and to vote at the meeting. As of the close of
business on the record date, there were [ ] shares of common
stock, outstanding and entitled to vote, held of record by approximately
[ ] stockholders, although Webvan has been informed that there are
in excess of [ ] beneficial owners of common stock.
VOTE AND QUORUM REQUIRED
Holders of Webvan common stock are entitled to one vote for each share held
as of the record date. Approval of the proposals to be voted upon by Webvan
stockholders requires the affirmative vote of a majority of the total voting
power of the outstanding common stock of Webvan present in person or represented
by proxy at the meeting. Attendance at the meeting in person or by proxy of the
shares representing a majority of the votes represented by Webvan is required
for a quorum.
On the record date, directors, executive officers and affiliates of Webvan
as a group beneficially owned [ ] shares of common stock.
Stockholders of Webvan have entered into voting agreements with HomeGrocer that
obligates them to vote, with respect to a total of approximately 40% of the
voting power represented by Webvan's common stock outstanding as of the record
date, in favor of approval of the issuance of common stock in connection with
the merger.
ABSTENTIONS; BROKER NON VOTES
Any abstention will be counted for purposes of determining a quorum, but
will have the same effect as a vote AGAINST any proposal considered at the
special meeting.
42
<PAGE> 49
In the event that a broker, bank, custodian, nominee or other record holder
of Webvan's common stock indicates on a proxy that it does not have
discretionary authority to vote certain shares on a particular matter, which is
called a broker non-vote, those shares will not be considered for purposes of
determining the number of shares entitled to vote with respect to a particular
proposal on which the broker has expressly not voted, but will be counted for
purposes of determining the presence or absence of a quorum for the transaction
of business.
EXPENSES OF PROXY SOLICITATION
Webvan will pay the expenses of soliciting proxies to be voted at the
meeting, except that HomeGrocer will share equally the expenses incurred in
connection with filing and printing this joint proxy statement/prospectus.
Following the original mailing of the proxies and other soliciting materials,
Webvan will request brokers, custodians, nominees and other record holders of
Webvan common stock to forward copies of the proxy and other soliciting
materials to persons for whom they hold shares of Webvan common stock and to
request authority for the exercise of proxies. In such cases, upon the request
of the record holders, Webvan will reimburse such holders for their reasonable
expenses.
In addition to solicitation by mail, directors, officers and key employees
of Webvan may solicit proxies in person or by telephone, telegram or other means
of communication. These persons will receive no additional compensation for
solicitation of proxies, but may be reimbursed for reasonable out-of-pocket
expenses.
VOTING OF PROXIES
The proxy accompanying this joint proxy statement/prospectus is solicited
on behalf of the Webvan board of directors for use at the meeting. Please
complete, date and sign the accompanying proxy and promptly return it in the
enclosed envelope or otherwise mail it to Webvan. All properly signed proxies
that Webvan receives prior to the vote at the meeting and that are not revoked
will be voted at the meeting according to the instructions indicated on the
proxies or, if no direction is indicated, such proxies will be voted FOR each of
the proposals to be considered at the special meeting. You may revoke your proxy
at any time before it is exercised at the meeting by taking any of the following
actions:
- delivering a written notice to the secretary of Webvan by any means,
including facsimile, bearing a date later than the date of the proxy,
stating that the proxy is revoked;
- signing and delivering a proxy relating to the same shares and bearing a
later date prior to the vote at the meeting; or
- attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a proxy. Please note, however, that
if your shares are held of record by a broker, bank or other nominee and
you wish to vote at the meeting, you must bring to the meeting a letter
from the broker, bank or other nominee confirming your beneficial
ownership of the shares.
Webvan's board of directors does not know of any matter that is not
referred to in this joint proxy statement/prospectus to be presented for action
at the meeting. If any other matters are properly brought before the meeting,
the persons named in the proxies will have discretion to vote on such matters in
accordance with their best judgment.
43
<PAGE> 50
RECOMMENDATION OF THE BOARD OF DIRECTORS
The board of directors of Webvan has unanimously determined that the terms
of the merger agreement and the issuance of common stock in the merger, are in
the best interests of Webvan and the Webvan stockholders. Accordingly, the
Webvan board of directors recommends that Webvan stockholders vote FOR the
proposal to approve the merger agreement and the issuance of common stock in the
merger.
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE POSTAGE-PAID
ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. YOU MAY REVOKE
YOUR PROXY AT ANY TIME BEFORE IT IS VOTED.
44
<PAGE> 51
THE HOMEGROCER MEETING
DATE, TIME AND PLACE OF THE HOMEGROCER SPECIAL MEETING
The date, time and place of the special meeting of the stockholders of
HomeGrocer are as follows:
, 2000
a.m. Pacific Time
PURPOSE OF THE SPECIAL MEETING
HomeGrocer is furnishing this joint proxy statement/prospectus to its
stockholders in connection with the solicitation of proxies by the board of
directors of HomeGrocer relating to the proposed merger with Webvan. The
HomeGrocer board of directors will use the proxies at the special meeting of
stockholders of HomeGrocer to be held on [ ], 2000 and at any
adjournment or postponement thereof.
The special meeting is being held so that HomeGrocer stockholders may
consider and vote upon a proposal to approve a merger of Webvan with HomeGrocer
whereby each outstanding share of HomeGrocer common stock will be converted into
the right to receive 1.07605 shares of Webvan common stock, and to transact such
other business as may properly come before the special meeting. The merger
agreement is included as Annex A to this joint proxy statement/prospectus.
RECORD DATE AND OUTSTANDING SHARES
The board of directors of HomeGrocer has fixed the close of business on
[ ], 2000 as the record date for the special meeting. Only holders
of record of HomeGrocer common stock at the close of business on the record date
are entitled to notice of and to vote at the meeting. As of the close of
business on the record date, there were [ ] shares of HomeGrocer
common stock outstanding and entitled to vote, held of record by approximately
[ ] stockholders, although HomeGrocer has been informed that there
are in excess of [ ] beneficial owners.
VOTE AND QUORUM REQUIRED
Holders of HomeGrocer common stock are entitled to one vote for each share
held as of the record date. Approval of the merger agreement requires the
affirmative vote of the holders of two-thirds of the shares of HomeGrocer common
stock outstanding on the record date. Attendance at the meeting in person or by
proxy of a majority of the outstanding shares of HomeGrocer common stock is
required for a quorum.
On the record date, the directors and executive officers of HomeGrocer as a
group beneficially owned [ ] shares of HomeGrocer common stock
(excluding any shares issuable upon the exercise of options). Certain directors
and executive officers of HomeGrocer have entered into stockholder voting
agreements with Webvan that obligate them to vote, with respect to a total of
approximately 55% of HomeGrocer common shares outstanding as of the record date,
in favor of approval of the merger and merger agreement.
VOTING OF PROXIES
All properly executed proxies received before the vote at the special
meeting, and not revoked, will be voted in accordance with the instructions
indicated on the proxies. If no instructions are indicated, such proxies will be
voted FOR the proposal to approve the merger agreement and the merger, and the
proxy holder may vote the proxy in its discretion as to any other matter which
may properly come before the meeting.
45
<PAGE> 52
In the event that a broker, bank, custodian, nominee or other record holder
of HomeGrocer common stock indicates on a proxy that it does not have
discretionary authority to vote certain shares on a particular matter, which is
called a broker non-vote, those shares will be counted for purposes of
determining the presence or absence of a quorum for the transaction of business
but will count as a vote against the proposal to approve the merger.
In addition to solicitation by mail, directors, officers and key employees
of HomeGrocer may solicit proxies in person or by telephone, telegram or other
means of communication. These persons will receive no additional compensation
for solicitation of proxies, but may be reimbursed for reasonable out-of-pocket
expenses.
DISSENTERS' RIGHTS
Under Washington law, HomeGrocer stockholders are entitled to dissent from
the merger and instead demand payment from HomeGrocer of the fair value of their
shares. To claim dissenters' rights, you must comply with the following
requirements:
- before the stockholder vote on the merger and the merger agreement is
taken, you must deliver to HomeGrocer written notice of your intent to
demand payment for your shares if the merger is effected;
- you must not vote your shares in favor of the merger at the HomeGrocer
stockholder meeting;
- if you properly notified HomeGrocer of your intent to demand dissenters'
rights, HomeGrocer will send you written notice within ten days after the
completion of the merger, indicating when and how to demand payment for
your shares. After receiving the notice, you must demand payment for your
shares and deposit the certificates representing your shares in the
manner and within the time frame required by the notice sent by
HomeGrocer; and
- you must certify to HomeGrocer that you acquired beneficial ownership of
your shares before June 25, 2000.
If you do not comply with the requirements outlined above, you will not be
entitled to receive payment for your shares under the dissenters' rights
provisions of Washington law. There is no guarantee under Washington law that
dissenters will receive compensation equal or greater than the value of the
Webvan shares to be otherwise received in the merger.
If you comply with the outlined requirements, within 30 days of the later
of the date of effectiveness of the merger or the date HomeGrocer received your
demand for payment, HomeGrocer will pay to you the amount HomeGrocer estimates
to be the fair value of your shares of HomeGrocer common stock. If you believe
HomeGrocer's estimate of the fair value of your shares is incorrect, or if
HomeGrocer has not paid you for your shares within 60 days of the last day you
were entitled to demand payment, you may notify HomeGrocer in writing of your
own estimate of the fair value of your shares of HomeGrocer common stock and
demand payment of your estimate. YOUR DISSENTERS' RIGHTS ARE SET OUT IN THEIR
ENTIRETY IN CHAPTER 23B.13 OF THE WASHINGTON BUSINESS CORPORATIONS ACT, WHICH IS
ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS ANNEX E.
EXPENSES OF PROXY SOLICITATION
HomeGrocer will be using the proxy solicitation firm of .
The fee for services is $ plus any costs associated with
these services. HomeGrocer will pay the expenses of soliciting proxies to be
voted at the meeting, except that Webvan will share equally the expenses
incurred in connection with filing and printing this joint proxy statement/
prospectus. Following the original mailing of the proxies and other soliciting
materials, HomeGrocer will request brokers, custodians, nominees and other
record holders of HomeGrocer common stock to
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forward copies of the proxy and other soliciting materials to persons for whom
they hold shares of HomeGrocer common stock and to request authority for the
exercise of proxies. In such cases, upon the request of the record holders,
HomeGrocer will reimburse such holders for their reasonable expenses.
PROXIES
The proxy accompanying this joint proxy statement/prospectus is solicited
on behalf of the HomeGrocer board of directors for use at the meeting. Please
complete, date and sign the accompanying proxy and promptly return it in the
enclosed envelope or otherwise mail it to the corporate offices of HomeGrocer to
the attention of the corporate secretary. All properly signed proxies that
HomeGrocer receives prior to the vote at the meeting and that are not revoked
will be voted at the meeting according to the instructions indicated on the
proxies or, if no direction is indicated, to approve the merger agreement and
the merger. You may revoke your proxy at any time before it is exercised at the
meeting by taking any of the following actions:
- delivering a written notice to the secretary of HomeGrocer by any means,
including facsimile, bearing a date later than the date of the proxy,
stating that the proxy is revoked;
- signing and delivering a proxy relating to the same shares and bearing a
later date prior to the vote at the meeting; and
- attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a proxy. Please note, however, that
if your shares are held of record by a broker, bank or other nominee and
you wish to vote at the meeting, you must bring to the meeting a letter
from the broker, bank or other nominee confirming your beneficial
ownership of the shares.
The board of directors of HomeGrocer does not know of any matter that is
not referred to in this joint proxy statement/prospectus to be presented for
action at the meeting. If any other matters are properly brought before the
meeting, the persons named in the proxies will have discretion to vote on such
matters in accordance with their best judgment.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The board of directors of HomeGrocer has unanimously determined that the
terms of the merger agreement and the merger are in the best interests of
HomeGrocer and the HomeGrocer stockholders. Accordingly, the HomeGrocer board of
directors recommends that HomeGrocer stockholders vote FOR the proposal to
approve the merger agreement and the merger.
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE POSTAGE-PAID
ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. YOU MAY REVOKE
YOUR PROXY AT ANY TIME BEFORE IT IS VOTED.
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THE MERGER
This section of the joint proxy statement/prospectus describes the proposed
merger. While Webvan and HomeGrocer believe that the description covers the
material terms of the merger and the related transactions, this summary may not
contain all of the information that is important to you. You should carefully
read this entire document and the other documents Webvan and HomeGrocer referred
to for a more complete understanding of the merger.
BACKGROUND OF THE MERGER
During a conversation in early May 2000, between Christos M. Cotsakos, a
member of Webvan's Board of Directors, and James A. Barksdale, a member of
HomeGrocer's Board of Directors, the parties raised the possibility that
HomeGrocer and Webvan might explore a possible business combination. On May 8,
2000, Mr. Cotsakos phoned George T. Shaheen, President and Chief Executive
Officer of Webvan, to discuss the possibility of such a transaction.
Mr. Shaheen and Mary Alice Taylor, Chief Executive Officer of HomeGrocer,
met at the offices of Mr. Cotsakos in Menlo Park, California on May 10, 2000. At
this meeting, the two discussed their respective businesses and possible
advantages and risks of a merger of Webvan and HomeGrocer. As a result of this
meeting, the parties agreed to consider a more in depth meeting in the near
future.
On May 12, 2000, Mr. Shaheen phoned Ms. Taylor to schedule a meeting on May
15. Mr. Shaheen and Ms. Taylor spoke by phone again on May 12 to discuss who
should attend the May 15 meeting. Ms. Taylor also arranged for Mr. Shaheen and
Mr. Risher, a HomeGrocer director and Senior Vice President, U.S. Retail of
Amazon.com, HomeGrocer's largest stockholder, to speak on May 12. Mr. Shaheen
spoke by phone with Mr. Risher several times and later in the day with Jeff
Bezos, Chief Executive Officer of Amazon, regarding Amazon's contractual right
of first of refusal to acquire HomeGrocer.
On May 15, 2000, Mr. Shaheen, Robert Swan, Webvan's Chief Financial Officer
and two of Webvan's outside directors, Michael Moritz and David Beirne, met with
Ms. Taylor, Dan Lee, HomeGrocer's Chief Financial Officer, and Doug MacKenzie,
who is one of HomeGrocer's outside directors, at Mr. Moritz's offices in Menlo
Park, California. Ms. Taylor outlined the potential benefits of possible
business combination between Webvan and HomeGrocer. The parties then discussed
the general terms of a possible transaction.
On May 16, 2000, Mr. MacKenzie spoke by phone with Mr. Moritz and indicated
his belief that the parties should be able to work toward a mutually acceptable
transaction. On May 17, 2000, Mr. Barksdale spoke by phone with Mr. Cotsakos and
indicated that he would be willing to raise with the other members of the
HomeGrocer Board a transaction on a basis which would allow discussions between
the parties to resume, which conversation Mr. Cotsakos relayed to Mr. Shaheen.
On May 18, 2000, Mr. Cotsakos spoke by phone with Mr. Barksdale and indicated
that Mr. Shaheen would speak with Ms. Taylor.
On May 18, 2000, Messrs. Beirne and Moritz met with Louis H. Borders,
Chairman of the Webvan Board of Directors, to discuss a possible transaction
between HomeGrocer and Webvan. Over the course of May 18 and 19, 2000, Mr.
Shaheen had several telephone conversations with Messrs. Beirne, Moritz and
Cotsakos, regarding a possible transaction. On May 18, 2000, Mr. Shaheen spoke
by phone with Ms. Taylor and indicated that Webvan was interested in continuing
discussions regarding a strategic business combination with HomeGrocer.
On May 19, 2000, Mr. Shaheen spoke by phone several times with Ms. Taylor
and discussed the general terms of a possible transaction and outlined business
integration issues that would have to be
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discussed. During the last conversation, Ms. Taylor indicated that the
HomeGrocer Board was willing to proceed forward with due diligence in the coming
week.
On May 19 and 21, 2000, the HomeGrocer Board held special telephonic
meetings to discuss potential sources of new capital for HomeGrocer and
potential strategic partners. During each meeting the Board also discussed a
range of economic and operational issues that would have to be resolved in any
transaction between HomeGrocer and Webvan.
On May 20, 2000, the Webvan Board of Directors held a special telephonic
meeting to discuss the possible transaction with HomeGrocer. Mr. Swan presented
a financial analysis to the Webvan Board regarding a preliminary valuation of
HomeGrocer and a comparison of HomeGrocer's operations with Webvan's. Webvan's
legal counsel participated in the meeting and reviewed various items with the
Board. The Webvan Board discussed the possible advantages and risks of a
strategic business combination. Following this discussion, the Board authorized
management to proceed with negotiations and due diligence regarding a proposed
transaction. Subsequently, Mr. Shaheen and Ms. Taylor spoke and discussed the
due diligence process as well as the need to reach agreement on operational
issues.
On May 22, 2000, Webvan and HomeGrocer entered into a mutual non-disclosure
agreement. From May 22 through 24, representatives of Webvan, including Messrs.
Shaheen and Swan, and representatives of HomeGrocer, including Ms. Taylor and
Mr. Lee, and their respective legal counsel met in Seattle to continue
discussions regarding a potential merger. Representatives of Morgan Stanley &
Co. Incorporated, HomeGrocer's financial advisor, also attended the meeting.
Among other things, they discussed each company's business and operations and
personnel and other integration issues. Webvan representatives also visited the
HomeGrocer facility in Renton, Washington. While in Seattle, on May 23, 2000,
Messrs. Shaheen and Swan also met with members of Amazon.com's senior management
to discuss matters relating to the transaction.
On May 22, 2000, legal counsel to Webvan distributed to HomeGrocer and its
counsel the initial draft of a proposed form of merger agreement. From May 22
through June 25, 2000, representatives of each company, including legal,
financial and accounting advisors, conducted due diligence and negotiated the
terms of the merger agreement and related documents.
On May 24, 2000, the Webvan Board held a special telephonic meeting during
which members of Webvan's senior management reported on the status of
discussions with HomeGrocer, the results of due diligence and the feasibility of
the transaction. Representatives of Goldman Sachs and Wilson Sonsini Goodrich &
Rosati, P.C., Webvan's legal counsel, also attended the meeting. Mr. Shaheen
reviewed the status of negotiations and due diligence with the Webvan Board. The
Webvan Board then discussed, among other things, retention of HomeGrocer
employees, technology integration and transaction terms. The Webvan Board
authorized and instructed management to continue negotiations and due diligence
with respect to the transaction.
Mr. Shaheen and Ms. Taylor spoke several times by phone on May 24 and met
on May 25, 2000 in Seattle to discuss the terms of the transaction. The parties
agreed to resume discussions on May 30.
From May 30, 2000 through June 2, Mr. Shaheen and Ms. Taylor spoke by phone
several times to negotiate the terms of the transaction and to discuss the
results of the due diligence process.
On June 5 and 6, 2000, representatives of Webvan, including Messrs. Shaheen
and Swan, and representatives of HomeGrocer, including Ms. Taylor and Mr. Lee,
and their respective legal advisors, met in Menlo Park, California to continue
negotiations.
The HomeGrocer Board of Directors had a telephonic meeting on June 5 to
discuss the status of discussions with Webvan and with Amazon.com, HomeGrocer's
largest stockholder. Representatives
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of Morgan Stanley and Davis Polk & Wardwell, HomeGrocer's legal counsel, also
attended the meeting.
On June 6, 2000, the Webvan Board held a special telephonic meeting to
review the status of the negotiations and the results of due diligence.
Subsequently, through June 10, Mr. Shaheen and Ms. Taylor continued to negotiate
the general terms of a possible transaction by phone.
On June 9, 2000, the HomeGrocer Board of Directors held a special
telephonic meeting at which the Board approved a non-binding term sheet which
called for an exchange ratio of 1.07605 shares of Webvan common stock for each
share of HomeGrocer common stock. Representatives of Morgan Stanley and Davis
Polk & Wardwell also attended the meeting.
On June 10, 2000, the parties determined that an exchange ratio of 1.07605
shares of Webvan common stock for each share of HomeGrocer common stock was
within a range that would justify further negotiation of the merger agreement
and related documents.
On June 10, 2000, HomeGrocer formally notified Amazon of the terms of the
proposed transaction as required by a contractual right of first refusal to
acquire HomeGrocer held by Amazon. On June 12, 2000, Mr. Shaheen and Ms. Taylor
spoke by phone and Ms. Taylor indicated that Amazon was requesting registration
rights with respect to the Webvan shares they would receive in the proposed
merger.
On June 13, 2000, at a regularly scheduled Webvan Board meeting, Webvan's
Board reviewed the proposed transaction. Members of Webvan's senior management
and Webvan's legal counsel also participated in this meeting. Management
reported to the Board on the results of due diligence and business integration
matters. Legal counsel reported on the status of negotiations on the merger
agreement and related documents. The Webvan Board authorized and instructed
management to continue negotiations and due diligence with respect to the
transaction.
From June 15 through June 25, 2000, Webvan negotiated the terms of the
definitive merger agreement and related documents, including employment
agreements for certain HomeGrocer employees, voting agreements and lock-up
agreements under which significant stockholders of Webvan and HomeGrocer would
agree not to sell their Webvan shares for a period of six months following the
merger. Webvan and Amazon also negotiated a registration rights agreement with
respect to the shares of Webvan stock to be received by Amazon in connection
with the proposed merger.
On June 19, 2000, the Webvan Board held a special telephonic meeting to
review the status of the negotiations and the results of the ongoing due
diligence. Webvan's legal counsel also participated in this meeting.
The HomeGrocer Board of Directors met on three separate occasions between
June 18 and June 22 to review issues that arose in negotiations with Webvan.
Representatives of Morgan Stanley and Davis Polk & Wardwell also attended the
meetings. At the special meeting of the HomeGrocer Board of Directors on June
22, 2000, HomeGrocer's legal advisors reviewed the principal terms of the merger
and summarized the material provisions of the final draft merger agreement. In
addition, Morgan Stanley presented its financial analysis and rendered its oral
opinion to the Board, later confirmed in writing, to the effect that, as of June
22, 2000, from a financial point of view the exchange ratio pursuant to the
merger agreement was fair to holders of shares of HomeGrocer common stock. In
light of the prior discussions among members of the HomeGrocer Board, the prior
meetings of the HomeGrocer Board and the presentations and discussions at the
current meeting, on June 23, the HomeGrocer Board of Directors, by unanimous
written consent, approved the merger and the merger agreement, and determined to
recommend that HomeGrocer's stockholders vote to approve the proposed
transaction.
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On June 25, 2000, the Webvan Board held a special meeting to consider the
proposed transaction. Prior to the meeting, the directors were provided with the
definitive draft of the merger agreement and related documents. Webvan's legal
counsel described to the Webvan Board the terms of the merger documents and the
fiduciary duties applicable to directors in considering a strategic business
combination such as the merger. Members of Webvan's senior management also made
presentations to the Webvan Board regarding integration issues and the results
of the ongoing due diligence. A representative of Goldman Sachs discussed with
the Webvan Board certain financial analyses of the merger, and delivered the
oral opinion of Goldman Sachs, later confirmed in writing, to the effect that,
based on and subject to matters set forth in its opinion, as of June 25, 2000
the exchange ratio pursuant to the merger agreement was fair from a financial
point of view to Webvan. In light of the prior discussions among members of the
Webvan Board, the prior meetings of the Webvan Board and the presentations and
discussions at the current meeting, the Webvan Board determined by unanimous
vote that the transactions contemplated by the merger agreement and related
documents were in the best interests of Webvan and its stockholders and
unanimously approved the agreements and the issuance of the shares of Webvan
common stock pursuant to the merger.
The merger agreement and related documents were signed by the parties on
the night of June 25, 2000. On the morning of June 26, 2000, prior to the
commencement of trading, Webvan and HomeGrocer issued a joint press release
announcing the transaction.
HOMEGROCER'S REASONS FOR THE MERGER
By unanimous written consent, the HomeGrocer Board of Directors, on June
23, 2000, voted to enter into the merger agreement and to recommend that
HomeGrocer's stockholders vote to approve the merger and the merger agreement.
In the course of reaching its decision, the HomeGrocer Board of Directors
consulted HomeGrocer's management, as well as its outside financial advisors and
legal counsel, and considered the following material factors:
- that by combining complementary operations, the combined company would
have better opportunities for future growth;
- information concerning the business, earnings, operations, competitive
position and prospects of HomeGrocer and Webvan both individually and on
a combined basis including, but not limited to, the compatibility of the
two companies' operations as a result of the consolidation of
HomeGrocer's and Webvan's operations;
- analyses and other information with respect to HomeGrocer and Webvan
including, without limitation, a discussion of the strategic focus of the
combined company and the likelihood of its ability to compete
successfully against traditional retailers;
- the risks and potential rewards associated with continuing to execute
HomeGrocer's strategic plan as an independent entity as an alternative to
the merger, including, among others, risks associated with obtaining
capital for expansion and rewards associated with the opportunity for
existing HomeGrocer's stockholders to participate in the future growth of
HomeGrocer;
- the possibility, as alternatives to the merger, of seeking to acquire
another company, seeking to engage in one or more joint ventures or
seeking to engage in a combination with a company other than Webvan and
the HomeGrocer Board of Directors' conclusion that a transaction with
Webvan would be more feasible;
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- the enhanced financial position of the combined company and its reduced
need for capital compared to the combined needs of the companies on a
stand-alone basis, especially during periods of volatility in the
financial markets;
- the presentation of Morgan Stanley at the HomeGrocer Board of Directors'
meeting held on June 22, 2000, and the opinion of Morgan Stanley that, as
of the date of the opinion, the exchange ratio pursuant to the merger
agreement was fair from a financial point of view to the holders of
shares of HomeGrocer common stock. We have described the opinion of
Morgan Stanley in detail under the heading "Opinion of HomeGrocer's
financial advisers";
- the amount and form of the consideration to be received by HomeGrocer's
stockholders in the merger and information on the historical trading
ranges of HomeGrocer's common stock and Webvan's common stock;
- that HomeGrocer's stockholders would hold approximately 28% of the
outstanding common stock of the combined company after the merger;
- that the merger would provide HomeGrocer's stockholders with an
opportunity to receive a premium over the market price for their
HomeGrocer common stock immediately prior to the announcement of the
merger;
- the expectation that the merger will qualify as a tax-free
reorganization;
- that the merger will provide HomeGrocer's stockholders with the
opportunity to share in the combined company's long-term growth as a
result of the merger;
- the financial and other terms and conditions of the merger and the merger
agreement including:
- the limited conditions to Webvan's obligation to close the merger;
- the ability of HomeGrocer's Board of Directors, in the exercise of its
fiduciary duties in accordance with the merger agreement, to authorize
HomeGrocer to provide information to, and engage in negotiations with
another party as described under "The Merger Agreement -- No
solicitation by HomeGrocer";
- that Webvan's Board is obligated to take all actions reasonably necessary
such that two persons mutually agreed by the Board of Webvan and
HomeGrocer will be appointed to the Board of Webvan, as described under
"The Merger Agreement -- Conditions to completion of the merger";
- that, while the merger is likely to be completed, there are risks
associated with obtaining necessary approvals, and, as a result of
certain conditions to the completion of the merger, it is possible that
the merger may not be completed even if approved by stockholders; and
- the interests that certain executive officers and directors of HomeGrocer
may have with respect to the merger in addition to their interests as
stockholders of HomeGrocer generally as described in "Interests of
HomeGrocer directors, officers and significant stockholders in the
merger."
In view of the number and wide variety of factors considered in connection
with its evaluation of the merger, and the complexity of these matters, the
HomeGrocer Board of Directors did not find it practicable to, nor did it attempt
to, quantify, rank or otherwise assign relative weights to the specific factors
it considered. In addition, the HomeGrocer Board of Directors did not undertake
to make any specific determination as to whether any particular factor was
favorable or unfavorable to its ultimate determination or assign any particular
weight to any factor, but conducted an overall analysis of the factors described
above, including through discussions with and questioning of HomeGrocer's
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management and management's analysis of the proposed merger based on information
received from HomeGrocer's legal, financial and accounting advisors. In
considering the factors described above, individual members of the Board of
Directors may have given different weight to different factors. HomeGrocer's
Board of Directors considered all these factors together and, on the whole,
considered them to be favorable to, and to support, its determination.
RECOMMENDATION OF THE HOMEGROCER BOARD OF DIRECTORS
The Board of Directors of HomeGrocer believes that the terms of the merger
are fair to and in the best interests of HomeGrocer and its stockholders and
recommends to its stockholders that they vote "FOR" the proposal to approve and
adopt the merger and the merger agreement.
In considering the recommendation of the HomeGrocer Board of Directors with
respect to the merger, you should be aware that certain directors and officers
of HomeGrocer's have certain interests in the merger that are different from, or
are in addition to, the interests of HomeGrocer's stockholders generally. Please
see the section entitled "Interests of HomeGrocer Directors, Officers and
Significant Stockholders in the Merger."
WEBVAN'S REASONS FOR THE MERGER
At a meeting held on June 25, 2000, the board of directors of Webvan
concluded that the merger was in the best interests of Webvan and its
stockholders and determined to recommend that the Webvan stockholders approve
the issuance of the shares of Webvan common stock in the merger. In its
evaluation of the merger, the Webvan board over the course of several meetings
identified several potential benefits of the merger, the most important of which
included the board's expectation that:
- by combining its operations with HomeGrocer, Webvan would be better
positioned to accelerate its revenue growth and extend its position as a
leading Internet retailer;
- the merger would allow Webvan to penetrate new markets to a greater
degree than Webvan could on its own with its existing capital resources
due to the acquisition of HomeGrocer's existing distribution facilities
and customers in Southern California, the Pacific Northwest and Dallas,
Texas;
- HomeGrocer's cash reserves would enable Webvan to partially fund the
anticipated ongoing operating losses incurred by HomeGrocer's facilities;
- the merger would allow Webvan to obtain access to a large, trained
employee base;
- the merger would enable Webvan to realize significant operating
synergies, including increased purchasing power with its vendors, reduced
corporate overhead, the consolidation of sales and marketing
organizations and the need to support one, rather than two brands; and
- the combined company would be able to employ the best practices and
processes of each of Webvan and HomeGrocer in its future operations.
Webvan's board of directors consulted with senior management, as well as
its legal counsel and financial advisor, in reaching its decision to approve the
merger. In its evaluation of the merger, the Webvan board reviewed several
factors, including:
- information concerning the business, financial condition, operations,
competitive position and prospects of Webvan and HomeGrocer both
individually and on a combined basis including the compatibility of the
two companies' operations as a result of the consolidation of Webvan and
HomeGrocer;
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- analyses and other information with respect to Webvan and HomeGrocer
including consideration of the strategic focus of the combined company
and the likelihood of its ability to compete successfully against
traditional retailers;
- the risks associated with continuing to execute Webvan's strategic plan
without undertaking the merger, including risks associated with obtaining
the capital required for expansion into additional markets, taking into
consideration the effect on Webvan's expansion plans of changes in the
capital markets during 2000 and the likelihood of continued uncertainties
in the capital markets;
- the possibility, as an alternative to the merger, of seeking to acquire
another company;
- the cash position of the combined company, especially during periods of
volatility in the financial markets;
- the oral opinion of Goldman Sachs to the Webvan board of directors, later
confirmed in writing, to the effect that, based on and subject to matters
set forth in its opinion, as of June 25, 2000 the exchange ratio pursuant
to the merger agreement was fair from a financial point of view to
Webvan. The opinion of Goldman Sachs is described below under "Opinion of
Webvan's Financial Advisor";
- the amount and form of the consideration to be received by HomeGrocer's
stockholders in the merger in light of comparable transactions and the
historical market prices, volatility and trading information for
HomeGrocer's common stock and Webvan's common stock;
- that Webvan's stockholders would hold approximately 72% of the
outstanding common stock of the combined company after the merger;
- the expectation that the merger will qualify as a tax-free
reorganization;
- the financial and other terms and conditions of the merger and the merger
agreement;
- that, while the merger is likely to be completed, there are risks
associated with obtaining necessary approvals, and, as a result of
certain conditions to the completion of the merger, it is possible that
the merger may not be completed even if approved by stockholders;
- the belief by Webvan's senior management that the terms of the merger
agreement are reasonable;
- the potential impact of the merger on Webvan's and HomeGrocer's customers
and employees; and
- discussions with its management, legal and financial advisors as to the
results of the due diligence investigation of HomeGrocer.
The Webvan board also identified and considered a number of potentially
negative factors in its deliberations concerning the merger including the
following:
- the risk that the potential benefits of the merger may not be realized;
- the costs associated with the merger, including merger related
transaction costs, costs for disposing of real estate agreements and
costs for renegotiating or terminating vehicle, marketing and equipment
agreements.
- the difficulty of integrating HomeGrocer with Webvan and the management
effort and costs required to complete the integration following the
merger, including: the difficulty of maintaining a consistent brand image
given certain differences in the companies' respective business models;
potential difficulties in providing HomeGrocer customers with the
requisite level of service in the post-merger transition; and, given the
importance of operating the
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combined companies on a common technology platform, possible difficulties
associated with migrating HomeGrocer's operations to the Webvan
technology platform;
- the possibility that the merger may not be consummated, even though it
has been approved by Webvan's and HomeGrocer's boards of directors;
- the negative effect that treating the merger, for accounting purposes, as
a "purchase," will have on the combined company's future earnings per
share, due to amortization of "goodwill" purchased from HomeGrocer;
- the risk that the premium offered relative to HomeGrocer's current stock
price may not be viewed favorably by the market;
- the risk of management and employee disruption associated with the
merger, including the risk that despite the efforts of the combined
company, key technical and management personnel might not remain employed
by the combined company;
- the impact of the accelerated vesting provisions of HomeGrocer's employee
stock option plan on the combined company's ability to retain the
HomeGrocer employees; and
- the other applicable risks described in this joint proxy
statement/prospectus under "Risk Factors" beginning on page
.
The Webvan board concluded however, that, on balance, the potential
benefits to Webvan and its stockholders of the merger outweighed the risks
associated with the merger. The discussion of the information and factors
considered by the Webvan board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the merger,
the Webvan board did not find it practicable to, and did not quantify or
otherwise assign relative weight to, the specific factors considered in reaching
its determination.
RECOMMENDATION OF WEBVAN'S BOARD OF DIRECTORS
After careful consideration, the Webvan board of directors has determined
the merger agreement and the merger to be fair to and in the best interests of
its stockholders. Webvan's board of directors recommends approval of the
issuance of shares of Webvan common stock in connection with the merger as
described in this joint proxy statement/prospectus.
OPINION OF WEBVAN'S FINANCIAL ADVISOR
Goldman Sachs has acted as financial advisor to Webvan in connection with
the merger. On June 25, 2000, Goldman Sachs delivered its opinion, subsequently
confirmed in writing, to the board of directors that, as of the date of such
opinion, the exchange ratio pursuant to the merger agreement was fair from a
financial point of view to Webvan.
THE FULL TEXT OF THE GOLDMAN SACHS OPINION IS ATTACHED AS ANNEX B TO THIS
JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED INTO THIS JOINT PROXY
STATEMENT/PROSPECTUS BY REFERENCE. STOCKHOLDERS OF WEBVAN ARE URGED TO, AND
SHOULD, READ SUCH OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed:
- the merger agreement;
- the annual report to stockholders and the Annual Report on Form 10-K of
Webvan for the fiscal year ended December 31, 1999;
- the registration statement on Form S-1 of Webvan, including the
prospectus of Webvan filed November 5, 1999;
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- the registration statement on Form S-1 of HomeGrocer, including the
prospectus of HomeGrocer filed March 10, 2000;
- certain interim reports to stockholders and Quarterly Reports on Form
10-Q of Webvan and HomeGrocer;
- certain other communications from Webvan and HomeGrocer to their
respective stockholders;
- certain internal financial analyses and forecasts for HomeGrocer prepared
by HomeGrocer's management;
- certain internal financial analyses and forecasts for HomeGrocer prepared
by Webvan's management;
- the Webvan Forecasts, which are certain internal financial analyses and
forecasts for Webvan prepared by Webvan's management; and
- the Pro Forma Forecasts, which are certain internal financial analyses
and forecasts for Webvan and HomeGrocer as a combined entity prepared by
Webvan's management, including the effect of certain cost savings and
operating synergies projected by Webvan's management to result from the
merger.
Goldman Sachs also held discussions with members of the senior management
of Webvan and HomeGrocer regarding their assessment of the strategic rationale
for, and the potential benefits of, the merger and the past and current business
operations, financial condition and future prospects of their respective
companies. In addition, Goldman Sachs has reviewed the reported price and
trading activity for Webvan's common stock and HomeGrocer's common stock, which
like many Internet-related stocks have been and are likely to continue to be
subject to significant short-term price and trading volatility, compared certain
financial and stock market information for Webvan and HomeGrocer with similar
information for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations in
the Internet industry specifically and in other industries generally and
performed such other studies and analyses as it considered appropriate.
Goldman Sachs has relied upon the accuracy and completeness of all of the
financial and other information discussed with or reviewed by it and has assumed
such accuracy and completeness for purposes of rendering its opinion. In that
regard, Goldman Sachs has assumed, with the consent of the Webvan board, that
the Webvan Forecasts and the Pro Forma Forecasts have been reasonably prepared
on a basis reflecting the best currently available estimates and judgments of
Webvan, and that the Pro Forma Forecasts will be realized in the amounts and
time periods contemplated thereby. In addition, Goldman Sachs has not made an
independent evaluation or appraisal of the assets and liabilities of Webvan or
HomeGrocer or any of their subsidiaries and Goldman Sachs has not been furnished
with any such evaluation or appraisal. Goldman Sachs's advisory services and
Goldman Sachs's opinion were provided for the information and assistance of the
Webvan board in connection with its consideration of the transaction
contemplated by the merger agreement and such opinion does not constitute a
recommendation as to how any holder of Webvan common stock should vote with
respect to the merger.
The following is a summary of the material financial analyses presented by
Goldman Sachs to the Webvan board on June 25, 2000. SOME OF THE SUMMARIES OF THE
FINANCIAL ANALYSES INCLUDE INFORMATION PRESENTED IN TABULAR FORMAT. THE TABLES
MUST BE READ TOGETHER WITH THE TEXT ACCOMPANYING EACH SUMMARY.
Transaction Premium Analysis. Goldman Sachs compared the historical stock
prices of Webvan common stock and HomeGrocer common stock on the basis of the
respective closing prices per share on June 23, 2000, and the respective closing
stock prices and period averages for the prior five days,
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<PAGE> 63
10 days, 20 days, 30 days and since HomeGrocer's initial public offering. The
following table presents:
- the implied exchange ratio between the closing stock price or average
closing stock prices of HomeGrocer common stock and the Webvan common
stock at the specified point in time or over the specified period, and
- the premiums over those implied exchange ratios implied by the actual
exchange ratio in the merger.
<TABLE>
<CAPTION>
DATE OR PERIOD IMPLIED EXCHANGE RATIO PREMIUM OVER IMPLIED EXCHANGE RATIO
-------------- ---------------------- -----------------------------------
<S> <C> <C>
June 23, 2000....................... .928 15.9%
5 day............................... .985 9.2
10 day.............................. .960 12.0
20 day.............................. .882 22.0
30 day.............................. .868 24.0
Since IPO........................... .962 11.9
</TABLE>
Selected Internet Companies Analysis. Goldman Sachs compared specified
financial information of Webvan and HomeGrocer with publicly-available
information for the following Internet retailers:
<TABLE>
<CAPTION>
FIRST GROUP RETAILERS
---------------------
<S> <C>
Amazon.com, Inc.
Ashford.com, Inc.
BarnesandNoble.com Inc.
eToys Inc.
</TABLE>
Goldman Sachs also compared certain financial information of Webvan and
HomeGrocer with publicly-available information for the following Internet
retailers:
<TABLE>
<CAPTION>
SECOND GROUP RETAILERS
----------------------
<S> <C>
drugstore.com, inc.
Global Sports, Inc.
BUY.COM INC.
Fogdog, Inc.
Peapod, Inc.
Pets.com, Inc.
</TABLE>
The following table presents for Webvan, HomeGrocer and the two groups of
Internet retailers projected year 2000 and 2001 levered market capitalization as
a multiple of revenue, projected year 2001 gross margin and five-year forecasted
compound annual growth rate. The analysis was performed using stock prices on
June 23, 2000. Levered market capitalization is a company's equity market
capitalization plus outstanding indebtedness and less cash. Forecasted revenue
and gross margin were based on Goldman Sachs research, except for HomeGrocer
which was based on other publicly
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<PAGE> 64
available research. Compound annual growth rates are from estimates provided by
Institutional Brokers Estimate System, or IBES.
<TABLE>
<CAPTION>
IBES 5 YR
REVENUE MULTIPLE COMPOUND
----------------- GROSS MARGIN ANNUAL GROWTH
CY 2000 CY 2001 CY 2001 RATE
------- ------- ------------ -------------
<S> <C> <C> <C> <C>
Webvan.................................... 16.5x 3.4x 26.0% 90.0%
HomeGrocer................................ 5.4 1.1 23.0 NA
First Group Mean.......................... 2.4 2.1 23.0 55.0
First Group Median........................ 1.8 2.1 22.7 53.8
Second Group Mean......................... 0.8 0.4 19.9 70.0
Second Group Median....................... 0.5 0.4 20.6 70.0
</TABLE>
Contribution Analysis. Goldman Sachs analyzed and compared the respective
contributions of each of Webvan and HomeGrocer to the combined company's
projected revenue and gross profit for each of 2000, 2001, 2002 and 2003, as
projected by management of Webvan, to the percentage ownerships of the combined
company by the stockholders of each of Webvan and HomeGrocer. The following
table presents the results of that analysis:
<TABLE>
<CAPTION>
CONTRIBUTIONS TO TOTAL
------------------------
% WEBVAN % HOMEGROCER
-------- ------------
<S> <C> <C>
Revenue
CY 2000E..................................... 48.0% 52.0%
CY 2001E..................................... 49.7 50.3
CY 2002E..................................... 51.2 48.8
CY 2003E..................................... 53.2 46.8
Gross Profit
CY 2000E..................................... 47.9% 52.1%
CY 2001E..................................... 48.7 51.3
CY 2002E..................................... 50.0 50.0
CY 2003E..................................... 52.1 47.9
</TABLE>
In comparison, based on the exchange ratio in the merger and Webvan's and
HomeGrocer's closing stock prices on June 23, 2000, stockholders of Webvan would
own approximately 71.7% of the combined company's equity interests considered on
a diluted basis and the stockholders of HomeGrocer would own approximately 28.3%
of the combined company's equity interests on a diluted basis.
Attribution Analysis. Goldman Sachs analyzed and compared (1) the
percentage of Webvan's forecasted stand-alone revenue, gross profit and EBITDA
attributable to Webvan's current stockholders and optionholders with (2) the
percentage of the forecasted combined company revenue, gross profit and EBITDA
which would be attributable to Webvan's current stockholders and optionholders,
in each case for the years 2000, 2001, 2002 and 2003. The analysis was performed
assuming additional equity issuances by Webvan, and the resulting dilution
related to those additional equity issuances, to fund capital requirements.
Forecasted revenue, gross profit and EBITDA for both Webvan and the combined
company were based on projections provided by the management of Webvan. EBITDA
refers to earnings before interest, taxes, depreciation and amortization. The
information in the table below details the percentage increases in revenue,
gross profit and EBITDA attributable to current Webvan stockholders and
optionholders as a result of the merger. The information in the column "At
Maturity" in the table below presents the results of such analysis at
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<PAGE> 65
that point in time when the portfolio of distribution centers assumed in the
forecasts are each at full capacity and assumes no additional equity is issued
or repurchased after 2003.
<TABLE>
<CAPTION>
INCREASE ATTRIBUTABLE TO WEBVAN STOCKHOLDERS
------------------------------------------------
2000 2001 2002 2003 AT MATURITY
----- ----- ----- ----- ------------
<S> <C> <C> <C> <C> <C>
Revenue percentage increase.................... 39.9% 59.1% 37.4% 16.4% 21.9%
Gross Profit percentage increase............... 41.0 63.7 38.2 17.6 23.2
EBITDA Percentage Increase..................... NM NM NM NM 110.4
</TABLE>
Pro Forma Merger Analysis. Goldman Sachs analyzed the potential pro forma
effects of the merger on Webvan's forecasted revenue per share, gross profit per
share and EBITDA per share for the years 2000, 2001, 2002 and 2003. Forecasted
revenue, gross profits and EBITDA were based on projections of Webvan
management. In order to calculate meaningful per share accretion and dilution
data for these financial parameters, revenue, gross profit and EBITDA, Goldman
Sachs assumed that 100% of the capital requirements for Webvan would continue to
be funded exclusively with equity during the forecast period. The following
tables present the results of that analysis:
<TABLE>
<CAPTION>
PRO FORMA REVENUE ACCRETION
---------------------------
<S> <C>
CY2000E................................. 39.9%
CY2001E................................. 59.1
CY2002E................................. 33.3
CY2003E................................. 11.1
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA GROSS PROFIT ACCRETION
--------------------------------
<S> <C>
CY2000E................................. 41.0%
CY2001E................................. 63.7
CY2002E................................. 34.1
CY2003E................................. 12.3
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA EBITDA ACCRETION
--------------------------
<S> <C>
CY2000E................................. $(0.10)
CY2001E................................. 0.15
CY2002E................................. 0.21
CY2003E................................. 0.60
</TABLE>
Comparable Transaction Premium Analysis. Goldman Sachs analyzed certain
information relating to 55 selected transactions. The transactions were chosen
because they involved Internet companies since March 1996. The following table
presents the ranges, means and mediums of the premiums paid in the transactions
in relation to the closing price of the target the day before the transaction
was announced, the weighted average price of the target in the 30 days prior to
the announcement and the 52-week high closing price of the target prior to the
announcement. The premium was calculated based on the equity consideration paid
for the target by the acquiror in the transactions.
<TABLE>
<CAPTION>
SELECTED TRANSACTIONS
---------------------------------
RANGE MEAN MEDIAN
---------------- ---- ------
<S> <C> <C> <C>
Premium to day prior closing price.................... (17.8)% - 181.1% 31.5% 22.4%
Premium to average of prior 30-day closing price...... (44.4)% - 249.6% 61.1 46.1
Premium to 52-week high............................... (82.0)% - 51.7% (12.3) (16.3)
</TABLE>
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth
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<PAGE> 66
above, without considering the analyses as a whole, could create an incomplete
view of the processes underlying Goldman Sachs's opinion. In arriving at its
fairness determination, Goldman Sachs considered the results of all such
analyses. No company or transaction used in the above analyses as a comparison
is directly comparable to Webvan or HomeGrocer or the merger. The analyses were
prepared solely for purposes of Goldman Sachs's providing its opinion to the
Webvan board as to the fairness from a financial point of view of the exchange
ratio pursuant to the merger agreement to Webvan. The analyses do not purport to
be appraisals or necessarily reflect the prices at which the business or
securities actually may be sold. Analyses based upon forecasts of future
results, which are inherently subject to uncertainty, are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. As described above, Goldman Sachs's
opinion to the Webvan board was one of many factors taken into consideration by
the Webvan board in making its determination to approve the merger agreement.
The foregoing summary describes material financial analyses used by Goldman
Sachs in connection with providing its opinion to Webvan's board of directors on
June 25, 2000, but does not purport to be a complete description of the analysis
performed by Goldman Sachs in connection with such opinion and is qualified by
reference to the written opinion of Goldman Sachs set forth in Annex B.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with Webvan, having provided certain investment banking services to
Webvan from time to time, including having acted as managing underwriter of the
initial public offering of 28,750,000 shares of Webvan common stock in November
1999. As of , 2000, entities affiliated with Goldman Sachs own an
aggregate of 7,880,220 Webvan shares, purchased in July 1999 as Series D-2
Preferred Stock of Webvan for an aggregate purchase price of approximately
$100.0 million. Goldman Sachs provides a full range of financial advisory and
securities services and, in the course of its normal trading activities, may
from time to time effect transactions and hold securities, including derivative
securities, of Webvan or HomeGrocer for its own account and for the accounts of
customers. As of , 2000, Goldman Sachs accumulated in various
trading accounts a long position of shares of Webvan common stock
against which Goldman Sachs is short Webvan shares, and a long
position of HomeGrocer shares of common stock.
Pursuant to a letter agreement dated June 22, 2000, Webvan engaged Goldman
Sachs to act as its financial advisor to render a fairness opinion to the Webvan
board of directors in connection with the exchange ratio pursuant to the merger
agreement. Pursuant to that letter agreement, Webvan paid Goldman Sachs a fee
equal to $1,500,000 upon delivery of its fairness opinion. Webvan has agreed to
reimburse Goldman Sachs for its reasonable out-of-pocket expenses, including
attorney's fees, and to indemnify Goldman Sachs against certain liabilities,
including certain liabilities under the federal securities laws.
OPINION OF HOMEGROCER'S FINANCIAL ADVISOR
Under an engagement letter dated May 22, 2000, HomeGrocer retained Morgan
Stanley to provide it with financial advisory services and a financial fairness
opinion in connection with the merger. HomeGrocer's Board of Directors selected
Morgan Stanley to act as its financial advisor based on Morgan Stanley's
qualifications, expertise and reputation and its knowledge of the business and
affairs of HomeGrocer. At the meeting of the HomeGrocer Board of Directors on
June 22, 2000, Morgan Stanley rendered its oral opinion, later confirmed in
writing, that as of June 22, 2000, based upon and subject to the various
considerations set forth in the opinion, the exchange ratio pursuant to the
merger agreement was fair from a financial point of view to holders of shares of
HomeGrocer common stock.
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<PAGE> 67
THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY, DATED AS OF JUNE
22, 2000, IS ATTACHED AS ANNEX C TO THIS DOCUMENT. THE OPINION SETS FORTH, AMONG
OTHER THINGS, THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE SCOPE OF THE REVIEW UNDERTAKEN BY MORGAN STANLEY IN RENDERING
ITS OPINION. WE URGE YOU TO READ THE ENTIRE OPINION CAREFULLY. MORGAN STANLEY'S
OPINION IS DIRECTED TO HOMEGROCER'S BOARD OF DIRECTORS AND ADDRESSES ONLY THE
FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE EXCHANGE RATIO PURSUANT TO THE
MERGER AGREEMENT TO HOLDERS OF SHARES OF HOMEGROCER COMMON STOCK AS OF THE DATE
OF THE OPINION. IT DOES NOT ADDRESS ANY OTHER ASPECTS OF THE MERGER AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF SHARES OF HOMEGROCER COMMON STOCK
AS TO HOW TO VOTE AT THE HOMEGROCER SPECIAL MEETING. THE SUMMARY OF THE OPINION
OF MORGAN STANLEY SET FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE OPINION.
In connection with rendering its opinion, Morgan Stanley, among other
things:
- reviewed certain publicly available financial statements and other
information of HomeGrocer;
- reviewed certain internal financial statements and other financial and
operating data concerning HomeGrocer prepared by the management of
HomeGrocer;
- reviewed certain financial projections prepared by the managements of
HomeGrocer and Webvan;
- reviewed certain publicly available financial projections from equity
research analysts reports of HomeGrocer;
- discussed the past and current operations and financial condition and the
prospects of HomeGrocer, including information relating to certain
strategic, financial and operational benefits anticipated from the
merger, with senior executives of HomeGrocer;
- reviewed certain publicly available financial statements and other
information of Webvan;
- reviewed certain internal financial statements and other financial and
operating data concerning Webvan prepared by the management of Webvan;
- reviewed the pro forma impact of the merger on certain operational and
financial metrics of Webvan;
- discussed the past and current operations and financial condition and the
prospects of Webvan, including a review of publicly available projections
from equity research analyst estimates and information relating to
certain strategic, financial and operational benefits anticipated from
the merger, with senior executives of Webvan;
- reviewed the reported prices and trading activity for the HomeGrocer
common stock and Webvan common stock;
- compared the financial performance of HomeGrocer and Webvan and the
prices and trading activity of the HomeGrocer common stock and Webvan
common stock with that of certain other publicly-traded companies
comparable to HomeGrocer and Webvan, respectively, and their securities;
- reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
- reviewed and discussed with the senior managements of HomeGrocer and
Webvan their strategic rationales for the Merger;
- participated in discussions and negotiations among representatives of
HomeGrocer, Webvan and their financial and legal advisors;
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<PAGE> 68
- reviewed the draft merger agreement and certain related documents; and
- performed such other analyses and considered such other factors as Morgan
Stanley deemed appropriate.
Morgan Stanley assumed and relied upon, without independent verification,
the accuracy and completeness of the information reviewed by it for the purposes
of its opinion. With respect to the financial projections and discussions
relating to the strategic, financial and operational benefits anticipated from
the merger, Morgan Stanley assumed that they have, in each case, been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the prospects of HomeGrocer and Webvan. Morgan Stanley relied upon
the assessment by the managements of HomeGrocer and Webvan of their ability to
retain key employees of HomeGrocer. Morgan Stanley also relied upon, without
independent verification, the assessment by the managements of HomeGrocer and
Webvan of: (i) the strategic, financial and operational benefits expected to
result from the merger; (ii) the timing and risks associated with the
integration of HomeGrocer and Webvan; and (iii) the validity of, and risks
associated with, HomeGrocer's and Webvan's existing and future technologies,
services and business models.
Morgan Stanley was not furnished with, and did not independently make, any
valuation or appraisal of the assets or liabilities or technology of HomeGrocer
and Webvan. In addition, Morgan Stanley assumed that the merger will be
completed in accordance with the terms set forth in the merger agreement and
that the merger will be treated as a tax-free reorganization pursuant to Section
368(a) of the Internal Revenue Code of 1986. Morgan Stanley's opinion is
necessarily based on financial, economic, market and other conditions as in
effect on, and the information made available to it as of, the date of its
opinion.
The following is a brief summary of the material analyses performed by
Morgan Stanley in connection with its oral opinion and the preparation of its
written opinion letter dated June 22, 2000. Some of these summaries of financial
analyses include information presented in tabular format. In order to fully
understand the financial analyses used by Morgan Stanley, the tables must be
read together with the text of each summary. The tables alone do not constitute
a complete description of the financial analyses.
HomeGrocer Stock Price Performance. Morgan Stanley reviewed the recent
stock price performance of HomeGrocer common stock over various time periods
ending on June 21, 2000. Morgan Stanley observed the following:
<TABLE>
<CAPTION>
HOMEGROCER
COMMON STOCK
CLOSING PRICE
PERIOD ENDING ---------------
JUNE 21, 2000 LOW HIGH
------------- ----- ------
<S> <C> <C>
Since initial public offering.......................... $3.19 $16.25
Last 30 days........................................... $3.56 $ 7.13
June 21, 2000 closing price............................ $ 6.19
Implied transaction value.............................. $ 7.03
</TABLE>
The implied transaction value of $7.03 per share of HomeGrocer common stock
is based on the exchange ratio of 1.07605 and Webvan's common stock price of
$6.53 as of June 21, 2000. Morgan Stanley noted that the implied transaction
value reflected a 14% premium to HomeGrocer's closing price on June 21, 2000 and
was near the high end of the range of the closing prices over the preceding 30
days prior to June 21, 2000. Morgan Stanley noted that Webvan's common stock
price increased 24% to $8.13 as of June 22, 2000. Though Morgan Stanley's
analysis was based on closing prices as of June 21, 2000, Morgan Stanley noted
that based on Webvan's closing price of $8.13 as of
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<PAGE> 69
June 22, 2000 the implied transaction value per share of HomeGrocer common stock
would be $8.75 or a 31% premium to HomeGrocer's closing price as of June 22,
2000.
Exchange Ratio Premium Analysis. Morgan Stanley reviewed the ratios of the
closing prices of HomeGrocer common stock divided by the corresponding closing
prices of Webvan common stock over various periods ending June 21, 2000. These
ratios are referred to as period average exchange ratios. Morgan Stanley
examined the premiums represented by the exchange ratio set forth in the merger
agreement over the averages of these period average exchange ratios, and found
them to be as follows:
<TABLE>
<CAPTION>
TRANSACTION
PREMIUM TO
PERIOD ENDING PERIOD AVERAGE PERIOD AVERAGE
JUNE 21, 2000 EXCHANGE RATIO EXCHANGE RATIO
------------- -------------- --------------
<S> <C> <C>
Last 30 days.............................. 0.864x 25%
June 21, 2000............................. 0.947x 14%
</TABLE>
Comparative Stock Price Performance. Morgan Stanley analyzed the indexed
percentage changes in the price of HomeGrocer common stock, Webvan common stock,
the NASDAQ Index and the Morgan Stanley Internet Index ("MOX") from HomeGrocer's
initial public offering date of March 10, 2000 to June 21, 2000:
INDEXED PERCENTAGE PRICE CHANGE (PERIOD ENDING JUNE 21, 2000)
<TABLE>
<CAPTION>
SINCE MARCH 10, 2000
--------------------
<S> <C>
HomeGrocer........................................... (56.2)%
Webvan............................................... (44.7)%
NASDAQ index......................................... (19.5)%
MOX.................................................. (37.9)%
</TABLE>
Morgan Stanley noted that HomeGrocer's share price had declined more than
Webvan's share price and more than these indices on a relative basis over the
specified period.
Analysis of Peapod Acquisition. Morgan Stanley analyzed valuation multiples
reflected by the acquisition of Peapod, Inc. by Koninklijke (Royal) Ahold NV
including analyses of the implied multiples of revenue and customers. Based on
the analyses of the Peapod acquisition, Morgan Stanley calculated an implied
reference range for HomeGrocer common stock of $2.03 - $2.28 per share. Morgan
Stanley observed that the implied transaction value of $7.03 per share of
HomeGrocer common stock was greater than the implied reference range based on
this analysis.
The Peapod acquisition is not identical to the merger and neither
HomeGrocer nor Webvan is identical to Peapod, Inc. or Royal Ahold. Morgan
Stanley made judgements and assumptions with regard to the Peapod acquisition
due to the business, operating model and competitive differences that are unique
to each company.
Analysis of Stock Price Premiums Paid. Morgan Stanley reviewed certain
publicly available statistics for precedent acquisition transactions involving
public U.S. technology companies greater than $100 million in market
capitalization since January 1, 1999. Based on the analyses, Morgan Stanley
applied 20% to 60% premia to the 10 day trading range preceding June 21, 2000
and calculated an implied reference range for HomeGrocer common stock of
$6.15 - $11.40 per share. Morgan Stanley observed that the implied transaction
value of $7.03 per share of HomeGrocer common stock as of June 21, 2000 was
within this estimated reference range.
Morgan Stanley also compared certain publicly available statistics for
precedent acquisition transactions involving mergers of equals and other
strategic acquisitions of public U.S. companies
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<PAGE> 70
from December 15, 1996 to June 21, 2000, where the ownership of the acquired
company was below 40%. In addition, Morgan Stanley compared certain publicly
available statistics for precedent acquisition transactions involving strategic
consolidations in the internet and software sectors from May 26, 1998 to June
21, 2000. Based on the analyses, Morgan Stanley applied 20% to 30% premia to
HomeGrocer's 30 day prior share price and estimated a reference range for
HomeGrocer common stock of $6.04 - $6.54 per share. Morgan Stanley observed that
the implied transaction value of $7.03 per share of HomeGrocer common stock as
of June 22, 2000 was above this estimated reference range.
No company or transaction utilized in the analysis of stock price premiums
paid is identical to HomeGrocer or Webvan or the merger. In evaluating the
precedent acquisition transactions, Morgan Stanley made judgments and
assumptions with regard to general business, economic, market and financial
conditions and other matters, which are beyond the control of HomeGrocer and
Webvan, such as the impact of competition on the business of HomeGrocer, Webvan,
or the industry generally, industry growth and the absence of any adverse
material change in financial condition of HomeGrocer, Webvan or the industry or
in the financial markets in general, which could affect the public trading value
of the companies and the aggregate value of the transactions to which they are
being compared.
Relative Contribution Analysis. Morgan Stanley compared HomeGrocer and
Webvan stockholders' respective percentage ownership of the combined company to
HomeGrocer's and Webvan's respective percentage contribution to the combined
company using revenues and gross profit based on both publicly available
research estimates and management's limited market rollout plan, which
represented management's ability to utilize minimal capital while executing
management's modest market rollout plan. In addition, Morgan Stanley reviewed
the relative contribution of cash and investments, book value and market
capitalization. Morgan Stanley noted that the implied pro forma HomeGrocer
ownership of the combined company of 28.2% using the exchange ratio of 1.07605x
was less than most of the implied pro forma ownership percentages calculated by
Morgan Stanley based on the relative contribution analyses. Morgan Stanley noted
that HomeGrocer's implied pro forma ownership percentage ranged from 45% to 50%
using estimated revenues and gross profit while the implied pro forma ownership
percentage ranged from 26% to 33% using cash and investments, book value and
market capitalization. Morgan Stanley also noted that additional funding would
likely be required for either company to achieve the projections for revenue and
gross profit.
Morgan Stanley also calculated based on common stock prices as of June 21,
2000, Webvan's aggregate value to revenue multiples of 11.5x and 2.4x for
estimated 2000 and 2001, respectively, and noted that they represented a
significant premium to HomeGrocer's aggregate value to revenue multiples of 3.7x
and 0.8x for estimated 2000 and 2001, respectively. Morgan Stanley noted that
Webvan was consistently valued more highly than HomeGrocer based on estimated
revenue multiples since HomeGrocer's initial public offering.
Discounted Equity Value. Morgan Stanley performed an analysis of the
implied present value per share of HomeGrocer common stock on a standalone basis
based on various projections for HomeGrocer's future revenue. For purpose of
this analysis Morgan Stanley calculated an implied present value per share range
of $6.33 to $12.12 using a range of revenue multiples of 1.2x to 1.5x, stock
prices of $5 and $15, respectively, for future financing and discount rates of
15% to 25%. Morgan Stanley observed that the implied transaction consideration
of $7.03 per share of HomeGrocer common stock as of June 22, 2000 was within
this estimated reference range.
Discounted Cash Flow Analysis. Morgan Stanley performed an analysis of the
present value per share of the implied value of HomeGrocer common stock on a
standalone basis based on HomeGrocer's projected future cash flow based on two
sets of projections prepared by the management of HomeGrocer. HomeGrocer
management prepared a limited market rollout plan and a
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<PAGE> 71
continued market rollout plan. The continued market rollout plan represented
management's ability to raise additional funding while executing management's
aggressive market rollout plan. Based on the limited market rollout plan, Morgan
Stanley calculated an implied reference range of $4.19 - $6.49 per share based
on a discount rate of 16% and a range of forward earnings before interest,
taxes, depreciation and amortization multiples of 9x to 15x. Morgan Stanley
applied the same discount rate and forward multiples to management's continued
market rollout plan and calculated an implied reference range of
$10.31 - $19.98. Morgan Stanley observed that the implied transaction
consideration of $7.03 per share of HomeGrocer common stock as of June 22, 2000
was above the estimated reference range for the limited market rollout plan and
was below the estimated reference range for the continued market rollout plan.
In connection with the review of the merger by HomeGrocer's board of
directors, Morgan Stanley performed a variety of financial and comparative
analyses for purposes of rendering its opinion. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to a partial
analysis or summary description. In arriving at its opinion, Morgan Stanley
considered the results of all of its analyses as a whole and did not attribute
any particular weight to any analysis or factor it considered. Morgan Stanley
believes that selecting any portion of its analyses, without considering all
analyses as a whole, would create an incomplete view of the process underlying
its analyses and opinion. In addition, Morgan Stanley may have given various
analyses and factors more or less weight than other analyses and factors, and
may have deemed various assumptions more or less probable than other
assumptions. As a result, the ranges of valuations resulting from any particular
analysis described above should not be taken to be Morgan Stanley's view of the
actual value of HomeGrocer or Webvan. In performing its analyses, Morgan Stanley
made numerous assumptions with respect to industry performance, general business
and economic conditions and other matters. Many of these assumptions are beyond
the control of HomeGrocer or Webvan. Any estimates contained in Morgan Stanley's
analyses are not necessarily indicative of future results or actual values,
which may be significantly more or less favorable than those suggested by such
estimates.
Morgan Stanley conducted the analyses described above solely as part of its
analysis of the fairness of the exchange ratio pursuant to the merger agreement
from a financial point of view to holders of shares of HomeGrocer common stock
and in connection with the delivery of its opinion to HomeGrocer's Board of
Directors. These analyses do not purport to be appraisals or to reflect the
prices at which shares of common stock of HomeGrocer or Webvan might actually
trade.
The exchange ratio pursuant to the merger agreement was determined through
arm's length negotiations between HomeGrocer and Webvan and was approved by
HomeGrocer's Board of Directors. Morgan Stanley provided advice to HomeGrocer
during these negotiations. Morgan Stanley did not, however, recommend any
specific exchange ratio to HomeGrocer or that any specific exchange ratio
constituted the only appropriate exchange ratio for the merger.
In addition, Morgan Stanley's opinion and its presentation to HomeGrocer's
Board of Directors was one of many factors taken into consideration by
HomeGrocer's Board of Directors in deciding to approve the merger. Consequently,
the analyses as described above should not be viewed as determinative of the
opinion of HomeGrocer's Board of Directors with respect to the exchange ratio or
of whether HomeGrocer's Board of Directors would have been willing to agree to a
different exchange ratio.
HomeGrocer's Board of Directors retained Morgan Stanley based upon Morgan
Stanley's qualifications, experience and expertise. Morgan Stanley is an
internationally recognized investment banking and advisory firm. Morgan Stanley,
as part of its investment banking and financial advisory business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of
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listed and unlisted securities, private placements and valuations for corporate,
estate and other purposes. In the past, Morgan Stanley and its affiliates have
provided financial advisory and financing services for HomeGrocer and Webvan and
have received fees for the rendering of these services. In the ordinary course
of Morgan Stanley's trading and brokerage activities, Morgan Stanley or its
affiliates may at any time hold long or short positions, may trade or otherwise
effect transactions, for its own account or for the account of customers in the
equity and other securities of HomeGrocer, Webvan or any other parties involved
in the merger.
Under the engagement letter, Morgan Stanley provided financial advisory
services and a financial fairness opinion in connection with the merger, and
HomeGrocer agreed to pay Morgan Stanley a fee of $4 million, of which $1 million
was payable upon announcement of the transaction and $2 million of Morgan
Stanley's fee is payable in HomeGrocer common stock which will be converted at
the exchange ratio into shares of Webvan common stock. HomeGrocer has also
agreed to reimburse Morgan Stanley for its expenses incurred in performing its
services. In addition, HomeGrocer has agreed to indemnify Morgan Stanley and its
affiliates, their respective directors, officers, agents and employees and each
person, if any, controlling Morgan Stanley or any of its affiliates against
certain liabilities and expenses, including certain liabilities under the
federal securities laws, related to or arising out of Morgan Stanley's
engagement.
INTERESTS OF HOMEGROCER DIRECTORS, OFFICERS AND SIGNIFICANT STOCKHOLDERS IN THE
MERGER
When considering the recommendation of HomeGrocer's Board of Directors that
stockholders approve the merger, you should be aware that some HomeGrocer
directors and officers have interests in the merger that are different from, or
are in addition to, your interests. The HomeGrocer Board was aware of these
potential conflicts and considered them. These include:
- Severance Payments. HomeGrocer's Chief Executive Officer and Chairman,
Mary Alice Taylor, and Terrence Drayton, a co-founder, will receive
severance payments equal to 12 months total cash compensation (base
salary and bonus) and 24 months total cash compensation, respectively, in
the event either is terminated without cause within one year following
consummation of the merger. In addition, other senior officers of
HomeGrocer will be eligible to receive severance payments equal to 12
months total cash compensation if they are terminated without cause, or
if their duties or other terms of employment are adversely changed,
within one year following consummation of the merger.
- Accelerated Vesting. At the closing of the merger, HomeGrocer's right to
repurchase at cost 375,000 restricted common shares owned by Ms. Taylor
and approximately 70,000 restricted common shares owned by Mr. Drayton
will lapse, in addition to the lapsing of such repurchase right which
will occur with respect to additional shares pursuant to the terms of the
employment agreements covering such individuals. Specifically, pursuant
to each of their employment agreements, assuming the merger closes after
September 2, 2000, HomeGrocer's repurchase right will lapse with respect
to 3 million restricted shares held by Ms. Taylor and 1.1 million
restricted shares held by Mr. Drayton as a result of the merger and the
fact they will not serve in substantially similar positions with the
surviving company. Additionally, all options issued prior to January 5,
2000 under HomeGrocer's 1997 Stock Incentive Compensation Plan provide
for acceleration of vesting if, within two years following the merger, an
option holder's employment is terminated without cause or if his or her
duties or terms of employment are adversely changed. This provision
applies to options to purchase 13,721,000 shares. Also, pursuant to the
terms of options granted to directors, vice presidents and senior vice
presidents on May 1, 2000, if the combined company terminates the option
holder's employment without cause, or makes adverse changes in his or her
duties or other terms of employment, within one year following the
merger, then a portion of the options will
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vest on an accelerated basis. This provision applies to a maximum of options to
purchase 3,938,000 shares held by 52 individuals, which could result in
accelerated vesting of options to purchase up to 1,181,400 shares if all of
these individuals are terminated within 12 months following the merger.
- Employment. Two new directors, James Barksdale and Mary Alice Taylor,
will be appointed to the Webvan board. In addition, some executive
officers of HomeGrocer will become executive officers of Webvan. Webvan
has entered into employment agreements with two executive officers and
other key employees and may enter into additional employment contracts
with other employees of HomeGrocer.
- Lock-up Agreements and Amazon.com Registration Rights. Other than as
described below, certain significant stockholders of HomeGrocer have
agreed not to sell any of the shares that they receive in the merger for
a period of six months following the closing of the merger. HomeGrocer's
largest stockholder, Amazon.com, Inc., has entered into a separate
agreement with Webvan permitting Amazon.com to sell up to 8 million
shares within the first six months following the closing. Please see the
section entitled "Amazon.com Registration Rights Agreement."
- Indemnification. The directors and executive officers of HomeGrocer have
customary rights to indemnification against certain liabilities. Further,
Webvan has agreed to maintain for six years, subject to certain cost
limitations, a policy of directors' and officers' liability insurance
with respect to matters occurring on or before the effective time of the
merger for the benefit of the present and former directors and officers
of HomeGrocer.
As a result, these directors, executive officers and stockholders could be
more likely to vote in favor of recommending the merger agreement and the merger
than if they did not hold these interests.
COMPLETION AND EFFECTIVENESS OF THE MERGER
The merger will be completed when all of the conditions to completion of
the merger are satisfied or waived, including approval and adoption of the
merger agreement and the merger by the stockholders of HomeGrocer and Webvan and
approval of the issuance of Webvan common stock in the merger by stockholders of
Webvan. The merger will become effective upon the filing of the certificate of
merger with the Secretary of the State of Washington.
STRUCTURE OF THE MERGER AND CONVERSION OF HOMEGROCER COMMON STOCK
Pursuant to the merger agreement, Robin Merger Corporation, a wholly-owned
Washington subsidiary of Webvan, will merge with and into HomeGrocer.
Immediately following this merger, HomeGrocer will be a wholly-owned subsidiary
of Webvan.
Upon completion of the merger, each outstanding share of HomeGrocer common
stock will be converted into the right to receive 1.07605 shares of Webvan
common stock. No fractional shares of Webvan common stock will be issued
pursuant to the merger. In lieu of the issuance of any fractional share of
Webvan common stock, cash equal to the product of such fractional share amount,
after aggregating all fractional shares to which a former holder of HomeGrocer
common stock would be entitled, and the average closing price of Webvan common
stock as reported on Nasdaq for the five trading days immediately preceding the
last full trading day prior to the effectiveness of the merger.
EXCHANGE OF HOMEGROCER STOCK CERTIFICATES FOR WEBVAN STOCK CERTIFICATES
When the merger is completed, Webvan's exchange agent will mail to
HomeGrocer stockholders a letter of transmittal and instructions for use in
surrendering HomeGrocer stock certificates in
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exchange for Webvan stock certificates. When former HomeGrocer stockholders
deliver their HomeGrocer stock certificates to the exchange agent along with an
executed letter of transmittal and any other required documents, the HomeGrocer
stock certificates will be canceled and former HomeGrocer stockholders will
receive Webvan stock certificates representing the number of full shares of
Webvan common stock to which they are entitled under the merger agreement. They
will receive payment in cash, without interest, in lieu of any fractional shares
of Webvan common stock which would have been otherwise issuable to them in the
merger.
HomeGrocer stockholders should not submit their HomeGrocer stock
certificates for exchange until they receive the transmittal instructions and a
form of letter of transmittal from the exchange agent.
NO DIVIDENDS
HomeGrocer stockholders are not entitled to receive any dividends or other
distributions on Webvan common stock until the merger is completed and they have
surrendered their HomeGrocer stock certificates in exchange for Webvan stock
certificates.
Subject to the effect of applicable laws, promptly following surrender of
HomeGrocer stock certificates and the issuance of the corresponding Webvan
certificates, HomeGrocer stockholders will be paid the amount of dividends or
other distributions, without interest, with a record date after the completion
of the merger which were previously paid with respect to their whole shares of
Webvan common stock.
Webvan will only issue HomeGrocer stockholders a Webvan stock certificate
or a check in lieu of a fractional share in the name in which the surrendered
HomeGrocer stock certificate is registered. If HomeGrocer stockholders wish to
have their certificates issued in another name they must present the exchange
agent with all documents required to show and effect the unrecorded transfer of
ownership and show that they paid any applicable stock transfer taxes.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The discussion below constitutes the opinion of Wilson Sonsini Goodrich &
Rosati, P.C. and Davis Polk & Wardwell regarding the material United States
federal income tax considerations generally applicable to United States holders
of HomeGrocer common stock who, pursuant to the merger, exchange their
HomeGrocer common stock solely for Webvan common stock and cash in lieu of
fractional shares of Webvan common stock. Consummation of the merger is
conditioned upon Webvan's and HomeGrocer's receipt of opinions of their
respective counsel, confirming their opinions as described in this section
entitled "Material United States federal income tax considerations," to the
effect that the merger will qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code.
The opinions of Wilson Sonsini Goodrich & Rosati, P.C. and Davis Polk &
Wardwell set forth in this section entitled "Material United States federal
income tax considerations" are subject to certain limitations, qualifications
and assumptions and are based on certain facts and representations, including
representations contained in certificates executed by officers of Webvan and
HomeGrocer. The opinions have assumed the absence of changes in relevant facts
or in law between the date of this joint proxy statement/prospectus and the
closing date. The opinions are not binding on the Internal Revenue Service or
the courts. No ruling from the Internal Revenue Service has been or will be
sought. The discussion below is based upon current provisions of the Internal
Revenue Code, currently applicable U.S. Treasury regulations promulgated
thereunder, and judicial and administrative decisions and rulings. Future
legislative, judicial or administrative changes or interpretations could alter
or modify (including on a retroactive basis) the discussion below.
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The discussion below does not purport to deal with all aspects of United
States federal income taxation that may affect particular stockholders in light
of their individual circumstances, and is not intended for stockholders subject
to special treatment under federal income tax law. Stockholders subject to
special treatment include, but are not limited to, insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
persons, stockholders who are subject to the alternative minimum tax provisions
of the Internal Revenue Code, stockholders who hold their stock as part of a
hedge, appreciated financial position, straddle or conversion transaction,
stockholders who do not (or who will not at the time of the merger) hold their
stock as capital assets and stockholders who have acquired their stock upon the
exercise of employee options or otherwise as compensation. In addition, the
discussion below does not consider the effect of any applicable state, local or
foreign tax laws and further does not consider any tax consequences of
transactions effectuated by stockholders subsequent to, or concurrently with,
the merger.
In the opinion of Wilson Sonsini Goodrich & Rosati, P.C., counsel to
Webvan, and in the opinion of Davis Polk & Wardwell, counsel to HomeGrocer, the
merger will constitute a "reorganization" within the meaning of Section 368(a)
of the Internal Revenue Code.
Assuming the merger constitutes a reorganization, subject to the
limitations and qualifications referred to herein, the following tax
consequences will result:
- no gain or loss will be recognized by the holders of HomeGrocer common
stock upon the receipt of Webvan common stock solely in exchange for such
HomeGrocer common stock in the merger, except as a result of cash
received in lieu of fractional shares of Webvan common stock;
- cash payments received by holders of HomeGrocer common stock in lieu of a
fractional share of Webvan common stock will result in capital gain (or
capital loss) measured by the difference between the cash payment
received and the portion of the tax basis in the shares of HomeGrocer
common stock surrendered that is allocable to such fractional share. Such
capital gain (or capital loss) will be long-term capital gain (or capital
loss) if the shares of HomeGrocer common stock allocable to such
fractional share have been held for more than one year at the effective
time of the merger;
- the aggregate tax basis of the Webvan common stock received by HomeGrocer
stockholders in the merger will be the same as the aggregate tax basis of
the HomeGrocer common stock surrendered in exchange, reduced by any tax
basis allocable to a fractional share of Webvan common stock for which
cash is received;
- the holding period with respect to Webvan common stock received by each
HomeGrocer stockholder in the merger will include the holding period for
the HomeGrocer common stock surrendered in exchange; and
- no gain or loss will be recognized by Webvan, HomeGrocer or the
transitory subsidiary that merges into HomeGrocer solely as a result of
the merger.
THE ABOVE DISCUSSION IS INTENDED ONLY AS A SUMMARY OF THE MATERIAL UNITED STATES
FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE MERGER AND DOES NOT PURPORT TO
BE A COMPLETE ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT
THERETO. HOMEGROCER STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS
TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN
REPORTING REQUIREMENTS AND THE EFFECT OF FEDERAL, STATE, LOCAL, AND FOREIGN TAX
LAWS.
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ACCOUNTING TREATMENT FOR THE MERGER
Webvan intends to account for the merger as a "purchase" for financial
reporting and accounting purposes, under generally accepted accounting
principles.
REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE MERGER
This merger is subject to review by the Department of Justice and the
Federal Trade Commission to determine whether it is in compliance with
applicable antitrust laws. Under the provisions of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, the merger may not be
consummated until the specified waiting period requirements of that Act have
been satisfied. Webvan and HomeGrocer will file all required notification
reports, together with requests for early termination for the waiting period,
with the Department of Justice and the Federal Trade Commission under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Certain
HomeGrocer directors who will be directors of Webvan after the merger may also
be required to file notification reports with the Federal Trade Commission. In
addition, the completion of this merger is subject to the effectiveness of the
registration statement of which this joint proxy statement/prospectus is a part,
and compliance with applicable corporate laws of the Washington and Delaware.
CERTAIN SECURITIES LAWS CONSIDERATIONS
The Webvan common stock to be issued in the merger will be registered under
the Securities Act. These shares will be freely transferable under the
Securities Act, except for Webvan common stock issued to any person who is
deemed to be an affiliate of HomeGrocer. Persons who may be deemed to be
affiliates include individuals or entities that control, are controlled by, or
are under common control with HomeGrocer and include HomeGrocer's officers and
directors, as well as its principal stockholders. HomeGrocer's affiliates may
not sell their Webvan common stock acquired in the merger except pursuant to:
- an effective registration statement under the Securities Act covering the
resale of those shares;
- an exemption under paragraph (d) of Rule 145 under the Securities Act; or
- any other applicable exemption under the Securities Act.
DISSENTERS' RIGHTS
Under Washington law, HomeGrocer stockholders are entitled to dissent from
the merger and instead demand payment from HomeGrocer of the fair value of their
shares. To claim dissenters' rights, you must comply with the following
requirements:
- before the stockholder vote on the merger and the merger agreement is
taken, you must deliver to HomeGrocer written notice of your intent to
demand payment for your shares if the merger is effected;
- you must not vote your shares in favor of the merger at the HomeGrocer
stockholder meeting;
- if you properly notified HomeGrocer of your intent to demand dissenters'
rights, HomeGrocer will send you written notice within ten days after the
completion of the merger, indicating when and how to demand payment for
your shares. After receiving the notice, you must demand payment for your
shares and deposit the certificates representing your shares in the
manner and within the time frame required by the notice sent by
HomeGrocer; and
- you must certify to HomeGrocer that you acquired beneficial ownership of
your shares before June 25, 2000.
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If you do not comply with the requirements outlined above, you will not be
entitled to receive payment for your shares under the dissenters' rights
provisions of Washington law.
If you comply with the outlined requirements, within 30 days of the later
of the date of effectiveness of the merger or the date HomeGrocer received your
demand for payment, HomeGrocer will pay to you the amount HomeGrocer estimates
to be the fair value of your shares of HomeGrocer common stock. If you believe
HomeGrocer's estimate of the fair value of your shares is incorrect, or if
HomeGrocer has not paid you for your shares within 60 days of the last day you
were entitled to demand payment, you may notify HomeGrocer in writing of your
own estimate of the fair value of your shares of HomeGrocer common stock and
demand payment of your estimate. YOUR DISSENTERS' RIGHTS ARE SET OUT IN THEIR
ENTIRETY IN CHAPTER 23B.13 OF THE WASHINGTON BUSINESS CORPORATIONS ACT, WHICH IS
ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS ANNEX E.
LISTING ON THE NASDAQ MARKET OF WEBVAN COMMON STOCK TO BE ISSUED IN THE MERGER
Webvan has agreed to cause the shares of Webvan common stock to be issued
in the merger to be approved for listing on the Nasdaq National Market, subject
to official notice of issuance, prior to the effective time of the merger.
DELISTING AND DEREGISTRATION OF HOMEGROCER COMMON STOCK AFTER THE MERGER
If the merger is completed, HomeGrocer's common stock will be delisted from
the Nasdaq National Market and will be deregistered under the Securities
Exchange Act of 1934, as amended.
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THE MERGER AGREEMENT
This section of the joint proxy statement/prospectus describes the merger
agreement. While Webvan and HomeGrocer believe that the description covers the
material terms of the merger agreement, this summary may not contain all of the
information that is important to you. The merger agreement is attached to this
joint proxy statement/prospectus as Annex A and Webvan and HomeGrocer urge you
to read it carefully.
GENERAL
Following the adoption of the merger agreement and approval of the merger
by HomeGrocer stockholders and the satisfaction or waiver of the other
conditions to the merger, the transitory subsidiary, a wholly owned subsidiary
of Webvan, will merge into HomeGrocer. HomeGrocer will survive the merger as a
wholly owned subsidiary of Webvan. If all conditions to the merger are satisfied
or waived, the merger will become effective at the time of the filing by the
surviving corporation of a duly executed certificate of merger with the
secretary of state of the state of Washington.
THE EXCHANGE RATIO AND TREATMENT OF HOMEGROCER COMMON STOCK
At the effective time of the merger, each issued and outstanding share of
HomeGrocer common stock will be converted into the right to receive 1.07605
shares of Webvan common stock. However, any shares owned by HomeGrocer and any
shares owned by Webvan or the merger subsidiary will be cancelled without
conversion. Webvan will adjust the exchange ratio to reflect any
reclassification, stock split, stock dividend, reorganization or other similar
change with respect to Webvan common stock or HomeGrocer common stock occurring
before the effective time of the merger.
Based on the exchange ratio of 1.07605, and based on the number of shares
of HomeGrocer common stock and options and warrants to purchase HomeGrocer
common stock outstanding as of , 2000, a total of approximately
shares of Webvan common stock and options and warrants to
purchase Webvan common stock will be issued in the merger.
TREATMENT OF RESTRICTED STOCK OF HOMEGROCER
At the effective time of the merger, all outstanding shares of HomeGrocer
common stock granted by HomeGrocer under any of its plans or arrangements will
be converted into Webvan common stock based on the exchange ratio and will
remain subject to the same terms, restrictions and vesting schedules as were
applicable prior to the effective time of the merger, including, to the extent
not otherwise waived, accelerated vesting on the terms provided in HomeGrocer's
1997 Stock Incentive Compensation Plan for restricted shares acquired pursuant
to the exercise of options granted prior to January 10, 2000 and for restricted
shares acquired pursuant to the exercise of some options granted on May 1, 2000
under the HomeGrocer 1999 Stock Incentive Plan. Webvan will assume any rights
HomeGrocer held prior to the effective time of the merger to repurchase these
unvested shares.
TREATMENT OF HOMEGROCER STOCK OPTIONS AND WARRANTS
At the effective time of the merger, Webvan will assume each outstanding
option, whether vested or unvested, and warrant to purchase shares of HomeGrocer
common stock and convert them into options or warrants, as the case may be, to
purchase Webvan common stock subject to the same terms and conditions as were
applicable prior to the effective time of the merger, including, to the extent
not otherwise waived, accelerated vesting on the terms provided in HomeGrocer's
1997 Stock Incentive Compensation Plan for options granted prior to January 10,
2000 and for some options
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granted as of May 1, 2000 under the HomeGrocer 1999 Stock Incentive Plan. The
number of shares of Webvan common stock issuable upon the exercise of such stock
options and warrants will be adjusted based on the exchange ratio. Any
fractional Webvan common stock resulting from such adjustment will be rounded
down to the nearest whole number. The exercise price per share of Webvan common
stock issuable under each HomeGrocer option and warrant will equal the aggregate
exercise price of the HomeGrocer common stock purchasable under the HomeGrocer
option or warrant divided by the number of whole Webvan common stock the
optionholder or warrantholder is entitled to purchase based on the exchange
ratio. The exercise price will be rounded up to the nearest whole cent.
Webvan will reserve for issuance a sufficient number of its common stock
for delivery upon a HomeGrocer optionholder's or warrantholder's exercise of his
or her option or warrant. Webvan will file a registration statement on Form S-8
with respect to the assumed HomeGrocer stock options.
Prior to the completion of the merger, HomeGrocer's Employee Stock Purchase
Plan will be terminated.
EXCHANGE OF CERTIFICATES
Exchange Agent; Exchange Procedures; No Further Ownership Rights. After the
effective time of the merger, Webvan's exchange agent will mail to each record
holder of HomeGrocer common stock a letter of transmittal and instructions for
surrendering their certificates. Only those holders who properly surrender their
certificates in accordance with the instructions will receive certificates
representing Webvan common stock, cash in lieu of any fractional Webvan common
stock and any dividends or distributions to which they are entitled. The
surrendered certificates representing shares of HomeGrocer common stock will be
cancelled. After the effective time of the merger, each certificate representing
shares of HomeGrocer common stock that have not been surrendered will only
represent the right to receive common stock of Webvan, cash in lieu of any
fractional Webvan common stock and dividends or distributions. Following the
effective time of the merger, HomeGrocer will not register any transfers of
HomeGrocer common stock on its stock transfer books.
No Fractional Shares. Webvan will not issue any fractional common stock in
the merger. Instead, each holder of shares of HomeGrocer common stock exchanged
in the merger who would otherwise be entitled to receive a fraction of a share
of common stock of Webvan will receive cash, without interest, equal to the
fractional share multiplied by the average closing price per share of Webvan
common stock on the Nasdaq National Market for the five trading days immediately
preceding the closing of the merger.
Distributions With Respect to Unexchanged Shares. After the effective date
of the merger, no dividends or other distributions declared or made after the
closing of the merger with respect to Webvan common stock will be paid to the
holder of any unsurrendered HomeGrocer certificate and no cash payment in lieu
of fractional shares will be paid to any such holder until the holder surrenders
its HomeGrocer certificate in accordance with the letter of transmittal. Upon
surrender, Webvan will pay to the recordholder of the certificate, without
interest, the amount of cash payable in lieu of fractional shares to which the
holder is entitled and any dividends or distributions with respect to the Webvan
common stock to which the holder is entitled which have a record date after the
closing date of the merger but prior to the surrender of the certificate and a
payment date after the surrender of the certificate.
Lost Certificates. If any HomeGrocer common stock certificate is lost,
stolen or destroyed, a HomeGrocer stockholder must provide an appropriate
affidavit of that fact. Webvan may require a HomeGrocer stockholder to deliver a
bond as indemnity against any claim that may be made against Webvan with respect
to any lost, stolen or destroyed certificate.
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HOLDERS OF HOMEGROCER COMMON STOCK SHOULD NOT SEND IN THEIR CERTIFICATES
UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT.
REPRESENTATIONS AND WARRANTIES
Webvan and HomeGrocer each made a number of representations and warranties
in the Merger Agreement regarding aspects of their respective businesses,
financial condition, structure and other facts pertinent to the merger.
HOMEGROCER'S REPRESENTATIONS AND WARRANTIES
HomeGrocer's representations and warranties include representations as to:
- HomeGrocer's corporate organization and its qualification to do business;
- HomeGrocer's articles of incorporation and bylaws;
- HomeGrocer's capitalization;
- authorization of the merger agreement by HomeGrocer;
- the effect of the merger on obligations of HomeGrocer under applicable
laws;
- the vote of HomeGrocer stockholders required to approve the merger;
- regulatory approvals required to complete the merger;
- HomeGrocer's filings and reports with the SEC;
- HomeGrocer's financial statements;
- HomeGrocer's liabilities;
- changes in HomeGrocer's business since April 1, 2000;
- HomeGrocer's taxes;
- intellectual property used by HomeGrocer;
- HomeGrocer's compliance with applicable laws;
- restrictions on the conduct of HomeGrocer's business;
- permits required to conduct HomeGrocer's business and compliance with
those permits;
- litigation involving HomeGrocer;
- payments, if any, required to be made by HomeGrocer to brokers and agents
on account of the merger;
- HomeGrocer's employee benefit plans;
- HomeGrocer's title to the properties it owns and leases;
- environmental laws that apply to HomeGrocer;
- HomeGrocer's labor relations;
- HomeGrocer's material contracts;
- HomeGrocer's insurance coverage;
- information supplied by HomeGrocer in this joint proxy
statement/prospectus and the related registration statement filed by
Webvan;
- approval by the HomeGrocer board of directors;
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- the inapplicability of state takeover statues to the merger; and
- the fairness opinion received by HomeGrocer from its financial advisor.
The representations and warranties of HomeGrocer expire at the effective
time of the merger.
WEBVAN REPRESENTATIONS AND WARRANTIES
Webvan's representations and warranties include representations as to:
- Webvan's corporate organization and its qualification to do business;
- Webvan's certificate of incorporation and bylaws;
- Webvan's capitalization;
- authorization of the merger agreement by Webvan and Robin Merger
Corporation;
- the effect of the merger on obligations of Webvan under applicable laws;
- the vote of Webvan's stockholders required to approve the merger;
- regulatory approvals required to complete the merger;
- Webvan's filings and reports with the SEC;
- Webvan's financial statements;
- Webvan's liabilities;
- changes in Webvan's business since March 30, 2000;
- Webvan's taxes;
- intellectual property used by Webvan;
- Webvan's compliance with applicable laws;
- restrictions on the conduct of Webvan's business;
- permits required to conduct Webvan's business and compliance with those
permits;
- litigation involving Webvan;
- payments, if any, required to be made by Webvan to brokers or agents
because of the merger;
- Webvan's employee benefit plans;
- Webvan's title to the properties it owns and leases;
- environmental laws applicable to Webvan;
- Webvan's labor relations;
- Webvan's material contracts;
- Webvan's insurance coverage;
- information supplied by Webvan in this joint proxy statement/prospectus
and the related registration statement filed by Webvan;
- approval by the Webvan board of directors; and
- the fairness opinion received by Webvan from its financial advisor.
The representations and warranties in the merger agreement are complicated
and not easily summarized. You are urged to carefully read the articles of the
merger agreement entitled
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"Representations and Warranties of Company," relating to HomeGrocer and
"Representations and Warranties of Parent and Merger Sub," relating to Webvan
and Robin Merger Corporation.
HOMEGROCER'S CONDUCT OF BUSINESS BEFORE COMPLETION OF THE MERGER
HomeGrocer agreed that, until the earlier of the completion of the merger
or termination of the merger agreement or unless Webvan consents in writing,
HomeGrocer will use its commercially reasonable efforts consistent with past
practices and policies to:
- preserve intact its present business organization;
- keep available the services of its present officers and employees; and
- preserve its relationships with customers, suppliers, distributors,
licensors, licensees, and others with which it has business dealings.
HomeGrocer also agreed that until the earlier of the completion of the
merger or termination of the merger agreement or unless Webvan consents in
writing, HomeGrocer will conduct its business in compliance with certain
specific restrictions relating to the following:
- restricted stock and stock options;
- employees and employee benefits, including severance and termination
payments;
- HomeGrocer's intellectual property;
- the issuance of dividends or other distributions;
- the issuance, encumbrance and redemption of securities;
- modification of HomeGrocer's articles of incorporation and bylaws;
- the acquisition of assets or other entities;
- the sale, lease, license and disposition of assets;
- the incurrence of indebtedness;
- the adoption, amendment or increase of employee benefit plans, policies
or arrangements;
- payment or settlement of liabilities;
- making of certain payments;
- modification, amendment or termination of material contracts;
- entrance into new material contracts;
- accounting policies and procedures;
- incurrence of obligations to make certain expenditures;
- actions that would affect the qualification of the merger as a
"reorganization" under the Internal Revenue Code;
- making of tax elections;
- making of capital expenditures in excess of specified thresholds; and
- entrance into collective bargaining agreements.
The agreements related to the conduct of HomeGrocer's business in the
merger agreement are complicated and not easily summarized. You are urged to
carefully read the sections of the merger agreement entitled "Conduct of
Business by Company," relating to HomeGrocer.
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WEBVAN'S CONDUCT OF BUSINESS BEFORE COMPLETION OF THE MERGER
Webvan has agreed that, until the earlier of the completion of the merger
or termination of the merger agreement or unless HomeGrocer consents in writing,
Webvan will use its commercially reasonable efforts consistent with past
practices and policies to:
- preserve intact its present business organization;
- keep available the services of its present officers and employees; and
- preserve its relation with customers, suppliers, distributors, licensors,
licensees, and others with which it has business dealings.
Webvan also agreed that until the earlier of the completion of the merger
or termination of the merger agreement or unless HomeGrocer consents in writing,
Webvan will conduct its business in compliance with certain specific
restrictions relating to the following:
- Restricted stock and stock options;
- the issuance of dividends or other distributions;
- the issuance, encumbrance and redemption of securities;
- amendment of Webvan's certificate of incorporation and bylaws;
- the acquisition of assets or other entities;
- the incurrence of indebtedness;
- payment or settlement of liabilities;
- revaluation of assets or changing of accounting policies and procedures;
- actions that would affect the qualification of the merger as a
"reorganization" under the Internal Revenue Code; and
- making of tax elections.
NO SOLICITATION BY HOMEGROCER
HomeGrocer further agreed to cease, as of the date of the merger agreement,
any and all existing activities, discussions or negotiations with any parties
conducted prior to that date with respect to any Acquisition Proposal.
Until the merger is completed or the merger agreement is terminated,
HomeGrocer and its subsidiaries agreed not to directly or indirectly take any of
the following actions:
- solicit, initiate, encourage or induce the making, submission or
announcement of any Acquisition Proposal;
- participate in any discussions or negotiations regarding any Acquisition
Proposal;
- furnish to any person any information with respect to any Acquisition
Proposal;
- knowingly take any other action to facilitate any inquiries or the making
of any proposal that constitutes or may reasonably be expected to lead to
any Acquisition Proposal;
- engage in discussions with any person with respect to any Acquisition
Proposal;
- subject to certain limited exceptions discussed below, approve, endorse
or recommend any Acquisition Proposal; or
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- enter into any letter of intent or similar document or any contract,
agreement or commitment contemplating or otherwise relating to any
Acquisition Transaction.
HomeGrocer's board may, without breaching the merger agreement, respond to
an unsolicited, bona fide written Acquisition Proposal by discussing the
proposal with, and furnishing information to the party making the proposal, if
all of the following conditions are met:
- HomeGrocer's board reasonably concludes that the proposal constitutes a
Superior Proposal;
- HomeGrocer's board determines in good faith, after considering the advice
of its outside legal counsel, that its fiduciary obligations require it
to do so;
- HomeGrocer gives prior written notice to Webvan of discussions with, or
furnishing of information to the party making the proposal, and
HomeGrocer receives a customary confidentiality agreement from that
party;
- when furnishing nonpublic information to the party making the proposal,
HomeGrocer contemporaneously furnishes the same information to Webvan;
and
- receipt of the proposal is not the result of HomeGrocer's breach of any
of the non-solicitation provisions contained in the merger agreement.
For purposes of the foregoing, any action by any officer, director,
affiliate or employee of HomeGrocer or any investment banker, attorney or other
advisor or representative of HomeGrocer is deemed to be a breach by HomeGrocer.
An ACQUISITION PROPOSAL is any offer, inquiry or proposal relating to any
Acquisition Transaction, other than an offer, inquiry or proposal from Webvan.
An ACQUISITION TRANSACTION is any transaction or series of transactions,
other than the merger, involving any of the following:
- the acquisition or purchase from HomeGrocer of more than a 15% interest
in the total outstanding voting securities of HomeGrocer or any of its
subsidiaries;
- any tender offer or exchange offer that if consummated would result in
any person or group beneficially owning 15% or more of the total
outstanding voting securities of HomeGrocer or any of its subsidiaries;
- any merger, consolidation, business combination or similar transaction
involving HomeGrocer pursuant to which the stockholders of HomeGrocer
immediately preceding such transaction hold less than 85% of the equity
interests in the surviving or resulting entity;
- any sale, lease outside the ordinary course of business, exchange,
transfer, license outside the ordinary course of business, acquisition or
disposition of more than 15% of the assets of HomeGrocer; or
- any liquidation, dissolution or recapitalization of HomeGrocer;
A SUPERIOR PROPOSAL is an Acquisition Proposal that meets all of the
following conditions:
- if any cash consideration is involved, is not subject to any financing
contingency, or HomeGrocer's board of directors has determined, after
considering the advice of its independent financial advisors, that the
acquiring party is capable of consummating the proposed transaction on
the proposed terms; and
- HomeGrocer's board of directors has determined after considering the
written opinion of its financial advisor that such proposal provides
greater value to the stockholders of HomeGrocer than the merger.
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HomeGrocer has agreed to promptly inform Webvan of any request for
information that HomeGrocer reasonably believes would lead to an Acquisition
Proposal, or of any Acquisition Proposal, or any inquiry with respect to or
which HomeGrocer reasonably believes would lead to any Acquisition Proposal, the
material terms and conditions of such request, Acquisition Proposal or inquiry,
and the identity of the person or group making any such request, Acquisition
Proposal or inquiry. HomeGrocer further agreed to keep Webvan informed in all
material respects of the status and details, including material amendments or
proposed amendments, or any such request, Acquisition Proposal or inquiry, and
to provide Webvan with advance notice of any meeting of the HomeGrocer board of
directors at which the board of directors is reasonably expected to consider an
Acquisition Proposal or recommend a Superior Proposal to HomeGrocer's
stockholders.
HOMEGROCER STOCKHOLDER MEETING
Regardless of whether there has been a Superior Proposal, HomeGrocer is
obligated under the merger agreement to hold and convene the HomeGrocer special
meeting of stockholders for purposes of voting on the merger agreement and the
merger.
NO SOLICITATION BY WEBVAN
Webvan further agreed to cease, as of the date of the merger agreement, any
and all existing activities, discussions or negotiations with any parties
conducted prior to that date with respect to any Webvan Acquisition Proposal.
Until the merger is completed or the merger agreement is terminated, Webvan
and its subsidiaries agreed not to directly or indirectly take any of the
following actions:
- solicit, initiate, encourage or induce the making, submission or
announcement of any Webvan Acquisition Proposal;
- participate in any discussions or negotiations regarding any Webvan
Acquisition Proposal;
- furnish to any person any information with respect to any Webvan
Acquisition Proposal;
- knowingly take any other action to facilitate any inquiries or the making
of any proposal that constitutes or may reasonably be expected to lead to
any Webvan Acquisition Proposal;
- engage in discussions with any person with respect to any Webvan
Acquisition Proposal;
- subject to certain limited exceptions discussed below, approve, endorse
or recommend any Webvan Acquisition Proposal; or
- enter into any letter of intent or similar document or any contract,
agreement or commitment contemplating or otherwise relating to any Webvan
Acquisition Transaction.
Webvan's board may, without breaching the merger agreement, respond to an
unsolicited, bona fide written Webvan Acquisition Proposal by discussing the
proposal with, and furnishing information to the party making the proposal, if
all of the following conditions are met:
- Webvan's board reasonably concludes that the proposal constitutes a
Superior Proposal;
- Webvan's board determines in good faith, after considering the advice of
its outside legal counsel, that its fiduciary obligations require it to
do so;
- Webvan gives prior written notice to HomeGrocer of discussions with, or
furnishing of information to the party making the proposal, and Webvan
receives a customary confidentiality agreement from that party;
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- when furnishing nonpublic information to the party making the proposal,
Webvan contemporaneously furnishes the same information to HomeGrocer;
and
- receipt of the proposal is not the result of Webvan's breach of any of
the non-solicitation provisions contained in the merger agreement.
For purposes of the foregoing, any action by any officer, director,
affiliate or employee of Webvan or any investment banker, attorney or other
advisor or representative of Webvan is deemed to be a breach by Webvan.
A WEBVAN ACQUISITION PROPOSAL is any offer, inquiry or proposal relating to
any Webvan Acquisition Transaction.
A WEBVAN ACQUISITION TRANSACTION is any transaction or series of
transactions, other than the merger, that is conditioned upon termination of the
merger agreement, or that is structured in a manner that makes it impossible to
consummate both such transaction and the merger, and involves any of the
following:
- the acquisition or purchase from Webvan of more than a 15% interest in
the total outstanding voting securities of Webvan or any of its
subsidiaries;
- any tender offer or exchange offer that if consummated would result in
any person or group beneficially owning 15% or more of the total
outstanding voting securities of Webvan or any of its subsidiaries;
- any merger, consolidation, business combination or similar transaction
involving Webvan pursuant to which the stockholders of Webvan immediately
preceding such transaction hold less than 85% of the equity interests in
the surviving or resulting entity;
- any sale, lease outside the ordinary course of business, exchange,
transfer, license outside the ordinary course of business, acquisition or
disposition of more than 15% of the assets of Webvan; or
- any liquidation, dissolution or recapitalization of Webvan;
A WEBVAN SUPERIOR PROPOSAL is a Webvan Acquisition Proposal that meets all
of the following conditions:
- if any cash consideration is involved, is not subject to any financing
contingency, or Webvan's board of directors has determined, after
considering the advice of its independent financial advisors, that the
acquiring party is capable of consummating the proposed transaction on
the proposed terms; and
- Webvan's board of directors has determined after considering the written
opinion of its financial advisor that such proposal provides greater
value to the stockholders of Webvan than the merger.
Webvan has agreed to promptly inform HomeGrocer of any request for
information that Webvan reasonably believes would lead to a Webvan Acquisition
Proposal, or of any Webvan Acquisition Proposal, or any inquiry with respect to
or which Webvan reasonably believes would lead to any Webvan Acquisition
Proposal, the material terms and conditions of such request, Webvan Acquisition
Proposal or inquiry, and the identity of the person or group making any such
request, Webvan Acquisition Proposal or inquiry. Webvan further agreed to keep
HomeGrocer informed in all material respects of the status and details,
including material amendments or proposed amendments, or any such request,
Webvan Acquisition Proposal or inquiry, and to provide HomeGrocer with advance
notice of any meetings of Webvan's board of directors at which the board of
directors is reasonably
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expected to consider a Webvan Acquisition Proposal or recommend a Webvan
Superior Proposal to Webvan's stockholders.
WEBVAN STOCKHOLDER MEETING
Regardless of whether there has been a Webvan Superior Proposal, Webvan is
obligated under the merger agreement to hold and convene the Webvan special
meeting of stockholders for purposes of voting on the merger agreement and the
merger.
EMPLOYEE BENEFITS MATTERS
Individuals who continue to be employed by HomeGrocer after the merger is
completed who become participants or are subject to Webvan's employee benefit
plans will, subject to certain qualifications, receive credit for length of
service with HomeGrocer prior to the merger for eligibility and vesting
purposes.
CONDITIONS TO COMPLETION OF THE MERGER
The obligations of Webvan and HomeGrocer to complete the merger and the
other transactions contemplated by the merger agreement are subject to the
satisfaction or waiver, to the extent legally permissible, of each of the
following conditions before completion of the merger:
- the merger agreement must be approved and adopted and the merger must be
approved by the requisite vote of holders of HomeGrocer stock;
- the issuance of Webvan's shares to HomeGrocer's stockholders must be
approved by the requisite vote of Webvan stockholders under the rules of
the Nasdaq Stock Market;
- Webvan's registration statement on Form S-4 must be effective, no stop
order suspending its effectiveness will be in effect and no proceedings
for suspension of its effectiveness have been initiated or threatened by
the SEC;
- no law, regulation or order must be enacted or issued which has the
effect of making the merger illegal or otherwise prohibiting completion
of the merger;
- all applicable waiting periods under applicable antitrust laws must have
expired or been terminated; and
- Webvan and HomeGrocer must each receive from their respective tax
counsel, an opinion to the effect that the merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code.
HomeGrocer's obligations to complete the merger and the other transactions
contemplated by the merger agreement are subject to the satisfaction or waiver
of each of the following additional conditions before completion of the merger:
- Webvan's representations and warranties must be true and correct as of
June 25, 2000 and at and as of the date the merger is to be completed as
if made at and as of such time except:
- to the extent Webvan's representations and warranties address matters
only as of a particular date, they must be true and correct as of that
date;
- if any of Webvan's representations and warranties (other than
representations and warranties relating to capital structure and board
approval) are not true and correct but the effect, in the aggregate, of
the inaccuracies of these representations and breaches of these
warranties, does not have a material adverse effect on Webvan, then
this condition will be deemed satisfied; and
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- Webvan must perform or comply in all material respects with all of its
agreements and covenants required by the merger agreement to be performed
or complied with by Webvan at or before completion of the merger.
Webvan's obligations to complete the merger and the other transactions
contemplated by the merger agreement are subject to the satisfaction or waiver
of each of the following additional conditions before completion of the merger:
- HomeGrocer's representations and warranties must be true and correct as
of June 25, 2000 and at and as of the date the merger is to be completed
as if made at and as of such time except:
- to the extent HomeGrocer's representations and warranties address
matters only as of a particular date, they must be true and correct as
of that date;
- if any of HomeGrocer's representations and warranties (other than
representations and warranties relating to capital structure and board
approval) are not true and correct but the effect, in the aggregate, of
the inaccuracies of these representations and breaches of these
warranties, does not have a material adverse effect on HomeGrocer, then
this condition will be deemed satisfied;
- HomeGrocer must perform or comply in all material respects with all of
its agreements and covenants required by the merger agreement to be
performed or complied with by HomeGrocer at or before completion of the
merger;
- HomeGrocer shall have obtained all consents, waivers and approvals
required by identified contracts.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time prior to completion of
the merger, whether before or after approval and adoption of the merger
agreement and approval of the merger by HomeGrocer stockholders and Webvan's
stockholders:
- by mutual consent of the board of directors of Webvan and HomeGrocer;
- by Webvan or HomeGrocer, if the merger is not completed before November
30, 2000 except that this right to terminate the merger agreement is not
available to any party whose action or failure to act has been a
principal cause of or resulted in the failure of the merger to occur on
or before November 30, 2000 and such action or failure to act constitutes
a material breach of the merger agreement;
- by Webvan or HomeGrocer, if there is any final and nonappealable action
of a court or governmental authority having jurisdiction over either
Webvan or HomeGrocer permanently restraining, enjoining or prohibiting
the completion of the merger;
- by Webvan or HomeGrocer, if the merger agreement fails to receive the
requisite vote for approval and adoption and the merger fails to receive
the requisite vote for approval by the stockholders of HomeGrocer at a
HomeGrocer stockholders meeting or at any adjournment of that meeting or
if the share issuance fails to receive the requisite approval by the
stockholders of Webvan at a Webvan stockholders meeting or at any
adjournment of that meeting, except that this right to terminate the
merger agreement is not available to any party where the failure to
obtain stockholder approval was caused by that party's action or failure
to act and such action or failure to act constitutes a breach of the
merger agreement;
- by HomeGrocer, upon a breach of any representation, warranty, covenant or
agreement on the part of Webvan in the merger agreement, or if any of
Webvan's representations or warranties
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are or become untrue so that the corresponding condition to completion of
the merger would not be met. However, if the breach or inaccuracy is
curable by Webvan, and Webvan exercises best efforts, HomeGrocer may not
terminate the merger agreement for 30 days after delivery of written
notice from HomeGrocer to Webvan of the breach;
- by Webvan, upon a breach of any representation, warranty, covenant or
agreement on the part of HomeGrocer set forth in the merger agreement, or
if any of HomeGrocer's representations or warranties are or become untrue
so that the corresponding condition to completion of the merger would not
be met. However, if the breach or inaccuracy is curable by HomeGrocer and
HomeGrocer exercises best efforts, Webvan may not terminate the merger
agreement for 30 days after delivery of written notice from Webvan to
HomeGrocer of the breach;
- by Webvan if any of the following shall have occurred:
- HomeGrocer's board of directors withdraws, modifies or changes its
recommendation of the merger agreement or the merger in a manner
adverse to Webvan or its stockholders;
- HomeGrocer's board of directors approves or recommends any Acquisition
Proposal;
- HomeGrocer breaches any of the non-solicitation provisions of the
merger agreement;
- An Acquisition Proposal is announced or becomes publicly known to
HomeGrocer's board of directors and HomeGrocer's board of directors
fails to recommend against such proposal or fails to reconfirm its
approval and recommendation of the merger agreement and the merger,
within five business days; or
- HomeGrocer's board of directors resolves to take any of the actions
described above;
- by HomeGrocer if any of the following shall have occurred:
- Webvan's board of directors withdraws, modifies or changes its
recommendation of the merger agreement or the merger in a manner
adverse to HomeGrocer or its stockholders;
- Webvan's board of directors approves or recommends any Webvan
Acquisition Proposal;
- Webvan breaches any of the non-solicitation provisions of the merger
agreement;
- A Webvan Acquisition Proposal is announced or becomes publicly known to
Webvan's board of directors and Webvan's board of directors fails to
recommend against such proposal or fails to reconfirm its approval and
recommendation of the merger agreement and the merger, within five
business days; or
- Webvan's board of directors resolves to take any of the actions
described above.
PAYMENT OF TERMINATION FEE BY HOMEGROCER
HomeGrocer will pay Webvan a termination fee of $36 million if any of the
following conditions occur:
- Webvan terminates the merger agreement because of any of the following:
- HomeGrocer's board of directors withdraws, modifies or changes its
recommendation of the merger agreement or the merger in a manner
adverse to Webvan or its stockholders;
- HomeGrocer's board of directors approves or recommends any Acquisition
Proposal;
- HomeGrocer breaches any of the non-solicitation provisions of the
merger agreement;
- An Acquisition Proposal is announced or becomes publicly known to
HomeGrocer's board of directors and HomeGrocer's board of directors
fails to recommend against such proposal
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or fails to reconfirm its approval and recommendation in favor of the
merger agreement and the merger, within five business days; or
- HomeGrocer's board of directors resolves to take any of the actions
described above; or
- the merger agreement is terminated because the merger has not been
consummated by November 30, 2000 or because the merger has failed to
receive the requisite vote for approval by the stockholders of HomeGrocer
at a HomeGrocer stockholders meeting or at any adjournment of that
meeting and (1) at or prior to such termination, there exists or has been
proposed an Acquisition Proposal and that Acquisition Proposal has not
been publicly, irrevocably and unconditionally withdrawn, and (2) within
6 months after such termination (or within 12 months after such
termination, if such termination occurred because of the nonapproval of
the merger by the stockholders of HomeGrocer), HomeGrocer enters into a
definitive agreement with respect to an acquisition of HomeGrocer (and
that acquisition is later consummated) or an acquisition of HomeGrocer is
consummated.
HomeGrocer will pay Webvan a termination fee of $15 million if the merger
agreement is terminated because the merger has failed to receive the requisite
vote for approval by the stockholders of HomeGrocer at a HomeGrocer stockholders
meeting, unless at the time of such vote Webvan's representations and warranties
have become untrue or inaccurate or Webvan has failed to perform or comply in
any material respect with any of its agreements and covenants required to be
performed or complied with under the merger agreement. However, HomeGrocer will
not be obligated to pay Webvan this $15 million termination fee if HomeGrocer
has already become obligated to pay Webvan the $36 million termination fee
described above, and payment of this $15 million termination fee will be
credited against the $36 million termination fee if HomeGrocer later becomes
obligated to pay the $36 million termination fee.
In addition, if Webvan terminates the merger agreement because of a breach
by HomeGrocer of a representation, warranty, covenant or agreement in the merger
agreement or because of HomeGrocer's representations and warranties failing to
remain true, then HomeGrocer will be required to reimburse Webvan for Webvan's
costs and expenses in connection with the merger agreement.
PAYMENT OF TERMINATION FEE BY WEBVAN
Webvan will pay HomeGrocer a termination fee of $36 million if any of the
following conditions occur:
- HomeGrocer terminates the merger agreement because of any of the
following:
- Webvan's board of directors withdraws, modifies or changes its
recommendation of the merger agreement or the merger in a manner
adverse to HomeGrocer or its stockholders;
- Webvan's board of directors approves or recommends any Webvan
Acquisition Proposal;
- Webvan breaches any of the non-solicitation provisions of the merger
agreement;
- A Webvan Acquisition Proposal is announced or becomes publicly known to
Webvan's board of directors and Webvan's board of directors fails to
recommend against such proposal or fails to reconfirm its approval and
recommendation in favor of the merger agreement and the merger, within
five business days; or
- Webvan's board of directors resolves to take any of the actions
described above; or
- the merger agreement is terminated because the merger has not been
consummated by November 30, 2000 or because the issuance of shares of
Webvan in connection with the merger under Nasdaq rules has failed to
receive the requisite vote for approval by the
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stockholders of Webvan at a Webvan stockholders meeting and (1) at or
prior to such termination, there exists or has been proposed a Webvan
Acquisition Proposal provided that for purposes of the termination fee
the definition of Webvan Acquisition Proposal does not include the
requirement that such alternate transaction be incompatible with the
merger and that Webvan Acquisition Proposal has not been publicly,
irrevocably and unconditionally withdrawn, and (2) within 6 months after
such termination (or within 12 months after such termination, if such
termination occurred because of the nonapproval of the issuance of shares
by the stockholders of Webvan), Webvan enters into a definitive agreement
with respect to an acquisition of Webvan (and that acquisition is later
consummated) or an acquisition of Webvan is consummated.
Webvan will pay HomeGrocer a termination fee of $15 million if the merger
agreement is terminated because the issuance of shares of Webvan in connection
with the merger under Nasdaq rules has failed to receive the requisite vote for
approval by the stockholders of Webvan at a Webvan stockholders meeting, unless
at the time of such vote HomeGrocer's representations and warranties have become
untrue or inaccurate or HomeGrocer has failed to perform or comply in any
material respect with any of its agreements and covenants required to be
performed or complied with under the merger agreement. However, Webvan will not
be obligated to pay HomeGrocer this $15 million termination fee if Webvan has
already become obligated to pay HomeGrocer the $36 million termination fee
described above, and payment of this $15 million termination fee will be
credited against the $36 million termination fee if Webvan later becomes
obligated to pay the $36 million termination fee.
In addition, if HomeGrocer terminates the merger agreement because of a
breach by Webvan of a representation, warranty, covenant or agreement in the
merger agreement or because of Webvan's representations and warranties failing
to remain true, then Webvan will be required to reimburse HomeGrocer for
HomeGrocer's costs and expenses in connection with the merger agreement.
OPERATIONS AFTER THE MERGER
Following the merger, it is expected that HomeGrocer will continue its
operations as a wholly-owned subsidiary of Webvan. The stockholders of
HomeGrocer will become stockholders of Webvan, and their rights as stockholders
will be governed by the Webvan certificate of incorporation and bylaws, as
currently in effect, and the laws of Delaware. See "Comparison of Stockholder
Rights and Corporate Governance Matters" on page of this joint proxy
statement/prospectus.
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
Webvan and HomeGrocer may amend the merger agreement before completion of
the merger by mutual written consent.
Either Webvan or HomeGrocer may extend the other's time for the performance
of any of the obligations or other acts under the merger agreement, waive any
inaccuracies in the other's representations and warranties and waive compliance
by the other with any of the agreements or conditions contained in the merger
agreement.
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AGREEMENTS RELATED TO THE MERGER
This section of the joint proxy statement/prospectus describes agreements
related to the merger agreement, including the HomeGrocer Voting Agreements, the
Webvan Voting Agreements, the HomeGrocer Lock-Up Agreements, the Webvan Lock-Up
Agreements, the HomeGrocer Affiliate Agreements and the Amazon.com Registration
Rights Agreement. While Webvan and HomeGrocer believe that these descriptions
cover the material terms of these agreements, these summaries may not contain
all of the information that is important to you. Forms of these agreements are
attached as exhibits to Annex A and as Annex D to this joint proxy
statement/prospectus.
HOMEGROCER VOTING AGREEMENTS
Webvan required the members of the HomeGrocer board of directors and four
executive officers of HomeGrocer to enter into voting agreements. By entering
into the voting agreements these HomeGrocer stockholders have irrevocably
appointed Webvan as their lawful attorney and proxy. These proxies give Webvan
the limited right to vote the shares of HomeGrocer common stock beneficially
owned by these HomeGrocer stockholders and affiliated entities and subject to
the voting agreements as follows:
- in favor of the approval of the merger agreement and the merger;
- in favor of any matter that could reasonably be expected to facilitate
the merger;
- against any matter that could reasonably be expected to prevent the
merger;
- against any Acquisition Proposal; and
- against any matter that could reasonably be expected to facilitate any
Acquisition Proposal.
These HomeGrocer stockholders may vote their shares of HomeGrocer common
stock on all other matters.
As of June 25, 2000, the HomeGrocer stockholders who entered into voting
agreements collectively beneficially owned approximately 80.3 million shares of
HomeGrocer common stock and these stockholders agreed to subject to voting
agreements 70.6 million shares, which represented approximately 55.0% of the
outstanding HomeGrocer common stock. None of the HomeGrocer stockholders who are
parties to the voting agreements were paid additional consideration in
connection with them.
Each HomeGrocer stockholder who is a party to a voting agreement agreed not
to sell the HomeGrocer stock and options subject to the voting agreement and
owned, controlled or acquired, either directly or indirectly, by that person
until the earlier of the termination of the merger agreement or the completion
of the merger, unless each person to which any shares or any interest in any
shares is transferred agrees to be bound by the terms and provisions of the
voting agreement.
In general, the voting agreements will terminate upon the earlier to occur
of the termination of the merger agreement and the completion of the merger. The
form of HomeGrocer voting agreement is attached as Exhibit A-1 to the merger
agreement which is attached as to this joint proxy statement/prospectus as Annex
A, and you are urged to read it in its entirety.
WEBVAN VOTING AGREEMENTS
HomeGrocer required that Webvan stockholders enter into voting agreements
with respect to shares of Webvan common stock which represented approximately
40.0% of the outstanding Webvan common stock, and certain significant
stockholders, including five members of the Webvan board of directors and one
other executive officer of Webvan, agreed to enter into voting agreements. By
entering into the voting agreements these Webvan stockholders have irrevocably
appointed
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HomeGrocer as their lawful attorney and proxy. These proxies give HomeGrocer the
limited right to vote the shares of Webvan common stock beneficially owned by
these Webvan stockholders and subject to the voting agreements as follows:
- in favor of the approval of the issuance of Webvan common stock under the
merger agreement;
- in favor of any matter that could reasonably be expected to facilitate
the issuance of Webvan common stock under the merger agreement;
- against any matter that could reasonably be expected to prevent the
issuance of Webvan common stock under the merger agreement;
- against any Webvan Acquisition Proposal; and
- against any matter that could reasonably be expected to facilitate any
Webvan Acquisition Proposal.
These Webvan stockholders may vote their shares of Webvan common stock on
all other matters.
As of June 25, 2000, these Webvan stockholders entered into voting
agreements with respect to approximately 133 million shares of Webvan common
stock beneficially owned by them which represented approximately 40.0% of the
outstanding Webvan common stock. None of the Webvan stockholders who are parties
to the voting agreements were paid additional consideration in connection with
them.
Each Webvan stockholder who is a party to a voting agreement agreed not to
sell the Webvan stock subject to the voting agreement by that person until the
earlier of the termination of the merger agreement or the completion of the
merger, unless each person to which any shares or any interest in any shares is
transferred agrees to be bound by the terms and provisions of the voting
agreement.
The Webvan voting agreements will terminate upon the earlier to occur of
the termination of the merger agreement and the completion of the merger. The
form of Webvan voting agreement is attached as Exhibit A-2 to the merger
agreement which is attached to this joint proxy statement/prospectus as Annex A,
and you are urged to read it in its entirety.
LOCK-UP AGREEMENTS
As an inducement to Webvan to enter the merger agreement, certain
significant stockholders of HomeGrocer have executed a lock-up agreement. Under
these lock-up agreements, these persons have agreed that until the date which is
six months after the effective date of the merger, they will not sell or
otherwise dispose of the common stock they receive under the merger. The form of
HomeGrocer lock-up agreement is attached as Exhibit B-1 to the merger agreement
which is attached to this joint proxy statement/prospectus as Annex A, and you
are urged to read it in its entirety.
As an inducement to HomeGrocer to enter into the merger agreement, Webvan
stockholders executed lock-up agreements with respect to an aggregate of
approximately 60% of the outstanding shares of Webvan common stock. Under these
lock-up agreements, these persons have agreed that until the date which is six
months after the effective date of the merger, they will not sell or otherwise
dispose of the Webvan common stock subject to the lock-up agreement. The form of
Webvan lock-up agreement is attached as Exhibit B-2 to the merger agreement
which is attached to this joint proxy statement/prospectus as Annex A, and you
are urged to read it in its entirety.
Under a registration rights agreement to be entered into between Amazon.com
and Webvan in connection with the merger, Amazon.com will agree that it will not
sell or otherwise dispose of
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Webvan shares for a six month period following the closing of the merger, except
that (a) during the first three months following the closing of the merger,
Amazon.com will be allowed to sell up to 3.0 million shares in accordance with
the provisions of Rule 145 under the Securities Act, and (b) during the second
three months following the closing of the merger, Amazon.com will be allowed to
sell up to 5.0 million shares in accordance with the provisions of Rule 145
under the Securities Act.
HOMEGROCER AFFILIATE AGREEMENTS
As an inducement to Webvan to enter into the merger agreement, each member
of the HomeGrocer board of directors and each executive officer of HomeGrocer
and certain stockholders of HomeGrocer is required to execute an affiliate
agreement. Under the affiliate agreements, Webvan will be entitled to place
appropriate legends on these persons' certificates evidencing any Webvan common
stock to be received by these persons and to issue stop transfer instructions to
the transfer agent for the Webvan common stock. Further, these persons have also
acknowledged the resale restrictions imposed by Rule 145 under the Securities
Act on shares of Webvan common stock to be received by them in the merger. The
form of HomeGrocer affiliate agreement is attached as Exhibit C to the merger
agreement which is attached to this joint proxy statement/prospectus as Annex A,
and you are urged to read it in its entirety.
AMAZON.COM REGISTRATION RIGHTS AGREEMENT
In connection with the merger agreement, Webvan agreed to grant
registration rights to Amazon.com, Inc., with respect to the shares of Webvan to
be acquired in the merger. The registration rights agreement entered into
between Amazon.com and Webvan is attached to this proxy/statement prospectus as
Annex D, and you are urged to read it in its entirety. The following is a
summary of the registration rights granted to Amazon.com:
- in the event of an underwritten registered equity offering by Webvan
occurring during the first six months following the closing of the
merger, Amazon.com would receive piggyback registration rights, subject
to a customary underwriter's cutback to limit the number of Amazon.com's
Webvan shares to not less than 20% of that offering, provided, however,
that in no event would Amazon.com be cutback to less than 3.0 million
shares to be included if the offering occurs in the first three months
following the closing of the merger, and to not less than 5.0 million
shares if the offering occurs in the second three months following the
closing of the merger;
- effective six months after the closing of the merger, Amazon.com would
have the right to (a) two demand registration rights for an underwritten
offering of its Webvan shares over an 18 month period and (b) unlimited
piggyback registration rights to include its Webvan shares in
underwritten equity offerings of common stock being sold by Webvan or by
Webvan stockholders with demand registration rights during such 18 month
period. The demands for registration must be at least nine months apart
and would be subject to the right of Webvan to defer each demand
registration once for not more than 90 days, based upon the good faith
judgment of Webvan's board of directors. Within 30 days of receipt of a
demand notice by Amazon.com, Webvan will prepare and file with the
Securities and Exchange Commission a registration statement relating to
the sale of the Amazon.com securities covered by such demand and will use
its best efforts to effect registration of the securities. Webvan would
pay all expenses related to such registration and sales, excluding
underwriter's discounts and Amazon.com's legal fees;
- Amazon.com's piggyback registration rights and demand registration rights
(in the event that Webvan elects to participate in the underwritten
offering pursuant to Amazon.com's demand
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rights) would each be subject to a cutback to limit the number of
Amazon.com's Webvan shares to not less than 30% of such offering,
provided, however, in no event would Amazon.com be cutback to less than
the lesser of (a) the number of shares Amazon.com would be able to sell
in a three month period under Rule 145 or (b) 40% of the offering;
- in the event of a demand or piggyback registration, the lead underwriter
will be selected by Webvan and the maximum offering size will be
determined by such underwriter in conjunction with Webvan and Amazon.com;
- in any underwritten offering of common stock by Webvan during the 12
months following the closing of the merger, for so long as Amazon.com
held at least 2% of the outstanding capital stock of Webvan, Amazon.com
would agree not to sell or otherwise dispose of its shares for a period
of time not to exceed 90 days following the offering, provided that all
executive officers and directors as well as existing Webvan stockholders
then holding as many shares as are then held by Amazon.com agree to such
a lock-up provision, and provided that if any such holders are
subsequently released from the lock-up, Amazon.com would also be
released;
- in the event of an underwritten offering of securities other than common
stock by Webvan during the 12 months following the closing of the merger,
for so long as Amazon.com held at least 2% of the outstanding capital
stock of Webvan, Amazon.com would agree not to sell or otherwise dispose
of its shares for a period of time not to exceed 60 days following the
offering, provided that all executive officers and directors as well as
existing Webvan stockholders then holding as many shares as are then held
by Amazon.com agree to such a lock-up provision, and provided that if any
such holders are subsequently released from the lock-up, Amazon.com would
also be released; and
- in any offering in which Amazon.com's shares are included, Amazon.com
would agree not to sell or otherwise dispose of its Webvan shares for a
period not to exceed 90 days.
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WEBVAN BUSINESS
Webvan is an Internet retailer offering delivery of consumer products
through an innovative proprietary business design that integrates its Webstore,
distribution center and delivery system. Webvan's current product offerings are
principally focused on food, non-prescription drug products and general
merchandise including housewares, pet supplies, consumer electronics and
entertainment products and books.
THE WEBVAN WEBSTORE
The Webvan Webstore is a user-friendly, informative and personalized web
site which enables users to quickly and easily navigate and purchase from a wide
selection of items. The Webstore makes the shopping experience easy for the
customer by offering them multiple methods for shopping the site. The store
directory is divided into twelve intuitively organized categories and allows the
customer to quickly and efficiently find items. The Webstore is customized for
each distribution center to present only the products available in that
distribution center. Webvan offers a broad selection of traditional grocery
store products and an increasing number of non-grocery store products. Once
customers find the item they want, they may add it to the shopping cart or may
save it to a shopping list. Customers can also access for ease of shopping a
special category called "My Personal Market" containing only those products that
a customer has already ordered in prior visits to Webvan's Webstore. The
shopping cart is always visible on the screen and instantly updates and
calculates the order total while the customer shops. Webvan's Webstore promotes
brand loyalty and repeat purchases by providing a convenient, easy-to-use
experience that encourages customers to return frequently.
HOME PAGE. Webvan's home page serves as the entry point and gives visitors
a glimpse of the wide selection available on the site. On Webvan's home page,
customers find weekly specials on brand name products and links that showcase
specific products and areas of the site.
BROWSING. Webvan's Webstore displays a store directory which allows
visitors to browse through all the categories of products Webvan offers. The
categories are intuitively organized by type of product and enable the user to
drill down from general to more specific categories, such as moving from produce
to fruits to bananas or from bookstore to fiction to mystery books. The browsing
tool also enables customers to see all products in a particular category before
making a selection, similar to scanning the shelves of a neighborhood store. In
addition, each item on the site has an image and many grocery products have
nutritional information attached, which further enhances the user experience.
SEARCHING. Webvan's Webstore contains an interactive, searchable database
of SKUs that are or have been available for purchase from the applicable
distribution center. The customer can search based on product type, brand name
or category. The search results page displays each relevant item, along with the
product category and subcategories.
CONTENT AND FEATURES. Webvan offers an array of content on the site to
enhance the user experience and encourage visitors to try new items. Webvan's
weekly electronic magazine, Sensations, features special recipes, cooking tips,
features authored by food and health experts, and the opportunity to interact
with culinary professionals. As Webvan accumulates data, Webvan's Webstore can
be personalized to appeal to individual customer preferences and buying habits.
PERSONALIZATION AND LISTS. Webvan's Webstore enables a customer to
personalize their shopping experience. The site's shopping list feature allows
customers to create and retain personal shopping lists in their profiles.
Multiple lists can be saved for weekly shopping, specific events or special
occasions. Once a list has been created and saved, it can be retrieved and
modified at any time, enabling customers to shop and check out in a few minutes.
Webvan believes that the personalization
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of a customer's shopping experience is an important element of Webvan's value
proposition and Webvan intends to continue to enhance its personalization
services. For instance, the "My Personal Market" category generates a shopping
category with everything a customer has ever purchased at webvan.com sorted by
product category as well as a shopping category with a customer's 50 most
frequently purchased items sorted by purchase frequency.
DELIVERY. Customers schedule their delivery by selecting a time from a grid
of 30-minute alternatives. Webvan's real-time inventory tracking and delivery
route software systems are designed to help ensure that the groceries a customer
orders will be available so that they can be delivered within the delivery
window selected by the customer. Using this system, the customer is able to
schedule a delivery to occur within an available specific 30-minute window up to
six days after the order is placed. Deliveries are generally made from 6:00 a.m.
to 10:00 p.m. from Webvan's facilities though delivery hours may be more limited
on specific days or in markets being served from facilities located in other
markets. Webvan evaluates the appropriate delivery times for particular zones to
which it delivers and tailors the delivery windows available for some zones to
reflect demand, optimize Webvan's delivery resources, and maximizes its service
area. Webvan's customers must be at home to accept delivery of high value,
perishable or frozen items or regulated products such as alcohol and tobacco.
Non-perishable items may be delivered when the customer is not home.
For the last several quarters, over 90% of Webvan's deliveries were on
time. While Webvan strives to maintain high on-time delivery rate and order
fulfillment accuracy rates, Webvan has, on occasion, experienced operational
"bugs" or systems difficulties that have resulted in a high proportion of late
deliveries or order fulfillment inaccuracies on particular days. Any material
decrease in Webvan's on-time delivery rate or in order fulfillment accuracy
would likely have an adverse impact on Webvan's consumer acceptance of its
service and on its ability to increase average daily order volume. A prolonged
decline in Webvan's on-time delivery rate or in order fulfillment accuracy would
have an adverse impact on Webvan's financial results.
TECHNOLOGY AND SYSTEMS
Webvan has developed a technologically advanced systems platform, which
integrates its entire business process from end to end. Webvan has built an
array of proprietary advanced inventory management, warehouse management, route
management and materials handling systems and software to manage the entire
customer ordering and delivery flow process. By customizing software systems in
the manner required by Webvan's platform and developing proprietary programs and
algorithms to integrate these systems into a seamless platform, Webvan's systems
are able to manage and track transactions from the Webstore to a customer's
front door. Webvan's proprietary automated materials handling controller
communicates with the Webstore and warehouse management system and issues
instructions to the various mechanized areas of the distribution center to
ensure the proper fulfillment of orders. Webvan designed the system to utilize
automated conveyors and carousels to transport items to centrally located
employees. As a result, the system is designed to allow Webvan to increase
volume without a proportionate increase in human resources. Once a delivery is
scheduled, a route planning feature of the system determines the most efficient
route to deliver goods to the customer's home. The courier communicates with the
route planner and delivery scheduler modules throughout the delivery process
through the use of a wireless mobile field device. Each aspect of this process
is tightly integrated and enables Webvan to provide high quality service to its
customers.
Webvan's software development operating expenses were approximately $11
million in the first 6 months of 2000 and $15 million, $3 million and $0.2
million in 1999, 1998 and 1997, respectively. Webvan is continuously refining
and modifying its systems based on its experience and an attempt to incorporate
additional features that make order processing more efficient and customer
experience more rewarding. Webvan outsources most of its physical data center
requirements, as Webvan's web
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and database servers are hosted at AboveNet Communications, Inc. in Santa Clara
County, California. The continued uninterrupted operation of Webvan's Webstore
and transaction-processing systems is essential to Webvan's business, and it is
the job of Webvan's site operations staff to ensure, to the greatest extent
possible, the reliability of Webvan's Webstore and transaction-processing
systems.
DISTRIBUTION CENTERS
Webvan currently operates distribution center facilities of approximately
350,000 square feet in Oakland, California (serving the greater San Francisco
Bay area and Sacramento markets), Suwanee, Georgia (serving the greater Atlanta
market) and Carol Stream, Illinois (serving the greater Chicago market).
Webvan's distribution centers were designed to process product volumes
equivalent to approximately 18 supermarkets and to be the hub for the receipt
and distribution of products, allowing for efficient sorting and distribution of
products. This design, using Webvan's integrated software systems and automated
materials handling equipment such as carousels and conveyors, is intended to
provide economies of scale in the process of fulfilling customer orders compared
to traditional retail and distribution facilities. Identical software systems
are implemented at each distribution center, to enable the easy replication of
the distribution center model across multiple locations and allow for central
management of the entire system.
Each distribution center is a clean, climate-controlled facility segmented
into separate ambient, refrigerated and frozen areas that store grocery items at
optimal temperatures. The distribution centers were designed to allow for a
highly flexible inventory selection of 50,000 grocery and non-grocery SKUs. In
this regard, Webvan continues to refine and modify its materials handling
equipment infrastructure and software systems as Webvan scales its systems to
design capacity.
Webvan's distribution centers are located generally in industrially zoned
areas, which generally have lower real estate costs than traditional
supermarkets located in commercial areas.
DISTRIBUTION CENTER ROLL OUT
Webvan's first facility in Oakland, California was commercially launched in
June 1999. Webvan's second distribution center in Suwanee, Georgia opened in
May, 2000 and its third located in Carol Stream, Illinois, is scheduled to open
on August 1, 2000. During the remainder of 2000 Webvan plans to open facilities
of approximately 350,000 square feet in Baltimore (serving the greater Baltimore
and Washington, D.C. markets) and Bergen, New Jersey (serving the northern New
Jersey market). Given, among other things, the pendancy of the announced merger
with HomeGrocer, Webvan has recently determined to postpone opening its
distribution facility in Kent, Washington (serving the Seattle market) until
January 2001. In addition, Webvan plans, subject to its ability to raise
additional capital, to open two additional distribution centers by the end of
the first half of 2001. In July 1999, Webvan entered into an agreement with
Bechtel Corporation for the construction of up to 26 additional distribution
centers after Atlanta over the next three years. Bechtel has completed
construction of Webvan's Chicago distribution center and is in the process of
constructing Webvan's Seattle, Baltimore and Bergen, New Jersey distribution
centers.
Webvan believes that its alliance with Bechtel will enable Webvan to more
aggressively and cost-effectively roll out distribution centers in other markets
as Bechtel is able to provide a variety of project related services, including
engineering, design, procurement, construction and program management services.
The Bechtel agreement allows Webvan the flexibility of choosing what aspect of
Bechtel's expertise to utilize with respect to any particular distribution
center project. Webvan has, for example, mutually determined with Bechtel that
the entity acting as materials handling equipment systems integrator, the
contract for which represents a significant portion of the cost of constructing
and equipping Webvan's distribution centers, will contract directly with Webvan,
rather than act as a
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subcontractor to Bechtel, which Webvan expects will be more effective due to
Webvan's prior relationship with this contractor in connection with the design,
construction and equipping of its Oakland and Atlanta distribution centers.
Webvan expects to continue leveraging Bechtel's strengths in engineering
management to incorporate improvements to the design of Webvan's distribution
centers. For instance, "build-to-suit" design specifications were designed with
Bechtel to be provided to potential landlords for the development of buildings
with "standardized" or identical layouts. Webvan has no obligation under the
Bechtel agreement to build 26 distribution centers and, consequently, no capital
commitment under the agreement until Webvan determines to proceed with the build
out of a particular distribution center. Webvan's expenditures for the design,
construction and equipping of 26 distribution centers are estimated to be
approximately $1.0 billion. The decision to commit to any distribution center
project depends upon the availability of capital. Webvan's experiences to date
has demonstrated that actual costs of a particular distribution center project
vary significantly from market to market depending upon a number of factors,
including the cost of labor, the degree to which unionized labor is utilized in
that area, and whether the project will involve a retrofit of an existing
building or a new building being built by a developer. Webvan estimates the
average cost of the construction of and equipment of 26 distribution centers at
$30.0 million to $35.0 million based on Webvan's experience to date and on
efficiencies Webvan expects will be progressively realized over the course of
Webvan's contract from its relationship with Bechtel, including cost of
construction efficiencies Webvan expects to follow from "build-to-suit" design
specifications. Webvan expects that the higher average costs of its initial
distribution centers, all of which involve retrofits of existing buildings, will
be offset by the anticipated lower average costs of subsequent distribution
centers.
Bechtel performs services under its agreement with Webvan within schedule
and budgetary parameters determined by Webvan, and is eligible to receive cash
incentive payments to the extent distribution centers are completed within the
preestablished parameters. Under Webvan's agreement with Bechtel, Bechtel has
agreed not to provide substantially similar services to any other entity
operating in a number of Internet retail segments. Webvan also issued Bechtel a
warrant to purchase up to 1,800,000 shares of Webvan's stock. The warrant has
been exercised as to 150,000 shares and becomes exercisable as to 150,000
additional shares when the first six distribution centers are completed and as
to an additional 57,690 shares upon the completion of each distribution center
within agreed upon schedule and budgetary parameters.
All of Webvan's carousels for its distribution centers are currently
obtained from Diamond Phoenix Corporation. Under Webvan's agreement with Diamond
Phoenix, Diamond Phoenix has agreed not to sell carousels to any other entity
operating in a number of Internet retail segments. Webvan has granted Diamond
Phoenix a limited waiver from these exclusivity restrictions. In the event that
the supply of carousels from Diamond Phoenix were delayed or terminated for any
reason, the Company believes that it could obtain similar carousels from other
sources; however, the integration of such other carousels into Webvan's
distribution centers could result in construction delays and could require
modifications to Webvan's software systems. Accordingly, any such delay or
termination of Webvan's relationship with Diamond Phoenix could cause a material
delay in any future expansion. In addition, in connection with this arrangement,
Webvan made in 1998 a minority equity investment in Diamond Phoenix.
DELIVERY OPERATIONS
Webvan's distribution centers serve as the center of its hub-and-spoke
delivery system. Orders are collected from the Webstore, routed and managed by
the distribution center, transferred to stations and delivered from the stations
to customers' homes. This model enables Webvan to efficiently and cost
effectively deliver consumer goods to the home by combining centralized order
fulfillment with decentralized delivery. Webvan uses temperature-controlled
trucks to deliver from the
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distribution center to the station and smaller vans to deliver from the station
to the home. The stations are strategically positioned throughout a delivery
region within approximately 50 miles of a distribution center, with each serving
a geographic zone that typically includes target customer residences within an
approximately 10 miles radius from the station. Based on Webvan's experience to
date, Webvan expects to vary the number of stations served by a distribution
center to take into account differing densities of its customers within the
geographic area served by that distribution center. The particular geography
served from a station is comprised of zones which are further subdivided into
sub zones. Based on Webvan's experience to date, Webvan also expects to both add
and eliminate particular geographic zones and subzones served from any
particular station based on the presence and absence of the requisite amount of
demand for Webvan's services in a particular zone or subzone. For, example,
while Webvan's distribution center in the San Francisco Bay Area currently
operates using 10 stations, Webvan is currently planning to consolidate several
of these stations where more than one zone can more efficiently be served from
one station, while Webvan has also added to the number of zones being served
from certain other stations. Webvan's distribution centers in Atlanta and
Chicago each opened operating nine stations. Webvan delivers to the customer's
door in a smaller van complete with refrigeration equipment to keep chilled and
frozen items at temperatures that maintain their quality and freshness. Each
customer's order is delivered in environmentally-friendly reusable containers,
called totes.
In the second quarter of 2000 Webvan began offering deliveries five days a
week to a portion of the Sacramento market from Webvan's Oakland distribution
center. Taking advantage of Webvan's systems, which were designed to permit
scheduling of deliveries to defined areas served from specific stations, Webvan
established a station in Sacramento that is serviced by trucks departing from
Webvan's Oakland facility. Webvan expects, based on its experience to date in
Sacramento and Webvan's current planning, to be able to serve multiple markets
from certain other distribution centers. Webvan believes that the strategy of
serving more than one market from a single facility can be efficiently employed
to allow Webvan to leverage its investment in, and utilize the capacity of, that
facility while allowing Webvan to extend its market reach without a concomitant
expenditure of capital resources.
All of Webvan's couriers are Webvan employees. Webvan utilizes strict
hiring standards in choosing couriers and requires each new employee to complete
an intensive training program. The courier training lasts two weeks and includes
36 hours of classroom training, 12 hours of driving training and 28 hours of on
the job training. Couriers are trained in responsible driving practices,
verification procedures related to the sale of alcohol and tobacco products,
courtesy and the proper handling of totes and products. Webvan's couriers
receive a competitive compensation package, including cash and stock options,
and are incentivized to reinforce Webvan's brand and help to create a lasting
one-to-one relationship with Webvan's customers. In addition, couriers have been
trained to answer questions about the service and handle service issues directly
and promptly at the customer residence. If the customer is not satisfied with
the products received, the courier is able to initiate a transaction to replace
items or credit the customer's bill.
CUSTOMER SERVICE
Webvan believes that its ability to establish and maintain long-term
relationships with its customers and to encourage repeat visits and purchases
depends on the strength of Webvan's customer support and service operations and
staff. Webvan seeks to achieve frequent communication with and feedback from its
customers to continually improve the Webvan service. Webvan offers a number of
automated help options as well as an on-line "chat" system that connects
customers and customer service representatives on the website and an easy-to-use
direct e-mail service to enable customers to ask questions and to encourage
feedback and suggestions. Webvan plans to respond to customer e-mail inquiries
within 12 hours of the submission and allow for a maximum response time
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of 24 hours. Webvan's team of customer support and service personnel are
responsible for handling general customer inquiries, answering customer
questions about the ordering process, and investigating the status of orders,
deliveries and payments. Currently located in Oakland, California, Webvan is in
the process of building out a national customer service center in Las Vegas,
Nevada to service all of Webvan's distribution centers. Users can contact
customer service representatives via Webvan's toll free telephone number to ask
questions. Webvan's automated customer service function distributes e-mails to
customers after registration and after each order is placed. Webvan plans to
enhance the automation of the tools used by its customer support and service
staff in the future.
MARKETING AND PROMOTION
Webvan's marketing and promotion program is designed to strengthen the
Webvan brand name, drive trials of Webvan's service in its target markets, build
strong customer loyalty and maximize repeat usage and purchases. Webvan intends
to build its brand name and customer loyalty through Webvan's public relations
programs, advertising campaigns and promotional activities. Webvan's efforts
focus on building credibility with customers and achieving market acceptance for
Webvan's services. While Webvan currently advertises primarily with respect to
the grocery offerings which stimulates the greatest frequency of contact with
Webvan's customers, Webvan also expects to increase the marketing and promotion
of its non-grocery offerings consistent with its intent to identify Webvan in
its customers' minds as a website where non-grocery products can be purchased.
Webvan expects to advertise locally in its initial launch markets, including
markets such as Sacramento served by a distribution center located in another
market, and plan to tailor its advertising to each specific market.
In the future, Webvan expects to be able to provide increasingly targeted
and customized services by using the customer purchasing, preference and
behavioral data obtained through the traffic and purchases generated at the
Webstore. Webvan also builds brand loyalty though personalized interaction with
customers through prompt, professional delivery persons and through use of
Webvan delivery vehicles. By offering customers a compelling and personalized
value proposition, Webvan's goal is to increase the number of visitors that make
a purchase, to encourage repeat visits and purchases and to extend customer
retention. In addition, loyal, satisfied customers generate strong word-of-mouth
support and awareness which drive new customer acquisitions and increased order
volumes.
MERCHANTS AND VENDORS
Webvan sources grocery products from a network of food and drug
manufacturers, wholesalers and distributors. Webvan sources other products from
a network of manufacturers, distributors and wholesalers. Webvan currently
relies on rapid fulfillment from national and regional distributors for a
substantial portion of its grocery items. Webvan purchases a number of top
grocery brands and high volume grocery items directly from manufacturers and may
increase its use of direct suppliers as its product volumes increase with
additional distribution centers. Webvan also utilizes premium specialty
suppliers or local sources for gourmet foods, farm fresh produce, fresh fish and
meats. Because Webvan covers a broad area and service high volumes from a single
point of distribution, Webvan believes that it offers Webvan's suppliers a very
efficient product supply model which is reflected in the discounts and pricing
Webvan receives. When Webvan selects a new product for purchase, it is entered
into the inventory management system and its Webstore. Webvan employs advanced
replenishment and expiration date controls to manage its grocery inventory and
maintain product freshness. As of June 30, 2000, Webvan was purchasing products
from approximately 50 distributors and directly from approximately 300 vendors.
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LEVERAGE DISTRIBUTION SYSTEM TO ENTER ADDITIONAL CONSUMER PRODUCT CATEGORIES
Webvan's initial focus is on groceries and non-prescription drugstore
offerings because Webvan believes this is the best way to establish long-term
relationships with customers given the frequency with which people shop for
these products compared to other items and the size of the grocery and drugstore
market. Webvan believes that customer reliance on the convenience and
reliability of Webvan deliveries to their homes will enable implementation of
the larger strategy of using Webvan's distribution system to sell products in
other consumer product categories and ultimately to position Webvan as the
preferred choice of customers for purchasing products over the Internet that are
delivered to the home. In the first six months of 2000 Webvan added a number of
product categories, including books, consumer electronics, DVDs and CDs and pet
supplies.
COMPETITION
Local, regional, and national food chains, independent food stores and
markets, as well as online grocery retailers comprise Webvan's principal
competition as an on-line grocery retailer, although Webvan also faces
substantial competition from convenience stores, liquor retailers, membership
warehouse clubs, specialty retailers, supercenters, and drugstore chains. To the
extent that Webvan adds non-grocery store product categories to its offering,
local, regional and national retailers in those product categories, as well as
online retailers in those product categories, will provide Webvan's principal
competition in those areas. Many of Webvan's existing and potential competitors,
particularly traditional grocers and retailers and certain online retailers, are
larger and have substantially greater resources than Webvan does. Webvan expects
this competition in the online grocery and non-grocery areas will intensify as
more traditional and online grocery retailers offer competitive services either
directly or, in the case of certain traditional grocery retailers, through their
affiliates, such as Peapod in the case of Royal Ahold and GrocerWorks.com in the
case of Safeway.
Webvan's distribution centers in Oakland, California, Suwanee, Georgia and
Carol Stream, Illinois operate in the San Francisco Bay Area, Sacramento,
Atlanta and Chicago markets. In these markets, Webvan competes primarily with
traditional grocery retailers and with online grocer Peapod. HomeGrocer has a
customer fulfillment facility built in Atlanta though it recently has announced
plans to postpone introduction of its online grocery service in Atlanta.
Webvan's potential competitors in markets other than the San Francisco Bay Area,
Sacramento, Atlanta and Chicago are comprised primarily of traditional grocery
retailers, but include as well between five and ten full-service grocery
retailers operating exclusively online, including HomeGrocer, HomeRuns,
ShopLink, GroceryWorks and Streamline. The number and nature of competitors and
the amount of competition Webvan will experience will vary over time and by
market area. Many of the online grocery retailers charge membership, delivery or
service fees, and often offer their goods at a premium to traditional
supermarkets.
The principal competitive factors that affect Webvan's business are
location, breadth of product selection, quality, service, convenience, price and
consumer loyalty to traditional and online grocery and non-grocery retailers. In
the grocery business, Webvan believes that they compete favorably with respect
to each of these factors as compared to other online grocery retailers. However,
many traditional grocery retailers may have substantially greater levels of
consumer loyalty and serve many more locations than Webvan currently does. In
addition, while Webvan's experience to date leads Webvan to expect that in each
market it enters there will be an initial number of customers who are attracted
to an online service for the regular purchase of their groceries and that many
other individuals will try an online service once or twice, Webvan's primary
challenge is to change customer shopping habits so that customers order from
Webvan, and not the traditional supermarket, on a regular basis. As Webvan
expands into additional product categories, Webvan's ability to attract and
retain customers for these products will be a function of the same competitive
factors. If Webvan
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fails to compete effectively in any one or more of these areas, Webvan may lose
existing and potential customers, which could materially harm Webvan's business.
GOVERNMENT REGULATION
In addition to regulations applicable to businesses generally or directly
applicable to electronic commerce, Webvan is subject to a variety of regulations
concerning the handling, sale and delivery of food, alcohol and tobacco
products. Currently, Webvan is not subject to regulation by the United States
Department of Agriculture, or USDA. Whether the handling of certain food items
in Webvan's distribution facility, such as meat and fish, will subject Webvan to
USDA regulation in the future will depend on several factors, including whether
Webvan sells food products on a wholesale basis, whether Webvan obtains food
products from non-USDA inspected facilities and the manner in which Webvan
determines to fulfill orders for home-prepared meals. Although Webvan has
designed its food handling operations to comply with USDA regulations, Webvan
cannot assure you that the USDA will not require changes to its food handling
operations. Webvan will also be required to comply with local health regulations
concerning the preparation and packaging of its prepared meals and other food
items. Any applicable federal, state or local regulations may cause Webvan to
incur substantial compliance costs, including as a result of required changes to
Webvan's software systems or operational processes, or delay the availability of
a number of items at one or more of its distribution centers. In addition, any
inquiry or investigation from a food regulatory authority could have a negative
impact on Webvan's reputation. Any of these events could have a material adverse
effect on Webvan's business and expansion plans and could cause Webvan to lose
customers.
Webvan will be required to obtain state, and in some cases county or
municipal licenses and permits for the sale of alcohol and tobacco products in
each location in which Webvan seeks to open a distribution center. Given the
complexity of these regulations governing the issuance of these permits and
licenses and the fact that most were enacted prior to the existence of an
Internet-based sales model, Webvan cannot assure you that it will be able to
obtain any required permits or licenses in a timely manner, or at all. Webvan
may be forced to incur substantial costs and experience significant delays in
obtaining these permits or licenses. For instance, Webvan does not have an
alcohol license in Atlanta for its distribution center, and Webvan's pursuit of
regulatory or legislative clarification to existing rules in order to obtain a
license may be ultimately unsuccessful or expensive. In addition, the United
States Congress is considering enacting legislation which would restrict the
interstate sale of alcoholic beverages over the Internet. Changes to existing
laws or Webvan's inability to obtain required permits or licenses could prevent
Webvan from selling alcohol or tobacco products in one or more of its geographic
markets or a portion of those markets where a market extends over two or more
licensing jurisdictions. Any of these events could substantially harm Webvan's
net sales, gross profit and ability to attract and retain customers.
The adoption of laws or regulations relating to large-scale retail store
operations could adversely affect the manner in which Webvan currently conducts
its business. For example, the Governor of California recently vetoed
legislation which would have prohibited a public agency from authorizing retail
store developments exceeding 100,000 square feet if more than a small portion of
the store were devoted to the sale of non-taxable items, such as groceries.
While it is not clear whether Webvan's operations would be considered a retail
store for purposes of this kind of legislation, Webvan cannot assure you that
other state or local governments will not seek to enact similar laws or that
Webvan would be successful if forced to challenge the applicability of this kind
of legislation to Webvan's distribution facilities. The expenses associated with
any challenge to this kind of legislation could be material. If Webvan is
required to comply with new regulations or legislation or new interpretations of
existing regulations or legislation, this compliance could cause Webvan to incur
additional expenses or alter its business model.
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In addition, because of the increasing popularity of the Internet, it is
possible that a number of laws and regulations may be adopted with respect to
the Internet and e-commerce that could adversely affect the manner in which
Webvan conducts its business. These laws may cover issues such as user privacy,
freedom of expression, pricing, content and quality of products and services,
taxation, advertising, intellectual property rights and information security.
Furthermore, the growth of electronic commerce may prompt calls for more
stringent consumer protection laws. Several states have proposed legislation to
limit the uses of personal user information gathered online or require online
services to establish privacy policies. The Federal Trade Commission has also
initiated action against at least one online service regarding the manner in
which personal information is collected from users and provided to third
parties. Webvan does not currently provide user-specific personal information
regarding its users to third parties. However, the adoption of consumer
protection laws, regulations or guidelines could create uncertainty in web
usage, reduce the demand for Webvan's products and services and, possibly, limit
Webvan's ability to share aggregated data which does not disclose any
user-specific personal information with its business partners, which could
adversely affect the price at which those entities are willing to engage in
business with Webvan.
Webvan is not certain how its business may be affected by the application
of existing laws governing issues such as property ownership, copyrights,
encryption and other intellectual property issues, taxation, libel, obscenity
and export or import matters. The vast majority of these laws were adopted prior
to the wide use of the Internet. As a result, they do not contemplate or address
the unique issues of the Internet and related technologies. Changes in laws
intended to address these issues could create uncertainty in the Internet market
place. This uncertainty could reduce demand for Webvan's services or increase
the cost of doing business as a result of litigation costs or increased service
delivery costs.
INTELLECTUAL PROPERTY
Webvan regards patent rights, copyrights, service marks, trademarks, trade
secrets and similar intellectual property as important to its success. Webvan
relies on patent, trademark and copyright law, trade secret protection and
confidentiality or license agreements with its employees, customers, partners
and others to protect Webvan's proprietary rights; however, the steps Webvan
takes to protect its proprietary rights may be inadequate. Webvan has filed
trademark registration applications, including for the marks "WEBVAN",
"WEBVAN.COM," the Webvan logo and "THE ONLY .COM YOU REALLY NEED". Webvan
currently has no patents protecting its technology. From time to time, Webvan
has filed and expects to file patent applications directed to aspects of its
proprietary technology. Webvan cannot assure you that any of these applications
will be approved, that any issued patents will protect its intellectual property
or that any issued patents or trademark registrations will not be challenged by
third parties. In addition, other parties may independently develop similar or
competing technology or design around any patents that may be issued to Webvan.
EMPLOYEES
As of June 30, 2000, Webvan had approximately 2,500 full-time employees
consisting of approximately 200 in software development, approximately 225 in
operations, administration and customer service, approximately 75 in
merchandising and marketing and approximately 2,000 at Webvan's distribution
centers. Webvan expects to hire additional personnel as Webvan expands its
operations and staff additional distribution centers. None of Webvan's employees
are represented by a labor union. Webvan has not experienced any work stoppages
and consider its employee relations to be good.
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FACILITIES
Webvan's corporate offices are located in Foster City, California, where it
leases a total of approximately 200,000 square feet under leases that expire
between August 2001 and November 2012 which Webvan anticipates will satisfy its
corporate office space needs for the foreseeable future. Webvan leases
approximately 340,000 square feet in Oakland, California for its distribution
center under a lease that expires in June 2008, with an option to extend the
lease for an additional five years. Webvan leases approximately 350,000 square
feet in each of Suwanee, Georgia and Carol Stream, Illinois for its second and
third distribution centers, serving Atlanta and Chicago. These leases expire in
2009 with options to extend the lease for two and three additional five year
periods, respectively. Webvan also leases approximately 350,000 square feet in
each of Kent, Washington, Glen Burnie, Maryland and North Bergen, New Jersey for
distribution centers currently under construction to serve Seattle, Baltimore
and Washington, D.C., and Northern New Jersey, respectively. These leases expire
between 2009 and 2010, with options to extend the lease for two or three
additional five year terms, as the case may be. Webvan has also signed leases
for sites in Springfield, Virginia, Logan, New Jersey, Bronx, New York, and
Ayer, Massachusetts, on which, subject to Webvan's ability to raise additional
capital, it plans to construct distribution centers averaging approximately
350,000 square feet in existing or to-be-built buildings that will serve the
metropolitan areas of the District of Columbia, Philadelphia, New York City and
Boston respectively. Webvan has also signed leases for sites in Grapevine, Texas
and Denver, Colorado which Webvan expects to dispose of as indicated in Note 3
of the Pro Forma Unaudited Combined Condensed Consolidated Financial Statements.
Subject to its ability to raise capital, Webvan expects to evaluate sites for
additional distribution centers in other markets. Although Webvan expects
additional sites to be available in connection with any future expansion, it
cannot assure you that suitable sites will be available on commercially
reasonable terms. Webvan does not own any real estate and expects to lease
distribution center and station locations in the other markets it may enter.
LEGAL PROCEEDINGS
From time to time, Webvan may be involved in litigation relating to claims
arising out of its ordinary course of business. Webvan is not currently a party
to any material litigation.
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WEBVAN'S MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations of Webvan should be read in conjunction with Webvan's
Condensed Consolidated Financial Statements and the Notes thereto. This
discussion contains forward-looking statements based upon current expectations
that involve risks and uncertainties, such as Webvan's plans, objectives,
expectations and intentions. Webvan's actual results and the timing of events
could differ materially from those anticipated in these forward-looking
statements as a result of several factors, including those set forth in the
following discussion and under "Risk Factors" and elsewhere in this joint proxy
statement/prospectus.
OVERVIEW
Webvan is an Internet retailer offering same-day delivery of consumer
products through an innovative proprietary business design which integrates its
Webstore, distribution center and delivery system. Webvan's current product
offerings are principally focused on food, non-prescription drug products and
general merchandise, such as housewares, pet supplies and books.
Webvan was incorporated in December 1996 as Intelligent Systems for Retail,
Inc. In April 1999, Webvan changed its name to Webvan Group, Inc. Webvan
commenced its grocery delivery service in May 1999 on a beta test basis to
approximately 1,100 persons and commercially launched its Webstore on June 2,
1999. For the period from inception in December 1996 to June 1999, Webvan's
primary activities consisted of raising capital, recruiting and training
employees, developing its business strategy, designing a business system to
implement its strategy, constructing and equipping its first distribution center
and developing relationships with vendors. Since launching its service in June
1999, Webvan has continued these operating activities and has also focused on
building sales momentum, establishing additional vendor relationships, promoting
its brand name, enhancing its distribution, delivery and customer service
operations and construction of additional distribution centers. Webvan's cost of
sales and operating expenses have increased significantly since inception and
are expected to continue to increase. This trend reflects the costs associated
with Webvan's formation and larger sales volumes, as well as increased efforts
to promote the Webvan brand, build market awareness, attract new customers,
recruit personnel, build out its distribution centers, refine and modify its
operating systems and develop its Webstore and associated systems that Webvan
uses to process customers' orders and payments.
Webvan's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
development, particularly companies in new and rapidly evolving markets. These
risks for Webvan include an unproven business system and its ability to
successfully manage its growth. To address these risks, Webvan must:
- develop and increase its customer base;
- implement and successfully execute its business and marketing strategy;
- continue to develop, test, increase the capacity of and enhance its
Webstore, order fulfillment, transaction processing and delivery systems;
- respond to competitive developments; and
- attract, retain and motivate quality personnel.
Since its inception, Webvan has incurred significant losses, and as of June
30, 2000, Webvan had an accumulated deficit of $291.6 million. Webvan incurred
net losses of $132.2 million in the six months ended June 30, 2000 and $144.6
million and $12.0 million in the years ended December 31,
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1999 and 1998, respectively. As of June 30, 2000, Webvan's prototype
distribution center in Oakland, California was operating at less than 40% of the
capacity for which it was designed.
Webvan does not expect any of its distribution centers to operate at
designed capacity for several years following their commercial launch, and
Webvan cannot assure you that any distribution center will ever operate at or
near its designed capacity. From the commercial launch of its Webstore in June
1999 through June 30, 2000, Webvan generated approximately $57.9 million in net
sales. During that period, over 75% of Webvan's orders were from customers who
had previously used its service and its average order size was $87.60. There can
be no assurance that its average order size will not decline significantly in
future periods.
Webvan believes that its success and its ability to achieve profitability
will depend on its ability to:
- substantially increase the number of customers and its average order
size;
- ensure that its technologies and systems function properly at increased
order volumes;
- realize repeat orders from a significant number of customers; and
- achieve favorable gross and operating margins and, to this end, increase
distribution center operations and delivery operations productivity.
To meet these challenges, Webvan intends to continue to invest heavily in
marketing and promotion, distribution facilities and equipment, technology and
personnel. As a result, Webvan expects to incur substantial operating losses for
the foreseeable future and the rate at which such losses will be incurred may
increase significantly from current levels. In addition, Webvan's limited
operating history makes the prediction of future results of operations
difficult, and accordingly, Webvan cannot assure you that it will achieve or
sustain revenue growth or profitability.
In connection with the grant of stock options Webvan has recorded deferred
compensation which amounted to $99.2 million as of December 31, 1999 and $62.2
million as of June 30, 2000. Deferred compensation represents the difference
between the deemed fair value and option exercise price as determined by
Webvan's Board of Directors on the date of grant. Deferred compensation is
included as a component of stockholder's equity and is amortized over the four
year vesting period of the underlying options.
RESULTS OF OPERATIONS FOR THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND
1999
NET SALES
Net sales consist of the price of groceries and other products Webvan
sells, net of returns and credits. Webvan commenced commercial operations in
June 1999 in the San Francisco Bay Area and May 2000 in the Greater Atlanta
Area. Net sales were $28.3 million and $44.6 million for the three and six month
periods ended June 30, 2000 compared to $383,000 and $395,000 for the three and
six month periods ended June 30, 1999. Webvan's average order size was $91.00
and $90.94 for the three and six months periods ended June 30, 2000, and $58.06
for the period ending June 30, 1999. Webvan expects that the addition of new
distribution centers, such as Atlanta in the second quarter of 2000, will cause
its average order size to fluctuate, based on the number and timing of new
distribution center openings, as increases in average order size at distribution
centers with longer operating histories will be offset by lower average orders
sizes at new distribution centers.
COST OF GOODS SOLD
Cost of goods sold includes the cost of the groceries and other products
Webvan sells, adjustments to inventory and payroll and related expenses for the
preparation of its home replacement
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meals, offset by certain vendor promotional funds. Cost of goods sold were $20.3
million and $32.4 million for the three month and six month periods ended June
30, 2000 compared to $410,000 and $419,000 for the comparable periods in the
prior year. Webvan's gross profit as a percentage of net sales was 28.2% for the
three months ended June 30, 2000 and 27.2% for the six months ended June 30,
2000. Gross profit is expected to fluctuate as a result of a variety of factors,
including the number of distribution centers launched in the reporting period,
and the level of inventory spoilage related to perishables.
SALES AND MARKETING EXPENSES
Sales and marketing expenses include the costs of the creative development
and placement of Webvan's advertisements, promotions, public relations, and the
payroll and related expenses of its headquarters marketing staff. Marketing
expenses were $9.9 million for the three months ended June 30, 2000 and $18.3
million for the six months ended June 30, 2000, an 18% increase quarter over
quarter. This is comparable to $1.9 million and $2.3 million for the three and
six month periods ended June 30, 1999. The external costs of its advertisements
and promotions for the three and six month periods increased to $9.3 million and
$17.1 million from $1.2 million and $1.2 million in the comparable prior year
periods, as Webvan began commercial operations in June of 1999. Payroll and
related expenses increased by $0.2 million for the quarter, and $0.3 million for
the comparable six month period. As Webvan launches its business in new markets,
Webvan expects marketing expenses will increase as the company continues to
build brand awareness and increase its customer base in its existing markets and
as it opens new distribution centers serving additional markets.
DEVELOPMENT AND ENGINEERING EXPENSES
Development and engineering expenses include the payroll and consulting
costs for software developers directly involved in programming its computer
systems. Software development expenses were $5.5 million and $11.0 million for
the three and six month periods ended June 30, 2000 compared to $3.0 million and
$6.3 million for the prior year three and six month periods. These increases
were primarily attributable to increases in the number of employees required for
developing, enhancing and increasing the capacity of Webvan's website, order
processing, accounting, distribution center and delivery systems. Payroll and
related expenses increased to $4.1 million and $7.7 million for three and six
month periods ended June 30, 2000 from $1.2 million and $2.3 million in the
comparable prior year periods. Consulting costs decreased to $1.0 million and
$2.6 million for the three and six month periods ended June 30, 2000 from $1.5
million and $3.0 million in the comparable prior year periods. Payroll and
consulting costs for the second quarter of 2000 do not include $2.8 million of
software development costs that were capitalized. Webvan believes that continued
investment in software development is critical to attaining its strategic
objectives and, as a result, expects software development expenses to increase
in future quarters.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses include costs related to the
fulfillment and delivery of products, real estate, technology operations,
merchandising, finance, customer service and professional services, as well as
certain non-cash compensation and related expenses. General and administrative
expenses increased to $57.9 million and $96.9 million in the three and six month
periods ended June 30, 2000 from $16.2 million and $23.0 in the comparable prior
year periods. Of these $41.7 million and $73.9 million increases for the three
and six months ended June 30, 2000, $27.8 million and $45.3 million,
respectively, pertained to aggregate distribution center operating expenses for
distribution centers that have opened as well as for those in their pre-launch
phase. Such expenses were $34.6 million and $55.2 million for the three and six
month periods ended June 30, 2000 versus $6.8 million and $10.0 million in the
comparable prior year periods. At Webvan's
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corporate headquarters, payroll and related costs increased to $12.3 million and
$23.2 million for the three and six month periods ended June 30, 2000 from $6.4
million and $8.4 million in the comparable prior year periods. Additionally,
occupancy charges for its expanded corporate headquarters facilities increased
to $3.2 million and $5.9 million for the three and six month periods ended June
30, 2000 from $0.4 million and $0.7 over comparable prior year periods. As
Webvan rolls out its business in new markets, it expects general and
administrative expenses, including pre-launch distribution center expenses, to
increase significantly.
AMORTIZATION OF STOCK BASED COMPENSATION
Deferred stock-based compensation primarily represents the difference
between the exercise price and the deemed fair value of Webvan's common stock
for accounting purposes on the date certain stock options were granted. During
the three and six months ended June 30, 2000, amortization of stock-based
compensation was $16.8 million and $34.5 million, respectively, compared to $2.2
million and $4.0 million for the comparable prior year periods. Amortization for
the six months ended June 30, 2000 included expenses for a significant number of
headquarters staff hired in the second half of 1999.
INTEREST INCOME (EXPENSE) NET
Interest income (expense), net consists of earnings on Webvan's cash and
cash equivalents and interest payments on its loan and lease agreements. Net
interest income was $7.7 million and $16.3 million for the three and six months
ended June 30, 2000. This is compared to a net interest expense of $52,000 and
net interest income of $447,000 for the comparable prior year periods. These
increases were primarily due to earnings on higher average cash and cash
equivalent balances during the quarter as a result of financing activities
during the third and fourth quarters of 1999.
RESULTS OF OPERATIONS FOR FISCAL YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NET SALES
Webvan commenced commercial operations in June 1999. Net sales were $13.3
million for the fiscal year ended December 31, 1999. Webvan did not have any net
sales in the comparable prior year periods. In December 1999, Webvan launched
its "America's Second Harvest Food Donation Program" in which individual or
corporate customers order food from Webvan (included in Net Sales) for donation
to local foodbanks. Net sales under this program were approximately $.8 million
of which approximately $.7 million were purchased by entities and individuals
associated or affiliated with Webvan or investors in Webvan. Webvan's average
order size was $77.65 for the whole year and $81.31 for the fourth quarter, not
including net sales under the Second Harvest program.
COST OF GOODS SOLD
Cost of goods sold was $11.3 million for the fiscal year ended December 31,
1999. Webvan did not have any cost of goods sold in the comparable prior year
periods. Gross profit as a percentage of net sales was 15.2% for the fiscal year
ended December 31, 1999.
SALES AND MARKETING EXPENSES
Marketing expenses were $11.7 million during 1999 compared to none in 1998
and 1997. The external costs of Webvan's advertisements and promotions for 1999
were $7.2 million compared to none in 1998 and 1997. Payroll and related
expenses were $3.2 million for 1999, compared to none in 1998 and 1997.
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DEVELOPMENT AND ENGINEERING EXPENSES
Software development expenses were $15.2 million for 1999, $3.0 million for
1998, and $.2 million for 1997. These increases were primarily attributable to
increases in the number of employees and consultants required for developing,
enhancing and increasing the capacity of Webvan's website, order processing,
accounting, distribution center and delivery systems. Payroll and related
expenses for 1999 increased to $7.9 million from $2.4 million in 1998 and $0 in
1997. Consulting expenses for 1999 increased to $6.2 million from $.9 million in
1998 and $0 for 1997.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased to $92.4 million in 1999 from
$8.8 million in 1998 and $2.6 million in 1997. Of this $83.6 million increase in
1999 over 1998, $31.6 million pertained to certain non-cash compensation and
other expenses comprised primarily of payroll and related charges in connection
with the terms of Mr. Shaheen's employment and $30.7 million pertained to
aggregate distribution center operating expenses for Webvan's San Francisco Bay
Area distribution center and other distribution centers in their pre-launch
phase. Such expenses were $31.9 million in 1999 versus only $1.2 million in
1998. There were no distribution center expenses in 1997. At Webvan's corporate
headquarters, payroll and related costs increased to $14.5 million in 1999 from
$4.1 million in 1998 and $.9 million in 1997. Additionally, consulting and
professional fees and rent and facility charges also contributed to the general
and administrative expense increases.
AMORTIZATION OF STOCK-BASED COMPENSATION
During 1999, amortization of stock-based compensation was $36.5 million
compared to $1.1 million for 1998, and $0 for 1997.
INTEREST INCOME (EXPENSE) NET
Net interest income was $9.3 million in 1999, $.9 million in 1998 and
$16,000 in 1997. These increases were primarily due to earnings on higher
average cash and cash equivalent balances during the relevant years.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, Webvan has financed its operations primarily through
private sales of preferred stock which through September 30, 1999 totaled $393.6
million (net of issuance costs) and the initial public stock offering of its
common stock in November, 1999 which totaled $402.6 million (net of
underwriter's discount and other issuance costs). Net cash used in operating
activities was $99.0 million for the six months ended June 30, 2000. Net cash
used in operating activities primarily consisted of net losses less amortization
of deferred compensation, depreciation and amortization, in addition to
decreases in prepaid expenses and accrued liabilities, net of contractor
liabilities. Uses were partially offset by an increase in accounts payable.
Net cash provided by investing activities was $58.9 million for the six
months ended June 30, 2000, of which $192.8 million was provided from the sale
of marketable securities. This amount was offset by $123.3 million used for
purchases of property and equipment, consisting primarily of leasehold
improvements and material handling systems for new distribution centers.
Net cash provided by financing activities in the six months ended June 30,
2000 was $1.0 million. This amount represents proceeds from stock option
exercises and certain landlord tenant improvement allowances, offset by
repayment of debt. As of June 30, 2000, Webvan's principal sources of liquidity
consisted of $21.2 million of cash and cash equivalents and $388.8 million of
marketable securities.
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As of June 30, 2000, Webvan's principal commitments consisted of
obligations totaling approximately $13.8 million outstanding under capital
leases and loans. In addition, Webvan had capital commitments at June 30, 2000
of approximately $90.0 million principally related to the construction of and
equipment for distribution centers currently under construction in Baltimore,
New Jersey and Seattle. These commitments comprise all of Webvan's anticipated
capital expenditures for the 12 month period ending June 30, 2001, assuming no
additional distribution centers are built in 2001. Webvan currently anticipates
it would increase its capital expenditures over the twelve months ended June 30,
2001 in connection with the design, construction and equipping of additional
distribution centers to the extent it is able to raise additional capital for
such purposes in continuation of its roll out plan. In July 1999, Webvan entered
into an agreement with Bechtel Corporation for the construction of up to 26
additional distribution centers over the next three years. Webvan has no
obligation under the Bechtel agreement to build 26 distribution centers and,
consequently, no capital commitment under the agreement until Webvan determines
to proceed with the build out of a particular distribution center. Webvan's
capital expenditures for the design, construction and equipping of 26
distribution centers are estimated to be approximately $1.0 billion. Specific
capital commitments under this contract are incurred only as Webvan determines
to proceed with a scheduled build out of a distribution center. The decision to
proceed with each distribution center will require us to purchase equipment and
install leasehold improvements and, other than lease obligations with respect to
sites already leased by Webvan for future distribution centers, to commit to
additional lease obligations.
Webvan currently anticipates that, assuming no additional distribution
centers are built in 2001, its available funds will be sufficient to meet its
anticipated capital needs to fund operations and capital expenditures for the 12
months ending June 30, 2001. Webvan intends in the immediate future to raise
additional funds to support its business plan for 2001 or curtail its 2001
expansion plans. Webvan also currently anticipates that, assuming no additional
distribution centers are built in 2001, it will be required to raise additional
funds to fund operations for the period beginning after June 30, 2001. Webvan
cannot be certain that additional financing will be available to it on favorable
terms when required, or at all. From time to time Webvan has considered and
discussed various financing alternatives and expects to continue such efforts.
There can be no assurance that such efforts will result in additional capital on
terms acceptable to Webvan. If Webvan issues additional securities to raise
funds, those securities may have rights, preferences or privileges senior to
those of the rights of its common stock and its stockholders may experience
additional dilution. Webvan's future capital needs will be highly dependent on
the number and actual cost of additional distribution centers it opens, the
timing of these openings and the success of these facilities once they are
launched. Thus, any projections of future cash needs and cash flows are subject
to substantial uncertainty. If available funds and cash generated from
operations are insufficient to satisfy its liquidity requirements, Webvan will
be required to sell additional equity or debt securities, obtain a line of
credit or alter its business plan.
YEAR 2000 COMPLIANCE
As of July 24, 2000, Webvan had not experienced any material problems
associated with the occurrence of the year 2000.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Webvan maintains a short-term investment portfolio primarily consisting of
corporate debt securities with maturities of thirteen months or less. These
available-for-sale securities are subject to interest rate risk and will rise
and fall in value if market interest rates change. The extent of this risk is
not quantifiable or predictable due to the variability of future interest rates.
Webvan does not expect any material loss with respect to its investment
portfolio.
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<PAGE> 112
Webvan's restricted cash balance is invested in certificates of deposit.
Accordingly, changes in market interest rates have no material effect on
Webvan's operating results, financial condition and cash flows. There is
inherent roll over risk on these certificates of deposit as they mature and are
renewed at current market rates. The extent of this risk is not quantifiable or
predictable due to the variability of future interest rates.
The following table provides information about Webvan's investment
portfolio, restricted cash, capital lease obligations and long-term debt as of
December 31, 1999, and presents principal cash flows and related weighted
averages interest rates by expected maturity dates. Risks associated with
marketable securities are mitigated by purchasing instruments from credit-worthy
institutions.
<TABLE>
<CAPTION>
YEAR OF MATURITY TOTAL
------------------------------------------------- CARRYING
2000 2001 2002 2003 2004 VALUE
-------- -------- ------ ------ ----- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Cash and Equivalents....... $ 60,220 -- -- -- -- $ 60,220
Average interest rate.... 4.84% -- -- -- -- 4.84%
Corporate and Government
Debt Securities.......... $318,617 $259,944 -- -- -- $578,561
Average interest rate.... 5.47% 6.03% -- -- -- 5.72%
Restricted
cash -- Certificates of
Deposit.................. $ 1,924 $ -- -- -- -- $ 1,924
Average interest rate.... 4.49% -- -- -- -- 4.49%
Capital Lease
Obligations.............. $ 667 $ 775 $ 734 $ 283 -- $ 2,459
Average fixed interest
rate.................. 15.77% 15.81% 15.28% 13.81% -- 15.43%
Long-term Debt............. $ 3,639 $ 4,577 $5,149 $ 65 $ 46 $ 13,476
Average fixed interest
rate.................. 16.24% 16.24% 16.25% 9.68% 8.57% 16.21%
</TABLE>
Fair value approximates carrying value for the above financial instruments.
For the six months ended June 30, 2000 there were no material changes in
Webvan's exposure to financial market risk, including changes in interest rates.
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<PAGE> 113
WEBVAN MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information as of June 30, 2000 with
respect to Webvan's executive officers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Louis H. Borders........................ 51 Chairman of the Board
George T. Shaheen....................... 56 President, Chief Executive Officer and Director
Robert H. Swan.......................... 40 Chief Financial Officer
Arvind Peter Relan...................... 37 Senior Vice President, Platform Group
Mark X. Zaleski......................... 37 Senior Vice President, Area Operations
F. Terry Bean........................... 52 Senior Vice President, Human Resources
David M. Beirne......................... 36 Director
Christos M. Cotsakos.................... 51 Director
Tim Koogle.............................. 49 Director
Michael J. Moritz....................... 45 Director
</TABLE>
LOUIS H. BORDERS has served as Chairman of the Board since founding Webvan
in December 1996. Mr. Borders served as President and Chief Executive Officer of
Webvan from December 1996 to September 1999. Mr. Borders co-founded Synergy
Software, a software consulting company, in November 1989 and served on its
board of directors from November 1989 to November 1997. Mr. Borders founded
Borders Books, a retail bookstore chain, in 1971 and served as President and
Chief Executive Officer until 1983 and as Chairman from 1983 to 1992. He also
developed the advanced information systems used by Borders Books to manage
inventory across diverse geographic and demographic regions. In addition, Mr.
Borders is chairman of Mercury Capital Management, an investment firm he founded
in 1995. Mr. Borders holds a B.A. in Mathematics from the University of
Michigan.
GEORGE T. SHAHEEN has served as President and Chief Executive Officer and
as a member of the Board of Webvan since September 1999. Prior to joining
Webvan, he had been the managing partner and chief executive officer of Andersen
Consulting, a global consulting firm, since the firm became an independent unit
in 1989. He joined Andersen Consulting in 1967 and became a partner in 1977.
From 1980 to 1985, he oversaw the consulting practice for North and South
Carolina before heading the Northern California Consulting practice based in San
Francisco. Prior to becoming managing partner and chief executive officer of
Andersen Consulting, Mr. Shaheen was managing partner of the Southeast U.S.
Region and North American practices. In addition, he was the practice director
for Japan and the Pacific Northwest. Mr. Shaheen is also a director of Siebel
Systems, Inc., a software company. He is on the Board of Trustees at Bradley
University and is a member of the Board of Advisors for the Northwestern
University J.L. Kellogg Graduate School of Business. Mr. Shaheen received a
bachelor's degree in marketing and a master's degree in finance from Bradley
University.
ROBERT H. SWAN has served as Chief Financial Officer since February 2000;
from October 1999 until February 2000 he served as Vice President, Finance of
Webvan. From September 1985 to October 1999, Mr. Swan held a variety of
positions at General Electric Company, most recently as Vice President, Finance
and Chief Financial Officer of GE Lighting. From January 1997 to June 1998, Mr.
Swan served as Vice President, Finance of GE Medical Systems in Europe. From
October 1994 to January 1997, Mr. Swan served as Chief Financial Officer of GE
Transportation Systems. From May 1988 to October 1994, Mr. Swan held several
assignments with GE's Corporate Audit Staff. Mr. Swan holds a B.S. in Management
from the State University of New York at Buffalo and an M.B.A. from the State
University of New York at Binghamton.
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<PAGE> 114
ARVIND PETER RELAN has served as Senior Vice President Platform Group of
Webvan since March 2000; from February 1998 until March 2000 he served as Senior
Vice President, Technology of Webvan. From May 1994 to February 1998, Mr. Relan
served in various management positions at Oracle Corporation, a software
company, most recently as Vice President of Internet Server Products in its
Application Server Division. In 1995, Mr. Relan founded Oracle's Internet Server
Division, including Oracle's patented Web Request Broker technology, Oracle
Application Server and Oracle Internet Commerce Server. From 1988 to 1994, Mr.
Relan held various positions at Hewlett-Packard, a computer systems, equipment
and services company, including principal technologist for the HP Openview
Platform. Mr. Relan holds a B.S. in Computer Engineering from the University of
California, Los Angeles and a M.S. in Engineering Management from Stanford
University.
MARK X. ZALESKI has served as Senior Vice President, Area Operations of
Webvan since July 1999. From December 1998 to July 1999, he served as Chief
Operating Officer of Webvan. From 1994 to 1998, Mr. Zaleski served in various
executive management positions for ACNielsen, a market research company, most
recently as Senior Vice President and Group Managing Director of Central Europe.
From 1985 to 1994, Mr. Zaleski held several positions at Federal Express, most
recently as a Managing Director for Federal Express, Europe. From 1985 to 1988,
Mr. Zaleski held various management positions in hub, ground operation and sales
for Federal Express. Mr. Zaleski holds a B.S. in Business Administration and an
M.B.A. from the European University in Antwerp, Belgium.
F. TERRY BEAN has served as Senior Vice President, Human Resources since
March 2000. From August 1998 to May 1999 Mr. Bean served as vice president of
human resources and corporate services for Equiva Services, a joint venture
between Shell Oil Company, Texaco and Saudi Aramco. From 1994 to July 1998, he
was with Office Depot, Inc., serving first as the executive vice president,
human resources, and from 1997 to 1998, as senior vice president of the
company's commercial business unit. From 1989 to 1994, he was the senior vice
president, human resources for Roses Stores, Inc. in Henderson, North Carolina
and from 1978 to 1989, he held a series of senior positions within the personnel
services group at Federal Express Corporation. Mr. Bean received his bachelor's
degree in business from Memphis State University.
DAVID M. BEIRNE has served as a member of the Board since October 1997. Mr.
Beirne has been a Managing Member of Benchmark Capital, a venture capital firm,
since June 1997. Prior to joining Benchmark Capital, Mr. Beirne founded
Ramsey/Beirne Associates, an executive search firm, and served as its Chief
Executive Officer from October 1987 to June 1997. Mr. Beirne serves as a
director of Scient Corporation, Kana Communications, Inc., 1-800-FLOWERS.COM,
Inc. and PlanetRx.com, Inc. Mr. Beirne received a B.S. in Management from Bryant
College.
CHRISTOS M. COTSAKOS has served as a member of the Board since May 1998.
Mr. Cotsakos has been the Chief Executive Officer and Chairman of the Board of
E*TRADE Group, Inc. since December 1998. He joined E*TRADE in March 1996 as
President and Chief Executive Officer. Prior to joining E*TRADE, he served as
President, Co-Chief Executive Officer, Chief Operating Officer and a director of
ACNielsen, Inc. from March 1992 to January 1996. From March 1973 to March 1992,
he held a number of senior executive positions at FedEx Corporation. Mr.
Cotsakos serves as a director of Digital Island, Inc., Critical Path, Inc., Fox
Entertainment Group, Inc., PlanetRx.com, Inc. and Official Payments Corp. Mr.
Cotsakos received a B.A. from William Paterson College, an M.B.A. from
Pepperdine University and is currently pursuing a Ph.D. in economics at the
Management School, University of London.
TIM KOOGLE has served as a member of the Board since July 1999. Mr. Koogle
has been the Chief Executive Officer of Yahoo!, Inc. and a member of Yahoo!'s
Board of Directors since August 1995. He has also been Yahoo!'s Chairman since
January 1999 and was its President from August 1995 until January 1999. Prior to
joining Yahoo!, Mr. Koogle was President of Intermec Corporation, a manufacturer
of data collection and data communication products, from 1992 to 1995. During
that
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<PAGE> 115
time, he also served as a corporate Vice President of Intermec's parent company,
Western Atlas. Mr. Koogle also serves as a director of E-LOAN, Inc. Mr. Koogle
holds a B.S. degree from the University of Virginia and an M.S. degree from
Stanford University.
MICHAEL J. MORITZ has served as a member of the Board since October 1997.
Mr. Moritz has been a general partner of Sequoia Capital, a venture capital
firm, since 1988. Between 1979 and 1984, Mr. Moritz was employed in a variety of
positions by Time, Inc. Mr. Moritz also serves as a director of Yahoo!,
Flextronics International, eToys Inc., Agile Software Corporation, PlanetRx.com,
Inc. and Saba Software, Inc. Mr. Moritz holds an M.A. degree in history from
Oxford University and an M.B.A. from the Wharton Business School of the
University of Pennsylvania.
Officers serve at the discretion of the Webvan Board and are appointed
annually. The employment of each of Webvan's officers is at will and may be
terminated at any time, with or without cause. There are no family relationships
between any of the directors or executive officers of Webvan.
COMPENSATION OF DIRECTORS
Webvan's directors do not receive cash for services they provide as
directors. In July 1998, Mr. Cotsakos was granted an option to purchase
2,190,276 shares of common stock at an exercise price of $0.10 per share. The
option granted to Mr. Cotsakos vests at the rate of one-sixteenth (1/16th) of
the shares subject to the option per quarter.
In July 1999,Webvan issued an option to purchase 150,000 shares of common
stock to Yahoo! Inc. at a price of $3.33 per share under our 1997 Stock Plan.
While the option does not provide Mr. Koogle with any compensation, it vests at
the rate of one-sixteenth (1/16th) of the shares subject to the agreement per
quarter as long as Mr. Koogle remains on Webvan's Board of Directors.
BOARD MEETINGS AND COMMITTEES
The Webvan Board of Directors held eight (8) meetings during fiscal 1999.
Mr. Koogle was elected a director in August 1999 and Mr. Shaheen in September
1999. During 1999, each Board member attended 75% or more of the meetings held
by the Board (at a time when he was a director of the company) and each
committee member attended 75% or more of the meetings held by the committees on
which he served, with the exception of Messrs. Koogle and Cotsakos.
The Audit Committee was formed in August, 1999 and consists of three
non-employee directors: Messrs. Beirne, Koogle and Moritz. The Audit Committee
reviews the financial statements and the internal financial reporting system and
controls of the company with Webvan's management and independent auditors,
recommends resolutions for any dispute between Webvan's management and its
auditors, and reviews other matters relating to the relationship of the company
with its auditors. The Audit Committee did meet in 1999.
The Compensation Committee was formed in August, 1999 and consists of two
non-employee directors: Messrs. Cotsakos and Moritz. The Compensation Committee
makes recommendations to the Board of Directors regarding the Webvan's executive
compensation policies and administers Webvan's stock option plans and employee
stock purchase plan. The Compensation Committee did not meet in 1999.
The Board of Directors currently has no nominating committee or committee
performing a similar function.
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<PAGE> 116
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth all compensation received for services
rendered to Webvan and Webvan's subsidiaries in all capacities during the last
three fiscal years by (i) Webvan's Chief Executive Officer and (ii) Webvan's
four (4) other most highly compensated executive officers earning more than
$100,000 in the last fiscal year, also known as the named executive officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG TERM
------------------------------------------------- COMPENSATION
ALL OTHER ------------
FISCAL ANNUAL AWARDS OF ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(2) OPTIONS COMPENSATION(3)
--------------------------- ------ -------- ----------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Louis H. Borders(4)........... 1999 $ -- $ -- $ -- -- $ --
Chairman of the Board of 1998 -- -- -- -- --
Directors and Former
President 1997 -- -- -- -- --
& Chief Executive Officer
George T. Shaheen(5).......... 1999 134,000 13,487,500(6) -- 15,000,000 1,375
President, Chief Executive
Officer, and Director
Robert H. Swan................ 1999 69,000 450,000 -- 1,000,000 --
Chief Financial Officer(7)
Mark X. Zaleski(7)............ 1999 349,000 -- -- -- 2,000
Senior Vice President, 1998 13,000 -- -- 3,789,360 --
Area Operations
Christian Mannella(7)......... 1999 218,000 -- 42,000 -- 2,000
Former Vice President, 1998 13,000 -- -- 2,670,000 --
Marketing
Gary Dahl(7).................. 1999 185,000 -- -- -- 800
Vice President, Distribution 1998 178,600 8,750 -- 600,000 2,000
1997 141,000 4,500 20,000 2,250,000 2,000
</TABLE>
-------------------------
(1) Other compensation in the form of perquisites and other personal benefits
have been omitted in those cases where the aggregate amount of such
perquisites and other personal benefits constituted less than the lesser of
$50,000 or 10% of the total annual salary and bonus for the named executive
officer for such year.
(2) Represents payments made for relocation allowances.
(3) Represents 401(k) plan matching by Webvan.
(4) Mr. Borders served as President and Chief Executive Officer of Webvan from
December 1996 to September 1999.
(5) Mr. Shaheen joined Webvan in September 1999.
(6) Consists of a signing bonus in an amount equal to the purchase price of
1,250,000 shares of common stock purchased by Mr. Shaheen pursuant to his
September 1999 employment agreement.
(7) Mr. Swan joined Webvan in October 1999; Messrs. Zaleski and Mannella joined
Webvan in December 1998; and Mr. Dahl joined Webvan in April 1997.
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<PAGE> 117
OPTION GRANTS IN FISCAL YEAR 1999
The following table sets forth information concerning grants of stock
options to each of Webvan's named executive officers during the fiscal year
ended December 31, 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
------------------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE AT
OPTIONS EXERCISE FAIR ANNUAL RATES OF STOCK PRICE APPRECIATION
GRANTED TO OR BASE VALUE FOR OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE PER ON DATE EXPIRY -----------------------------------------
NAME GRANTED FISCAL YEAR(2) SHARE OF GRANT DATE 0% 5% 10%
---- ---------- -------------- --------- -------- ------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Louis H. Borders.......... -- -- -- -- -- -- -- --
George T. Shaheen......... 15,000,000 35% $ 8.00 $10.79 10/4/09 $41,850,000 $143,637,000 $399,797,000
Robert H. Swan............ 812,500 2.3% 11.00 11.00 10/4/09 -- 5,621,000 14,244,000
187,500 3.33 11.00 10/4/09 1,438,125 2,735,000 4,725,000
Mark X. Zaleski........... -- -- -- -- -- -- -- --
Christian Mannella........ -- -- -- -- -- -- -- --
Gary Dahl................. -- -- -- -- -- -- -- --
</TABLE>
-------------------------
(1) Each of these options was granted pursuant to Webvan's 1997 Stock Plan or
1999 Nonstatutory Stock Option Plan and is subject to the terms of such
plan. The option granted to Mr. Shaheen was granted with an exercise price
below fair market value and was vested as to 3,000,000 shares on his date of
hire, while the remaining 12,000,000 shares vest monthly from his date of
hire on a pro-rata basis. The option for 187,500 shares granted to Mr. Swan
were granted below fair market value and vest six months after the date of
grant, while the option for 812,500 shares granted to Mr. Swan vest six
months after the date of grant as to 62,500 shares and, as to the remaining
750,000 shares, one-twelfth (1/12th) of the number of shares per quarter
beginning one year after grant.
(2) In 1999, Webvan granted employees and consultants options to purchase an
aggregate of 42,793,000 shares of common stock.
(3) The gains shown are "option spreads" that would exist for the respective
options granted. These gains are based on the assumed rates of annual
compound stock price appreciation of 5% and 10% from the date the option was
granted over the full option term. These assumed annual compound rates of
stock price appreciation do not represent an estimate or projection of
future common stock prices.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information concerning options
exercised by Webvan's named executive officers in fiscal 1999, and exercisable
and unexercisable stock options held by each of Webvan's named executive
officers as of December 31, 1999.
<TABLE>
<CAPTION>
FISCAL YEAR-END OPTION VALUES
---------------------------------------------------
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR END(2) FISCAL YEAR END(3)
ACQUIRED ON VALUE ---------------------- -------------------------
NAME EXERCISE REALIZED(1) VESTED UNVESTED VESTED UNVESTED
---- ----------- ----------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Louis H. Borders................ -- $ -- -- -- $ -- $ --
George T. Shaheen............... -- -- 3,750,000 11,250,000 31,875,000 95,625,000
Robert H. Swan.................. -- -- -- 1,000,000 -- 6,938,000
Mark X. Zaleski................. -- -- 947,340 2,842,020 15,236,353 45,709,000
Christian Mannella.............. 78,000 809,000 589,500 2,002,500 9,481,000 32,207,000
Gary Dahl....................... -- -- 375,000 1,068,750(4) 6,183,000 17,631,000
</TABLE>
-------------------------
(1) Equal to the fair market value of the purchased shares on the option
exercise date, less the exercise price paid for such shares.
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<PAGE> 118
(2) The options are immediately exercisable for all of the option shares (except
as to 812,500 shares under option to Mr. Swan), but any shares purchased
under those options will be subject to repurchase by Webvan at the original
exercise price paid per share, if the optionee ceases service with Webvan
before vesting in those shares. The heading "Vested" refers to shares that
are no longer subject to repurchase and the heading "Unvested" refers to
shares subject to repurchase as of December 31, 1999.
(3) Based upon the closing price of the common stock on December 31, 1999 of
$16.50 less the exercise price per share.
(4) Includes 843,750 shares held pursuant to an early exercise of an option
which, at December 31, 1999, are unvested and therefore subject to
repurchase.
WEBVAN COMPENSATION ARRANGEMENTS
Mr. Shaheen is a party to an agreement with Webvan effective as of
September 19, 1999. As contemplated by this agreement, Mr. Shaheen serves as
Chief Executive Officer and President and a member of Webvan's Board of
Directors. Under the agreement, Webvan agreed to pay Mr. Shaheen a base salary
of $500,000, subject to annual adjustment, and a target bonus of $250,000. In
connection with this agreement, Mr. Shaheen was provided a bonus which was used
to purchase 1,250,000 shares of fully vested common stock and was granted an
option to purchase an additional 15,000,000 shares of common stock at an
exercise price of $8.00 per share. The option was immediately vested as to
3,000,000 shares on the date his employment commenced and the remaining shares
vest monthly over a four year period, subject to Mr. Shaheen's continued
service. Webvan's Chairman, Louis Borders, also granted Webvan an option to
purchase up to 4,250,000 shares of common stock beneficially owned by Mr.
Borders at an exercise price of $8.00 per share, which option vests to the
extent Mr. Shaheen exercises the last 4,250,000 shares subject to the option
granted to him. In order to satisfy the tax obligations with respect to the
signing bonus paid to Mr. Shaheen to enable him to purchase 1,250,000 shares at
the time of his hire, Webvan also agreed to loan Mr. Shaheen $6.7 million at an
annual interest rate of 6.2%, with the loan to be repaid solely from a portion
of the gain realized by Mr. Shaheen upon the sale of shares of Webvan common
stock issued to him in connection with his signing bonus or upon exercise of his
Webvan stock options. $4.8 million of this amount was loaned in 1999 and another
$1.9 million of this amount was loaned in April 2000.
Webvan also agreed to provide Mr. Shaheen a supplemental retirement benefit
equal to 50% of his base compensation plus target bonus upon his retirement for
any reason after June 30, 2000 and to use its best efforts to fund that
obligation. In the event that Mr. Shaheen is terminated without cause or resigns
for good reason, he is entitled to severance equal to two years of base salary
plus target bonus and two years additional vesting on his stock options. In
addition, if Mr. Shaheen is terminated without cause or resigns for good reason
within 12 months following a change in control of Webvan, he shall be entitled
to severance equal to three years of base salary plus target bonus, full vesting
as to all of his unvested stock options and payment of any excise taxes payable
by Mr. Shaheen in connection with the receipt of such compensation. In the event
of Mr. Shaheen's death or permanent disability, he shall be entitled to
accelerated vesting as to 50% of his unvested stock options and he or his estate
shall have 12 months to exercise any vested options.
Robert H. Swan, Webvan's Chief Financial Officer, is a party to an offer
letter dated October 2, 1999. Under the offer letter Webvan agreed to pay Mr.
Swan a salary of $300,000 and a sign-on bonus of $450,000. The offer letter
provides that in the event Mr. Swan's employment is terminated for other than
cause, Webvan is obligated to pay him a six month salary and benefits severance
as well as continued salary and benefits for up to six additional months until
he obtains subsequent employment. The offer letter further provides that if Mr.
Swan is terminated for other than cause, the
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<PAGE> 119
unvested portion of his options will become exercisable to the extent of an
additional six months of vesting.
Mark Zaleski, Webvan's Senior Vice President, Area Operations, is a party
to an offer letter, dated December 14, 1998. Under the offer letter Webvan
agreed to pay Mr. Zaleski a base salary of $300,000. In March 1999, Webvan
loaned Mr. Zaleski $200,000 to be used towards the purchase of a house in the
San Francisco Bay Area. This loan was made as an interest-free employee
relocation bridge loan, as contemplated by his offer letter, and on March 1,
2000 was converted into a three year loan, with interest, at the applicable
federal rate, compounding semi-annually. The offer letter also provides that in
the event that Mr. Zaleski's employment is terminated for other than cause,
Webvan is obligated to pay him a severance of six months of salary and benefits
as well as continued salary and benefits for up to 12 months until he obtains
subsequent employment. In the event of such a termination, the unvested portion
of Mr. Zaleski's options will become exercisable to the extent of an additional
12 months of vesting.
Mr. Dahl is a party to an offer letter, dated March 31, 1997. Under the
offer letter, Webvan agreed to pay Mr. Dahl a base salary of $200,000, subject
to annual adjustment.
Frank Terry Bean, Webvan's Senior Vice President, Human Resources as of
March 2000, is a party to an offer letter, dated February 28, 2000. Under the
offer letter Webvan agreed to pay Mr. Bean a base salary of $300,000 and a
sign-on bonus of $50,000. In May 2000, Webvan loaned Mr. Bean $500,000 in
connection with the purchase of a house in the San Francisco Bay Area. The loan
has a three year term, with interest, at the applicable federal rate,
compounding semi annually, with the first year's interest to be forgiven, and
with principal payable at the end of the term. The offer letter also provides
that in the event that Mr. Bean's employment is terminated without cause Webvan
is obligated to pay him a severance of six months of salary and benefits as well
as continued salary and benefits for up to 12 months until he obtains subsequent
employment. In the event of such a termination prior to his first anniversary
with Webvan, the unvested portion of Mr. Bean's main option grant will become
exercisable as to 25% of the shares under the option and in the event of such a
termination following his first anniversary with Webvan the unvested portion of
Mr. Bean's option will become exercisable to the extent of an additional 6
months of vesting.
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<PAGE> 120
WEBVAN PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of Webvan common stock as of June 30, 2000 with respect to:
- each person or group of affiliated persons known by Webvan to own
beneficially more than 5% of the outstanding shares of Webvan common
stock;
- each of Webvan's directors;
- each of Webvan's named executive officers; and
- all Webvan directors and executive officers as a group.
The address for each listed director and officer is c/o Webvan Group, Inc.,
310 Lakeside Drive, Foster City, California 94404. Except as otherwise indicated
in the footnotes to the table, each of the stockholders has sole voting and
investment power with respect to the shares of beneficially owned by such
stockholders, subject to community property laws where applicable.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES SHARES
BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED OWNED(1)
------------------------ ------------ -------------
<S> <C> <C>
Louis H. Borders(2)(3)...................................... 49,329,493 14.8%
SOFTBANK America Inc.(4).................................... 46,372,251 13.9
Sequoia Capital(5)
Michael J. Moritz......................................... 40,462,086 12.2
Benchmark Capital(6)
David M. Beirne........................................... 36,521,976 11.0
Hume Steyer, as Trustee of the Borders 1997 Family Trust
and ISR GRAT II(3)(7)(8).................................. 44,294,379 9.4
George T. Shaheen(9)........................................ 16,250,000 4.7
Robert H. Swan(10).......................................... 250,000 *
Mark X. Zaleski(11)......................................... 3,780,710 1.1
Gary B. Dahl(12)............................................ 2,122,992 *
Christian Mannella(13)...................................... 1,001,250 *
Christos M. Cotsakos(14).................................... 1,232,030 *
Tim Koogle(15).............................................. -- --
All directors and executive officers as a group (11
persons)(16).............................................. 158,955,535 47.7
</TABLE>
-------------------------
* Less than 1%
(1) Applicable percentage ownership is based on 332,850,853 shares of common
stock outstanding as of June 30, 2000. Shares of common stock that a person
has the right to acquire within 60 days of June 30, 2000 are deemed
outstanding for purposes of computing the percentage ownership of the
person holding such rights, but are not deemed outstanding for purposes of
computing the percentage ownership of any other person, except with respect
to the percentage ownership of all directors and executive officers as a
group.
(2) Includes 36,526,647 shares held by Louis H. Borders, Trustee of the Louis
H. Borders Amended and Restated Revocable Trust dated December 4, 1987, or
the Trust; and 12,802,846 shares held by ISR Grantor Retained Annuity Trust
II, or ISR GRAT II. ISR GRAT II holds shares for the current benefit of Mr.
Borders and the contingent future benefit of a member of Mr. Borders'
family and will expire in December 2002. Mr. Borders is Chairman of Webvan.
Certain employees of Mercury Capital Management held options to purchase
160,000 shares of common stock held by the Trust, and Webvan holds an
option to purchase up to 4,250,000 shares of common stock held by the Trust
at an exercise price of $8.00 per share. 31,438,283
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shares formerly held by ISR GRAT I, of which Mr. Borders was a beneficiary,
were conveyed to the Borders 1997 Family Trust when ISR GRAT I terminated
in February 2000. Mr. Borders has no beneficial ownership interest in the
Borders 1997 Family Trust.
(3) The 12,802,846 shares (or 3.8% of the shares outstanding on June 30, 2000)
held by ISR GRAT II is included in the number of shares beneficially owned
by each of Mr. Borders, as a beneficiary of ISR GRAT II, and Mr. Steyer, as
trustee of ISR GRAT II.
(4) Includes 9,709,416 shares held by SOFTBANK Capital Partners LP and 140,859
shares held by SOFTBANK Capital Advisors Fund LLP. The address for SOFTBANK
America Inc. is 300 Delaware Avenue, Suite 900, Wilmington, Delaware 19801.
(5) Includes 33,417,612 shares held by Sequoia Capital VII, or Sequoia Capital;
3,940,110 shares held by Sequoia Capital Franchise Fund, or Sequoia Fund
and Sequoia Capital Franchise Partners, or Sequoia Partners; 1,460,880
shares held by Sequoia Technology Partners VII; 584,352 shares held by
Sequoia International Partners and 1,059,132 shares held by Sequoia 1997
LLC. Mr. Moritz, one of our directors, is a general partner of Sequoia
Capital, Sequoia Fund, Sequoia Partners, Sequoia Technology, Sequoia
International and Sequoia LLC. Mr. Moritz disclaims beneficial ownership of
such shares held by Sequoia Capital, Sequoia Fund, Sequoia Partners,
Sequoia Technology, Sequoia International and Sequoia LLC, except to the
extent of his pecuniary interest therein. The address for Sequoia Capital
is 3000 Sand Hill Road, Building 4, Suite 280, Menlo Park, California
94025.
(6) Includes 32,043,432 shares held by Benchmark Capital Partners, LP, or
Benchmark Capital, and 4,478,544 shares held by Benchmark Founders' Fund,
LP, or Benchmark Founders. Mr. Beirne, one of our directors, is a Managing
Member of Benchmark Capital Management Co., LLC, the general partner of
Benchmark Capital and Benchmark Founders. Mr. Beirne disclaims beneficial
ownership of such shares held by Benchmark Capital and Benchmark Founders,
except to the extent of his pecuniary interest therein. The address for
Benchmark Capital is 2480 Sand Hill Road, Suite 200, Menlo Park, California
94025.
(7) Mr. Borders disclaims beneficial ownership of all shares held by the
Borders 1997 Family Trust. The address for Mr. Borders is 2334 Village
Drive, Louisville, Kentucky 40205.
(8) Includes 31,438,283 shares held by Hume R. Steyer, sole Trustee of the
Borders 1997 Family Trust; 12,802,846 shares held by Hume R. Steyer, sole
Trustee of ISR GRAT II; 38,250 shares held in a trust of which Mr. Steyer
is the sole Protector, the Protector Trust; and 11,250 shares held in
trusts for the benefit of members of Mr. Steyer's family. Mr. Steyer
disclaims beneficial ownership of all shares held by the Borders 1997
Family Trust, ISR GRAT II and the Protector Trust. The address for Mr.
Steyer is c/o Seward & Kissel LLP, One Battery Park Plaza, New York, New
York, 10004.
(9) Includes 15,000,000 shares subject to an option exercisable within 60 days
of June 30, 2000, of which 9,000,000 shares are subject to repurchase at
the original exercise price by Webvan in the event of termination of Mr.
Shaheen's services, which right lapses over time in accordance with a
vesting schedule.
(10) Includes 250,000 shares subject to an option exercisable within 60 days of
June 30, 2000.
(11) Includes 3,429,360 shares subject to an option exercisable within 60 days
of June 30, 2000, of which 2,131,515 shares are subject to repurchase at
the original exercise price by Webvan in the event of termination of Mr.
Zaleski's services, which right lapses over time in accordance with a
vesting schedule.
(12) Includes 187,500 shares subject to an option exercisable within 60 days of
June 30, 2000 of which 112,500 shares are subject to repurchase at the
original exercise price by Webvan in the event of termination of Mr. Dahl's
services, which right lapses over time in accordance with a vesting
schedule. Also includes an additional 421,875 shares acquired upon early
exercise of an
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option that are subject to repurchase at the original exercise price by
Webvan in the event of termination of Mr. Dahl's services, which right
lapses over time in accordance with a vesting schedule. Includes 507,008
shares held by Gary B. Dahl and Kathleen D. Dahl, Trustees of the Dahl 2000
Charitable Trust, 44,754 shares held by Kathleen Dahl, spouse of Mr. Dahl,
480,246 shares held by Gary B. Dahl, Trustee of the Double D Trust Number
One and 480,246 shares held by Gary B. Dahl, Trustee of the Double D Trust
Number Two.
(13) Includes 2,310,000 shares subject to an option exercisable within 60 days
of June 30, 2000, of which 1,501,875 shares are subject to repurchase at
the original exercise price by Webvan in the event of termination of Mr.
Mannella's services, which right lapses over time in accordance with a
vesting schedule.
(14) Includes 684,462 shares held by Cotsakos Ventures LLC, a family limited
liability company and 136,892 shares issuable upon the exercise of options
which are exercisable within 60 days of June 30, 2000. Does not include
4,304,100 shares held by E*TRADE E-Commerce Fund LLC. Mr. Cotsakos is the
Chairman of the Board, President and Chief Executive Officer of E*TRADE
Group, Inc. and disclaims beneficial ownership of such shares.
(15) Does not include 4,304,100 shares held by Yahoo!, Inc. or 28,150 shares
subject to an option held by Yahoo!, Inc. Mr. Koogle is the Chairman of the
Board and Chief Executive Officer of Yahoo!, Inc. and disclaims beneficial
ownership of such shares.
(16) Includes an aggregate of 25,491,752 shares subject to options exercisable
within 60 days of June 30, 2000, of which 16,170,015 shares are subject to
repurchase at the original exercise price by Webvan in the event of
termination of services of applicable officers, which right lapses over
time in accordance with applicable vesting schedules. Also includes 421,875
shares acquired upon early exercise of options that are subject to
repurchase at the original exercise price by Webvan in the event of
termination of services of applicable officers, which right lapses over
time in accordance with applicable vesting schedules.
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WEBVAN TRANSACTIONS WITH RELATED PARTIES
In January and April 1999, Webvan issued an aggregate of 32,341,200 shares
of Series C preferred stock to investors for an aggregate purchase price of
approximately $75.1 million. E*TRADE Group, Inc. and Yahoo! Inc. each purchased
4,304,100 shares (or approximately ten million dollars) of Series C preferred
stock in such transaction. Christos M. Cotsakos, a director of Webvan, is the
President and Chief Executive Officer of E*TRADE Group, Inc., and Tim Koogle, a
director of Webvan, is the Chief Executive Officer and Chairman of Yahoo! Inc.
In connection with this issuance, Webvan also entered into an amendment to a
registration rights agreement then in existence granting to the purchasers of
its Series C preferred stock certain registration rights with respect to the
shares of common stock into which such shares of preferred stock were converted
at the time of Webvan's initial public offering in November 1999.
In July 1999, Webvan entered into an agreement to issue an aggregate of
21,670,605 shares of Series D-2 preferred stock to investors at an aggregate
purchase price of approximately $275.0 million. Entities affiliated with
SOFTBANK America Inc. purchased 9,850,275 shares of Series D-2 preferred stock
and entities affiliated with Sequoia Investors Group purchased 3,940,110 shares
of Series D-2 preferred stock transaction. In connection with this issuance,
Webvan also entered into an amendment to a registration rights agreement then in
existence granting to the purchasers of its Series D-2 preferred stock certain
registration rights with respect to the shares of common stock into which such
shares of preferred stock were converted at the time of Webvan's initial public
offering in November 1999.
In connection with Webvan's America's Second Harvest Food Donation Program,
pursuant to which entities and individuals select a dollar amount of groceries
they want to purchase and donate, Webvan entered into an agreement with E*TRADE
Group, Inc. under which E*TRADE Group, Inc committed for three years to donate
one dollar under the program for each new brokerage account it acquires, up to a
maximum of one million dollars per year for three years. Of the up to one
million dollars applicable to the first year of the agreement, E*TRADE purchased
and donated $300,000 of goods in 1999 and $600,000 in the first half of 2000.
Christos M. Cotsakos, a director of Webvan, is the President and Chief Executive
Officer of E*TRADE Group, Inc.
In connection with the recruiting of some of Webvan's executive officers,
Webvan engaged the services in 1999 of Ramsey/Beirne Associates, an executive
search firm. Mr. Beirne, one of our directors, is the chairman of Ramsey/Beirne
and owns more than 5% of the stock of Ramsey/Beirne. As consideration for these
services, Webvan paid Ramsey/Beirne an aggregate of 15,000 shares of Webvan
common stock with an average fair market value of $10.86 per share.
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HOMEGROCER BUSINESS
OVERVIEW
HomeGrocer is a retailer of grocery and other consumer products on the
Internet. HomeGrocer operates a state-of-the-art distribution system providing
next-day home delivery of a wide range of products, including high quality food
items, at prices competitive with local supermarket prices.
HomeGrocer was incorporated in British Columbia, Canada in January 1997,
reincorporated in Delaware in September 1997 and reincorporated in Washington in
March 2000. HomeGrocer has rapidly expanded since its initial launch of service
in June 1998, and currently serves customers in Seattle, Washington; Portland,
Oregon; Orange County/Los Angeles, California; Dallas, Texas; and San Diego,
California.
The HomeGrocer web site, www.homegrocer.com, features an extensive product
selection, including fresh fruit, vegetables, dairy products, baked goods, meat
and fish and a wide assortment of non-perishable items and household products.
HomeGrocer also offers health and beauty products, wine and beer, fresh flowers,
pet products, home office supplies, postage stamps, seasonal items and
top-selling books, video games and movies.
Since January 1, 2000, HomeGrocer has made deliveries to over 175,000
different households. Since January 1, 2000, approximately 75% of HomeGrocer's
orders have been from repeat customers and more than 103,000 customers have
placed an order at least two times. Since January 1, 2000, HomeGrocer's
customers' average order size was approximately $103.
THE HOMEGROCER SHOPPING EXPERIENCE
HomeGrocer provides a compelling value proposition for its customers by
providing high quality products at competitive prices in a convenient manner.
The HomeGrocer shopping experience provides:
Convenience. HomeGrocer's service makes it easy for consumers to restock
their households. HomeGrocer's Internet ordering process, available 24 hours
each day, seven days each week, allows its customers to shop whenever they want
from their homes, offices or any location with Internet access. Customers then
select a convenient time when they can be home to accept delivery. By offering a
convenient alternative to a traditional store, HomeGrocer transforms an
unpleasant task into a fast, enjoyable shopping experience.
High Quality Products. HomeGrocer focuses on earning its customers' trust
by delivering high quality products, especially perishable items such as meat,
breads, fruits and vegetables. Before entering a geographic market, HomeGrocer
identifies and establishes relationships with high quality suppliers. HomeGrocer
equips both its trucks and its customer fulfillment centers with ambient,
refrigerated and frozen zones to ensure product freshness at the customer's
door. HomeGrocer's personal shoppers, proprietary technology and distribution
process ensure that its products are inspected for quality, handled as few times
as possible, and stored in proper temperature settings, leading to improved
product quality and reduced spoilage. For example, the HomeGrocer distribution
process was designed to handle produce six times or less prior to delivery. In
traditional grocery stores, the produce is handled countless times by employees
and customers prior to its purchase.
Competitive Prices. HomeGrocer's prices are competitive with local
supermarket prices. HomeGrocer does not charge any membership fees or delivery
fees for first-time orders or for subsequent orders over $75.
Complete Product Offering. HomeGrocer offers a broad range of consumer
products and strives to satisfy all of its customers' household needs. This
includes offering a significant number of
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specialty products and products that reflect local market tastes. HomeGrocer has
relationships with local suppliers in each of its markets.
High Quality Customer Service. HomeGrocer seeks to provide the best
customer service at every opportunity. HomeGrocer's toll-free help line is
staffed seven days each week from 5 a.m. to 11 p.m., and HomeGrocer strives to
answer customer emails within four hours. Each shopping experience concludes
with a HomeGrocer delivery person interacting face-to-face with the customer,
typically in the customer's kitchen. HomeGrocer's delivery staff is selected and
trained to deliver friendly, efficient and reliable customer service. From
January 1999 through June 2000, HomeGrocer's on-time delivery rate was greater
than 97%.
Highly Interactive and Personalized Storefront. HomeGrocer's web site,
called the Storefront, is designed to provide customers with a convenient
shopping experience. HomeGrocer's personalization features can reduce the
average shopping time for a repeat shopper to as little as 10-15 minutes. The
Storefront enables a customer to quickly and easily reorder products from an
automatically generated list, called the "My HomeGrocer List", or to create
customized lists such as a weekly shopping list or diet-based list of favorite
products.
HOMEGROCER OPERATIONS
There are three key operational aspects to HomeGrocer: the Storefront, the
customer fulfillment centers and the delivery service with its integrated
technology and distinctive trucks with the "Peach" logo.
THE HOMEGROCER STOREFRONT
HomeGrocer Storefront is a user-friendly, informative and personalized web
site that enables users to quickly and easily navigate and purchase from a wide
selection of items. Some of the key features of the Storefront are described
below:
- There is a special home page for repeat shoppers entitled "What's New".
- The main shopping page currently features the major categories, the items
in a selected category and a perpetual shopping basket.
- The main shopping page allows access to all of the approximately 12,000
to 16,000 items, including different sized packages of the same products,
in stock at the appropriate customer fulfillment center for the
customer's zip code, using an intuitively organized list of categories.
- The customer has an opportunity to see all products in a particular
category before making a selection, similar to scanning the shelves of a
traditional store.
- HomeGrocer provides high-quality pictures of products photographed in its
in-house digital studio.
- The "My HomeGrocer List" feature automatically lists items that the
customer has purchased previously. Thus, after one or two shopping
visits, the customer no longer has to sort through the entire available
selection to find his or her most frequently purchased items.
- The "What's New" section provides customers and suppliers with a
merchandising format to highlight products and product categories.
- The "Lists" function allows the customer to establish a standard weekly
or monthly shopping list, making it easy for the customer to re-supply
his or her kitchen with the household's standard items.
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- The "Search" feature allows the customer to quickly search the entire
database for specific items. This supplants the process of physically
searching through the aisles of a traditional store.
- The "Recipes" function provides menu planning suggestions and allows the
customer to easily order all of the ingredients for a recipe.
- The customer's shopping cart is maintained at all times on HomeGrocer's
servers. If a customer's connection is interrupted or his or her personal
computer is turned off, the shopping cart in progress is still intact for
future ordering. This also allows the customer to use HomeGrocer's site
as a perpetual shopping list to accumulate items until he or she is ready
to schedule a delivery.
- The customer, either before or after shopping, can reserve a specific
delivery window, which may be on the next day or at any time within the
next two weeks. HomeGrocer currently uses 90 minute delivery windows,
which are generally available most afternoons, evenings and on some
mornings.
- The customer can generally modify his or her order until 11:00 p.m. on
the day prior to the scheduled delivery.
CUSTOMER FULFILLMENT CENTERS
HomeGrocer operates large customer fulfillment centers that are organized
for efficient assembling of orders. Perishable items, such as meats, dairy
products, produce and frozen foods, are kept in rooms with temperatures
appropriate for each product.
HomeGrocer locates customer fulfillment centers in non-retail districts
where real estate is considerably less expensive than the locations of most
supermarkets. Given the size of HomeGrocer's facilities and because there is no
need to have surplus product for customer displays, HomeGrocer's customer
fulfillment centers can operate with less inventory relative to sales than
traditional supermarkets and have higher inventory turnover. HomeGrocer's
customer fulfillment centers also have fewer limitations on shelf space and are
designed to serve a larger customer base than traditional supermarkets;
therefore, HomeGrocer believes it can eventually offer a significantly larger
selection of products than most traditional grocery stores.
HomeGrocer currently operates customer fulfillment centers of approximately
100,000 - 125,000 square feet each in Renton, Washington, Carrollton, Texas, and
Irvine, Fullerton, Carson, Azusa and San Diego, California and a customer
fulfillment center in Tualatin, Oregon that, together with its Renton facility,
serves customers in the Portland metropolitan area. Identical software systems
are implemented at each customer fulfillment center, allowing for efficient
central management and enabling the continued easy replication of customer
fulfillment center model across multiple locations. When operating near designed
capacity, assuming a single shift, each full-sized customer fulfillment center,
together with its related delivery infrastructure, should employ approximately
300 individuals. The average number of employees at HomeGrocer's customer
fulfillment centers was approximately 230 as of July 1, 2000.
HomeGrocer's current facilities were originally designed to process 2,500
orders per day in a single shift operation based on numerous assumptions. The
number of orders that can be delivered each day is sometimes constrained by the
number of delivery vehicles and employees. To date, the most orders processed in
one day by any of HomeGrocer's customer fulfillment centers is approximately
1,670. HomeGrocer has therefore not yet proven that its facilities are capable
of assembling or delivering 2,500 orders per day.
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During the first half of 2000, the average number of orders per day for
those customer fulfillment centers which were opened for the entire period was
548.
OUR TECHNOLOGY AND DELIVERY SYSTEMS
HomeGrocer has invested heavily in proprietary and third party technologies
that fully integrate the Storefront and warehouse management, inventory and
delivery routing systems. This integrated technology handles the complex
logistics of thousands of available items, three temperature zones, multiple
truck routes and numerous delivery windows. The core of this technology is
HomeGrocer's proprietary software that enables reliable and efficient
transaction processing through Internet and application servers. This technology
enables HomeGrocer's Internet and application servers to scale up to large
volumes of transactions at multiple locations.
HomeGrocer designed its system to use technology to enhance the efficiency
of personal shoppers assembling the customer orders in the warehouse. Personal
shoppers wear wrist-mounted display devices that provide instructions from the
system and direct the shopper, using the most efficient sequence, to the
location of the specific customer items. A finger-mounted bar-code scanner
confirms that the proper item was selected and has been placed into the correct
customer's tote. HomeGrocer has successfully deployed this technology in all of
its customer fulfillment centers in multiple markets. HomeGrocer has designed
the process to establish new distribution operations quickly and efficiently and
to increase volume without compromising product quality or order accuracy.
HomeGrocer also employs a routing and scheduling system that manages the
delivery of orders. Trucks deliver orders to assigned neighborhoods. Each route
has timeslots that are 90 minute time windows in which orders are scheduled to
be delivered. This system spreads the truck loads in an orderly manner. Once a
delivery is scheduled, a route-planning feature of the system determines the
most efficient route to deliver goods to the customer's home. Each aspect of
this process is tightly integrated and enables HomeGrocer to provide high
quality and timely service to its customers.
HomeGrocer's drivers are its ambassadors of customer care. Selected and
trained to be courteous and efficient, the drivers, if requested, carry the
products directly into the customer's kitchen. Each driver is authorized to
replace items or credit the customer's bill if the customer is not 100%
satisfied. Drivers are forbidden to solicit or accept tips. Whenever possible,
HomeGrocer schedules drivers to visit the same neighborhoods on a regular
schedule, thereby providing the drivers an opportunity to establish
relationships with regular customers. HomeGrocer believes the direct personal
interaction between its employees and its customers, which is rare in the
Internet industry, fosters the development of long-term relationships with its
customers.
CUSTOMER CARE
Ongoing customer support is important to HomeGrocer's ability to establish
and maintain long-term relationships with its customers. HomeGrocer seeks
frequent meaningful communication with its customers to enable HomeGrocer to
continually improve its service. For example, a customer service representative
frequently calls a customer after the delivery of the first order to ensure his
or her satisfaction. HomeGrocer also offers numerous automated help options on
the Storefront and a rapid email response service. HomeGrocer's team of customer
support and service personnel handle general customer inquiries, answer customer
questions about the ordering process, and investigate the status of orders,
deliveries and payments. Customer service representatives are available through
HomeGrocer's toll free telephone number seven days each week from 5 a.m. to 11
p.m.
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ADVERTISING AGREEMENTS
HomeGrocer pursues advertising agreements to increase its access to online
customers, build brand recognition and expand its online presence. To date,
HomeGrocer has entered into the following advertising agreements:
Amazon.com. HomeGrocer has entered into a $10 million advertising agreement
with Amazon.com that calls for Amazon.com to introduce HomeGrocer's service to
its customers residing in HomeGrocer's service areas. HomeGrocer believes that
the benefits of this relationship with Amazon.com include their introduction of
the HomeGrocer web site to their customers and the beneficial aspects of being
associated with one of the premier e-commerce companies. Amazon.com is
HomeGrocer's largest stockholder and David Risher, Amazon.com's Senior Vice
President and General Manager, U.S. Retail, is a member of HomeGrocer's board of
directors.
America Online. HomeGrocer has entered into a five year agreement with
America Online, an Internet online service provider with over 21 million
members, establishing HomeGrocer as AOL's primary and preferred provider of
online grocer services on AOL and its affiliated networks. HomeGrocer's
agreement provides for exclusivity in the online grocery sector on a limited
number of AOL channels and expires in February 2005. In addition, AOL has agreed
to promote and advertise HomeGrocer in online areas controlled by AOL and to
deliver a minimum number of annual page views to the online areas promoting
HomeGrocer. Over the five year term of the agreement, HomeGrocer is obligated to
make payments totaling up to $60 million to AOL. Of this amount HomeGrocer paid
$10 million through June 2000 and will pay $4 million quarterly in the balance
of the year 2000 and $3 million quarterly beginning March 2001 for the remaining
term of the agreement. In addition HomeGrocer will pay a referral fee for each
new customer above specified thresholds referred by AOL to HomeGrocer. AOL can
reduce or eliminate the limited exclusivity at various times after twenty-four
months in the event AOL has delivered specified numbers of impressions to
HomeGrocer, in which case HomeGrocer's payment obligations would be reduced.
SUPPLY RELATIONSHIPS
HomeGrocer sources products from a network of food, houseware and health
and beauty aid manufacturers, wholesalers, brokers and distributors. HomeGrocer
currently relies on rapid fulfillment from national and regional distributors
for a substantial portion of its products. In the Seattle and Portland areas,
approximately 46% of current product offerings are sourced through a single
wholesaler, SuperValu. For HomeGrocer's five customer fulfillment centers in
Southern California, it is using Unified Western Grocers, Inc., who supplies
approximately 49% of current product offering in that market. For the Carollton,
Texas customer fulfillment center, approximately 56% of current product
offerings are sourced through Grocers Supply Company, Inc. HomeGrocer has no
contractual relationship with SuperValu, Unified Western Grocers or Grocers
Supply Company that requires them to continue to supply HomeGrocer's needs in
the future. HomeGrocer purchases a number of top brands and high volume items
directly from manufacturers and may increase its use of this direct purchasing
as product volumes increase with additional customer fulfillment centers.
HomeGrocer also utilizes premium specialty suppliers or local sources for
gourmet foods, traditional and organic produce, bakery items, fish and meats and
floral products. As of July 1, 2000, HomeGrocer was purchasing products from
over 150 distributors and manufacturers.
COMPETITION
The grocery retailing market is extremely competitive. Local, regional, and
national food chains, independent food stores and markets, as well as online
grocery retailers comprise HomeGrocer's principal competition, although it also
faces substantial competition from convenience stores, liquor retailers,
membership warehouse clubs, specialty retailers, supercenters and drugstores.
Many of
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HomeGrocer's existing and potential competitors, particularly traditional
grocers and retailers, have existed for a longer period of time, have greater
financial resources and have more established relationships with leading
manufacturers, suppliers and advertisers than it does.
In April 2000, Safeway, a national traditional grocery chain, announced it
would purchase securities convertible into 50% of Groceryworks.com, an Internet
grocer currently serving Dallas, Texas, a market HomeGrocer entered in mid-May.
Royal Ahold, also a traditional grocery chain, has entered into a contract to
acquire securities convertible into 51% of Peapod, an online grocer that
operates in several of the markets HomeGrocer may enter. In November 1999,
Albertson's introduced an Internet based service in the Seattle area and Webvan
has indicated that it will introduce its online grocery service in Seattle
sometime in early 2001. HomeGrocer expects competition will intensify as more
traditional and online grocery retailers offer competitive services.
The number and nature of competitors and the amount of competition
HomeGrocer will experience will vary by geographic area. HomeGrocer expects to
compete with traditional grocery stores in every area, including Albertson's,
Safeway, Quality Food Centers and Kroger, and other online grocers in most
markets, including companies such as Albertson's, Webvan, Peapod, HomeRuns,
GroceryWorks.com, ShopLink.com and Streamline.com. The principal competitive
factors that affect HomeGrocer's business are product selection, product
quality, customer service, price and convenience. For traditional grocers,
convenience is largely a function of location and hours of operation. For online
grocers, it is primarily determined by ease of use of the web site and
availability of delivery times. If HomeGrocer fails to effectively compete in
any of these areas, HomeGrocer may lose existing and potential customers and
face decreased demand for its products and services, which would hurt its
business.
GOVERNMENT REGULATION
In addition to regulations applicable to businesses generally or directly
applicable to e-commerce, HomeGrocer is subject to a variety of regulations
concerning the handling, sale and delivery of food, alcohol and tobacco
products. Currently, HomeGrocer is not subject to regulation by the U.S.
Department of Agriculture, or USDA. Whether the handling of food items in
HomeGrocer's distribution facility, such as meat and fish, will subject
HomeGrocer to USDA regulation in the future will depend on several factors,
including whether HomeGrocer sells food products on a wholesale basis or obtains
food products from non-USDA inspected facilities. Although HomeGrocer has
designed its food handling operations to comply with USDA regulations, in the
future the USDA may require changes to these operations. HomeGrocer is also
required to comply with local health regulations concerning the preparation and
packaging of any prepared food items, such as deli salads that it prepares on
site. Any applicable federal, state or local regulations may cause HomeGrocer to
incur substantial compliance costs or delay the availability of a number of
items at one or more of its customer fulfillment centers. In addition, any
inquiry or investigation from a food regulatory authority could have a negative
impact on HomeGrocer's reputation. Any of these events could delay or impair
HomeGrocer's business and expansion plans and could cause HomeGrocer to lose
customers.
HomeGrocer will be required to obtain state, and in some cases county and
municipal, licenses and permits for the sale of alcohol in each location in
which it delivers. HomeGrocer may be forced to incur substantial costs and
experience significant delays in obtaining these permits or licenses. In
addition, the U.S. Congress is considering enacting legislation that would
restrict the interstate sale of alcoholic beverages over the Internet. Changes
to existing laws or the inability of HomeGrocer to obtain required permits or
licenses could prevent HomeGrocer from selling alcohol or tobacco products in
one or more of its geographic markets or a portion of those markets where a
market extends over two or more licensing jurisdictions. In those locations
where HomeGrocer cannot obtain alcohol permits or licenses, it will be unable to
sell these items, which could hurt its business.
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In addition, it is possible that a number of laws and regulations may be
adopted with respect to the Internet and e-commerce that could adversely affect
the manner in which HomeGrocer currently conducts its business. In addition, the
growth and development of the market for e-commerce may lead to more stringent
consumer protection laws which may impose additional burdens on HomeGrocer. Laws
and regulations directly applicable to communications or commerce over the
Internet are becoming more prevalent. The U.S. government recently enacted
Internet laws regarding privacy, copyrights, taxation and the transmission of
sexually explicit material. The law of the Internet, however, remains largely
unsettled, even in areas where there has been some legislative action. It may
take years to determine whether and how existing laws such as those governing
intellectual property, privacy, libel and taxation apply to the Internet. If
HomeGrocer is required to comply with new regulations or legislation or new
interpretations of existing regulations or legislation, this compliance could
cause HomeGrocer to incur additional expenses or alter its business model.
HomeGrocer is not certain how its business may be affected by the
application of existing laws governing issues such as property ownership,
copyrights, encryption and other intellectual property issues, taxation, libel
and export or import matters. The vast majority of these laws were adopted prior
to the wide use of the Internet. As a result, they do not contemplate or address
the unique issues of the Internet and related technologies. Changes in laws
intended to address these issues could create uncertainty in the Internet
marketplace. This uncertainty could reduce demand for HomeGrocer's services or
increase the cost of doing business as a result of litigation costs or increased
service delivery costs.
INTELLECTUAL PROPERTY
HomeGrocer regards patents, copyrights, service marks, trademarks, trade
secrets and similar intellectual property as important to its success.
HomeGrocer relies on patent, trademark and copyright law, trade secret
protection and confidentiality or license agreements with its employees,
customers, partners and others to protect its proprietary rights; however, the
steps it takes to protect its proprietary rights may be inadequate. HomeGrocer
has a registered trademark in the United States for "HomeGrocer," and has filed
trademark registration applications for the marks "HomeGrocer," "Peach Party,"
and the HomeGrocer logo in the United States and abroad. HomeGrocer has also
filed a trademark application for its slogan "here comes the grocery store" in
the United States.
On January 10, 2000, HomeGrocer filed three provisional patent applications
with the U.S. Patent and Trademark Office. From time to time, HomeGrocer may
file additional patent applications directed to aspects of its proprietary
technology. HomeGrocer currently has no patents protecting its technology.
HomeGrocer cannot assure you that any of its pending patent applications will be
approved, that any issued patents will protect its intellectual property or that
any issued patents or trademark registrations will not be challenged by third
parties.
EMPLOYEES
As of July 6, 2000, HomeGrocer had 2,379 employees, consisting of 192
employed in the information technology area, 112 in operations and
administration, 59 in merchandising, 32 in marketing and 1,984 at its customer
fulfillment centers and performing related delivery services. Although some
companies that operate in the trucking, warehouse and grocery industries are
subject to collective bargaining agreements, HomeGrocer's employees are not
currently represented by a labor union. HomeGrocer has not experienced any work
stoppages and considers its employee relations to be good.
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LEGAL PROCEEDINGS
From time to time, HomeGrocer may be involved in litigation relating to
claims arising in the ordinary course of business.
On May 11, 2000, HomeGrocer filed suit in United States District Court for
the Western District Court of Washington against Peachtree Network, Inc.
alleging trademark infringement and unfair competition for use of a logo similar
to that of HomeGrocer in online grocery ordering and delivery. Discovery is
ongoing.
On February 28, 2000, CNA Industrial Engineering, Inc. filed suit against
HomeGrocer in Superior Court of Washington for King County to collect $473,357
which it claims it is owed for consulting, design and installation services.
HomeGrocer disputes the amount claimed and intends to vigorously defend the
lawsuit.
FACILITIES
HomeGrocer's corporate offices are located in Kirkland and Bellevue,
Washington where HomeGrocer leases approximately 122,000 square feet. HomeGrocer
has also signed a lease for approximately 84,000 square feet in an office
building under construction in Bellevue, Washington.
HomeGrocer leases an aggregate of approximately 2,576,000 square feet for
its current and future customer fulfillment centers. Of this, 996,000 square
feet is used by customer fulfillment centers currently operating and 1,580,000
square feet consist of warehouse space where HomeGrocer intends or intended to
open a customer fulfillment center but has postponed indefinitely the
commencement of operations. HomeGrocer is currently reviewing its real estate
position and may choose to sublet or negotiate the termination of these leases.
HomeGrocer does not own any real estate and expects, wherever possible, to lease
customer fulfillment centers in any additional markets.
ENVIRONMENTAL MATTERS
HomeGrocer is subject to various environmental laws and regulations
governing the maintenance of its vehicles, the operation of real property, and
the generation, storage, use, emission, discharge, transportation and disposal
of oil or other hazardous materials, and the health and safety of its employees.
These laws may impose liability even if HomeGrocer did not know of, or was not
responsible for, the contamination or other damage. Based on current
information, however, HomeGrocer is aware of no liabilities under environmental
laws which would be expected to have a material adverse effect on its business,
results of operations or financial condition.
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HOMEGROCER MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations of HomeGrocer should be read in conjunction with
HomeGrocer's Condensed Financial Statements and the Notes thereto. This
discussion contains forward-looking statements based upon current expectations
that involve risks and uncertainties, such as HomeGrocer's plans, objectives,
expectations and intentions. HomeGrocer's actual results and the timing of
events could differ materially from those anticipated in these forward-looking
statements as a result of several factors, including those set forth in the
following discussion and under "Risk Factors" and elsewhere in this joint proxy
statement/prospectus.
OVERVIEW
HomeGrocer is a retailer of grocery and other consumer products on the
Internet. HomeGrocer operates its own state-of-the-art distribution system
providing next-day home delivery of a wide range of products, including high
quality food items, at prices competitive with local supermarket prices.
HomeGrocer's goals are to expand nationally and to be its customers' preferred
regular provider of household consumer products. HomeGrocer believes that its
core grocery business provides it with a strong platform to expand into other
product and service areas.
HomeGrocer commercially launched its storefront at www.homegrocer and began
delivering groceries to the Seattle area from its Bellevue, Washington customer
fulfillment center in June 1998. HomeGrocer currently serves customers in
several additional areas: Portland, Oregon since May 1999; Orange County and Los
Angeles, California since September 1999; Dallas, Texas since May 2000; and San
Diego, California since May 2000.
HomeGrocer recently decided to conserve capital by postponing its planned
openings in Atlanta, Chicago and Washington D.C. until some or all of its
existing operations become profitable or the capital markets improve. As of July
1, 2000, HomeGrocer had $158.6 million of unrestricted cash and securities.
MERGER WITH WEBVAN GROUP, INC.
On June 25, 2000, HomeGrocer entered into a definitive merger agreement
with Webvan. The merger is expected to close late in the third quarter or early
in the fourth quarter of fiscal 2000 upon satisfaction of customary closing
conditions and receipt of governmental and stockholder approvals. Under the
terms of the agreement, HomeGrocer stockholders will receive 1.07605 shares of
Webvan common stock in exchange for each share of HomeGrocer common stock.
Outstanding stock options and warrants to purchase shares of HomeGrocer common
stock will be converted to options and warrants to purchase shares of Webvan
common stock at the same exchange ratio. Webvan intends to account for the
merger as a purchase transaction.
RESULTS OF OPERATIONS
COMPARISON OF THE 13 WEEKS ENDED JULY 1, 2000 AND JULY 3, 1999
Net Sales. On April 26, 2000 HomeGrocer opened its fourth customer
fulfillment center in the Orange County/Los Angeles area. HomeGrocer then
introduced its service in the Dallas, Texas market on May 12, 2000 and in the
San Diego, California market on May 31, 2000. Due primarily to these openings,
HomeGrocer's sales, net of returns and promotional discounts, increased to $29.8
million for the second quarter of fiscal 2000 from $21.2 million in the first
quarter of fiscal 2000. This compared to only $3.4 million in the second quarter
of fiscal 1999. On average, HomeGrocer delivered 3,170 orders per day in the
second quarter, as compared to 2,283 and 426
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orders in the first quarter of fiscal 2000 and second quarter of fiscal 1999,
respectively. The average order size for HomeGrocer increased to $103 in the
second quarter of fiscal 2000, as compared to $102 and $96 in the first quarter
of fiscal 2000 and second quarter of fiscal 1999, respectively. Repeat customers
accounted for 74% of total orders in the second quarter of fiscal 2000, as
compared to 77% of total first quarter orders. A "repeat customer" is defined as
a person who has ordered with HomeGrocer previously. The decrease in the repeat
customer percentage reflects the impact of introducing HomeGrocer's service in
new markets, where virtually everyone is a new customer.
Gross Profit. HomeGrocer's cost of sales consists of the cost of
merchandise sold or provided to customers, including inbound freight costs.
Gross profit (which is HomeGrocer's net sales less the cost of merchandise sold)
increased to $7.5 million for the second quarter of fiscal 2000 from $3.7
million in the first quarter of fiscal 2000 and $635,000 in the second quarter
of fiscal 1999, respectively. As a percentage of net sales, gross profit
increased to 25.1% in the second quarter of fiscal 2000 from 17.4% in the first
quarter of fiscal 2000 and 18.4% in the second quarter of fiscal 1999,
respectively. The improvement in gross profit is due largely to buying
efficiencies, reduced levels of shrink and pricing adjustments.
To promote the HomeGrocer brand and establish customer loyalty, HomeGrocer
will typically offer customers free product or a sales discount on their first
or second order. For example, HomeGrocer has previously given its customers a
free bag of produce with their first order, waived the delivery fee for any
sized first order, and then offered $10 off the customer's second order. The
cost of the free produce bag and similar promotions are included in the cost of
merchandise sold. Sales discounts and promotions reduce gross sales to net sales
and therefore affect the gross margin percentage. HomeGrocer recently began a
promotion for the summer period offering a $20 discount on a first order of $50
or more. Based on previous consumer testing of this promotion, this promotion is
expected to attract new customers during the summer season. Since the cost of
such promotions is deducted from gross sales to achieve net sales rather than
being considered a marketing expense, HomeGrocer's gross margin as a percentage
of net sales may be negatively affected.
Customer Fulfillment Expenses. HomeGrocer's customer fulfillment expenses
include the wages and benefits of its delivery drivers, personal shoppers,
receiving personnel and other operations and administrative staff located at the
customer fulfillment center, customer fulfillment center rent and related
facility costs, supplies and credit card fees. Customer fulfillment center
expenses increased to $22.5 million for the second quarter of fiscal 2000 from
$17.6 million and $2.1 million in the first quarter of fiscal 2000 and the
second quarter of fiscal 1999, respectively. The increase in such expenses
results from the increase in the number of customer fulfillment centers
delivering to customers.
Marketing Expenses. HomeGrocer's marketing expenses increased to $15.7
million for the second quarter of fiscal 2000 as compared to $5.6 million and
$1.4 million in the first quarter of fiscal 2000 and the second quarter of
fiscal 1999, respectively. HomeGrocer's marketing programs are designed to
strengthen the HomeGrocer brand name, encourage trials of its service in its
target markets, build customer loyalty, maximize repeat purchases and increase
its average order size. The increase in marketing expenses during the second
quarter from the first quarter of fiscal 2000 and the second quarter of fiscal
1999 results primarily from the increase in the number of markets HomeGrocer
serves and increased ongoing promotional activities in existing markets.
During the second quarter, American Online, or AOL, began delivering
HomeGrocer banner ads or other similar impressions to AOL's customers under the
interactive marketing agreement HomeGrocer entered into in February 2000.
HomeGrocer did not deliver any mailings to Amazon.com customers under its
advertising agreement with Amazon.com until subsequent to July 1, 2000. The
costs associated with both agreements are being expensed based on the number of
impressions or mailings provided in each period, as compared to the total
impressions or mailings
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purchased by the Company through each agreement. In both cases, the cumulative
amounts expensed are less than the cumulative cash payments under these
agreements. As of July 1, 2000, HomeGrocer has paid $10.0 million to AOL and
$1.3 million to Amazon.com under these agreements and has expensed $759,000
under the AOL agreement and nothing under the Amazon.com agreement.
Technology Operations and Development Expenses. Technology operations and
development expenses increased to $8.1 million in the second quarter of fiscal
2000 from $6.5 million and $2.1 million in the first quarter of fiscal 2000 and
the second quarter of fiscal 1999, respectively. The increase results primarily
from an increase in the number of employees developing, enhancing, and
maintaining HomeGrocer's storefront and other internal operating systems. On
April 26, 2000, HomeGrocer launched a new version of its web site, providing
shoppers with a more convenient shopping experience. HomeGrocer has also
invested heavily to improve the reliability and scalability of its systems.
HomeGrocer expects to continue to invest heavily in technology due to the
rapidly evolving and competitive environment of e-tailing.
Preopening Expenses. Preopening expenses represent costs incurred at
customer fulfillment centers prior to opening and consist primarily of rent and
related costs and wages and benefits. Preopening expenses increased to $5.4
million for the second quarter of fiscal 2000 from $2.0 million for first
quarter of fiscal 2000. Preopening expenses were $256,000 in the second quarter
of fiscal 1999. The increase reflects the execution of HomeGrocer's rollout
plans during the quarter.
General and Administrative Expenses. General and administrative expenses
were $9.3 million for the second quarter of fiscal 2000 as compared to $8.3
million and $1.8 million in the first quarter of fiscal 2000 and second quarter
of fiscal 1999, respectively. Such expenses have increased significantly from
the second quarter of the prior year as HomeGrocer built the corporate
infrastructure necessary to support its growth plans. General and administrative
expenses as a percentage of sales decreased from 39.2% in the first quarter of
fiscal 2000 to 31.3% in the second quarter of fiscal 2000. HomeGrocer expects
that, as a percentage of net sales, its general and administrative expenses will
continue to decrease.
Merger Expenses. Merger expenses for the second quarter of fiscal 2000 were
$1.5 million. There were no comparable expenses in the first quarter of fiscal
2000 or the second quarter of fiscal 1999. The merger expenses result from
HomeGrocer's proposed merger with Webvan and consist principally of investment
banking, legal and accounting fees. HomeGrocer expects that there will be
additional merger expenses in future quarters.
Stock-Based Compensation Expense. Stock-based compensation expense consists
primarily of the amortization of deferred stock compensation resulting from the
grant of stock options or sale of restricted stock at exercise or sale prices
subsequently deemed to be less than the fair value of the common stock on the
grant or sale date. HomeGrocer recorded total deferred stock-based compensation
of $67.7 million for fiscal 1999 and an additional $1.4 million in the first
quarter of 2000 in connection with stock options granted and restricted stock
sold during the periods. Such deferred compensation was calculated based largely
on HomeGrocer's initial public offering price and has not been adjusted for
subsequent variations in the share price, even though most of such options and
restricted stock are subject to multi-year vesting requirements. Further, on May
1, 2000, in order to retain certain existing employees and hire new employees,
HomeGrocer granted options to purchase an aggregate of 4,389,400 shares of
common stock at $5.00 per share, the closing price of HomeGrocer's stock on the
previous trading day. HomeGrocer's chief executive officer, president and chief
financial officer did not receive options as part of the May 1, 2000 grant. On
May 1, 2000, the closing price of HomeGrocer common stock was $6.125 per share.
Accordingly, because of the increase in the share price on May 1, 2000, an
additional $4.9 million of deferred stock-based compensation was recorded during
the second quarter.
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Deferred stock-based compensation is being amortized to expense over the
vesting periods of the applicable agreements, resulting in amortization of
deferred stock-based compensation totaling $6.7 million in the second quarter of
fiscal 2000 and $8.2 million and $714,000 in the first quarter of fiscal 2000
and the second quarter of fiscal 1999, respectively. The remaining $31.7 million
of deferred stock-based compensation for stock options and restricted stock is
expected to be amortized in the amounts of $5.9 million and $4.9 million in
third and fourth quarters of fiscal 2000, $13.1 million for fiscal year 2001,
$6.0 million for fiscal year 2002, $1.5 million for fiscal year 2003, $234,000
for fiscal year 2004 and $59,000 for fiscal year 2005. Such amortization amounts
assume that all vesting periods are completed by all employees; to the extent
that unvested options are forfeited by an employee, previously recorded
amortization related to the unvested options will be credited to stock-based
compensation expense.
Interest Income. Interest income increased to $3.7 million for the second
quarter of fiscal 2000 as compared to $1.7 million and $352,000 in the first
quarter of fiscal 2000 and the second quarter of fiscal 1999, respectively, as
HomeGrocer's cash available for investment increased significantly upon
receiving the proceeds from its initial public offering in mid-March 2000. Such
proceeds are being used to fund HomeGrocer's operations and expansion.
Interest Expense. Interest expense decreased to $334,000 for the second
quarter of fiscal 2000 from $663,000 in the first quarter of fiscal 2000 and
increased from $130,000 in the second quarter of fiscal 1999, respectively.
Interest expense results from borrowings to finance purchases of fixed assets
and fund operations and expansion. Interest expense related to customer
fulfillment centers under construction is capitalized and such capitalization
accounted for the decrease in interest expense from the first quarter of fiscal
2000 to the second quarter of fiscal 2000.
Income Taxes. There was no provision or benefit for income taxes for any
period since inception due to HomeGrocer's absence of taxable income to date.
COMPARISON OF THE 26 WEEKS ENDED JULY 1, 2000 AND JULY 3, 1999
Net Sales. Net sales for the first 26 weeks of fiscal 2000 increased to
$51.0 million from $5.2 million in the comparable prior year period. As of July
1, 2000 HomeGrocer was delivering to consumers from eight customer fulfillment
centers as compared to delivering from two customer fulfillment centers as of
July 3, 1999. Also, sales to consumers in the Seattle and Portland markets
increased 357% as compared to the sales in these markets during the comparable
prior year period.
Gross Profit. Gross profit increased to $11.2 million for the first 26
weeks of fiscal 2000 from $926,000 in the comparable prior year period. As a
percentage of net sales, gross profit increased to 21.9% in the first 26 weeks
of fiscal 2000 from 17.7% in the same prior year period. The improvement in
gross profit is due largely to buying efficiencies as well as better inventory
controls and pricing and procurement systems.
Customer Fulfillment Expenses. Customer fulfillment center expenses
increased to $40.1 million for the first 26 weeks of fiscal 2000 from $3.4
million in the comparable prior year period. The increase in such expenses
results from the increase in the number of customer fulfillment centers
delivering to customers.
Marketing Expenses. HomeGrocer's marketing expenses increased to $21.3
million for the first 26 weeks of fiscal 2000 from $2.1 million in the
comparable prior year period. The increase in marketing expenses is due to the
increase in the number of markets HomeGrocer serves and increased promotional
activities in the Seattle and Portland markets.
Technology Operations and Development Expenses. Technology operations and
development expenses increased to $14.6 million for the first 26 weeks of fiscal
2000 from $3.2 million in the comparable prior year period. The increase results
primarily from an increase in the number of
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employees developing, enhancing, and maintaining HomeGrocer's storefront and
other internal operating systems.
Preopening Expenses. Preopening expenses increased to $7.4 million for the
first 26 weeks of fiscal 2000 from $256,000 in the comparable prior year period.
The increase primarily reflects the implementation of the HomeGrocer's rollout
plans.
General and administrative expenses. General and administrative expenses
were $17.6 million for the first 26 weeks of fiscal 2000 as compared to $2.6
million in the comparable prior year period. The significant increase in such
expenses results from building the corporate infrastructure necessary to support
HomeGrocer's increased size and expansion plans.
Merger Expenses. Merger expenses for the first 26 weeks of fiscal 2000 were
$1.5 million. There were no comparable expenses in the comparable prior year
period. The merger expenses result from HomeGrocer's proposed merger with Webvan
and consist principally of investment banking, legal and accounting fees.
Stock-Based Compensation Expense. HomeGrocer recorded stock-based
compensation of $14.9 million for the first 26 weeks of fiscal 2000 as compared
to $822,000 in the comparable prior year period. The increase in such expense
results from additional options granted in the latter half of fiscal 1999 and
the first half of fiscal 2000 and increases in the share value used to calculate
such expense.
Interest Income. Interest income increased to $5.4 million for the first 26
weeks of fiscal 2000 from $356,000 in the comparable prior year period, as
HomeGrocer's cash available for investment increased significantly upon
receiving the proceeds from its initial public offering in mid-March 2000.
Interest Expense. Interest expense increased to $997,000 for the first 26
weeks of fiscal 2000 from $151,000 in the comparable prior year period, as a
result of interest paid on borrowings to finance purchases of fixed assets and
fund operations and expansion.
Income Taxes. There was no provision or benefit for income taxes for any
period since inception due to HomeGrocer's absence of taxable income to date.
FISCAL 1999 VS. FISCAL 1998
Net Sales. Sales, net of returns and promotional discounts, increased from
$1.1 million in fiscal 1998 to $21.6 million in fiscal 1999. This increase in
net sales resulted from the increase in the number of markets served, a full
period of service in the Seattle market, an increase in the average number of
orders per day and an increase in the average size in fiscal 1998 orders. The
average order size in the Seattle market was $100 in fiscal 1999, compared to
$93 for deliveries in fiscal 1998 since HomeGrocer launched its storefront in
June 1998. The average number of orders delivered per day in the Seattle market
was 241, 365, 426 and 625 in the first, second, third and fourth quarters of
1999, respectively, compared to 36 and 108 in the third and fourth quarters of
1998.
Gross Profit. Cost of sales consists of the cost of merchandise sold to
customers, including inbound freight costs and free products. Gross profit
increased from $76,000 in the 52 weeks ended January 2, 1999 to $2.1 million in
the same period of the current year. The increase in gross profit was primarily
due to increased sales volumes. As a percentage of net sales, gross profit
increased from 6.9% in fiscal 1998 to 9.9% in fiscal 1999. HomeGrocer currently
anticipates the gross profit percentage to be approximately 15% in the first
year of operation for each customer fulfillment center. The total gross profit
achieved each year will be dependent on the mix of new and mature centers.
During the thirty-nine weeks ended October 2, 1999, gross profit percentage
was 18.1%. In the fourth quarter of 1999, temporary factors related primarily to
the opening of three new fulfillment centers in the September through December
time frame resulted in a fourth quarter gross profit
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percentage of 1.5%. Sales in the fourth quarter exceeded combined sales of the
prior three quarters, so the low gross profit percentage in the quarter had a
disproportionate impact on the gross profit percentage for the year.
Selling, General and Administrative. Selling, general and administrative
expenses include costs related to fulfillment and occupancy, delivery of
products, customer service, advertising and promotional expenditures,
information technology and administration, and corporate overhead. Selling,
general and administrative expenses increased from $7.5 million in fiscal 1998
to $59.2 million in fiscal 1999. This increase was primarily due to increased
payroll and other costs associated with operating four customer fulfillment
centers during fiscal 1999 as compared to one customer fulfillment center that
operated during only part of the prior year period. Payroll and other costs
associated with operating customer fulfillment centers, including delivery of
products and customer service increased from approximately $1.4 million in
fiscal 1998 to approximately $22.2 million in fiscal 1999. Advertising and
promotional expenses increased from $1.0 million in fiscal 1998 to $7.7 million
in fiscal 1999. Corporate overhead, including information technology and
administration, increased from approximately $5.1 million in fiscal 1998 to
approximately $29.3 million in fiscal 1999.
Stock-Based Compensation Expense. Stock-based compensation expense consists
primarily of the amortization of deferred stock compensation resulting from the
grant of stock options or sale of restricted stock at exercise or sale prices
subsequently deemed to be less than the fair value of the common stock on the
grant or sale date. HomeGrocer recorded total deferred stock-based compensation
of $67.7 million for fiscal 1999 in connection with stock options granted and
restricted stock issued during the period. This cost is being amortized to
expense over the vesting periods of the applicable agreements, resulting in
amortization of deferred stock-based compensation totaling $26.1 million for
fiscal 1999. Additionally, $2.0 million of stock-based compensation expense was
recorded in connection with stock options granted to outside consultants. The
$41.6 million of deferred stock-based compensation for stock options and
restricted stock issued through January 1, 2000 is expected to be amortized in
the amounts of $23.9 million for fiscal year 2000, $11.6 million for fiscal year
2001, $5.1 million for fiscal year 2002 and $1.0 million for fiscal year 2003.
Such amortization amounts assume that all vesting periods are completed by all
employees; to the extent that unvested options are forfeited by an employee,
previously recorded amortization related to the unvested options will be
credited to stock-based compensation expense.
Interest Income. Interest income of $2.2 million in fiscal 1999 resulted
from the investment of cash, cash equivalents and marketable securities. Such
funds were provided primarily from the sale of equity.
Interest Expense. Interest expense increased from $172,000 in fiscal 1998
to $384,000 in fiscal 1999 as a result of borrowing arrangements entered into
primarily to finance purchases of fixed assets and fund operations and
expansion.
Other Expense. Other expense of $608,000 in fiscal 1999 resulted primarily
from the write-off of certain machinery and equipment due to the relocation of
the Bellevue, Washington customer fulfillment center to Renton, Washington.
Income Taxes. There was no provision or benefit for income taxes for any
period since inception due to operating losses. As of January 1, 2000,
HomeGrocer had approximately $66.0 million of net operating loss carryforwards
for federal income tax purposes, which expire beginning in 2017. In 1999, due to
the issuance and sale of Series C preferred stock, HomeGrocer incurred an
ownership change pursuant to applicable regulations under the Internal Revenue
Code of 1986, as amended.
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FISCAL 1998 VS. FISCAL 1997
Fiscal 1997 was a 51-week year that commenced at inception on January 15,
1997 and ended on January 3, 1998 and fiscal 1998 was a 52-week year that ended
on January 2, 1999.
Net Sales. HomeGrocer commercially launched its storefront and began
delivering to customers in the Seattle market in June 1998. HomeGrocer did not
have any net sales in fiscal 1997. HomeGrocer had net sales of $1.1 million in
fiscal 1998.
Gross Profit. HomeGrocer did not have any gross profit in fiscal 1997. The
fiscal 1998 gross profit of $76,000 was reflective of low sales volume and
competitive pricing, as well as various types of promotional discounts and
incentives offered to increase HomeGrocer.com brand awareness and loyalty.
Selling, General and Administrative. Selling, general and administrative
expenses increased from $1.1 million in fiscal 1997 to $7.5 million in fiscal
1998 primarily as a result of costs associated with launching the HomeGrocer
storefront and commencing delivery operations in June 1998. In fiscal 1998,
HomeGrocer increased headcount in all functional areas, increased advertising
and promotional expenditures and began leasing its first customer fulfillment
center, delivery vehicles and corporate headquarters. Payroll and other costs
associated with operating the first customer fulfillment center increased from
$62,000 in fiscal 1997 to $1.4 million in fiscal 1998. Advertising and
promotional expenses increased from $82,000 in fiscal 1997 to $1.0 million in
fiscal 1998. Corporate overhead, including information technology and
administration, increased from approximately $920,000 in fiscal 1997 to $5.1
million in fiscal 1998.
Stock-Based Compensation Expense. Stock-based compensation expense related
to stock options granted to outside consultants in exchange for services
rendered increased by $182,000 from $230,000 in fiscal 1997 to $412,000 in
fiscal 1998.
Interest Income. HomeGrocer did not have any interest income in fiscal
1997. Interest income increased to $54,000 in fiscal 1998 as average cash and
cash equivalents balance increased. Funds for investment were provided primarily
from the sale of equity.
Interest Expense. Interest expense increased by $111,000 from $61,000 in
fiscal 1997 to $172,000 in fiscal 1998 as a result of borrowing arrangements
entered into primarily to finance purchases of fixed assets and fund operating
activities.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering, HomeGrocer financed operations
primarily through sales of preferred stock with net cash proceeds of $168.4
million through January 1, 2000. On March 10, 2000, HomeGrocer completed its
initial public offering of common stock, generating net proceeds of $243.5
million.
Net cash used in operating activities for the first 26 weeks of fiscal 2000
was $82.5 million. In addition, HomeGrocer invested $75.2 million primarily in
new customer fulfillment centers and the rollout of service, including tenant
improvements and the purchase of computer and transportation equipment.
HomeGrocer also acquired equipment, principally trucks, through capital leases.
As of July 1, 2000, HomeGrocer had $158.6 million of unrestricted cash and cash
equivalents. As of that date, HomeGrocer's principal commitments consisted of
minimum lease payments due under operating leases totaling approximately $204.0
million over 15 years, agreements to purchase additional delivery vehicles in
fiscal 2000 totaling approximately $15.9 million and approximately $50.0 million
and $8.8 million due over four and two years under the marketing agreements with
America Online and Amazon.com, respectively. Lease commitments include amounts
related to customer fulfillment centers that have not yet opened. Cash needs in
future periods will be a function
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of operating results, the speed and magnitude of rollout and the terms and
availability of leases for real estate and equipment, including trucks.
HomeGrocer has recently decided to postpone opening additional facilities
until some or all of its existing facilities become profitable or until
HomeGrocer is able to raise additional capital. By postponing the rollout of
service in additional markets during fiscal 2000, HomeGrocer also reduces the
short-term capital required for tenant improvements and additional start up and
marketing costs in new markets and can focus its resources on bringing current
customer fulfillment centers to profitability.
HomeGrocer believes that its existing cash and cash equivalents will be
sufficient to meet anticipated needs for working capital and capital
expenditures into the first or second quarter of 2001. In the past, HomeGrocer
has been able to lease much of its transportation equipment on relatively
favorable terms. However, changes in the equity markets since HomeGrocer's
initial public offering on March 10, 2000 may have affected other capital
markets as well. HomeGrocer may have to, for example, purchase some or all of
its transportation equipment, much of which in the past has generally been
leased. At July 1, 2000, the Company leased 349 and owned 170 delivery vehicles.
In addition, the announcement of the proposed merger with Webvan may have
affected HomeGrocer's overall ability to raise capital. The merger agreement
with Webvan, among other restrictions, has limitations on what HomeGrocer can
spend on capital improvements and marketing activities without Webvan's approval
as well as limits on HomeGrocer's ability to issue equity or borrow funds. If
HomeGrocer raises additional funds through the issuance of equity,
equity-related or debt securities, such securities may have rights, preferences
or privileges senior to those of the rights of its common stock and its
stockholders may experience additional dilution. HomeGrocer cannot be certain
that additional financing will be available on acceptable terms when required,
or at all.
NEW ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation (FIN 44), that clarifies guidance for certain issues related to the
application of APB Opinion No. 25, Accounting for Stock Issued to Employees (APB
25). The new guidance under FIN 44 would not have impacted HomeGrocer's
historical accounting for equity instruments and HomeGrocer does not believe
that FIN 44 will have an impact on accounting for future equity instruments.
In May 2000, the Emerging Issues Task Force reached a consensus on Issue
00-14, Accounting for Certain Sales Incentives. The issue addresses the
accounting for sales incentives by vendors without charge to customers that can
be used in a single exchange transaction. For example, cash incentives must be
recorded as a reduction in revenue. The consensus is required to be adopted
prospectively in the first fiscal quarter beginning after May 18, 2000.
HomeGrocer believes that its current and past accounting procedures are already
in accordance with Issue 00-14.
YEAR 2000 COMPLIANCE
As of July 24, 2000, HomeGrocer had not experienced any material problems
associated with occurrence of the year 2000.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
HomeGrocer maintains a short-term investment portfolio consisting of
commercial paper with maturities of three months or less. Such securities are
subject to interest risk and will rise and fall in value if market interest
rates change. The extent of this risk is not quantifiable or predictable due to
the variability of future interest rates.
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HomeGrocer's restricted cash is invested in certificates of deposit. There
is inherent risk in these instruments as they mature and are immediately renewed
at current market rates. The extent of this risk is not quantifiable or
predictable due to the variability of future interest rates.
HomeGrocer believes that the market risk arising from its holdings of
financial instruments is not material.
The following table provides information about our investment portfolio,
restricted cash, capital lease obligations and long-term debt as of July 1,
2000, principal cash flows and related weighted average interest rates by
expected maturity dates.
<TABLE>
<CAPTION>
YEAR OF MATURITY
--------------------------------------------- TOTAL
AFTER CARRYING
2000 2001 2002 2003 2004 2004 VALUE
-------- ------- ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents........... $158,571 -- -- -- -- -- $158,571
Average interest
rate............... 6.4% -- -- -- -- -- 6.0%
Restricted cash --
certificates of
deposit............... $ 9,243 $11,061 -- -- -- -- $ 20,304
Average interest
rate............... 5.8% 6.6% -- -- -- -- 6.2%
Capital lease
obligations........... $ 1,945 $ 4,237 $4,286 $3,666 $2,534 $9,350 $ 26,018
Average interest
rate............... 8.5% 8.5% 8.9% 8.6% 7.6% 7.6% 8.3%
Long-term debt.......... $ 1,924 $ 3,784 $3,841 $ 644 -- -- $ 10,193
Average interest
rate............... 10.7% 10.8% 10.9% 11.0% -- -- 10.8%
</TABLE>
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HOMEGROCER MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS JOINING WEBVAN
DIRECTORS
The following table sets forth information regarding HomeGrocer's directors
and executive officers who will serve as directors and executive officers of
Webvan subsequent to the merger.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James L. Barksdale....................... 56 Director
Mary Alice Taylor........................ 49 Director
Senior Vice President, Systems
Rex L. Carter............................ 48 Development
Corwin J. Karaffa........................ 45 Senior Vice President, Operations
</TABLE>
JAMES L. BARKSDALE has served as a director of HomeGrocer since April 1999.
Mr. Barksdale has been managing partner of The Barksdale Group, an investment
and advisory group, since May 1999. He was president and chief executive officer
of Netscape Communications from January 1995 until March 1999, when Netscape was
acquired by America Online. From January 1992 to December 1994, Mr. Barksdale
served as president and chief operating officer of AT&T Wireless Services,
Wireless Data Division (formerly McCaw Cellular Communications), and from
September 1994 to December 1994 also served as the chief executive officer.
Prior to that, from April 1983 to January 1992, he served as executive vice
president and chief operating officer of Federal Express, an overnight courier
service, and from 1979 to 1983 he served as the chief information officer. Mr.
Barksdale is also a director of 3Com, a provider of information access products
and network systems; Liberate Technologies, a provider of software delivering
Internet content to television sets; Federal Express, Robert Mondavi, a winery;
Respond.com, an online shopping service; Sun Microsystems, a provider of
Internet hardware, software and services; and America Online, a provider of
Internet services. Mr. Barksdale holds a B.A. in business from the University of
Mississippi.
MARY ALICE TAYLOR has served as chairman and chief executive officer of
HomeGrocer since September 1999. Prior to joining HomeGrocer, Ms. Taylor served
as corporate executive vice president of Global Operations and Technology for
Citigroup, a financial services organization, from January 1997 to September
1999 where she was responsible for standardizing and centralizing worldwide
operations and leading quality and cost-effectiveness efforts. From June 1980
until January 1997, Ms. Taylor held various positions with Federal Express, an
overnight courier service, serving most recently as senior vice president of
Ground Operations where she was responsible for all aspects of pickup and
delivery operations in North America. Prior to her positions at Citigroup and
Federal Express, from 1977 to 1980 she was the financial planning manager of
U.S. Operations with Northern Telecom, Inc., a telecommunications company. From
1973 to 1977 Ms. Taylor was the controller at Cook Investment Properties, a
division of Cook Industries and from 1971 to 1973, Ms. Taylor served as senior
accountant, oil and gas explorations with Shell Oil. Ms. Taylor also serves as a
director on the boards of Autodesk, a software designer, Allstate Insurance
Company, Sabre, Inc., an electronic reservations travel network and software
applications supplier to the airlines, Blue Nile, Inc., an internet jewelry
retailer, and Dell Computer. Previously she served on the boards of The Perrigo
Company, a manufacturer of store brand items. Ms. Taylor holds a B.A. in finance
from Mississippi State University and is a Certified Public Accountant.
REX L. CARTER has served as vice president of systems development and
technology of Home Grocer since November 1999 and was also appointed senior vice
president in December 1999. Prior to joining HomeGrocer, from February 1993 to
November 1999, Mr. Carter was with the Carlson Companies, an owner and operator
of hotels, restaurants and travel agencies, most recently serving as senior vice
president and chief information officer. From May 1991 to February 1993, Mr.
Carter was
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a senior manager with EDS (Electronic Data Systems), an information technology
consulting firm. From September 1978 to May 1991, Mr. Carter held a variety of
officer positions, including vice president of telecommunications and technology
centers, for the subsidiary companies of Texas Air Corporation, now known as
Continental Airlines. From 1974 to 1978, Mr. Carter held the positions of
consultant and senior consultant with Booz, Allen & Hamilton, management
consultants. Mr. Carter holds a B.S. in engineering from Purdue University. He
also attended Xavier (Ohio) Graduate School of Business and is a registered
Professional Engineer with the State of Ohio.
CORWIN J. KARAFFA has served as vice president of operations of HomeGrocer
since September 1999 and was appointed senior vice president in December 1999.
Before joining HomeGrocer, from January 1995 to August 1999, Mr. Karaffa was the
vice president of distribution of Certified Grocers of California, a
retailer-owned grocery cooperative serving 2,700 retail stores. From March 1985
to January 1995, Mr. Karaffa held various management positions with Procter &
Gamble, a manufacturer of household consumer products, most recently as manager
of distribution development. From June 1977 to March 1985, Mr. Karaffa was a
U.S. Naval aviator. Mr. Karaffa has a B.S. in political science from the United
States Naval Academy in Annapolis, Maryland.
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HOMEGROCER PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of HomeGrocer's common stock as of July 1, 2000 by:
- each of HomeGrocer directors and named executive officers;
- all directors and executive officers as a group; and
- each person who is known to own beneficially more than 5% of HomeGrocer's
common stock.
Except as otherwise noted, the address of each person listed in the table
is c/o HomeGrocer, 10230 N.E. Points Drive, Kirkland, Washington 98033. The
table includes all shares of common stock issuable within 60 days of July 1,
2000 upon the exercise of options beneficially owned by the indicated
stockholders on that date. Included in this table are shares subject to
repurchase by HomeGrocer, held by certain officers of HomeGrocer. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and includes voting and investment power with respect to
shares. To the knowledge of HomeGrocer, except under applicable community
property laws or as indicated in the footnotes below, the persons named in the
table have sole voting and sole investment control with respect to all shares
beneficially owned. The applicable percentage of ownership for each stockholder
is based on 128,043,971 shares of common stock outstanding as of July 1, 2000.
Shares of common stock underlying options immediately exercisable or exercisable
within 60 days of July 1, 2000 were deemed outstanding for the purpose of
computing the percentage ownership of the person holding these options and other
rights, but are not deemed outstanding for computing the percentage ownership of
any other person.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
---------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
------------------------------------ ---------- -------
<S> <C> <C>
Amazon.com, Inc.(1)......................................... 27,733,990 21.7
1200 12th Avenue S., Suite 1200
Seattle, WA 98144
Kleiner Perkins Caufield & Byers(2)......................... 13,918,720 10.9
2750 Sand Hill Road
Menlo Park, CA 94025
Hummer Winblad Venture Partners(3).......................... 13,718,720 10.7
2 South Park, 2nd Floor
San Francisco, CA 94107
J. Terrence Drayton(4)...................................... 6,252,758 4.9
Mary Alice Taylor(5)........................................ 6,017,240 4.7
James Barksdale(6).......................................... 5,643,348 4.4
c/o The Barksdale Group, L.L.C.
2730 Sand Hill Road, Suite 100
Menlo Park, CA 94043
Charles K. Barbo(7)......................................... 1,968,108 1.5
1155 Valley Street, Suite 400
Seattle, WA 98109
Tom A. Alberg(8)............................................ 1,339,900 1.0
c/o Madrona Investment Group LLC
1000 Second Avenue, Suite 3700
Seattle, WA 98104
Ken Deering................................................. 1,170,000 *
</TABLE>
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<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
---------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
------------------------------------ ---------- -------
<S> <C> <C>
Jonathan Landers............................................ 300,000 *
Jonathan D. Lazarus(9)...................................... 883,268 *
One Mercer Plaza 2835 82nd Avenue
S.E., Suite 310
Mercer Island, WA 98040
Philip Schlein.............................................. 272,758 *
2180 Sand Hill Road
Suite 300
Menlo Park, CA 94025
Robert G. Duffy............................................. 250,000 *
All directors and executive officers as a group (20
persons)(10).............................................. 81,492,810 63.7
</TABLE>
-------------------------
* Less than 1% of the outstanding shares of common stock.
(1) David Risher, a director of HomeGrocer and a vice president of Amazon.com,
Inc., disclaims beneficial ownership of the shares held by Amazon.com.
(2) Includes shares held by Kleiner Perkins Caufield & Byers VIII, L.P., KPCB
VIII Founders Fund, L.P. and KPCB Information Sciences Zaibatsu Fund II,
L.P. Douglas Mackenzie, a director of HomeGrocer, and a general partner of
the Kleiner Perkins funds, disclaims beneficial ownership of shares held by
these entities except to the extent of his pecuniary interest therein.
(3) Includes shares held by Hummer Winblad Venture Partners III, L.P., Hummer
Winblad Venture Partners IV, L.P. and Hummer Winblad Technology Fund III,
L.P. Mark Gorenberg, a director of HomeGrocer, is a principal in Hummer
Winblad Venture Partners. Mr. Gorenberg disclaims beneficial ownership of
the shares held by these entities except to the extent of his pecuniary
interest in those shares.
(4) Includes shares held by J. Terrence Drayton, Terran Ventures, Inc. and
Investment King.
(5) Includes shares held by Mary Alice Taylor, Mary Alice Taylor 1999 5-Year
GRAT, Taylor Family 1999 Trust, Emery DeWitt Wooten 1999 5-Year GRAT and
GMME Partnership, L.P. Ms. Taylor, chief executive officer and chairman of
the board of directors of HomeGrocer.com, disclaims beneficial ownership of
the shares held by the Taylor Family 1999 Trust.
(6) Includes shares held by The Barksdale Group, L.L.C., Pickwick Group, L.P.
and Barksdale Investments, L.L.C. Mr. Barksdale disclaims beneficial
ownership of the shares held by these entities except to the extent of his
pecuniary interest therein.
(7) Includes shares held by C&LB Family Limited Partnership, Charles K. Barbo,
Charles K. and Linda K. Barbo, Anne Barbo, Julie Anne Barbo Trust dated
12/10/91 and Sarah Barbo Staiger. Charles K. Barbo, a director of
HomeGrocer, disclaims beneficial ownership of the shares held by Anne
Barbo, the Julie Anne Barbo Trust dated 12/10/91 and Sarah Barbo Staiger.
(8) Includes 862,068 shares held by Madrona Holdings I, L.L.C. for the benefit
of Madrona Venture Fund I-A, L.P., Madrona Venture Fund I-B, L.P. and
Madrona Managing Director Fund, L.L.C. Mr. Alberg, a director of
HomeGrocer.com and a principal of Madrona Investment Group, LLC and the
Madrona funds, disclaims beneficial ownership of the shares held by the
Madrona funds except to the extent of his pecuniary interest therein.
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<PAGE> 145
(9) Includes shares held by Lazarus Family Investments LLC, Lazarus Family
Investments III, LLC and Lazarus Family Investments II, LLC. Jonathan
Lazarus, a director of HomeGrocer.com, is a principal in each of these
funds.
(10) Includes all shares described above and an additional 2,024,000 shares held
by other executive officers.
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HOMEGROCER TRANSACTIONS WITH RELATED PARTIES
In September 1999, HomeGrocer entered into an agreement with Mary Alice
Taylor pursuant to which she purchased an aggregate of 6,000,000 shares of
common stock for an aggregate purchase price of $2,700,000. As part of such
agreement, Ms. Taylor granted HomeGrocer a right of repurchase with respect to
4,500,000 of those shares which repurchase right generally lapses over a period
of four years.
In September 1999, HomeGrocer made loans to Ms. Taylor, in connection with
her exercises of stock options and purchase of common stock described above. Ms.
Taylor borrowed a total of $2,241,000 pursuant to a full recourse promissory
note, with an annual interest rate of 5.98%. All principal and accrued interest
under the loans remain outstanding and are due and payable on September 9, 2004.
As of July 1, 2000, the outstanding balance of Ms. Taylor's loan was
approximately $2,351,000.
Pursuant to the terms of Ms. Taylor's employment agreement with HomeGrocer,
if the merger with Webvan is consummated as planned, HomeGrocer's repurchase
right will lapse with respect to 3,000,000 of her shares. Pursuant to an action
of the compensation committee of HomeGrocer's board of directors, if the merger
with Webvan is consummated, HomeGrocer's repurchase right will lapse as to an
additional 375,000 shares. In addition, if the merger with Webvan is consummated
and Ms. Taylor's employment is terminated within 12 months of the merger, she
will be entitled to receive severance payments equal to 12 months total cash
compensation, including base salary and bonus.
You can read more about HomeGrocer transactions with related parties in the
section entitled "Interests of HomeGrocer directors, officers and significant
stockholders in the Merger" on page [ ].
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DESCRIPTION OF WEBVAN CAPITAL STOCK
GENERAL
Webvan's Restated Certificate of Incorporation authorizes the issuance of
up to 800,000,000 shares of common stock, par value $0.0001 per share, and
10,000,000 shares of preferred stock, par value $0.0001 per share, the rights
and preferences of which may be established by the Webvan Board of Directors. As
of July , 2000, shares of common stock were issued and
outstanding and held by approximately stockholders and no shares
of preferred stock were outstanding.
COMMON STOCK
The holders of Webvan common stock are entitled to one vote for each share
held of record upon such matters and in such manner as may be provided by law.
Subject to preferences applicable to any outstanding shares of preferred stock,
the holders of common stock are entitled to receive ratably dividends, if any,
as may be declared by the Board of Directors out of funds legally available for
dividend payments. In the event Webvan liquidates, dissolves or winds up, the
holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities and liquidation preferences of any outstanding
shares of the preferred stock. Holders of common stock have no preemptive rights
or rights to convert their common stock into any other securities. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable.
PREFERRED STOCK
The Webvan Board of Directors is authorized, absent any limitations
prescribed by law, without stockholder approval, to issue up to an aggregate of
10,000,000 shares of preferred stock, in one or more series, each of the series
to have rights and preferences, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be determined by the Board of Directors. The rights of the holders of common
stock will be subject to, and may be adversely affected by, the rights of
holders of any preferred stock that may be issued in the future. Issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, a majority of Webvan's outstanding
voting stock. Webvan has no present plans to issue any shares of preferred
stock.
REGISTRATION RIGHTS
Set forth below is a summary of the registration rights of certain holders
of Webvan's common stock. In addition, in connection with the merger, Amazon.com
will be granted registration rights for the shares of Webvan common stock it
receives in the merger. See "Agreement Related to the Merger -- Amazon.com
Registration Rights Agreement."
Demand Registrations. The holders of registration rights may request Webvan
to register shares of common stock having a gross offering price of at least $25
million subject to Webvan's right, upon advice of its underwriters, to reduce
the number of shares proposed to be registered. Webvan will be obligated to
effect only three registrations pursuant to such a request by holders of
registration rights. If shares requested to be included in a registration must
be excluded due to limitations on the number of shares to be registered on
behalf of the selling stockholders pursuant to the underwriters' advice, the
shares registered on behalf of the selling stockholders will be allocated among
all holders of shares with rights to be included in the registration on the
basis of the number of shares with such rights held by such stockholders.
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<PAGE> 148
Piggyback Registration Rights. The holders who have registration rights
have unlimited rights to request that shares be included in any
company-initiated registration of common stock other than registrations of
employee benefit plans or business combinations subject to Rule 145 under the
Securities Act. In registrations following Webvan's initial registration, the
underwriters may, for marketing reasons, limit the shares requested to be
registered on behalf of all stockholders having the right to request inclusion
in such registration to not less than 30%. In addition, Webvan has the right to
terminate any registration initiated by Webvan prior to its effectiveness
regardless of any request for inclusion by any stockholders.
Form S-3 Registrations. After Webvan has qualified for registration on Form
S-3, which will not be available until at least November 5, 2000, holders of
registration rights may request in writing that Webvan effect an unlimited
number of registrations of such shares on Form S-3 provided that the gross
offering price of the shares to be so registered in each such registration
exceeds $1,000,000. If such registration is to be an underwritten public
offering, the underwriters may reduce for marketing reasons the number of shares
to be registered on behalf of all stockholders having the right to request
inclusion in such registration. Webvan is not obligated to effect a registration
on Form S-3 prior to expiration of 180 days following effectiveness of the most
recent registration requested by the holders.
Future Grants of Registration Rights. Webvan cannot grant further
registration rights without the prior written consent of current stockholders
owning at least a majority of the then outstanding registrable securities,
including grants to any holder or prospective holder of any registration rights
which would:
- be on equal or more favorable terms than the existing registration
rights;
- cause a reduction in the amount of registrable securities held by current
holders that would be registrable in a registration statement; or
- require Webvan to effect a registration earlier than the date current
holders can first require a registration.
Transferability. The registration rights are transferable upon notice by
the holder to Webvan of the transfer, provided that the transferee or assignee
is not deemed by the Board of Directors to be a competitor of Webvan and assumes
the rights and obligations of the transferor for such shares.
Termination. The registration rights will terminate on the first to occur
of five years after the date of Webvan's initial public offering or the date on
which the holder may sell the shares pursuant to Rule 144, provided that the
aggregate of the shares held by the holder represent less than 1% of our then
outstanding equity securities.
WARRANTS
At June 30, 2000, Webvan had outstanding warrants to purchase an aggregate
of 2,844,480 shares of common stock. The weighted average exercise price of the
warrants is $1.73 per share. Any warrant may be exercised by applying the value
of a portion of the warrant, which is equal to the number of shares issuable
under the warrant being exercised multiplied by the fair market value of the
security receivable upon exercise of the warrant, less the per share exercise
price, in lieu of payment of the exercise price per share. Warrants to purchase
an aggregate of 1,182,480 shares expire in November 2005. Warrants to purchase
1,650,000 shares issued to Bechtel expire in July 2004.
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<PAGE> 149
In connection with Webvan's agreement with Bechtel Corporation, Webvan
issued to Bechtel a warrant to purchase up to 1,800,000 shares at an exercise
price of $2.32 per share. The warrant became exercisable as to 150,000 shares as
of July 31, 1999. Bechtel exercised the warrant as to 150,000 shares in
September 1999. The warrant generally becomes exercisable as to the remaining
shares as distribution centers are completed by Bechtel within agreed upon
schedule and budgetary parameters.
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<PAGE> 150
COMPARISON OF STOCKHOLDER RIGHTS AND CORPORATE GOVERNANCE MATTERS
The rights of Webvan stockholders are currently governed by the Delaware
General Corporation Law (the "DGCL"), Webvan's certificate of incorporation and
Webvan's by-laws. The rights of HomeGrocer stockholders are currently governed
by the Washington Business Corporation Act (the "WBCA"), HomeGrocer's articles
of incorporation and HomeGrocer's by-laws. Upon completion of the merger, the
rights of HomeGrocer stockholders who become stockholders of Webvan in the
merger will be governed by the DGCL, Webvan's certificate of incorporation and
Webvan's by-laws. While the rights and privileges of stockholders of a Delaware
corporation are, in many instances comparable to those of a stockholder of a
Washington corporation, there are certain differences.
The following description summarizes the significant differences that may
affect the rights of stockholders of Webvan and stockholders of HomeGrocer but
is not a complete statement of all those differences, or a complete description
of the specific provisions referred to in this summary. The identification of
specific differences is not intended to indicate that other equally or more
significant differences do not exist. Stockholders should read carefully the
relevant provisions of the DGCL, Webvan's certificate of incorporation, Webvan's
by-laws, the WBCA, HomeGrocer's articles of incorporation and HomeGrocer's
by-laws.
CAPITALIZATION
Webvan. Webvan's authorized capital stock is described under "Description
of Webvan Capital Stock."
HomeGrocer. The total authorized shares of capital stock of HomeGrocer
consist of 1,010,000,000 shares of common stock, no par value per share, and
10,000,000 shares of preferred stock, no par value per share. At the close of
business on June 30, 2000, there were approximately 128.0 million shares of
HomeGrocer common stock outstanding and no shares of HomeGrocer preferred stock
outstanding.
The HomeGrocer board of directors is authorized to issue preferred stock
from time to time in any series, and to fix and alter the designations,
preferences and relative, participating, optional or other special rights of
wholly unissued series of preferred shares.
VOTING RIGHTS
Webvan. The DGCL allows for more or less than one vote per share and
permits cumulative voting if each is provided for in the certificate of
incorporation. Each holder of Webvan common stock is entitled to one vote for
each share held of record and may not cumulate votes for the election of
directors.
HomeGrocer. The WBCA allows for more or less than one vote per share if
provided in the articles of incorporation. The WBCA also provides for cumulative
voting for directors unless otherwise provided in the articles of incorporation.
Each holder of HomeGrocer common stock is entitled to one vote for each share
held of record, and HomeGrocer's articles of incorporation do not permit
cumulative voting for the election of directors.
NUMBER, ELECTION, VACANCY AND REMOVAL OF DIRECTORS
Webvan. Webvan's board of directors has six members. The DGCL provides that
the board of directors of a Delaware corporation will consist of one or more
directors as fixed by the corporation's certificate of incorporation or by-laws.
Webvan's certificate of incorporation provides that the number of directors may
be changed from time to time as provided in the by-laws. As permitted under the
DGCL, Webvan's certificate of incorporation also provides that the Webvan board
of directors
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<PAGE> 151
consists of three classes of directors. The directors in each class serve on the
Webvan board of directors for approximately three years each.
Webvan's by-laws provide that the number of directors shall be fixed by
resolution or by an amendment to the by-laws duly adopted by the board of
directors or the stockholders and that a decrease in the number of directors may
not shorten the term of an incumbent director. Under Webvan's certificate of
incorporation and by-laws, vacancies on the board of directors and newly created
directorships resulting from any increase in the authorized number of directors
may be filled only by the directors or, if the directors in office are fewer
than a quorum, by the affirmative vote of a majority of the remaining directors,
and a director elected to fill a vacancy serves for the remainder of the full
term of the class of directors in which the vacancy occurred.
The DGCL provides that a director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
However, in the case of a corporation whose board is classified, the
directors may be removed only for cause unless the certificate of incorporation
provides otherwise. Webvan's certificate of incorporation and by-laws provide
that directors may be removed only for cause and only by the holders of a
majority of the outstanding shares entitled to vote an election of directors.
HomeGrocer. HomeGrocer's board of directors has ten members. The WBCA
provides that the board of directors of a Washington corporation shall consist
of one or more directors as fixed by the corporation's articles of incorporation
or by-laws. HomeGrocer's articles of incorporation provide that the number of
directors may be changed from time to time as provided in the by-laws. Its
by-laws provide that the number of directors shall be fixed by resolution and
that a decrease in the number of directors may not shorten the term of an
incumbent director. As permitted under the WBCA, HomeGrocer's articles of
incorporation provide for its board of directors to consist of three classes.
After their initial terms, the directors in each class serve for a term of three
years each.
Under HomeGrocer's by-laws, vacancies on the HomeGrocer board of directors
and newly created directorships resulting from any increase in the authorized
number of directors may be filled by stockholders, the directors or, if the
directors in office are fewer than a quorum, by the affirmative vote of a
majority of the remaining directors. Under HomeGrocer's by-laws a director
elected to fill a vacancy serves only until the next election of directors by
the stockholders.
The WBCA provides that a corporation's stockholders at a special meeting
called expressly for that purpose may remove one or more directors with or
without cause unless the articles of incorporation provide that directors may be
removed only for cause. HomeGrocer's by-laws provide that any director or the
entire HomeGrocer board of directors may be removed at any time, with or without
cause, by the holders of the shares of capital stock entitled to elect the
director or directors whose removal is sought if a majority of the votes cast
are for the removal of that director or those directors.
AMENDMENTS TO ARTICLES OF INCORPORATION
Webvan. Under the DGCL, amendments to a corporation's certificate of
incorporation require the approval of the board of directors and stockholders
holding a majority of the outstanding stock of that class entitled to vote on
that amendment as a class, unless a different proportion is specified in the
certificate of incorporation or by other provisions of the DGCL. Webvan's
certificate of incorporation provides that the corporation may amend its
certificate of incorporation in any manner permitted by applicable law.
HomeGrocer. The WBCA authorizes a corporation's board of directors to make
various changes of an administrative nature to the corporation's articles of
incorporation without stockholder action.
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These changes include a change to the corporate name, and, if the corporation
has only one class of shares outstanding, changes to the number of authorized
shares solely to effectuate a stock split or stock dividend in the corporation's
shares and changes to or elimination of provisions with respect to the par value
of the corporation's stock. The WBCA requires that other amendments to a
corporation's articles of incorporation must be recommended to the stockholders
by the board of directors, unless the board determines that, because of a
conflict of interest or other special circumstances, it should make no
recommendation and communicates the basis for its determination to the
stockholders. Under the WBCA, these other amendments must be approved by each
voting group entitled to vote thereon by a majority of all the votes entitled to
be cast by that voting group, unless another proportion is specified in the
articles of incorporation, by the board of directors as a condition to its
recommendation, or by the provisions of the WBCA. HomeGrocer's articles of
incorporation permit the right to amend or repeal the provisions of the articles
of incorporation in any manner permitted by law.
AMENDMENTS TO BY-LAWS
Webvan. Under the DGCL, by-laws of a corporation may be amended or repealed
by stockholders, and, if provided for in the corporation's certificate of
incorporation, by the directors. Webvan's certificate of incorporation and
by-laws provide that the by-laws may be amended or repealed by a majority of the
board of directors then in office or by the affirmative vote of the holders of a
majority of the outstanding shares entitled to vote an election of directors.
HomeGrocer. Under the WBCA, stockholders may amend or repeal the by-laws of
a corporation. The board of directors also may amend or repeal the by-laws of a
corporation under the WBCA except to the extent the articles of incorporation
reserve that power to the stockholders or the stockholders in amending or
repealing a by-law expressly provide that directors may not amend or repeal that
by-law. HomeGrocer's articles of incorporation and by-laws give the HomeGrocer
board of directors the power to adopt, amend or repeal HomeGrocer's by-laws,
subject to the power of stockholders of HomeGrocer to amend or repeal
HomeGrocer's by-laws. The board may not amend or repeal any by-law that the
HomeGrocer stockholders have provided may not be amended or repealed by the
board. HomeGrocer's articles of incorporation provide that its stockholders may
adopt, amend or repeal the by-laws by a vote of the holders of not less than
two-thirds of the outstanding shares.
STOCKHOLDER ACTION
Webvan. The DGCL authorizes stockholder action without a meeting unless
otherwise provided in a corporation's certificate of incorporation. Webvan's
certificate of incorporation provides that stockholders may not take action by
written consent in lieu of a meeting but must take action at a duly called
annual or special meeting.
HomeGrocer. Under the WBCA, stockholder action for a public company may be
taken without a meeting only if written consents setting forth that action are
signed by all holders of outstanding shares entitled to vote thereon.
HomeGrocer's articles of incorporation provide that all stockholder action must
be taken at a meeting of stockholders and may not be taken by written consent.
Nominations of persons for election to the board and the proposal of business to
be considered by the stockholders may be made by a stockholder only if such
stockholder gives notice to HomeGrocer's corporate secretary not later than 60
days prior to the first anniversary of the date on which notice of the prior
year's annual meeting was mailed to stockholders. Such stockholder must also be
a record holder on the date of such notice and be entitled to vote at the
meeting.
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NOTICE OF SPECIFIC ACTIONS BY HOLDERS OF SHARES
Webvan. Webvan's by-laws provide that for business to be properly brought
before a meeting of stockholders, Webvan must deliver notice, not fewer than 10
nor more than 60 days in advance of the date of that meeting.
HomeGrocer. HomeGrocer's by-laws provide that for business to be properly
brought before a meeting of stockholders, HomeGrocer must deliver notice, not
fewer than 10 nor more than 60 days in advance of the date of that meeting.
However, if the meeting is called to act on an amendment to HomeGrocer's
articles of incorporation, a plan of merger or share exchange, the disposition
of all or substantially all of HomeGrocer's assets or the dissolution of
HomeGrocer, not less than 20 days nor more than 60 days notice of the meeting
must be given.
SPECIAL STOCKHOLDER MEETINGS
Webvan. Under the DGCL, a special meeting of stockholders may be called by
the board of directors or by any other person authorized to do so in the
certificate of incorporation or the by-laws. The DGCL requires notice of
stockholders' meetings to be sent to all stockholders of record entitled to vote
thereon not less than 10 nor more than 60 days before the date of the meeting.
Webvan's certificate of incorporation and by-laws provide that special meetings
of the stockholders may be called by a majority of the members of its board of
directors, its president, its Chief Executive Officer or the Chairman of its
board of directors.
HomeGrocer. Under the WBCA, a special meeting of stockholders may be called
by a corporation's board of directors or other persons authorized by the
corporation's articles of incorporation or by-laws, or, unless limited by the
articles of incorporation, on written demand by holders of at least 10% of all
votes entitled to be cast on any issue proposed to be considered at the proposed
special meeting. HomeGrocer's articles of incorporation and by-laws provide that
special meetings of the stockholders may be called by a majority of the members
of its board of directors, its president, its Chief Executive Officer or the
Chairman of its board of directors.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS AND INDEMNIFICATION
Webvan. The DGCL provides that a corporation's certificate of incorporation
may include a provision limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. However, no provision can eliminate or limit the liability
of a director for:
- any breach of the director's duty of loyalty to the corporation or its
stockholders,
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law,
- violation of Section 174 of the DGCL regarding unlawful payment of
dividends or unlawful stock purchases or redemptions,
- any transaction from which the director derived an improper personal
benefit, or
- any act or omission before the adoption of a provision eliminating or
limiting the liability of a director for breach of fiduciary duty in the
certificate of incorporation.
Webvan's certificate of incorporation and by-laws limit or eliminate the
liability of directors to the fullest extent permitted by the DGCL.
The DGCL permits a corporation to indemnify any director, officer, employee
or agent of the corporation for expenses, monetary damages, fines and settlement
amounts to the extent the person acted in good faith and in a manner he or she
believed to be in the best interests of the corporation
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and, with respect to any criminal action, had no reasonable cause to believe the
conduct was unlawful. The DGCL does not permit indemnification if the person is
held liable to the corporation except to the extent that an appropriate court
concludes, upon application by the person, that despite the adjudication of
liability but in view of all the circumstances, the person is fairly and
reasonably entitled to indemnification for those expenses that the court deems
proper.
Webvan's certificate of incorporation and by-laws provide that the
corporation shall indemnify its directors and executive officers and may
indemnify other officers and employees and its agents to the fullest extent
permitted by law.
HomeGrocer. The WBCA provides that a corporation's articles of
incorporation may include provisions that eliminate or limit the personal
liability of a director to the corporation or its stockholders for monetary
damages for conduct as a director. However, the provisions may not eliminate or
limit the liability of a director for acts or omissions that involve intentional
misconduct by the director or a knowing violation of law by the director,
unlawful distributions, or any transaction from which the director will
personally receive a benefit in money, property or services to which the
director is not legally entitled.
HomeGrocer's articles of incorporation authorize HomeGrocer to limit or
eliminate the liability of directors to the fullest extent permitted by the
WBCA.
In addition, under the WBCA, if authorized by the articles of incorporation
or a by-law adopted or ratified by the stockholders or by a resolution adopted
or ratified by the stockholders, a corporation has the power to indemnify a
director or officer made a party to a proceeding, or advance or reimburse
expenses incurred in a proceeding, under any circumstances, except that no
indemnification is allowed on account of:
- acts or omissions of a director or officer finally adjudged to be an
intentional misconduct or a knowing violation of the law,
- conduct of a director or officer finally adjudged to be an unlawful
distribution, or
- any transaction with respect to which it was finally adjudged that the
director or officer personally received a benefit in money, property or
services to which the director or officer was not legally entitled.
Unless limited by a corporation's articles of incorporation, Washington law
requires indemnification if the director or officer is wholly successful on the
merits of the action or otherwise. Any indemnification of a director must be
reported to the stockholders in writing with or before notice of the next
stockholders' meeting.
HomeGrocer's by-laws provide a right to indemnification to directors and
officers of HomeGrocer subject to the limitations under Washington law described
in the previous paragraph. HomeGrocer's articles of incorporation do not limit
indemnification if the director or officer is wholly successful on the merits of
the action or otherwise. HomeGrocer's by-laws provide for the advancement of
expenses incurred in defending any proceeding in advance of its final
disposition.
DIVIDENDS
Webvan. As a Delaware corporation, Webvan may declare and pay dividends out
of its surplus or, if it has no surplus, out of any net profits for the fiscal
year in which the dividend was declared or for the preceding fiscal year in
which the dividend was declared, provided that the payment will not reduce
capital below the amount of capital represented by all classes of shares having
a preference upon the distribution of assets.
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HomeGrocer. Under the WBCA, a corporation may make a distribution in cash
or in property to its stockholders upon the authorization of its board of
directors and subject to its articles of incorporation unless, after giving
effect to that distribution, the corporation would be unable to pay its debts as
they become due in the usual course of business or the corporation's total
assets would be less than the sum of its total liabilities plus the amount that
would be needed, if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights of stockholders whose
preferential rights are superior to those receiving the distribution.
HomeGrocer's by-laws provide that the HomeGrocer board of directors may declare
dividends on its outstanding shares pursuant to the WBCA.
PROVISIONS RELATING TO ACQUISITIONS AND BUSINESS COMBINATIONS
Webvan. Section 203 of the DGCL prohibits a Delaware corporation from
engaging in any "business combination" with any person who owns 15% or more of a
corporation's voting stock, such as an interested stockholder, for a period of
three years following the time that person became an interested stockholder,
unless:
- the corporation's board of directors has approved, before the time on
which that person became an interested stockholder, either the business
combination or the transaction that resulted in the person becoming an
interested stockholder;
- upon consummation of the transaction that resulted in that person
becoming an interested stockholder, that person owned at least 85% of the
corporation's voting stock outstanding at that time, excluding shares
owned by persons who are both directors and officers and shares owned by
employee stock plans in which participants do not have the right to
determine confidentially whether shares will be tendered in a tender or
exchange offer; or
- at or after the time on which that person became an interested
stockholder, the business combination is approved by the board of
directors and authorized by the affirmative vote, at an annual or special
meeting and not by written consent, of at least 66 2/3% of the
outstanding voting stock not owned by the interested stockholder.
For purposes of determining whether a person is the "owner" of 15% or more
of a corporation's voting stock for purposes of Section 203 of the DGCL,
ownership is defined broadly to include the right, directly or indirectly, to
acquire the stock or to control the voting or disposition of the stock.
A "business combination" is also defined broadly to include:
- mergers and sales or other dispositions of 10% or more of the assets of a
corporation with or to an interested stockholder,
- specific transactions resulting in the issuance or transfer to the
interested stockholder of any stock of the corporation or its
subsidiaries,
- specific transactions that would result in an increase in the
proportionate share of a corporation's or its subsidiaries' stock owned
by the interested stockholder, and
- any receipt by the interested stockholder of the benefit, directly or
indirectly, except proportionately as a stockholder, of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation or any of its subsidiaries.
A Delaware corporation may elect not to be governed by Section 203 by a
provision contained in its original certificate of incorporation, its by-laws,
or an amendment to the original certificate of incorporation, which amendment
must be approved by a majority of the shares entitled to vote and may not be
further amended by the board of directors. This type of amendment is effective
immediately in the case of a corporation that has not elected in its original
certificate of incorporation
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or amendment thereto to be governed by Section 203 and has never had voting
stock listed on a national securities exchange, authorized for quotation on the
Nasdaq Stock Market or held of record by more than 2,000 stockholders. Otherwise
this amendment is not effective until 12 months following its adoption. Webvan
has not made such an election and is subject to Section 203 of the DGCL.
HomeGrocer. Chapter 23B.19 of the WBCA, which applies to Washington
corporations that have a class of voting stock registered with the SEC under the
Exchange Act, prohibits a "target corporation," with certain exceptions, from
engaging in certain "significant business transactions" with an acquiror that
beneficially owns 10% or more of the voting securities of the target corporation
for a period of five years after the acquisition, unless the transaction or
acquisition of shares is approved by a majority of the members of the target
corporation's board of directors before the time of acquisition. These
prohibited transactions include, among other things, a merger, share exchange or
consolidation with, disposition of assets to, or issuance or redemption of stock
to or from, the acquiror, termination of 5% or more of the employees of the
target corporation employed in Washington as a result of the acquiror's
acquisition of 10% or more of the shares, or allowing the acquiror to receive
any disproportionate benefit as a stockholder. After the five-year period, a
"significant business transaction" may take place if it complies with certain
"fair price" provisions of the statute. A corporation may not "opt out" of this
statute, and HomeGrocer is subject to it. The merger with Webvan will not be
subject to this statute because the HomeGrocer board has approved the merger
agreement.
MERGERS, ACQUISITIONS AND OTHER TRANSACTIONS
Webvan. Under the DGCL, a merger, consolidation or sale of all or
substantially all of a corporation's assets must be approved by the board of
directors and by a majority of the outstanding stock of the corporation entitled
to vote on the matter, except that no vote of stockholders of a constituent
corporation surviving a merger is required unless the corporation provides
otherwise in its certificate of incorporation if:
- the merger agreement does not amend the certificate of incorporation of
the surviving corporation,
- each share of stock of the surviving corporation outstanding before the
merger is an identical outstanding or treasury share after the merger,
and
- either no shares of common stock of the surviving corporation are to be
issued or delivered by way of the merger or, if common stock will be
issued or delivered, it will not increase the number of shares of common
stock outstanding immediately before the merger by more than 20%.
HomeGrocer. Under the WBCA, unless a company's articles of incorporation
state otherwise, a merger, consolidation or sale of substantially all of a
corporation's assets other than in the regular course of business must be
approved by the affirmative vote of a majority of directors and by two-thirds of
all votes entitled to be cast by each voting group entitled to vote as a
separate group, unless another percentage, but not less than a majority of all
votes entitled to be cast, is specified in the articles of incorporation.
HomeGrocer's articles of incorporation are consistent with the WBCA, providing
that the affirmative vote of the holders of two-thirds of the outstanding shares
entitled to vote is required to approve a business combination.
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DISSENTERS' APPRAISAL RIGHTS
Webvan. Under the DGCL, dissenters' rights of appraisal are available to a
stockholder of a corporation only in connection with some mergers or
consolidations involving that corporation. Appraisal rights are not available
under the DGCL if the corporation's stock is either:
- listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc., as the Webvan common shares are,
or
- held of record by more than 2,000 stockholders;
except that appraisal rights will be available if the merger or
consolidation requires stockholders to exchange their stock for anything other
than:
- shares of the surviving corporation,
- shares of another corporation that will be listed on a national
securities exchange, designated as a national market system security on
an interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 stockholders, or
- cash in place of fractional shares.
Additionally, no appraisal rights are available if the corporation is the
surviving corporation, and no vote of its stockholders is required for the
merger. Appraisal rights are not available to Webvan stockholders in connection
with the proposed merger with HomeGrocer.
HomeGrocer. Under the WBCA, a stockholder of a Washington corporation may
exercise dissenters' rights and, upon perfection of his appraisal right, obtain
fair value for his shares in the event of certain corporate actions. These
actions include:
- a plan of merger providing for a stockholder vote,
- a plan of exchange involving the acquisition of the corporation's shares
providing for a stockholder vote,
- a sale or exchange of all, or substantially all, the property of the
corporation other than in the usual and regular course of business, if a
stockholder is entitled to vote on the sale or exchange,
- a reverse stock split that results in the stockholder owning a fractional
share if that fractional share is to be acquired for cash, and
- any corporate action taken by stockholder vote for which the articles of
incorporation, by-laws or resolution of the board of directors provide
for dissenters' rights.
Accordingly, HomeGrocer stockholders have the right to dissent from the
merger with Webvan and receive payment of the fair value of their shares of
HomeGrocer common stock.
PREEMPTIVE RIGHTS
Webvan. Under Delaware law stockholders do not have a statutory preemptive
right to acquire proportional amounts of a corporation's unissued shares upon a
decision by the board of directors to issue them nor does Webvan's certificate
of incorporation provide for its stockholders to have any preemptive rights with
respect to any shares of Webvan capital stock.
HomeGrocer. Unless a corporation's articles of incorporation provide
otherwise, under the WBCA, stockholders have a preemptive right to purchase a
proportional amount of a corporation's unissued shares with respect to certain
issuances by the corporation. Unless otherwise provided by the
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corporation's articles of incorporation, the right may be waived and does not
apply to shares issued as compensation, as part of the corporation's initial
plan of financing or for consideration other than cash. HomeGrocer's articles of
incorporation provide that no preemptive rights shall exist with respect to
shares of its capital stock.
STOCKHOLDER RIGHTS PLAN
Webvan. Webvan does not have a stockholder rights plan.
HomeGrocer. HomeGrocer does not have a stockholder rights plan.
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RIGHTS OF DISSENTING HOMEGROCER STOCKHOLDERS
The following is a brief summary of the rights of holders of HomeGrocer
common stock to dissent from the merger and receive cash equal to the fair value
of their HomeGrocer common stock instead of receiving shares of Webvan common
stock. This summary is not exhaustive, and you should read the applicable
sections of chapter 23B.13 of the WBCA, which is attached to this proxy
statement/prospectus as Annex E.
If you are contemplating the possibility of dissenting from the merger, you
should carefully review the text of Annex E, particularly the procedural steps
required to perfect dissenters' rights, which are complex. You should also
consult your legal counsel. If you do not fully and precisely satisfy the
procedural requirements of the WBCA, you will lose your dissenters' rights.
To exercise dissenters' rights, you must:
- file with HomeGrocer before the vote is taken at the stockholders'
meeting written notice of your intent to demand the fair value for your
HomeGrocer common stock if the merger is consummated and becomes
effective; and
- not vote your shares of HomeGrocer common stock at the stockholders'
meeting in favor of the proposal to approve the merger agreement.
If you do not satisfy each of these requirements, you cannot exercise
dissenters' rights and will be bound by the terms of the merger agreement.
Submitting a proxy card that does not direct how the HomeGrocer common
stock represented by that proxy is to be voted will constitute a vote in favor
of the merger and a waiver of your statutory dissenters' rights. In addition,
voting against the proposal to approve the merger will not satisfy the notice
requirement referred to above. You must file the written notice of the intent to
exercise dissenters' rights with HomeGrocer at: HomeGrocer.com, 10230 N.E.
Points Drive, Kirkland, WA 98033, Attn: Kristin Stred, Senior Vice President,
General Counsel and Secretary.
APPRAISAL PROCEDURE
Within 10 days after the proposed merger has been approved, HomeGrocer will
send written notice to all stockholders who have given written notice under the
dissenters' rights provisions and have not voted in favor of the merger as
described above. The notice will contain:
- the address where the demand for payment and certificates representing
shares of HomeGrocer common stock must be sent and the date by which they
must be received;
- any restrictions on transfer of uncertificated shares that will apply
after the demand for payment is received;
- a form for demanding payment that states the date of the first
announcement to the news media or to stockholders of the proposed merger
and requires certification of the date the stockholder, or the beneficial
owner on whose behalf the stockholder dissents, acquired the HomeGrocer
common stock or an interest in it; and
- a copy of the dissenters' rights provisions of the WBCA, attached as
Annex E.
If you wish to assert dissenters' rights, you must demand payment and
deposit your HomeGrocer certificates within 30 days after the notice is given.
If you fail to make demand for payment and deposit your HomeGrocer certificates
within the 30 day period, you will lose the right to receive fair value for your
shares under the dissenters' rights provisions, even if you filed a timely
notice of intent to demand payment.
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Except as provided below, within 30 days of the later of the effective time
of the merger or HomeGrocer's receipt of a valid demand for payment, HomeGrocer
will remit to each dissenting stockholder who complied with the requirements of
the WBCA the amount HomeGrocer estimates to be the fair value of the
stockholder's HomeGrocer common stock, plus accrued interest. HomeGrocer will
include the following information with the payment:
- financial data relating to HomeGrocer;
- HomeGrocer's estimate of the fair value of the shares and a brief
description of the method used to reach that estimate;
- a copy of chapter 23B.13 of the WBCA;
- a brief description of the procedures to be followed in demanding
supplemental payment; and
- an explanation of how the interest was calculated.
For dissenting stockholders who were not the beneficial owner of the shares
of HomeGrocer common stock before June 25, 2000, HomeGrocer may withhold payment
and instead send a statement setting forth its estimate of the fair value of
their shares and offering to pay such amount, with interest, as a final
settlement of the dissenting stockholder's demand for payment.
If you are dissatisfied with your payment or offer, you may, within 30 days
of the payment or offer for payment, notify in writing of and demand payment of
your estimate of fair value of your shares and the amount of interest due. If
any dissenting stockholder's demand for payment is not settled within 60 days
after receipt by HomeGrocer of his or her payment demand, section 23B.13.300 of
the WBCA requires that HomeGrocer commence a proceeding in King County Superior
Court and petition the court to determine the fair value of the shares and
accrued interest, naming all the dissenting stockholders whose demands remain
unsettled as parties to the proceeding.
The court may appoint one or more appraisers to receive evidence and make
recommendations to the court as to the amount of the fair value of the shares.
The fair value of the shares as determined by the court is binding on all
dissenting stockholders and may be less than, equal to or greater than the
market price of the Webvan common stock to be issued to nondissenting
stockholders for their HomeGrocer common stock if the merger is consummated. If
the court determines that the fair value of the shares is in excess of any
amount remitted by HomeGrocer, then the court will enter a judgment for cash in
favor of the dissenting stockholders in an amount by which the value determined
by the court, plus interest, exceeds the amount previously remitted.
The court will determine the costs and expenses of the court proceeding and
assess them against HomeGrocer, except that the court may assess part or all of
the costs against any dissenting stockholders whose actions in demanding
supplemental payments are found by the court to be arbitrary, vexatious or not
in good faith. If the court finds that HomeGrocer did not substantially comply
with the relevant provisions of sections 23B.13.200 through 23B.13.280 of the
WBCA, the court may also assess against HomeGrocer any fees and expenses of
attorneys or experts that the court deems equitable. The court may also assess
those fees and expenses against any party if the court finds that the party has
acted arbitrarily, vexatiously or not in good faith in bringing the proceedings.
The court may award, in its discretion, fees and expenses of an attorney for the
dissenting stockholders out of the amount awarded to the stockholders, if it
finds the services of the attorney were of substantial benefit to the other
dissenting stockholders and that those fees should not be assessed against
HomeGrocer.
A stockholder of record may assert dissenters' rights as to fewer than all
of the shares registered in the stockholder's name only if he or she dissents
with respect to all shares beneficially owned by any one person and notifies
HomeGrocer in writing of the name and address of each person on whose behalf he
or she asserts dissenters' rights. The rights of the partial dissenting
stockholder are
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determined as if the shares as to which he or she dissents and his or her other
shares were registered in the names of different stockholders. Beneficial owners
of HomeGrocer common stock who desire to exercise dissenters' rights themselves
must obtain and submit the registered owner's written consent at or before the
time they file the notice of intent to demand fair value.
For purposes of the WBCA, "fair value" means the value of HomeGrocer common
stock immediately before the effective time of the merger, excluding any
appreciation or depreciation in anticipation of the merger, unless that
exclusion would be inequitable. Under section 23B.13.020 of the WBCA, a
HomeGrocer stockholder has no right, at law or in equity, to set aside the
approval and adoption of the merger or the consummation of the merger except if
the approval, adoption or consummation fails to comply with the procedural
requirements of chapter 23B.13 of the WBCA, Revised Code of Washington sections
25.10.900 through 25.10.955, HomeGrocer's articles of incorporation or
HomeGrocer's bylaws, or was fraudulent with respect to that stockholder or
HomeGrocer.
LEGAL MATTERS
The validity of the shares of Webvan common stock to be issued in
connection with the merger will be passed upon for Webvan by Wilson Sonsini
Goodrich & Rosati, P.C., Palo Alto, California. Davis Polk & Wardwell, Menlo
Park, California, represented HomeGrocer in connection with the merger and, in
partial consideration of such services, may receive HomeGrocer common shares
which will be converted at the exchange ratio into shares of Webvan common
stock.
EXPERTS
The consolidated financial statements of Webvan Group, Inc. and Subsidiary
as of December 31, 1999 and 1998, and for each of the two years in the period
ended December 31, 1999 and for the period from December 17, 1996 (Date of
Incorporation) to December 31, 1997, included in this prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, appearing herein (which report expresses an unqualified opinion and
includes and explanatory paragraph concerning restatement of the 1998 and 1997
consolidated financial statements), and has been so included in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The financial statements of HomeGrocer.com, Inc. at January 1, 1999 and
January 2, 2000 and for the period from January 15, 1997 (inception) to January
3, 1998 and the years ended January 2, 1999 and January 1, 2000 appearing in the
Webvan Group, Inc. Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
STOCKHOLDER PROPOSALS
Stockholders of Webvan may submit proper proposals for inclusion in
Webvan's proxy statement and for consideration at the next annual meeting of its
stockholders by submitting their proposals in writing to the Secretary of Webvan
in a timely manner. In order to be included in Webvan's proxy materials for the
annual meeting of stockholders to be held in the year 2001, stockholder
proposals must be received by the Secretary of Webvan no later than January 31,
2001, and must otherwise comply with the requirements of Rule 14a-8 of the
Securities Exchange Act of 1934, as amended.
In addition, Webvan's Bylaws establish an advance notice procedure with
regard to stockholder nominations for the election of directors or other
business to be properly brought before an annual meeting. For nominations or
other business to be properly brought before the meeting by a stockholder, such
stockholder must provide written notice delivered to the Secretary of Webvan at
least 90 days prior to the anniversary date of the immediately preceding annual
meeting, which notice
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must contain specified information concerning the business or the nominee.
Accordingly, a stockholder who intends to present a nomination or proposal at
the 2001 Annual Meeting of stockholders without inclusion of the proposal in
Webvan's proxy materials must provide written notice of the nominations or other
business they wish to propose to the Secretary no later than March 3, 2001. A
copy of the full text of the Bylaw provision discussed above may be obtained by
writing to the Secretary of Webvan. All notices of proposals by stockholders,
whether or not included in Webvan's proxy materials, should be sent to Webvan
Group, Inc., 310 Lakeside Drive, Foster City, California 94404, Attention:
Corporate Secretary.
Webvan reserves the right to reject, rule out of order, or take other
appropriate action with respect to any proposal that does not comply with these
and other applicable requirements.
The HomeGrocer by-laws require that for business to be properly brought
before a stockholders' meeting by a stockholder, the stockholder must have given
timely written notice thereof, specifying the name of the stockholder, the class
and number of shares owned by the stockholder, the time of such meeting and the
general nature of the business proposed to be transacted, the reasons for
conducting such business at the meeting and any material interest of the
stockholder in such business, and shall be delivered personally to or mailed and
received by the secretary of HomeGrocer. Such proposals must also have met the
other requirements of the rules of the Securities and Exchange Commission
relating to stockholder proposals and must have satisfied the notice procedures
for stockholder proposals set forth in the HomeGrocer by-laws. It is not
anticipated that HomeGrocer will hold an annual meeting in 2000.
WHERE YOU CAN FIND MORE INFORMATION
<TABLE>
<S> <C>
Reports, proxy statements and other Reports, proxy statements and other
information concerning Webvan may be information regarding HomeGrocer may
inspected at: be inspected at:
The National Association of The National Association of
Securities Dealers Securities Dealers
1735 K Street, N.W. 1735 K Street, N.W.
Washington, D.C. 20006 Washington, D.C. 20006
Requests for documents relating to Requests for documents relating to
Webvan should be directed to: HomeGrocer should be directed to:
Webvan Group, Inc. HomeGrocer.com, Inc.
Attention: Robert Okunski Attention: Rob Flores
310 Lakeside Drive 10230 NE Points Drive
Foster City, Kirkland, Washington 98033
California 94404 (425) 201-7606
(650) 627-3944
</TABLE>
Webvan and HomeGrocer each file reports, proxy statements and other
information with the SEC. Copies of their respective reports, proxy statements
and other information may be inspected and copied at the public reference
facilities maintained by the SEC:
<TABLE>
<S> <C> <C>
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
</TABLE>
156
<PAGE> 163
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. The SEC
maintains a website that contains reports, proxy statements and other
information regarding each of us. The address of the SEC website is
http://www.sec.gov.
Webvan has filed a registration statement under the Securities Act with the
SEC with respect to Webvan's common stock to be issued to HomeGrocer
stockholders in the merger. This joint proxy statement/prospectus constitutes
the prospectus of Webvan filed as part of the registration statement. This joint
proxy statement/prospectus does not contain all of the information set forth in
the registration statement because certain parts of the registration statement
are omitted as provided by the rules and regulations of the SEC. You may inspect
and copy the registration statement at any of the addresses listed above.
You should rely only on the information contained in this joint proxy
statement/prospectus to vote on the merger agreement and the merger. Webvan and
HomeGrocer have not authorized anyone to provide you with information that is
different from what is contained in this joint proxy statement/prospectus. This
joint proxy statement/prospectus is dated , 2000. You
should not assume that the information contained in this joint proxy
statement/prospectus is accurate as of any date other than , 2000,
and neither the mailing of the joint proxy statement/prospectus to Webvan and
HomeGrocer stockholders nor the issuance of Webvan common stock in the merger
shall create any implication to the contrary.
THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO PURCHASE, THE WEBVAN COMMON STOCK OR THE SOLICITATION OF A PROXY, IN
ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO
MAKE THE OFFER, SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN THAT
JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR
ANY DISTRIBUTION OF SECURITIES MEANS, UNDER ANY CIRCUMSTANCES, THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION SET FORTH IN THIS DOCUMENT OR IN ITS AFFAIRS
SINCE THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS. THE INFORMATION
CONTAINED IN THIS DOCUMENT WITH RESPECT TO HOMEGROCER AND ITS SUBSIDIARIES WAS
PROVIDED BY HOMEGROCER. THE INFORMATION CONTAINED IN THIS DOCUMENT WITH RESPECT
TO WEBVAN WAS PROVIDED BY WEBVAN.
157
<PAGE> 164
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WEBVAN GROUP, INC
Audited Consolidated Financial Statements:
Independent Auditors Report............................... F-2
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations and Comprehensive
Loss................................................... F-4
Consolidated Statements of Shareholders' Equity........... F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements................ F-7
Unaudited Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets..................... F-22
Condensed Consolidated Statements of Operations and
Comprehensive Loss..................................... F-23
Condensed Consolidated Statements of Cash Flows........... F-24
Notes to Unaudited Condensed Consolidated Financial
Statements............................................. F-25
HOMEGROCER.COM, INC
Audited Financial Statements:
Report of Independent Auditors............................ F-27
Balance Sheets............................................ F-28
Statements of Operations.................................. F-29
Statements of Shareholders' Equity........................ F-30
Statements of Cash Flows.................................. F-31
Notes to Financial Statements............................. F-32
Unaudited Condensed Financial Statements:
Condensed Balance Sheets.................................. F-48
Condensed Statements of Operations........................ F-49
Condensed Statements of Cash Flows........................ F-50
Notes to Unaudited Condensed Financial Statements......... F-51
</TABLE>
F-1
<PAGE> 165
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Webvan Group, Inc.:
Foster City, California
We have audited the accompanying consolidated balance sheets of Webvan
Group, Inc. (formerly Intelligent Systems for Retail, Inc.) and Subsidiary
(collectively "Webvan") as of December 31, 1999 and 1998, and the related
consolidated statements of operations and comprehensive loss, shareholders'
equity, and cash flows for each of the two years in the period ended December
31, 1999 and for the period from December 17, 1996 (date of incorporation) to
December 31, 1997. These financial statements are the responsibility of Webvan's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Webvan at December 31, 1999 and
1998, and the results of its operations and its cash flows for the periods
stated above, in conformity with generally accepted accounting principles.
As discussed in Note 15, the accompanying 1997 and 1998 consolidated
financial statements have been restated as to the basic and diluted net loss per
share and the weighted average shares outstanding -- basic and diluted.
/s/ Deloitte & Touche LLP
San Jose, California
January 26, 2000
F-2
<PAGE> 166
WEBVAN GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Equivalents...................................... $ 60,220 $ 13,839
Marketable Securities..................................... 578,561 7,728
Inventories............................................... 1,508 --
Related Party Receivable.................................. 320 --
Prepaid Expenses and Other Current Assets................. 3,678 114
--------- --------
Total Current Assets.............................. 644,287 21,681
Property, Equipment and Leasehold Improvements, Net......... 99,978 32,624
Deposits and Other Long-term Assets......................... 13,528 5,704
--------- --------
Total Assets...................................... $ 757,793 $ 60,009
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable.......................................... $ 18,333 $ 6,815
Accrued Liabilities....................................... 16,030 706
Current Portion of Long-term Obligations.................. 4,306 3,237
--------- --------
Total Current Liabilities......................... 38,669 10,758
Long-term Obligations....................................... 12,147 14,337
Redeemable Common Stock..................................... 1,725 1,302
Shareholders' Equity:
Series A preferred stock, no par value;
112,635 shares authorized; 112,635 shares outstanding
at December 31, 1998 and zero at December 31, 1999;
(liquidation preferences of $10,794 at December 31,
1998).................................................. -- 10,759
Series B preferred stock, no par value;
41,814 shares authorized; 39,101 shares issued and
outstanding at December 31, 1998 and zero at December
31, 1999; (liquidation preference of $35,713 at
December 31, 1998)..................................... -- 34,823
Common stock, $.0001 par value;
360,000 and 800,000 shares authorized; 78,590 and
321,583 issued and outstanding at December 31, 1998 and
December 31, 1999, respectively........................ 959,288 11,921
Additional Paid-in Capital................................ 5,280 1,686
Deferred Compensation..................................... (99,178) (10,737)
Accumulated Deficit....................................... (159,413) (14,844)
Accumulated Other Comprehensive Income (Loss)............. (725) 4
--------- --------
Total Shareholders' Equity........................ 705,252 33,612
--------- --------
Total............................................. $ 757,793 $ 60,009
========= ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 167
WEBVAN GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 17, 1996
YEAR ENDED DECEMBER 31, (DATE OF INCORPORATION)
----------------------- TO DECEMBER 31,
1999 1998 1997
---------- --------- -----------------------
<S> <C> <C> <C>
Net Sales................................... $ 13,305 $ -- $ --
Cost of Goods Sold.......................... 11,289 -- --
--------- -------- -------
Gross Profit................................ 2,016 -- --
--------- -------- -------
Sales and Marketing Expenses................ 11,746 -- --
Development and Engineering Expenses........ 15,237 3,010 244
General and Administrative Expenses......... 92,406 8,825 2,612
Amortization of Deferred Compensation....... 36,520 1,060 --
--------- -------- -------
Total Expenses.................... 155,909 12,895 2,856
--------- -------- -------
Loss from Operations........................ (153,893) (12,895) (2,856)
Interest Income............................. 11,480 923 85
Interest Expense............................ 2,156 32 69
--------- -------- -------
Net Interest Income......................... 9,324 891 16
--------- -------- -------
Net Loss.................................... (144,569) (12,004) (2,840)
Unrealized Gain (Loss) on Marketable
Securities................................ (729) 4 --
--------- -------- -------
Comprehensive Loss.......................... $(145,298) $(12,000) $(2,840)
========= ======== =======
Basic and Diluted Net Loss Per Share........ $ (1.43) $ (0.31) $ (0.33)
========= ======== =======
(Restated as to 1998 and 1997 -- See Note
15)
Weighted Average Shares Outstanding -- Basic
and Diluted............................... 101,044 39,344 8,575
========= ======== =======
(Restated as to 1998 and 1997 -- See Note
15)
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 168
WEBVAN GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE CONVERTIBLE CONVERTIBLE
SERIES A SERIES B SERIES C
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
----------------------- --------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ -------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Series A preferred, net of
$35 issuance costs, October 1997...... 112,582,992 $ 10,754 $ -- $ --
Issuance of restricted common stock,
April through September 1997..........
Common stock issued for services,
December 1997.........................
Net Loss...............................
------------ -------- ----------- ------- ----------- -------
Balances, December 31, 1997............ 112,582,992 10,754 -- -- -- --
Issuance of Series A preferred, January
1998.................................. 52,176 5
Issuance of Series B preferred, net of
$890 issuance costs, May through
September 1998 39,101,304 34,823
Series B preferred warrants granted for
debt, May 1998........................
Exercise of Options during 1998........
Options granted for services, September
and November 1998.....................
Deferred compensation..................
Amortization of deferred
compensation..........................
Accumulated other comprehensive income
Net Loss...............................
------------ -------- ----------- ------- ----------- -------
Balance at December 31, 1998........... 112,635,168 10,759 39,101,304 34,823 -- --
Issuance of Series B preferred, January
99.................................... 12,000 11
Issuance of Series C preferred, net of
issuance costs $(2,383)............... 32,341,200 72,776
Issuance of Series D preferred, net of
issuance costs ($100).................
Exercise of Warrants................... 150,000 349
Conversion of preferred stock into
common stock.......................... (112,635,168) (10,759) (39,113,304) (34,834) (32,491,200) (73,125)
Exercise of options during 1999........
Issuance of Common Stock...............
Shares issued for services rendered....
Public stock offering, net of
$28,603...............................
Executive Stock Issuance, September
1999..................................
Executive Stock Issuance, September
1999..................................
Deferred Compensation..................
Amortization of Deferred
Compensation..........................
Net Loss...............................
Accumulated Other Comprehensive loss...
Issuance of Shareholder Note...........
------------ -------- ----------- ------- ----------- -------
Balance at December 31, 1999........... -- $ -- -- $ -- -- $ --
============ ======== =========== ======= =========== =======
<CAPTION>
CONVERTIBLE
SERIES D
PREFERRED STOCK COMMON STOCK
---------------------- ---------------------- ADDITIONAL
SHARES AMOUNT SHARES AMOUNT PAID-IN-CAPITAL
----------- -------- ----------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Issuance of Series A preferred, net of
$35 issuance costs, October 1997...... $ -- $ -- $ --
Issuance of restricted common stock,
April through September 1997.......... 64,380,972 53
Common stock issued for services,
December 1997......................... 13,500 5
Net Loss...............................
----------- -------- ----------- -------- ------
Balances, December 31, 1997............ -- -- 64,394,472 58 --
Issuance of Series A preferred, January
1998..................................
Issuance of Series B preferred, net of
$890 issuance costs, May through
September 1998
Series B preferred warrants granted for
debt, May 1998........................ 1,679
Exercise of Options during 1998........ 14,195,250 66
Options granted for services, September
and November 1998..................... 7
Deferred compensation.................. 11,797
Amortization of deferred
compensation..........................
Accumulated other comprehensive income
Net Loss...............................
----------- -------- ----------- -------- ------
Balance at December 31, 1998........... -- -- 78,589,722 11,921 1,686
Issuance of Series B preferred, January
99....................................
Issuance of Series C preferred, net of
issuance costs $(2,383)...............
Issuance of Series D preferred, net of
issuance costs ($100)................. 21,670,605 274,900
Exercise of Warrants................... 379,000 3,563
Conversion of preferred stock into
common stock.......................... (21,670,605) (274,900) 205,910,277 393,618
Exercise of options during 1999........ 6,186,887 1,299
Issuance of Common Stock............... 450,000 2,246
Shares issued for services rendered.... 67,000 378 31
Public stock offering, net of
$28,603............................... 28,750,000 402,648
Executive Stock Issuance, September
1999.................................. 1,250,000 15,000
Executive Stock Issuance, September
1999.................................. 12,000
Deferred Compensation.................. 124,961
Amortization of Deferred
Compensation..........................
Net Loss...............................
Accumulated Other Comprehensive loss...
Issuance of Shareholder Note........... (4,783)
----------- -------- ----------- -------- ------
Balance at December 31, 1999........... -- $ -- 321,582,886 $959,288 $5,280
=========== ======== =========== ======== ======
<CAPTION>
NET UNREALIZED
GAIN (LOSS) ON TOTAL
DEFERRED ACCUMULATED MARKETABLE SHAREHOLDERS'
COMPENSATION DEFICIT SECURITIES EQUITY
------------ ----------- -------------- -------------
<S> <C> <C> <C> <C>
Issuance of Series A preferred, net of
$35 issuance costs, October 1997...... $ -- $ -- $ -- $ 10,754
Issuance of restricted common stock,
April through September 1997.......... 53
Common stock issued for services,
December 1997......................... 5
Net Loss............................... (2,840) (2,840)
--------- --------- ----- ---------
Balances, December 31, 1997............ -- (2,840) -- 7,972
Issuance of Series A preferred, January
1998.................................. 5
Issuance of Series B preferred, net of
$890 issuance costs, May through
September 1998 34,823
Series B preferred warrants granted for
debt, May 1998........................ 1,679
Exercise of Options during 1998........ 66
Options granted for services, September
and November 1998..................... 7
Deferred compensation.................. (11,797) --
Amortization of deferred
compensation.......................... 1,060 1,060
Accumulated other comprehensive income 4 4
Net Loss............................... (12,004) (12,004)
--------- --------- ----- ---------
Balance at December 31, 1998........... (10,737) (14,844) 4 33,612
Issuance of Series B preferred, January
99.................................... 11
Issuance of Series C preferred, net of
issuance costs $(2,383)............... 72,776
Issuance of Series D preferred, net of
issuance costs ($100)................. 274,900
Exercise of Warrants................... 3,912
Conversion of preferred stock into
common stock.......................... --
Exercise of options during 1999........ 1,299
Issuance of Common Stock............... 2,246
Shares issued for services rendered.... 409
Public stock offering, net of
$28,603............................... 402,648
Executive Stock Issuance, September
1999.................................. 15,000
Executive Stock Issuance, September
1999.................................. 12,000
Deferred Compensation.................. (124,961) --
Amortization of Deferred
Compensation.......................... 36,520 36,520
Net Loss............................... (144,569) (144,569)
Accumulated Other Comprehensive loss... (729) (729)
Issuance of Shareholder Note........... (4,783)
--------- --------- ----- ---------
Balance at December 31, 1999........... $ (99,178) $(159,413) $(725) $ 705,252
========= ========= ===== =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 169
WEBVAN GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 17,
1996 (DATE OF
YEAR ENDED YEAR ENDED INCORPORATION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss.................................................. $(144,569) $(12,004) $(2,840)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 7,712 263 57
Accretion on redeemable common stock.................... 423 1,242 --
Amortization of deferred compensation................... 36,520 1,060 --
Stock compensation and options issued for services...... 29,020 7 95
Undistributed income on short-term investments.......... -- -- (47)
Issuance of warrants.................................... 2,173 -- --
Changes in operating assets and liabilities:............ -- -- --
Inventories........................................... (1,508) -- --
Prepaid and other current assets...................... (3,684) (109) (5)
Accounts payable...................................... 8,105 6,643 172
Accrued liabilities................................... 6,499 588 118
Other long-term obligations........................... 511 90 17
--------- -------- -------
Net cash used in operating activities............... (58,798) (2,220) (2,433)
--------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, equipment and leasehold
improvements............................................ (64,253) (32,669) (265)
Purchases of marketable securities........................ (571,562) (2,681) (4,996)
Purchases of investments.................................. (482) (518) --
Deposits and other assets................................. (4,666) (1,330) (88)
Restricted cash........................................... (156) (1,768) --
--------- -------- -------
Net cash used in investing activities............... (641,119) (38,966) (5,349)
--------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sublessee security deposit................................ 26 -- --
Proceeds from shareholder loans........................... -- -- 2,038
Repayment of shareholder loans............................ -- -- (2,038)
Proceeds from long-term debt.............................. -- 17,168 --
Repayment of long-term debt............................... (3,221) (471) --
Proceeds from capital lease financing..................... 2,200 794 --
Repayment of capital lease obligations.................... (511) (32) --
Loan fees capitalized..................................... -- (323) --
Net proceeds from Series A preferred stock................ -- 5 10,664
Net proceeds from Series B preferred stock................ 11 34,823 --
Net proceeds from Series C preferred stock................ 73,125 -- --
Net proceeds from Series D preferred stock................ 274,900 -- --
Shareholder note receivable............................... (4,783) -- --
Proceeds from common stock issued......................... 1,903 78 53
Net proceeds from initial public offering................. 402,648 -- --
Proceeds from redeemable common stock issued.............. -- 48 --
--------- -------- -------
Net cash provided by financing activities........... 746,298 52,090 10,717
--------- -------- -------
Net Increase in Cash and Equivalents........................ 46,381 10,904 2,935
Cash and Equivalents, Beginning of Period................... 13,839 2,935 --
--------- -------- -------
Cash and Equivalents, End of Period......................... $ 60,220 $ 13,839 $ 2,935
========= ======== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................. $ 2,436 $ 32 $ 69
========= ======== =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 170
WEBVAN GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization -- Webvan Group, Inc., formerly Intelligent Systems for
Retail, Inc., and subsidiary (collectively,"Webvan" or the "Company") was
incorporated in California on December 17, 1996. On April 21, 1999, Intelligent
Systems for Retail, Inc. changed its name to Webvan Group, Inc. and
reincorporated in Delaware in October 1999. Webvan is an Internet retailer
offering home delivery of a variety of product offerings, including groceries,
non-prescription drug products and other general merchandise. Webvan began
selling and delivering products on a beta test basis in May 1999, and opened to
the public in June 1999. Prior to 1999, Webvan was a development stage company.
On March 26, 1998, Webvan formed a wholly-owned subsidiary Webvan -- Bay
Area, Inc. ("WBA"). WBA operates Webvan's San Francisco Bay Area distribution
center and cross docking stations that provide the internet-based retail service
and home delivery to this region.
Consolidation -- The accompanying consolidated financial statements include
the accounts of Webvan and its wholly-owned subsidiary, WBA. Intercompany
balances and transactions have been eliminated in the consolidated financial
statements.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash Equivalents -- Webvan considers all highly liquid instruments acquired
with an original maturity of three months or less when purchased to be cash
equivalents. The recorded carrying amounts of the Company's cash equivalents
approximate their fair market value due to their highly liquid nature.
Marketable Securities -- Webvan considers all investments with a maturity
of more than three months but less than one year when purchased and investments
to be sold within one year to be short-term and available for sale.
Concentration of Credit Risk -- Financial instruments that potentially
subject Webvan to concentrations of credit risk consist principally of cash,
cash equivalents and short-term investments to the extent these exceed federal
insurance limits. Risks associated with cash, cash equivalents and marketable
securities are mitigated by banking with and purchasing commercial paper, market
auction preferred stock, corporate notes, and corporate bonds from credit-worthy
institutions.
Supplier Concentration -- During 1999, Webvan purchased goods for resale
from numerous suppliers for its Bay Area operation. During 1999, two significant
suppliers of food products accounted for approximately 34% and 12% of Webvan's
purchases of goods for resale, respectively. Although products are available
from other sources, the vendors' inability to supply products in a timely manner
could adversely affect the Company's ability to satisfy customer demands.
Property, Equipment and Leasehold Improvements -- Property, equipment and
leasehold improvements are stated at cost less accumulated depreciation and
amortization. Depreciation on property and equipment is taken on assets placed
into service using the straight-line method over estimated useful lives of three
to seven years, and leasehold improvements are amortized, using the
straight-line method, over the shorter of the lease term or the estimated useful
lives of the improvements.
F-7
<PAGE> 171
WEBVAN GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of". The Company assesses the impairment of long-lived assets
whenever events and circumstances indicate that the carrying value of an asset
may not be recoverable. No such impairments have been identified to date.
Loan Fees -- Webvan capitalizes loan and capital lease origination fees,
including the fair value of warrants and amortizes them over the life of the
related obligations.
Income Taxes -- Income taxes are provided at current rates. Deferred income
taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and amounts
used for income tax purposes. Under the provisions of SFAS No. 109, "Accounting
for Income Taxes," a valuation allowance is provided when it is more likely than
not that some portion or all of the deferred tax assets recorded will not be
recognized.
Stock Options -- As permitted by SFAS No. 123, "Accounting for Stock-Based
Compensation," Webvan accounts for stock options to employees using the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees." As required by SFAS No. 123,
the pro forma impact on earnings and earnings per share resulting from the fair
value method is disclosed in Note 8.
Revenue Recognition -- The Company recognizes revenues from product sales
and delivery, net of returns and discounts, when the products are delivered to
customers.
Net Loss Per Share -- Basic net loss per share excludes dilution and is
computed by dividing net loss by the weighted average number of common shares
outstanding for the period (excluding shares subject to repurchase). Diluted net
loss per common share was the same as basic net loss per common share for all
periods presented since the effect of any potentially dilutive securities is
excluded as they are anti-dilutive because of Webvan's net losses.
Capitalized Software -- The Company capitalizes internally developed
software costs in accordance with the provisions of Statement of Position
("SOP") 98-1, "Accounting for Costs of Computer Software Developed or Obtained
for Internal Use." Capitalized costs are amortized on a straight line basis over
the useful life of the software once it is placed into service.
Start-Up Costs -- The company expenses the costs of start-up activities and
organization costs as they are incurred, in accordance with SOP 98-5, "Reporting
on the Cost of Start-up Activities."
Recently Issued Accounting Standards -- In June 1998, the FASB issued SFAS
No. 133 "Accounting for Derivative Instruments and Hedging Activities" which
defines derivatives, requires that all derivatives be carried at fair value, and
provides for hedging accounting when certain conditions are met. Webvan will
adopt this statement in its first fiscal quarter of its fiscal year ending
December 31, 2001. Management has not fully assessed the implications of
adopting this new standard.
2. INVESTMENTS
On November 24, 1998, an agreement was signed between an equipment
manufacturer and Webvan. As per the agreement, Webvan acquired 1,000 shares of
such equipment manufacturer for a total amount of $1,000,000 which represents a
less than 10% interest in the manufacturer.
F-8
<PAGE> 172
WEBVAN GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Investments are recorded at cost as fair market value is not readily
determinable, and are included in other long-term assets on the accompanying
balance sheets.
3. MARKETABLE SECURITIES
The fair value of marketable securities at December 31, 1999 and 1998 are
presented below. Fair values are based on quoted market prices. The Company's
marketable securities are classified as available-for-sale, as the Company
intends to sell them as needed for operations. Balances at year-end consist of
the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------
UNREALIZED
AMORTIZED GAIN (LOSS) MARKET
COST ON INVESTMENT VALUE
--------- ------------- --------
<S> <C> <C> <C>
Money market funds.......................... $ 47,470 $ -- $ 47,470
US government instruments................... 329,990 654 330,644
Asset backed securities..................... 160,505 (825) 159,680
Commercial paper............................ 5,505 2 5,507
Foreign debt securities..................... 1,683 (5) 1,678
Corporate notes............................. 87,111 (551) 86,560
-------- ----- --------
Total............................. 632,264 (725) 631,539
Less amounts included in cash and
equivalents............................... 52,975 3 52,978
-------- ----- --------
$579,289 $(728) $578,561
======== ===== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------
UNREALIZED
AMORTIZED GAIN ON MARKET
COST INVESTMENT VALUE
--------- ---------- -------
<S> <C> <C> <C>
Money market funds............................. $ 27 $-- $ 27
Commercial paper............................... 9,781 3 9,784
Commercial notes............................... 3,164 1 3,165
Commercial bonds............................... 1,285 -- 1,285
Market auction preferred....................... 7,306 -- 7,306
------- --- -------
Total................................ 21,563 4 21,567
Less amounts included in cash and
equivalents.................................. 13,837 2 13,839
------- --- -------
$ 7,726 $ 2 $ 7,728
======= === =======
</TABLE>
F-9
<PAGE> 173
WEBVAN GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements at December 31, 1999, and
1998 consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Computer equipment and software..................... $18,122 $ 2,284
Machinery and equipment............................. 20,184 2,026
Leasehold improvements.............................. 21,816 407
Furniture and fixtures.............................. 2,656 287
------- -------
62,778 5,004
Accumulated depreciation and amortization........... (7,260) (310)
------- -------
55,518 4,694
Construction in progress............................ 44,460 27,930
------- -------
Property, equipment and leasehold improvements,
net............................................... $99,978 $32,624
======= =======
</TABLE>
Equipment under capital leases amounted to $2,994,000 and $794,000 at year
end 1999 and 1998. Accumulated amortization on capital leases as of year end
1999 and 1998 was $911,000 and $72,000.
Construction in progress includes costs incurred in the construction of
Webvan's distribution centers. Such costs include the purchase and installation
of materials handling equipment, refrigeration and freezer storage units, and
related finance charges.
5. BORROWING ARRANGEMENTS
In December 1998, WBA entered into a $17,000,000 loan and security
agreement. The loan is payable in monthly installments of $472,000 from January
1999 through June 2002 with an additional $2,550,000 payment of the remaining
balance payable in June 2002. Based upon this repayment schedule, the imputed
interest on this loan is 16.33%. The loan is secured by substantially all the
assets of Webvan Bay Area, and is guaranteed by Webvan Group, Inc.
Related to the above financing, Webvan issued warrants to the lenders to
purchase an aggregate of 2,233,578 shares of Series B preferred stock at an
exercise price of $0.91 per share. The fair value of the warrants at the date
granted was $1,564,000 and was capitalized with loan fees (see Note 8). Webvan
also paid $323,000 in loan fees. The loan fees are being amortized over the 42
month term of the loan.
As part of an operating lease for the Oakland facility the landlord agreed
to finance $168,000 of improvements. The loan is payable in monthly installments
including interest at 11% from January 1, 1999 through July 2003.
F-10
<PAGE> 174
WEBVAN GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future principal maturities under loan agreements as of December 31, 1999
are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
2000......................................... $ 3,639
2001......................................... 4,577
2002......................................... 5,149
2003......................................... 65
2004......................................... 46
-------
13,476
Less current maturities........................ 3,639
-------
$ 9,837
=======
</TABLE>
CAPITAL LEASE OBLIGATIONS
In March 1998, Webvan entered into a $3,000,000 nonrevolving master lease
agreement. As part of the leasing arrangement, warrants for 164,232 shares of
Series B preferred stock were granted to the provider at an exercise price of
$0.91 per share. Such preferred shares were converted into common shares on a
one for one basis at the time of the Company's initial public offering in
November, 1999. The $115,000 fair value of the warrants at the date granted has
been capitalized with loan fees and is being amortized over a range of 36 to 48
months (see note 8).
Future lease payments under the lease agreement as of December 31, 1999 are
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
2000.......................................... $ 980
2001.......................................... 978
2002.......................................... 816
2003.......................................... 290
------
Total future lease payments..................... 3,064
Less portion relating to interest............... 605
------
Total capital lease obligations................. 2,459
Less current portion............................ 667
------
Total long-term portion......................... $1,792
======
</TABLE>
6. SHAREHOLDERS' EQUITY
STOCK SPLITS
In March 1998, January 1999, July 1999 and September 1999, the Company
effected two-for-one, two-for-one, two-for-one and three-for-two stock splits,
respectively, on the then outstanding shares, warrants and options. The splits
have been retroactively reflected in the financial statements and notes to the
financial statements.
F-11
<PAGE> 175
WEBVAN GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONVERTIBLE PREFERRED STOCK
From October 1997 through January 1998, the Company sold 112,635,168 shares
of Series A preferred stock at $.0958 per share. From May through September
1998, the Company sold 39,113,304 shares of Series B preferred stock at $.91 per
share. From January through April 1999, the Company sold 32,341,200 shares of
Series C preferred stock at $2.32 per share. In September 1999, the Company
issued 150,000 shares of Series C preferred stock related to the exercise of
warrants. In July, 1999, the Company sold 21,670,605 shares of Series D
preferred stock at $12.69 per share. Each share of preferred stock was
convertible into one share of common stock at the option of the holder, and
automatically upon an underwritten initial public offering (IPO) of the
Company's common shares, meeting certain criteria. In November, 1999, at the
closing of the Company's initial public offering, all of the Company's preferred
stock was converted into 205,910,277 shares of common stock.
The Board of Directors is authorized, without stockholder approval, to
issue up to an aggregate of 10,000,000 shares of preferred stock, in one or more
series, each of the series to have rights and preferences, including voting
rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences, as shall be determined by the Board of Directors. No
shares of this preferred stock have been issued.
COMMON STOCK
At December 31, 1999, Webvan had 800,000,000 authorized shares of common
stock of which 326,368,000 were issued and outstanding (including 4,785,000
shares of redeemable common stock). Webvan has the right to repurchase certain
shares until vesting is completed. See Note 9. At December 31, 1999, Webvan had
reserved 77,153,000 shares for issuance under stock option plans (including with
respect to options granted but not exercised).
Webvan has recorded redeemable common stock, representing common stock sold
to employees who have put rights. The put rights allow the shareholders to sell
to the Company, at a price of $0.3658 per share, 2,871,000 shares of common
stock after February 1999, and an additional 1,914,000 shares of common stock
after February 2000. Redeemable common stock was originally recorded at its
$0.0125 fair value as determined by the board of directors, and is being
accreted to the redemption amounts as compensation expense over the period the
put rights become exercisable. These rights expire in March 2000.
7. STOCK OPTION PLAN
On September 17, 1997, Webvan adopted the 1997 Stock Plan (the "1977
Plan"). A total of 79,500,000 shares of Webvan's common stock have been reserved
for issuance under the 1997 Plan, which expires on September 17, 2007. Options
are granted at fair market value at the date of grant based on the prior day's
closing stock price. As provided for in the 1997 Plan, incentive and non-
statutory stock options may be granted to employees, officers, directors or
consultants. Incentive options may only be granted to employees and at an
exercise price of no less than fair value on the date of grant. Non-statutory
options may be granted at less than fair value; such options may not be granted
at less than fair value in order to qualify as "performance based compensation"
within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as
amended. For owners of more than 10% of Webvan's stock, incentive options may
only be granted for an exercise price of no less than 110% of fair value.
Options generally become exercisable at a rate of 25% on the one year
F-12
<PAGE> 176
WEBVAN GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
anniversary of the vesting commencing date, which may precede the grant date,
with an additional 6.25% exercisable at the end of each quarter thereafter until
fully vested at the end of the fourth year. The term of an incentive option may
not exceed five years for grants to owners of more than 10% of Webvan's voting
power, nor exceed ten years for all other option holders.
In August 1999, Webvan adopted the 1999 Nonstatutory Stock Option Plan (the
"NSO Plan"). A total of 23,000,000 shares of Webvan's common stock have been
reserved for issuance under the NSO Plan. The NSO Plan provides for the grant of
nonstatutory stock options to employees and consultants of Webvan. Executive
officers (subject to Section 16 of the Securities Exchange Act of 1934, as
amended) are only eligible to receive options under the NSO Plan in connection
with their initial employment by Webvan. The exercise price, vesting and term of
all stock options granted under the NSO Plan are determined by the
administrator.
The 1997 Plan initially provided for the grant of 30,000,000 shares. During
1998 and 1999, Webvan's Board of Directors increased the 30,000,000 shares of
common stock reserved under the 1997 Plan as follows: 12,000,000 in May 1998;
6,000,000 in July 1998; 6,000,000 in October 1998; 12,000,000 in December 1998;
6,000,000 in January 1999 and 7,500,000 in August 1999. Including the 23,000,000
shares reserved under the NSO Plan, 77,153,000 shares are reserved in the option
pool as of December 31, 1999. At December 31, 1999, shares of common stock
available for future options grants under the 1997 Plan and the NSO Plan totaled
approximately 5.6 million.
Stock option activity under the Company's plans is summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES WEIGHTED AVERAGE
(IN THOUSANDS) EXERCISE PRICE
-------------- ----------------
<S> <C> <C>
Options granted during 1997 (weighted average fair value
of $0.00016).......................................... 12,588 $0.00081
Options canceled during 1997............................ (108) 0.00081
-------
Balance, December 31, 1997 (none exercisable)........... 12,480 0.00081
Options granted during 1998 (weighted average fair value
of $0.01740).......................................... 46,437 0.10546
Options exercised during 1998........................... (18,981) 0.00645
Options canceled during 1998............................ (3,210) 0.02735
-------
Balance, December 31, 1998.............................. 36,726 0.12758
Options granted during 1999(weighted average fair value
of $8.64133).......................................... 42,793 7.51307
Options exercised during 1999........................... (6,187) 0.20936
Options canceled during 1999............................ (1,827) 1.96871
-------
Balance, December 31, 1999.............................. 71,505 $4.48233
=======
</TABLE>
F-13
<PAGE> 177
WEBVAN GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Additional information regarding options outstanding as of December 31,
1999 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------- OPTIONS EXERCISABLE
NUMBER WEIGHTED AVERAGE ------------------------------
OUTSTANDING REMAINING NUMBER
AS OF CONTRACTUAL LIFE WEIGHTED AVERAGE EXERCISABLE WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES 12/31/99 (YEARS) EXERCISE PRICE 12/31/99 EXERCISE PRICE
------------------------ ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.00083 - $ 0.10000 21,852,261 8.44 $ 0.05444 3,492,089 $ 0.05091
$ 0.41667 - $ 1.35000 14,301,210 9.15 $ 0.66348 1,803,465 $ 0.41667
$ 3.33333 - $ 3.33333 4,237,575 9.59 $ 3.33333 237,374 $ 3.33333
$ 8.00000 - $ 8.00000 16,276,950 9.71 $ 8.00000 3,750,000 $ 8.00000
$10.78667 - $12.00000 13,854,245 9.76 $11.22597 892,220 $11.62461
$14.00000 - $25.43750 982,950 9.91 $17.00987 0 $ 0.00000
---------- ---- --------- ---------- ---------
$ 0.00083 - $25.43750 71,505,191 9.21 $ 4.48233 10,175,148 $ 4.12475
</TABLE>
ADDITIONAL STOCK PLAN INFORMATION
As discussed in Note 1, Webvan accounts for its stock-based awards using
the intrinsic value method in accordance with APB 25. Based on the stock value
and exercise prices, during the year ended December 31, 1999, $67,729,000 of
compensation expense has been recognized in the financial statements for
employee stock arrangements, including $36,520,000 of amortization of deferred
compensation. During the year ended December 31, 1998, $2,302,000 of
compensation expense was recognized, including $1,060,000 of amortization of
deferred compensation.
SFAS 123 requires the disclosure of pro forma net income and earnings per
share as if Webvan had adopted the fair value method as of the beginning of the
period ended December 31, 1997. Webvan's calculations were made with the
following weighted average assumptions for 1999, 1998 and 1997: expected life of
60 months following the grant date; risk free interest rates of 6%; and no
dividends during the expected term. As to volatility, the assumed value for
1999, 1998 and 1997 was 80%, 0% and 0% respectively. Forfeitures are recognized
as they occur. If the computed fair value of 1999, 1998 and 1997 awards had been
charged to compensation over the vesting period of the awards, the net loss
would have been $194,742,000 ($(1.93) per share, (basic and diluted) in 1999,
$12,028,000 ($(0.31) per share, (basic and diluted) in 1998 and $2,841,000
($(0.33) per share, (basic and diluted) in 1997.
8. NONCASH FINANCING ACTIVITIES
STOCK AND OPTIONS FOR SERVICES
Webvan issued the following shares and options for certain consulting or
recruiting services that represent non-cash operating expenses (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
DATE NUMBER FAIR VALUE FAIR VALUE AT
ISSUED OF SHARES PER SHARE ISSUANCE DATE
------- --------- ---------- -------------
<S> <C> <C> <C> <C>
Stock:
Series A preferred stock................. 1997 939 $0.09583 $ 90
Common................................... 1997 360 0.01250 5
Series A preferred stock................. 1998 51 0.09583 5
Common................................... 1999 67 14.3138 378
</TABLE>
F-14
<PAGE> 178
WEBVAN GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
SHARES EXERCISE
DATE COVERED BY PRICE FAIR VALUE
ISSUED OPTIONS PER SHARE GRANT DATE
------ ---------- --------- ----------
<S> <C> <C> <C> <C>
Stock options --
Common..................................... 1998 160 $0.10000 $7
</TABLE>
All preferred shares were converted into common shares on a one for one
basis at the time of the Company's initial public offering in November, 1999.
In July 1999, the Company issued Yahoo! an option to purchase up to 150,000
shares of Webvan common stock at a price of $3.33 per share. The option vests
6.25% each quarter contingent upon the continued service of Yahoo!'s CEO on
Webvan's Board of Directors. The fair value of the options at the grant date was
determined to be $180,000 using the Black-Scholes option pricing model. Based
upon the terms of the option, it is subject to variable plan accounting using
the Multiple Award Method. As of December 31, 1999, the fair value of the
remaining options was $1,945,000. Compensation expense related to these options
amounted to approximately $225,000 for the year ended December 31, 1999.
In October 1999, Webvan issued 40,500 shares of Webvan common stock to a
consultant in exchange for service, subject to restrictions which lapse as
services are provided. The agreement provides for an initial three month term,
as well as four six month extensions. As of December 31, 1999, 5,250 shares had
vested and restrictions thereupon had lapsed. The stock which vested was valued
at $87,000 based on the $16.50 market value of the stock on December 31, 1999.
Webvan agreed to issue an option for up to 150,000 shares of common stock
at an exercise price of $10.79 per share in exchange for recruiting services.
The agreement provides that 6,000 options vest for each individual placed under
the agreement, contingent upon such individual's continued employment with the
Company for eight months following commencement of employment. Based upon the
terms of the agreement, the option is subject to variable plan accounting using
the Multiple Award Method. Through December 31, 1999, $31,000 of expense was
recorded for the fair value of options issued to the recruiter in respect of
individuals placed with the Company.
DEFERRED COMPENSATION
In connection with the grant of certain stock options to employees in 1999
and 1998, the Company recorded deferred compensation of $124,961,000 and
$11,797,000 and amortization of deferred compensation expense of $36,520,000 and
$1,060,000, respectively, representing the difference between the deemed fair
value and the option exercise price. The deferred compensation is generally
being amortized over the four-year vesting period of the underlying options.
WARRANTS FOR DEBT
Webvan issued the following warrants in connection with its long-term debt
and capital lease arrangements (in thousands, except per share amounts):
<TABLE>
<CAPTION>
SHARES
DATE COVERED BY EXERCISE PRICE FAIR VALUE
ISSUED WARRANTS PER SHARE GRANT DATE
------ ---------- -------------- ----------
<S> <C> <C> <C> <C>
Series B preferred stock warrants......... 1998 2,398 $0.91 $1,679
</TABLE>
F-15
<PAGE> 179
WEBVAN GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The number of shares covered by warrants reflect the two-for-one stock
splits in March 1998, January 1999 and July 1999 and the three-for-two stock
split in September 1999. The fair value of the warrants was determined using the
Black-Scholes option pricing model with the following assumptions: expected life
ranging from five to seven years; risk-free interest rate of 6% in 1999, 1998
and 1997; no dividends during the expected term and volatility ranging from 80%
to 100%. The calculations are based on a single option valuation approach and
forfeitures are recognized as they occur.
WARRANTS FOR SERVICES
On July 8, 1999, the Company signed an agreement (the "Agreement") with a
contractor to design, develop and construct up to 26 distribution center
warehouse facilities ("Distribution Centers") in the United States. The
Agreement includes a five year exclusivity clause. The Agreement expires July 8,
2002, unless extended by written agreement. As part of the Agreement, the
contractor was granted a warrant to purchase up to 1,800,000 shares of the
Company's Series C preferred stock at $2.32 per share (the "Warrant"). The
Warrant was exercisable as to 150,000 shares on July 8, 1999 and generally
becomes exercisable as to the remaining shares as Distribution Centers are
completed by the contractor within agreed upon schedule and budgetary
parameters. A portion of the Warrant shares will be forfeited to the extent
schedule and budgetary parameters are not met for any Distribution Center.
Under the applicable accounting guidelines in Emerging Issues Task Force
Issue No. 96-18, "Accounting for Equity Instruments That are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services", the measurement date for the Warrant is July 8, 1999 as that is the
performance commitment date. As of July 8, 1999, the Company capitalized
approximately $1.3 million, the fair value of the warrant related to the 150,000
exercisable shares, as determined by the board of directors and is amortizing
that amount over the five year exclusivity period. No amount was capitalized as
of that date for the fair value of the Warrant related to the non-exercisable
shares as eventual exercisability is dependent on counterparty performance. Any
amounts capitalized will be based on the contractor's future performance and
will be amortized over the useful life of the Distribution Centers. If and when
the Warrant becomes exercisable as to additional shares, based on counterparty
performance, the Company will capitalize additional cost based on the then fair
value of the Warrant related to such additional exercisable shares.
9. NET LOSS PER SHARE
Net loss per share is calculated by dividing the net loss by the weighted
average shares outstanding for the period. The weighted average shares
outstanding excludes certain shares subject to repurchase by the Company. Shares
subject to repurchase by the Company include options exercised prior to vesting.
Shares subject to repurchase by the Company also include certain shares issued
in 1997 which vest under the agreements pursuant to which they were issued: The
Company's rights to repurchase all but 144,000 of the shares issued in 1997
expire on March 10, 2000.
F-16
<PAGE> 180
WEBVAN GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following is a reconciliation of the numerators and denominators used
in computing basic and diluted net loss per share (in thousands except per share
amounts):
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 17,
1996 (DATE OF
YEAR ENDED YEAR ENDED INCORPORATION)
DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1999 1998 1997
------------ ------------ ---------------
<S> <C> <C> <C>
Net loss (numerator), basic and diluted........ $(144,569) $(12,004) $ (2,840)
--------- -------- --------
Shares (denominator):
Weighted average common shares outstanding... 123,101 76,934 37,407
Weighted average common shares outstanding
and subject to repurchase................. (22,057) (37,590) (28,832)
--------- -------- --------
Weighted average shares outstanding -- basic
and diluted*................................. 101,044 39,344 8,575
========= ======== ========
Net loss per share, basic and diluted*......... $ (1.43) $ (0.31) $ (0.33)
========= ======== ========
</TABLE>
---------------
*Restated as to 1998 and 1997 -- See Note 15.
For the above-mentioned periods, the Company had securities outstanding
which could potentially dilute basic earnings per share in the future, but were
excluded from the computation of diluted net loss per share in the periods
presented, as their effect would have been anti-dilutive. Such outstanding
securities consist of the following (in thousands, except per share amounts):
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 17,
1996 (DATE OF
YEAR ENDED YEAR ENDED INCORPORATION)
DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1999 1998 1997
------------ ------------ ---------------
<S> <C> <C> <C>
Convertible preferred stock.................... -- 151,736 112,583
Shares of common stock subject to
repurchase*.................................. 9,945 33,500 34,296
Outstanding options............................ 71,684 36,905 12,480
Warrants....................................... 3,831 2,398 --
-------- -------- --------
Total................................ 85,460 224,539 159,359
======== ======== ========
Weighted average exercise price of options..... $4.48232 $0.12773 $0.00083
======== ======== ========
Weighted average exercise price of warrants.... $1.57870 $ 0.91 $ --
======== ======== ========
</TABLE>
---------------
* Restated as to 1998 and 1997 -- See Note 15.
10. INCOME TAXES
In 1999, when Webvan first generated revenues from operations, expenditures
accumulated during the development stage started being amortized for income tax
purposes over a five-year period. The deduction of these expenses for financial
statement purposes in years preceding the deduction for
F-17
<PAGE> 181
WEBVAN GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
income tax purposes is a temporary difference that creates a deferred tax asset.
At statutory rates, the deferred tax asset amounts to approximately $67.8
million which has been offset by a valuation allowance of the same amount due to
lack of operating history combined with risks and uncertainties surrounding
Webvan's ability to generate future taxable income.
Significant components of the Company's deferred tax assets and liabilities
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 35,779 $ 101
Start-up costs capitalized for tax purposes............... 9,614 5,384
Deferred compensation..................................... 22,310 --
Other..................................................... 105 34
-------- -------
Total deferred tax assets................................... 67,808 5,519
Valuation allowance......................................... (67,808) (5,519)
-------- -------
Net deferred tax assets..................................... $ -- $ --
======== =======
</TABLE>
At December 31, 1999 the Company has federal net operating loss
carryforwards of approximately $87.8 million, expiring from 2012 to 2019. The
Company has research tax credit carryforwards available to offset future federal
taxes of $45,000, expiring from 2012 to 2014. The Company has state net
operating loss carryforwards of approximately $87.9 million, expiring from 2002
to 2004. The Company also has state tax credit carryforwards of approximately
$25,000, which do not expire.
Utilization of the net operating losses and credits may be subject to an
annual limitation due to ownership change limitations provided by the Internal
Revenue Code and similar state provisions. The annual limitation may result in
the expiration of net operating losses and credits before utilization.
The Company's effective tax rate differs from the expected benefit at the
federal statutory tax rate at December 31 as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal statutory tax rate.................................. 35% 35% 35%
State taxes, net of federal benefit......................... 6 6 6
Valuation allowance......................................... (41) (41) (41)
--- --- ---
Effective tax rate.......................................... --% --% --%
=== === ===
</TABLE>
11. LEASES
Webvan leases facilities under noncancelable operating lease agreements
which expire at various dates through 2009.
F-18
<PAGE> 182
WEBVAN GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future lease payments under the lease agreements as of December 31, 1999
(including leases for ten distribution centers leased as of December 31, 1999)
are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
2000........................................ $ 14,921
2001........................................ 16,817
2002........................................ 16,530
2003........................................ 16,665
2004........................................ 15,847
Thereafter.................................... 94,402
--------
Total future lease payments......... $175,182
========
</TABLE>
Facilities rent expense was $4,702,000, $1,026,000 and $123,000 for the
periods ended December 31, 1999, 1998 and 1997, respectively. In January 2000,
the Company signed an additional distribution center lease with annual payments,
commencing at $1,309,000, through 2010.
12. EMPLOYEE BENEFIT PLANS
Webvan has a 401(k) profit-sharing plan (the 401(k) Plan) that covers
substantially all employees. The 401(k) Plan provides for voluntary salary
reduction contributions of up to 15% of eligible participants' annual
compensation subject to Internal Revenue Code limitations. Under the terms of
the 401(k) Plan, Webvan will match 100% of employees' contributions for the
first $500 and 25% thereafter to a maximum of $2,000 per year. Matching
contributions made during 1999, 1998 and 1997 were $503,000, $81,000 and
$17,000, respectively.
In November 1999, the Company introduced its Employee Stock Purchase Plan
("ESPP") to its associates. A total of 5,000,000 shares of common stock have
been reserved for issuance under the ESPP. The first offering period commenced
in November 1999 and will end on or about August 14, 2000, and new offering
periods will end every six months thereafter. The number of shares reserved for
issuance under the ESPP will be subject to an annual increase on each
anniversary beginning January 1, 2000 equal to the lesser of the number of
shares issued under the ESPP in the prior year and an amount determined by
Webvan's board of directors.
The ESPP permits eligible employees to purchase common stock through
payroll deductions up to a maximum of $25,000 per calendar year and up to 1,000
shares for each purchase period. The price at which common stock will be
purchased is equal to 85% of the fair market value of the common stock on the
first or last day of the applicable offering period, whichever is lower.
13. RELATED PARTY TRANSACTIONS
A general contractor of Webvan has subcontracted with an equipment
manufacturer (see Note 2) to install equipment in Webvan's distribution center.
A total of $5.5 million of this work was completed by December 31, 1999 and is
included in fixed assets.
In September 1999, the Company loaned an officer $4,783,000. The loan bears
interest at 6.26%, is secured by 1.25 million shares of Webvan common stock, and
matures in connection with the sale of the shares securing the note.
F-19
<PAGE> 183
WEBVAN GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net sales in the fourth quarter of 1999 included approximately $0.8 million
of purchases under Webvan's Second Harvest Donation Program pursuant to which
individuals and entities order food from Webvan for donation to local foodbanks,
of which approximately $0.7 million was purchased by entities and individuals
associated or affiliated with Webvan, including an aggregate of $0.4 million by
E*Trade Group, Inc. and Yahoo! Inc., whose chief executive officers are
directors of Webvan.
14. SELECTED QUARTERLY DATA (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales..................................... $ 12 $ 383 $ 3,841 $ 9,069
Gross Profit.................................. 3 (27) $ 350 $ 1,690
Net Loss...................................... (11,690) (23,444) $(60,437) $(48,998)
Basic and Diluted Net Loss per Share*......... (0.21) (0.38) $ (0.88) $ (0.22)
Weighted Average Shares Outstanding -- Basic
and Diluted*................................ 56,081 62,252 68,339 220,172
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net Sales..................................... $ -- $ -- $ -- $ --
Gross Profit.................................. -- -- $ -- $ --
Net Loss...................................... (1,021) (2,241) $ (3,234) $ (5,508)
Basic and Diluted Net Loss per Share*......... (0.03) (0.06) $ (0.08) $ (0.12)
Weighted Average Shares Outstanding -- Basic
and Diluted*................................ 30,967 34,505 41,612 46,741
</TABLE>
---------------
* As restated -- See Note 15
Subsequent to issuance of the Company's Consolidated Financial Statements
for the three and nine months ended September 30, 1999 and 1998, it was
determined that certain shares subject to repurchase (See Note 9) should have
been excluded from the weighted average shares outstanding for the three month
and nine month periods ended September 30, 1999 and 1998, used in calculating
net loss per share for such periods. Accordingly, the following amounts have
been restated for such periods:
<TABLE>
<CAPTION>
3 MONTH ENDED SEPT. 30 9 MONTH ENDED SEPT. 30
------------------------- -------------------------
AS PREVIOUSLY AS PREVIOUSLY
REPORTED RESTATED REPORTED RESTATED
------------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
1998 Shares outstanding.......... 67,376 41,612 65,523 36,090
1999 Shares outstanding.......... 78,983 68,339 75,213 60,929
1998 Net loss per share.......... $ (0.05) $ (0.08) $ (0.10) $ (0.18)
1999 Net loss per share.......... $ (0.77) $ (0.88) $ (1.27) $ (1.57)
</TABLE>
F-20
<PAGE> 184
WEBVAN GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
15. RESTATEMENT
Subsequent to the issuance of the 1998 financial statements, it was
determined that 28,832,000 and 27,770,000 shares subject to repurchase should
have been excluded from the weighted average number of shares outstanding, for
1997 and 1998, respectively. As a result, basic and diluted net loss per share
has been restated from amount previously reported. This restatement had no
effect on our net loss for the periods ended December 31, 1997 and 1998.
Accordingly, the following amounts have been restated:
<TABLE>
<CAPTION>
AS REPORTED AS RESTATED
-------------------------------------- --------------------------------------
WEIGHTED AVERAGE BASIC AND WEIGHTED AVERAGE BASIC AND
SHARES OUTSTANDING -- DILUTED LOSS SHARES OUTSTANDING -- DILUTED LOSS
BASIC AND DILUTED PER SHARE BASIC AND DILUTED PER SHARE
--------------------- -------------- --------------------- --------------
<S> <C> <C> <C> <C>
1997...................... 37,407,000 (.08) 8,575,000 (.33)
1998...................... 67,114,000 (.18) 39,344,000 (.31)
</TABLE>
* * * * * * *
F-21
<PAGE> 185
WEBVAN GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Equivalents................................... $ 21,221 $ 60,220
Marketable Securities.................................. 388,783 578,561
Inventories............................................ 3,226 1,508
Related Party Receivable............................... 1,248 320
Prepaid Expenses and Other Current Assets.............. 10,423 3,678
--------- ---------
Total Current Assets.............................. 424,901 644,287
Property, Equipment and Leasehold Improvements, Net...... 237,588 99,978
Deposits and Other Long Term Assets...................... 22,808 13,528
--------- ---------
Total Assets...................................... $ 685,297 $ 757,793
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable....................................... $ 30,954 $ 18,333
Accrued Liabilities.................................... 21,988 16,030
Current Portion of Long-term Obligations............... 4,673 4,306
--------- ---------
Total Current Liabilities......................... 57,615 38,669
Long-term Obligations.................................... 14,272 12,147
Redeemable Common Stock.................................. -- 1,725
Shareholders' Equity:
Common stock, $.0001 par value; 800,000 shares
authorized; 332,965 and 321,582 issued and
outstanding at June 30, 2000 and December 31, 1999,
respectively........................................ 33 32
Additional Paid-in Capital............................. 964,864 964,536
Deferred Compensation.................................. (62,208) (99,178)
Accumulated Deficit.................................... (291,593) (159,413)
Accumulated Other Comprehensive Income (Loss).......... 2,314 (725)
--------- ---------
Total Shareholders' Equity........................ 613,410 705,252
--------- ---------
Total Liabilities and Shareholders' Equity........ $ 685,297 $ 757,793
========= =========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
F-22
<PAGE> 186
WEBVAN GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- ---------------------
2000 1999 2000 1999
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Net Sales................................. $ 28,300 $ 383 $ 44,569 $ 395
Cost of Goods Sold........................ 20,307 410 32,445 419
-------- -------- --------- --------
Gross Profit.............................. 7,993 (27) 12,124 (24)
-------- -------- --------- --------
Sales and Marketing Expenses.............. 9,907 1,907 18,266 2,339
Development and Engineering Expenses...... 5,465 3,048 10,988 6,308
General and Administrative Expenses....... 57,890 16,224 96,883 22,957
Amortization of Deferred Compensation..... 16,774 2,186 34,494 3,953
-------- -------- --------- --------
Total Expenses.................. 90,036 23,365 160,631 35,557
-------- -------- --------- --------
Loss from Operations...................... (82,043) (23,392) (148,507) (35,581)
Interest Income........................... 7,824 768 16,623 1,641
Interest Expense.......................... 146 820 296 1,194
-------- -------- --------- --------
Net Interest Income (Expense)............. 7,678 (52) 16,327 447
-------- -------- --------- --------
Net Loss.................................. (74,365) (23,444) (132,180) (35,134)
Unrealized Gain (Loss) on Marketable
Securities.............................. 2,049 (42) 3,039 (59)
-------- -------- --------- --------
Comprehensive Loss........................ $(72,316) $(23,486) $(129,141) $(35,193)
======== ======== ========= ========
Basic and Diluted Net Loss Per Share...... $ (0.23) $ (0.38) $ (0.41) $ (0.62)
======== ======== ========= ========
Shares Used In Calculating Basic and
Diluted Net Loss Per Share.............. 327,667 62,252 324,252 56,966
======== ======== ========= ========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
F-23
<PAGE> 187
WEBVAN GROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss.................................................... $(132,180) $(35,134)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 9,620 2,673
Accretion on redeemable common stock...................... 29 254
Amortization of deferred compensation..................... 34,494 3,953
Stock compensation........................................ 1,739 3,783
Changes in operating assets and liabilities:
Inventories............................................... (1,718) (596)
Prepaid and other current assets.......................... (6,745) (3,180)
Accounts payable.......................................... 5,480 415
Accrued liabilities....................................... (10,414) 5,107
Deferred rent............................................. 745 161
--------- --------
Net cash used in operating activities............. (98,950) (22,564)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, equipment and leasehold
improvements.............................................. (123,261) (25,948)
Purchases of marketable securities.......................... 192,817 (14,562)
Purchases of investments.................................... (2,000) (500)
Deposits and other assets................................... (4,217) 163
Restricted cash............................................. (4,405) (1,685)
--------- --------
Net cash provided by (used in) investing
activities..................................... 58,934 (42,532)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Landlord tenant improvement allowances and
sublessee security deposit................................ 3,863 --
Repayment of long-term debt................................. (1,805) (1,519)
Proceeds from capital lease financing....................... -- 2,200
Repayment of capital lease obligations...................... (323) (212)
Net proceeds from Series B preferred stock.................. -- 11
Net proceeds from Series C preferred stock.................. -- 72,776
Net proceeds from Series D preferred stock.................. -- 37
Shareholder note receivable................................. (2,154) --
Proceeds from restricted common stock issued................ 1,436 --
--------- --------
Net cash provided by financing activities......... 1,017 73,293
--------- --------
Net increase in cash and equivalents........................ (38,999) 8,197
Cash and equivalents, beginning of period................... 60,220 13,839
--------- --------
Cash and equivalents, end of period......................... $ 21,221 $ 22,036
========= ========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
F-24
<PAGE> 188
WEBVAN GROUP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. The accompanying condensed
consolidated financial statements have been prepared by the Company without
audit and reflect all adjustments, consisting of normal recurring adjustments
and accruals, which are, in the opinion of management, necessary for a fair
statement of the financial position of the Company as of June 30, 2000 and the
results of operations and cash flows for the interim periods indicated. The
results of operations covered are not necessarily indicative of the results to
be expected for the future quarters or for the year ending December 31, 2000.
The statements have been prepared in accordance with the regulations of the
Securities and Exchange Commission; accordingly, certain information and
footnote disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted. The financial statements should be read in conjunction with the
audited financial statements and notes thereto of Webvan Group, Inc. for the
year ended December 31, 1999, which are included in Webvan Group's Form 10-K
(file number 0-27541) filed with the Securities Exchange Commission.
2. NET LOSS PER SHARE. Webvan computes net income (loss) per share of
common stock in accordance with Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS No. 128"). Under the provisions of SFAS No.
128, basic net income per share ("Basic EPS") is computed by dividing net income
by the weighted average number of shares of common stock outstanding. The
following is a reconciliation of the numerators and denominators used in
computing basic and diluted net loss per share (in thousands except per share
amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- --------------------
2000 1999 2000 1999
-------- -------- --------- --------
<S> <C> <C> <C> <C>
NET LOSS (NUMERATOR)
Basic and diluted............................... $(74,365) $(23,444) $(132,180) $(35,134)
SHARES (DENOMINATOR)
Weighted average common shares outstanding...... 331,599 85,165 329,819 84,689
Weighted average common shares outstanding and
subject to repurchase......................... (3,932) (22,913) (5,567) (27,723)
-------- -------- --------- --------
Shares used in computation, basic and diluted... 327,667 62,252 324,252 56,966
NET LOSS PER SHARE BASIC AND DILUTED............ $ (0.23) $ (0.38) $ (0.41) $ (0.62)
</TABLE>
3. RECENTLY ISSUED ACCOUNTING STANDARDS. In December 1999 the Securities
and Exchange Commission (SEC) released Staff Accounting Bulletin No. 101
"Revenue Recognition in Financial Statements" which summarizes certain of the
staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. Based on these guidelines, revenue should
not be recognized until it is realized or realizable and earned. Webvan will
adopt this statement in the forth fiscal quarter of its fiscal year ended
December 31, 2000. Management does not expect any material impact as a result of
adopting the guidelines of this standard.
F-25
<PAGE> 189
WEBVAN GROUP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
(FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999)
In May 2000, the Emerging Issues Task Force reached a consensus on Issue
00-14, Accounting for Certain Sales Incentives. The issue addresses the
accounting for sales incentives by vendors without charge to customers that can
be used in a single exchange transaction. For example, certain promotional
costs, such as those relating to coupons, must be recorded as a reduction in
revenue. The consensus is required to be adopted prospectively in the first
fiscal quarter beginning after May 18, 2000. Upon adoption, Webvan will
reclassify $140,000 and $2.35 million of promotional costs previously including
in sales and marketing expense as a reduction to revenues for the year ended
December 31, 1999 and six months ended June 30, 2000, respectively.
4. MERGER WITH HOMEGROCER.COM, INC. On June 25, 2000, the Company entered
into a definitive merger agreement with HomeGrocer.com, Inc. ("HomeGrocer"). The
agreement is expected to close late in the third quarter or in the fourth
quarter of 2000. Under the terms of the agreement, the Company will issue
1.07605 shares of common stock in exchange for each share of HomeGrocer common
stock. Outstanding options and warrants to purchase HomeGrocer common stock will
be converted to options and warrants to purchase Webvan common stock at the same
exchange ratio. The Company intends to account for the merger using the purchase
method of accounting.
F-26
<PAGE> 190
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
HomeGrocer.com, Inc.
We have audited the accompanying balance sheets of HomeGrocer.com, Inc. as
of January 2, 1999 and January 1, 2000, and the related statements of
operations, shareholders' equity, and cash flows for the period from January 15,
1997 (inception) to January 3, 1998 and the years ended January 2, 1999 and
January 1, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HomeGrocer.com, Inc. at
January 2, 1999 and January 1, 2000, and the results of its operations and its
cash flows for the period from January 15, 1997 (inception) to January 3, 1998
and the years ended January 2, 1999 and January 1, 2000, in conformity with
accounting principles generally accepted in the United States.
Ernst & Young LLP
Seattle, Washington
January 18, 2000, except for Note 9,
as to which the date is February 15, 2000
F-27
<PAGE> 191
HOMEGROCER.COM, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
SHAREHOLDERS'
JANUARY 2, JANUARY 1, EQUITY
1999 2000 JANUARY 1, 2000
---------- ---------- ---------------
(NOTE 6)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,084 $ 39,806
Marketable securities..................................... -- 37,762
Inventories............................................... 284 2,555
Prepaid expenses and other current assets................. 296 3,032
------- --------
Total current assets.................................. 1,664 83,155
Fixed assets, net........................................... 1,237 52,066
Deposits and other long-term assets......................... 657 3,776
Restricted cash............................................. -- 7,932
------- --------
Total assets.......................................... $ 3,558 $146,929
======= ========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 199 $ 4,396
Accrued liabilities....................................... 522 4,856
Accrued compensation and related liabilities.............. 239 3,249
Current portion of capital lease obligations.............. 209 3,081
Current portion of long-term debt......................... 122 980
------- --------
Total current liabilities............................. 1,291 16,562
Capital lease obligations, less current portion............. 602 17,041
Long-term debt, less current portion........................ 278 749
Other long-term liabilities................................. -- 430
------- --------
Total liabilities..................................... 2,171 34,782
Commitments and contingencies
Shareholders' equity:
Convertible preferred stock, $0.001 par value:
78,357,142 shares authorized;
Series A, 8,000,000 shares authorized, 8,000,000 issued
and outstanding (none pro forma); liquidation
preference of $4,000 (none pro forma);................. 8 8
Series B, 16,857,142 shares authorized, 16,857,142
issued and outstanding (none pro forma); liquidation
preference of $5,900 (none pro forma);................. 17 17
Series C, 30,200,000 shares authorized, 29,942,050
issued and outstanding at January 1, 2000 (none pro
forma); liquidation preference of $52,399 at January 1,
2000 (none pro forma);................................. -- 30
Series D, 23,300,000 shares authorized, 18,407,546
issued and outstanding at January 1, 2000 (none pro
forma), liquidation preference of $106,764 at January
1, 2000 (none pro forma)............................... -- 18
Common stock, $0.001 par value:
130,000,000 shares authorized; 12,416,666 issued and
outstanding at January 2, 1999 and 29,605,536 at
January 1, 2000 (102,812,274 pro forma)................ 12 30 $ 103
Additional paid-in capital.................................. 10,614 250,151 250,151
Notes receivable from officers for common stock............. -- (3,231) (3,231)
Deferred stock-based compensation........................... -- (41,619) (41,619)
Accumulated deficit......................................... (9,264) (93,257) (93,257)
------- -------- --------
Total shareholders' equity............................ 1,387 112,147 $112,147
------- -------- ========
Total liabilities & shareholders' equity.............. $ 3,558 $146,929
======= ========
</TABLE>
See accompanying notes.
F-28
<PAGE> 192
HOMEGROCER.COM, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
51 WEEKS FROM 52 WEEKS 52 WEEKS
JANUARY 15, 1997 ENDED ENDED
(INCEPTION) TO JANUARY 2, JANUARY 1,
JANUARY 3, 1998 1999 2000
---------------- ----------- -----------
<S> <C> <C> <C>
Net sales........................................ $ -- $ 1,094 $ 21,648
Cost of sales.................................... -- 1,018 19,515
----------- ----------- -----------
Gross profit................................... -- 76 2,133
Selling, general and administrative expenses,
excluding stock-based compensation............. 1,064 7,455 59,208
Stock-based compensation expense................. 230 412 28,158
----------- ----------- -----------
Loss from operations........................... (1,294) (7,791) (85,233)
Interest expense................................. (61) (172) (384)
Interest income.................................. -- 54 2,232
Other expense.................................... -- -- (608)
----------- ----------- -----------
Net loss....................................... $ (1,355) $ (7,909) $ (83,993)
=========== =========== ===========
Basic and diluted net loss per share............. $ (0.14) $ (0.72) $ (5.56)
=========== =========== ===========
Pro forma basic and diluted net loss per share
(unaudited).................................... $ (1.28)
===========
Weighted average shares outstanding used to
compute basic and diluted net loss per share... 10,034,721 11,044,174 15,102,698
=========== =========== ===========
Weighted average shares outstanding used to
compute pro forma basic and diluted net loss
per share (unaudited).......................... 65,382,807
===========
</TABLE>
See accompanying notes.
F-29
<PAGE> 193
HOMEGROCER.COM, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
--------------------------------------------------------------
SERIES A SERIES B SERIES C
------------------ ------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Sale of common stock............................ -- $-- -- $-- -- $--
Issuance of common stock warrants with
convertible promissory notes................... -- -- -- -- -- --
Stock issued and stock options granted in
exchange for consulting services............... -- -- -- -- -- --
Net loss and comprehensive loss for the period
ended January 3, 1998.......................... -- -- -- -- -- --
--------- --- ---------- --- ---------- ---
Balance at January 3, 1998...................... -- -- -- -- -- --
Repurchase of common stock......................
Issuance of common stock warrants for goods and
services....................................... -- -- -- -- -- --
Stock options granted in exchange for consulting
services....................................... -- -- -- -- -- --
Issuance of Series A preferred stock, net of
offering costs of $73.......................... 7,500,000 8 -- -- -- --
Issuance of Series A preferred stock for
consulting services............................ 500,000 -- -- -- -- --
Issuance of Series B preferred stock, net of
offering costs of $48.......................... -- -- 16,857,142 17 -- --
Issuance of Series C preferred stock warrants
for goods and services......................... -- -- -- -- -- --
Common stock returned in settlement with service
provider....................................... -- -- -- -- -- --
Net loss and comprehensive loss for the year
ended January 2, 1999.......................... -- -- -- -- -- --
--------- --- ---------- --- ---------- ---
Balance at January 2, 1999...................... 8,000,000 8 16,857,142 17 -- --
Issuance of Series C preferred stock, net of
offering costs of $48.......................... -- -- -- -- 29,942,050 30
Issuance of Series D preferred stock, net of
offering costs of $291......................... -- -- -- -- -- --
Issuance of Series D preferred stock warrants
for goods and services......................... -- -- -- -- -- --
Stock options granted in exchange for consulting
services....................................... -- -- -- -- -- --
Exercise of common stock options................ -- -- -- -- -- --
Repurchase of restricted common stock........... -- -- -- -- -- --
Issuance of restricted common stock............. -- -- -- -- -- --
Exercise of warrants to purchase common stock... -- -- -- -- -- --
Notes receivable from officers for common
stock.......................................... -- -- -- -- -- --
Deferred stock based compensation............... -- -- -- -- -- --
Amortization of stock-based compensation........ -- -- -- -- -- --
Net loss and comprehensive loss for the year
ended January 1, 2000.......................... -- -- -- -- -- --
--------- --- ---------- --- ---------- ---
Balance at January 1, 2000...................... 8,000,000 $ 8 16,857,142 $17 29,942,050 $30
========= === ========== === ========== ===
<CAPTION>
CONVERTIBLE PREFERRED STOCK
------------------- NOTES
SERIES D COMMON STOCK ADDITIONAL RECEIVABLE DEFERRED
------------------- ------------------- PAID-IN FROM STOCK-BASED
SHARES AMOUNT SHARES AMOUNT CAPITAL OFFICERS COMPENSATION
---------- ------ ---------- ------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sale of common stock............................ -- -- 15,200,000 $15 $ 277 $ -- $ --
Issuance of common stock warrants with
convertible promissory notes................... -- -- -- -- 190 -- --
Stock issued and stock options granted in
exchange for consulting services............... -- -- 800,000 1 229 -- --
Net loss and comprehensive loss for the period
ended January 3, 1998.......................... -- -- -- -- -- -- --
---------- --- ---------- --- -------- ------- --------
Balance at January 3, 1998...................... -- -- 16,000,000 16 696 -- --
Repurchase of common stock...................... (3,333,334) (4) 2 -- --
Issuance of common stock warrants for goods and
services....................................... -- -- -- -- 27 -- --
Stock options granted in exchange for consulting
services....................................... -- -- -- -- 191 -- --
Issuance of Series A preferred stock, net of
offering costs of $73.......................... -- -- -- -- 3,669 -- --
Issuance of Series A preferred stock for
consulting services............................ -- -- -- -- 250 -- --
Issuance of Series B preferred stock, net of
offering costs of $48.......................... -- -- -- -- 5,835 -- --
Issuance of Series C preferred stock warrants
for goods and services......................... -- -- -- -- 84 -- --
Common stock returned in settlement with service
provider....................................... -- -- (250,000) -- (140) -- --
Net loss and comprehensive loss for the year
ended January 2, 1999.......................... -- -- -- -- -- -- --
---------- --- ---------- --- -------- ------- --------
Balance at January 2, 1999...................... -- -- 12,416,666 12 10,614 -- --
Issuance of Series C preferred stock, net of
offering costs of $48.......................... -- -- -- -- 52,320 -- --
Issuance of Series D preferred stock, net of
offering costs of $291......................... 18,407,546 18 -- -- 106,455 -- --
Issuance of Series D preferred stock warrants
for goods and services......................... -- -- -- -- 1,361 -- --
Stock options granted in exchange for consulting
services....................................... -- -- -- -- 2,028 -- --
Exercise of common stock options................ -- -- 14,400,870 14 8,429 -- --
Repurchase of restricted common stock........... -- -- (12,000) 1 (5) -- --
Issuance of restricted common stock............. -- -- 2,050,000 2 920 -- --
Exercise of warrants to purchase common stock... -- -- 750,000 1 280 -- --
Notes receivable from officers for common
stock.......................................... -- -- -- -- -- (3,231) --
Deferred stock based compensation............... -- -- -- -- 67,749 -- (67,749)
Amortization of stock-based compensation........ -- -- -- -- -- -- 26,130
Net loss and comprehensive loss for the year
ended January 1, 2000.......................... -- -- -- -- -- -- --
---------- --- ---------- --- -------- ------- --------
Balance at January 1, 2000...................... 18,407,546 $18 29,605,536 $30 $250,151 $(3,231) $(41,619)
========== === ========== === ======== ======= ========
<CAPTION>
TOTAL
SHARE-
HOLDERS'
ACCUMULATED EQUITY
DEFICIT (DEFICIT)
----------- ---------
<S> <C> <C>
Sale of common stock............................ $ -- $ 292
Issuance of common stock warrants with
convertible promissory notes................... -- 190
Stock issued and stock options granted in
exchange for consulting services............... -- 230
Net loss and comprehensive loss for the period
ended January 3, 1998.......................... (1,355) (1,355)
-------- ---------
Balance at January 3, 1998...................... (1,355) (643)
Repurchase of common stock...................... -- (2)
Issuance of common stock warrants for goods and
services....................................... -- 27
Stock options granted in exchange for consulting
services....................................... -- 191
Issuance of Series A preferred stock, net of
offering costs of $73.......................... -- 3,677
Issuance of Series A preferred stock for
consulting services............................ -- 250
Issuance of Series B preferred stock, net of
offering costs of $48.......................... -- 5,852
Issuance of Series C preferred stock warrants
for goods and services......................... -- 84
Common stock returned in settlement with service
provider....................................... -- (140)
Net loss and comprehensive loss for the year
ended January 2, 1999.......................... (7,909) (7,909)
-------- ---------
Balance at January 2, 1999...................... (9,264) 1,387
Issuance of Series C preferred stock, net of
offering costs of $48.......................... -- 52,350
Issuance of Series D preferred stock, net of
offering costs of $291......................... -- 106,473
Issuance of Series D preferred stock warrants
for goods and services......................... -- 1,361
Stock options granted in exchange for consulting
services....................................... -- 2,028
Exercise of common stock options................ -- 8,443
Repurchase of restricted common stock........... -- (4)
Issuance of restricted common stock............. -- 922
Exercise of warrants to purchase common stock... -- 281
Notes receivable from officers for common
stock.......................................... -- (3,231)
Deferred stock based compensation............... -- 0
Amortization of stock-based compensation........ -- 26,130
Net loss and comprehensive loss for the year
ended January 1, 2000.......................... (83,993) (83,993)
-------- ---------
Balance at January 1, 2000...................... $(93,257) $ 112,147
======== =========
</TABLE>
See accompanying notes.
F-30
<PAGE> 194
HOMEGROCER.COM, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
51 WEEKS ENDED
JANUARY 15, 1997 52 WEEKS 52 WEEKS
(INCEPTION) TO ENDED ENDED
JANUARY 3, 1998 JANUARY 2, 1999 JANUARY 1, 2000
---------------- --------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................... $(1,355) $(7,909) $(83,993)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.............................................. 7 175 2,881
Amortization.............................................. 57 132 120
Stock-based compensation expense.......................... 230 412 28,158
Loss on disposal of fixed assets.......................... -- -- 628
Changes in operating assets and liabilities:
Prepaid expenses and other current assets............... (165) (265) (2,736)
Inventories............................................. -- (284) (2,271)
Accounts payable........................................ 740 49 4,197
Accrued liabilities..................................... -- (68) 4,334
Accrued compensation and related liabilities............ -- 239 3,010
------- ------- --------
Net cash used in operating activities....................... (486) (7,519) (45,672)
INVESTING ACTIVITIES:
Purchases of fixed assets................................... (393) (737) (34,387)
Purchases of marketable securities.......................... -- -- (37,762)
Deposits and other.......................................... -- (571) (1,448)
Restricted cash............................................. -- -- (7,932)
------- ------- --------
Net cash used in investing activities....................... (393) (1,308) (81,529)
FINANCING ACTIVITIES:
Net proceeds from sale of Series A preferred stock.......... -- 2,926 --
Net proceeds from sale of Series B preferred stock.......... -- 5,852 --
Net proceeds from sale of Series C preferred stock.......... -- -- 52,350
Net proceeds from sale of Series D preferred stock.......... -- -- 106,473
Proceeds from sale of common stock.......................... 292 -- 459
Repurchase of common stock.................................. -- (2) (4)
Proceeds from exercise of stock options..................... -- -- 5,675
Proceeds from exercise of warrants.......................... -- -- 281
Proceeds from convertible notes............................. 900 -- --
Repayment of convertible notes.............................. -- (100) --
Proceeds from notes payable................................. -- 900 --
Repayment of notes payable.................................. -- (500) --
Proceeds from sale leaseback................................ -- 522 --
Proceeds from long-term debt................................ -- -- 2,309
Repayments of long-term debt................................ -- -- (980)
Repayments of capital lease obligations..................... -- -- (640)
------- ------- --------
Net cash provided by financing activities................... 1,192 9,598 165,923
------- ------- --------
Net increase in cash and cash equivalents................... 313 771 38,722
Cash and cash equivalents, beginning of period.............. -- 313 1,084
------- ------- --------
Cash and cash equivalents, end of period.................... $ 313 $ 1,084 $ 39,806
======= ======= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest.................... $ -- $ 35 $ 509
NONCASH FINANCING AND INVESTING ACTIVITIES:
Fixed assets acquired through capital lease................. -- 811 19,951
Issuance of warrants to purchase common stock in connection
with convertible notes issued............................. 190 -- --
Conversion of notes to Series A preferred stock (net of
convertible note origination fees)........................ -- 751 --
Issuance of warrants to purchase preferred stock in
connection with loan agreement............................ -- -- 1,361
Issuance of notes receivable for officers to purchase common
stock..................................................... -- -- (3,231)
</TABLE>
See accompanying notes.
F-31
<PAGE> 195
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Description of Business
HomeGrocer.com, Inc. (the "Company") is an Internet retailer of grocery and
other consumer products. The Company operates its own distribution system
providing next-day delivery of products. The Company began delivering groceries
to the Seattle market from its first customer fulfillment center located in
Bellevue, Washington in June 1998. As of January 1, 2000, the Company was
delivering groceries from four customer fulfillment centers in the following
markets:
<TABLE>
<CAPTION>
CUSTOMER FULFILLMENT CENTER LOCATION DELIVERY COMMENCEMENT MARKET SERVED
------------------------------------ --------------------- -------------
<S> <C> <C>
Renton, WA (formerly Bellevue) June 1998 Seattle
Tualatin, OR May 1999 Portland
Irvine, CA September 1999 Orange County
Fullerton, CA November 1999 Orange County/Los Angeles
</TABLE>
The Company was incorporated on January 15, 1997 in British Columbia,
Canada as GrocerNet Home Shopping, Inc. On September 29, 1997, the Company
reincorporated in Delaware as HomeGrocer.com, Inc.
The Company has incurred significant operating losses since its inception.
To date, the Company has financed its operations primarily through the issuance
of equity securities. The Company's current expansion plans as well as costs
associated with increasing its customer base in its existing markets will
require additional financing. The Company believes that additional financing can
be obtained from existing or new investors.
Fiscal Year
The Company reports on a 52/53 week fiscal year basis that ends on the
Saturday nearest December 31. Because the Company commenced on January 15, 1997
(inception), the fiscal year ended January 3, 1998 was a 51-week year. Fiscal
years 1998 and 1999 were 52-week years that ended on January 2, 1999 and January
1, 2000, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with an original
maturity of three months or less when purchased to be cash equivalents. Cash
equivalents are carried at fair market value, which approximates cost.
Marketable Securities
The Company considers all investments with a maturity of more than three
months but less than one year when purchased and investments to be sold within
one year to be short-term and available-for-sale. The Company's marketable
securities consists of commercial paper.
F-32
<PAGE> 196
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of its holdings of cash, cash
equivalents and marketable securities. Banking and investing with credit-worthy
financial institutions mitigates risks associated with cash, cash equivalents
and marketable securities.
Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents, marketable
securities, capital leases and other long-term obligations. The carrying value
of all financial instruments approximates fair market value.
Inventories
Inventories are stated at the lower of cost (using the weighted average
cost method) or market. The Company's largest vendor accounted for approximately
29% and 32% of the Company's purchases in fiscal 1998 and 1999, respectively. In
addition, another vendor accounted for approximately 11% of the Company's
purchases in fiscal 1999. Although products are readily available from other
sources, the vendors' inability to supply product in a timely manner or on terms
acceptable to the Company could adversely affect the Company's ability to meet
customers' demands.
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation and
amortization. Fixed assets are depreciated on a straight-line basis over the
estimated useful lives of the assets, which range from two to fifteen years.
Fixed assets purchased under capital leases are amortized on a straight-line
basis over the lesser of the estimated useful life of the asset or lease term.
The Company evaluates the recoverability of its long-lived assets whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Impairment is measured by comparing the carrying value
of the long-lived assets to the estimated undiscounted future cash flows
expected to result from use of the assets and their ultimate disposition. In
circumstances where impairment is determined to exist, the Company writes down
the impaired asset to its fair value based on the present value of estimated
expected future cash flows.
Restricted Cash
The Company has entered into various lease agreements requiring standby
letters of credit. The bank has required the Company to maintain certain
balances on deposit as security for the letters of credit. These letters of
credit expire at various dates ranging from July 2000 through August 2015. As of
January 1, 2000, standby outstanding letters of credit totalled $7.9 million.
Income Taxes
The Company accounts for income taxes under the liability method. Under the
liability method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax basis of assets and
liabilities using the enacted tax rates and laws that are expected to be in
effect when the differences are recovered. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amounts expected to be
realized.
F-33
<PAGE> 197
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Revenue Recognition
The Company recognizes revenue from product sales, net of promotional
discounts, when products are delivered to customers. The Company provides an
allowance for sales returns, which have been insignificant, based upon
historical experience.
Cost of Sales
Cost of sales includes the cost of merchandise sold to customers, inbound
freight costs and the cost of free product given to customers. Cost of sales
also includes a provision for inventory loss resulting from shrinkage and
damaged and spoiled inventory. The Company adjusts its provision based on
historical experience.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include payroll and other
costs associated with operating the Company's customer fulfillment centers,
delivery fleet and related expenses, advertising and promotional expenditures,
information technology and corporate overhead.
Advertising Costs
The costs of advertising are expensed as incurred. The Company incurred
advertising costs of $82,000, $1.0 million and $7.7 million for the 51 weeks
ended January 3, 1998 and the 52 weeks ended January 2, 1999, and January 1,
2000, respectively. No similar costs were incurred in fiscal 1997.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB No. 25"), and related
interpretations, in accounting for employee stock options rather than the
alternative fair value accounting allowed by Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123").
Under APB No. 25 compensation expense related to the Company's employee stock
options is measured based on the intrinsic value of the stock option. SFAS No.
123 requires companies that continue to follow APB No. 25 to provide pro forma
disclosure of the impact of applying the fair value method of SFAS No. 123. The
Company recognizes compensation expense for options granted to non-employees in
accordance with the provisions of SFAS No. 123 and the Emerging Issues Task
Force consensus Issue 96-18, Accounting for Equity Instruments that are Issued
to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services, which require using a Black-Scholes option pricing model and
remeasuring such stock options to the current fair market value until the
performance date has been reached.
Deferred stock-based compensation consists of amounts recorded when the
exercise price of an option or the sales price of restricted stock was lower
than the subsequently determined deemed fair value for financial reporting
purposes. Deferred stock-based compensation is amortized over the vesting period
of the underlying options.
F-34
<PAGE> 198
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Net Loss Per Share
Net loss per share is calculated using the weighted average number of
common shares outstanding less the number of shares subject to repurchase.
Common stock that the Company has the right to repurchase and shares associated
with outstanding stock options, warrants and convertible preferred stock are not
included in the calculation of diluted loss per share because they are
antidilutive.
Pro forma net loss per share is calculated using the weighted average
number of common shares outstanding less shares subject to repurchase, including
the pro forma effects of the automatic conversion of all outstanding convertible
preferred stock into shares of common stock effective upon closing of the
Company's initial public offering as if such conversion had occurred at the
original date of issuance.
The following table sets forth the computation of basic and diluted loss
per share and pro forma basic and diluted loss per share for the periods
indicated:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1997 1998 1999
----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Numerator:
Net loss..................................... $ (1,355) $ (7,909) $ (83,993)
=========== =========== ===========
Denominator:
Weighted average common shares outstanding... 15,868,041 13,833,333 18,587,559
Less: Weighted average shares subject to
repurchase agreements..................... (5,833,320) (2,789,159) (3,484,861)
----------- ----------- -----------
Denominator for basic and diluted
calculation............................... 10,034,721 11,044,174 15,102,698
=========== =========== ===========
Weighted average effect of pro forma
conversion of securities:
Series A convertible preferred stock.... 8,000,000
Series B convertible preferred stock.... 16,857,142
Series C convertible preferred stock.... 21,381,550
Series D convertible preferred stock.... 4,041,417
-----------
Denominator for pro forma basic and diluted
(unaudited)............................... 65,382,807
===========
Net loss per share:
Basic and diluted............................ $ (0.14) $ (0.72) $ (5.56)
=========== =========== ===========
Pro forma basic and diluted (unaudited)...... $ (1.28)
===========
</TABLE>
At January 3, 1998, January 2, 1999 and January 1, 2000, 3,666,653,
7,642,986, and 19,782,460, respectively, shares of common stock subject to
repurchase, stock options and warrants were excluded from the computation of
actual and pro forma diluted loss per share, as their impact was antidilutive.
If the Company had reported net income, the calculation of earnings per share
would have included the dilutive effect of these common stock equivalents using
the treasury stock method.
F-35
<PAGE> 199
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Comprehensive Income (Loss)
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, Reporting Comprehensive Income ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in financial statements. This
statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company adopted SFAS No. 130 on January 4, 1998. The
Company has no items of other comprehensive income or loss.
Segment Information
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information ("SFAS No. 131"). SFAS No. 131 redefines
how operating segments are determined and requires disclosure of certain
financial and descriptive information about a company's operating segments. The
Company adopted SFAS No. 131 on January 4, 1998. The Company operates in one
principal business segment across domestic markets.
New Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 requires all costs
related to the development of internal use software other than those incurred
during the application development stage to be expensed as incurred. Costs
incurred during the application development stage are required to be capitalized
and amortized over the estimated useful life of the software. The Company
adopted SOP 98-1 on January 3, 1999 and there was no significant impact on the
Company's financial position or operating results.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Reporting on the Costs of Start-Up Activities
("SOP 98-5"). SOP 98-5 requires costs of start-up activities and organization
costs be expensed as incurred. The Company adopted SOP 98-5 on January 3, 1999
and there was no significant impact on the Company's financial position or
operating results.
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
("SAB No. 101"), which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. SAB No. 101 did not impact the
Company's revenue recognition policy.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133"). SFAS No. 133 is effective
for fiscal years beginning after June 15, 2000. SFAS No. 133 requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income. The Company does not expect that the
adoption of SFAS No. 133 will have a material impact on its financial statements
because the Company does not currently hold any derivative instruments.
F-36
<PAGE> 200
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. FIXED ASSETS
Fixed assets, at cost, consist of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 1,
1999 2000
---------- ----------
<S> <C> <C>
Computer equipment and software........................... $ 923 $17,163
Machinery and equipment................................... 110 8,000
Delivery fleet............................................ -- 12,846
Furniture and fixtures.................................... 224 1,951
Leasehold improvements.................................... 162 6,481
Construction in progress.................................. -- 8,564
------ -------
1,419 55,005
Less accumulated depreciation and amortization............ (182) (2,939)
------ -------
$1,237 $52,066
====== =======
</TABLE>
At January 2, 1999 and January 1, 2000, fixed assets held under capital
leases totaled $811,000 and $20.8 million, respectively, and accumulated
amortization for these assets totaled $25,000 and $867,000, respectively.
Construction in progress at January 1, 2000 consists primarily of leasehold
improvements and equipment purchases related to customer fulfillment centers
which were not placed in service as of January 1, 2000.
The Company capitalized interest of approximately $246,000 in fiscal 1999
during the acquisition and construction of certain assets.
3. DEBT
Long-Term Debt
The Company has entered into various Payment Plan Agreements with Oracle
Credit Corporation. The dates of the agreements range from November 1998 through
May 1999 and have payment terms ranging from seven to 12 quarters. The interest
rates on the agreements range from 6.72% to 13.65%.
Maturities of the amounts outstanding under the Payment Plan Agreements are
as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
2000.................................................... $ 980
2001.................................................... 535
2002.................................................... 214
------
$1,729
======
</TABLE>
In September 1999, the Company entered into a Subordinated Loan and
Security Agreement with Comdisco. Under the terms of the agreement, Comdisco
agreed to loan up to $10.0 million to the Company in minimum installments of
$1.0 million. Borrowings under the agreement are due and payable in 36 equal
monthly payments and amounts outstanding bear interest at 11%. No amounts were
outstanding under the agreement at January 1, 2000. In connection with the
Subordinated Loan and Security Agreement, the Company granted Comdisco a warrant
to purchase 275,862 shares of
F-37
<PAGE> 201
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Series D preferred stock at an exercise price of $5.80 per share. The warrant is
exercisable for a period of ten years from the date of issuance or five years
from the date of the Company's initial public offering, whichever is earlier.
The fair value of this warrant was determined to be $1.4 million and is being
amortized as interest expense over 40 months which is the term of the underlying
Subordinated Loan and Security Agreement. The fair value of the warrant was
determined using the following assumptions: expected life of ten years;
risk-free interest rate of 6.25%; no dividends during the expected term and
volatility of 80%.
During fiscal 1998, the Company incurred debt of $400,000 through a credit
facility with Silicon Valley Bank bearing interest at prime plus 1% and
requiring 36 equal payments commencing January 1999. The general assets of the
Company exclusive of intellectual property secured the facility. All amounts
outstanding under the credit facility at January 2, 1999 were repaid in August
1999 and the agreement was terminated.
Convertible Promissory Notes
In November and December 1997, the Company issued convertible promissory
notes with an aggregate face amount of $900,000. The notes bear interest at 6%
per annum and were convertible or redeemable upon completion of the Series A
preferred stock financing. The notes also contained a provision providing for
the issuance of warrants to purchase 1,800,000 shares of common stock at $0.38
per share and expire on the earlier of December 31, 2000, or an initial public
offering. The fair value of these warrants was determined to be $190,000 and was
amortized to interest expense during fiscal 1997 and 1998. The fair value was
calculated at the time of issuance using the Black-Scholes pricing model with
the following assumptions: expected life of three years; risk free interest rate
of 5%; no dividends during the term and volatility of 50%. During fiscal 1999,
warrants to purchase 750,000 shares were exercised and the remaining warrants to
purchase 1,050,000 shares are exercisable at January 1, 2000.
In February 1998, holders of the convertible notes elected to convert
$800,000 of the outstanding notes into 1,600,000 shares of Series A preferred
stock. The Company redeemed the remaining $100,000 outstanding convertible
notes.
4. LEASES
The Company leases its corporate offices, operating facilities, certain
operating equipment and its delivery fleet under noncancelable leases. The
leases have lives of three to 15 years and generally contain renewal options for
up to ten years.
F-38
<PAGE> 202
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Aggregate rental expense for the 51 weeks ended January 3, 1998, 52 weeks
ended January 2, 1999 and the 52 weeks ended January 1, 2000 was $50,000,
$603,000 and $3.2 million, respectively. Future minimum payments under capital
leases and noncancelable operating leases during the next five years for leases
with a remaining life in excess of one year at January 1, 2000 were as follows
(in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
2000................................................ $ 4,872 $ 8,363
2001................................................ 4,894 9,090
2002................................................ 4,482 9,466
2003................................................ 3,544 9,754
2004................................................ 2,125 8,909
Thereafter.......................................... 6,283 46,586
------- -------
Total minimum payments.................... 26,200 $92,168
=======
Less amounts representing interest.................. 6,078
-------
Present value of minimum lease payments............. 20,122
Less current portion of capital lease obligations... 3,081
-------
Noncurrent capital lease obligations................ $17,041
=======
</TABLE>
In January 2000, leases for four additional operating facilities were
executed with future minimum lease commitments totalling $36.4 million.
In July and October 1998, the Company issued warrants to purchase 304,120
shares of common stock in connection with equipment lease and loan agreements.
The fair value of this warrant was determined to be $27,000 and is being
amortized to interest expense over the terms of the agreements. The fair value
of the warrants was calculated at the time of issuance using the Black-Scholes
option pricing model with the following assumptions: expected life of seven
years; risk-free interest rate of 5%; no dividends during the expected term and
volatility of 50%. This warrant has an exercise price of $0.50 per share and is
exercisable on or before the later of seven years from the date of issuance, or
three years from the closing of an initial public offering.
In November 1998, the Company entered into a Master Lease Agreement with
Comdisco, Inc. ("Comdisco"), under which Comdisco agreed to provide the Company
lease financing, up to an aggregate purchase price of $3.0 million. In addition,
during fiscal 1999, Comdisco agreed to provide an additional $5.0 million of
lease financing. As of January 2, 1999 and January 1, 2000, leases executed
pursuant to this loan agreement aggregated to approximately $811,000 and $8.0
million, respectively and provide for equal monthly payments over a 30, 42- or
48-month term with implicit interest rates ranging from 8% to 18%. Amounts
outstanding under the lease agreement are secured by the equipment which has a
net book value of $6.8 million at January 1, 2000. The Company accounts for its
obligations under the Master Lease Agreement as capital leases. As part of the
Master Lease Agreement, the Company granted Comdisco a warrant to purchase
153,600 shares of Series C preferred stock at an exercise price of $0.78 per
share. This warrant is exercisable for a period of seven years from the date of
issuance or three years from the date of the Company's initial public offering,
whichever is longer. The fair value of this warrant was determined to be
$84,000. The fair value of the warrants was calculated at the time of issuance
using the Black-Scholes pricing
F-39
<PAGE> 203
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
model with the following assumptions: expected life seven years; risk-free
interest rate of 5%; no dividends during the expected term and volatility of
50%.
In August 1999, the Company entered into a Lease Agreement with Valley
Freightliner, Inc ("VFI") and a related financing agreement with Mercedes-Benz
Credit Corporation ("MBCC"). Under the terms of the Lease Agreement, the Company
will lease its delivery fleet from VFI for a period of 84 months following
receipt of the vehicles. The Company has no option to purchase the vehicles at
any time and is obligated to pay VFI a guaranteed residual value of $12,500 per
vehicle at the end of the lease term. The Company accounts for its obligations
under this Lease Agreement as capital leases. The financing agreement entered
into with MBCC is a revolving line of credit under which the Company may borrow
up to $15.0 million for the purchase of delivery vehicles or to finance the
lease of such vehicles. As of January 1, 2000, leases executed pursuant to this
agreement aggregated approximately $12.7 million. Amounts available under the
agreement will increase to $20.0 million if the Company raises an additional
$44.0 million in equity financing. The financing agreement restricts the
Company's ability to pay dividends and expires on June 30, 2000. Borrowings
under the line are payable in 84 monthly installments and are secured by the
delivery vehicles which have a net book value of $12.6 million at January 1,
2000.
5. INCOME TAXES
The Company did not provide any current or deferred United States federal
income tax provision or benefit for any of the periods presented because it has
experienced operating losses since inception. The Company provided a full
valuation allowance on the net deferred tax asset, consisting primarily of net
operating loss carryforwards, because management believes there is substantial
uncertainty as to its ability to use such tax loss carryforwards.
As of January 1, 2000, the Company had approximately $66.0 million of net
operating loss carryforwards for federal income tax purposes, which expire
beginning in 2017. In 1999, due to the issuance and sale of Series C preferred
stock, the Company incurred an ownership change pursuant to applicable
regulations under the Internal Revenue Code of 1986, as amended. The Company's
use of the $11.5 million of net operating losses incurred through the date of
ownership change will be limited to approximately $1.0 million per year in order
to offset future taxable income. To the extent that any single-year loss is not
utilized to the full amount of the limitation, such unused loss is carried over
to subsequent years until the earlier of its utilization or the expiration of
the relevant carryforward period. The Company's anticipated initial public
offering is not likely to cause an additional ownership change.
F-40
<PAGE> 204
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 2, 1999 JANUARY 1, 2000
--------------- ---------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................... $ 2,796 $ 23,109
Stock-based compensation............................ -- 307
Accrued liabilities and other....................... 336 370
------- --------
Total deferred tax assets......................... 3,132 23,786
Deferred tax liabilities -- depreciation and
other............................................. 46 575
------- --------
Net deferred tax assets........................... 3,086 23,211
Less valuation allowance.......................... (3,086) (23,211)
------- --------
$ 0 $ 0
======= ========
</TABLE>
Because the Company's utilization of these deferred tax assets is dependent
on future profits that are not assured, a valuation allowance equal to the
deferred tax assets has been provided. The valuation reserve increased $2.6
million and $20.1 million during fiscal 1998 and 1999, respectively.
6. SHAREHOLDERS' EQUITY
Stock Split
In November 1999, the Company's shareholders approved a two-for-one stock
split of shares, warrants and options outstanding which became effective on
November 23, 1999. All share and per share amounts in the accompanying financial
statements have been adjusted to reflect the stock split.
Proposed Initial Public Offering of Common Stock
On December 14, 1999, the Board of Directors authorized the Company to
proceed with an initial public offering of its common stock. If the offering is
consummated as currently expected, all of the outstanding preferred stock will
automatically convert into common stock. The unaudited pro forma shareholders'
equity at January 1, 2000 reflects the anticipated conversion of all outstanding
shares of Series A, Series B, Series C and Series D preferred stock into
73,206,738 shares of common stock upon completion of the offering.
Common Stock
In fiscal 1997, the Company sold 15,200,000 shares of common stock for cash
consideration of $292,000.
In September 1997, the Company's founders entered into common shareholders'
agreements whereby the Company had the right to repurchase 6,000,000 shares of
common stock held by the founders at the original purchase price of $0.0005 per
share if their employment terminated under certain circumstances. The Company's
right of repurchase originally lapsed quarterly from December 31, 1997 through
September 30, 2000. In addition, the Company had the option to purchase any
unrestricted shares from the founders upon termination at fair market value.
F-41
<PAGE> 205
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In December 1997, one founder left the employment of the Company. The
Company exercised its repurchase right in February 1998 as to 2,000,000 shares
for $1,000. In August 1998, another founder left the employment of the Company.
The Company exercised its repurchase right as to 1,333,334 shares for $667. The
Company did not exercise its right to purchase either of the founders'
unrestricted shares.
In August 1998, as a part of the Series B preferred stock financing, the
lapsing schedule for the Company's remaining founder was accelerated such that
his remaining shares became fully vested by January 1, 2000.
The Company entered into a service agreement in April 1997 with a
consultant pursuant to which the Company issued 800,000 shares of common stock
($230,000) in 1997 and 500,000 shares of Series A preferred stock ($250,000) in
1998 for services provided. In October 1998, the service agreement was
terminated and the consultant returned 250,000 shares of common stock.
Preferred Stock
In February, April, June and July 1998, the Company issued 8,000,000 shares
of Series A preferred stock. Net proceeds of $3.7 million were obtained from the
conversion of $800,000 of notes for 1,600,000 shares, the sale of 5,900,000
shares at $0.50 per share and the issuance of 500,000 shares in exchange for
services. In June 1998, the Company issued a warrant to purchase 965,666 shares
of common stock to an investor as part of the Series A preferred stock
financing. The exercise price of this warrant is $0.50 per share and it is
exercisable through December 31, 2000, but terminates upon an initial public
offering.
In September 1998, 16,857,142 shares of Series B preferred stock were
issued at a price of $0.35 per share, resulting in net proceeds of $5.9 million.
In January and February 1999, certain preferred stock shareholders provided
$2.0 million of bridge financing. In April and May 1999, 29,942,050 shares of
Series C preferred stock were sold at a price of $1.75 per share, resulting in
net proceeds of $52.4 million, including $1.7 million of shareholder loans
obtained in 1999 that were converted into 969,464 shares of Series C preferred
stock. As part of the Series C preferred stock offering, the Company granted one
of the Series C investors an initial public offering purchase option, which was
waived in December 1999.
In September, October and November 1999, 18,407,546 shares of Series D
preferred stock were sold at a price of $5.80 per share, resulting in net
proceeds of $106.5 million.
Subject to certain conditions, the preferred stock has mandatory conversion
requirements in the event of a qualified initial public offering of the
Company's common stock in which net proceeds exceed $75.0 million and a price of
not less than $5.80 per share, or if a majority of the preferred shareholders,
voting as a single class, elects to convert to common stock. In the event of any
distribution of assets upon liquidation of the Company, holders of Series A,
Series B, Series C and Series D preferred stock shall first receive a
liquidation preference of $0.50 per share, $0.35 per share, $1.75 per share and
$5.80 per share respectively, plus cumulative dividends, if and when declared,
at an annual rate of 9%. Each share of outstanding preferred stock has voting
rights equivalent to the number of common shares issuable, if converted.
F-42
<PAGE> 206
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Stock Option Plans
In October 1997, the Company adopted the 1997 Stock Incentive Compensation
Plan ("1997 Plan"), under which the Company grants incentive stock options and
nonqualified stock options to employees, officers and consultants. Incentive
stock options are issued only to employees and are exercisable at prices that
are no less than the fair market value of the stock on the date of grant.
Generally, options granted under the 1997 Plan become exercisable immediately
and vest over four years. Shares issued upon exercise of options that are
unvested are restricted and subject to repurchase by the Company upon
termination of employment or services and such restrictions lapse over the
original vesting schedule. During fiscal 1999, the Company repurchased 12,000
shares of restricted common stock from employees who terminated prior to the
lapsing of the repurchase restrictions at their original price of an aggregate
of $4,000. At January 1, 2000, 4,996,870 shares of restricted common stock
issued were subject to repurchase at a weighted average exercise price of $0.97
per share. Nonqualified stock options are granted at a price and vesting period
determined by the Plan administrator. Options under the 1997 Plan generally have
a term of ten years. Unless earlier terminated by the Board of Directors, the
1997 Plan expires in October 2007.
On December 14, 1999, the Company's 1999 Stock Incentive Plan ("1999 Stock
Plan") was adopted by the Board of Directors, subject to shareholder approval. A
total of 12,500,000 shares have been reserved for issuance under the plan
subject to an annual increase on the first day of each of the Company's next
five fiscal years beginning in fiscal 2001 equal to the lesser of 2,500,000
shares or 2.5% of outstanding shares on the last day of the preceding fiscal
year. The number of options granted, the exercise price of the option and the
option vesting period will be determined by the Plan administrator, subject to
certain restrictions. Unless terminated earlier by the Board of Directors, the
1999 Stock Plan will terminate in December 2009.
On December 14, 1999, the Company's 1999 Directors' Stock Option Plan
("1999 Directors' Plan") was adopted by the Board of Directors, subject to
shareholder approval and the completion of the initial public offering. A total
of 500,000 shares of common stock has been reserved for issuance under the plan.
The 1999 Directors' Plan provides for a nonqualified stock option grant to
purchase 20,000 shares of common stock on the date on which the individual
becomes a non-employee director. Thereafter, on the date of the Company's annual
shareholders' meeting, each non-employee director who has served as a director
of the Company for six months will be granted an additional option to purchase
5,000 shares. Options granted under the plan will vest ratably over four years
and have a term of ten years. Unless terminated earlier, the 1999 Directors Plan
will terminate in December 2009.
F-43
<PAGE> 207
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
A summary of activity related to the Company's 1997 plan follows:
<TABLE>
<CAPTION>
SHARES AVAILABLE WEIGHTED-AVERAGE
FOR FUTURE GRANT OPTIONS EXERCISE PRICE
---------------- ---------- ----------------
<S> <C> <C> <C>
1997 Plan adoption..................... 10,124,334 -- $ --
Granted.............................. (4,509,000) 4,509,000 0.24
Canceled............................. 656,000 (656,000) 0.25
----------- ----------
Balance, January 2, 1999............... 6,271,334 3,853,000 0.24
1997 Plan amendment.................. 5,800,000 -- --
Granted.............................. (10,810,400) 10,810,400 1.39
Exercised............................ -- (8,250,870) 0.69
Canceled............................. 526,188 (526,188) 0.62
1999 Stock Plan adoption............. 12,500,000 -- --
----------- ----------
Balance, January 1, 2000............... 14,287,122 5,886,342 $1.69
=========== ==========
</TABLE>
The following information is provided for options outstanding and vested at
January 1, 2000:
<TABLE>
<CAPTION>
OUTSTANDING
--------------------------------------------- VESTED
WEIGHTED- ------------------------
WEIGHTED- AVERAGE NUMBER WEIGHTED-
RANGE OF NUMBER OF AVERAGE REMAINING OF AVERAGE
EXERCISE PRICES OPTIONS EXERCISE PRICE CONTRACTUAL LIFE OPTIONS EXERCISE PRICE
--------------- --------- -------------- ---------------- ------- --------------
<S> <C> <C> <C> <C> <C>
$0.00 - $0.09 40,000 $0.09 8.3 40,000 $0.09
$0.10 - $0.25 414,442 $0.25 8.7 178,953 $0.25
$0.26 - $0.45 2,825,300 $0.45 9.6 100,000 $0.45
$0.46 - $2.50 1,781,000 $2.50 9.9 8,399 $2.50
$2.51 - $5.00 825,600 $5.00 10.0 -- $5.00
--------- -------
$0.00 - $5.00 5,886,342 $1.69 9.7 327,352 $0.35
========= =======
</TABLE>
Under APB No. 25, no compensation expense is recognized when the exercise
price of the Company's employee stock options equals the fair value of the
underlying stock on the date of grant. Deferred stock-based compensation was
recorded when the exercise price of an option or the sales price of restricted
stock was lower than the subsequently determined deemed fair value for financial
reporting purposes of the underlying common stock. The Company recorded
aggregate deferred stock-based compensation of $67.7 million in fiscal 1999 and
will amortize the deferred stock-based compensation over the vesting period of
the underlying options, which is typically four years. Amortization of deferred
stock-based compensation was $26.1 million in fiscal 1999.
Had the Company elected to recognize compensation cost based on the fair
value of the options as prescribed by SFAS 123, the pro forma net loss would
have been $8.0 million or $(0.73) per share in fiscal 1998 and pro forma net
loss of $80.0 million or $(5.30) per share in fiscal 1999. The fair value of
each option grant was estimated on the date of grant using the minimum value
method and the following assumptions: average expected option life of four
years, risk-free interest rates from 4.1% to 6.4%, and no expected dividends.
The weighted-average fair value of options granted during 1998 and 1999 was
$0.04 and $3.93 per share, respectively. No options were granted during 1997.
The initial impact on pro forma net loss may not be representative of
compensation expense in future
F-44
<PAGE> 208
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
years, when the effect of the amortization of multiple awards will be reflected
in the results of operations.
A total of 1,795,350 options under the 1997 Plan have been granted to
employees, directors and consultants who reside in California. Some of these
optionees have exercised their options prior to January 1, 2000. The 1997 Plan
did not include certain provisions required by California state securities laws.
The Company plans to offer to repurchase shares that were exercised (782,000
shares) and to repurchase unexercised options (1,013,350 options). The
rescission offer aggregates $344,000 for outstanding common stock and $562,000
for outstanding stock options. The Company expects to make the rescission offer
in March 2000 and this offer will remain open for 30 days. Due to this
rescission offer, the $344,000 related to outstanding common stock should be
classified in the January 1, 2000 balance sheet outside of shareholders' equity
as mezzanine equity until the rescission offer expires, however this amount was
included within shareholders' equity because the amount is not considered
material.
Stock Option Grants and Restricted Stock Sales
In September 1999, two officers of the Company were granted nonqualified
stock options to purchase 6,150,000 shares of the Company's common stock for
$0.45 per share. The options were granted outside of the Company's 1997 Plan and
vest over a period of four years. Each option agreement also provide that in the
event the officer's employment is terminated for other than cause or in the
event of a change in control whereby the officer is not offered a position with
similar responsibilities, additional shares will vest to the officer. These
shares are subject to a repurchase option which gives the Company the right to
purchase such shares at a price equal to that paid by the officers. The
repurchase option expires over the original vesting schedule of the underlying
option and no shares were vested at January 1, 2000. In addition to the stock
options, in September 1999, the Company sold 2,050,000 shares of restricted
common stock to the same two officers at $0.45 per share. The shares are fully
vested but are subject to a right of first refusal, whereby the Company has the
right to purchase the shares for the same price and terms as offered to the
officers by a third party. This right expires upon the Company's successful
completion of an initial public offering.
In September 1999, the Company loaned the two officers $3,231,000 to enable
them to exercise the stock options granted to them and purchase the restricted
shares of the Company's common stock. The promissory notes are with full
recourse against the officers, bear interest at 5.98% and are payable in full on
September 9, 2004. Principal amounts outstanding under the notes are reflected
as a component of shareholders' equity.
F-45
<PAGE> 209
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Common Stock Reserved
The following shares of common stock were reserved for future issuance:
<TABLE>
<CAPTION>
JANUARY 1,
2000
----------
<S> <C>
Outstanding stock options................................... 5,886,342
Stock options available for future grant.................... 14,287,122
Warrants to purchase common stock........................... 2,319,786
Conversion of convertible preferred stock:
Series A.................................................. 8,000,000
Series B.................................................. 16,857,142
Series C.................................................. 29,942,050
Series D.................................................. 18,407,546
Warrant to purchase preferred stock that is convertible to
common stock.............................................. 429,462
----------
Total common shares reserved for future issuance....... 96,129,450
==========
</TABLE>
7. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) Plan that is available to all employees over the
age of 21 who have been with the Company three months. Eligible employees may
contribute up to 20% of their annual compensation to the 401(k) Plan, subject to
limitations imposed by federal income tax regulations. Each participant is fully
vested in his or her deferred salary contribution. The Company matches
participants' contributions to the 401(k) Plan up to 5% of the participants'
compensation if the participant has performed at least 1,000 hours of service
during the year. The Company's fiscal 1998 and 1999 matching contributions were
$23,000 and $318,000, respectively. The Company's matching contributions vest
33% after two years of service, 66% after three years of service and 100% after
four years of service.
On December 14, 1999, the Company's 1999 Employee Stock Purchase Plan
("1999 ESPP") was adopted by the Board of Directors, subject to shareholder
approval. If approved by the shareholders, the 1999 ESPP will become effective
upon the completion of the initial public offering and completion of the initial
public offering. A total of 3,000,000 shares of common stock has been reserved
for issuance under the 1999 ESPP plus an annual automatic increase on the first
day of each fiscal year beginning in 2001 and continuing through 2005 equal to
the lesser of 500,000 shares, 0.5% of the Company's outstanding shares or the
number of shares determined by the Board of Directors. Under the 1999 ESPP,
eligible employees may purchase common stock at 85% of the lesser of the fair
market value of the Company's common stock on the first or last day of the
previous six or 12 months. Employees may end their participation in the 1999
ESPP at any time during the offering period. Unless terminated earlier, the 1999
ESPP will terminate in December 2019.
8. COMMITMENTS AND CONTINGENCIES
In November 1999, the Company entered into a noncancelable advertising
agreement with one of its investors under which the Company will pay an
aggregate sum of $10.0 million for a maximum of 2.0 million advertising
mailings. The $10.0 million is due in eight quarterly installments commencing on
March 31, 2000, subject to acceleration if certain milestones are achieved.
F-46
<PAGE> 210
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
As of January 1, 2000, the Company has signed agreements to acquire
additional delivery vehicles with an estimated cost of $35.6 million and had
construction-related commitments of approximately $6.5 million.
The Company is party to routine claims and litigation incidental to its
business. The Company believes the ultimate resolution of these routine matters
will not have a material adverse effect on its financial position, results of
operations or cash flows.
9. SUBSEQUENT EVENT
On February 15, 2000, the Company entered into a marketing agreement with
America Online ("AOL"), an Internet online service provider. Under the terms of
the agreement, AOL has agreed to promote the Company online and to deliver a
minimum number of annual page views. Over the five year term of the agreement,
the Company is obligated to make payments totaling up to $60 million to AOL and
pay a referral fee for each new customer referred by AOL to the Company above
specified thresholds.
* * * * * * *
F-47
<PAGE> 211
HOMEGROCER.COM, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JULY 1, JANUARY 1,
2000 2000
----------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $158,571 $ 39,806
Marketable securities....................................... 0 37,762
Inventories................................................. 6,890 2,555
Prepaid expenses and other current assets................... 16,373 3,032
-------- --------
Total current assets...................................... 181,834 83,155
Fixed assets, net........................................... 126,619 52,066
Deposits and other long-term assets......................... 6,742 3,776
Restricted cash............................................. 20,304 7,932
-------- --------
Total assets.............................................. $335,499 $146,929
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................ $ 4,315 $ 4,396
Accrued liabilities......................................... 12,896 4,856
Accrued compensation and related liabilities................ 9,190 3,249
Current portion of capital lease obligations................ 4,005 3,081
Current portion of long-term debt........................... 3,934 980
-------- --------
Total current liabilities................................. 34,340 16,562
Capital lease obligations, less current portion............. 22,013 17,041
Long-term debt, less current portion........................ 6,259 749
Other long-term liabilities................................. 1,259 430
-------- --------
Total liabilities......................................... 63,871 34,782
Commitments and contingencies
Shareholders' equity:
Convertible preferred stock, no par value:
10,000,000 and 78,357,142 shares authorized as of July 1,
2000 and January 1, 2000: Issued and outstanding
shares -- none and 73,206,738 as of July 1, 2000 and
January 1, 2000, respectively............................. -- 170,047
Common stock, no par value:
1,000,000,000 and 130,000,000 shares authorized as of July
1, 2000 and January 1, 2000: Issued and outstanding shares
-- 128,043,971 and 29,605,536 as of July 1, 2000 and
January 1, 2000, respectively............................. 501,800 80,207
Notes receivable from officers for common stock............. (3,231) (3,231)
Deferred stock-based compensation........................... (31,744) (41,619)
Accumulated other comprehensive loss........................ (88) 0
Accumulated deficit......................................... (195,109) (93,257)
-------- --------
Total shareholders' equity................................ 271,628 112,147
-------- --------
Total liabilities & shareholders' equity.................. $335,499 $146,929
======== ========
</TABLE>
See accompanying notes to the unaudited financial statements.
F-48
<PAGE> 212
HOMEGROCER.COM, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
13 WEEKS 13 WEEKS 26 WEEKS 26 WEEKS
ENDED ENDED ENDED ENDED
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales............................. $ 29,793 $ 3,442 $ 51,008 $ 5,220
Cost of merchandise sold.............. 22,312 2,807 39,827 4,294
Customer fulfillment center
expenses............................ 22,496 2,145 40,140 3,389
Marketing expenses.................... 15,729 1,353 21,317 2,088
Technology operations and development
expenses............................ 8,114 2,130 14,580 3,218
Preopening expenses................... 5,364 256 7,379 256
General & administrative expenses..... 9,329 1,779 17,640 2,603
Merger expenses....................... 1,487 0 1,487 0
Stock-based compensation expense...... 6,719 714 14,862 822
------------ ----------- ----------- -----------
Loss from operations.................. (61,757) (7,742) (106,224) (11,450)
Interest expense...................... (334) (130) (997) (151)
Interest income....................... 3,663 352 5,351 356
Other income/(expense)................ 41 (125) 18 (124)
------------ ----------- ----------- -----------
Net loss............................ $ (58,387) $ (7,645) $ (101,852) $ (11,369)
============ =========== =========== ===========
Basic and diluted net loss per
share............................... $ (0.50) $ (0.52) $ (1.26) $ (0.85)
============ =========== =========== ===========
Weighted average shares outstanding
used to compute basic and diluted
net loss per share.................. 116,399,865 14,571,046 80,538,749 13,375,947
============ =========== =========== ===========
</TABLE>
See accompanying notes to the unaudited financial statements.
F-49
<PAGE> 213
HOMEGROCER.COM, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
26 WEEKS 26 WEEKS
ENDED ENDED
JULY 1, JULY 3,
2000 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................. $(101,852) $(11,369)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation............................................ 8,144 318
Amortization............................................ 120 0
Stock-based compensation expense........................ 14,862 627
Stock options issued for services....................... 0 195
Changes in operating assets and liabilities:
Prepaid expenses and other current assets............... (13,341) (567)
Inventories............................................. (4,335) (279)
Accounts payable........................................ (81) 1,248
Accrued liabilities..................................... 8,429 345
Accrued compensation and related liabilities............ 5,552 560
--------- --------
Net cash used in operating activities................ (82,502) (8,922)
INVESTING ACTIVITIES:
Purchases of fixed assets................................. (75,195) (2,840)
Sales and maturities of marketable securities............. 37,762 0
Deposits and other long-term.............................. (2,257) (415)
Restricted cash........................................... (12,372) (2,250)
--------- --------
Net cash used in investing activities................ (52,062) (5,505)
FINANCING ACTIVITIES:
Net proceeds from sale of preferred stock -- Series C..... 0 52,350
Proceeds from initial public offering..................... 243,503 0
Proceeds from exercise of stock options................... 2,303 942
Proceeds from exercise of warrants........................ 877 0
Repurchase of common stock................................ (124) 0
Proceeds from long-term debt.............................. 10,000 2,121
Repayments of long-term debt.............................. (1,536) 0
Repayments of capital lease obligations................... (1,694) (125)
--------- --------
Net cash provided by financing activities............ 253,329 55,288
--------- --------
Net increase in cash and equivalents........................ 118,765 40,861
Cash and equivalents, beginning of period................... 39,806 1,084
--------- --------
Cash and equivalents, end of period......................... $ 158,571 $ 41,945
========= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest.................... $ 1,505 $ 158
NONCASH FINANCING AND INVESTING ACTIVITIES:
Fixed assets acquired through capital lease arrangements.... $ 7,561 $ 2,054
</TABLE>
See accompanying notes to the financial statements.
F-50
<PAGE> 214
HOMEGROCER.COM
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
HomeGrocer.com, Inc. have been prepared in conformity with generally accepted
accounting principles for interim financial information and with the
instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. In the opinion of the Company's management, the
statements include all adjustments necessary, which are of a normal and
recurring nature, for the fair presentation of the results of the interim
periods presented. These financial statements should be read in conjunction with
the Company's audited financial statements for the year ended January 1, 2000,
included in the Company's Registration Statement on Form S-1 (File No.
333-93015) dated March 9, 2000, filed with the Securities and Exchange
Commission in connection with the Company's initial public offering. The results
of operations for any interim period are not necessarily indicative of the
results of operations for any other interim period or for a full fiscal year.
The Company reports on a 52/53-week fiscal year basis that ends on the
Saturday nearest December 31. The quarters ended July 1, 2000 and July 3, 1999
were 13-week quarters.
2. DESCRIPTION OF BUSINESS
HomeGrocer.com, Inc. (the "Company") is an Internet retailer of grocery and
other consumer products. The Company operates its own distribution system
providing next-day delivery of products within a customer-designated delivery
period. The Company began delivering groceries to the Seattle area from its
first customer fulfillment center ("CFC") located in Bellevue, Washington in
June 1998. As of July 1, 2000, the Company was delivering groceries from eight
CFCs serving the Seattle, Washington; Portland, Oregon; Orange County, Los
Angeles and San Diego, California; and Dallas, Texas geographic areas.
3. INITIAL PUBLIC OFFERING
On March 10, 2000, the Company completed its initial public offering
("IPO") of 22,000,000 shares of common stock at a price of $12.00 per share. The
IPO, net of underwriting and other issuance costs resulted in approximately
$243.5 million of net proceeds to the Company. Concurrent with the closing of
the offering, all of the outstanding convertible preferred stock was converted
into an aggregate of 73,206,738 shares of common stock.
4. REINCORPORATION
In March 2000, the Company reincorporated into the State of Washington and
eliminated the par value of its common and preferred stock. The Company also
increased its authorization to issue common shares to 1,000,000,000 and
preferred shares to 10,000,000.
5. AGREEMENT TO MERGE WITH WEBVAN GROUP, INC.
On June 25, 2000, the Company entered into a definitive merger agreement
with Webvan Group, Inc. The merger is expected to close late in the third
quarter or early in the fourth quarter of fiscal 2000 upon satisfaction of
customary closing conditions and receipt of governmental and shareholder
approvals. Under the terms of the agreement, HomeGrocer.com shareholders will
receive 1.07605 shares of Webvan common stock in exchange for each share of
HomeGrocer.com common
F-51
<PAGE> 215
HOMEGROCER.COM
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
stock. Outstanding stock options and warrants to purchase shares of
HomeGrocer.com stock will be converted to options and warrants to purchase
shares of Webvan common stock at the same exchange ratio. Webvan intends to
account for the merger as a purchase transaction.
6. RECENT ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation (FIN 44), that clarifies guidance for certain issues related to the
application of APB Opinion No. 25, Accounting for Stock Issued to Employees (APB
25). The adoption of FIN 44 by the Company on July 1, 2000 had no impact on the
Company's operating results or financial position. The Company does not expect
that FIN 44 will impact the way it accounts for its equity instruments in the
future.
In May 2000, the Emerging Issues Task Force reached a consensus on Issue
00-14, Accounting for Certain Sales Incentives. The Issue addresses the
accounting for sales incentives offered by vendors without charge to customers
that can be used in a single exchange transaction. The consensus is required to
be adopted prospectively in the first fiscal quarter beginning after May 18,
2000. The Company does not believe that Issue 00-14 will impact how it accounts
for free product or sales discounts.
7. EARNINGS PER SHARE
Net loss per share is computed using the weighted average number of shares
of common stock outstanding less the number of shares that the Company has the
right but not the obligation to repurchase. Shares associated with common stock
subject to repurchase, stock options and warrants are not included in the
calculation of diluted net loss per share because they are anti-dilutive.
The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated:
<TABLE>
<CAPTION>
13 WEEKS ENDED 26 WEEKS ENDED
-------------------------- -------------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
------------ ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Numerator:
Net loss............................ $ (58,387) $ (7,645) $ (101,582) $ (11,369)
============ =========== =========== ===========
Denominator:
Weighted average shares
outstanding...................... 128,087,015 15,819,761 92,352,347 14,386,983
Less: Weighted average shares
subject to repurchase............ 11,687,150 1,248,715 11,813,598 1,011,036
------------ ----------- ----------- -----------
Denominator for basic and diluted..... 116,399,865 14,571,046 80,538,749 13,375,947
============ =========== =========== ===========
Net loss per share:
Basic and diluted................... $ (0.50) $ (0.52) $ (1.26) $ (0.85)
============ =========== =========== ===========
</TABLE>
At July 1, 2000, 21,592,708 shares of common stock subject to repurchase,
stock options and warrants were excluded from the computation of actual diluted
loss per share, as their impact was anti-dilutive. If the Company had reported
net income, the calculation of earnings per share would have included the
dilutive effect of these common stock equivalents using the treasury stock
method.
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<PAGE> 216
HOMEGROCER.COM
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
8. COMPREHENSIVE NET LOSS
Comprehensive net loss, as defined by accounting and reporting standards,
consists of the Company's net loss as reported and any unrealized gains or
losses on cash equivalents and investments. During the second quarter, the
Company recorded $4,000 of unrealized gains on its cash equivalents bringing the
Company's accumulated other comprehensive loss to $88,000. There were no items
of other comprehensive income or loss in the prior year.
9. COMMITMENTS AND CONTINGENCIES
In February 2000, the Company entered into a marketing agreement with
America Online ("AOL"). Under the terms of the agreement, AOL has agreed to
promote the Company online and to deliver a minimum number of annual page views.
Over the five year term of the agreement, the Company is obligated to make
payments totaling up to $60 million to AOL and pay a referral fee for each new
customer referred by AOL to the Company above specified thresholds.
In February 2000, the Company borrowed $10.0 million under its Subordinated
Loan and Security Agreement with Comdisco. Borrowings under the agreement are
due in 36 monthly installments and bear interest at 11%. The first installment
of approximately $326,400 was paid on March 1, 2000.
In March 2000, the amount available under the Company's revolving line of
credit with Mercedes-Benz Credit Corporation was increased from $15.0 million to
$20.0 million. As of July 1, 2000, no amounts remained available for borrowing
under the line of credit. Borrowings under the line are payable in 84 monthly
installments and are secured by the delivery vehicles.
As of July 1, 2000, the Company had capitalized approximately $21.4 million
consisting primarily of construction costs, prepaid rent and deposits for
unopened sites. As of that date, the Company also had construction and related
commitments related to unopened sites totaling approximately $19.0 million.
As of July 1, 2000, the Company had signed agreements to acquire additional
delivery vehicles with an estimated cost of $15.9 million. In addition, the
Company has executed leases for operating facilities and office space with
future minimum lease commitments totaling $204.0 million.
F-53
<PAGE> 217
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
WEBVAN GROUP, INC.,
ROBIN MERGER CORPORATION
AND
HOMEGROCER.COM, INC.
DATED AS OF JUNE 25, 2000
<PAGE> 218
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I -- THE MERGER............................................. A-2
1.1 The Merger.................................................. A-2
1.2 Effective Time; Closing..................................... A-2
1.3 Effect of the Merger........................................ A-2
1.4 Articles of Incorporation; Bylaws........................... A-2
1.5 Directors and Officers...................................... A-2
1.6 Effect on Capital Stock..................................... A-3
1.7 Surrender of Certificates; Payment of Stock Consideration... A-4
1.8 No Further Ownership Rights in Company Common Stock......... A-6
1.9 Lost, Stolen or Destroyed Certificates...................... A-6
1.10 Tax and Accounting Consequences............................. A-6
1.11 Taking of Necessary Action; Further Action.................. A-6
ARTICLE II -- REPRESENTATIONS AND WARRANTIES OF COMPANY............. A-6
2.1 Organization of Company; Subsidiaries....................... A-6
2.2 Company Capital Structure................................... A-7
2.3 Obligations With Respect to Capital Stock................... A-7
2.4 Authority................................................... A-8
2.5 SEC Filings; Company Financial Statements................... A-9
2.6 Absence of Certain Changes or Events........................ A-10
2.7 Taxes....................................................... A-10
2.8 Tax Returns and Audits...................................... A-10
2.9 Company Intellectual Property............................... A-11
2.10 Compliance; Permits; Restrictions........................... A-12
2.11 Litigation.................................................. A-13
2.12 Brokers' and Finders' Fees.................................. A-13
2.13 Employee Benefit Plans...................................... A-13
2.14 Absence of Liens and Encumbrances........................... A-15
2.15 Environmental Matters....................................... A-15
2.16 Labor Matters............................................... A-15
2.17 Agreements, Contracts and Commitments....................... A-15
2.18 Insurance................................................... A-16
2.19 Registration Statement; Joint Proxy Statement/Prospectus.... A-17
2.20 Board Approval.............................................. A-17
2.21 State Takeover Statutes..................................... A-17
2.22 Fairness Opinion............................................ A-17
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
SUB.................................................. A-18
3.1 Organization of Parent; Subsidiaries........................ A-18
3.2 Parent Capital Structure.................................... A-18
3.3 Obligations With Respect to Capital Stock................... A-19
3.4 Authority................................................... A-19
3.5 SEC Filings; Parent Financial Statements.................... A-20
3.6 Absence of Certain Changes or Events........................ A-21
3.7 Taxes....................................................... A-21
3.8 Parent Intellectual Property................................ A-22
</TABLE>
A-i
<PAGE> 219
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
3.9 Compliance; Permits; Restrictions........................... A-23
3.10 Litigation.................................................. A-23
3.11 Brokers' and Finders' Fees.................................. A-23
3.12 Employee Benefit Plans...................................... A-24
3.13 Absence of Liens and Encumbrances........................... A-25
3.14 Environmental Matters....................................... A-25
3.15 Labor Matters............................................... A-26
3.16 Agreements, Contracts and Commitments....................... A-26
3.17 Insurance................................................... A-27
3.18 Registration Statement; Joint Proxy Statement/Prospectus.... A-27
3.19 Board Approval.............................................. A-27
3.20 Fairness Opinion............................................ A-27
ARTICLE IV -- CONDUCT PRIOR TO THE EFFECTIVE TIME................... A-28
4.1 Conduct of Business by Company.............................. A-28
4.2 Conduct of Business by Parent............................... A-30
ARTICLE V -- ADDITIONAL AGREEMENTS.................................. A-32
5.1 Joint Proxy Statement/Prospectus; Registration Statement.... A-32
5.2 Shareholder and Stockholder Meetings........................ A-32
5.3 Confidentiality; Access to Information...................... A-33
5.4 No Solicitation............................................. A-33
5.5 Public Disclosure........................................... A-37
5.6 Reasonable Efforts; Notification............................ A-37
5.7 Third Party Consents........................................ A-38
5.8 Stock Options; Warrants; Employee Stock Purchase Plan;
401(k) Plan................................................. A-38
5.9 Form S-8; Section 16........................................ A-39
5.10 Indemnification............................................. A-39
5.11 Nasdaq Listing.............................................. A-40
5.12 Affiliates.................................................. A-40
5.13 Regulatory Filings; Reasonable Efforts...................... A-40
5.14 Board of Directors.......................................... A-41
ARTICLE VI -- CONDITIONS TO THE MERGER.............................. A-41
6.1 Conditions to Obligations of Each Party to Effect the
Merger...................................................... A-41
6.2 Additional Conditions to Obligations of Company............. A-41
6.3 Additional Conditions to the Obligations of Parent and
Merger Sub.................................................. A-42
ARTICLE VII -- TERMINATION, AMENDMENT AND WAIVER.................... A-43
7.1 Termination................................................. A-43
7.2 Notice of Termination; Effect of Termination................ A-44
7.3 Fees and Expenses........................................... A-44
7.4 Amendment................................................... A-47
7.5 Extension; Waiver........................................... A-47
ARTICLE VIII -- GENERAL PROVISIONS.................................. A-47
8.1 Survival of Representations and Warranties.................. A-47
8.2 Notices..................................................... A-47
8.3 Interpretation; Definitions................................. A-48
</TABLE>
A-ii
<PAGE> 220
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
8.4 Counterparts................................................ A-49
8.5 Entire Agreement; Third Party Beneficiaries................. A-49
8.6 Severability................................................ A-49
8.7 Other Remedies; Specific Performance........................ A-49
8.8 Governing Law............................................... A-49
8.9 Rules of Construction....................................... A-49
8.10 Assignment.................................................. A-49
</TABLE>
INDEX OF EXHIBITS
Exhibit A-1 Form of Company Voting Agreement
Exhibit A-2 Form of Parent Voting Agreement
Exhibit B-1 Form of Company Lock-Up Agreement
Exhibit B-2 Form of Parent Lock-Up Agreement
Exhibit C Form of Affiliate Agreement
A-iii
<PAGE> 221
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as of
June 25, 2000, among Webvan Group, Inc., a Delaware corporation ("PARENT"),
Robin Merger Corporation, a Washington corporation and a wholly-owned subsidiary
of Parent ("MERGER SUB") and HomeGrocer.com, Inc., a Washington corporation
("COMPANY").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement (as
defined in Section 1.2 below) and in accordance with the Washington Business
Corporations Act ("WASHINGTON LAW"), Parent and Company intend to enter into a
business combination transaction.
B. The Board of Directors of Company unanimously (i) has determined that
the Merger (as defined in Section 1.1) is consistent with and in furtherance of
the long-term business strategy of Company and fair to, and in the best
interests of, Company and its shareholders, (ii) has approved this Agreement,
the Merger (as defined in Section 1.1) and the other transactions contemplated
by this Agreement, and (iii) has determined to recommend that the shareholders
of Company adopt and approve this Agreement and approve the Merger.
C. The Board of Directors of Parent unanimously (i) has determined that
the Merger is consistent with and in furtherance of the long-term business
strategy of Parent and is fair to, and in the best interests of, Parent and its
stockholders, (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement, and (iii) has determined to
recommend that the stockholders of Parent approve the issuance of shares of
Parent Common Stock (as defined below) pursuant to the Merger (the "SHARE
ISSUANCE").
D. Concurrently with the execution of this Agreement, (i) as a condition
and inducement to Parent's willingness to enter into this Agreement, certain
affiliates of Company are entering into Voting Agreements in the form attached
hereto as Exhibit A-1 (the "COMPANY VOTING AGREEMENTS") and (ii) as a condition
and inducement to Company's willingness to enter into this Agreement, certain
affiliates of Parent are entering into Voting Agreements in the form attached
hereto as Exhibit A-2 (the "PARENT VOTING AGREEMENTS").
E. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, certain key
employees of Company are entering into Employment and Noncompetition Agreements
with Parent and Company.
F. Concurrently with the execution of this Agreement, (i) as a condition
and inducement to Parent's willingness to enter into this Agreement, the chief
executive officer and certain other significant shareholders of Company are
entering into Lock-Up Agreements in favor of Parent in the form attached hereto
as Exhibit B-1 and (ii) as a condition and inducement to Company's willingness
to enter into this Agreement, the chief executive officer and certain other
significant shareholders of Parent are entering into Lock-Up Agreements in favor
of Company in the form attached hereto as Exhibit B-2.
G. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "CODE").
A-1
<PAGE> 222
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I.
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Washington Law, Merger Sub shall be merged with and
into Company (the "MERGER"), the separate corporate existence of Merger Sub
shall cease and Company shall continue as the surviving corporation and as a
wholly-owned subsidiary of Parent. Company as the surviving corporation after
the Merger is hereinafter sometimes referred to as the "SURVIVING CORPORATION."
1.2 Effective Time; Closing. Subject to the provisions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing an
agreement and plan of merger and articles, certificates or other appropriate
filing documents with the Secretary of State of the State of Washington in
accordance with the relevant provisions of Washington Law (collectively, the
"CERTIFICATE OF MERGER") (the time of such filing (or such later time as may be
agreed in writing by Company and Parent and specified in the Certificate of
Merger) being the "EFFECTIVE TIME") as soon as practicable on or after the
Closing Date (as herein defined). Unless the context otherwise requires, the
term "AGREEMENT" as used herein refers collectively to this Agreement and Plan
of Reorganization and the Certificate of Merger. The closing of the Merger (the
"CLOSING") shall take place at the offices of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, California at a time
and date to be specified by the parties, which shall be no later than the second
business day after the satisfaction or waiver of the conditions set forth in
Article VI, or at such other time, date and location as the parties hereto agree
in writing (the "CLOSING DATE").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of
Washington Law. Without limiting the generality of the foregoing and subject
thereto, at the Effective Time, all the property, rights, privileges, powers,
and franchises of Company and Merger Sub shall vest in the Surviving Corporation
and all debts, liabilities and duties of Company and Merger Sub shall become the
debts, liabilities, and duties of the Surviving Corporation.
1.4 Articles of Incorporation; Bylaws.
(a) At the Effective Time, the Articles of Incorporation of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Articles of Incorporation of the
Surviving Corporation; provided, however, that at the Effective Time the
Articles of Incorporation of the Surviving Corporation shall be amended so
that the name of the Surviving Corporation shall be "HomeGrocer.com, Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the Bylaws of the
Surviving Corporation until thereafter amended.
1.5 Directors and Officers. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation until their respective
successors are duly elected or appointed and qualified. The initial officers of
the Surviving Corporation shall be the officers of Merger Sub immediately prior
to the Effective Time, each to hold
A-2
<PAGE> 223
office in accordance with the Articles of Incorporation and Bylaws of the
Surviving Corporation until their respective successors are duly appointed.
1.6 Effect on Capital Stock. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of Merger Sub, Company or the holders of any of the following
securities, the following shall occur:
(a) Conversion of Company Common Stock. Each share of Common Stock, no
par value per share, of Company (the "COMPANY COMMON STOCK") issued and
outstanding immediately prior to the Effective Time, other than any shares
of Company Common Stock ("SHARES") to be cancelled pursuant to Section
1.6(b) and Dissenting Shares (as defined in Section 1.6(g)), will be
cancelled and extinguished and automatically converted (subject to Sections
1.6(e) and (f)) into the right to receive that number of shares of Common
Stock, $0.0001 par value per share, of Parent (the "PARENT COMMON STOCK")
equal to 1.07605 (the "EXCHANGE RATIO"), upon surrender of the certificate
representing such share of Company Common Stock in the manner provided in
Section 1.7 (or in the case of a lost, stolen or destroyed certificate,
upon delivery of an affidavit (and bond, if required) in the manner
provided in Section 1.9). If any shares of Company Common Stock outstanding
immediately prior to the Effective Time are unvested or are subject to a
repurchase option, risk of forfeiture or other condition under any
applicable restricted stock purchase agreement or other agreement with the
Company, then, subject to the terms of the plan or agreement pursuant to
which such shares were issued, the shares of Parent Common Stock issued in
exchange for such shares of Company Common Stock will also be unvested and
subject to the same repurchase option, risk of forfeiture or other
condition and the certificates representing such shares of Parent Common
Stock may accordingly be marked with appropriate legends. Company shall
take all action that may be necessary to ensure that, from and after the
Effective Time, Parent is entitled to exercise any such repurchase option
or other right set forth in any such restricted stock purchase agreement or
other agreement.
(b) Cancellation of Parent-Owned Stock. Each share of Company Common
Stock held by Company or owned by Merger Sub, Parent or any direct or
indirect wholly-owned subsidiary of Company or of Parent immediately prior
to the Effective Time shall be cancelled and extinguished without any
conversion thereof.
(c) Stock Options and Warrants. At the Effective Time, all options to
purchase Company Common Stock and stock appreciation rights then
outstanding under Company's 1997 Stock Incentive Compensation Plan (the
"1997 PLAN"), 1999 Stock Incentive Plan (the "1999 PLAN") and 1999
Directors' Stock Option Plan (the "DIRECTORS PLAN" and, together with the
1997 Plan and the 1999 Plan, the "COMPANY OPTION PLANS"), each of the
Company Option Plans and all warrants to purchase Company Common Stock
shall be assumed by Parent in accordance with Section 5.8 hereof.
(d) Capital Stock of Merger Sub. Each share of Common Stock, no par
value, of Merger Sub (the "MERGER SUB COMMON STOCK") issued and outstanding
immediately prior to the Effective Time shall be converted into or
exercisable for one validly issued, fully paid and nonassessable share of
Common Stock, no par value, of the Surviving Corporation. Each certificate
evidencing ownership of shares of Merger Sub Common Stock shall evidence
ownership of such shares of capital stock of the Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect appropriately the effect of any stock split, reverse
stock split, stock dividend (including any dividend or distribution of
securities convertible into or exercisable for Parent Common Stock or
Company Common Stock), reorganization, recapitalization, reclassification
or other like change
A-3
<PAGE> 224
with respect to Parent Common Stock or Company Common Stock occurring on or
after the date hereof and prior to the Effective Time.
(f) Fractional Shares. No fraction of a share of Parent Common Stock
will be issued by virtue of the Merger, but in lieu thereof, each holder of
shares of Company Common Stock who would otherwise be entitled to a
fraction of a share of Parent Common Stock (after aggregating all
fractional shares of Parent Common Stock that otherwise would be received
by such holder) shall, upon surrender of such holder's Certificates(s) (as
defined in Section 1.7(c)), receive from Parent an amount of cash (rounded
to the nearest whole cent), without interest, equal to the product of (i)
such fraction and (ii) the average closing price of Parent Common Stock for
the five trading days immediately preceding the last full trading day prior
to the Effective Time, as reported on the Nasdaq National Market System
("NASDAQ").
(g) Dissenting Shares. Notwithstanding any provision of this Agreement
to the contrary, each outstanding share of Company Common Stock, the holder
of which has demanded and perfected such holder's right to dissent from the
Merger and to be paid the fair value of such shares by Company in
accordance with Sections 23B.13.010 et seq. of Washington Law ("DISSENTING
SHARES") and, as of the Effective Time, has not effectively withdrawn or
lost such dissenters' rights, shall not be converted into or represent a
right to receive the merger consideration described in Section 1.6(a), but
the holder thereof shall be entitled only to such rights as are granted by
Washington Law. Company shall give Parent (i) prompt written notice of any
notice of intent to demand fair value for any shares of Company Common
Stock, withdrawals of such notices and any other instruments served
pursuant to Washington Law and received by Company, and (ii) the
opportunity to direct all negotiations and proceedings with respect to
demands for fair value for shares of Company Common Stock under Washington
Law. Company shall not, except with the prior written consent of Parent,
voluntarily make any payment with respect to any demands for fair value for
shares of Company Common Stock or offer to settle or settle any such
demands.
1.7 Surrender of Certificates; Payment of Stock Consideration.
(a) Exchange Agent. Parent shall select a bank or trust company
reasonably acceptable to Company to act as the exchange agent (the
"EXCHANGE AGENT") in the Merger.
(b) Parent to Provide Common Stock. Promptly after the Effective Time,
Parent shall make available to the Exchange Agent, for exchange in
accordance with this Article I, (i) the shares of Parent Common Stock
issuable pursuant to Section 1.6 in exchange for outstanding shares of
Company Common Stock and (ii) cash in an amount sufficient for payment in
lieu of fractional shares pursuant to Section 1.6(f) and any dividends or
distributions to which holders of shares of Company Common Stock may be
entitled pursuant to Section 1.7(d).
(c) Exchange Procedures. As soon as practicable after the Effective
Time (and in any event within five business days after Parent's receipt of
all necessary shareholder list and other supporting information), Parent
shall cause the Exchange Agent to mail to each holder of record (as of the
Effective Time) of a certificate or certificates (the "CERTIFICATES"),
which immediately prior to the Effective Time represented outstanding
Shares whose Shares were converted into the right to receive shares of
Parent Common Stock pursuant to Section 1.6(a), cash in lieu of any
fractional shares pursuant to Section 1.6(f) and any dividends or other
distributions pursuant to Section 1.7(d), (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall contain such other provisions
as Parent may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of Parent Common Stock, cash in lieu of any fractional
shares pursuant to
A-4
<PAGE> 225
Section 1.6(f) and any dividends or other distributions pursuant to Section
1.7(d). Upon surrender of Certificates for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by Parent,
together with such letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, the holders of such
Certificates shall be entitled to receive in exchange therefor certificates
representing the number of whole shares of Parent Common Stock into which
their shares of Company Common Stock were converted at the Effective Time,
payment in lieu of fractional shares which such holders have the right to
receive pursuant to Section 1.6(f) and any dividends or distributions
payable pursuant to Section 1.7(d), and the Certificates so surrendered
shall forthwith be cancelled. Until so surrendered, outstanding
Certificates will be deemed from and after the Effective Time, for all
corporate purposes, subject to Section 1.7(d) as to the payment of
dividends and other distributions, to evidence only the ownership of the
number of full shares of Parent Common Stock into which such shares of
Company Common Stock shall have been so converted and the right to receive
an amount in cash in lieu of the issuance of any fractional shares in
accordance with Section 1.6(f).
(d) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the date of this Agreement with
respect to Parent Common Stock with a record date after the Effective Time
will be paid to the holders of any unsurrendered Certificate(s) with
respect to the shares of Parent Common Stock represented thereby until the
holders of record of such Certificate(s) shall surrender such
Certificate(s). Subject to applicable law, following surrender of any such
Certificate(s), the Exchange Agent shall deliver to the record holders
thereof, without interest, a certificate(s) representing whole shares of
Parent Common Stock issued in exchange therefor along with payment in lieu
of fractional shares pursuant to Section 1.6(f) hereof and the amount of
any such dividends or other distributions with a record date after the
Effective Time payable with respect to such whole shares of Parent Common
Stock.
(e) Transfers of Ownership. If any certificate representing shares of
Parent Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will
be properly endorsed and otherwise in proper form for transfer and that the
persons requesting such exchange will have paid to Parent or any agent
designated by it any transfer or other taxes required by reason of the
issuance of certificates representing shares of Parent Common Stock in any
name other than that of the registered holder of the Certificates
surrendered, or established to the satisfaction of Parent or any agent
designated by it that such tax has been paid or is not payable.
(f) Required Withholding. Each of the Exchange Agent, Parent, and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement
to any holder or former holder of Company Common Stock such amounts as may
be required to be deducted or withheld therefrom under the Code or under
any provision of state, local or foreign tax law or under any other
applicable legal requirement. To the extent such amounts are so deducted or
withheld, such amounts shall be treated for all purposes under this
Agreement as having been paid to the person to whom such amounts would
otherwise have been paid.
(g) No Liability. Notwithstanding anything to the contrary in this
Section 1.7, none of the Exchange Agent, Parent, the Surviving Corporation,
or any party hereto shall be liable to a holder of shares of Parent Common
Stock or Company Common Stock for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
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1.8 No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of Shares of Company
Common Stock in accordance with the terms hereof (together with any cash paid in
respect thereof pursuant to Section 1.6(f), 1.6(g) and 1.7(d)) shall be deemed
to have been issued in full satisfaction of all rights pertaining to such shares
of Company Common Stock, and there shall be no further registration of transfers
on the records of the Surviving Corporation of shares of Company Common Stock
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be cancelled and exchanged as provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event that any
Certificate shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificate, upon the
making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Parent Common Stock into which the shares of Company
Common Stock represented by such Certificates were converted pursuant to Section
1.6, cash for fractional shares, if any, as may be required pursuant to Section
1.6(f) and any dividends or distributions payable pursuant to Section 1.7(d);
provided, however, that Parent may, in its discretion and as a condition
precedent to the issuance of such certificates representing shares of Parent
Common Stock, cash and other distributions, require the owner of such lost,
stolen or destroyed Certificate to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Parent, the Surviving Corporation, or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.10 Tax and Accounting Consequences.
(a) It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of Section 368(a) of the
Code. The parties hereto adopt this Agreement as a "plan of reorganization"
within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United
States Income Tax Regulations.
(b) It is also intended by the parties hereto that the Merger shall
qualify for accounting treatment as a purchase.
1.11 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title, and possession to all assets, property, rights, privileges, powers
and franchises of Company and Merger Sub, the officers and directors of Company
and Merger Sub are fully authorized in the manner of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company represents and warrants to Parent and Merger Sub, subject to such
exceptions as are (i) specifically disclosed in writing in the disclosure letter
and schedules thereto (each such exception to reference the specific section
number of this Article II to which it applies and each other section number of
this Article II to the extent such applicability is reasonably apparent on the
face of such exception), dated as of the date hereof (the "COMPANY SCHEDULE") or
(ii) described in the Company SEC Reports (as defined below) filed on or prior
to the date hereof, as follows:
2.1 Organization of Company; Subsidiaries.
(a) Company and each of its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; has the corporate
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power and authority to own, lease and operate its assets and property and
to carry on its business as now being conducted and as proposed to be
conducted; and is duly qualified to do business and in good standing as a
foreign corporation in each jurisdiction in which the failure to be so
qualified would have a Material Adverse Effect (as defined in Section
8.3(b)(ii)) on Company.
(b) Company has delivered to Parent a true and complete list of all of
Company's subsidiaries, indicating the jurisdiction of incorporation of
each subsidiary and Company's equity interest therein. Neither Company nor
any of its subsidiaries directly or indirectly owns an equity, membership,
partnership or similar interest in, or any interest convertible into, or
exchangeable or exercisable for any such interest in, any corporation,
partnership, joint venture, limited liability company or other business
association or entity.
(c) Company has delivered or made available to Parent a true and
correct copy of the Certificate of Incorporation and Bylaws of Company and
similar governing instruments of each of its subsidiaries, each as amended
to date, and each such instrument is in full force and effect. Neither
Company nor any of its subsidiaries is in violation of any of the
provisions of its Certificate of Incorporation or Bylaws or equivalent
governing instruments.
(d) All of the outstanding shares of capital stock of each of
Company's subsidiaries are duly authorized, validly issued, fully paid and
nonassessable and are not subject to preemptive rights created by statute,
the charter documents of any such subsidiary or any agreement or document
to which any such subsidiary is party or by which its is bound, and all
such shares (other than directors' qualifying shares in the case of
applicable foreign subsidiaries) are owned, of record and beneficially, by
Company or another subsidiary of Company free and clear of all security
interests, liens, claims, pledges, agreements, limitations on voting
rights, charges or other encumbrances of any nature.
2.2 Company Capital Structure. The authorized capital stock of Company
consists of 1,000,000,000 shares of Common Stock, no par value, of which there
were 128,282,596 shares issued and outstanding as of June 12, 2000, and
10,000,000 shares of Preferred Stock, no par value, of which no shares are
issued or outstanding. All outstanding shares of Company Common Stock are duly
authorized, validly issued, fully paid and nonassessable and are not subject to
preemptive rights created by statute, the Articles of Incorporation or Bylaws of
Company or any agreement or document to which Company is a party or by which it
is bound. As of June 12, 2000, Company had reserved an aggregate of 19,491,960
shares of Company Common Stock, net of exercises, for issuance to employees,
consultants and non-employee directors pursuant to the Company Option Plans,
under which options are outstanding for an aggregate of 9,995,378 shares and
under which 9,496,582 shares are available for grant as of June 12, 2000. As of
June 12, 2000, Company had reserved an aggregate of 685,582 shares of Company
Common Stock for issuance to holders of warrants to purchase Company Common
Stock ("COMPANY WARRANTS"). All shares of Company Common Stock subject to
issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, would be duly authorized,
validly issued, fully paid and nonassessable. Section 2.2 of the Company
Schedule lists (i) each outstanding option to acquire shares of Company Common
Stock at June 12, 2000, the name of the holder of such option, the number of
shares subject to such option, the exercise price of such option, the number of
shares as to which such option will have vested at such date, the vesting
schedule for such option and whether the exercisability of such option will be
accelerated in any way by the transactions contemplated by this Agreement or for
any other reason, and indicates the extent of acceleration, if any, and (ii)
each outstanding Company Warrant at June 12, 2000, the name of the holder of
such Company Warrant and the exercise price therefor.
2.3 Obligations With Respect to Capital Stock. Except as set forth in
Section 2.2, as of the date hereof, there are no equity securities, partnership
interests or similar ownership interests of any
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class of Company, or any securities exchangeable or convertible into or
exercisable for such equity securities, partnership interests or similar
ownership interests issued, reserved for issuance or outstanding. Except for
securities Company owns, directly or indirectly through one or more
subsidiaries, there are no equity securities, partnership interests or similar
ownership interests of any class of any subsidiary of Company, or any security
exchangeable or convertible into or exercisable for such equity securities,
partnership interests or similar ownership interests issued, reserved for
issuance or outstanding. Except as set forth in Section 2.2, there are no stock
appreciation rights, phantom stock or other similar rights of Company and no
options, warrants, equity securities, partnership interests or similar ownership
interests, calls, rights (including preemptive rights), commitments or
agreements of any character to which Company or any of its subsidiaries is a
party or by which it is bound obligating Company or any of its subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, or repurchase,
redeem or otherwise acquire, or cause the repurchase, redemption or acquisition,
of any shares of capital stock of Company or any of its subsidiaries or
obligating Company or any of its subsidiaries to grant, extend, accelerate the
vesting of or enter into any such stock appreciation rights, phantom stock or
other similar rights or any such option, warrant, equity security, partnership
interest or similar ownership interest, call, right, commitment or agreement.
There are no registration rights and, to the knowledge of Company there are no
voting trusts, proxies or other agreements or understandings with respect to any
equity security of any class of Company or with respect to any equity security,
partnership interest or similar ownership interest of any class of any of its
subsidiaries.
2.4 Authority.
(a) Company has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Company, subject only to the approval and
adoption of this Agreement and the approval of the Merger by Company's
shareholders and the filing and recordation of the Certificate of Merger
pursuant to Washington Law. A vote of the holders of at least two-thirds of
the outstanding shares of the Company Common Stock is required for
Company's shareholders to approve and adopt this Agreement and approve the
Merger. This Agreement has been duly executed and delivered by Company and,
assuming the due authorization, execution and delivery by Parent and Merger
Sub, constitutes the valid and binding obligations of Company, enforceable
in accordance with its terms, except as enforceability may be limited by
bankruptcy and other similar laws and general principles of equity. The
execution and delivery of this Agreement by Company do not, and the
performance of this Agreement by Company will not, (i) conflict with or
violate the Articles of Incorporation or Bylaws of Company or the
equivalent organizational documents of any of its subsidiaries, (ii)
subject to obtaining the approval of the Merger by Company's shareholders
as contemplated in Section 5.2 and compliance with the requirements set
forth in Section 2.4(b) below, conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Company or any of its
subsidiaries or by which its or any of their respective properties is bound
or affected, or (iii) result in any breach of, or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or impair Company's rights or alter the rights or obligations of any
third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of Company or any of its
subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or
obligation to which Company or any of its subsidiaries is a party or by
which Company or any of its subsidiaries or its or any of their respective
properties are bound or affected, except to the extent such conflict,
violation, breach, default, impairment or other effect could not, in the
case
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of clause (ii) or (iii), individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Company or a material adverse
effect on the ability of Company to perform its obligations under this
Agreement.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any court, administrative agency or commission
or other governmental authority or instrumentality ("GOVERNMENTAL ENTITY")
is required by or with respect to Company in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby or thereby, except for (i) the filing of a Form S-4
Registration Statement (the "REGISTRATION STATEMENT") with the Securities
and Exchange Commission ("SEC") in accordance with the Securities Act of
1933, as amended (the "SECURITIES ACT"), (ii) the filing of the Certificate
of Merger with the Secretary of State of Washington, (iii) the filing of
the Joint Proxy Statement/Prospectus (as defined in Section 2.19) with the
SEC in accordance with the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), (iv) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR ACT"), (v) compliance with
applicable requirements of state liquor laws and (vi) such other consents,
authorizations, filings, approvals and registrations which, if not obtained
or made, could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Company or a material adverse
effect on the ability of Company to perform its obligations under this
Agreement.
2.5 SEC Filings; Company Financial Statements.
(a) Company has filed all forms, reports and documents required to be
filed with the SEC since March 9, 2000, and has made available to Parent
such forms, reports and documents in the form filed with the SEC. All such
required forms, reports and documents (including those that Company may
file subsequent to the date hereof) are referred to herein as the "COMPANY
SEC REPORTS." As of their respective dates, the Company SEC Reports (i)
were prepared in all material respects in accordance with the requirements
of the Securities Act or the Exchange Act, as the case may be, and the
rules and regulations of the SEC thereunder applicable to such Company SEC
Reports, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the
date of such filing) contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. None of Company's subsidiaries
is required to file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Company SEC Reports (the
"COMPANY FINANCIALS"), including any Company SEC Reports filed after the
date hereof until the Closing, (i) complied as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, (ii) was prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case
of unaudited interim financial statements, as may be permitted by the SEC
on Form 10-Q under the Exchange Act) and (iii) fairly presented the
consolidated financial position of Company and its subsidiaries at the
respective dates thereof and the consolidated results of its operations and
cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not, or are not expected to be, material in amount.
The balance sheet of Company contained in the Company SEC Reports as of
April 1, 2000 is hereinafter referred to as the "COMPANY BALANCE SHEET."
Except as disclosed in the Company Financials, neither
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Company nor any of its subsidiaries has any liabilities (absolute, accrued,
contingent or otherwise) of a nature required to be disclosed on a balance
sheet or in the related notes to the consolidated financial statements
prepared in accordance with GAAP which are, individually or in the
aggregate, material to the business, results of operations or financial
condition of Company and its subsidiaries taken as a whole, except
liabilities (i) provided for in the Company Balance Sheet, or (ii) incurred
since the date of the Company Balance Sheet in the ordinary course of
business and (A) immaterial in the aggregate or (B) incurred in compliance
with the terms of this Agreement in connection with the construction,
operation, financing or equipping of distribution centers.
(c) Company has heretofore furnished to Parent a complete and correct
copy of any amendments or modifications, which have not yet been filed with
the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by Company with the SEC
pursuant to the Securities Act or the Exchange Act.
2.6 Absence of Certain Changes or Events. Since the date of the Company
Balance Sheet, there has not been: (i) any Material Adverse Effect on Company,
(ii) any change by Company in its accounting methods, principles or practices,
except as required by concurrent changes in GAAP, or (iii) any revaluation by
Company of any of its assets other than as required by GAAP in the ordinary
course of business, (iv) any increase prior to the date of this Agreement by
Company or any of its subsidiaries in the compensation or fringe benefits of any
officers or employees, (v) any payment by Company or any of its subsidiaries of,
or entry into any understanding or agreement to pay, any bonus, severance or
termination payment to any officers or employees, or (vi) any grant of stock
options prior to the date of this Agreement other than grants to new employees
in connection with the commencement of their employment.
2.7 Taxes.
(a) Definition of Taxes. For the purposes of this Agreement, "TAX" or
"TAXES" refers to any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and
liabilities relating to taxes, including taxes based upon or measured by
gross receipts, income, profits, sales, use and occupation, and value
added, ad valorem, transfer, franchise, withholding, payroll, recapture,
employment, excise and property taxes, together with all interest,
penalties and additions imposed with respect to such amounts and any
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a
predecessor entity.
2.8 Tax Returns and Audits.
(a) Company and each of its subsidiaries have timely filed all
federal, state, local and foreign returns, estimates, information
statements and reports ("RETURNS") and/or extensions relating to Taxes
required to be filed by Company and each of its subsidiaries with any Tax
authority, except such Returns which are not material to Company. Company
and each of its subsidiaries have paid all Taxes shown to be due on such
Returns.
(b) Company and each of its subsidiaries as of the Effective Time will
have withheld with respect to its employees all federal and state income
Taxes, Taxes pursuant to the Federal Insurance Contribution Act, Taxes
pursuant to the Federal Unemployment Tax Act and other Taxes required to be
withheld, except such Taxes which are not material to Company.
(c) Neither Company nor any of its subsidiaries has been delinquent in
the payment of any material Tax nor is there any material Tax deficiency
outstanding, proposed or assessed against Company or any of its
subsidiaries, nor has Company or any of its subsidiaries executed any
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unexpired waiver of any statute of limitations on or extending the period
for the assessment or collection of any Tax.
(d) No audit or other examination of any Return of Company or any of
its subsidiaries by any Tax authority is presently in progress, nor has
Company or any of its subsidiaries been notified of any request for such an
audit or other examination.
(e) No adjustment relating to any Returns filed by Company or any of
its subsidiaries has been proposed in writing formally or informally by any
Tax authority to Company or any of its subsidiaries or any representative
thereof.
(f) Neither Company nor any of its subsidiaries has any liability for
any material unpaid Taxes which has not been accrued for or reserved on
Company Balance Sheet in accordance with GAAP, whether asserted or
unasserted, contingent or otherwise, which is material to Company, other
than any liability for unpaid Taxes that may have accrued since March 31,
2000 in connection with the operation of the business of Company and its
subsidiaries in the ordinary course.
(g) There is no contract, agreement, plan or arrangement to which
Company or any of its subsidiaries is a party as of the date of this
Agreement, including but not limited to the provisions of this Agreement,
covering any employee or former employee of Company or any of its
subsidiaries that, individually or collectively, would reasonably be
expected to give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 404 or 162(m) of the Code. There is
no contract, agreement, plan or arrangement to which Company is a party or
by which it is bound to compensate any individual for excise taxes paid
pursuant to Section 4999 of the Code.
(h) Neither Company nor any of its subsidiaries has filed any consent
agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as defined in Section 341(f)(4) of the Code) owned by Company or any of
its subsidiaries.
(i) Neither Company nor any of its subsidiaries is party to or has any
obligation under any Tax-sharing, Tax indemnity or Tax allocation agreement
or arrangement.
(j) None of Company's or its subsidiaries' assets are tax exempt use
property within the meaning of Section 168(h) of the Code.
(k) Company has (a) never been a member of an affiliated group (within
the meaning of Code Section 1504(a)) filing a consolidated federal income
Tax Return (other than a group the common parent of which was Company), (b)
with respect to the Taxes of any person (other than Company or any of its
subsidiaries) (i) no liability under Treas. Reg. Section 1.1502-6 (or any
similar provision of state, local or foreign law) and (ii) no material
liability as a transferee or successor and (c) never been a party to any
joint venture, partnership or other agreement that should be treated as a
partnership for Tax purposes.
(l) Company has not been either a "distributing corporation" or a
"controlled corporation" in a distribution of stock qualifying for tax-free
treatment under Section 355 of the Code.
2.9 Company Intellectual Property. For the purposes of this Agreement, the
following terms have the following definitions:
"Intellectual Property" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all United States,
international and foreign patents and applications therefor and all
reissues, divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or
not), invention
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disclosures, improvements, trade secrets, proprietary information, know
how, technology, technical data and customer lists, and all documentation
relating to any of the foregoing; (iii) all copyrights, copyrights
registrations and applications therefor, and all other rights corresponding
thereto throughout the world; (iv) all industrial designs and any
registrations and applications therefor throughout the world; (v) all trade
names, logos, common law trademarks and service marks, trademark and
service mark registrations and applications therefor throughout the world;
(vi) all databases and data collections and all rights therein throughout
the world; (vii) all moral and economic rights of authors and inventors,
however denominated, throughout the world, and (viii) any similar or
equivalent rights to any of the foregoing anywhere in the world.
"Company Intellectual Property" shall mean any Intellectual Property
that is owned by, or exclusively licensed to, Company.
(a) No Company Intellectual Property or product or service of Company
or any of its subsidiaries is subject to any proceeding or outstanding
decree, order, judgment, contract, license, agreement, or stipulation
restricting in any manner the use, transfer, or licensing thereof by
Company or any of its subsidiaries, or which may affect the validity, use
or enforceability of such Company Intellectual Property.
(b) To the knowledge of Company, Company owns, or has license or other
rights to use (sufficient for the conduct of its business as currently
conducted), each material item of Company Intellectual Property or other
Intellectual Property used by Company free and clear of any lien or
encumbrance (excluding licenses and related restrictions).
(c) Neither Company nor any of its subsidiaries has transferred
ownership of or granted any license with respect to, any material Company
Intellectual Property to any third party.
(d) To the knowledge of Company, the operation of the business of
Company and its subsidiaries as such business currently is conducted does
not infringe the Intellectual Property of any third party.
(e) Neither Company nor any of its subsidiaries has received notice
from any third party that the operation of the business of Company or any
of its subsidiaries or any act, product or service of Company or any of its
subsidiaries, infringes the Intellectual Property of any third party.
(f) To the knowledge of Company, no person has or is infringing any
material Company Intellectual Property.
(g) Company and each of its subsidiaries has taken reasonable steps to
protect Company's and its subsidiaries' rights in Company's confidential
information and trade secrets that it wishes to protect or any trade
secrets or confidential information of third parties provided to Company or
any of its subsidiaries, and, without limiting the foregoing, each of
Company and its subsidiaries has and enforces a policy requiring each
employee and contractor to execute a proprietary
information/confidentiality agreement substantially in the form provided to
Parent and all current and former employees and contractors of Company and
any of its subsidiaries have executed such an agreement, except where the
failure to do so is not reasonably expected to be material to Company.
2.10 Compliance; Permits; Restrictions.
(a) Neither Company nor any of its subsidiaries is, in any material
respect, in conflict with, or in default or violation of (i) any law, rule,
regulation, order, judgment or decree applicable to Company or any of its
subsidiaries or by which its or any of their respective properties is bound
or affected, or (ii) any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument
or obligation to which Company or any of its
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subsidiaries is a party or by which Company or any of its subsidiaries or
its or any of their respective properties is bound or affected. To the
knowledge of Company, no investigation or review by any Governmental Entity
is pending or threatened against Company or its subsidiaries, nor has any
Governmental Entity indicated an intention to conduct the same. There is no
material agreement, judgment, injunction, order or decree binding upon
Company or any of its subsidiaries which has or would reasonably be
expected to have the effect of prohibiting or materially impairing any
current business practice of Company or any of its subsidiaries, any
acquisition of material property by Company or any of its subsidiaries or
the conduct of business by Company as currently conducted.
(b) Company and its subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals from governmental authorities
which are material to the operation of the business of Company
(collectively, the "COMPANY PERMITS"). Company and its subsidiaries are in
compliance in all material respects with the terms of the Company Permits.
2.11 Litigation. As of the date of this Agreement, there is no action,
suit, proceeding, claim, arbitration or investigation pending, or as to which
Company or any of its subsidiaries has received any notice of assertion nor, to
Company's knowledge, is there a threatened action, suit, proceeding, claim,
arbitration or investigation against Company or any of its subsidiaries which in
each case reasonably would be likely to be material to Company, or which in any
manner challenges or seeks to prevent, enjoin, alter or delay any of the
transactions contemplated by this Agreement.
2.12 Brokers' and Finders' Fees. Except for fees payable to Morgan Stanley
& Co. Incorporated pursuant to an engagement letter dated May 22, 2000, a copy
of which has been provided to Parent, Company has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
2.13 Employee Benefit Plans.
(a) All employee compensation, incentive, fringe or benefit plans,
programs, policies, commitments, agreements or other arrangements (whether
or not set forth in a written document and including, without limitation,
all "employee benefit plans" within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
covering any active or former employee, director or consultant of Company
("COMPANY EMPLOYEE" which shall for this purpose mean an employee of
Company or an Affiliate (as defined below)), any subsidiary of Company or
any trade or business (whether or not incorporated) which is a member of a
controlled group or which is under common control with Company within the
meaning of Section 414 of the Code (an "AFFILIATE"), or with respect to
which Company has or, to its knowledge, may in the future have liability,
are listed in Section 2.13(a) of the Company Schedules (the "COMPANY
PLANS"). Company has provided or will make available to Parent: (i) correct
and complete copies of all documents embodying each Company Plan including
(without limitation) all amendments thereto, all related trust documents,
and all material written agreements and contracts relating to each such
Company Plan; (ii) the most recent annual reports (Form Series 5500 and all
schedules and financial statements attached thereto), if any, required
under ERISA or the Code in connection with each Company Plan; (iii) the
most recent summary plan description together with the summary(ies) of
material modifications thereto, if any, required under ERISA with respect
to each Company Plan; (iv) all IRS determination, opinion, notification and
advisory letters; (v) all material correspondence to or from any
governmental agency relating to any Company Plan; (vi) the most recent
discrimination tests for each Company Plan; (vii) the most recent actuarial
valuations, if any, prepared for each Company Plan; (viii) if the Company
Plan is funded, the most recent annual and periodic accounting of the
Company Plan assets; and (ix) all
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communication to Company Employees relating to any Company Plan and any
proposed Company Plan, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits,
acceleration of payments or vesting schedules, or other events which would
result in any material liability to Company or any Affiliate.
(b) Each Company Plan has been maintained and administered in all
material respects in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations (foreign
or domestic), including but not limited to ERISA and the Code, which are
applicable to such Company Plans. No suit, action or other litigation
(excluding claims for benefits incurred in the ordinary course of Company
Plan activities) has been brought, or to the knowledge of Company, is
threatened, against or with respect to any such Company Plan. There are no
audits, inquiries or proceedings pending or, to the knowledge of Company,
threatened by the Internal Revenue Service (the "IRS") or Department of
Labor (the "DOL") with respect to any Company Plans. All contributions,
reserves or premium payments required to be made or accrued as of the date
hereof to the Company Plans have been timely made or accrued. Any Company
Plan intended to be qualified under Section 401(a) of the Code and each
trust intended to qualify under Section 501(a) of the Code (i) has either
obtained a favorable determination, notification, advisory and/or opinion
letter, as applicable, as to its qualified status from the IRS or still has
a remaining period of time under applicable Treasury Regulations or IRS
pronouncements in which to apply for such letter and to make any amendments
necessary to obtain a favorable determination, and (ii) incorporates or has
been amended to incorporate all provisions required to comply with the Tax
Reform Act of 1986 and subsequent legislation. To the knowledge of Company,
no condition or circumstance exists giving rise to a material likelihood
that any such Company Plan would not be treated as qualified by the IRS.
Company does not have any plan or commitment to establish any new Company
Plan, to modify any Company Plan (except to the extent required by law or
to conform any such Company Plan to the requirements of any applicable law,
in each case as previously disclosed to Parent in writing, or as required
by the terms of any Company Plan or this Agreement), or to enter into any
new Company Plan. Each Company Plan can be amended, terminated or otherwise
discontinued after the Effective Time in accordance with its terms, without
liability to Parent, Company or any of its Affiliates (other than ordinary
administration expenses).
(c) Neither Company, any of its subsidiaries, nor any of their
Affiliates has at any time ever maintained, established, sponsored,
participated in, or contributed to any plan subject to Title IV of ERISA or
Section 412 of the Code and at no time has Company contributed to or been
requested to contribute to any "multiemployer plan," as such term is
defined in ERISA. Neither Company, any of its subsidiaries, nor any officer
or director of Company or any of its subsidiaries is subject to any
material liability or penalty under Section 4975 through 4980B of the Code
or Title I of ERISA. No "prohibited transaction," within the meaning of
Section 4975 of the Code or Sections 406 and 407 of ERISA, and not
otherwise exempt under Section 4975 of the Code and Section 408 of ERISA,
has occurred with respect to any Company Plan which could subject Company
or its Affiliates to material liability.
(d) None of the Company Plans promises or provides retiree medical or
other retiree welfare benefits to any person except as required by
applicable law, and neither Company nor any of its subsidiaries has
represented, promised or contracted (whether in oral or written form) to
provide such retiree benefits to any Company Employee, former employee,
director, consultant or other person, except to the extent required by
statute.
(e) Company is in compliance in all material respects with all
applicable material foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours.
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(f) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute,
bonus or otherwise) becoming due to any shareholder, director or Company
Employee or any of its subsidiaries under any Company Plan or otherwise,
(ii) increase any benefits otherwise payable under any Company Plan, or
(iii) result in the acceleration of the time of payment or vesting of any
such benefits.
2.14 Absence of Liens and Encumbrances. Company and each of its
subsidiaries has good and valid title to, or, in the case of leased properties
and assets, valid leasehold interests in, all of its tangible properties and
assets, real, personal and mixed, used in its business, free and clear of any
liens or encumbrances except as reflected in the Company Financials and except
for liens for Taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which would not be material to Company.
2.15 Environmental Matters.
(a) Except as would not reasonably be likely to result in a Material
Adverse Effect on Company, (i) neither Company nor any of its subsidiaries
has generated, transported, stored, used, manufactured, disposed of,
released or exposed its employees or others to pollutants, contaminants,
wastes, or any toxic, radioactive or otherwise hazardous materials
("HAZARDOUS MATERIALS") in violation of, or in a manner that would be
reasonably likely to result in liability under, any rule, regulation,
treaty or statute promulgated by any Governmental Entity in effect as of
the date hereof to protect the environment or to prohibit, regulate or
control Hazardous Materials ("ENVIRONMENTAL LAWS") and (ii) no Hazardous
Materials are located in, on or under any real property or facility now or
previously owned, leased or operated by Company or any of its subsidiaries
in a manner which would reasonably be expected to result in liability
under, or a violation of, any Environmental Law.
(b) Except for matters which would not reasonably be expected to
result in a Material Adverse Effect on Company, no action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to Company's knowledge, threatened concerning any Company
Permit relating to any environmental matter, or otherwise relating to any
Environmental Law.
2.16 Labor Matters. (i) There are no controversies pending or, to the
knowledge of each of Company and its respective subsidiaries, threatened,
between Company or any of its subsidiaries and any of their respective
employees; (ii) as of the date of this Agreement, neither Company nor any of its
subsidiaries is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by Company or its subsidiaries nor
does Company or its subsidiaries know of any activities or proceedings of any
labor union to organize any such employees; and (iii) as of the date of this
Agreement, neither Company nor any of its subsidiaries has any knowledge of any
strikes, slowdowns, work stoppages or lockouts, or threats thereof, by or with
respect to any employees of Company or any of its subsidiaries.
2.17 Agreements, Contracts and Commitments. As of the date hereof, neither
Company nor any of its subsidiaries is a party to or is bound by:
(a) (i) any employment or consulting agreement, contract or commitment
with any officer or director or higher level employee or member of
Company's Board of Directors, other than those that are terminable by
Company or any of its subsidiaries on no more than thirty (30) days' notice
without liability or financial obligation to Company, (ii) any such
agreement, contract or commitment with any employee, consultant,
shareholder or other person that will result in any obligation of Company
or any of its subsidiaries to make any payments as a result of the
transactions contemplated hereby, (iii) any agreement with any employee,
consultant or
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shareholder of Company pursuant to which Company has loaned or is obligated
to loan any money thereto or (iv) any agreement or arrangement providing
for severance or termination pay;
(b) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
(c) any agreement of indemnification of officers, directors or
employees of Company or any guaranty of third party indebtedness or of
obligations of officers, directors, employees or agents of Company;
(d) any agreement, contract or commitment containing any covenant
limiting in any respect the right of Company or any of its subsidiaries to
engage in any line of business in any geographic area or to compete with
any person or granting to any person any interest in Company's distribution
rights;
(e) any agreement, contract or commitment currently in force relating
to the disposition or acquisition by Company or any of its subsidiaries
after the date of this Agreement of a material amount of assets not in the
ordinary course of business or pursuant to which Company has any material
ownership interest in any corporation, partnership, joint venture or other
business enterprise other than Company's subsidiaries;
(f) any agreement, contract or commitment containing exclusivity
provisions pursuant to which Company has agreed not to purchase the goods
(other than local grocery products) or services of, or enter into a
commercial relationship with, another person;
(g) any mortgages, indentures, guarantees, loans or credit agreements,
security agreements or other agreements or instruments relating to the
borrowing of money or extension of credit;
(h) any settlement agreement relating to any claim or suit;
(i) any real property lease covering more than 20,000 square feet;
(j) any agreement, contract or commitment obligating Company to make
any payments based on (i) the number of users accessing any website
operated by Company or any of its subsidiaries (whether measured by
registrations, click-throughs or purchases by such users) or (ii) revenues
generated by purchases on any such website; or
(k) any other agreement, contract or commitment that involves
remaining obligations of Company of $1,000,000 or more individually.
Neither Company nor any of its subsidiaries, nor to Company's knowledge any
other party to a Company Contract (as defined below), is in breach, violation or
default under, and neither Company nor any of its subsidiaries has received
written notice that it has breached, violated or defaulted under, any of the
terms or conditions of any of the agreements, contracts or commitments to which
Company or any of its subsidiaries is a party or by which it is bound that are
required to be disclosed in the Company Schedules (any such agreement, contract
or commitment, a "COMPANY CONTRACT") in such a manner as would permit any other
party to cancel or terminate any such Company Contract, or would permit any
other party to seek material damages or other remedies (for any or all of such
breaches, violations or defaults, in the aggregate).
2.18 Insurance. There is no material claim by Company or any of its
subsidiaries pending under any of the insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of Company and its subsidiaries as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds.
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2.19 Registration Statement; Joint Proxy Statement/Prospectus. None of the
information supplied or to be supplied by Company for inclusion in (i) the
Registration Statement (as defined in Section 2.5(b)) will at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading and (ii) the
proxy statement/ prospectus to be sent to the shareholders of Company and
stockholders of Parent in connection with the meeting of Company's shareholders
to consider the approval and adoption of this Agreement and the approval of the
Merger (the "COMPANY SHAREHOLDERS' MEETING") and in connection with the meeting
of Parent's stockholders to consider the approval of the issuance of shares of
Parent Common Stock pursuant to the terms of the Merger (the "PARENT
STOCKHOLDERS' MEETING") (such proxy statement/prospectus as amended or
supplemented is referred to herein as the "JOINT PROXY STATEMENT/PROSPECTUS")
shall not, on the date the Joint Proxy Statement/Prospectus is first mailed to
Company's shareholders and Parent's stockholders, at the time of the Company
Shareholders' Meeting or the Parent Stockholders' Meeting and at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
false or misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Company Shareholders' Meeting or the Parent Stockholders'
Meeting which has become false or misleading. The Joint Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder. If at
any time prior to the Effective Time, any event relating to Company or any of
its affiliates, officers or directors should be discovered by Company which
should be set forth in an amendment to the Registration Statement or a
supplement to the Joint Proxy Statement/Prospectus, Company shall promptly
inform Parent. Notwithstanding the foregoing, Company makes no representation or
warranty with respect to any information supplied by Parent or Merger Sub which
is contained in any of the foregoing documents.
2.20 Board Approval. The Board of Directors of Company has, as of the date
of this Agreement, unanimously (i) determined that the Merger is fair to,
advisable and in the best interests of Company and its shareholders, (ii)
determined to recommend that the shareholders of Company approve this Agreement
and (iii) duly approved the Merger, this Agreement and the transactions
contemplated hereby.
2.21 State Takeover Statutes. The Board of Directors of Company has
approved the Merger, this Agreement, the Company Voting Agreements and the
transactions contemplated hereby and thereby, and such approval is sufficient to
render inapplicable to the Merger, this Agreement, the Company Voting Agreements
and the transactions contemplated hereby and thereby the provisions of Chapter
19 of Washington Law to the extent, if any, such section is applicable to the
Merger, this Agreement, the Company Voting Agreements and the transactions
contemplated hereby and thereby. No other state takeover statute or similar
statute or regulation applies to or purports to apply to the Merger, this
Agreement, the Company Voting Agreements or the transactions contemplated hereby
and thereby.
2.22 Fairness Opinion. Company has received a written opinion from Morgan
Stanley & Co. Incorporated, dated as of the date hereof, to the effect that as
of the date hereof, the Exchange Ratio is fair to Company's shareholders from a
financial point of view and has provided to Parent a copy of such opinion.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to
Company, subject to such exceptions as are (i) specifically disclosed in writing
in the disclosure letter and schedules thereto (each such exception to reference
the specific section number of this Article III to which it applies and each
other section number of this Article III to the extent such applicability is
reasonably apparent on the face of such exception), dated as of the date hereof
(the "PARENT SCHEDULE") or (ii) described in the Parent SEC Reports (as defined
below) filed on or prior to the date hereof, as follows:
3.1 Organization of Parent; Subsidiaries.
(a) Parent and each of its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; has the corporate power and authority to
own, lease and operate its assets and property and to carry on its business
as now being conducted and as proposed to be conducted; and is duly
qualified to do business and in good standing as a foreign corporation in
each jurisdiction in which the failure to be so qualified would have a
Material Adverse Effect (as defined in Section 8.3(b)(ii)) on Parent.
(b) Parent has delivered to Company a true and complete list of all of
Parent's subsidiaries, indicating the jurisdiction of incorporation of each
subsidiary and Parent's equity interest therein. Neither Parent nor any of
its subsidiaries directly or indirectly owns an equity, membership,
partnership or similar interest in, or any interest convertible into, or
exchangeable or exercisable for any such interest in, any corporation,
partnership, joint venture, limited liability company or other business
association or entity.
(c) Parent has delivered or made available to Company a true and
correct copy of the Certificate of Incorporation and Bylaws of Parent and
similar governing instruments of each of its subsidiaries, each as amended
to date, and each such instrument is in full force and effect. Neither
Parent nor any of its subsidiaries is in violation of any of the provisions
of its Certificate of Incorporation or Bylaws or equivalent governing
instruments.
(d) All of the outstanding shares of capital stock of each of Parent's
subsidiaries are duly authorized, validly issued, fully paid and
nonassessable and are not subject to preemptive rights created by statute,
the charter documents of any such subsidiary or any agreement or document
to which any such subsidiary is party or by which its is bound, and all
such shares (other than directors' qualifying shares in the case of
applicable foreign subsidiaries) are owned, of record and beneficially, by
Parent or another subsidiary of Parent free and clear of all security
interests, liens, claims, pledges, agreements, limitations on voting
rights, charges or other encumbrances of any nature.
3.2 Parent Capital Structure. The authorized capital stock of Parent
consists of 800,000,000 shares of Common Stock, par value $0.0001 per share, of
which 332,405,516 shares are issued and outstanding as of June 21, 2000 and
10,000,000 shares of Preferred Stock, no par value, of which no shares are
issued or outstanding. The authorized capital stock of Merger Sub consists of
1,000 shares of Common Stock, no par value, all of which, as of the date hereof,
are issued and outstanding and are held by Parent. All outstanding shares of
Parent Common Stock are duly authorized, validly issued, fully paid and
non-assessable and are not subject to preemptive rights created by statute, the
Certificate of Incorporation or Bylaws of Parent or any agreement or document to
which Parent is a party or by which it is bound. As of June 21, 2000, Parent had
reserved an aggregate of 85,182,398 shares of Parent Common Stock, net of
exercises, for issuance to employees, consultants and non-employee directors
pursuant to Parent's 1997 Stock Plan and Parent's 1999 Nonstatutory Stock
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Option Plan (the "PARENT STOCK OPTION PLANS"), under which options are
outstanding for 65,682,345 shares and under which 19,500,033 shares are
available for grant as of June 21, 2000. As of June 21, 2000, Parent had
reserved an aggregate of 2,892,052 shares of Parent Common Stock for issuance to
holders of warrants to purchase Parent Common Stock ("PARENT WARRANTS"). All
shares of Parent Common Stock subject to issuance as aforesaid, upon issuance on
the terms and conditions specified in the instruments pursuant to which they are
issuable, would be duly authorized, validly issued, fully paid and
nonassessable.
3.3 Obligations With Respect to Capital Stock. Except as set forth in
Section 3.2, as of the date hereof, there are no equity securities, partnership
interests or similar ownership interests of any class of Parent, or any
securities exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests issued,
reserved for issuance or outstanding. Except for securities Parent owns,
directly or indirectly through one or more subsidiaries, there are no equity
securities, partnership interests or similar ownership interests of any class of
any subsidiary of Parent, or any security exchangeable or convertible into or
exercisable for such equity securities, partnership interests or similar
ownership interests issued, reserved for issuance or outstanding. Except as set
forth in Section 3.2, there are no stock appreciation rights, phantom stock or
other similar rights of Parent and no options, warrants, equity securities,
partnership interests or similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any character to which Parent
or any of its subsidiaries is a party or by which it is bound obligating Parent
or any of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, or repurchase, redeem or otherwise acquire, or cause the
repurchase, redemption or acquisition, of any shares of capital stock of Parent
or any of its subsidiaries or obligating Parent or any of its subsidiaries to
grant, extend, accelerate the vesting of or enter into any such stock
appreciation rights, phantom stock or other similar rights or any such option,
warrant, equity security, partnership interest or similar ownership interest,
call, right, commitment or agreement. There are no registration rights and, to
the knowledge of Parent there are no voting trusts, proxies or other agreements
or understandings with respect to any equity security of any class of Parent or
with respect to any equity security, partnership interest or similar ownership
interest of any class of any of its subsidiaries.
3.4 Authority.
(a) Parent has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, have been duly authorized by all
necessary corporate action on the part of Parent, subject only to the
approval and adoption of this Agreement and the approval or the Share
Issuance by Parent's stockholders and the filing and recordation of the
Certificate of Merger pursuant to Washington Law. A vote of the holders of
at least a majority of the shares of Parent Common Stock present or
represented by proxy at the Parent Stockholders' Meeting is required for
Parent's stockholders to approve and adopt a Share Issuance. This Agreement
has been duly executed and delivered by Parent and Merger Sub and, assuming
the due authorization, execution and delivery by Company, constitutes the
valid and binding obligations of Parent and Merger Sub, enforceable in
accordance with its terms, except as enforceability may be limited by
bankruptcy and other similar laws and general principles of equity. The
execution and delivery of this Agreement by Parent do not, and the
performance of this Agreement by Parent will not, (i) conflict with or
violate the Certificate of Incorporation or Bylaws of Parent or the
equivalent organizational documents of any of its subsidiaries, (ii)
subject to obtaining the approval of the Share Issuance by Parent's
stockholders as contemplated in Section 5.2 and compliance with the
requirements set forth in Section 3.4(b) below, conflict with or violate
any law, rule, regulation, order, judgment or decree applicable to Parent
or any of its subsidiaries or by which its or any of their respective
properties is bound or affected, or (iii) result in any breach of, or
constitute a default
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(or an event that with notice or lapse of time or both would become a
default) under, or impair Parent's rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of
Parent or any of its subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Parent or any of its subsidiaries is a
party or by which Parent or any of its subsidiaries or its or any of their
respective properties are bound or affected, except to the extent such
conflict, violation, breach, default, impairment or other effect could not,
in the case of clause (ii) or (iii), individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Parent or a
material adverse effect on Parent's ability to perform its obligations
under this Agreement.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required by or with
respect to Parent in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby,
except for (i) the filing of a Registration Statement with the SEC in
accordance with the Securities Act, (ii) the filing of the Certificate of
Merger with the Secretary of State of Washington, (iii) the filing of the
Joint Proxy Statement/Prospectus with the SEC in accordance with the
Exchange Act, (iv) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and the HSR Act, (v) the filing with
Nasdaq of a Notification Form for Listing of Additional Shares with respect
to the shares of Parent Common Stock issuance, or to be reserved for
issuance, in connection with the Merger, (vi) applicable requirements of
state liquor laws and (vii) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not be
material to Parent or Company or have a material adverse effect on the
ability of the parties to consummate the Merger.
3.5 SEC Filings; Parent Financial Statements.
(a) Parent has filed all forms, reports and documents required to be
filed with the SEC since November 4, 1999, and has made available to
Company such forms, reports and documents in the form filed with the SEC.
All such required forms, reports and documents (including those that Parent
may file subsequent to the date hereof) are referred to herein as the
"PARENT SEC REPORTS." As of their respective dates, the Parent SEC Reports
(i) were prepared in all material respects in accordance with the
requirements of the Securities Act or the Exchange Act, as the case may be,
and the rules and regulations of the SEC thereunder applicable to such
Parent SEC Reports, and (ii) did not at the time they were filed (or if
amended or superseded by a filing prior to the date of this Agreement, then
on the date of such filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. None of Parent's subsidiaries
is required to file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Parent SEC Reports (the
"PARENT FINANCIALS"), including any Parent SEC Reports filed after the date
hereof until the Closing, (i) complied as to form in all material respects
with the published rules and regulations of the SEC with respect thereto,
(ii) was prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited interim financial statements, as may
be permitted by the SEC on Form 10-Q under the Exchange Act) and (iii)
fairly presented the consolidated financial position of Parent and its
subsidiaries at the respective dates thereof and the consolidated results
of its operations and cash flows for the
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periods indicated, except that the unaudited interim financial statements
were or are subject to normal and recurring year-end adjustments which were
not, or are not expected to be, material in amount. The balance sheet of
Parent contained in the Parent SEC Reports as of March 31, 2000 is
hereinafter referred to as the "PARENT BALANCE SHEET." Except as disclosed
in the Parent Financials, neither Parent nor any of its subsidiaries has
any liabilities (absolute, accrued, contingent or otherwise) of a nature
required to be disclosed on a balance sheet or in the related notes to the
consolidated financial statements prepared in accordance with GAAP which
are, individually or in the aggregate, material to the business, results of
operations or financial condition of Parent and its subsidiaries taken as a
whole, except liabilities (i) provided for in the Parent Balance Sheet, or
(ii) incurred since the date of the Parent Balance Sheet in the ordinary
course of business and (A) immaterial in the aggregate or (B) incurred in
connection with the construction, operation, financing or equipping of
distribution centers.
(c) Parent has heretofore furnished to Company a complete and correct
copy of any amendments or modifications, which have not yet been filed with
the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by Parent with the SEC
pursuant to the Securities Act or the Exchange Act.
3.6 Absence of Certain Changes or Events. Since the date of the Parent
Balance Sheet, there has not been: (i) any Material Adverse Effect on Parent,
(ii) any change by Parent in its accounting methods, principles or practices,
except as required by concurrent changes in GAAP, or (iii) any revaluation by
Parent of any of its assets other than as required by GAAP in the ordinary
course of business, (iv) any increase prior to the date of this Agreement by
Parent or any of its subsidiaries in the compensation or fringe benefits of any
officers or employees, (v) any payment by Parent or any of its subsidiaries of,
or entry into any understanding or agreement to pay, any bonus, severance or
termination payment to any officers or employees, or (vi) any grant of stock
options prior to the date of this Agreement other than grants to new employees
in connection with the commencement of their employment.
3.7 Taxes.
(a) Parent and each of its subsidiaries have timely filed all Returns
and/or extensions relating to Taxes required to be filed by Parent and each
of its subsidiaries with any Tax authority, except such Returns which are
not material to Parent. Parent and each of its subsidiaries have paid all
Taxes shown to be due on such Returns.
(b) Parent and each of its subsidiaries as of the Effective Time will
have withheld with respect to its employees all federal and state income
Taxes, Taxes pursuant to the Federal Insurance Contribution Act, Taxes
pursuant to the Federal Unemployment Tax Act and other Taxes required to be
withheld, except such Taxes which are not material to Parent.
(c) Neither Parent nor any of its subsidiaries has been delinquent in
the payment of any material Tax nor is there any material Tax deficiency
outstanding, proposed or assessed against Parent or any of its
subsidiaries, nor has Parent or any of its subsidiaries executed any
unexpired waiver of any statute of limitations on or extending the period
for the assessment or collection of any Tax.
(d) No audit or other examination of any Return of Parent or any of
its subsidiaries by any Tax authority is presently in progress, nor has
Parent or any of its subsidiaries been notified of any request for such an
audit or other examination.
(e) No adjustment relating to any Returns filed by Parent or any of
its subsidiaries has been proposed in writing formally or informally by any
Tax authority to Parent or any of its subsidiaries or any representative
thereof.
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(f) Neither Parent nor any of its subsidiaries has any liability for
any material unpaid Taxes which has not been accrued for or reserved on
Parent Balance Sheet in accordance with GAAP, whether asserted or
unasserted, contingent or otherwise, which is material to Parent, other
than any liability for unpaid Taxes that may have accrued since March 31,
2000 in connection with the operation of the business of Parent and its
subsidiaries in the ordinary course.
(g) There is no contract, agreement, plan or arrangement to which
Parent or any of its subsidiaries is a party as of the date of this
Agreement, including but not limited to the provisions of this Agreement,
covering any employee or former employee of Parent or any of its
subsidiaries that, individually or collectively, would reasonably be
expected to give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 404 or 162(m) of the Code. There is
no contract, agreement, plan or arrangement to which Parent is a party or
by which it is bound to compensate any individual for excise taxes paid
pursuant to Section 4999 of the Code.
(h) Neither Parent nor any of its subsidiaries has filed any consent
agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as defined in Section 341(f)(4) of the Code) owned by Parent or any of its
subsidiaries.
(i) Neither Parent nor any of its subsidiaries is party to or has any
obligation under any Tax-sharing, Tax indemnity or Tax allocation agreement
or arrangement.
(j) None of Parent's or its subsidiaries' assets are tax exempt use
property within the meaning of Section 168(h) of the Code.
(k) Parent has (a) never been a member of an affiliated group (within
the meaning of Code Section 1504(a)) filing a consolidated federal income
Tax Return (other than a group the common parent of which was Parent), (b)
with respect to the Taxes of any person (other than Parent or any of its
subsidiaries) (i) no liability under Treas. Reg. Section 1.1502-6 (or any
similar provision of state, local or foreign law) and (ii) no material
liability as a transferee or successor and (c) never been a party to any
joint venture, partnership or other agreement that should be treated as a
partnership for Tax purposes.
(l) Parent has not been either a "distributing corporation" or a
"controlled corporation" in a distribution of stock qualifying for tax-free
treatment under Section 355 of the Code.
3.8 Parent Intellectual Property. For the purposes of this Agreement, the
following terms have the following definitions:
"Parent Intellectual Property" shall mean any Intellectual Property
that is owned by, or exclusively licensed to, Parent.
(a) No Parent Intellectual Property or product or service of Parent or
any of its subsidiaries is subject to any proceeding or outstanding decree,
order, judgment, contract, license, agreement, or stipulation restricting
in any manner the use, transfer, or licensing thereof by Parent or any of
its subsidiaries, or which may affect the validity, use or enforceability
of such Parent Intellectual Property.
(b) To the knowledge of Parent, Parent owns, or has license or other
rights to use (sufficient for the conduct of its business as currently
conducted), each material item of Parent Intellectual Property or other
Intellectual Property used by Parent free and clear of any lien or
encumbrance (excluding licenses and related restrictions).
(c) Neither Parent nor any of its subsidiaries has transferred
ownership of, or granted any license with respect to any material Parent
Intellectual Property to any third party.
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(d) To the knowledge of Parent, the operation of the business of
Parent and its subsidiaries as such business currently is conducted does
not infringe the Intellectual Property of any third party.
(e) Neither Parent nor any of its subsidiaries has received notice
from any third party that the operation of the business of Parent or any of
its subsidiaries or any act, product or service of Parent or any of its
subsidiaries, infringes the Intellectual Property of any third party.
(f) To the knowledge of Parent, no person has or is infringing or
misappropriating any material Parent Intellectual Property.
(g) Parent and each of its subsidiaries has taken reasonable steps to
protect Parent's and its subsidiaries' rights in Parent's confidential
information and trade secrets that it wishes to protect or any trade
secrets or confidential information of third parties provided to Parent or
any of its subsidiaries, and, without limiting the foregoing, each of
Parent and its subsidiaries has and enforces a policy requiring each
employee and contractor to execute a proprietary information/
confidentiality agreement substantially in the form provided to Company and
all current and former employees and contractors of Parent and any of its
subsidiaries have executed such an agreement, except where the failure to
do so is not reasonably expected to be material to Parent.
3.9 Compliance; Permits; Restrictions.
(a) Neither Parent nor any of its subsidiaries is, in any material
respect, in conflict with, or in default or violation of (i) any law, rule,
regulation, order, judgment or decree applicable to Parent or any of its
subsidiaries or by which its or any of their respective properties is bound
or affected, or (ii) any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument
or obligation to which Parent or any of its subsidiaries is a party or by
which Parent or any of its subsidiaries or its or any of their respective
properties is bound or affected. To the knowledge of Parent, no
investigation or review by any Governmental Entity is pending or threatened
against Parent or its subsidiaries, nor has any Governmental Entity
indicated an intention to conduct the same. There is no material agreement,
judgment, injunction, order or decree binding upon Parent or any of its
subsidiaries which has or could reasonably be expected to have the effect
of prohibiting or materially impairing any current business practice of
Parent or any of its subsidiaries, any acquisition of material property by
Parent or any of its subsidiaries or the conduct of business by Parent as
currently conducted.
(b) Parent and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities which are
material to the operation of the business of Parent (collectively, the
"PARENT PERMITS"). Parent and its subsidiaries are in compliance in all
material respects with the terms of the Parent Permits.
3.10 Litigation. As of the date of this Agreement, there is no action,
suit, proceeding, claim, arbitration or investigation pending, or as to which
Parent or any of its subsidiaries has received any notice of assertion nor, to
Parent's knowledge, is there a threatened action, suit, proceeding, claim,
arbitration or investigation against Parent or any of its subsidiaries which
reasonably would be likely to be material to Parent, or which in any manner
challenges or seeks to prevent, enjoin, alter or delay any of the transactions
contemplated by this Agreement.
3.11 Brokers' and Finders' Fees. Except for fees payable to Goldman, Sachs
& Co. pursuant to an engagement letter dated June 22, 2000, a copy of which has
been provided to Company, Parent has not incurred, nor will it incur, directly
or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
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3.12 Employee Benefit Plans.
(a) All employee compensation, incentive, fringe or benefit plans,
programs, policies, commitments, agreements or other arrangements (whether
or not set forth in a written document and including, without limitation,
all "employee benefit plans" within the meaning of Section 3(3) of ERISA)
covering any active or former employee, director or consultant of Parent
("PARENT EMPLOYEE" which shall for this purpose mean an employee of Company
or any Affiliate (as defined below)), any subsidiary of Parent or any trade
or business (whether or not incorporated) which is an Affiliate, or with
respect to which Parent has or, to its knowledge, may in the future have
liability, are listed in Section 3.12(a) of the Parent Schedules (the
"PARENT PLANS"). Parent has provided or will make available to Company: (i)
correct and complete copies of all documents embodying each Parent Plan
including (without limitation) all amendments thereto, all related trust
documents, and all material written agreements and contracts relating to
each such Parent Plan; (ii) the most recent annual reports (Form Series
5500 and all schedules and financial statements attached thereto), if any,
required under ERISA or the Code in connection with each Parent Plan; (iii)
the most recent summary plan description together with the summary(ies) of
material modifications thereto, if any, required under ERISA with respect
to each Parent Plan; (iv) all IRS determination, opinion, notification and
advisory letters; (v) all material correspondence to or from any
governmental agency relating to any Parent Plan; (vi) the most recent
discrimination tests for each Parent Plan; (vii) the most recent actuarial
valuations, if any, prepared for each Parent Plan; (viii) if the Parent
Plan is funded, the most recent annual and periodic accounting of the
Parent Plan assets; and (ix) all communication to Parent Employees relating
to any Parent Plan and any proposed Parent Plan, in each case relating to
any amendments, terminations, establishments, increases or decreases in
benefits, acceleration of payments or vesting schedules, or other events
which would result in any material liability to Parent or any Affiliate.
(b) Each Parent Plan has been maintained and administered in all
material respects in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations (foreign
or domestic), including but not limited to ERISA and the Code, which are
applicable to such Parent Plans. No suit, action or other litigation
(excluding claims for benefits incurred in the ordinary course of Parent
Plan activities) has been brought, or to the knowledge of Parent, is
threatened, against or with respect to any such Parent Plan. There are no
audits, inquiries or proceedings pending or, to the knowledge of Parent,
threatened by the IRS or the DOL with respect to any Parent Plans. All
contributions, reserves or premium payments required to be made or accrued
as of the date hereof to the Parent Plans have been timely made or accrued.
Any Parent Plan intended to be qualified under Section 401(a) of the Code
and each trust intended to qualify under Section 501(a) of the Code (i) has
either obtained a favorable determination, notification, advisory and/or
opinion letter, as applicable, as to its qualified status from the IRS or
still has a remaining period of time under applicable Treasury Regulations
or IRS pronouncements in which to apply for such letter and to make any
amendments necessary to obtain a favorable determination, and (ii)
incorporates or has been amended to incorporate all provisions required to
comply with the Tax Reform Act of 1986 and subsequent legislation. To the
knowledge of Parent, no condition or circumstance exists giving rise to a
material likelihood that any such Parent Plan would not be treated as
qualified by the IRS. Parent does not have any plan or commitment to
establish any new Parent Plan, to modify any Parent Plan (except to the
extent required by law or to conform any such Parent Plan to the
requirements of any applicable law, in each case as previously disclosed to
Company in writing, or as required by the terms of any Parent Plan or this
Agreement), or to enter into any new Parent Plan. Each Parent Plan can be
amended, terminated or otherwise discontinued after the
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Effective Time in accordance with its terms, without liability to Company,
Parent or any of its Affiliates (other than ordinary administration
expenses).
(c) Neither Parent, any of its subsidiaries, nor any of their
Affiliates has at any time ever maintained, established, sponsored,
participated in, or contributed to any plan subject to Title IV of ERISA or
Section 412 of the Code and at no time has Parent contributed to or been
requested to contribute to any "multiemployer plan," as such term is
defined in ERISA. Neither Parent, any of its subsidiaries, nor any officer
or director of Parent or any of its subsidiaries is subject to any material
liability or penalty under Section 4975 through 4980B of the Code or Title
I of ERISA. No "prohibited transaction," within the meaning of Section 4975
of the Code or Sections 406 and 407 of ERISA, and not otherwise exempt
under Section 4975 of the Code and Section 408 of ERISA, has occurred with
respect to any Parent Plan which could subject Parent or its Affiliates to
material liability.
(d) None of the Parent Plans promises or provides retiree medical or
other retiree welfare benefits to any person except as required by
applicable law, and neither Parent nor any of its subsidiaries has
represented, promised or contracted (whether in oral or written form) to
provide such retiree benefits to any Parent Employee, former employee,
director, consultant or other person, except to the extent required by
statute.
(e) Parent is in compliance in all material respects with all
applicable material foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours.
(f) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute,
bonus or otherwise) becoming due to any stockholder, director or Parent
Employee or any of its subsidiaries under any Parent Plan or otherwise,
(ii) increase any benefits otherwise payable under any Parent Plan, or
(iii) result in the acceleration of the time of payment or vesting of any
such benefits.
3.13 Absence of Liens and Encumbrances. Parent and each of its
subsidiaries has good and valid title to, or, in the case of leased properties
and assets, valid leasehold interests in, all of its tangible properties and
assets, real, personal and mixed, used in its business, free and clear of any
liens or encumbrances except as reflected in the Parent Financials and except
for liens for Taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which would not be material to Parent.
3.14 Environmental Matters.
(a) Except as would not reasonably be likely to result in a Material
Adverse Effect on Parent, (i) neither Parent nor any of its subsidiaries
has generated, transported, stored, used, manufactured, disposed of,
released or exposed its employees or others to Hazardous Materials in
violation of, or in a manner that would reasonably be likely to result in
liability under, any Environmental Law, and (ii) no Hazardous Materials are
located in, on or under any real property or facility now or previously
owned, leased or operated by Parent or any of its subsidiaries in a manner
which would reasonably be expected to result in liability under, or in
violation of, any Environmental Law.
(b) Except for matters which would not reasonably be expected to
result in a Material Adverse Effect on Parent, no action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to Parent's knowledge, threatened concerning any Parent Permit
relating to any environmental matter, or otherwise relating to any
Hazardous Material or any Environmental Law.
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3.15 Labor Matters. (i) There are no controversies pending or, to the
knowledge of each of Parent and its respective subsidiaries, threatened, between
Parent or any of its subsidiaries and any of their respective employees; (ii) as
of the date of this Agreement, neither Parent nor any of its subsidiaries is a
party to any collective bargaining agreement or other labor union contract
applicable to persons employed by Parent or its subsidiaries nor does Parent or
its subsidiaries know of any activities or proceedings of any labor union to
organize any such employees; and (iii) as of the date of this Agreement, neither
Parent nor any of its subsidiaries has any knowledge of any strikes, slowdowns,
work stoppages or lockouts, or threats thereof, by or with respect to any
employees of Parent or any of its subsidiaries.
3.16 Agreements, Contracts and Commitments. As of the date hereof, neither
Company nor any of its subsidiaries is a party to or is bound by:
(a) (i) any employment or consulting agreement, contract or commitment
with any officer or director or higher level employee or member of Parent's
Board of Directors, other than those that are terminable by Parent or any
of its subsidiaries on no more than thirty (30) days' notice without
liability or financial obligation to Parent, (ii) any such agreement,
contract or commitment with any employee, consultant, stockholder or other
person that will result in any obligation of Parent or any of its
subsidiaries to make any payments as a result of the transactions
contemplated hereby, (iii) any agreement with any employee, consultant or
stockholder of Parent pursuant to which Parent has loaned or is obligated
to loan any money thereto or (iv) any arrangement or agreement providing
for severance or termination pay;
(b) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
(c) any agreement of indemnification of officers, directors or
employees of Parent or any guaranty of third party indebtedness or of
obligations of officers, directors, employees or agents of Parent;
(d) any agreement, contract or commitment containing any covenant
limiting in any respect the right of Parent or any of its subsidiaries to
engage in any line of business in any geographic area or to compete with
any person or granting to any person any interest in Parent's distribution
rights;
(e) any agreement, contract or commitment currently in force relating
to the disposition or acquisition by Parent or any of its subsidiaries
after the date of this Agreement of a material amount of assets not in the
ordinary course of business or pursuant to which Parent has any material
ownership interest in any corporation, partnership, joint venture or other
business enterprise other than Parent's subsidiaries;
(f) any contract containing exclusivity provisions pursuant to which
Parent has agreed not to purchase the goods (other than local grocery
products) or services of, or enter into a commercial relationship with,
another person;
(g) any mortgages, indentures, guarantees, loans or credit agreements,
security agreements or other agreements or instruments relating to the
borrowing of money or extension of credit;
(h) any settlement agreement relating to any claim or suit;
(i) any real property lease covering more than 20,000 square feet;
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(j) any agreement, contract or commitment obligating Parent to make
any payments based on (i) the number of users accessing any website
operated by Parent or any of its subsidiaries (whether measured by
registrations, click-throughs or purchases by such users) or (ii) revenues
generated by purchases on any such website; or
(k) any other agreement, contract or commitment that involves
remaining obligations of Parent of $5,000,000 or more individually.
Neither Parent nor any of its subsidiaries, nor to Parent's knowledge any
other party to a Parent Contract (as defined below), is in breach, violation or
default under, and neither Parent nor any of its subsidiaries has received
written notice that it has breached, violated or defaulted under, any of the
terms or conditions of any of the agreements, contracts or commitments to which
Parent or any of its subsidiaries is a party or by which it is bound that are
required to be disclosed in the Parent Schedules (any such agreement, contract
or commitment, a "PARENT CONTRACT") in such a manner as would permit any other
party to cancel or terminate any such Parent Contract, or would permit any other
party to seek material damages or other remedies (for any or all of such
breaches, violations or defaults, in the aggregate).
3.17 Insurance. There is no material claim by Parent or any of its
subsidiaries pending under any of the insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of Parent and its subsidiaries as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds.
3.18 Registration Statement; Joint Proxy Statement/Prospectus. None of the
information supplied or to be supplied by Parent for inclusion in (i) the
Registration Statement will at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading and (ii) the Joint Proxy
Statement/Prospectus shall not, on the date the Joint Proxy Statement/Prospectus
is first mailed to Parent's stockholders and Company's shareholders, at the time
of the Parent Stockholders' Meeting or the Company Shareholders' Meeting and at
the Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not false or misleading, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Parent Stockholders' Meeting or the Company
Shareholders' Meeting which has become false or misleading. The Joint Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder. If at
any time prior to the Effective Time, any event relating to Parent or any of its
affiliates, officers or directors should be discovered by Parent which should be
set forth in an amendment to the Registration Statement or a supplement to the
Joint Proxy Statement/Prospectus, Parent shall promptly inform Company.
Notwithstanding the foregoing, Parent makes no representation or warranty with
respect to any information supplied by Company which is contained in any of the
foregoing documents.
3.19 Board Approval. The Board of Directors of Parent has, as of the date
of this Agreement, unanimously (i) determined that the Merger is fair to and in
the best interests of Parent and its stockholders, (ii) determined to recommend
that the stockholders of Parent approve the Share Issuance and (iii) duly
approved the Merger, this Agreement and the transactions contemplated hereby.
3.20 Fairness Opinion. Parent has received an opinion from Goldman, Sachs
& Co., dated as of the date hereof, to the effect that as of the date hereof,
the Exchange Ratio is fair to Parent from
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a financial point of view and will provide to Company a copy of the written
confirmation of such opinion promptly after Parent's receipt thereof.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business by Company. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Company and each of its
subsidiaries shall, except to the extent that Parent shall otherwise consent in
writing, carry on its business, in the ordinary course, in substantially the
same manner as heretofore conducted and in compliance with all applicable laws
and regulations, pay its debts and taxes when due subject to good faith disputes
over such debts or taxes, pay or perform other material obligations when due,
and use its commercially reasonable efforts consistent with past practices and
policies to (i) preserve intact its present business organization, (ii) keep
available the services of its present officers and employees and (iii) preserve
its relationships with customers, suppliers, distributors, licensors, licensees,
and others with which it has business dealings.
In addition, except as expressly permitted by the terms of this Agreement
and except as set forth on Section 4.1 of the Company Schedule(1) without the
prior written consent of Parent, during the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, Company shall not do any of the
following and shall not permit its subsidiaries to do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of
such plans;
(b) Grant any severance or termination pay to any officer or employee
except pursuant to written agreements outstanding, or policies existing, on
the date hereof and as previously disclosed in writing or made available to
Parent, or adopt any new severance plan;
(c) Transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the Company Intellectual Property other than
in the ordinary course of business consistent with past practices;
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for any capital stock;
(e) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of Company or its subsidiaries, except repurchases
of unvested shares at cost in connection with the termination of the
employment relationship with any employee pursuant to stock option or
purchase agreements in effect on the date hereof;
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber any
shares of capital stock or any securities convertible into shares of
capital stock, or subscriptions, rights, warrants or options to acquire any
shares of capital stock or any securities convertible into shares of
capital stock, or enter into other agreements or commitments of any
character obligating it to issue any such shares or convertible securities,
other than (x) the issuance, delivery and/or sale of shares
---------------
(1)Will include parameters of agreed upon stay bonus program.
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of Company Common Stock pursuant to the exercise of stock options and
Company Warrants outstanding as of the date of this Agreement or stock
options granted pursuant to clause (y) hereof and (y) the granting of stock
options to new hires, in the ordinary course of business and consistent
with past practices (but in no event to include any provision providing for
accelerated vesting), in an amount not to exceed options to purchase
250,000 shares in the aggregate;
(g) Cause, permit or propose any amendments to the Company Charter
Documents (or similar governing instruments of any of its subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any equity interest in or portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or
agree to acquire any assets (other than in the ordinary course of business
consistent with past practice) or enter into any joint ventures, strategic
partnerships or alliances;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets except sales of inventory in the ordinary course of
business consistent with past practice, except for the sale, lease or
disposition (other than through licensing) of property or assets which are
not material, individually or in the aggregate, to the business of Company
and its subsidiaries;
(j) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
Company, enter into any "keep well" or other agreement to maintain any
financial statement condition or enter into any arrangement having the
economic effect of any of the foregoing other than in connection with the
financing of ordinary course trade payables and truck lease financing, in
each case consistent with past practice;
(k) Adopt or amend any employee benefit plan, policy or arrangement,
any employee stock purchase or employee stock option plan, or enter into
any employment contract or collective bargaining agreement (other than as
required by law or offer letters and letter agreements entered into in the
ordinary course of business consistent with past practice with employees
who are terminable "at will"), pay any special bonus or special
remuneration (it being understood by the parties that payments pursuant to
Company's quarterly bonus program as conducted in the ordinary course of
business consistent with past practice do not constitute special bonuses or
special remuneration) to any director or employee, or increase the salaries
or wage rates or fringe benefits (including rights to severance or
indemnification) of its directors, officers, employees or consultants other
than annual review salary increases for non-officer employees in the
ordinary course of business consistent with past practice;
(l) (i) Pay, discharge, settle or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), or litigation (whether or not commenced prior to
the date of this Agreement) in which Company is a defendant other than the
payment, discharge, settlement or satisfaction, in the ordinary course of
business consistent with past practice or in accordance with their terms,
or liabilities recognized or disclosed in the most recent consolidated
financial statements (or the notes thereto) of Company included in the
Company SEC Reports or incurred in the ordinary course of business
consistent with past practice since the date of such financial statements,
or (ii) waive the benefits of, agree to modify in any manner, terminate,
release any person from or fail to enforce any confidentiality or similar
agreement to which Company or any of its subsidiaries is a party or of
which Company or any of its subsidiaries is a beneficiary;
(m) Make any individual or series of related payments outside of the
ordinary course of business in excess of $50,000;
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(n) Except in the ordinary course of business consistent with past
practice, modify, amend or terminate any material contract or agreement to
which Company or any subsidiary thereof is a party or waive, delay the
exercise of, release or assign any material rights or claims thereunder;
(o) Enter into any agreement, contract or commitment which if in
existence on the date hereof would be required to be listed on Section 2.17
of the Company Schedule;
(p) Revalue any of its assets or, except as required by GAAP, make any
change in accounting methods, principles or practices;
(q) Incur or enter into any agreement, contract or commitment outside
of the ordinary course of business in excess of $50,000 individually;
(r) Engage in any action that would reasonably be expected to cause
the Merger to fail to qualify as a "reorganization" under Section 368(a) of
the Code, whether or not otherwise permitted by the provisions of this
Article IV;
(s) Make any Tax election that, individually or in the aggregate, is
reasonably likely to adversely affect in any material respect the Tax
liability or Tax attributes of Company or any of its subsidiaries or settle
or compromise any material income Tax liability;
(t) Make or authorize (i) any capital expenditure in excess of $5
million with respect to any distribution center or $15 million in the
aggregate or (ii) any marketing expenditure in excess of $6 million in the
aggregate during any successive thirty (30) day period following the date
hereof or $15 million in the aggregate during any successive ninety (90)
day period following the date hereof;
(u) Enter into any collective bargaining agreements; or
(v) Agree in writing or otherwise to take any of the actions described
in Section 4.1 (a) through (u) above.
4.2 Conduct of Business by Parent. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, Parent and each of its subsidiaries
shall, except to the extent that Company shall otherwise consent in writing,
carry on its business, in the ordinary course, in substantially the same manner
as heretofore conducted and in compliance with all applicable laws and
regulations, pay its debts and taxes when due subject to good faith disputes
over such debts or taxes, pay or perform other material obligations when due,
and use its commercially reasonable efforts consistent with past practices and
policies to (i) preserve intact its present business organization, (ii) keep
available the services of its present officers and employees and (iii) preserve
its relationships with customers, suppliers, distributors, licensors, licensees,
and others with which it has business dealings.
In addition, except as expressly permitted by the terms of this Agreement
and except as set forth on Section 4.2 of the Parent Schedule, without the prior
written consent of Company, during the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement pursuant
to its terms or the Effective Time, Parent shall not do any of the following and
shall not permit its subsidiaries to do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of
such plans;
(b) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock, except for intercompany dividends or
distributions, or split, combine or reclassify any capital stock or, except
with respect
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to securities of wholly owned subsidiaries, issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for
any capital stock;
(c) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of Parent, except repurchases of unvested shares at
cost in connection with the termination of the employment relationship with
any employee pursuant to stock option or purchase agreements in effect on
the date hereof;
(d) Except as would not result in a delay of three weeks or more in
the Effective Time, issue, deliver, sell, authorize, pledge or otherwise
encumber any shares of capital stock or any securities convertible into
shares of capital stock, or subscriptions, rights, warrants or options to
acquire any shares of capital stock or any securities convertible into
shares of capital stock, or enter into other agreements or commitments of
any character obligating it to issue any such shares or convertible
securities, other than (x) the issuance, delivery and/or sale of shares of
Parent Common Stock pursuant to the exercise of stock options and Parent
Warrants outstanding as of the date of this Agreement or stock options
granted pursuant to clause (y) hereof, (y) the granting of stock options,
in the ordinary course of business and consistent with past practices and
(z) in connection with transactions permitted by section (f) hereof;
(e) Cause, permit or propose any amendments to the Parent Charter
Documents (or similar governing instruments of any of its subsidiaries)
that would have an adverse effect on the rights of holders of Parent Common
Stock (including the Parent Common Stock to be issued in the Merger);
(f) Except as would not result in a delay of three weeks or more in
the Effective Time, acquire or agree to acquire by merging or consolidating
with, or by purchasing any equity interest in or material portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any assets (other than in
the ordinary course of business consistent with past practice);
(g) Except as would not result in a delay of three weeks or more in
the Effective Time, incur any indebtedness for borrowed money (other than
borrowings under Parent's existing credit facility) or guarantee any such
indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
Parent, enter into any "keep well" or other agreement to maintain any
financial statement condition or enter into any arrangement having the
economic effect of any of the foregoing other than in connection with the
financing of ordinary course trade payables and truck lease financing, in
each case consistent with past practice;
(h) (i) Pay, discharge, settle or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), or litigation (whether or not commenced prior to
the date of this Agreement) in which Parent is a defendant other than the
payment, discharge, settlement or satisfaction, in the ordinary course of
business consistent with past practice or in accordance with their terms,
or liabilities recognized or disclosed in the most recent consolidated
financial statements (or the notes thereto) of Parent included in the
Parent SEC Reports or incurred in the ordinary cause of business consistent
with past practice since the date of such financial statements, or (ii)
waive the benefits of, agree to modify in any manner, terminate, release
any person from or fail to enforce any confidentiality or similar agreement
to which Parent or any of its subsidiaries is a party or of which Parent or
any of its subsidiaries is a beneficiary;
(i) Revalue any of its assets or, except as required by GAAP, make any
change in accounting methods, principles or practices;
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(j) Engage in any action that would reasonably be expected to cause
the Merger to fail to qualify as a "reorganization" under Section 368(a) of
the Code, whether or not otherwise permitted by the provisions of this
Article IV;
(k) Make any Tax election that, individually or in the aggregate, is
reasonably likely to adversely affect in any material respect the Tax
liability or Tax attributes of Parent or any of its subsidiaries or settle
or compromise any material income Tax liability; or
(l) Agree in writing or otherwise to take any of the actions described
in Sections 4.1(a) through (k) above.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Joint Proxy Statement/Prospectus; Registration Statement.
(a) As promptly as practicable after the execution of this Agreement,
Parent and Company shall jointly prepare and shall file with the SEC a
document or documents that will constitute (i) the S-4 and (ii) the Joint
Proxy Statement/Prospectus. Each of the parties hereto shall use
commercially reasonable efforts to cause the S-4 to become effective as
promptly as practicable after the date hereof, and, prior to the effective
date of the S-4, the parties hereto shall take all action required under
any applicable Laws in connection with the issuance of shares of Parent
Common Stock pursuant to the Merger. Parent or Company, as the case may be,
shall furnish all information concerning Parent or Company as the other
party may reasonably request in connection with such actions and the
preparation of the S-4 and the Joint Proxy Statement/ Prospectus. As
promptly as practicable after the effective date of the S-4, the Joint
Proxy Statement/Prospectus shall be mailed to the shareholders of Company
and of Parent. Each of the parties hereto shall cause the Joint Proxy
Statement/Prospectus to comply as to form and substances to such party in
all material respects with the applicable requirements of (i) the Exchange
Act, (ii) the Securities Act, (iii) the rules and regulations of the
Nasdaq.
(b) The Joint Proxy Statement/Prospectus shall include the approval of
this Agreement and the Merger and the recommendation of the Board of
Directors of Company to Company's shareholders that they vote in favor of
approval of this Agreement and the Merger, subject to the right of the
Board of Directors of Company to withdraw at any time prior to the date of
the Company Shareholders' Meeting its recommendation and to recommend a
Superior Proposal determined to be such in compliance with Section 5.4(a)
of this Agreement. The Joint Proxy Statement/Prospectus shall include the
approval of the Share Issuance and the recommendation of the Board of
Directors of Parent to Parent's stockholders that they vote in favor of
approval of the Share Issuance.
(c) No amendment or supplement to the Joint Proxy Statement/Prospectus
or the S-4 shall be made without the approval of Parent and Company, which
approval shall not be unreasonably withheld or delayed. Each of the parties
hereto shall advise the other parties hereto, promptly after it receives
notice thereof, of the time when the S-4 has become effective or any
supplement or amendment has been filed, of the issuance of any stop order,
of the suspension of the qualification of the Parent Common Stock issuable
in connection with the Merger for offering or sale in any jurisdiction, or
of any request by the SEC for amendment of the Joint Proxy
Statement/Prospectus or the S-4 or comments thereon and responses thereto
or requests by the SEC for additional information.
5.2 Shareholder and Stockholder Meetings. Company shall call and hold the
Company Shareholders' Meeting and Parent shall call and hold the Parent
Stockholders' Meeting as promptly
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as practicable after the date hereof for the purpose of voting upon the adoption
and approval of this Agreement and the approval of the Merger (in the case of
the Company Shareholders' Meeting) and the Share Issuance (in the case of the
Parent Stockholders' Meeting) pursuant to the Joint Proxy Statement/Prospectus,
and Company and Parent shall use all reasonable efforts to hold the Parent
Stockholders' Meeting and the Company Shareholders' Meeting on the same day and
as soon as practicable after the date on which the S-4 becomes effective.
Nothing herein shall prevent Company or Parent from adjourning or postponing the
Company Shareholders' Meeting or the Parent Stockholders' Meeting, as the case
may be, if there are insufficient shares of Company Common Stock or Parent
Common Stock, as the case may be, necessary to conduct business at their
respective meetings of the shareholders or stockholders. The Board of Directors
of Company shall submit this Agreement and the Merger for shareholder approval
pursuant to Section 23B.11.030(b)(3) of the Washington Law subject only to the
condition of shareholder approval as described in Section 2.4. Unless Company's
Board of Directors has withdrawn its recommendation of this Agreement and the
Merger in compliance with Section 5.4(a), Company shall use commercially
reasonable efforts to solicit from its shareholders proxies in favor of the
adoption and approval of this Agreement and the approval of the Merger pursuant
to the Joint Proxy Statement/Prospectus and shall take all other commercially
reasonable action necessary or advisable to secure the vote or consent of
shareholders required by Washington Law or applicable Nasdaq requirements to
obtain such approval. Parent shall use commercially reasonable efforts to
solicit from its stockholders proxies in favor of the Share Issuance pursuant to
the Joint Proxy Statement/Prospectus and shall take all other commercially
reasonable action necessary or advisable to secure the vote or consent of
stockholders required by the Delaware Law or applicable Nasdaq requirements to
obtain such approval. Company shall call and hold the Company Shareholders'
Meeting for the purpose of voting upon the adoption and approval of this
Agreement and the approval of the Merger whether or not Company's Board of
Directors at any time subsequent to the date hereof withdraws its recommendation
of this Agreement and the Merger.
5.3 Confidentiality; Access to Information.
(a) The parties acknowledge that Company and Parent have previously
executed a Confidentiality Agreement, dated as of May 22, 2000 (the
"CONFIDENTIALITY AGREEMENT"), which Confidentiality Agreement will continue
in full force and effect in accordance with its terms.
(b) Each of Company and Parent will afford the other and the other's
accountants, counsel and other representatives reasonable access to its
properties, books, records, shareholder lists and personnel during the
period prior to the Effective Time to obtain all information concerning its
business as such other party may reasonably request. No information or
knowledge obtained in any investigation pursuant to this Section 5.3 will
affect or be deemed to modify any representation or warranty contained
herein or the conditions to the obligations of the parties to consummate
the Merger.
5.4 No Solicitation.
(a) By Company. (i) From and after the date of this Agreement until
the Effective Time or termination of this Agreement pursuant to Article
VII, Company and its subsidiaries will not, nor will they authorize or
permit any of their respective officers, directors, affiliates or employees
or any investment banker, attorney or other advisor or representative
retained by any of them to, directly or indirectly, (A) solicit, initiate,
encourage or induce the making, submission or announcement of any
Acquisition Proposal (as defined below), (B) participate in any discussions
or negotiations regarding, or furnish to any person any information with
respect to, or knowingly take any other action to facilitate any inquiries
or the making of any proposal that constitutes or may reasonably be
expected to lead to, any Acquisition Proposal, (C) engage in discussions
with any person with respect to any Acquisition Proposal, (D) approve,
endorse or recommend any
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Acquisition Proposal or (E) enter into any letter of intent or similar
document or any contract, agreement or commitment contemplating or
otherwise relating to any Acquisition Transaction (as defined below);
provided, however, that nothing contained in this Section 5.4(a) shall
prohibit the Board of Directors of Company from (m) complying with Rule
14d-9 or 14e-2(a) promulgated under the Exchange Act with regard to a
tender or exchange offer not made after a violation of this Section 5.4(a)
or (n) at any time prior to the date of the Company Shareholders' Meeting,
in response to a bona fide written Acquisition Proposal received without
the prior occurrence of a breach of this Section 5.4(a) that Company's
Board of Directors reasonably concludes constitutes a Superior Proposal (as
defined below), engaging in discussions or participating in negotiations
with and furnishing information to the party making such Acquisition
Proposal to the extent (1) the Board of Directors of Company determines in
good faith after consultation with its outside legal counsel that its
fiduciary obligations under applicable law require it to do so, (2) (x) at
least two business days prior to furnishing any such nonpublic information
to, or entering into discussions or negotiations with, such party, Company
gives Parent written notice of Company's intention to furnish nonpublic
information to, or enter into discussions or negotiations with, such party
and (y) Company receives from such party an executed confidentiality
agreement containing customary limitations on the use and disclosure of all
nonpublic written and oral information furnished to such party by or on
behalf of Company, and (3) contemporaneously with furnishing any such
nonpublic information to such party, Company furnishes such nonpublic
information to Parent (to the extent such nonpublic information has not
been previously furnished by Company to Parent). Company and its
subsidiaries will immediately cease any and all existing activities,
discussions or negotiations with any parties conducted heretofore with
respect to any Acquisition Proposal. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in this Section
5.4(a) by any officer, director, affiliate or employee of Company or any of
its subsidiaries or any investment banker, attorney or other advisor or
representative of Company or any of its subsidiaries shall be deemed to be
a breach of this Section 5.4(a) by Company.
(ii) For purposes of this Agreement, (A) "ACQUISITION PROPOSAL" shall
mean any offer, inquiry or proposal (other than an offer, inquiry or
proposal by Parent) relating to any Acquisition Transaction. For the
purposes of this Agreement; (B) "ACQUISITION TRANSACTION" shall mean any
transaction or series of related transactions other than the transactions
contemplated by this Agreement involving: (X) any acquisition or purchase
from Company by any person or "group" (as defined under Section 13(d) of
the Exchange Act and the rules and regulations thereunder) of more than a
15% interest in the total outstanding voting securities of Company or any
of its subsidiaries or any tender offer or exchange offer that if
consummated would result in any person or "group" (as defined under Section
13(d) of the Exchange Act and the rules and regulations thereunder)
beneficially owning 15% or more of the total outstanding voting securities
of Company or any of its subsidiaries or any merger, consolidation,
business combination or similar transaction involving Company pursuant to
which the shareholders of Company immediately preceding such transaction
hold less than 85% of the equity interests in the surviving or resulting
entity of such transaction; (Y) any sale, lease (other than in the ordinary
course of business), exchange, transfer, license (other than in the
ordinary course of business), acquisition or disposition of more than 15%
of the assets of Company; or (Z) any liquidation, dissolution,
recapitalization or other significant corporate reorganization of the
Company; and (C) "SUPERIOR PROPOSAL" shall mean an Acquisition Proposal
with respect to which (x) if any cash consideration is involved, shall not
be subject to any financing contingency or with respect to which Company's
Board of Directors shall have reasonably determined (based upon the advice
of Company's financial advisors) that the acquiring party is capable of
consummating the proposed Acquisition Transaction on the terms proposed,
and (y) Company's Board of Directors shall have reasonably determined that
the proposed Acquisition Transaction
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provides greater value to the shareholders of Company than the Merger
(based upon a written opinion, subject to customary qualifications, of
Company's financial advisor).
(iii) In addition to the obligations of Company set forth in paragraph
(i) of this Section 5.4(a), Company as promptly as practicable, and in any
event within 24 hours, shall advise Parent orally and in writing of any
request for information which Company reasonably believes would lead to an
Acquisition Proposal or of any Acquisition Proposal, or any inquiry with
respect to or which Company reasonably believes would lead to any
Acquisition Proposal, the material terms and conditions of such request,
Acquisition Proposal or inquiry, and the identity of the person or group
making any such request, Acquisition Proposal or inquiry. Company will keep
Parent informed in all material respects of the status and details
(including material amendments or proposed amendments) of any such request,
Acquisition Proposal or inquiry. In addition to the foregoing, Company
shall (A) provide Parent with at least 48 hours prior notice (or such
lesser prior notice as provided to the members of Company's Board of
Directors but in no event less than eight hours) of any meeting of
Company's Board of Directors at which Company's Board of Directors is
reasonably expected to consider an Acquisition Proposal and (B) provide
Parent with at least three (3) business days prior written notice of a
meeting of Company's Board of Directors at which Company's Board of
Directors is reasonably expected to recommend a Superior Proposal to its
shareholders and together with such notice a copy of the definitive
documentation relating to such Superior Proposal.
(b) By Parent. (i) From and after the date of this Agreement until
the Effective Time or termination of this Agreement pursuant to Article
VII, Parent and its subsidiaries will not, nor will they authorize or
permit any of their respective officers, directors, affiliates or employees
or any investment banker, attorney or other advisor or representative
retained by any of them to, directly or indirectly, (A) solicit, initiate,
encourage or induce the making, submission or announcement of any Parent
Acquisition Proposal (as defined below), (B) participate in any discussions
or negotiations regarding, or furnish to any person any information with
respect to, or knowingly take any other action to facilitate any inquiries
or the making of any proposal that constitutes or may reasonably be
expected to lead to, any Parent Acquisition Proposal, (C) engage in
discussions with any person with respect to any Parent Acquisition
Proposal, (D) approve, endorse or recommend any Parent Acquisition Proposal
or (E) enter into any letter of intent or similar document or any contract,
agreement or commitment contemplating or otherwise relating to any Parent
Acquisition Transaction (as defined below); provided, however, that nothing
contained in this Section 5.4(b) shall prohibit the Board of Directors of
Parent from (m) complying with Rule 14d-9 or 14e-2(a) promulgated under the
Exchange Act with regard to a tender or exchange offer not made after a
violation of this Section 5.4(b) or (n) at any time prior to the date of
the Parent Stockholders' Meeting, in response to a bona fide written Parent
Acquisition Proposal received without the prior occurrence of a breach of
this Section 5.4(b) that Parent's Board of Directors reasonably concludes
constitutes a Parent Superior Proposal (as defined below), engaging in
discussions or participating in negotiations with and furnishing
information to the party making such Parent Acquisition Proposal to the
extent (1) the Board of Directors of Parent determines in good faith after
consultation with its outside legal counsel that its fiduciary obligations
under applicable law require it to do so, (2) (x) at least two business
days prior to furnishing any such nonpublic information to, or entering
into discussions or negotiations with, such party, Parent gives Company
written notice of Parent's intention to furnish nonpublic information to,
or enter into discussions or negotiations with, such party and (y) Parent
receives from such party an executed confidentiality agreement containing
customary limitations on the use and disclosure of all nonpublic written
and oral information furnished to such party by or on behalf of Parent, and
(3) contemporaneously with furnishing any such nonpublic information to
such party, Parent furnishes such nonpublic information to
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Company (to the extent such nonpublic information has not been previously
furnished by Parent to Company). Parent and its subsidiaries will
immediately cease any and all existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any
Parent Acquisition Proposal. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in this Section
5.4(b) by any officer, director, affiliate or employee of Parent or any of
its subsidiaries or any investment banker, attorney or other advisor or
representative of Parent or any of its subsidiaries shall be deemed to be a
breach of this Section 5.4(b) by Parent.
(ii) For purposes of this Agreement, (A) "PARENT ACQUISITION PROPOSAL"
shall mean any offer, inquiry or proposal relating to any Parent
Acquisition Transaction. For the purposes of this Agreement; (B) "PARENT
ACQUISITION TRANSACTION" shall mean any transaction or series of related
transactions that (m) is (1) conditioned upon termination of the Merger
Agreement or (2) structured in a manner that makes it impossible to
consummate such transaction or series of related transactions and the
Merger and (n) involves: (x) any acquisition or purchase from Parent by any
person or "group" (as defined under Section 13(d) of the Exchange Act and
the rules and regulations thereunder) of more than a 15% interest in the
total outstanding voting securities of Parent or any of its subsidiaries or
any tender offer or exchange offer that if consummated would result in any
person or "group" (as defined under Section 13(d) of the Exchange Act and
the rules and regulations thereunder) beneficially owning 15% or more of
the total outstanding voting securities of Parent or any of its
subsidiaries or any merger, consolidation, business combination or similar
transaction involving Parent pursuant to which the shareholders of Parent
immediately preceding such transaction hold less than 85% of the equity
interests in the surviving or resulting entity of such transaction; (y) any
sale, lease (other than in the ordinary course of business), exchange,
transfer, license (other than in the ordinary course of business),
acquisition or disposition of more than 15% of the assets of Parent; or (z)
any liquidation, dissolution, recapitalization or other significant
corporate reorganization of the Parent; and (C) "PARENT SUPERIOR PROPOSAL"
shall mean an Parent Acquisition Proposal with respect to which (x) if any
cash consideration is involved, shall not be subject to any financing
contingency or with respect to which Parent's Board of Directors shall have
reasonably determined (based upon the advice of Parent's financial
advisors) that the acquiring party is capable of consummating the proposed
Parent Acquisition Transaction on the terms proposed, and (y) Parent's
Board of Directors shall have reasonably determined that the proposed
Parent Acquisition Transaction provides greater value to the shareholders
of Parent than the Merger (based upon a written opinion, subject to
customary qualifications, of Parent's financial advisor).
(iii) In addition to the obligations of Parent set forth in paragraph
(i) of this Section 5.4(b), Parent as promptly as practicable, and in any
event within 24 hours, shall advise Company orally and in writing of any
request for information which Parent reasonably believes would lead to an
Parent Acquisition Proposal or of any Parent Acquisition Proposal, or any
inquiry with respect to or which Parent reasonably believes would lead to
any Parent Acquisition Proposal, the material terms and conditions of such
request, Parent Acquisition Proposal or inquiry, and the identity of the
person or group making any such request, Parent Acquisition Proposal or
inquiry. Parent will keep Company informed in all material respects of the
status and details (including material amendments or proposed amendments)
of any such request, Parent Acquisition Proposal or inquiry. In addition to
the foregoing, Parent shall (A) provide Company with at least 48 hours
prior notice (or such lesser prior notice as provided to the members of
Parent's Board of Directors but in no event less than eight hours) of any
meeting of Parent's Board of Directors at which Parent's Board of Directors
is reasonably expected to consider an Parent Acquisition Proposal and (B)
provide Company with at least three (3) business days prior written notice
of a meeting of Parent's Board of Directors at which Parent's Board of
Directors is reasonably expected to recommend a Parent Superior Proposal to
its shareholders
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and together with such notice a copy of the definitive documentation
relating to such Parent Superior Proposal.
5.5 Public Disclosure. Parent and Company will consult with each other and
agree before issuing any press release or otherwise making any public statement
with respect to the Merger, this Agreement or an Acquisition Proposal and will
not issue any such press release or make any such public statement prior to such
agreement, except as may be required by law or any listing agreement with a
national securities exchange, in which case reasonable efforts to consult with
the other party will be made prior to any such release or public statement. The
parties have agreed to the text of the joint press release announcing the
signing of this Agreement.
5.6 Reasonable Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use commercially reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to
be done, and to assist and cooperate with the other parties in doing, all
things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Merger and the other
transactions contemplated by this Agreement, including using commercially
reasonable efforts to accomplish the following: (i) the taking of all
reasonable acts necessary to cause the conditions precedent set forth in
Article VI to be satisfied, (ii) the obtaining of all necessary actions or
nonactions, waivers, consents, approvals, orders and authorizations from
Governmental Entities and the making of all necessary registrations,
declarations and filings (including registrations, declarations and filings
with Governmental Entities, if any) and the taking of all reasonable steps
as may be necessary to avoid any suit, claim, action, investigation or
proceeding by any Governmental Entity, (iii) the obtaining of all necessary
consents, approvals or waivers from third parties, (iv) the defending of
any suits, claims, actions, investigations or proceedings, whether judicial
or administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental
Entity vacated or reversed and (v) the execution or delivery of any
additional instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this Agreement. In
connection with and without limiting the foregoing, Company and its Board
of Directors shall, if any state takeover statute or similar statute or
regulation is or becomes applicable to the Merger, this Agreement, the
Company Voting Agreements or any of the transactions contemplated hereby
and thereby, use commercially reasonable efforts to ensure that the Merger,
this Agreement, the Company Voting Agreements and the other transactions
contemplated hereby and thereby may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on the Merger, this
Agreement, the Company Voting Agreements and the transactions contemplated
hereby and thereby. Notwithstanding anything herein to the contrary,
nothing in this Agreement shall be deemed to require Parent or Company or
any subsidiary or affiliate thereof to agree to any divestiture by itself
or any of its affiliates of shares of capital stock or of any business,
assets or property, or the imposition of any material limitation on the
ability of any of them to conduct their business or to own or exercise
control of such assets, properties and stock.
(b) Company shall give prompt notice to Parent of any representation
or warranty made by it contained in this Agreement becoming untrue or
inaccurate, or any failure of Company to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement, in each case, such that the
conditions set forth in Section 6.3(a) or 6.3(b) would not be satisfied;
provided, however, that no such
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notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the
parties under this Agreement.
(c) Parent shall give prompt notice to Company of any representation
or warranty made by it or Merger Sub contained in this Agreement becoming
untrue or inaccurate, or any failure of Parent or Merger Sub to comply with
or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement, in each case,
such that the conditions set forth in Section 6.2(a) or 6.2(b) would not be
satisfied; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
5.7 Third Party Consents. As soon as practicable following the date
hereof, Parent and Company will each use commercially reasonable efforts to
obtain any consents, waivers and approvals under any of its or its subsidiaries'
respective agreements, contracts, licenses or leases required to be obtained in
connection with the consummation of the transactions contemplated hereby.
5.8 Stock Options; Warrants; Employee Stock Purchase Plan; 401(k) Plan.
(a) At the Effective Time, each outstanding option to purchase shares
of Company Common Stock (each, a "COMPANY STOCK OPTION") under any of the
Company Option Plans, whether or not vested, and each outstanding Company
Warrant, whether or not then exercisable, shall by virtue of the Merger be
assumed by Parent. Each Company Stock Option and each Company Warrant so
assumed by Parent under this Agreement will continue to have, and be
subject to, the same terms and conditions of such options or warrants
immediately prior to the Effective Time (including, without limitation, any
repurchase rights or vesting provisions, including, to the extent not
otherwise waived, accelerated vesting on the terms provided in Company's
1997 Stock Option Plan for options granted prior to January 10, 2000),
except that (i) each Company Stock Option and each Company Warrant will be
exercisable (or will become exercisable in accordance with its terms) for
that number of whole shares of Parent Common Stock equal to the product of
the number of shares of Company Common Stock that were issuable upon
exercise of such Company Stock Option or Company Warrant, as applicable,
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole number of shares of Parent Common Stock
and (ii) the per share exercise price for the shares of Parent Common Stock
issuable upon exercise of such assumed Company Stock Option or Company
Warrant will be equal to the quotient determined by dividing the exercise
price per share of Company Common Stock at which such Company Stock Option
or Company Warrant, as applicable, was exercisable immediately prior to the
Effective Time by the Exchange Ratio, rounded up to the nearest whole cent.
(b) Prior to the Effective Time, outstanding purchase rights under the
Company ESPP shall be exercised in accordance with Section 20(b) of the
1999 Employee Stock Purchase Plan (the "COMPANY ESPP") and each share of
Company Common Stock purchased pursuant to such exercise shall by virtue of
the Merger, and without any action on the part of the holder thereof, be
converted into the right to receive a number of shares of Parent Common
Stock equal to the product of the number of shares of Company Common Stock
that were issuable upon exercise of such purchase rights under the Company
ESPP immediately prior to the Effective Time multiplied by the Exchange
Ratio without issuance of certificates representing issued and outstanding
shares of Company Common Stock to Company ESPP participants. Company agrees
that it shall terminate the Company ESPP immediately following the
aforesaid purchase of shares of Company Common Stock thereunder.
(c) Company agrees to terminate its 401(k) Plans immediately prior to
the Effective Time. Parent agrees to take, or cause to be taken, such
actions as are necessary to permit participants
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in Company's 401(k) plans to roll over their accounts under such plans,
after the Effective Time (and after completion of the termination of
Company's 401(k) plan), into a qualified plan or plans maintained by
Parent.
(d) Parent shall cause employees of Company and its subsidiaries as of
the Effective Time ("AFFECTED EMPLOYEES") to be credited with service with
Company and each of its subsidiaries for purposes of eligibility and
vesting under each employee benefit plan maintained by Parent or its
subsidiaries after the Effective Time to the extent of their service with
Company provided, however, that such service shall not be recognized to the
extent that such recognition would result in duplication of benefits. To
the extent permitted by the Parent Plans and applicable law, Parent will,
or will cause Company to (i) waive all limitations as to preexisting
conditions, exclusions and waiting periods with respect to participation
and coverage requirements applicable to the Affected Employees under any
welfare benefit plans that such employees may be eligible to participate in
after the Effective Time, other than limitations or waiting periods that
are already in effect with respect to such employees and that have not been
satisfied as of the Effective Time under any welfare plan maintained for
the Affected Employees immediately prior to the Effective Time, and (ii)
provide each Affected Employee with credit for any co-payments and
deductibles paid prior to the Effective Time in satisfying any applicable
deductible or out-of-pocket requirements under any welfare plans that such
employees are eligible to participate in after the Effective Time. Affected
Employees shall be eligible to participate in the stock option and other
stock incentive plans maintained by Parent after the Effective Time to the
same extent as similarly situated employees of Parent. Without limiting the
foregoing, Affected Employees shall be able to participate in the employee
stock purchase plan of Parent as promptly as practicable following the
Effective Time.
(e) Parent shall provide Affected Employees with severance benefits in
accordance with the terms set forth in Section 5.8(e) of the Company
Schedule.
5.9 Form S-8; Section 16. Parent agrees to file, if available for use by
Parent, a registration statement on Form S-8 for the shares of Parent Common
Stock issuable with respect to assumed Company Stock Options as soon as is
reasonably practicable (and in any event within ten business days) after the
Effective Time. In addition, Parent shall use its best efforts to cause Parent's
Board of Directors to approve the issuance of such shares of Parent Common
Stock, with respect to any employees of the Company who will become Section 16
insiders of Parent to the extent necessary for such issuance to be an exempt
acquisition pursuant to SEC Rule 16b-3.
5.10 Indemnification.
(a) From and after the Effective Time, Parent will cause the Surviving
Corporation to fulfill and honor in all respects the obligations of Company
pursuant to any indemnification agreements between Company and its
directors and officers in effect immediately prior to the Effective Time
and any indemnification provisions under the Company Charter Documents as
in effect on the date hereof. The Articles of Incorporation and Bylaws of
the Surviving Corporation will contain provisions with respect to
exculpation and indemnification that are at least as favorable to the
indemnified parties thereunder (the "INDEMNIFIED PARTIES") as those
contained in the Company Charter Documents as in effect on the date hereof,
which provisions will not be amended, repealed or otherwise modified for a
period of six years from the Effective Time in any manner that would
adversely affect the rights thereunder of the Indemnified Parties, unless
such modification is required by law.
(b) For a period of six years after the Effective Time, Parent will
cause the Surviving Corporation to maintain in effect, if available,
directors' and officers' liability insurance covering those persons who are
currently covered by the Company's directors' and officers' liability
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insurance policy in an amount and on terms comparable to those applicable
to the current directors and officers of the Company; provided, however,
that in no event will Parent or the Surviving Corporation be required to
expend an annual premium for such coverage in excess of 150% of the annual
premium currently paid by the Company.
(c) In the event that Parent or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers all or substantially all of its properties and
assets to any person in a single transaction or a series of transactions,
then, and in each such case, Parent shall make or cause to be made proper
provisions so that the successors and assigns of Parent assume the
indemnification obligations of Parent under this Section 5.10 for the
benefit of the Indemnified Parties.
(d) This Section 5.10 shall survive the consummation of the merger, is
intended to benefit the Company, the Surviving Corporation and each
Indemnified Party, shall be binding on all successors and assigns of the
Surviving Corporation and Parent, and shall be enforceable by the
Indemnified Parties.
5.11 Nasdaq Listing. Parent agrees to file with the Nasdaq a Notification
Form for Listing of Additional Shares with regards to the shares of Parent
Common Stock issuable, and those required to be reserved for issuance, in
connection with the Merger.
5.12 Affiliates. Set forth in Section 5.12(a) of the Company Schedule is a
list of those persons who may be deemed to be, in Company's reasonable judgment,
affiliates of Company within the meaning of Rule 145 promulgated under the
Securities Act (each, a "COMPANY AFFILIATE"). Company will promptly provide
Parent with updates to such list with respect to persons who may deemed to
become after the date hereof, in Company's reasonable judgment, Company
Affiliates. Company has provided Parent with such information and documents as
Parent reasonably requests for purposes of reviewing such list and any such
updates. Company has provided to Parent (with respect to current Company
Affiliates), and will use its commercially reasonable efforts to deliver or
cause to be delivered to Parent, as promptly as practicable on or following the
date any person who subsequently becomes a Company Affiliate, from each person
who becomes a Company Affiliate after the date hereof, an executed affiliate
agreement in substantially the form attached hereto as Exhibit C (the "AFFILIATE
AGREEMENT"), each of which will be in full force and effect as of the Effective
Time. Parent will be entitled to place appropriate legends on the certificates
evidencing any Parent Common Stock to be received by a Company Affiliate
pursuant to the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for the Parent Common Stock, consistent with
the terms of the Affiliate Agreement.
5.13 Regulatory Filings; Reasonable Efforts. As soon as may be reasonably
practicable, Company and Parent each shall file with the United States Federal
Trade Commission (the "FTC") and the Antitrust Division of the United States
Department of Justice ("DOJ") Notification and Report Forms relating to the
transactions contemplated herein as required by the HSR Act, as well as
comparable pre-merger notification forms required by the merger notification or
control laws and regulations of any applicable jurisdiction, as agreed to by the
parties. Company and Parent each shall promptly (a) supply the other with any
information which may be required in order to effectuate such filings and (b)
supply any additional information which reasonably may be required by the FTC,
the DOJ or the competition or merger control authorities of any other
jurisdiction and which the parties may reasonably deem appropriate; provided,
however, that neither Parent nor Company shall be required to agree to any
divestiture by Parent or Company or any of Parent's subsidiaries or affiliates
of shares of capital stock or of any business, assets or property of Parent or
its subsidiaries or affiliates or of Company, its affiliates, or the imposition
of any material limitation on the ability of
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any of them to conduct their businesses or to own or exercise control of such
assets, properties and stock.
5.14 Board of Directors. The Board of Directors of Parent will take all
actions necessary such that (a) James Barksdale and one other individual to be
mutually agreed upon by Parent and Company (or in the event that either or both
of such individuals is unable or unwilling to serve on Parent's Board of
Directors, then other individuals designated by Company and reasonably
acceptable to Parent) shall be appointed to Parent's Board of Directors as of
the Effective Time with terms expiring at the 2002 and 2003 annual meetings of
Parent's stockholders and (b) upon such appointment the Board of Directors of
Parent will be comprised of eight members.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) Shareholder and Stockholder Approvals. This Agreement shall have
been approved and adopted, and the Merger shall have been duly approved, by
the requisite vote under applicable law, by the shareholders of Company.
The Share Issuance shall have been approved by the requisite vote under
applicable Nasdaq rules by the stockholders of Parent.
(b) Registration Statement Effective; Joint Proxy Statement. The SEC
shall have declared the S-4 effective. No stop order suspending the
effectiveness of the S-4 or any part thereof shall have been issued and no
proceeding for that purpose, and no similar proceeding in respect of the
Joint Proxy Statement/Prospectus, shall have been initiated or threatened
in writing by the SEC.
(c) No Order; HSR Act. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of
making the Merger illegal or otherwise prohibiting consummation of the
Merger. All waiting periods, if any, under the HSR Act relating to the
transactions contemplated hereby will have expired or terminated early and
all material foreign antitrust approvals required to be obtained prior to
the Merger in connection with the transactions contemplated hereby shall
have been obtained.
(d) Tax Opinions. Each of Parent and Company shall have received a
written opinion from its tax counsel (Wilson Sonsini Goodrich & Rosati,
Professional Corporation, and Davis Polk & Wardwell, respectively, or other
nationally recognized tax counsel), in form and substance reasonably
satisfactory to it, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code and such
opinions shall not have been withdrawn. The parties to this Agreement agree
to make such reasonable representations as requested by such counsel for
the purpose of rendering such opinions.
6.2 Additional Conditions to Obligations of Company. The obligation of
Company to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Closing Date of each of the following conditions, any of
which may be waived, in writing, exclusively by Company:
(a) Representations and Warranties. Each representation and warranty
of Parent and Merger Sub contained in this Agreement (i) shall have been
true and correct as of the date of this Agreement and (ii) shall be true
and correct on and as of the Closing Date with the same force and effect as
if made on the Closing Date except, in the case of clauses (i) and (ii),
(A) for such failures to be true and correct that do not in the aggregate
constitute a Material
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Adverse Effect on Parent and Merger Sub provided, however, that such
Material Adverse Effect qualifier shall be inapplicable with respect to the
representations and warranties contained in Sections 3.2 and 3.19 (which
representations and warranties shall have been true and correct in all
material respects as of the date of this Agreement and shall be true and
correct in all material respects as of the Closing Date), and (B) for those
representations and warranties which address matters only as of a
particular date (which representations shall have been true and correct
(subject to the qualifications set forth in the preceding clause (A)) as of
such particular date) (it being understood that, for purposes of
determining the accuracy of such representations and warranties in
connection with clauses (i) and (ii), (x) all "Material Adverse Effect"
qualifications and other qualifications based on the word "material" or
similar phrases contained in such representations and warranties shall be
disregarded and (y) any update of or modification to the Parent Schedule
made or purported to have been made after the date of this Agreement shall
be disregarded). Company shall have received a certificate with respect to
the foregoing signed on behalf of Parent by an authorized officer of
Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Closing Date, and Company shall have received a
certificate to such effect signed on behalf of Parent by an authorized
officer of Parent.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Parent:
(a) Representations and Warranties. Each representation and warranty
of Company contained in this Agreement (i) shall have been true and correct
as of the date of this Agreement and (ii) shall be true and correct on and
as of the Closing Date with the same force and effect as if made on and as
of the Closing Date except, in the case of clauses (i) and (ii), (A) for
such failures to be true and correct that do not in the aggregate
constitute a Material Adverse Effect on the Company provided, however, that
such Material Adverse Effect qualifier shall be inapplicable with respect
to the representations and warranties contained in Section 2.2 and 2.20
(which representations and warranties shall have been true and correct in
all material respects as of the date of this Agreement and shall be true
and correct in all material respects as of the Closing Date) and (B) for
those representations and warranties which address matters only as of a
particular date (which representations shall have been true and correct
(subject to the qualifications set forth in the preceding clause (A)) as of
such particular date) (it being understood that, for purposes of
determining the accuracy of such representations and warranties in
connection with clauses (i) and (ii), (x) all "Material Adverse Effect"
qualifications and other qualifications based on the word "material" or
similar phrases contained in such representations and warranties shall be
disregarded and (y) any update of or modification to the Company Schedule
made or purported to have been made after the date of this Agreement shall
be disregarded). Parent shall have received a certificate with respect to
the foregoing signed on behalf of Company by an authorized officer of
Company.
(b) Agreements and Covenants. Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date, and Parent shall have received a certificate to such effect signed on
behalf of Company by the Chief Executive Officer and the Chief Financial
Officer of Company.
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(c) Consents. Company shall have obtained all consents, waivers and
approvals required in connection with the consummation of the transactions
contemplated hereby in connection with the agreements, contracts, licenses
or leases set forth on Schedule 6.3(c)(2).
(d) Dissenting Shares. No more than 5% of the outstanding shares of
Company Common Stock shall be Dissenting Shares.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after the requisite approval of the
shareholders of Company and the stockholders of Parent:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and Company;
(b) by either Company or Parent if the Merger shall not have been
consummated by November 30, 2000 for any reason; provided, however, that
the right to terminate this Agreement under this Section 7.1(b) shall not
be available to any party whose action or failure to act has been a
principal cause of or resulted in the failure of the Merger to occur on or
before such date and such action or failure to act constitutes a material
breach of this Agreement;
(c) by either Company or Parent if a Governmental Entity shall have
issued an order, decree or ruling or taken any other action, in any case
having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which order, decree, ruling or other action is
final and nonappealable;
(d) by either Company or Parent if (i) required approval of the
shareholders of Company contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a meeting
of Company shareholders duly convened therefor or at any adjournment
thereof; or (ii) the required approval by the stockholders of Parent of the
Share Issuance required under applicable Nasdaq rules shall not have been
obtained by reason of the failure to obtain the required vote at a meeting
of Parent stockholders duly convened therefor or at any adjournment or
postponement thereof;
(e) by Company, upon a breach of any representation, warranty,
covenant or agreement on the part of Parent set forth in this Agreement, or
if any representation or warranty of Parent shall have become untrue, in
either case such that the conditions set forth in Section 6.2(a) or Section
6.2(b) would not be satisfied as of the time of such breach or as of the
time such representation or warranty shall have become untrue, provided,
that if such inaccuracy in Parent's representations and warranties or
breach by Parent is curable by Parent, then Company may not terminate this
Agreement under this Section 7.1(e) for thirty (30) days after delivery of
written notice from Company to Parent of such breach, provided Parent
continues to exercise best efforts to cure such breach (it being understood
that Company may not terminate this Agreement pursuant to this paragraph
(e) if such breach by Parent is cured during such thirty (30)-day period);
(f) by Parent, upon a breach of any representation, warranty, covenant
or agreement on the part of Company set forth in this Agreement, or if any
representation or warranty of Company shall have become untrue, in either
case such that the conditions set forth in Section 6.3(a) or
---------------
(2)Including, without limitation, certain landlord consents.
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Section 6.3(b) would not be satisfied as of the time of such breach or as
of the time such representation or warranty shall have become untrue,
provided, that if such inaccuracy in Company's representations and
warranties or breach by Company is curable by Company, then Parent may not
terminate this Agreement under this Section 7.1(f) for thirty (30) days
after delivery of written notice from Parent to Company of such breach,
provided Company continues to exercise best efforts to cure such breach (it
being understood that Parent may not terminate this Agreement pursuant to
this paragraph (f) such breach by Company is cured during such thirty
(30)-day period);
(g) by Parent, if (i) the Board of Directors of Company withdraws,
modifies or changes its recommendation of this Agreement or the Merger in a
manner adverse to Parent or its stockholders, (ii) the Board of Directors
of Company shall have recommended to the shareholders of Company an
Acquisition Proposal, (iii) the Company fails to comply with Section
5.4(a), (iv) an Acquisition Proposal shall have been announced or otherwise
become publicly known and the Board of Directors of Company shall have (A)
failed to recommend against acceptance of such by its shareholders
(including by taking no position, or indicating its inability to take a
position, with respect to the acceptance by its shareholders of an
Acquisition Proposal involving a tender offer or exchange offer) or (B)
failed to reconfirm its approval and recommendation of this Agreement and
the transactions contemplated hereby within five business days thereafter
or (v) the Board of Directors of Company resolves to take any of the
actions described above; or
(h) by Company, if (i) the Board of Directors of Parent withdraws,
modifies or changes its recommendation of the Share Issuance in a manner
adverse to Company and its shareholders, (ii) the Board of Directors of
Parent shall have recommended to the stockholders of Parent a Parent
Acquisition Proposal, (iii) Parent fails to comply with Section 5.4(b),
(iv) a Parent Acquisition Proposal shall have been announced or otherwise
become publicly known and the Board of Directors of Parent shall have (A)
failed to recommend against acceptance of such by its stockholders
(including by taking no position, or indicating its inability to take a
position, with respect to the acceptance by its shareholders of a Parent
Acquisition Proposal involving a tender offer or exchange offer) or (B)
failed to reconfirm its approval and recommendation of the Share Issuance
within five business days thereafter or (v) the Board of Directors of
Parent resolves to take any of the actions described above.
7.2 Notice of Termination; Effect of Termination. Any termination of this
Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto
(or such later time as may be required by Section 7.1). In the event of the
termination of this Agreement as provided in Section 7.1, this Agreement shall
be of no further force or effect, except (i) as set forth in this Section 7.2,
Section 5.3(a), Section 7.3 and Article 8, each of which shall survive the
termination of this Agreement, and (ii) nothing herein shall relieve any party
from liability for fraud in connection with, or any willful breach of, this
Agreement.
7.3 Fees and Expenses.
(a) General. Except as set forth in this Section 7.3, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses
whether or not the Merger is consummated; provided, however, that Parent
and Company shall share equally all fees and expenses, other than
attorneys' and accountants fees and expenses, incurred (i) in relation to
the printing and filing of the Joint Proxy Statement/Prospectus (including
any preliminary materials related thereto) and the S-4 (including financial
statements and exhibits) and any amendments or supplements thereto or (ii)
for the premerger notification and report forms under the HSR Act.
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(b) Termination Fee Payable by Company.
(i) In the event that (A) Parent shall terminate this Agreement
pursuant to Section 7.1(g), or (B) this Agreement shall be terminated (x)
pursuant to Section 7.1(b) or (y) pursuant to Section 7.1(d)(i) and (1) at
or prior to such termination, there shall exist or have been proposed an
Acquisition Proposal that has not been publicly, irrevocably and
unconditionally withdrawn prior to such termination and (2) within 6 months
after any such termination pursuant to Section 7.1(b) or within 12 months
after any such termination pursuant to Section 7.1(d)(i), as the case may
be, Company shall enter into a definitive agreement with respect to any
Company Acquisition (which Company Acquisition is later consummated) or any
Company Acquisition shall be consummated, then, in the case of clause (A),
promptly after such termination, or in the case of clause (B), concurrently
with the consummation of such Company Acquisition, Company shall pay to
Parent $36 million in cash (the "TERMINATION FEE").
(ii) In the event that this Agreement shall be terminated pursuant to
Section 7.1(d)(i), then promptly after such termination Company shall pay
to Parent $15 million in cash; provided, however, that no fee shall be
payable pursuant to this Section 7.3(b)(ii) if (A) prior to the payment of
such fee, Company shall have paid or become obligated to pay the
Termination Fee pursuant to Section 7.3(b)(i) or (B) at the time of such
vote of Company's shareholders, the representations of Parent or Merger Sub
contained in this Agreement shall have become untrue or inaccurate, or
Parent or Merger Sub shall have failed to comply with in any material
respect any covenant or agreement to be complied with by it under this
Agreement, in each case such that the conditions set forth in Section
6.2(a) or 6.2(b) would not be satisfied (excluding, for purposes of this
analysis, clause (B)(z) of Section 8.3(b)(ii)). Any fee payable pursuant to
this Section 7.3(b)(ii) will be credited against any Termination Fee that
Company becomes obligated to pay pursuant to Section 7.3(b)(i).
(iii) In the event that Parent shall terminate this Agreement pursuant
to Section 7.1(f), then Company shall promptly reimburse Parent for
Parent's costs and expenses in connection with this Agreement and the
transactions contemplated hereby.
(iv) Company acknowledges that the agreements contained in this
Section 7.3(b) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, Parent would not enter
into this Agreement; accordingly, if Company fails to pay in a timely
manner the amounts due pursuant to this Section 7.3(b) and, in order to
obtain such payment, Parent makes a claim that results in a judgment
against Company for the amounts set forth in this Section 7.3(b), Company
shall pay to Parent its costs and expenses (including attorneys' fees and
expenses) in connection with such suit, together with interest on the
amounts set forth in this Section 7.3(b) at the prime rate of Citibank,
N.A. in effect on the date such payment was required to be made. Payment of
the fees described in this Section 7.3(b) shall not be in lieu of damages
incurred in the event of willful breach of this Agreement. For the purposes
of this Agreement, "COMPANY ACQUISITION" shall mean any of the following
transactions (other than the transactions contemplated by this Agreement):
(A) a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Company pursuant
to which the shareholders of Company immediately preceding such transaction
hold less than 60% of the aggregate equity interests in the surviving or
resulting entity of such transaction, (B) a sale or other disposition by
Company of assets representing in excess of 40% of the aggregate fair
market value of Company's business immediately prior to such sale or (C)
the acquisition by any person or group (including by way of a tender offer
or an exchange offer or issuance by Company), directly or indirectly, of
beneficial ownership or a right to
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acquire beneficial ownership of shares representing in excess of 40% of the
voting power of the then outstanding shares of capital stock of Company.
(c) Termination Fee Payable by Parent.
(i) In the event that (A) Company shall terminate this Agreement
pursuant to Section 7.1(h), or (B) this Agreement shall be terminated (x)
pursuant to Section 7.1(b) or (y) pursuant to Section 7.1(d)(ii) and (1) at
or prior to such termination, there shall exist or have been proposed a
Parent Acquisition Proposal (it being understood that for purposes of this
Section 7.3(c)(i) the definition of "Parent Acquisition Proposal" (and the
related definition of "Parent Acquisition Transaction" shall not include
the phrase "(m) is (1) conditioned upon termination of the Merger Agreement
or (2) structured in a manner that makes is impossible to consummate such
transaction or series of related transactions and the Merger and (n)") that
has not been publicly, irrevocably and unconditionally withdrawn prior to
such termination and (2) within 6 months after any such termination
pursuant to Section 7.1(b) or within 12 months after any such termination
pursuant to Section 7.1(d)(ii), as the case may be, Parent shall enter into
a definitive agreement with respect to any Parent Acquisition (which Parent
Acquisition is later consummated) or any Parent Acquisition shall be
consummated, then, in the case of clause (A), promptly after such
termination, or in the case of clause (B), concurrently with the
consummation of such Parent Acquisition, Parent shall pay to Company the
Termination Fee.
(ii) In the event that this Agreement shall be terminated pursuant to
Section 7.1(d)(ii), then promptly after such termination Company shall pay
to Parent $15 million in cash; provided, however, that no fee shall be
payable pursuant to this Section 7.3(c)(ii) if (A) prior to the payment of
such fee, Parent shall have paid or become obligated to pay the Termination
Fee pursuant to Section 7.3(c)(i) or (B) at the time of such vote of
Parent's shareholders, the representations of Company contained in this
Agreement shall have become untrue or inaccurate, or Company shall have
failed to comply with in any material respect any covenant or agreement to
be complied with by it under this Agreement, in each case such that the
conditions set forth in Section 6.3(a) or 6.3(b) would not be satisfied
(excluding clause (B)(z) of Section 8.3(b)(ii) for the purpose of this
analysis)). Any fee payable pursuant to this Section 7.3(c)(ii) will be
credited against any Termination Fee that Parent becomes obligated to pay
pursuant to Section 7.3(c)(i).
(iii) In the event that Company shall terminate this Agreement
pursuant to Section 7.1(e), then Parent shall promptly reimburse Company
for Company's costs and expenses in connection with this Agreement and the
transactions contemplated hereby.
(iv) Parent acknowledges that the agreements contained in this Section
7.3(c) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Company would not enter into
this Agreement; accordingly, if Parent fails to pay in a timely manner the
amounts due pursuant to this Section 7.3(c) and, in order to obtain such
payment, Company makes a claim that results in a judgment against Parent
for the amounts set forth in this Section 7.3(c), Parent shall pay to
Company its costs and expenses (including attorneys' fees and expenses) in
connection with such suit, together with interest on the amounts set forth
in this Section 7.3(c) at the prime rate of Citibank, N.A. in effect on the
date such payment was required to be made. Payment of the fees described in
this Section 7.3(c) shall not be in lieu of damages incurred in the event
of willful breach of this Agreement. For the purposes of this Agreement,
"PARENT ACQUISITION" shall mean any of the following transactions (other
than the transactions contemplated by this Agreement): (A) a merger,
consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving Parent pursuant to which the
stockholders of Parent immediately preceding such transaction hold less
than 60% of the aggregate equity interests in the surviving or resulting
entity of such transaction,
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(B) a sale or other disposition by Parent of assets representing in excess
of 40% of the aggregate fair market value of Parent's business immediately
prior to such sale or (C) the acquisition by any person or group (including
by way of a tender offer or an exchange offer or issuance by Parent),
directly or indirectly, of beneficial ownership or a right to acquire
beneficial ownership of shares representing in excess of 40% of the voting
power of the then outstanding shares of capital stock of Parent.
7.4 Amendment. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of Parent, Merger Sub and Company.
7.5 Extension; Waiver. At any time prior to the Effective Time, any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Survival of Representations and Warranties. The representations and
warranties of Company, Parent and Merger Sub contained in this Agreement shall
terminate at the Effective Time, and only the covenants that by their terms
survive the Effective Time shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Webvan Group, Inc.
310 Lakeside Drive
Foster City, California 94404
Attention: General Counsel
Telecopy No.: (650) 627-3921
with copies to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: Jeffrey D. Saper/J. Robert Suffoletta
Telecopy No.: (650) 493-6811
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and
Wilson Sonsini Goodrich & Rosati
Professional Corporation
One Market
Spear Tower, Suite 3300
San Francisco, California 94105
Attention: Steve L. Camahort
Telecopy No.: (415) 947-2099
(b) if to Company, to:
HomeGrocer.com, Inc.
10230 NE Points Drive
Kirkland, Washington 98033
Attention: Mary Alice Taylor
Telecopy No.: (425) 201-7575
with a copy to:
Davis Polk & Wardwell
1600 El Camino Real
Menlo Park, California 94025
Attention: Daniel G. Kelly, Jr.
Telecopy No.: (650) 752-2111
8.3 Interpretation; Definitions.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise
indicated. When a reference is made in this Agreement to Sections, such
reference shall be to a Section of this Agreement. Unless otherwise
indicated the words "include," "includes" and "including" when used herein
shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. When reference is made herein to "the
business of" an entity, such reference shall be deemed to include the
business of all direct and indirect subsidiaries of such entity. Reference
to the subsidiaries of an entity shall be deemed to include all direct and
indirect subsidiaries of such entity.
(b) For purposes of this Agreement:
(i) the term "KNOWLEDGE" means with respect to a party hereto, with
respect to any matter in question, the actual knowledge of the executive
officers of such party;
(ii) the term "MATERIAL ADVERSE EFFECT" when used in connection with
an entity means any change, event, violation, inaccuracy, circumstance or
effect that is, or is reasonably likely to be, materially adverse to the
business, assets, liabilities, financial condition or results of operations
of such entity and its subsidiaries taken as a whole; provided, however,
that in no event shall (A) a decrease in such entity's stock price or the
failure to meet or exceed Wall Street research analysts' or such entity's
internal earnings or other estimates or projections in and of itself
constitute a Material Adverse Effect or (B) any change, event, violation,
inaccuracy, circumstance or effect that results from (x) changes affecting
the industry in which such entity operates generally (which changes do not
disproportionately affect such entity), (y) changes affecting the United
States economy generally or (z) the public announcement or pendency of the
Merger, constitute a Material Adverse Effect;
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(iii) the term "PERSON" shall mean any individual, corporation
(including any non-profit corporation), general partnership, limited
partnership, limited liability partnership, joint venture, estate, trust,
company (including any limited liability company or joint stock company),
firm or other enterprise, association, organization, entity or Governmental
Entity.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Disclosure Schedule
and the Parent Disclosure Schedule (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, it being understood that the
Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder,
except as specifically provided in Section 5.10.
8.6 Severability. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.7 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
8.8 Governing Law. Except to the extent mandatorily governed by Washington
Law, this Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflicts of law thereof.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
WEBVAN GROUP, INC.
By: /s/ GEORGE T. SHAHEEN
------------------------------------
Name: George T. Shaheen
----------------------------------
Title: President and Chief Executive
Officer
-----------------------------------
ROBIN MERGER CORPORATION
By: /s/ ALAN CHESICK
------------------------------------
Name: Alan Chesick
----------------------------------
Title: Vice President
-----------------------------------
HOMEGROCER.COM, INC.
By: /s/ MARY ALICE TAYLOR
------------------------------------
Name: Mary Alice Taylor
----------------------------------
Title: President and Chief Executive
Officer
-----------------------------------
[SIGNATURE PAGE OF AGREEMENT AND PLAN OF REORGANIZATION]
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EXHIBIT A-1
FORM OF COMPANY VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement") is made and entered into as of
June 25, 2000, among Webvan Group, Inc., a Delaware corporation ("Parent"), and
the undersigned shareholder ("Shareholder") of HomeGrocer.com, Inc., a
Washington corporation (the "Company").
RECITALS
A. The Company, Merger Sub (as defined below) and Parent have entered into
an Agreement and Plan of Reorganization (the "Reorganization
Agreement"), which provides for the merger (the "Merger") of a
wholly-owned subsidiary of Parent ("Merger Sub") with and into the
Company. Pursuant to the Merger, all outstanding capital stock of the
Company shall be converted into the right to receive common stock of
Parent, as set forth in the Reorganization Agreement;
B. Shareholder is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
certain shares of the outstanding capital stock of the Company; and
C. In consideration of the execution of the Reorganization Agreement by
Parent, Shareholder (in his or her capacity as such) agrees to vote the
Shares (as defined below) so as to facilitate consummation of the
Merger.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree as
follows:
1. Certain Definitions. Capitalized terms not defined herein shall
have the meanings ascribed to them in the Reorganization Agreement. For
purposes of this Agreement:
(a) "Expiration Date" shall mean the earlier to occur of (i) such
date and time as the Reorganization Agreement shall have been terminated
pursuant to Article VII thereof, or (ii) such date and time as the
Merger shall become effective in accordance with the terms and
provisions of the Reorganization Agreement.
(b) "Person" shall mean any (i) individual, (ii) corporation,
limited liability company, partnership or other entity, or (iii)
governmental authority.
(c) "Shares" shall mean all of the shares of Company Common Stock
beneficially owned by Shareholder as of the date of this Agreement.
(d) "Voted Shares" shall mean that number of shares of Company
Common Stock beneficially owned by Shareholder as of the date of this
Agreement listed on the signature page hereto.
(e) Transfer. A Person shall be deemed to have effected a
"Transfer" of a security if such person directly or indirectly: (i)
sells, pledges, encumbers, grants an option with respect to, transfers
or disposes of such security or any interest in such security; or (ii)
enters into an agreement or commitment providing for the sale of, pledge
of, encumbrance of, grant of an option with respect to, transfer of or
disposition of such security or any interest therein.
2. Transfer of Shares.
(a) Transferee of Shares to be Bound by this Agreement. Shareholder
agrees that, during the period from the date of this Agreement through
the Expiration Date,
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Shareholder shall not cause or permit any Transfer of any of the Shares,
except (a) for a Transfer to the Shareholder's spouse, ancestors,
descendants or a trust for any of their benefit, (b) in transactions
involving the distribution without consideration of the Shares to the
Shareholder's partners or retired partners or the estate of any of them,
or (c) to any affiliate of the Shareholder; provided, however, that in
any such case, each Person to which any of such Shares or any interest
in any of such Shares is or may be transferred shall have (i) executed a
counterpart of this Voting Agreement and a proxy in the form attached
hereto as Exhibit A and (ii) agreed to hold such Shares or interest in
such Shares subject to all of the terms and provisions of this Agreement
and (iii) executed an agreement substantially in the form of Exhibit B-1
(Company Lock up Agreement) to the Reorganization Agreement.
(b) Transfer of Voting Rights. Shareholder agrees that, during the
period from the date of this Agreement through the Expiration Date,
Shareholder shall not deposit (or permit the deposit of) any Shares in a
voting trust or grant any proxy or enter into any voting agreement or
similar agreement in contravention of the obligations of Shareholder
under this Agreement with respect to any of the Shares.
3. Agreement to Vote Shares. At every meeting of the shareholders of
the Company called during the period from the date of this Agreement
through the Expiration Date, and at every adjournment thereof, and on every
action or approval by written consent of the shareholders of the Company,
Shareholder (in his or her capacity as such) shall cause the Voted Shares
to be voted (i) in favor of approval of the Reorganization Agreement and
the Merger, (ii) in favor of any matter that could reasonably be expected
to facilitate the Merger, (iii) against any matter that could reasonably be
expected to prevent the Merger, (iv) against any Acquisition Proposal and
(v) against any matter that could reasonably be expected to facilitate any
Acquisition Proposal.
4. Irrevocable Proxy. Concurrently with the execution of this
Agreement, Shareholder agrees to deliver to Parent a proxy in the form
attached hereto as Exhibit A (the "Proxy"), which shall be irrevocable to
the fullest extent permissible by law, with respect to the Voted Shares.
5. Representations and Warranties of the Shareholder. Shareholder (i)
is the beneficial owner of the Shares, free and clear of any liens, claims,
options, rights of first refusal, co-sale rights, charges or other
encumbrances that would adversely affect the ability of Shareholder to
carry out the terms of this Agreement, except for the Company's right to
repurchase such shares under certain circumstances; and (ii) has full power
and authority to make, enter into and carry out the terms of this Agreement
and the Proxy.
6. Additional Documents. Shareholder (in his or her capacity as such)
hereby covenants and agrees to execute and deliver any additional documents
necessary or desirable, in the reasonable opinion of Parent, to carry out
the intent of this Agreement.
7. Consent and Waiver. Shareholder (not in his capacity as a director
or officer of the Company) hereby gives any consents or waivers that are
reasonably required for the consummation of the Merger under the terms of
any agreements to which Shareholder is a party or pursuant to any rights
Shareholder may have. As further clarification, but not limitation, of the
foregoing, Shareholder further agrees not to assert any dissenters' rights
Shareholder may have pursuant to Chapter 23B.13 of the Washington Law.
8. Legending of Shares. If so requested by Parent, Shareholder agrees
that the Voted Shares shall bear a legend stating that they are subject to
this Agreement and to an irrevocable proxy. Subject to the terms of Section
2 hereof, Shareholder agrees that Shareholder shall not
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<PAGE> 273
Transfer the Shares without first having the aforementioned legend affixed
to the certificates representing the Shares.
9. Termination. This Agreement shall terminate and shall have no
further force or effect as of the Expiration Date.
10. Miscellaneous.
(a) Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, then the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or
invalidated.
(b) Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns,
but, except as otherwise specifically provided herein, neither this
Agreement nor any of the rights, interests or obligations of the parties
hereto may be assigned by either of the parties without prior written
consent of the other.
(c) Amendments and Modification. This Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the parties hereto.
(d) Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Parent shall be irreparably harmed and that there shall
be no adequate remedy at law for a violation of any of the covenants or
agreements of Shareholder set forth herein. Therefore, it is agreed
that, in addition to any other remedies that may be available to Parent
upon any such violation, Parent shall have the right to enforce such
covenants and agreements by specific performance, injunctive relief or
by any other means available to Parent at law or in equity.
(e) Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained
in a written instrument and shall be deemed given if delivered
personally, telecopied, sent by nationally-recognized overnight courier
or mailed by registered or certified mail (return receipt requested),
postage prepaid, to the parties at the following address (or at such
other address for a party as shall be specified by like notice):
If to Parent: Webvan Group, Inc.
310 Lakeside Drive
Foster City,California 94404
Attention: General Counsel
Telecopy No.: (650) 627-3921
With copies to: Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: Jeffrey D. Saper
J. Robert Suffoletta
Facsimile No.: (650) 493-6811
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<PAGE> 274
and
Wilson Sonsini Goodrich & Rosati
Professional Corporation
One Market
Spear Tower, Suite 3300
San Francisco, California 94105
Attention: Steve L. Camahort
Facsimile No.: (415) 947-2099
If to Shareholder: To the address for notice set forth
on the signature page hereof.
(f) Governing Law. Except to the extent mandatorily governed the
laws of the State of Washington, this Agreement shall be governed by the
laws of the State of Delaware, without giving effect to the conflicts of
law principles thereof.
(g) Entire Agreement. This Agreement and the Proxy contain the
entire understanding of the parties in respect of the subject matter
hereof, and supersede all prior negotiations and understandings between
the parties with respect to such subject matter.
(h) Effect of Headings. The section headings are for convenience
only and shall not affect the construction or interpretation of this
Agreement.
(i) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which
together shall constitute one and the same agreement.
(j) No Limitation on Actions of Shareholder as
Director. Notwithstanding anything to the contrary in this Agreement, in
the event Shareholder is a director of the Company, nothing in this
Agreement is intended or shall be construed to require Shareholder, in
Shareholder's capacity as a director of the Company, to fail to act in
accordance with Shareholder's fiduciary duties in such capacity.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
<TABLE>
<S> <C>
WEBVAN GROUP, INC SHAREHOLDER
----------------------------------------------------- -----------------------------------------------------
Signature Signature
----------------------------------------------------- -----------------------------------------------------
Print Name Print Name
----------------------------------------------------- -----------------------------------------------------
Print Title Print Title
-----------------------------------------------------
Print Address
-----------------------------------------------------
Print Telephone
-----------------------------------------------------
Print Facsimile No.
"Voted Shares": ------------------------------------
</TABLE>
[SIGNATURE PAGE TO COMPANY VOTING AGREEMENT]
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<PAGE> 275
IRREVOCABLE PROXY
The undersigned shareholder of HomeGrocer.com, Inc., a Washington
corporation (the "Company"), hereby irrevocably (to the fullest extent permitted
by law) appoints the directors on the Board of Directors of Webvan Group, Inc.,
a Delaware corporation ("Parent"), and each of them, as the sole and exclusive
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to vote and exercise all voting and related rights (to the full
extent that the undersigned is entitled to do so) with respect to all of the
Voted Shares (as defined in the Voting Agreement) in accordance with the terms
of this Proxy. Upon the undersigned's execution of this Proxy, any and all prior
proxies given by the undersigned with respect to any Voted Shares are hereby
revoked and the undersigned agrees not to grant any subsequent proxies with
respect to the Voted Shares until after the termination of this proxy in
accordance with its terms.
This Proxy is irrevocable (to the fullest extent permitted by law), is
coupled with an interest and is granted pursuant to that certain Voting
Agreement of even date herewith by and among Parent and the undersigned
shareholder (the "Voting Agreement"), and is granted in consideration of Parent
entering into that certain Agreement and Plan of Reorganization (the
"Reorganization Agreement"), among Parent, a Washington corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"), and the Company. The
Reorganization Agreement provides for the merger of Merger Sub with and into the
Company in accordance with its terms (the "Merger"). As used herein, the term
"Expiration Date" shall mean the earlier to occur of (i) such date and time as
the Reorganization Agreement shall have been validly terminated pursuant to
Article VII thereof or (ii) such date and time as the Merger shall become
effective in accordance with the terms and provisions of the Reorganization
Agreement.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Voted Shares,
and to exercise all voting, consent and similar rights of the undersigned with
respect to the Voted Shares (including, without limitation, the power to execute
and deliver written consents) at every annual, special or adjourned meeting of
shareholders of the Company and in every written consent in lieu of such meeting
(i) in favor of approval of the Reorganization Agreement and the Merger, (ii) in
favor of any matter that could reasonably be expected to facilitate the Merger,
(iii) against any matter that could reasonably be expected to prevent the
Merger, (iv) against any Acquisition Proposal and (v) against any matter that
could reasonably be expected to facilitate any Acquisition Proposal.
The attorneys and proxies named above may not exercise this Proxy on any
other matter except as provided above. The undersigned shareholder may vote the
Voted Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This Proxy is irrevocable (to the fullest extent permitted by law). This
Proxy shall terminate, and be of no further force and effect, automatically upon
the Expiration Date.
Dated: June 25, 2000
Signature of Shareholder:
------------------------------------------------------------------
Print Name of Shareholder:
----------------------------------------------------------------
"Voted Shares":
----------------------------------------------------------------------------
[SIGNATURE PAGE TO IRREVOCABLE PROXY]
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<PAGE> 276
EXHIBIT A-2
FORM OF PARENT VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement") is made and entered into as of
June 25, 2000, among HomeGrocer.com, Inc., a Washington corporation ("Company"),
and the undersigned stockholder and/or option holder ("Stockholder") of Webvan
Group, Inc., a Delaware corporation ("Parent").
RECITALS
A. Company, Merger Sub (as defined below) and Parent have entered into an
Agreement and Plan of Reorganization (the "Reorganization Agreement"), which
provides for the merger (the "Merger") of a wholly-owned subsidiary of Parent
("Merger Sub") with and into the Company. Pursuant to the Merger, all
outstanding capital stock of the Company shall be converted into the right to
receive common stock of Parent, as set forth in the Reorganization Agreement;
B. Stockholder is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of such number
of shares of the outstanding capital stock of Parent and shares subject to
outstanding options and warrants as is indicated on the signature page of this
Agreement; and
C. In consideration of the execution of the Reorganization Agreement by
Company, Stockholder (in his or her capacity as such) agrees to vote the Shares
(as defined below) and other such shares of capital stock of Parent over which
Stockholder has voting power so as to facilitate consummation of the Share
Issuance.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree as
follows:
1. Certain Definitions. Capitalized terms not defined herein shall have the
meanings ascribed to them in the Reorganization Agreement. For purposes of this
Agreement:
(a) "Expiration Date" shall mean the earlier to occur of (i) such date
and time as the Reorganization Agreement shall have been terminated
pursuant to Article VII thereof, or (ii) such date and time as the Merger
shall become effective in accordance with the terms and provisions of the
Reorganization Agreement.
(b) "Person" shall mean any (i) individual, (ii) corporation, limited
liability company, partnership or other entity, or (iii) governmental
authority.
(c) "Shares" shall mean: (i) all securities of the Parent (including
all shares of Parent Common Stock and all options, warrants and other
rights to acquire shares of Parent Common Stock) beneficially owned by
Stockholder as of the date of this Agreement; and (ii) all additional
securities of Parent (including all additional shares of Parent Common
Stock and all additional options, warrants and other rights to acquire
shares of Parent Common Stock) of which Stockholder acquires beneficial
ownership during the period from the date of this Agreement through the
Expiration Date.
(d) Transfer. A Person shall be deemed to have effected a "Transfer"
of a security if such person directly or indirectly: (i) sells, pledges,
encumbers, grants an option with respect to, transfers or disposes of such
security or any interest in such security; or (ii) enters into an agreement
or commitment providing for the sale of, pledge of, encumbrance of, grant
of an option with respect to, transfer of or disposition of such security
or any interest therein.
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2. Transfer of Shares.
(a) Transferee of Shares to be Bound by this Agreement. Stockholder agrees
that, during the period from the date of this Agreement through the Expiration
Date, Stockholder shall not cause or permit any Transfer of any of the Shares to
be effected unless each Person to which any of such Shares or any interest in
any of such Shares is or may be transferred shall have (i) executed a
counterpart of this Voting Agreement and a proxy in the form attached hereto as
Exhibit A and (ii) agreed to hold such Shares or interest in such Shares subject
to all of the terms and provisions of this Agreement.
(b) Transfer of Voting Rights. Stockholder agrees that, during the period
from the date of this Agreement through the Expiration Date, Stockholder shall
not deposit (or permit the deposit of) any Shares in a voting trust or grant any
proxy or enter into any voting agreement or similar agreement in contravention
of the obligations of Stockholder under this Agreement with respect to any of
the Shares.
3. Agreement to Vote Shares. At every meeting of the stockholders of Parent
called during the period from the date of this Agreement through the Expiration
Date, and at every adjournment thereof, and on every action or approval by
written consent of the stockholders of Parent, Stockholder (in his or her
capacity as such) shall cause the Shares to be voted (i) in favor of the Share
Issuance, (ii) in favor of any matter that could reasonably be expected to
facilitate the Share Issuance, (iii) against any matter that could reasonably be
expected to prevent the Share Issuance, (iv) against any Parent Acquisition
Proposal and (v) against any matter that could be reasonably be expected to
facilitate any Parent Acquisition Proposal.
4. Irrevocable Proxy. Concurrently with the execution of this Agreement,
Stockholder agrees to deliver to Company a proxy in the form attached hereto as
Exhibit A (the "Proxy"), which shall be irrevocable to the fullest extent
permissible by law, with respect to the Shares.
5. Representations and Warranties of the Stockholder. Stockholder (i) is
the beneficial owner of the shares of Parent Common Stock and the options and
warrants to purchase shares of Common Stock of Parent indicated on the final
page of this Agreement, free and clear of any liens, claims, options, rights of
first refusal, co-sale rights, charges or other encumbrances that would
adversely affect the ability of Stockholder to carry out the terms of this
Agreement; (ii) does not beneficially own any securities of Parent other than
the shares of Parent Common Stock and options and warrants to purchase shares of
Common Stock of Parent indicated on the final page of this Agreement; and (iii)
has full power and authority to make, enter into and carry out the terms of this
Agreement and the Proxy.
6. Additional Documents. Stockholder (in his or her capacity as such)
hereby covenants and agrees to execute and deliver any additional documents
necessary or desirable, in the reasonable opinion of Company, to carry out the
intent of this Agreement.
7. Consent and Waiver. Stockholder (not in his capacity as a director or
officer of Parent) hereby gives any consents or waivers that are reasonably
required for the consummation of the Share Issuance under the terms of any
agreements to which Stockholder is a party or pursuant to any rights Stockholder
may have.
8. Legending of Shares. If so requested by Company, Stockholder agrees that
the Shares shall bear a legend stating that they are subject to this Agreement
and to an irrevocable proxy. Subject to the terms of Section 2 hereof,
Stockholder agrees that Stockholder shall not Transfer the Shares without first
having the aforementioned legend affixed to the certificates representing the
Shares.
9. Termination. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
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<PAGE> 278
10. Miscellaneous.
(a) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
(b) Binding Effect and Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but, except as otherwise
specifically provided herein, neither this Agreement nor any of the rights,
interests or obligations of the parties hereto may be assigned by either of the
parties without prior written consent of the other.
(c) Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
(d) Specific Performance; Injunctive Relief. The parties hereto acknowledge
that Parent shall be irreparably harmed and that there shall be no adequate
remedy at law for a violation of any of the covenants or agreements of
Stockholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to Company upon any such violation, Company
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Company at law
or in equity.
(e) Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
If to Company:
HomeGrocer.com, Inc.
10230 N.E. Points Drive
Kirkland, WA 98033
Attention: General Counsel
Telecopy No.: (425) 201-7575
With a copy to:
Davis Polk & Wardwell
1600 El Camino Real
Menlo Park, CA 94025
Attention: David Ferguson
Telecopy No.: (650) 752-2111
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<PAGE> 279
If to Stockholder:
To the address for notice set forth on the signature page hereof.
(f) Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, without giving effect to the conflicts of law principles
thereof.
(g) Entire Agreement. This Agreement and the Proxy contain the entire
understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
(h) Effect of Headings. The section headings are for convenience only and
shall not affect the construction or interpretation of this Agreement.
(i) Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
(j) No Limitation on Actions of Stockholder as Director. Notwithstanding
anything to the contrary in this Agreement, in the event Stockholder is a
director of Parent, nothing in this Agreement is intended or shall be construed
to require Stockholder, in Stockholder's capacity as a director of Parent, to
fail to act in accordance with Stockholder's fiduciary duties in such capacity.
[Remainder Of This Page Left Blank Intentionally]
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<PAGE> 280
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be
duly executed on the day and year first above written.
<TABLE>
<S> <C>
HOMEGROCER.COM, INC. STOCKHOLDER
----------------------------------------------------- -----------------------------------------------------
Signature Signature
----------------------------------------------------- -----------------------------------------------------
----------------------------------------------------- -----------------------------------------------------
Print Name Print Name
----------------------------------------------------- -----------------------------------------------------
Print Title Print Title
-----------------------------------------------------
-----------------------------------------------------
Print Address
-----------------------------------------------------
Print Telephone
-----------------------------------------------------
Print Facsimile No.
Shares beneficially owned:
____________ shares of Parent Common Stock
____________ shares of Parent Common Stock issuable
upon exercise of outstanding options or warrants
</TABLE>
[SIGNATURE PAGE TO PARENT VOTING AGREEMENT]
A-A-2-5
<PAGE> 281
IRREVOCABLE PROXY
The undersigned stockholder of Webvan Group, Inc., a Delaware corporation
(the "Parent"), hereby irrevocably (to the fullest extent permitted by law)
appoints the directors on the Board of Directors of HomeGrocer.com, Inc., a
Washington corporation ("Company"), and each of them, as the sole and exclusive
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to vote and exercise all voting and related rights (to the full
extent that the undersigned is entitled to do so) with respect to all of the
shares of capital stock of Parent that now are or hereafter may be beneficially
owned by the undersigned, and any and all other shares or securities of Parent
issued or issuable in respect thereof on or after the date hereof (collectively,
the "Shares") in accordance with the terms of this Proxy. The Shares
beneficially owned by the undersigned stockholder of Parent as of the date of
this Proxy are listed on the final page of this Proxy. Upon the undersigned's
execution of this Proxy, any and all prior proxies given by the undersigned with
respect to any Shares are hereby revoked and the undersigned agrees not to grant
any subsequent proxies with respect to the Shares until after the termination of
this proxy in accordance with its terms.
This Proxy is irrevocable (to the fullest extent permitted by law), is
coupled with an interest and is granted pursuant to that certain Voting
Agreement of even date herewith by and among Company and the undersigned
stockholder (the "Voting Agreement"), and is granted in consideration of Company
entering into that certain Agreement and Plan of Reorganization (the
"Reorganization Agreement"), among Parent, a Washington corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"), and the Company. The
Reorganization Agreement provides for the merger of Merger Sub with and into the
Company in accordance with its terms (the "Merger"). As used herein, the term
"Expiration Date" shall mean the earlier to occur of (i) such date and time as
the Reorganization Agreement shall have been validly terminated pursuant to
Article VII thereof or (ii) such date and time as the Merger shall become
effective in accordance with the terms and provisions of the Reorganization
Agreement.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting, consent and similar rights of the undersigned with respect
to the Shares (including, without limitation, the power to execute and deliver
written consents) at every annual, special or adjourned meeting of stockholders
of Parent and in every written consent in lieu of such meeting (i) in favor of
the Share Issuance (as defined in the Reorganization Agreement), (ii) in favor
of any matter that reasonably be expected to facilitate the Stock Issuance or
the Merger, (iii) against any matter that could reasonably be expected to
prevent the Share Issuance, (iv) against any Parent Acquisition Proposal and (v)
against any matter that could reasonably be expected to facilitate any Parent
Acquisition Proposal.
The attorneys and proxies named above may not exercise this Proxy on any
other matter except as provided above. The undersigned stockholder may vote the
Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
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<PAGE> 282
This Proxy is irrevocable (to the fullest extent permitted by law). This
Proxy shall terminate, and be of no further force and effect, automatically upon
the Expiration Date.
<TABLE>
<S> <C>
Dated: June , 2000
Signature of Stockholder:
Print Name of Stockholder:
Shares beneficially owned:
____________ shares of Parent Common Stock
____________ shares of the Parent Common Stock
issuable upon exercise of outstanding options or
warrants
</TABLE>
[SIGNATURE PAGE TO IRREVOCABLE PROXY]
A-A-2-7
<PAGE> 283
EXHIBIT B-1
FORM OF COMPANY LOCK-UP AGREEMENT
Webvan Group, Inc.
310 Lakeside Drive
Foster City, CA 94404
Attention: President
Ladies and Gentlemen:
Pursuant to the terms of an Agreement and Plan of Reorganization dated as
of June 25, 2000 (the "Agreement") between Webvan Group, Inc., a Delaware
corporation ("Parent"), Robin Acquisition Corporation, a Washington corporation
and subsidiary of Parent, and HomeGrocer.com, Inc., a Washington corporation
(the "Company"), the undersigned will receive shares of Common Stock, $.0001 par
value per share, of Parent (the "Shares"), in exchange for shares of common
stock of the Company owned by the undersigned.
In order to induce Parent to enter into the Agreement, the undersigned
hereby agrees as follows:
1. Each Share may not be sold, transferred, hypothecated, pledged, be
the subject of an equity swap, put, put equivalent position or similar
agreement or otherwise be transferred (collectively, a "Disposition")
without the prior written consent of Parent, prior to the six-month
anniversary of the Effective Time (as defined in the Agreement).
2. The undersigned acknowledges that Parent may impose stock transfer
restrictions on the Shares with Parent's stock transfer agent and/or place
stock legends on the certificates representing the Shares to enforce the
provisions of this Agreement.
3. Conditioned upon the occurrence of the Closing Date (as defined in
the Agreement), from and after the Closing Date, the undersigned hereby
irrevocably waives any and all rights with respect to the Shares or the
common stock of the Company provided in or pursuant to the Third Amended
and Restated Investor Rights Agreement dated September 30, 1999 by and
among the Company and certain of the Company's stockholders.
Very truly yours,
--------------------------------------
Name of Stockholder
By:
Signature
Date:
A-B-1-1
<PAGE> 284
AGREED TO:
WEBVAN GROUP, INC.
By:
---------------------------------
Name:
Title:
HOMEGROCER.COM, INC.
By:
---------------------------------
Name:
Title:
A-B-1-2
<PAGE> 285
EXHIBIT B-2
FORM OF PARENT LOCK-UP AGREEMENT
HomeGrocer.com, Inc.
10230 NE Points Drive
Kirkland, WA 98033
Attention: President
Webvan Group, Inc.
310 Lakeside Drive
Foster City, CA 94404
Attention: President
Ladies and Gentlemen:
Pursuant to the terms of an Agreement and Plan of Merger and Reorganization
dated as of June 25, 2000 (the "Agreement") between Webvan Group, Inc., a
Delaware corporation ("Parent"), Robin Merger Corporation, a Washington
corporation and subsidiary of Parent ("Merger Sub"), and HomeGrocer.com, Inc., a
Washington corporation (the "Company"), Merger Sub will be merged into the
Company in a transaction in which the outstanding shares of the Company will be
exchanged for shares of Common Stock, $.0001 par value per share, of Parent
("Parent Common Stock").
In order to induce the Company to enter into the Agreement, the undersigned
hereby agrees as follows:
1. The shares of Parent Common Stock owned by the undersigned (the
"Shares") may not be sold, transferred, hypothecated, pledged, be the
subject of an equity swap, put, put equivalent position or similar
agreement or otherwise be transferred (collectively, a "Disposition")
without the prior written consent of the Company and Parent, prior to the
six-month anniversary of the Effective Time (as defined in the Agreement).
2. The undersigned acknowledges that, upon the Company's request,
Parent may impose stock transfer restrictions on the Shares with Parent's
stock transfer agent and/or place stock legends on the certificates
representing the Shares to enforce the provisions of this Agreement.
Very truly yours,
By:
--------------------------------------
Address:
AGREED TO:
HOMEGROCER.COM, INC.
By:
--------------------------------------------------------
Name:
Title:
A-B-2-1
<PAGE> 286
EXHIBIT C
FORM OF AFFILIATE AGREEMENT
THIS AFFILIATE AGREEMENT (this "Agreement") is made and entered into as of
June 25, 2000, among Webvan Group, Inc., a Delaware corporation ("Parent"), and
the undersigned shareholder who may be deemed an affiliate ("Affiliate") of
HomeGrocer.com, Inc., a Washington corporation ("Company"). Capitalized terms
used but not otherwise defined herein shall have the meanings ascribed to them
in the Reorganization Agreement (as defined below).
RECITALS
A. The Company, Merger Sub (as defined below) and Parent have entered into
an Agreement and Plan of Reorganization (the "Reorganization Agreement") which
provides for the merger (the "Merger") of a wholly-owned subsidiary of Parent
("Merger Sub") with and into the Company. Pursuant to the Merger, all
outstanding capital stock of the Company (the "Company Capital Stock") shall be
converted into the right to receive Common Stock of Parent;
B. Affiliate has been advised that Affiliate may be deemed to be an
"affiliate" of the Company, as the term "affiliate" is used for purposes of Rule
145 of the Rules and Regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "SEC").
C. The execution and delivery of this Agreement by Affiliate is a material
inducement to Parent to enter into the Reorganization Agreement; and
NOW, THEREFORE, intending to be legally bound, the parties hereto agree as
follows:
1. Acknowledgments by Affiliate. Affiliate acknowledges and understands
that the representations, warranties and covenants by Affiliate set forth herein
shall be relied upon by Parent, the Company and their respective affiliates and
counsel, and that substantial losses and damages may be incurred by these
persons if Affiliate's representations, warranties or covenants are breached.
Affiliate has carefully read this Agreement and the Reorganization Agreement and
has discussed the requirements of this Agreement with Affiliate's professional
advisors, who are qualified to advise Affiliate with regard to such matters.
2. Beneficial Ownership of Company Capital Stock. The Affiliate is the sole
record and beneficial owner of the number of shares of Company Capital Stock set
forth next to its name on the signature page hereto (the "Shares"). The Shares
are not subject to any claim, lien, pledge, charge, security interest or other
encumbrance or to any rights of first refusal of any kind. There are no options,
warrants, calls, rights, commitments or agreements of any character, written or
oral, to which the Affiliate is party or by which it is bound obligating the
Affiliate to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any Shares or obligating the Affiliate
to grant or enter into any such option, warrant, call, right, commitment or
agreement. The Affiliate has the sole right to transfer such Shares. The Shares
constitute all shares of Company Capital Stock owned, beneficially or of record,
by the Affiliate. The Shares are not subject to preemptive rights created by any
agreement to which the Affiliate is party. The Affiliate has not engaged in any
sale or other transfer of the Shares in contemplation of the Merger. All shares
of Company Capital Stock and common stock of Parent ("Parent Common Stock")
acquired by Affiliate subsequent to the date hereof (including shares of Parent
Common Stock acquired in the Merger) shall be subject to the provisions of this
Agreement as if held by Affiliate as of the date hereof.
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<PAGE> 287
3. Compliance with Rule 145 and the Securities Act.
(a) Affiliate has been advised that (i) the issuance of shares of Parent
Common Stock in connection with the Merger is expected to be effected pursuant
to a registration statement on Form S-4 promulgated under the Securities Act of
1933, as amended (the "Securities Act"), and the resale of such shares shall be
subject to restrictions set forth in Rule 145 under the Securities Act, and (ii)
Affiliate may be deemed to be an affiliate of the Company. Affiliate accordingly
agrees not to sell, transfer or otherwise dispose of any Parent Common Stock
issued to Affiliate in the Merger unless (i) such sale, transfer or other
disposition is made in conformity with the requirements of Rule 145(d)
promulgated under the Securities Act, or (ii) such sale, transfer or other
disposition is made pursuant to an effective registration statement under the
Securities Act or an appropriate exemption from registration, or (iii) Affiliate
delivers to Parent a written opinion of counsel, reasonably acceptable to Parent
in form and substance, that such sale, transfer or other disposition is
otherwise exempt from registration under the Securities Act.
(b) Parent shall give stop transfer instructions to its transfer agent with
respect to any Parent Common Stock received by Affiliate pursuant to the Merger
and there shall be placed on the certificates representing such Common Stock, or
any substitutions therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO
WHICH RULE 145 APPLIES AND MAY ONLY BE TRANSFERRED IN CONFORMITY WITH RULE
145(d) OR PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR IN ACCORDANCE WITH A WRITTEN OPINION
OF COUNSEL, REASONABLY ACCEPTABLE TO THE ISSUER IN FORM AND SUBSTANCE, THAT
SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED."
The legend set forth above shall be removed (by delivery of a substitute
certificate without such legend) and Parent shall so instruct its transfer
agent, if Affiliate delivers to Parent (i) satisfactory written evidence that
the shares have been sold in compliance with Rule 145 (in which case, the
substitute certificate shall be issued in the name of the transferee), or (ii)
an opinion of counsel, in form and substance reasonably satisfactory to Parent,
to the effect that public sale of the shares by the holder thereof is no longer
subject to Rule 145.
4. Termination. This Agreement shall be terminated and shall be of no
further force and effect in the event of the termination of the Reorganization
Agreement pursuant to Article VII of the Reorganization Agreement.
5. Miscellaneous.
(a) Waiver; Severability. No waiver by any party hereto of any condition or
of any breach of any provision of this Agreement shall be effective unless in
writing and signed by each party hereto. In the event that any provision of this
Agreement, or the application of any such provision to any person, entity or set
of circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to persons, entities or circumstances other than
those as to which it is determined to be invalid, unlawful, void or
unenforceable, shall not be impaired or otherwise affected and shall continue to
be valid and enforceable to the fullest extent permitted by law.
(b) Binding Effect and Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but, except as otherwise
specifically provided herein, neither this Agreement nor
A-C-2
<PAGE> 288
any of the rights, interests or obligations of the parties hereto may be
assigned by either of the parties without prior written consent of the other
party hereto.
(c) Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
(d) Injunctive Relief. Each of the parties acknowledge that (i) the
covenants and the restrictions contained in this Agreement are necessary,
fundamental, and required for the protection of Parent and the Company and to
preserve for Parent the benefits of the Merger; (ii) such covenants relate to
matters which are of a special, unique, and extraordinary character that gives
each of such covenants a special, unique, and extraordinary value; and (iii) a
breach of any such covenants or any other provision of this Agreement shall
result in irreparable harm and damages to Parent and the Company which cannot be
adequately compensated by a monetary award. Accordingly, it is expressly agreed
that in addition to all other remedies available at law or in equity, Parent and
the Company shall be entitled to the immediate remedy of a temporary restraining
order, preliminary injunction, or such other form of injunctive or equitable
relief as may be used by any court of competent jurisdiction to restrain or
enjoin any of the parties hereto from breaching any such covenant or provision
or to specifically enforce the provisions hereof.
(e) Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the internal laws of the State of
Delaware without giving effect to any choice or conflict of law provision or
rule (whether of the State of Delaware or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
Delaware.
(f) Entire Agreement. This Agreement, the Reorganization Agreement and the
other agreements referred to in the Reorganization Agreement set forth the
entire understanding of Affiliate and Parent relating to the subject matter
hereof and thereof and supersede all prior agreements and understandings between
Affiliate and Parent relating to the subject matter hereof and thereof.
(g) Attorneys' Fees. In the event of any legal actions or proceeding to
enforce or interpret the provisions hereof, the prevailing party shall be
entitled to reasonable attorneys' fees, whether or not the proceeding results in
a final judgment.
(h) Further Assurances. Affiliate shall execute and/or cause to be
delivered to Parent such instruments and other documents and shall take such
other actions as Parent may reasonably request to effectuate the intent and
purposes of this Agreement.
(i) Third Party Reliance. Counsel to and independent auditors for Parent
and the Company shall be entitled to rely upon this Affiliate Agreement.
(j) Survival. The representations, warranties, covenants and other
provisions contained in this Agreement shall survive the Merger.
(k) Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
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<PAGE> 289
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
If to Parent:
Webvan Group, Inc.
310 Lakeside Drive
Foster City, California 94404
Attention: General Counsel
Facsimile: (650) 627-3921
With copies to:
Wilson Sonsini Goodrich & Rosati, Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: Jeffrey D. Saper/J. Robert Suffoletta
Facsimile: (650) 493-6811
And
Wilson Sonsini Goodrich & Rosati, Professional Corporation
One Market
Spear Tower, Suite 3300
San Francisco, California 94105
Attention: Steve L. Camahort
Facsimile: (415) 947-2099
If to Affiliate:
To the address for notice set forth on the signature page hereof.
(l) Counterparts. This Agreement shall be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
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<PAGE> 290
IN WITNESS WHEREOF, the parties have caused this Affiliate Agreement to be
duly executed on the day and year first above written.
<TABLE>
<S> <C>
WEBVAN GROUP, INC. AFFILIATE
By: By:
-------------------------------------------- --------------------------------------------
Name: Affiliate's Address for Notice:
--------------------------------------------
Title: --------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
Shares beneficially owned:
____________ shares of Company Common Stock
____________ shares of Company Common Stock
issuable upon exercise of outstanding
options and warrants
____________ shares of Parent Common Stock
</TABLE>
[SIGNATURE PAGE TO AFFILIATE AGREEMENT]
A-C-5
<PAGE> 291
ANNEX B
PERSONAL AND CONFIDENTIAL
June 25, 2000
Board of Directors
Webvan Group, Inc.
310 Lakeside Drive
Foster City, CA 94404
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to Webvan Group, Inc. (the "Company") of the exchange ratio of 1.07605 (the
"Exchange Ratio") shares of Common Stock, $0.0001 par value per share (the
"Company Shares"), of the Company to be exchanged for each share of Common
Stock, no par value per share (the "HomeGrocer.com Shares"), of HomeGrocer.com,
Inc. ("HomeGrocer.com"), pursuant to the Agreement and Plan of Reorganization,
dated as of June 25, 2000, by and among the Company, Robin Merger Corporation, a
wholly-owned subsidiary of the Company, and HomeGrocer.com (the "Agreement").
Goldman, Sachs & Co. ("Goldman Sachs"), as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. We are familiar with the Company, having provided certain
investment banking services to the Company from time to time, including having
acted as managing underwriter of the initial public offering of 28,750,000
Company Shares in November 1999. As of the date hereof, entities affiliated with
Goldman Sachs own an aggregate of 7,880,220 Company Shares, purchased in July
1999 as Series D-2 Preferred Stock of the Company for an aggregate purchase
price of approximately $100 million. Goldman Sachs provides a full range of
financial advisory and securities services and, in the course of its normal
trading activities, may from time to time effect transactions and hold
securities, including derivative securities, of the Company or HomeGrocer.com
for its own account and for the accounts of customers. As of the date hereof,
Goldman Sachs accumulated in various trading accounts a long position of 4,219
Company Shares against which Goldman Sachs is short 1,347,680 Company Shares,
and a long position of 1,000 HomeGrocer.com Shares.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Annual Report to Stockholders and the Annual Report on Form 10-K
of the Company for the fiscal year ended December 31, 1999; the Registration
Statement on Form S-1 of the Company, including the Prospectus of the Company
filed November 5, 1999; the Registration Statement on Form S-1 of
HomeGrocer.com, including the Prospectus of HomeGrocer.com filed March 10, 2000;
certain interim reports to stockholders and Quarterly Reports on Form 10-Q of
the Company and HomeGrocer.com; certain other communications from the Company
and HomeGrocer.com to their respective stockholders; certain internal financial
analyses and forecasts for HomeGrocer.com prepared by the management of
HomeGrocer.com; certain internal financial analyses and forecasts for
HomeGrocer.com prepared by the management of the Company; certain internal
financial analyses and forecasts for the Company prepared by the management of
the Company (the "Company Forecasts"); certain internal financial analyses and
forecasts for the Company and HomeGrocer.com as a combined entity (the "Pro
Forma Forecasts") prepared by the management of the Company, including the
effect of certain cost savings and operating synergies projected by the
management of the Company to result from the transaction contemplated by the
Agreement. We also have held discussions with members of the senior management
of the Company and HomeGrocer.com
B-1
<PAGE> 292
Webvan Group, Inc.
June 25, 2000
Page Two
regarding their assessment of the strategic rationale for, and the potential
benefits of, the transaction contemplated by the Agreement and the past and
current business operations, financial condition and future prospects of their
respective companies. In addition, we have reviewed the reported price and
trading activity for the Company Shares and the HomeGrocer.com Shares, which
like many Internet-related stocks have been and are likely to continue to be
subject to significant short term price and trading volatility, compared certain
financial and stock market information for the Company and HomeGrocer.com with
similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the Internet industry specifically and in other industries
generally and performed such other studies and analyses as we considered
appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information discussed with or reviewed by us and have assumed such
accuracy and completeness for purposes of rendering this opinion. In that
regard, we have assumed with your consent that the Company Forecasts and the Pro
Forma Forecasts have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the Company, and that the Pro
Forma Forecasts will be realized in the amounts and time periods contemplated
thereby. In addition, we have not made an independent evaluation or appraisal of
the assets and liabilities of the Company or HomeGrocer.com or any of their
subsidiaries and we have not been furnished with any such evaluation or
appraisal. Our advisory services and the opinion expressed herein are provided
for the information and assistance of the Board of Directors of the Company in
connection with its consideration of the transaction contemplated by the
Agreement and such opinion does not constitute a recommendation as to how any
holder of Company Shares should vote with respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio pursuant to the Agreement is fair from a financial point of view
to the Company.
Very truly yours,
------------------------------------
(GOLDMAN, SACHS & CO.)
B-2
<PAGE> 293
Board of Directors
June 22, 2000
Page 1
ANNEX C
June 22, 2000
Board of Directors
HomeGrocer.com, Inc.
10230 N.E. Points Drive
Kirkland, WA 98033
Members of the Board:
We understand that HomeGrocer.com, Inc. ("HomeGrocer" or the "Company"),
Webvan Group, Inc. ("Webvan"), and Webvan Subsidiary, Inc. ("Merger Sub"), a
wholly-owned subsidiary of Webvan, have entered into an Agreement and Plan of
Merger, substantially in the form of the draft dated June 21, 2000 (the "Merger
Agreement") which provides, among other things, for the merger (the "Merger") of
Merger Sub with and into HomeGrocer. Pursuant to the Merger, HomeGrocer will
become a wholly-owned subsidiary of Webvan and each outstanding share of common
stock, no par value per share (the "HomeGrocer Common Stock") of HomeGrocer,
other than shares held in treasury or held by Webvan or any subsidiary of
HomeGrocer or Webvan, or as to which dissenters' rights have been perfected,
will be converted into the right to receive 1.07605 shares (the "Exchange
Ratio") of common stock, $0.0001 par value per share (the "Webvan Common Stock")
of Webvan. The terms and conditions of the Merger are more fully set forth in
the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to the holders of
shares of HomeGrocer Common Stock.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of HomeGrocer;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning HomeGrocer prepared by the
management of HomeGrocer;
(iii) reviewed certain financial projections prepared by the
managements of HomeGrocer and Webvan;
(iv) reviewed certain publicly available financial projections from
equity research analysts reports of HomeGrocer;
(v) discussed the past and current operations and financial condition
and the prospects of HomeGrocer, including information relating to certain
strategic, financial and operational benefits anticipated from the Merger,
with senior executives of HomeGrocer;
(vi) reviewed certain publicly available financial statements and
other information of Webvan;
(vii) reviewed certain internal financial statements and other
financial and operating data concerning Webvan prepared by the management
of Webvan;
(viii) reviewed the proforma impact of the Merger on certain
operational and financial metrics of Webvan;
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<PAGE> 294
Board of Directors
June 22, 2000
Page 2
(ix) discussed the past and current operations and financial condition
and the prospects of Webvan, including a review of publicly available
projections from equity research analyst estimates and information relating
to certain strategic, financial and operational benefits anticipated from
the Merger, with senior executives of Webvan;
(x) reviewed the reported prices and trading activity for the
HomeGrocer Common Stock and Webvan Common Stock;
(xi) compared the financial performance of HomeGrocer and Webvan and
the prices and trading activity of the HomeGrocer Common Stock and Webvan
Common Stock with that of certain other publicly-traded companies
comparable to HomeGrocer and Webvan, respectively, and their securities;
(xii) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
(xiii) reviewed and discussed with the senior managements of
HomeGrocer and Webvan their strategic rationales for the Merger;
(xiv) participated in discussions and negotiations among
representatives of HomeGrocer, Webvan and their financial and legal
advisors;
(xv) reviewed the draft Merger Agreement and certain related
documents; and
(xvi) performed such other analyses and considered such other factors
as we have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections and discussions relating
to the strategic, financial and operational benefits anticipated from the
Merger, we have assumed that they have, in each case, been reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
prospects of HomeGrocer and Webvan. We have relied upon the assessment by the
managements of HomeGrocer and Webvan of their ability to retain key employees of
HomeGrocer. We have also relied upon, without independent verification, the
assessment by the managements of HomeGrocer and Webvan of: (i) the strategic,
financial and other benefits expected to result from the Merger; (ii) the timing
and risks associated with the integration of HomeGrocer and Webvan; and (iii)
the validity of, and risks associated with, HomeGrocer's and Webvan's existing
and future technologies, services or business models. We have not made any
independent valuation or appraisal of the assets or liabilities or technology of
HomeGrocer and Webvan, nor have we been furnished with any such appraisals. In
addition, we have assumed that the Merger will be consummated in accordance with
the terms set forth in the Merger Agreement. In addition, we have assumed that
the Merger will be treated as a tax-free reorganization pursuant to Section
368(a) of the Internal Revenue Code of 1986. Our opinion is necessarily based on
financial, economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of HomeGrocer
in connection with this transaction and will receive a fee for our services
which shall consist, in part, of shares of HomeGrocer Common Stock. In the past,
Morgan Stanley & Co. Incorporated and its affiliates have provided financial
advisory and financing services for HomeGrocer, and financing services for
Webvan, and have received fees for the rendering of these services. In the
ordinary course of our
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Board of Directors
June 22, 2000
Page 3
business we may actively trade the securities of HomeGrocer and Webvan for our
own account and for the accounts of our customers and, accordingly, may at any
time hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of HomeGrocer and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing of a proxy or registration statement with the Securities and
Exchange Commission made by HomeGrocer in respect of this transaction. In
addition, this opinion does not in any manner address the prices at which the
Webvan Common Stock will trade following the consummation of the Merger, and
Morgan Stanley & Co. Incorporated expresses no opinion or recommendation as to
how the shareholders of HomeGrocer should vote at the shareholders' meeting to
be held in connection with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to the holders of shares of HomeGrocer Common Stock.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ RUTH M. PORAT
------------------------------------
Ruth M. Porat
Managing Director
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ANNEX D
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement"), dated as of June 25,
2000, is entered into by and between Webvan Group, Inc., a Delaware corporation
(the "Company"), and Amazon.com, Inc., a Delaware corporation (the
"Shareholder").
RECITALS
A. The Shareholder holds shares of common stock of HomeGrocer.com, Inc., a
Washington corporation ("HomeGrocer.com").
B. The Company and HomeGrocer.com propose to enter into an Agreement and
Plan of Reorganization dated the date hereof (the "Reorganization Agreement")
pursuant to which a wholly owned subsidiary of the Company will merge with and
into HomeGrocer.com and HomeGrocer.com will become a wholly owned subsidiary of
the Company (the "Merger").
C. The Reorganization Agreement contemplates that the Shareholder and
certain other holders of HomeGrocer.com's common stock will enter into voting
agreements (the "Voting Agreements") in connection with the Merger.
D. The Company is unwilling to enter into the Reorganization Agreement
unless the Shareholder enters into a Voting Agreement.
E. The Shareholder is unwilling to enter into a Voting Agreement unless the
Company grants Shareholder the rights set forth herein.
F. The Company and the Shareholder desire that the Reorganization Agreement
be executed and that the Merger be consummated.
NOW THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Closing Date" shall mean the closing date of the Merger as defined in
the Reorganization Agreement.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the common stock of the Company, par value
$0.0001 per share.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the declaration or ordering of the
effectiveness of such registration statement.
"Registrable Securities" shall mean shares of Common Stock issued to
the Shareholder pursuant to the Merger (including any shares of Common
Stock issued upon any stock split, stock dividend, recapitalization,
substitution, or similar event with respect to the Common Stock); provided,
however, that Registrable Securities shall not include any (a) shares of
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Common Stock which have previously been registered for resale by the
Shareholder and sold pursuant to such registration, (b) shares of Common
Stock which have previously been sold to the public, or (c) securities
which would otherwise be Registrable Securities if the Shareholder then
holds in the aggregate less than one percent of the Company's outstanding
equity securities.
"Registration Expenses" shall mean all expenses (excluding
underwriting discounts and selling commissions) incurred in connection with
a registration under Sections 3 and 4 hereof, including all registration
and filing fees, printing expenses, fees and disbursements of counsel for
the Company and blue sky fees.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, the fees and
expenses of counsel for the Shareholder and all other expenses which are
not Registration Expenses.
2. Lock-Up Restrictions.
(a) The Shareholder hereby covenants and agrees with the Company not to
sell, transfer, hypothecate, pledge, or otherwise transfer any Registrable
Securities or enter into an equity swap, put, put equivalent position or similar
agreement with respect to any shares of Common Stock of the Company
(collectively, a "Disposition") without the prior written consent of the Company
at any time prior to the date which is six (6) months following the Closing Date
except that the provisions of this Section 2(a) shall not apply to the
Disposition in accordance with the applicable provisions of Rule 145 under the
Securities Act of up to three (3) million shares of Common Stock during the
three (3) months following the Closing Date and as to an additional five (5)
million shares during the period beginning three months and one day following
the Closing Date and ending on the date which is six (6) months following the
Closing Date.
(b) For so long as the Shareholder holds at least two percent (2%) of the
outstanding shares of capital stock of the Company, the Shareholder hereby
covenants and agrees with the Company not to engage in a Disposition of any
Common Stock (or other securities) of the Company held by such Shareholder
during a period of time determined by the Company and its underwriters (not to
exceed 90 days) following the effective date of the registration statement of
the Companyfiled under the Securities Act with respect to an underwritten
offering of Common Stock by the Company, provided that all executive officers
and directors of the Company who then hold Common Stock (or other securities) of
the Company enter into similar agreements and all other persons who are
shareholders of the Company as of the date hereof (other than an institutional
investor that acquired all of its shares in the public market) then holding at
least as many shares as the Shareholder then holds (collectively, the "Required
Signatories") enter into similar agreements. Such agreement to be entered into
by the Shareholder and the Required Signatories shall not be inconsistent with
the provisions of this Agreement and shall be in writing in a form reasonably
satisfactory to the Company, the underwriter and the Shareholder. This Section
2(b) shall only apply to underwritten offerings of the Company's Common Stock
for which the date of the preliminary prospectus used to market such offering is
on or prior to the date which is one (1) year following the Closing Date and the
final price per share in such offering is determined no later than three (3)
weeks following such preliminary prospectus date.
(c) For so long as the Shareholder holds at least two percent (2%) of the
outstanding shares of capital stock of the Company, the Shareholder hereby
covenants and agrees with the Company not to engage in a Disposition of any
Common Stock (or other securities) of the Company held by such Shareholder
during a period of time determined by the Company and its underwriters (not to
exceed 60 days) following the effective date of the registration statement of
the Company filed under the
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Securities Act with respect to an underwritten offering of securities other than
Common Stock by the Company, provided that all Required Signatories enter into
similar agreements. Such agreement to be entered into by the Shareholder and the
Required Signatories shall not be inconsistent with the provisions of this
Agreement and shall be in writing in a form reasonably satisfactory to the
Company, the underwriter and the Shareholder. This Section 2(c) shall only apply
to underwritten offerings of the Company's securities (other than Common Stock)
for which the date of the preliminary prospectus used to market such offering is
on or prior to the date which is one (1) year following the Closing Date and the
final price per share in such offering is determined no later than four (4)
weeks following such preliminary prospectus date.
(d) With respect to any underwritten offering of securities in which the
Shareholder includes shares of Common Stock, the Shareholder hereby covenants
and agrees with the Company not to engage in a Disposition of any Common Stock
(or other securities) of the Company held by such Shareholder during a period of
time determined by the Company and its underwriters (not to exceed 90 days)
following the effective date of the registration statement of the Company filed
under the Securities Act with respect to such registration and offering. Such
agreement shall be in writing in a form satisfactory to the Company and such
underwriter.
(e) The Shareholder hereby covenants and agrees that the Company may impose
stop transfer instructions with respect to the Common Stock subject to the
restrictions contained in this Section 2.
(f) Any lock-up agreement entered into by Shareholder pursuant to Section
2(b) or 2(c) of this Agreement (the "Lock-Up Agreement") shall go into effect
only as of the date that all Required Signatories become subject to similar
obligations, and shall provide that, in the event that the underwriter(s) in
such offering either release a Required Signatory from the restrictions set
forth in the lock-up agreement between the underwriter(s) and such Required
Signatory as to any or all ofthe shares of Common Stock held by such Required
Signatory or do not require all of such shares of Common Stock held by a
Required Signatory to be subject to a lock-up agreement, the underwriter(s)
shall concurrently release the same percentage of the Shareholder's shares of
Common Stock from the restrictions set forth in the Lock-Up Agreement, subject
to the following terms, conditions and limitations:
(i) The underwriter(s) shall not be obligated to effect any such
release as the result of the release of a number of shares held by any
Required Signatory not exceeding 10,000 shares;
(ii) In the event that more than one Required Signatory is released
from such restrictions, the percentage of the Shareholder's Common Stock
subject to release shall be the largest percentage of shares released as to
any Required Signatory, but shall not be cumulative of or otherwise the sum
of the percentages released as to more than one Required Signatory;
(iii) With respect to any release of the Shareholder's shares
attributable to the release of shares held by a Required Signatory, the
release of the Shareholder's shares shall be subject to the same
conditions, limitations and restrictions (whether on the manner or time of
disposition or otherwise) as are imposed by the underwriter(s) on such
Required Signatory; and
(iv) In the event that the underwriter(s) release the Shareholder from
any of its obligations under a Lock-Up Agreement pursuant to this Section
2(f), the Company and the underwriter(s) shall promptly notify the
undersigned of the number or percentage of shares so released.
3. Requested Registration.
(a) Request for Registration. If the Company shall receive from the
Shareholder a written request that the Company effect any registration for an
underwritten offering with respect to at least that number of Registrable
Securities which would result in an aggregate offering of at least $20,000,000,
the Company will as soon as practicable (but in any event within (30) days after
receipt
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of such written request), use its best efforts to effect such registration
(including, without limitation, the execution of an undertaking to file post
effective amendments, appropriate qualification under applicable blue sky or
other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request; provided that the
written request shall not be deemed to have been received by the Company and the
Company shall not be obligated to effect, or to take any action to effect, any
such registration pursuant to this Section 3:
(i) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting
such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be
required by the Securities Act; or
(ii) After the Company has effected two (2) such registrations
pursuant to this Section 3(a) and such registrations have been declared or
ordered effective and the sales of such Registrable Securities have closed;
or
(iii) Prior to the date which is six (6) months following the Closing
Date.
(iv) Prior to the date which is nine (9) months following receipt of a
prior request by the Shareholder pursuant to this Section 3(a), provided
that the registration resulting from such request has been declared or
ordered effective and the sales of such Registrable Securities have closed;
or
(v) With respect to a request that is received more than two (2) years
following the Closing Date.
Subject to the foregoing clauses (i), (ii), (iii), (iv) and (v), the
Company shall file with the Commission a registration statement covering the
Registrable Securities so requested to be registered; provided, however, that if
the Company shall furnish to the Shareholder a certificate signed by its Chief
Executive Officer or Chief Financial Officer stating that in the good faith
judgment of the Board of Directors of the Company, it would be detrimental to
the Company and its stockholders for such registration statement to be filed on
or before the time filing would be required and it is therefore necessary to
defer the filing of such registration statement, the Company shall have the
right to defer such filing (but not more than once with respect to any one (1)
request of the Shareholder for a registration hereunder) for a period of not
more than ninety (90) days after receipt of the request of the Shareholder.
The registration statement filed pursuant to the request of the
Shareholder, may, subject to the provisions of Section 3(b) below, include
securities to be registered and sold by the Company.
(b) Underwriting. Any registration of shares pursuant to this Section 3
shall be made pursuant to an underwritten offering, and the underwriter or
underwriters (collectively, the "Underwriter") shall be selected by the Company.
The maximum number of shares to be included in any registration pursuant to this
Section 3 shall be determined by such Underwriter in consultation with the
Company and the Shareholder. The right of the Shareholder to registration
pursuant to Section 3 shall be conditioned upon such Shareholder's participation
in such underwriting and the inclusion of such Shareholder's Registrable
Securities in the underwriting to the extent provided herein.
If the Company desires to include shares of its securities in any
registration pursuant to Section 3, such securities shall be included in such
registration subject to the further applicable provisions of this Agreement. The
Company shall (together with the Shareholder) enter into a written underwriting
agreement with the representative of the Underwriter that is not inconsistent
with the provisions of this agreement and in a form reasonably acceptable to the
Company, the
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Underwriter and the Shareholder. Notwithstanding any other provision of this
Section 3, if the Underwriter determines that marketing factors require a
limitation on the number of shares to be underwritten, the Underwriter may limit
the number of Registrable Securities to be included in theregistration and
underwriting to not less than the greater of (i) thirty percent (30%) of the
securities to be included in such offering and (ii) the lesser of forty percent
(40%) of the securities to be included in such offering and the number of shares
of Common Stock the Shareholder would then be able to sell in a three (3) month
period pursuant to Rule 145 under the Securities Act (based on the Company's
trading volume and shares outstanding as of the date that Shareholder's written
request pursuant to Section 3(a) is received by the Company). The number of
shares that are entitled to be included in the registration and underwriting
shall be allocated to the Shareholder up to the number of shares determined in
accordance with the previous sentence and to the Company as to any remaining
shares. Subject to the terms of this Agreement, if the Shareholder disapproves
of the terms of any such underwriting, it may withdraw therefrom by written
notice to the Company and the Underwriter. Any Registrable Securities excluded
or withdrawn from such underwriting shall be withdrawn from such registration.
4. Company Registration.
(a) If, prior to the date which is two (2) years following the Closing
Date, the Company shall determine to register for an underwritten equity
offering shares of its Common Stock either for its own account or for the
account of a security holder or holders with demand registration rights, the
Company will:
(i) promptly give to the Shareholder written notice thereof; and
(ii) include in such registration and underwriting, all of the
Registrable Securities specified in a written request made by such
Shareholder within fifteen (15) days after receipt of the written notice
from the Company described in clause (i) above, except as set forth in
Section 4(b) below. Such written request may specify all or a part of the
Shareholder's Registrable Securities.
(b) Underwriting. Any registration of shares pursuant to this Section 4
shall be made pursuant to an underwritten offering and the Underwriter shall be
selected by the Company. The maximum number of shares to be included in any
registration pursuant to this Section 4 shall be determined by such Underwriter
in consultation with the Company and the Shareholder. The right of the
Shareholder to registration pursuant to Section 4 shall be conditioned upon such
Shareholder's participation in such underwriting. If the Shareholder desires to
include shares in such registration and underwriting, such Shareholder shall
(together with the Company) enter into an underwriting agreement in customary
form. Notwithstanding any other provision of this Section 4, if the Underwriter
determines that marketing factors require a limitation on the number of shares
to be underwritten, the Underwriter may limit the number of Registrable
Securities to be included in the registration and underwriting to not less than
(i) the greater of twenty percent (20%) of the securities to be included in such
offering or three (3) million shares if the date of the preliminary prospectus
used to market such offering is on or prior to the date which is three (3)
months following the Closing Date and the final price per share in such offering
is determined no later than three (3) weeks following such preliminary
prospectus date, (ii) the greater of twenty percent (20%) of the securities to
be included in such offering or five (5) million shares if the date of the
preliminary prospectus used to market such offering is on the date which is more
than three (3) months following the Closing Date but on or prior to the date
which is six (6) months following the Closing Date andthe final price per share
in such offering is determined no later than three (3) weeks following such
preliminary prospectus date, and (iii) the greater of (A) thirty percent (30%)
of the securities to be included in such offering and (B) the lesser of forty
percent (40%) of the securities to be included in such offering and the number
of shares of Common Stock the Shareholder would
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then be able to sell in a three month period pursuant to Rule 145 under the
Securities Act (based on the Company's trading volume and shares outstanding as
of a date selected by the Company which shall be no more than five (5) business
days prior to the filing of the registration statement for the offering), if the
date of the preliminary prospectus used to market such offering is more than six
(6) months following the Closing Date. If the Shareholder disapproves of the
terms of any such underwriting, it may elect to withdraw therefrom by written
notice to the Company and the Underwriter. Any Registrable Securities or other
securities excluded or withdrawn from such underwriting shall be withdrawn from
such registration.
5. Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Agreement shall be borne by the Company, and all Selling Expenses shall be borne
by the Shareholder; provided, however, that the Company shall not be required to
pay any Registration Expenses in a registration not proposing to register shares
for the account of the Company if, as a result of the withdrawal of a request
for registration by the Shareholder, the registration statement does not become
effective, unless such withdrawal is caused by a material adverse change in the
business, operations or prospects of the Company after such request for
registration pursuant to Section 3 hereof, or unless the Shareholder agrees to
have such registration considered a registration pursuant to Section 3(a)(ii).
6. Registration Procedures. In the case of each registration effected by
the Company pursuant to this Agreement, the Company will keep the Shareholder
advised as to the initiation of such registration and as to the completion
thereof. At its expense, the Company will:
(a) Keep such registration effective until the underwritten
distribution described in the registration statement relating thereto, is
completed; and
(b) Furnish such number of prospectuses and other documents incident
thereto as the Shareholder from time to time may reasonably request; and
(c) Enter into any underwriting agreement reasonably necessary to
effect the offer and sale of Common Stock, provided such underwriting
agreement contains customary underwriting provisions.
7. Indemnification.
(a) The Company will indemnify and hold harmless the Shareholder, each of
its officers and directors, and each person controlling such Shareholder, if
Registrable Securities held by such Shareholder are included in the securities
with respect to which registration, qualification or compliance has been
effected pursuant to this Agreement, and each underwriter, if any, and each
person who controls any underwriter, against all claims, losses, damages and
liabilities (or actions in respect thereof), whether joint or several, arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other
document(including any related registration statement) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any applicable state securities
law or any rule or regulation thereunder relating to action or inaction required
of the Company in connection with any such registration, qualification or
compliance, and will reimburse each such Shareholder, each of its officers and
directors, and each person controlling such Shareholder, each such underwriter
and each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating and defending any
such claim, loss, damage, liability or action, as such expenses are incurred
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue
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statement (or alleged untrue statement) or omission (or alleged omission) based
upon information furnished in writing to the Company by such Shareholder or
underwriter and stated to be specifically for use therein.
(b) The Shareholder will, if Registrable Securities or other securities
held by such Shareholder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify and hold
harmless the Company, each of its directors, officers and agents and each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of the Securities Act, and the rules and regulations thereunder, against
all claims, losses, damages and liabilities (or actions in respect thereof),
whether joint or several, arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, and will reimburse the Company and such
directors, officers, agents, persons, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with investigating
of defending any such claim, loss, damage, liability or action, as such expenses
are incurred, in each case to the extent, but only to the extent, that such
untrue statement (or alleged untrue statement) or omission (or alleged omission)
is made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with information furnished in
writing to the Company by such Shareholder and stated to be specifically for use
therein. Notwithstanding the foregoing, the Shareholder shall not be required to
indemnify the Company or its directors, officers, agents or underwriters if, in
the case of settlement of litigation, such settlement is effected without the
consent of the Shareholder. In no event shall the liability of the Shareholder
for indemnification under this Section 7 exceed the proceeds received by such
Shareholder in the offering of the Registrable Securities.
(c) Each party entitled to indemnification under this Section 7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved bythe Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement except to the extent
the Indemnifying Party is prejudiced thereby, and provided further, however,
that an indemnified party (together with all other indemnified parties) shall
have the right to retain one separate counsel, with the reasonable fees and
expenses of such counsel to be paid by the indemnifying party, if representation
of such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests between
such indemnified party and any other party represented by such counsel in such
proceeding. No Indemnifying Party in the defense of any such claim or litigation
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with defense of
such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 7 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage
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or expense referred to herein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss, liability,
claim, damage or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the statements or omissions that resulted
in such loss, liability, claim, damage or expense, as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing provisions of this Section 7, to the
extent that any provision contained in the underwriting agreement entered into
in connection with the underwritten public offering related to any such claim
for indemnification or contribution are in conflict with the foregoing
provisions, the provisions in the underwriting agreement shall control.
(f) The obligations of the Company and the Shareholder under this Section 7
shall survive the completion of any offering of Registrable Securities pursuant
to this Agreement, and otherwise.
8. Information by Shareholder. The Shareholder hereby agrees in any
registration in which it includes securities to furnish to the Company such
information regarding such Shareholder as the Company may reasonably request and
as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement.
9. Limitations on Subsequent Registration Rights. From and after the date
of this Agreement, the Company shall not, without the prior written consent of
the Shareholder, enter into any agreement with any holder or prospective holder
of any securities of the Company giving such holder or prospective holder any
registration rights which would cause a reduction in the amount of Registrable
Securities of the Shareholder that would be registrable in a registration
statement contemplated by this Agreement.
10. No Transfer or Assignment of Registration Rights. The rights to cause
the Company to register Shareholder's securities granted to Shareholder by the
Company hereunder may not be transferred or assigned by Shareholder.
11. Effective Date; Termination of Rights. This Agreement shall become
effective on the Closing Date and shall be of no force or effect if the Closing
Date does not occur. The provisions of this Agreement (other than Section 2,
Section 7 and Section 12 hereof) shall terminate upon the first to occur of (a)
the date which is (2) years following the Closing Date, provided however, that
such two (2) years shall be extended until the completion of any offering that
was initiated during such two (2) year period, and (b) such time as the
Shareholder ceases to hold any Registrable Securities.
12. No Other Registration Rights. Shareholder hereby irrevocably waives any
registration rights it may have with respect to the Common Stock (except as
expressly set forth in this Agreement) or the common stock of HomeGrocer.com,
whether pursuant to the Third Amended and Restated Investor Rights Agreement
dated September 30, 1999 by and among HomeGrocer.com and certain of its
shareholders, or otherwise.
13. Governing Law. This Agreement and the legal relations between the
parties arising hereunder shall be governed by and interpreted in accordance
with the laws of the State of California. The parties hereto agree to submit to
the jurisdiction of the federal and state courts of the State of California with
respect to the breach or interpretation of this Agreement or the enforcement of
any
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and all rights, duties, liabilities, obligations, powers, and other relations
between the parties arising under this Agreement.
14. Entire Agreement. This Agreement, the Voting Agreement entered into
with the Shareholder and accompanying proxy constitute the full and entire
understanding and agreement among the parties regarding rights to registration.
Except as otherwise expressly provided herein, the provisions hereof shall inure
to the benefit of, and be binding upon, the successors and assigns of the
parties hereto.
15. Notices, Etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be sent by telecopier or
mailed by first-class mail, postage prepaid, or otherwise delivered by hand or
by messenger or by overnight courier service, addressed (a) if to the
Shareholder, at the address set forth under the Shareholder's name on the
signature page attached hereto, or at such other address as the Shareholder
shall have furnished to the Company in writing, or (b) if to the Company, at the
address of its principal offices set forth on the signature page of this
Agreement, or at such other address as the Company shall have furnished to the
Shareholder in writing.
16. Counterparts. This Agreement may be executed in counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
17. Amendments. Any provision of this Agreement may be amended, waived or
modified upon the written consent of the Company and the Shareholder.
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IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
Webvan Group, Inc.
By: /s/ GEORGE T. SHAHEEN
--------------------------------------
Title: Chief Executive Officer and
President
Address: 310 Lakeside Drive
Foster City, California 94404
SHAREHOLDER
Amazon.com, Inc.
By: /s/ MARK BRITTO
--------------------------------------
Title: Vice President
Address: 1200 12th Avenue South,
Suite 1200 Seattle,
Washington
98144-2734
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ANNEX E
CHAPTER 23B.13 RCW
DISSENTERS' RIGHTS
<TABLE>
<CAPTION>
SECTIONS
<S> <C>
23B.13.010 Definitions.
23B.13.020 Right to dissent.
23B.13.030 Dissent by nominees and beneficial owners.
23B.13.200 Notice of dissenters' rights.
23B.13.210 Notice of intent to demand payment.
23B.13.220 Dissenters' notice.
23B.13.230 Duty to demand payment.
23B.13.240 Share restrictions.
23B.13.250 Payment.
23B.13.260 Failure to take action.
23B.13.270 After-acquired shares.
23B.13.280 Procedure if shareholder dissatisfied with payment or offer.
23B.13.300 Court action.
23B.13.310 Court costs and counsel fees.
</TABLE>
RCW 23B.13.010 DEFINITIONS
As used in this chapter:
(1) "CORPORATION" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(2) "DISSENTER" means a shareholder who is entitled to dissent from
corporate action under RCW 23B.13.020 and who exercises that right when and in
the manner required by RCW 23B.13.200 through 23B.13.280.
(3) "FAIR VALUE," with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "INTEREST" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "RECORD SHAREHOLDER" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "BENEFICIAL SHAREHOLDER" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "SHAREHOLDER" MEANS the record shareholder or the beneficial
shareholder. [1989 c 165 s 140.]
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RCW 23B.13.020 RIGHT TO DISSENT
(1) A shareholder is entitled to dissent from, and obtain payment of the
fair value of the shareholder's shares in the event of, any of the following
corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger by RCW
23B.11.030, 23B.11,080, or the articles of incorporation and the
shareholder is entitled to vote on the merger, or (ii) if the corporation
is a subsidiary that is merged with its parent under RCW 23B.11.040;
(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale;
(d) An amendment of the articles of incorporation that materially
reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under
RCW 23B.06.040; or
(e) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action fails to comply with
the procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent with
respect to the shareholder or the corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair
value of the shareholder's shares shall terminate upon the occurrence of any one
of the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
(c) The shareholder's demand for payment is withdrawn with the written
consent of the corporation. [1991 c 269 s 37; 1989 c 165 s 141.]
RCW 23B.13.030 DISSENT BY NOMINEES AND BENEFICIAL OWNERS
(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the shareholder's name only if the shareholder dissents
with respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the shareholder asserts dissenters' rights. The rights of a partial dissenter
under this subsection are determined as if the shares as to which the dissenter
dissents and the dissenter's other shares were registered in the names of
different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
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(b) The beneficial shareholder does so with respect to all shares of
which such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote. [1989 c 165 s 142.]
RCW 23B.13.200 NOTICE OF DISSENTERS' RIGHTS
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this chapter and be accompanied by a copy of this chapter.
(2) If corporate action creating dissenters' rights under RCW 23B.13.020 is
taken without a vote of shareholders, the corporation, within ten days after
[the] effective date of such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken and
send them the dissenters' notice described in RCW 23B.13.220. [1989 c 165 s
143.]
RCW 23B.13.210 NOTICE OF INTENT TO DEMAND PAYMENT
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights must (a) deliver to the corporation before
the vote is taken written notice of the shareholder's intent to demand payment
for the shareholder's shares if the proposed action is effected, and (b) not
vote such shares in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection (1)
of this section is not entitled to payment for the shareholder's shares under
this chapter. [1989 c 165 s 144.]
RCW 23B.13.220 DISSENTERS' NOTICE
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of RCW 23B.13.210.
(2) The dissenters' notice must be sent within ten days after the effective
date of the corporate action, and must:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date;
(d) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty-days
after the date the notice in subsection (1) of this section is delivered;
and
(e) Be accompanied by a copy of this chapter. [1989 c 165 s 145.]
RCW 23B.13.230 DUTY TO DEMAND PAYMENT
(1) A shareholder sent a dissenters' notice described in RCW 23B.13.220
must demand payment, certify whether the shareholder acquired beneficial
ownership of the shares before the date
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required to be set forth in the dissenters' notice pursuant to RCW
23B.13.220(2)(c), and deposit the shareholder's certificates in accordance with
the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's
share certificates under subsection (1) of this section retains all other rights
of a shareholder until the proposed corporate action is effected.
(3) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter. [1989 c 165 s 146.]
RCW 23B.13.240 SHARE RESTRICTIONS
(1) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is effected or the restriction is released under RCW 23B.13.260.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until the
effective date of the proposed corporate action. [1989 c 165 s 147.]
RCW 23B.13.250 PAYMENT
(1) Except as provided in RCW 23B.13.270, within thirty days of the later
of the effective date of the proposed corporate action, or the date the payment
demand is received, the corporation shall pay each dissenter who complied with
RCW 23B.13.230 the amount the corporation estimates to be the fair value of the
shareholder's shares, plus accrued interest.
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(b) An explanation of how the corporation estimated the fair value of
the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter' right to demand payment under RCW
23B.13.280; and
(e) A copy of this chapter. [1989 c 165 s 148.]
RCW 23B.13.260 FAILURE TO TAKE ACTION
(1) If the corporation does not effect the proposed action within
sixty-days after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates and
release any transfer restrictions imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it must
send a new dissenters' notice under RCW 23B.13.220 and repeat the payment demand
procedure. [1989 c 165 s 149.]
RCW 23B.13.270 AFTER-ACQUIRED SHARES
(1) A corporation may elect to withhold payment required by RCW 23B.13.250
from a dissenter unless the dissenter was the beneficial owner of the shares
before the date set forth in the
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dissenters' notice as the date of the first announcement to news media or to
shareholders of the terms of the proposed corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of the dissenter's demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares, an explanation of
how the interest was calculated, and a statement of the dissenter's right to
demand payment under RCW 23B.13.280. [1989 c 165 s 150.]
RCW 23B.13.280 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER
(1) A dissenter may notify the corporation in writing of the dissenter's
own estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate, less any payment under RCW
23B.13.250, or reject the corporation's offer under RCW 23B.13.270 and demand
payment of the dissenter's estimate of the fair value of the dissenter's shares
and interest due, if:
(a) The dissenter believes that the amount paid under RCW 23B.13.250
or offered under RCW 23B.13.270 is less than the fair value of the
dissenter's shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under RCW 23B.13.250 within
sixty-days after the date set for demanding payment; or
(c) The corporation does not effect the proposed action and does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty-days after the date set for
demanding payment.
(2) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (1) of this section within thirty days after the
corporation made or offered payment for the dissenter's shares. [1989 c 165 s
151.]
RCW 23B.13.300 COURT ACTION
(1) If a demand for payment under RCW 23B.13.280 remains unsettled, the
corporation shall commence a proceeding within sixty-days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the sixty-day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(2) The corporation shall commence the proceeding in the superior court of
the county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the corporation,
complied with the provisions of this
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<PAGE> 311
chapter. If the court determines that such shareholder has not complied with the
provisions of this chapter, the shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
(6) Each dissenter made a party to the proceeding is entitled to judgment
(a) for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation,
or (b) for the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under RCW 23B.13.270. [1989 c 165 s 152.]
RCW 23B.13.310 COURT COSTS AND COUNSEL FEES
(1) The court in a proceeding commenced under RCW 23B.13.300 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court shall assess the costs
against the corporation, except that the court may assess the costs against all
or some of the dissenters, in amounts the court finds equitable, to the extent
the court finds the dissenters acted arbitrarily, vexatiously, or not in good
faith in demanding payment under RCW 23B.13.280.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of RCW 23B.13.200 through 23B.13.280; or
(b) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by chapter 23B.13 RCW.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited. [1989 c 165 s 153.]
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law 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 such section.
The Registrant's Restated Certificate of Incorporation provides for the
indemnification of directors to the fullest extent permissible under Delaware
law.
The Registrant's Bylaws provides for the indemnification of 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 reason to believe his or her conduct
was unlawful.
The Registrant has entered into indemnification agreements with its
directors and executive officers and intends to enter into indemnification
agreements with any new directors and executive officers in the future.
The Registrant has director and officer liability insurance that covers
matters, including matters arising under the Securities Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1(1) Agreement and Plan of Reorganization, dated as of June 25,
2000, by and among the Registrant, HomeGrocer.com, Inc. and
Robin Merger Corporation
3.1(2) Restated Certificate of Incorporation of the Registrant
3.2(2) Bylaws of the Registrant
4.1(2) Specimen Common Stock Certificate
4.2(2) Registration Rights Agreement dated October 29, 1997, as
amended
4.3(3) Form of Registration Rights Agreement between the Registrant
and Amazon.com, Inc.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
8.1 Form of Tax Opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation
8.2 Form of Tax Opinion of Davis Polk & Wardwell
9.1(1) Form of HomeGrocer Voting Agreement dated June 25, 2000
9.2(1) Form of Webvan Voting Agreement dated June 25, 2000
10.1(2) Form of Indemnification Agreement between the Registrant and
each of its directors and officers
10.2(2) 1997 Stock Plan and form of agreements thereunder
10.3(2) 1999 Employee Stock Purchase Plan
10.4(2) Lease Agreement dated April 1, 1998 between the Registrant
and Lincoln Coliseum Distribution Center for premises in
Oakland, California
</TABLE>
II-1
<PAGE> 313
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.5(2) Lease Agreement dated March 4, 1999 between the Registrant
and AMB Property, LP for premises in Atlanta, Georgia
10.6(2) Lease Agreement dated January 21, 1997 between the
Registrant and Dove Holdings, Inc. for premises in Foster
City, California
10.7(2) Lease and Security Agreement dated November 18, 1998 between
the Registrant and Lighthouse Capital Partners and other
lenders
10.8(2) Offer Letter dated March 18, 1999 between the Registrant and
Kevin R. Czinger
10.9(2) Offer Letter dated February 2, 1998 between the Registrant
and Arvind Peter Relan
10.10(2) Offer Letter dated December 14, 1998 between the Registrant
and Mark X. Zaleski
10.11(2) Offer Letter dated March 31, 1997 between the Registrant and
Gary B. Dahl
10.12(2) Offer Letter dated June 5, 1997 between the Registrant and
Mark J. Holtzman
10.13(2) Offer Letter dated September 3, 1997 between the Registrant
and S. Coppy Holzman
10.14(2) Contract dated July 8, 1999 for turnkey design/build
construction and related services between the Registrant and
Bechtel Corporation
10.15(2) Warrant dated July 8, 1999 issued to Bechtel Corporation
10.16(2) Warrant dated May 27, 1998 issued to Comdisco Ventures
10.17(2) Warrant dated November 18, 1998 issued to Lighthouse Capital
Partners
10.18(2) Internet Data Services Agreement dated January 21, 1999
between the Registrant and Exodus Communications, Inc.
10.19(2) 1999 Nonstatutory Stock Option Plan and form of agreements
thereunder
10.20(2) Employment Agreement between the Registrant and George T.
Shaheen
10.21(2) Offer Letter dated August 19, 1999 between the Registrant
and Gregory Beutler
10.22(2) Offer Letter dated July 25, 1999 between the Registrant and
Vivek M. Joshi
10.23(2) Offer Letter dated October 2, 1999 between the Registrant
and Robert H. Swan
10.24(2) Exclusive Supply and Sole Source Agreement between the
Registrant and Diamond Phoenix Corporation
10.25(2) Offer Letter dated November 10, 1998 between the Registrant
and Christian T. Mannella
10.26(4) Offer Letter dated February 28, 2000 between the Registrant
and F. Terry Bean
10.27 Employment Agreement dated June 20, 2000 between the
Registrant and Rex L. Carter
10.28 Employment Agreement dated June 15, 2000 between the
Registrant and Corwin J. Karaffa
23.1 Consent of Deloitte & Touche LLP, Independent Auditors
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Morgan Stanley & Co. Incorporated
23.4* Consent of Goldman Sachs & Co.
23.5 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in the opinion to be filed as Exhibit
5.1 and the form of opinion filed as Exhibit 8.1)
</TABLE>
II-2
<PAGE> 314
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
23.6 Consent of Davis Polk & Wardwell (included in form of
opinion filed as Exhibit 8.2)
24.1 Power of Attorney (see page II-5)
27.1 Financial Data Schedule
99.1 Form of Webvan Group, Inc. Proxy Card
99.2 Form of HomeGrocer.com, Inc. Proxy Card
</TABLE>
-------------------------
* To be filed by amendment.
(1) Incorporated by reference from Annex A to the Proxy Statement/Prospectus
included as part of this Registration Statement.
(2) Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (file no. 333-84703), as amended.
(3) Incorporated by reference from Annex D to the Proxy Statement/Prospectus
included as part of this Registration Statement.
(4) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the Year ended December 31, 1999.
(b) Not Applicable.
(c) Not Applicable.
ITEM 22. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes as follows: that prior to
any public offering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
undersigned Registrant undertakes that such offering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, 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) Insofar as the indemnification for liabilities arising under the
Securities Act of 1933 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 Securities and
Exchange Commission such indemnification is against public policy as expressed
in the 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
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<PAGE> 315
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(4) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(5) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
(6) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
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.
II-4
<PAGE> 316
SIGNATURES
Pursuant to the requirements of the Securities Act, Webvan Group, Inc has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Foster City, State of
California, on the 25th day of July, 2000.
WEBVAN GROUP, INC.
By: /s/ GEORGE T. SHAHEEN
------------------------------------
George T. Shaheen
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints George T. Shaheen and Robert H. Swan and
each of them, his attorneys-in-fact, each with the power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same offering covered
by this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, as amended, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities on July 25, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ LOUIS H. BORDERS Chairman of the Board of Directors
-----------------------------------------------------
LOUIS H. BORDERS
/s/ GEORGE T. SHAHEEN President, Chief Executive Officer and
----------------------------------------------------- Director
GEORGE T. SHAHEEN
/s/ ROBERT H. SWAN Chief Financial Officer
-----------------------------------------------------
ROBERT H. SWAN
/s/ DAVID M. BEIRNE Director
-----------------------------------------------------
DAVID M. BEIRNE
/s/ CHRISTOS M. COTSAKOS Director
-----------------------------------------------------
CHRISTOS M. COTSAKOS
/s/ TIM KOOGLE Director
-----------------------------------------------------
TIM KOOGLE
/s/ MICHAEL J. MORITZ Director
-----------------------------------------------------
MICHAEL J. MORITZ
</TABLE>
II-5
<PAGE> 317
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1(1) Agreement and Plan of Reorganization, dated as of June 25,
2000, by and among the Registrant, HomeGrocer.com, Inc. and
Robin Merger Corporation
3.1(2) Restated Certificate of Incorporation of the Registrant
3.2(2) Bylaws of the Registrant
4.1(2) Specimen Common Stock Certificate
4.2(2) Registration Rights Agreement dated October 29, 1997, as
amended
4.3(3) Form of Registration Rights Agreement between the Registrant
and Amazon.com, Inc.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
8.1 Form of Tax Opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation
8.2 Form of Tax Opinion of Davis Polk & Wardwell
9.1(1) Form of HomeGrocer Voting Agreement dated June 25, 2000
9.2(1) Form of Webvan Voting Agreement dated June 25, 2000
10.1(2) Form of Indemnification Agreement between the Registrant and
each of its directors and officers
10.2(2) 1997 Stock Plan and form of agreements thereunder
10.3(2) 1999 Employee Stock Purchase Plan
10.4(2) Lease Agreement dated April 1, 1998 between the Registrant
and Lincoln Coliseum Distribution Center for premises in
Oakland, California
10.5(2) Lease Agreement dated March 4, 1999 between the Registrant
and AMB Property, LP for premises in Atlanta, Georgia
10.6(2) Lease Agreement dated January 21, 1997 between the
Registrant and Dove Holdings, Inc. for premises in Foster
City, California
10.7(2) Lease and Security Agreement dated November 18, 1998 between
the Registrant and Lighthouse Capital Partners and other
lenders
10.8(2) Offer Letter dated March 18, 1999 between the Registrant and
Kevin R. Czinger
10.9(2) Offer Letter dated February 2, 1998 between the Registrant
and Arvind Peter Relan
10.10(2) Offer Letter dated December 14, 1998 between the Registrant
and Mark X. Zaleski
10.11(2) Offer Letter dated March 31, 1997 between the Registrant and
Gary B. Dahl
10.12(2) Offer Letter dated June 5, 1997 between the Registrant and
Mark J. Holtzman
10.13(2) Offer Letter dated September 3, 1997 between the Registrant
and S. Coppy Holzman
10.14(2) Contract dated July 8, 1999 for turnkey design/build
construction and related services between the Registrant and
Bechtel Corporation
10.15(2) Warrant dated July 8, 1999 issued to Bechtel Corporation
10.16(2) Warrant dated May 27, 1998 issued to Comdisco Ventures
10.17(2) Warrant dated November 18, 1998 issued to Lighthouse Capital
Partners
10.18(2) Internet Data Services Agreement dated January 21, 1999
between the Registrant and Exodus Communications, Inc.
10.19(2) 1999 Nonstatutory Stock Option Plan and form of agreements
thereunder
10.20(2) Employment Agreement between the Registrant and George T.
Shaheen
10.21(2) Offer Letter dated August 19, 1999 between the Registrant
and Gregory Beutler
10.22(2) Offer Letter dated July 25, 1999 between the Registrant and
Vivek M. Joshi
</TABLE>
<PAGE> 318
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.23(2) Offer Letter dated October 2, 1999 between the Registrant
and Robert H. Swan
10.24(2) Exclusive Supply and Sole Source Agreement between the
Registrant and Diamond Phoenix Corporation
10.25(2) Offer Letter dated November 10, 1998 between the Registrant
and Christian T. Mannella
10.26(4) Offer Letter dated February 28, 2000 between the Registrant
and F. Terry Bean
10.27 Employment Agreement dated June 20, 2000 between the
Registrant and Rex L. Carter
10.28 Employment Agreement dated June 15, 2000 between the
Registrant and Corwin J. Karaffa
23.1 Consent of Deloitte & Touche LLP, Independent Auditors
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Morgan Stanley & Co. Incorporated
23.4* Consent of Goldman Sachs & Co.
23.5 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in opinions filed as Exhibits 5.1 and
8.1)
23.6 Consent of Davis Polk & Wardwell (included in opinion filed
as Exhibit 8.2)
24.1 Power of Attorney (see page II-5)
27.1 Financial Data Schedule
99.1 Form of Webvan Group, Inc. Proxy Card
99.2 Form of HomeGrocer.com, Inc. Proxy Card
</TABLE>
-------------------------
* To be filed by amendment.
(1) Incorporated by reference from Annex A to the Proxy Statement/Prospectus
included as part of this Registration Statement.
(2) Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (file no. 333-84703), as amended.
(3) Incorporated by reference from Annex D to the Proxy Statement/Prospectus
included as part of this Registration Statement.
(4) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the Year ended December 31, 1999.
