<PAGE>
As filed with the Securities and Exchange Commission on January 31, 2000
Registration No. 333-93015
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
Amendment No. 2
To
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
HOMEGROCER.COM, INC.
(Exact Name of Registrant as Specified in Its Charter)
---------------
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 5411 91-1863408
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
10230 N.E. Points Drive
Kirkland, Washington 98033
(425) 201-7500
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------
Mary Alice Taylor
HomeGrocer.com, Inc.
Chief Executive Officer
10230 N.E. Points Drive
Kirkland, Washington 98033
(425) 201-7500
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
---------------
COPIES TO:
<TABLE>
<S> <C>
William W. Ericson, Esq. Daniel G. Kelly, Jr., Esq.
Sonya F. Erickson, Esq. DAVIS POLK & WARDWELL
VENTURE LAW GROUP 1600 El Camino Real
A Professional Corporation Menlo Park, CA 94025
4750 Carillon Point
Kirkland, WA 98033
</TABLE>
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
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If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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, please 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(c)
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. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed
Proposed maximum
Amount maximum aggregate Amount of
Title of each class of to be offering price offering registration
securities to be registered registered(1) per unit(2) price(2) fee(3)
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<S> <C> <C> <C> <C>
Common Stock, no par value........... 25,300,000 $12.00 $303,600,000.00 $80,151
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</TABLE>
(1) Includes 3,300,000 shares of common stock issuable upon exercise of the
underwriters' over-allotment option.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act.
(3) Includes $66,000 previously paid by the registrant in connection with the
filing of the registration statement on December 17, 1999.
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 that specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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Explanatory Note
This registration statement contains two separate prospectuses. The first
prospectus relates to a public offering in the United States and Canada of an
aggregate of shares of common stock. The second prospectus relates
to a concurrent offering outside the United States and Canada of an aggregate
of shares of common stock. The prospectuses for each of the U.S.
offering and the international offering will be identical with the exception
of an alternate front cover page for the international offering. This
alternate page appears in this registration statement immediately following
the complete prospectus for the U.S. offering.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued , 2000
22,000,000 Shares
[LOGO OF HOMEGROCER.COM]
Common Stock
------------
HomeGrocer.com, Inc. is offering 22,000,000 shares of common stock. This is our
initial public offering and no public market currently exists for our shares.
We anticipate that the initial public offering price will be between $10 and
$12 per share.
------------
We will apply to list our common stock on the Nasdaq National Market under the
symbol "HOMG."
------------
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 7.
------------
PRICE $ A SHARE
------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions HomeGrocer.com
-------- ------------- --------------
<S> <C> <C> <C>
Per Share................................ $ $ $
Total.................................... $ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
HomeGrocer.com has granted the underwriters the right to purchase up to an
additional 3,300,000 shares to cover over-allotments. Morgan Stanley & Co.
Incorporated expects to deliver the shares of common stock to purchasers on
, 2000.
------------
MORGAN STANLEY DEAN WITTER DONALDSON, LUFKIN & JENRETTE
CHASE H&Q
BANC OF AMERICA SECURITIES LLC
J.C. BRADFORD & CO.
MORGAN STANLEY DEAN WITTER ONLINE DLJdirectINC.
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Page
---- ----
<S> <C> <C>
Prospectus Summary.................. 3 Business........................... 29
Risk Factors........................ 6 Management......................... 42
Special Note Regarding Forward- Related Party Transactions......... 57
Looking Statements................. 19 Principal Stockholders............. 60
Use of Proceeds..................... 19 Description of Capital Stock....... 62
Dividend Policy..................... 19 Shares Eligible for Future Sale.... 66
Capitalization...................... 20 Material U.S. Federal Tax
Dilution............................ 21 Considerations for Non-U.S.
Selected Financial Data............. 22 Holders........................... 68
Management's Discussion and Analysis Underwriters....................... 70
of Financial Condition and Results Legal Matters...................... 72
of Operations...................... 23 Experts............................ 72
Additional Information Available to
You............................... 73
Index to Financial Statements...... F-1
</TABLE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in those jurisdictions where offers and
sales are permitted. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or any sale of our common stock.
For investors outside the United States: Neither we nor any of the
underwriters have done anything that would permit this offering or possession
or distribution of this prospectus in any jurisdiction where action for that
purpose is required, other than in the United States. You are required to
inform yourselves about and to observe any restrictions relating to this
offering and the distribution of this prospectus.
Until , 2000, 25 days after commencement of the offering, all dealers
effecting transactions in our common stock, whether or not participating in
this offering, may be required to deliver a prospectus. This delivery
requirement is in addition to the dealers' obligation to deliver a prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
"HomeGrocer," "HomeGrocer.com," "Peach Party," "here comes the grocery
store" and the HomeGrocer.com corporate logo are trademarks of HomeGrocer.com.
All other brand names or trademarks appearing in this prospectus are the
property of their respective holders.
Unless otherwise indicated, all information contained in this prospectus:
. assumes no exercise of the underwriters' over-allotment option;
. assumes our anticipated reincorporation from Delaware to Washington upon
effectiveness of this offering;
. reflects the 2-for-1 stock split of the common stock effected in
November 1999; and
. gives effect to the conversion of all outstanding shares of preferred
stock into 73,206,738 shares of common stock effective upon the closing
of this offering.
<PAGE>
Gatefold
The gatefold includes five photographs of the following:
1. A woman and child sitting at a computer with the caption "Convenient
online shopping;"
2. HomeGrocer employees performing tasks in a customer fulfillment center
with the caption "Efficient order fulfillment system;"
3. A HomeGrocer truck driving through a neighborhood with the caption
"Custom designed tri-temperature trucks for product freshness;"
4. A screen shot of HomeGrocer's web site with the caption "Easy to
navigate web site;" and
5. A HomeGrocer.com delivery person bringing bags of groceries to a
customer's kitchen counter with the caption "Friendly, professional
drivers bring the groceries right to the kitchen."
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding HomeGrocer.com and our financial statements and the
related notes appearing elsewhere in this prospectus.
HomeGrocer.com
Our Business
HomeGrocer.com is a leading retailer of grocery and other consumer products
on the Internet. Using our state-of-the-art distribution system, we offer next-
day home delivery of high quality products at prices comparable to local
supermarkets. Our product selection currently includes fresh fruit, vegetables,
dairy products, baked goods, meat, fish and a wide assortment of non-perishable
items and household products. We also offer 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,
1999, we have made deliveries to over 55,000 different households.
We have rapidly expanded since our initial launch of service in June 1998
and currently serve customers in three markets: Seattle, Washington; Portland,
Oregon; and Orange County/Los Angeles, California. We expect to begin service
in eight to ten additional metropolitan areas in the next twelve months. We
incurred net losses of $7.9 million for the fiscal year ended January 2, 1999
and $78.0 million for the fiscal year ended January 1, 2000. Because of the
start-up expenses at the numerous customer fulfillment centers that we intend
to open over the next few years, we expect to incur substantial losses and
negative operating cash flow for the foreseeable future. As of January 1, 2000,
we had an accumulated deficit of $87.3 million.
Our Market Opportunity
We believe a significant market opportunity exists for an online store that
can offer consumers an Internet shopping experience for grocery and other
consumer products. Most consumers dislike the traditional grocery shopping
experience. Online grocery shopping has the opportunity to eliminate many of
the burdens of the traditional grocery shopping experience. Forrester Research
estimates that online grocery shopping in the United States will grow from a
$513 million market in 1999 to a $16.9 billion market by 2004 and that online
sales of health and beauty products, another market that we address, will grow
from $509 million in 1999 to $10.3 billion in 2004.
Our Strategy
Our goal is to be our customers' preferred regular supplier of a wide range
of consumer products. Our web site is designed to reduce average shopping time
by creating an easy to use, interactive and customized format for each
customer. Our professional buyers purchase high quality products available from
premium specialty suppliers and local sources, in addition to national
suppliers. Our delivery staff is selected and trained to deliver friendly,
efficient and reliable customer service. We believe that our success in
reliably delivering quality groceries into the home provides us with a strong
platform to expand into other product and service areas. In addition, we
believe our technology and the design of our customer fulfillment centers
permit us to rapidly expand our service into new markets. Amazon.com, our
largest shareholder, has agreed to introduce our service to its customers
residing in our service areas under our agreement with them.
Our History
We were incorporated in British Columbia, Canada in January 1997,
reincorporated in Delaware in September 1997 and plan to reincorporate in
Washington in the first quarter of 2000. Our principal executive offices are
located at 10230 N.E. Points Drive, Kirkland, Washington 98033, and our
telephone number is (425) 201-7500. Information contained in our web site at
www.homegrocer.com does not constitute part of this prospectus.
3
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common stock offered....................... 22,000,000 shares
Common stock to be outstanding after the
offering.................................. 124,812,274 shares
Use of proceeds............................ Finance the first phase of a national
expansion, including the establishment of
new customer fulfillment centers, and other
general corporate purposes
Proposed Nasdaq National Market symbol..... HOMG
</TABLE>
The number of shares of our common stock to be outstanding immediately after
the offering is based on the number of shares outstanding at January 1, 2000.
This number does not take into account 5,886,342 shares of common stock
issuable upon exercise of outstanding stock options at a weighted average
exercise price of $1.69 per share, 2,749,248 shares of common stock issuable
upon exercise of warrants at a weighted average exercise price of $1.00 per
share and 1,787,122 shares of common stock available for grant under our stock
plans at January 1, 2000.
4
<PAGE>
SUMMARY FINANCIAL DATA
The following table contains summary financial data for HomeGrocer.com. You
should read this information along with our financial statements and related
notes included elsewhere in this prospectus.
<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
---------------- ---------- ----------
(in thousands, except share and per
share amounts)
<S> <C> <C> <C>
Statement of Operations Data:
Net sales............................ $ -- $ 1,094 $ 21,648
Cost of sales........................ -- 1,018 19,515
---------- ---------- ----------
Gross profit....................... -- 76 2,133
Selling, general, and administrative
expenses............................ 1,064 7,455 59,208
Stock-based compensation expense..... 230 412 22,201
---------- ---------- ----------
Loss from operations............... (1,294) (7,791) (79,276)
Other income/(expense), net.......... (61) (118) 1,240
---------- ---------- ----------
Net loss........................... $ (1,355) $ (7,909) (78,036)
========== ========== ==========
Basic and diluted net loss per
share............................... $ (0.14) $ (0.72) $ (5.17)
========== ========== ==========
Pro forma basic and diluted net loss
per share (1)....................... $ (1.19)
==========
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 (1)...... 65,382,807
==========
</TABLE>
The actual column in the following table sets forth HomeGrocer.com's summary
balance sheet data as of January 1, 2000. The pro forma as adjusted column
reflects the conversion of all outstanding shares of preferred stock into
73,206,738 shares of common stock and the sale of 22,000,000 shares of our
common stock in this offering at an assumed initial public offering price of
$11.00 per share and the application of our estimated net proceeds.
<TABLE>
<CAPTION>
At January 1, 2000
--------------------
Pro Forma
Actual As Adjusted
-------- -----------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents and marketable securities....... $ 77,568 $303,740
Working capital........................................... 66,593 293,076
Total assets.............................................. 146,929 372,514
Long-term obligations, less current portion............... 17,790 17,790
Total shareholders' equity................................ 112,147 338,227
</TABLE>
- --------
(1) See note 1 of notes to financial statements for an explanation of the
determination of the number of weighted average shares used to compute pro
forma net loss per share amounts.
5
<PAGE>
RISK FACTORS
This offering and an investment in our common stock involves a high degree
of risk. You should carefully consider the following risks before making an
investment decision. The trading price of our common stock could decline if any
of these risks materializes, and investors could lose all or part of their
investment. You also should refer to the other information appearing elsewhere
in this prospectus, including our financial statements and the related notes.
We anticipate significant increases in our operating expenses and continuing
losses for the foreseeable future.
We incurred net losses of $7.9 million, or 723% of our revenues, for the
fiscal year ended January 2, 1999 and $78.0 million, or 360% of our revenues,
for the fiscal year ended January 1, 2000. We intend to open one or more
customer fulfillment centers in each of eight to ten new markets within the
next twelve months. Because all of our customer fulfillment centers have lost
money over their first several quarters of operation and none are yet
profitable, we anticipate that our net losses for the fiscal year ended
December 30, 2000 will be significantly greater than in prior years. As of
January 1, 2000, we had an accumulated deficit of $87.3 million. Although we
cannot be certain of the size of the capital commitment we will make and the
operating expenses we will incur, we expect the expansion will include:
. approximately $4 to $7 million to equip each new customer fulfillment
center in additional geographic markets;
. brand development, marketing and other promotional activities; and
. continued investment in our computer network, web site, warehouse
management and order fulfillment systems and delivery and corporate
infrastructure.
We anticipate using the proceeds of this offering, our revenues from
operations and funds from future debt and equity offerings to finance these
expenses. We expect to continue to experience substantial operating losses on a
quarterly and annual basis for the foreseeable future. At current numbers of
customers and orders, the geographic density of customers and productivity of
employees, we are not profitable.
We are an early stage company operating in the e-commerce market, which makes
it difficult for investors to evaluate our business and prospects.
Prior to June 1998, we were focused on developing our web site and
constructing and equipping our first customer fulfillment center serving the
Seattle, Washington area. We did not begin commercial operations in the Seattle
area until June 1998, the Portland, Oregon area until May 1999, and the Orange
County, California area until September 1999. Our limited operating history
makes it difficult to evaluate our financial results and future plans. You must
consider our business and prospects in light of the risks and difficulties we
encounter as an early stage company in the new and rapidly evolving market of
e-commerce. Our failure to address such risks and difficulties could hurt our
business.
If a sufficient number of grocery shoppers do not accept our online shopping
service, we may never become profitable.
We have not operated profitably to date. If we do not achieve and maintain
customer volumes and sufficient density of our deliveries in our market areas
at a reasonable cost, we will not be able to increase our revenues or achieve
profitability. The market for e-commerce is new and rapidly evolving. It is
uncertain whether e-commerce will achieve and sustain high levels of demand and
market acceptance, particularly in the home delivery industry. Our success will
depend to a substantial extent on the willingness of consumers to increase
their use of online services as a means of buying groceries and other products
and services. We may not be able to convert a large number of consumers from
traditional shopping methods to online shopping for
6
<PAGE>
groceries and other consumer products. Even if we are successful in attracting
online customers, we expect that it may take several years to achieve a
sufficient base of customers in a given market. Specific factors that could
prevent widespread customer acceptance include:
. prolonged delivery time compared to the immediate receipt of products at
a traditional store;
. perceptions that online delivery services are premium services and
therefore may be more expensive than traditional grocery stores;
. customers' desire to see and touch products, particularly fresh produce,
prior to purchase;
. product selection that is less varied than customers desire;
. perceived or actual lack of security or privacy of online transactions;
and
. difficulties in making accurate and timely deliveries to customers.
Moreover, the growth of our business will depend on the growth of the
number of consumers who have access to personal computers or other systems
that can access the Internet. If e-commerce, especially in the grocery
industry, does not achieve high levels of demand and market acceptance, we may
never become profitable.
Our customer fulfillment center and delivery service model may not be readily
or cost-effectively replicable in additional geographic markets; as a result,
we may fail to expand our business effectively.
A critical part of our business strategy is to expand our business by
opening customer fulfillment centers in additional geographic markets at a
rapid pace. Our expansion strategy is dependent upon our ability to replicate
our customer fulfillment center and delivery service model in a timely and
cost-effective manner. Our strategy of using proprietary technology that can
be implemented in pre-existing warehouses to quickly open customer fulfillment
centers may not be as effective as we anticipate. In addition, our existing
customer fulfillment centers have been limited to locations on the west coast,
and we may fail to recognize specific issues associated with expansion beyond
the west coast. Because our three principal customer fulfillment centers have
been operational for less than six months, we have not yet demonstrated
whether our customer fulfillment centers and delivery service model are in
fact readily and cost-effectively replicable for long-term use or across
additional markets. If we fail to launch our service in new markets in a
timely and cost effective manner or if the market fails to accept our new
services, we may not generate the revenue we expect, and we could incur
substantial additional operating costs.
We may be unable to upgrade our existing technology in a cost-effective and
efficient manner to accommodate the increased volumes of Internet traffic and
transactions that may arise from our expansion, which could hurt our business.
The launch of the HomeGrocer.com service in additional metropolitan
locations may require us to expand and upgrade our technology, including our
integrated set of software tools and business processes for delivery
management, web site production, customer service and order fulfillment. Our
existing technology may not be able to accommodate increased volumes of
traffic and transactions that may arise in the future from our expansion into
other metropolitan locations. To the extent that customer traffic grows
substantially, we will need to expand the capacity of our web site and
transaction processing systems to accommodate a larger number of customers. If
we are unable to upgrade our technology, we may suffer from unanticipated
system disruptions, slower response times, degradation in levels of customer
service, impaired quality and speed of order fulfillment or delays in
reporting accurate financial information. We may not accurately predict the
rate or timing of increases in the use of our web site to allow us to
effectively upgrade or expand our transaction processing systems. Upgrading
our current technology could result in material expenses. If we fail to cost-
effectively and efficiently upgrade and expand our current technology, our
business will suffer.
7
<PAGE>
Expansion of our service in additional geographic markets may place a greater
than expected strain on our personnel and systems and jeopardize future
scheduled expansion.
The strain placed on our employees, management and systems by simultaneous
launches of the HomeGrocer.com service in multiple metropolitan locations may
jeopardize future scheduled launches or the quality of our service in a
particular location. The lack of sufficient resources to operate in multiple
locations could cause our quality of service or number of customers to
decline. If we fail to adequately predict and maintain the personnel and
systems necessary to successfully manage multiple customer fulfillment
centers, we may be forced to delay our expansion and our business will suffer.
We may incur unexpected costs or face substantial delays in finding adequate
facilities for our customer fulfillment centers, which could hurt our
business.
Much of our expansion is dependent on our ability to locate and lease
suitable sites for additional customer fulfillment centers. We may be unable
to find adequate facilities to lease that meet our timing, location and cost
expectations. Even if we are able to locate an adequate facility, we may face
additional delays and costs in negotiating and reviewing the lease agreement,
examining the site for compliance with governmental regulations, such as
zoning and environmental compliance, and procuring the necessary permits for
our operation. If we incur significant unexpected costs or face substantial
delays in finding adequate facilities for our customer fulfillment centers, we
may never achieve profitability.
We have limited experience in managing geographically diverse operations,
which may inhibit our growth.
Although we have expanded geographically, we have limited experience
operating or managing customer fulfillment centers in multiple regions .To
date, our existing customer fulfillment centers have been limited to locations
on the west coast of the United States, and we may fail to address different
shopping patterns or regional tastes in our service or product offering when
we expand beyond the west coast. If we fail to adequately adjust our business
plans to account for differences in regional preferences, we may not attract
the customers we need and our business would suffer. Accordingly, the success
of our current and planned expansion into new geographic regions will depend
upon a number of factors, including:
. our ability to integrate the operations of new customer fulfillment
centers into our existing operations;
. our ability to address regional differences between our customer
fulfillment centers;
. our ability to coordinate and manage distribution operations in
multiple, geographically distant locations; and
. our ability to establish and maintain adequate management and
information systems and financial controls.
Our failure to successfully address these factors could inhibit our growth.
If we encounter operational difficulties, our business could suffer erosion of
customer trust and loss of income.
Our business relies on complex systems to manage the process from the
receipt of orders to the delivery of goods to our customers. The satisfactory
performance, reliability and availability of our web site and transaction
processing systems are critical to our reputation and our ability to attract
and retain customers and maintain adequate customer service levels.
Our web site has experienced numerous outages since inception. Prior to
December 1, 1999, outage and impact data was not collected systematically,
however system outages of over three hours occurred at least
8
<PAGE>
three times in the first eleven months of 1999. From December 1, 1999 to
January 22, 2000, there were 13 web site outages that totaled 515 minutes. The
longest of these systems outages was 2 hours and 12 minutes.
In addition to outages, we occasionally experience periods of slow site
response times. We have, from time to time, also experienced operational "bugs"
in our systems and technologies that have resulted in order errors, such as
missing items and delays in deliveries. Operational bugs may arise from one or
more factors including mechanical equipment failures, computer server or system
failures, network outages, software bugs, power failures and human error. We
may not be able to correct every problem in a timely manner. We expect bugs to
continue to occur from time to time and our operations may experience
significant inefficiencies or failures. Our insurance policies may not
adequately compensate us for any losses that may occur due to any failures or
interruptions in our systems. If we are unable to meet customer demand or
service expectations as a result of operational issues, we may be unable to
develop customer relationships that result in repeat orders, which would hurt
our business.
Our communications hardware is located at a third party hosting provider and
natural disasters and any other unanticipated problems faced by our hosting
provider may reduce our capacity or damage our systems.
Our communications hardware and other computer hardware operations are
located at a web site hosting provider in Seattle, Washington. The hardware for
our warehouse management and inventory system is maintained in our 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, our hosting provider is
responsible for the allocation of our system capacity and any unanticipated
problems with the telecommunications network providers with whom it contracts
or with the systems by which it allocates capacity among its customers could
reduce our system capacity. As of January 1, 2000, we use less than ten percent
of our system capacity and our maximum system use for any five-minute period
has been 30% of our system capacity. We estimate we currently have sufficient
system capacity to process over 4,000 orders per day, and with the addition of
off-the-shelf hardware could process approximately 24,000 orders per day.
Natural disasters and any other unanticipated problems faced by our hosting
provider could adversely impact the customer shopping experience and,
consequently, our business.
We will need substantial additional capital to fund our operations and planned
expansion, and we cannot be sure that additional financing will be available.
We require substantial amounts of working capital to fund our business. In
addition, the opening of new customer fulfillment centers and the continued
development of our order fulfillment and delivery systems require significant
amounts of capital. Since our inception, we have experienced negative cash flow
from operations and expect to experience significant negative cash flow from
operations for the foreseeable future. In the past, we have funded our
operating losses and capital expenditures through proceeds from equity
offerings, debt financing and equipment leases. We expect to require
substantial additional capital to fund our expansion program and operating
expenses beyond those raised in this offering. Our future capital needs will be
highly dependent on the number and actual cost of additional customer
fulfillment centers we open, the timing of openings and the success of our
facilities once they are launched. We cannot be certain that additional
financing will be available to us on favorable terms when required, or at all.
If we are unable to obtain sufficient additional capital when needed, we could
be forced to alter our business strategy, delay or abandon some of our
expansion plans or sell assets. Any of these events would have a material
adverse effect on our business, financial condition and our ability to reduce
losses or generate profits. In addition, if we raise 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 our
common stock and our stockholders may experience dilution.
9
<PAGE>
Our limited operating history makes it difficult for us to forecast our future
financial results.
As a result of our limited operating history, it is difficult to accurately
forecast our total revenue, revenue per customer fulfillment center, gross and
operating margins, real estate and labor costs, average order size, number of
orders per day and other financial and operating data. We have a limited amount
of meaningful historical financial data upon which to base planned operating
expenses. Sales and operating results are difficult to forecast because they
generally depend on the growth of our customer base and the volume of the
orders we receive, as well as the mix of products sold. As a result, we may be
unable to make accurate financial forecasts and adjust our spending in a timely
manner to compensate for any unexpected revenue shortfall. This inability to
accurately forecast our results could cause our net losses in a given quarter
to be greater than expected and could cause a decline in the trading price of
our common stock.
Our quarter-to-quarter operating results are expected to be volatile and
difficult to predict.
We expect our quarterly operating results to fluctuate significantly in the
future based on a variety of factors including:
. the timing of our expansion plans as we build out and begin to operate
new customer fulfillment centers in additional geographic markets;
. changes in pricing policies or our product and service offerings;
. our ability to manage our 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; and
. competitive factors.
Due to these factors, we expect our operating results to be volatile and
difficult to predict. As a result, quarter-to-quarter comparisons of our
operating results may not be good indicators of our future performance. In
addition, it is possible that in the future quarterly operating results could
be below the expectations of investors of HomeGrocer.com. In that event, the
price of our common stock could decline substantially.
Our quarter-to-quarter operating results are expected to fluctuate based upon
seasonal purchasing patterns, and are therefore difficult to predict.
Our quarter-to-quarter operating results are expected to fluctuate based
upon seasonal purchasing patterns of our customers and the mix of groceries and
other products sold by us. For instance, we expect a reduction in sales in the
summer months, which is a popular vacation season in most markets, and higher
sales during the weeks preceding Thanksgiving. Because of our short operating
history and limited geographical experience, we may not accurately predict the
seasonal purchasing patterns of our customers and may experience unexpected
difficulties in matching inventory to demand by customers.
Our business will suffer if we fail to manage our growth properly.
We have expanded our operations rapidly since our inception. We continue to
increase the scope of our operations and have increased our headcount
substantially. Our total number of employees grew from approximately 100 on
January 1, 1999 to approximately 1,060 on January 1, 2000. We plan to hire a
significant number of additional employees. This growth has placed, and our
anticipated growth in future operations will continue to place, a significant
strain on our management systems and resources. Our ability to successfully
offer our service and implement our business plan in a rapidly evolving market
requires an effective planning and management process. We expect that we will
need to continue to improve our financial and managerial controls, reporting
systems and procedures, and will need to continue to expand, train and manage
our work force nationwide. Competition for highly skilled and customer service
oriented employees is intense. We may
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fail to attract, assimilate or retain qualified personnel to fulfill our
current or future needs. Our planned rapid growth places a significant demand
on management and financial and operational resources. In order to grow and
achieve financial success, we must:
. retain existing personnel;
. hire, train, manage and retain additional qualified personnel; and
. effectively manage multiple relationships with our customers, suppliers
and other third parties.
Our failure to do so would harm our business, decrease our revenue and
hinder us from being able to achieve profitability.
If we fail to generate sufficient levels of repeat orders and market
penetration, our revenues could be significantly lower than expected.
In the online retail industry, customer attrition rates, or the rates at
which subscribers cancel a service, are generally high. Although we do not
charge a subscription fee for our service, we do depend upon customers to
continue to order from us after their initial order is placed. We compete to
retain customers once they have used our service. We currently track our repeat
customers and the data we have gathered shows that since January 1, 1999,
approximately 64% of our orders have been from repeat customers. A critical
part of our business strategy depends on hiring, training and retaining
customer friendly delivery persons to interact directly with the customer on a
regular basis and promote customer loyalty. In addition, we must ensure that
our customer service agents who answer telephone and email inquiries offer
prompt attention and helpful information in response to our customers'
concerns. If we fail to provide high quality customer care and experience
significant decreases in repeat customer orders as a percentage of orders
delivered, or if we are unable to establish sufficient customer loyalty needed
for market penetration, our business could be hurt. Retention of customers is
also dependent on operational execution. If orders are incomplete or not
delivered on time, customer retention rates could decline, causing revenue and
profitability to decline as well.
We face intense competition from traditional grocery retailers and anticipate
increased competition from online grocery retailers in our existing and future
markets.
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 our principal competition, although we also face
substantial competition from convenience stores, liquor retailers, membership
warehouse clubs, specialty retailers, supercenters and drugstores. Many of our
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 we do.
In November 1999, a traditional grocery chain, Albertson's, introduced an
Internet based service in the Seattle area and Webvan, an online grocery
retailer, recently announced it will introduce its online grocery service in
the Seattle area sometime in 2000. We expect our competition will intensify as
more traditional and online grocery retailers offer competitive services, both
in Seattle and other markets.
The number and nature of competitors and the amount of competition we will
experience will vary by market area. We expect to compete with traditional
grocery stores in every market, including Albertson's, Safeway, Quality Food
Centers and Kroger, and other online grocers in most markets, including
companies such as Webvan, Peapod, HomeRuns, ShopLink.com and Streamline.com.
The principal competitive factors that affect our 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 we fail to effectively compete
in any of these areas, we may lose existing and potential customers and face
decreased demand for our products and services, which would hurt our business.
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If our efforts to build strong brand identity and customer loyalty are not
successful, our business will suffer.
We believe that customers may direct future grocery purchases to those
online and traditional grocers for whose brands they feel loyalty and personal
affinity. If we do not increase spending substantially to create and maintain
brand loyalty, we may not attract and retain consumers and respond to
competitive pressures. We believe the cost of our advertising campaigns could
increase substantially in the future. The costs required to successfully
establish our brand may exceed the benefits associated with creating our brand
identity and loyalty. If we fail to establish and maintain brand identity and
brand loyalty, we may not attract the customers we need in order to be
profitable.
Customer loyalty will also depend on our success in consistently providing a
high quality shopping experience for purchasing groceries and other products.
If consumers do not perceive our service offerings to be of high quality, or if
we introduce new services that are not favorably received by consumers, the
value of the HomeGrocer.com brand could be harmed. Any loss of value of our
brand could decrease the attractiveness of HomeGrocer.com to consumers, which
could harm our reputation, reduce our sales and cause us to lose customers.
We do not have long term contracts with our suppliers and could face
disruptions in our supply of products.
We purchase products from a network of suppliers, wholesalers, brokers and
distributors. We do not have long term or exclusive contracts with these
suppliers. The loss of any of our suppliers could cause disruptions in our
supply of products and harm our business. We purchase a number of top brands
and high volume items directly from manufacturers and may increase our use of
direct suppliers as our product volumes increase with additional customer
fulfillment centers. We also utilize premium specialty suppliers and local
sources for gourmet foods, traditional and organic produce, bakery items, fish
and meats and floral products. From time to time, we may experience difficulty
in obtaining sufficient product allocations from a key vendor. In addition, our
key vendors may establish their own online retailing efforts, which may impact
our ability to obtain sufficient product allocations from these vendors. Many
of our key vendors also supply products to the retail grocery industry and our
online competitors. If we are unable to obtain sufficient quantities of
products in a timely fashion from our key vendors to meet customer demand, our
business would suffer.
At each of our customer fulfillment centers, a significant percentage of our
current product offering is sourced through a single supplier and the loss of
that supplier could cause disruptions in our supply and harm our business.
We are dependent on single suppliers for a significant percentage of our
products. Approximately 47% of our current product offering in the Seattle and
Portland markets is sourced through a single wholesaler, SuperValu. For our
three new customer fulfillment centers in Orange County, Certified Grocers is
our principal supplier and supplies approximately 50% of our current product
offering in that market. SuperValu does not operate in Southern California and
Certified Grocers does not operate in Seattle or Portland. The loss of either
of these two suppliers could cause disruptions in our supply and harm our
business.
The loss of the services of one or more of our key personnel would seriously
harm our business.
The loss of the services of one or more of our key personnel, including Mary
Alice Taylor, our chairman and chief executive officer, and J. Terrence
Drayton, our president, could seriously harm our business. We depend on the
continued services and performance of our senior management and other key
personnel. In addition, Mr. Drayton and Ken Deering, our vice president of
Storefront, are Canadian citizens who hold visas to work in the United States.
If the Immigration and Naturalization Service were to deny a renewal of either
of these visas and we were to lose the services of either of these officers,
our business could suffer.
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We may not be able to hire and retain qualified employees necessary to support
our business, which would threaten our future growth.
Our future success depends upon attracting and retaining the continued
service of our executive officers, delivery persons, and other key software
development, merchandising, marketing and support personnel. Our relationships
with all of our employees are at will. Additionally, there are low levels of
unemployment in the Seattle, Portland, and Orange County/Los Angeles areas, as
well as in many of the regions in which we plan to operate. These low levels of
unemployment have led to upward pressure on wage rates, which can make it more
difficult and costly for us to attract and retain qualified employees. The
failure to attract and retain qualified employees, could adversely affect our
business.
Several key members of our management team have only recently joined us and if
they are not successfully integrated into our business or fail to work together
as a management team, our business will suffer.
Several key members of our management team have joined us since September 1,
1999, including Mary Alice Taylor, our chairman and chief executive officer,
Daniel R. Lee, our senior vice president and chief financial officer, Rex L.
Carter, our senior vice president of systems development & technology, Corwin
J. Karaffa, our senior vice president of operations, David A. Pace, our senior
vice president of people capability, and Kristin H. Stred, our senior vice
president, general counsel and secretary. If we do not effectively integrate
these executives and key personnel into our business, or if they do not work
together with existing personnel as a management team to enable us to implement
our business strategy, our business will suffer.
We may not be able to obtain required licenses or permits for the sale of
alcohol in a cost-effective manner or at all, which would hurt our sales and
profitability.
For the fiscal year ended January 1, 2000, sales of alcohol accounted for
approximately 4% of our sales. We will be required to obtain state, and in some
cases county and municipal, licenses and permits for the sale and delivery of
alcohol in new markets. Some jurisdictions do not allow companies such as ours
to sell alcohol. We cannot assure you that we will be able to obtain any or all
required permits or licenses in a timely manner, or at all. We 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, which would restrict the interstate sale of alcoholic beverages
over the Internet. Changes to existing laws or our inability to obtain required
permits or licenses could prevent us from selling alcohol in one or more of our
geographic markets or in a portion of those markets. In those locations where
we cannot obtain alcohol permits or licenses, we will be unable to sell these
items and will lose an opportunity to increase revenue.
We are required to verify the age of purchasers of our alcohol and tobacco
products and the failure to do so may have a negative impact on our reputation
and make us vulnerable to liability claims.
We are required to verify the age of purchasers of our alcohol and tobacco
products. If our delivery personnel fail to request the proper identification
or if false identification cards are presented by the purchaser, we 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 our reputation and any liability
claims could require us to spend significant time and money in litigation.
We may incur significant costs or experience product availability delays in
complying with regulations applicable to the sale of food products, which may
hurt our business.
As of the date of this prospectus, we are not regulated by the U.S.
Department of Agriculture, or USDA. Whether the handling of food items in our
customer fulfillment centers, such as meat and fish, will subject us to USDA
regulation in the future will depend on several factors, including whether we
sell food products on a
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wholesale basis or whether we obtain food products from non-USDA inspected
facilities. In the future the USDA may require costly changes to our food
handling operations. We are also required to comply with local health
regulations concerning the preparation and packaging of any prepared food
items, such as deli salads that we prepare on site. Applicable federal, state
or local regulations may cause us to incur substantial compliance costs or
delay the availability of items at one or more of our customer fulfillment
centers. In addition, any inquiry or investigation from a food regulatory
authority could have a negative impact on our reputation. The occurrence of any
of these events could delay or impair our expansion plans and could cause us to
lose customers.
We depend on only five customer fulfillment centers to fulfill customer orders;
the loss or interruption of operations of any of these centers could
significantly harm our business.
We currently operate five customer fulfillment centers. Of the five, one
customer fulfillment center is located in the Seattle, Washington area, one
customer fulfillment center is located in the Portland, Oregon area, and three
customer fulfillment centers are located in the Orange County/Los Angeles,
California area. Our business could be hurt if any external factors affect our
current customer fulfillment centers in any of these areas. Such factors may
include:
. prolonged power or equipment failures;
. traffic congestion;
. prolonged gasoline shortages;
. disruptions in the transportation infrastructure including bridges,
tunnels and roads;
. refrigeration failures; or
. fires, floods, earthquakes, adverse weather conditions or other
disasters.
Since each of our current customer fulfillment centers is located in an
earthquake-prone area, we are particularly susceptible to the risk of damage
to, or total destruction of, these customer fulfillment centers and the
surrounding transportation infrastructure. We may not be adequately insured to
cover the total amount of any losses caused by any of the above events. In
addition, we are not insured against any business interruptions caused by
earthquakes or to major transportation infrastructure disruptions or other
events that do not occur on our premises.
We could face liability based on the actions of our drivers.
We use our own professional drivers to deliver products from our customer
fulfillment centers to our customers as well as to transport non-perishable
goods between customer fulfillment center. We may face potential liability
related to the actions of our delivery drivers while on duty. For example, one
of our drivers was involved in a motor vehicle accident that recently resulted
in a lawsuit being filed against us for compensatory damages. This proceeding
is currently pending. If negligent, illegal or unprofessional conduct of our
drivers were to occur, it could harm our reputation and our business.
Our reputation and business will be harmed if our online security measures
fail.
Our relationships with our customers may be adversely affected if the
security measures that we use to protect their personal information, such as
credit card numbers, are ineffective. We rely on security and authentication
technology to perform real-time credit card authorizations. We cannot predict
whether events or developments will result in a compromise or breach of the
technology we use to protect a customer's personal information. Furthermore,
our computer servers may be vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions. We may need to expend significant
additional capital and other resources to protect against a security breach or
to alleviate problems caused by any breaches. We cannot assure you that we can
prevent all security breaches, and any failure to do so could hurt our
reputation and business.
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We may need to make costly changes in how we conduct our business if government
regulation of the Internet and e-commerce increases.
The adoption or modification of laws or regulations relating to the
Internet, e-commerce and large-scale retail store operations could adversely
affect the manner in which we currently conduct our 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 us. 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 we are required
to comply with new regulations or legislation or new interpretations of
existing regulations or legislation, this compliance could cause us to incur
additional expenses or alter our business model.
We may face product claims that create liability and adverse publicity.
Grocery and other related products can contain contaminants due to inherent
defects in the products or improper storage or handling. If any of the products
that we sell causes harm to any of our customers, we could be vulnerable to
product liability lawsuits. If we are found liable under a product liability
claim, or even if we successfully defend ourselves against this type of a
claim, we could be forced to spend a substantial amount of money in litigation
expenses, our reputation could suffer and customers may substantially reduce
their orders or stop ordering from us.
If the protection of our patents, trademarks and proprietary rights is
inadequate, our business may be seriously harmed.
We regard patents, copyrights, service marks, trademarks, trade secrets and
similar intellectual property as important to our success. We rely on patent,
trademark and copyright law, trade secret protection and confidentiality or
license agreements with our employees, customers, partners and others to
protect our proprietary rights; however, the steps we take to protect our
proprietary rights may be inadequate and legal means afford only limited
protection. For example, our confidentiality and license agreements may be
unenforceable in some jurisdictions and, as a result, offer no protection of
our proprietary rights. In addition, traditional legal protections may not be
applicable in the Internet context. Because our business and technology have
developed rapidly since our incorporation, the ownership of proprietary rights
in our technology may be subject to uncertainty. Our failure to protect our
proprietary rights could materially harm our business and competitive position.
We currently have no patents. On January 10, 2000, we filed three
provisional patent applications with the U.S. Patent and Trademark Office. From
time to time, we may decide to file additional patent applications relating to
aspects of our proprietary technology. Other parties may independently develop
similar or competing technology or design around any patents that may be issued
to us. We cannot assure you that any of our pending provisional patent
applications will be approved, that any issued patents will protect our
intellectual property or that any issued patents will not be challenged by
third parties.
Intellectual property claims against us can be costly and could result in the
loss of significant rights.
Intellectual property rights are becoming increasingly important to us and
other e-commerce retailers. Many companies are devoting significant resources
to developing patents that could affect many aspects of our business. Other
parties may assert infringement or unfair competition claims against us that
could relate to any aspect of our technologies, business processes or other
intellectual property. We cannot predict whether third parties will assert
claims of infringement against us, the subject matter of any of these claims,
or whether these
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assertions or prosecutions will harm our business. If we are forced to defend
ourselves against any of these claims, whether they are with or without merit
or are determined in our favor, then we may face costly litigation, diversion
of technical and management attention, an inability to use our current web site
technology or product shipment delays. As a result of a dispute, we may have to
develop non-infringing technology or enter into royalty or licensing
agreements. These royalty or licensing agreements, if required, may be
unavailable on terms acceptable to us, or at all. If there is a successful
claim of infringement against us and we are unable to develop non-infringing
technology or license the infringed or similar technology on a timely basis,
our business and competitive position may be hurt.
We have received a letter on behalf of a graphic artist alleging that our
corporate peach logo violates that artist's copyright. This claim, even if not
meritorious, could be expensive and could divert our attention from our core
business operations. If we become liable to the artist for copyright
infringement, we could be required to pay substantial damages, obtain a license
from the artist or modify our corporate logo, any of which could be expensive
or compromise our brand identity.
We may not be able to protect our domain names against all infringers, which
could decrease the value of our brand name and proprietary rights.
We currently own the Internet domain name "homegrocer.com," as well as
various other related names. Domain names generally are regulated by Internet
regulatory bodies. The regulation of domain names in the United States and in
foreign countries is subject to change. Regulatory bodies could establish
additional top-level domains, appoint additional domain name registrars or
modify the requirements for holding domain names. The relationship between
regulations governing domain names and laws protecting trademarks and similar
proprietary rights is unclear. Therefore, we could be unable to prevent third
parties from acquiring domain names that infringe or otherwise decrease the
value of our brand name, trademarks and other proprietary rights.
We may be liable for the Internet content that we publish.
As a publisher of online content, we face potential liability based on the
nature and content of materials that we publish or distribute. If we face
liability, then our reputation and our business may suffer.
After this offering, our officers and directors and some existing stockholders
will control approximately 65% of our outstanding common stock and could
prevent or delay beneficial corporate actions.
After this offering, our executive officers and directors and their
immediate family members and affiliated venture capital funds beneficially will
own or control approximately 65% of our outstanding common stock. Individually,
after this offering, Amazon.com will beneficially own approximately 22% of our
outstanding common stock. As a result, these stockholders are able to exercise
significant control over all matters requiring stockholder approval, including
the election of directors and approval of significant corporate transactions,
which could delay or prevent another entity from acquiring or merging with us.
See "Principal Stockholders."
Provisions of our charter documents and state law could discourage our
acquisition by a third party.
Specific provisions of our articles of incorporation and bylaws, and
Delaware and Washington law could make it more difficult for a third party to
acquire HomeGrocer.com, even if doing so would be beneficial to our
shareholders.
Our proposed Washington articles of incorporation and bylaws provide for the
establishment of a classified board of directors, the elimination of the
ability of shareholders to call special meetings and of cumulative voting for
directors, and procedures for advance notification of shareholder proposals.
The presence of a
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classified board and the elimination of cumulative voting may make it more
difficult for an acquirer to replace our board of directors. Further, the
elimination of cumulative voting substantially reduces the ability of minority
shareholders to obtain representation on the board of directors.
Upon completion of this offering, our board of directors will have the
authority to issue up to 10,000,000 shares of preferred stock and to determine
the price, rights, preferences, privileges and restrictions, including the
voting rights, of those shares without any further vote or action by our
shareholders. The issuance of preferred stock could have the effect of
delaying, deferring or preventing a change of control of HomeGrocer.com and may
adversely affect the market price of our common stock.
Washington law imposes restrictions on some transactions between a
corporation and significant shareholders. Chapter 23B.19 of the Washington
Business Corporation Act prohibits a "target corporation," with some
exceptions, from engaging in particular significant business transactions with
an "acquiring person," which is defined as a person or group of persons that
beneficially owns 10% or more of the voting securities of the target
cooperation, 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 prior to the acquisition.
Prohibited transactions include, among other things:
. a merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from the acquiring person;
. termination of 5% or more of the employees of the target corporation as
a result of the acquiring person's acquisition of 10% or more of the
shares; or
. allowing the acquiring person to receive any disproportionate benefit as
a shareholder.
A corporation may not opt out of this statute. This provision may have the
effect of delaying, deterring or preventing a change in control of
HomeGrocer.com.
Prior to our anticipated reincorporation from the state of Delaware into the
state of Washington, we will be restricted by the anti-takeover provisions of
the Delaware General Corporation Law, which regulates corporate acquisitions.
Delaware law prevents us from engaging in a business combination with any
interested stockholder. For purposes of Delaware law, a business combination
includes a merger or consolidation or the sale of more than 10% of our assets.
In general, Delaware law defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of a
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person. Under Delaware law, a Delaware corporation
may opt out of the anti-takeover provisions. We do not intend to opt out of
these anti-takeover provisions of Delaware law.
The foregoing provisions of our charter documents and state law could have
the effect of making it more difficult or more expensive for a third party to
acquire, or could discourage a third party from attempting to acquire, control
of HomeGrocer.com. These provisions may therefore have the effect of limiting
the price that investors might be willing to pay in the future for our common
stock. For a more complete discussion of these provisions, see "Description of
Capital Stock."
As an online grocery company, our stock price could be particularly volatile
and could decline following this offering.
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. You may not be able to
resell your shares at or above the initial public offering price. The price at
which our common stock will trade after this offering is likely to be volatile
and may fluctuate substantially due to conditions and trends in e-commerce
industries, particularly the online grocery industry.
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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 our common stock may cause our stock price to decline.
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could decline. Based on shares outstanding as of January 1, 2000, upon
completion of this offering we will have outstanding 124,812,274 shares of
common stock, assuming no exercise of the underwriters' over-allotment option.
Of these shares, almost all of the 22,000,000 shares of our common stock sold
in this offering will be freely tradable, without restriction, in the public
market.
In addition, approximately 8,635,590 shares under outstanding options and
warrants and approximately 1,787,122 shares available for grant under our stock
option plans as of January 1, 2000 will become eligible for sale in the public
market once permitted by provisions of various vesting agreements, lock-up
agreements and Rules 144 and 701 under the Securities Act, as applicable. See
"Shares Eligible for Future Sale."
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that may be affected by
a number of risks and uncertainties, many of which are beyond our control. Some
of these forward-looking statements are attributable to third parties and
relate to their statements regarding the growth of the e-commerce market and
the number of Internet users. All statements, other than statements of
historical facts included in this prospectus, regarding our strategy, future
operations, financial position, estimated revenues or losses, projected costs,
prospects, plans and objectives of management are forward-looking statements.
When used in this prospectus, the words "will," "believe," "anticipate,"
"intend," "estimate," "expect," "project" and similar expressions are intended
to identify forward-looking statements, although not all forward-looking
statements contain these identifying words. All forward-looking statements
speak only as of the date of this prospectus. Although we believe that our
plans, intentions and expectations reflected in or suggested by the forward-
looking statements we make in this prospectus are reasonable, we can give no
assurance that these plans, intentions or expectations will be achieved. We
disclose some of the important factors that could cause our actual results to
differ materially from our expectations under "Risk Factors" and elsewhere in
this prospectus. These cautionary statements qualify all forward-looking
statements attributable to us or persons acting on our behalf.
USE OF PROCEEDS
Our net proceeds from the sale of the shares of common stock in this
offering are estimated to be $226.1 million after deducting the underwriting
discounts and commissions and estimated offering expenses. If the underwriters'
over-allotment option is exercised in full, we estimate that our net proceeds
will be approximately $260.2 million.
The principal purpose of this offering is to fund the first phase of our
expansion program. The secondary purposes of this offering are to increase our
working capital, create a public market for our common stock, facilitate our
future access to the public capital markets and increase our visibility in the
marketplace. We expect to use the net proceeds of the offering for expansion
and general corporate purposes. Pending such uses, we intend to invest the net
proceeds from the offering in interest-bearing, investment grade securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain all available funds and reinvest any future earnings
in the growth of our business and do not anticipate paying any cash dividends
in the foreseeable future.
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CAPITALIZATION
The actual column in the following table sets forth HomeGrocer.com's
capitalization as of January 1, 2000. The pro forma column reflects the
conversion of all outstanding shares of preferred stock into 73,206,738 shares
of common stock.
The pro forma as adjusted column in the following table gives effect to:
. The anticipated filing of an amendment to our articles of incorporation
to provide for authorized capital stock of 1,000,000,000 shares of
common stock and 10,000,000 shares of undesignated preferred stock;
. The conversion of all outstanding shares of preferred stock into shares
of common stock upon the closing of this offering; and
. The receipt of the net proceeds from the sale by HomeGrocer.com of the
shares of common stock at the assumed initial public offering price of
$11.00 per share, after deducting underwriting discounts and commissions
and estimated offering expenses.
<TABLE>
<CAPTION>
January 1, 2000
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands except share and
per share amounts)
<S> <C> <C> <C>
Cash, cash equivalents and marketable
securities.................................... $ 77,568 $ 77,568 $303,740
======== ======== ========
Current portion of long-term obligations....... 4,061 4,061 4,061
======== ======== ========
Long-term obligations, less current portion.... 17,790 17,790 17,790
-------- -------- --------
Shareholders' equity:
Convertible preferred stock, $0.001 par
value; authorized: 78,357,142 shares actual
and pro forma, 10,000,000 shares pro forma
as adjusted; issued and outstanding:
73,206,738 shares actual, none pro forma and
pro forma as adjusted....................... 73 -- --
Common stock, $0.001 par value; authorized:
130,000,000 shares actual and pro forma,
1,000,000,000 shares pro forma as adjusted;
issued and outstanding: 29,605,536 shares
actual, 102,812,274 shares pro forma and
124,812,274 pro forma as adjusted........... 30 103 125
Additional paid-in capital................... 236,239 236,239 462,297
Notes receivable from officers for common
stock....................................... (3,231) (3,231) (3,231)
Deferred stock-based compensation............ (33,664) (33,664) (33,664)
Accumulated deficit.......................... (87,300) (87,300) (87,300)
-------- -------- --------
Total shareholders' equity................. 112,147 112,147 338,227
-------- -------- --------
Total capitalization..................... $129,937 $129,937 $356,017
======== ======== ========
</TABLE>
The common stock to be outstanding after this offering is based on shares
outstanding as of January 1, 2000 and excludes:
. options outstanding to purchase a total of 5,886,342 shares of common
stock at a weighted average exercise price of $1.69 per share and an
additional 1,787,122 shares of common stock available for grant under
our stock option plans; and
. warrants outstanding to purchase a total of 2,749,248 shares of common
stock with a weighted average exercise price of $1.00 per share (of
which warrants to purchase 2,015,666 shares are expected to be exercised
prior to completion of the offering).
20
<PAGE>
DILUTION
Our pro forma net tangible book value as of January 1, 2000 was $112.1
million or approximately $1.09 per share of common stock. Pro forma net
tangible book value per share represents the amount of our total tangible
assets less total liabilities, divided by the number of shares of common stock
outstanding, after giving effect to the conversion of all shares of outstanding
preferred stock into 73,206,738 shares of common stock upon the closing of this
offering. Pro forma net tangible book value per share excludes options and
warrants outstanding as of January 1, 2000. Dilution in pro forma net tangible
book value per share represents the difference between the amount per share
paid by purchasers of shares of common stock in the offering made hereby and
the net tangible book value per share of common stock immediately after the
completion of this offering. After giving effect to the sale of the shares of
common stock offered by us at the assumed initial public offering price of
$11.00 per share and after deducting the underwriting discount and estimated
offering expenses, the net tangible book value of HomeGrocer.com at January 1,
2000 would have been $338.2 million or approximately $2.71 per share. This
represents an immediate increase in net tangible book value of $1.62 per share
to existing stockholders as of January 1, 2000 and an immediate dilution of
$8.29 per share to new investors of common stock in this offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share .................. $11.00
Pro forma net tangible book value before the offering........... $1.09
Increase attributable to new investors.......................... 1.62
-----
Pro forma net tangible book value after the offering.............. 2.71
------
Dilution per share to new investors............................... $ 8.29
======
</TABLE>
The following table summarizes, as of January 1, 2000, the differences
between the existing stockholders and new investors with respect to the number
of shares of common stock purchased from us, the total consideration paid to us
and the average price per share paid.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------- -------------------- Average Price
Number Percent Amount Percent Per Share
----------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 102,812,274 82.4% $186,002,000 43.5% $ 1.81
New investors........... 22,000,000 17.6 242,000,000 56.5 11.00
----------- ----- ------------ -----
Totals................ 124,812,274 100.0% $428,002,000 100.0%
=========== ===== ============ =====
</TABLE>
The number of shares held by new public investors will be 22,000,000 or
approximately 17.6% (25,300,000 shares, or approximately 19.7% if the
underwriters' over-allotment option is exercised in full) of the total number
of shares of common stock outstanding after this offering. See "Principal
Stockholders" for a more detailed description of our stockholders prior to this
offering.
The tables above assume no exercise of stock options and warrants
outstanding at January 1, 2000. As of January 1, 2000, there were:
. options outstanding to purchase a total of 5,886,342 shares of common
stock at a weighted average exercise price of $1.69 per share and an
additional 1,787,122 shares of common stock available for grant under
our stock option plans.
. warrants outstanding to purchase a total of 2,749,248 shares of common
stock with a weighted average exercise price of $1.00 per share (of
which we expect warrants to purchase 2,015,666 shares will be exercised
immediately prior to completion of the offering); and
To the extent outstanding options and warrants are exercised, there will be
further dilution to new investors.
21
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the financial statements of HomeGrocer.com and the related
notes included elsewhere in this 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 3, 1998,
January 2, 1999 and January 1, 2000 have been derived from the audited
financial statements of HomeGrocer.com included elsewhere in this 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.com not included in this prospectus,
which has been audited by Ernst & Young LLP, Independent Auditors. The
historical results are not necessarily indicative of results to be expected for
any future period.
<TABLE>
<CAPTION>
51 Weeks From
January 15, 1997 52 Weeks Ended
(Inception) to January 2, 52 Weeks Ended
January 3, 1998 1999 January 1, 2000
---------------- -------------- ---------------
(in thousands, except share and per share
amounts)
<S> <C> <C> <C>
Statement of Operations Data:
Net sales...................... $ -- $ 1,094 $ 21,648
Cost of sales.................. -- 1,018 19,515
----------- ----------- -----------
Gross profit................. -- 76 2,133
Selling, general, and
administrative expenses....... 1,064 7,455 59,208
Stock-based compensation
expense....................... 230 412 22,201
----------- ----------- -----------
Loss from operations......... (1,294) (7,791) (79,276)
Other income/(expense), net.... (61) (118) 1,240
----------- ----------- -----------
Net loss..................... $ (1,355) $ (7,909) $ (78,036)
=========== =========== ===========
Basic and diluted net loss per
share......................... $ (0.14) $ (0.72) $ (5.17)
=========== =========== ===========
Pro forma basic and diluted net
loss per share (1)............ $ (1.19)
===========
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 (1)........ 65,382,807
===========
</TABLE>
<TABLE>
<CAPTION>
As of
------------------------------------------------
January 3, 1998 January 2, 1999 January 1, 2000
--------------- --------------- ---------------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents and
marketable securities....... $ 313 $1,084 $ 77,568
Working capital (deficit).... (1,296) 373 66,593
Total assets................. 997 3,558 146,929
Long-term obligations, less
current portion............. -- 880 17,790
Total shareholders' equity
(deficit).................... (643) 1,387 112,147
</TABLE>
- --------
(1) See note 1 of notes to financial statements for an explanation of the
determination of the number of weighted average shares used to compute pro
forma net loss per share amounts.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This prospectus contains statements of a forward-looking nature relating to
future events or the future financial performance of HomeGrocer.com.
Prospective investors are cautioned that such statements involve risks and
uncertainties, and that actual events or results may differ materially. In
evaluating such statements, prospective investors should specifically consider
the various factors identified in this prospectus, including the matters set
forth under the caption "Risk Factors," which could cause actual results to
differ materially from those indicated by such forward-looking statements.
Overview
HomeGrocer.com is a leading retailer of grocery and other consumer products
on the Internet. We operate our 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 to local supermarket prices. Our
goals are to expand nationally and to be our customers' preferred regular
provider of household consumer products. Our technology and the design of our
customer fulfillment centers, permit us to rapidly expand our service into new
markets. We believe that our core grocery business provides us with a strong
platform to expand into other product and service areas.
We commercially launched our Storefront at www.homegrocer.com and began
delivering groceries to the Seattle market from our Bellevue, Washington
customer fulfillment center in June 1998. We have rapidly expanded since our
initial launch of service and currently serve customers in two additional
markets: Portland, Oregon since May 1999 and Orange County/Los Angeles,
California since September 1999. We relocated our Bellevue customer fulfillment
center to a significantly larger and more automated facility in Renton,
Washington on October 31, 1999, and opened second and third customer
fulfillment centers in the Orange County/Los Angeles, California market in
November 1999 and January 2000. We expect to begin service in eight to ten
additional metropolitan areas, including Dallas, Texas; Southern Connecticut;
San Diego, California; Atlanta, Georgia; and the Bay Area, California in the
next 12 months. We also expect to open several additional customer fulfillment
centers in the Orange County/Los Angeles area during 2000.
Since our inception, we have devoted significant resources to the following
activities:
. developing our business plan;
. designing, implementing and enhancing our Storefront;
. recruiting and training a team of experienced employees;
. designing and integrating business with technology;
. designing, equipping and operating our customer fulfillment centers;
. establishing relationships with our vendors;
. promoting the HomeGrocer.com brand; and
. raising capital.
We have incurred net losses of $87.3 million from inception to January 1,
2000. We believe that we will continue to incur net losses for the foreseeable
future and that the amount of these losses will increase significantly from
current levels. Many of our first-time customers cite word-of-mouth and the
visibility of our distinctive trucks in their neighborhoods as the foremost
factors attracting them to our Storefront. Hence, sales in new markets increase
gradually as word-of-mouth spreads and more people see our trucks.
We have operated in the Seattle market for 20 months, and while revenues
have grown steadily over this period, our Seattle operations are not yet cash
flow positive. We believe that our operations in subsequent markets will
achieve positive operating cash flow faster than our Seattle operations, in
part because of the knowledge obtained in the Seattle market. We also
anticipate that increased customer acceptance of the Internet and the national
growth in online grocery shopping will enable our revenues to grow at a more
rapid pace in new markets. Many of the markets where we intend to begin
operations in the next few years also have larger populations than the Seattle
metropolitan area.
23
<PAGE>
As we expand our operations into new markets over the next several years,
our business will consist of a mix of mature and new customer fulfillment
centers. Our growth plans over the next several years are aggressive and will
likely result in substantially greater losses from a large number of new
facilities than the earnings anticipated from a smaller number of mature
facilities. As such, we anticipate reporting substantial net losses over the
next few years, with the magnitude of such losses being related to the speed,
scope and success of our expansion plans.
We estimate that our cash on hand and the estimated proceeds of this
offering are sufficient to establish more than 10 to 12 new customer
fulfillment centers. This takes into consideration the costs of leasehold
improvements in each customer fulfillment center, the anticipated negative cash
flows from each customer fulfillment center in its initial several quarters of
operation and corporate overhead. We anticipate opening numerous additional
customer fulfillment centers in each of the next several years. These expansion
plans will require significantly more capital than the proceeds of this
offering. If capital is not available at some future date at a reasonable cost,
we may decide to reduce the number of new customer fulfillment centers that are
developed by us in future years. We believe that a reduction in the speed or
scope of our expansion could result in our achieving profitability at an
earlier date than would otherwise be possible. However, the level of such
profitability might ultimately be less than what might be achieved if capital
is available and we are able to execute our entire expansion strategy.
We have a limited operating history on which to base an evaluation of our
business and prospects. Our prospects must be considered in light of the risks,
expenses and difficulties encountered by companies in their early stage of
development, particularly companies in new and rapidly evolving markets like e-
commerce. See "Risk Factors" for a more complete description of the many risks
we face.
Results of Operations
In view of the rapidly evolving nature of our business and our limited
operating history, we believe that period-to-period comparisons of our
operating results, including our gross profit and operating expenses as a
percentage of net sales, are not necessarily meaningful and should not be
relied upon as an indication of future performance. We report on a fiscal year
basis that ends on the Saturday nearest December 31. Our financial results are
summarized below.
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1997 1998 1999
------- ------- ---------
(in thousands)
<S> <C> <C> <C>
Statement of Operations Data:
Net sales.......................................... $ -- $ 1,094 $ 21,648
Cost of sales...................................... -- 1,018 19,515
------- ------- ---------
Gross profit..................................... -- 76 2,133
Selling, general, and administrative............... 1,064 7,455 59,208
Stock-based compensation expense................... 230 412 22,201
------- ------- ---------
Loss from operations............................. (1,294) (7,791) (79,276)
Interest expense................................... (61) (172) (384)
Interest income.................................... -- 54 2,232
Other expense...................................... -- -- (608)
------- ------- ---------
Net loss......................................... $(1,355) $(7,909) $(78,036)
======= ======= =========
</TABLE>
Fiscal 1998 vs. Fiscal 1999
Net Sales. Our 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
24
<PAGE>
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 we launched our 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. Our 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. We currently
anticipate 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, our 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 timeframe resulted in a fourth quarter gross profit percentage
of 1.5%. Our sales in the fourth quarter exceeded our 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. Our 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 our 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. Selling, general and administrative
expenses are expected to continue to increase in absolute dollars as we
continue to execute our expansion plans, aggressively market the HomeGrocer.com
brand and continue enhancing and expanding our information systems.
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. We recorded total deferred stock-based compensation of
$54.0 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 $20.4 million for
fiscal 1999. Additionally, $1.8 million of stock-based compensation expense was
recorded in connection with stock options granted to outside consultants. The
$33.6 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 $19.2 million for fiscal year 2000, $9.4 million for fiscal year
2001, $4.2 million for fiscal year 2002 and $803,000 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 our sale of equity.
25
<PAGE>
Interest Expense. Interest expense increased from $172,000 in fiscal 1998 to
$384,000 in fiscal 1999 as a result of borrowing arrangements we 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
our 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 our operating losses. As of January 1, 2000, we
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, we incurred an ownership change
pursuant to applicable regulations under the Internal Revenue Code of 1986, as
amended. Therefore, our use of $11.5 million of losses incurred through the
date of these ownership changes will be limited to approximately $1.0 million
per year during the carryforward period. Our anticipated initial public
offering is not expected to cause an additional ownership change. We have
provided a full valuation allowance on the deferred tax asset, consisting
primarily of net operating loss carryforwards, because we believe there is
substantial uncertainty as to our ability to use such tax loss carryforwards.
Fiscal 1997 vs. Fiscal 1998
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. We commercially launched our storefront and began delivering to
customers in the Seattle market in June 1998.
Gross Profit. The fiscal 1998 gross profit is 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 primarily as a result of costs associated with launching our
storefront and commencing delivery operations in June 1998. In fiscal 1998, we
increased headcount in all functional areas, increased advertising and
promotional expenditures and began leasing our first customer fulfillment
center, delivery vehicles and corporate headquarters.
Stock-Based Compensation Expense. Stock-based compensation expense for
fiscal 1997 and fiscal 1998 related to stock options granted to outside
consultants in exchange for services rendered.
Interest Income. Interest income increased as our average cash and cash
equivalents balance increased. Funds for investment were provided primarily
from the sale of equity.
Interest Expense. Interest expense increased as a result of borrowing
arrangements we entered into primarily to finance purchases of fixed assets and
fund operating activities.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through sales of
preferred stock with net cash proceeds of $168.4 million through January 1,
2000.
Net cash used in operating activities was $7.5 million and $45.7 million for
fiscal 1998 and fiscal 1999, respectively. Net cash used in operating
activities for each of these periods consisted primarily of our net losses,
offset in part by non-cash charges and increases in accounts payable and other
current liabilities.
Net cash used in investing activities was $1.3 million and $81.5 million for
fiscal 1998 and fiscal 1999, respectively. Net cash used in investing
activities for both periods consisted of purchases of fixed assets and, for
fiscal 1999, also consisted of purchases of marketable securities and an
increase in deposits and restricted cash balances. The restricted cash balances
were a result of deposits required to support letters of credit.
26
<PAGE>
Net cash provided by financing activities was $9.6 million and $165.9
million for fiscal 1998 and fiscal 1999, respectively. Net cash provided by
financing activities consisted primarily of proceeds from sales of equity.
As of January 1, 2000, we had $77.6 million of cash and cash equivalents and
marketable securities. As of that date, our principal commitments consisted of
minimum lease payments due under operating leases totaling approximately $92.2
million over 15 years and agreements to purchase additional delivery vehicles
in fiscal 2000 totaling approximately $35.6 million. We anticipate a
substantial increase in our capital expenditures and lease commitments as we
construct customer fulfillment centers and begin operations in new markets.
We currently expect that the net proceeds of this offering, together with
our available funds, will be sufficient to meet our anticipated needs for
working capital and capital expenditures for the next 12 months. However, we
would be required to scale back our expansion plans if we don't receive the
proceeds from this offering or some other form of external financing. Our
capital needs and the pace of our expansion plans are highly interdependent. We
anticipate that, before the end of 2001, we will need to raise additional funds
through the issuance of equity, debt or other securities or we will have to
reduce our expansion plans. Such securities may have rights, preferences or
privileges senior or equal to those of the rights of our common stock and our
shareholders may experience dilution. We cannot be certain that additional
financing will be available to us on acceptable terms when required, or at all.
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 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. We adopted SOP 98-1 on January
3, 1999 and there was no significant impact on our financial position or
operating results upon adoption.
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 requires costs of start-up activities and organization costs be expensed
as incurred. We adopted SOP 98-5 on January 3, 1999 and there was no
significant impact on our financial position or operating results upon
adoption.
In December 1999, the SEC staff released Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements, which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements.
SAB No. 101 did not impact the way we currently recognize revenue.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. 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. We do not expect that the
adoption of SFAS No. 133 will have a material impact on our financial
statements because we do not currently hold any derivative instruments.
In January 2000, the Emerging Issues Task Force ("EITF") reached a consensus
on EITF Statement No. 99-17 "Accounting For Barter Transactions" involving a
nonmonetary exchange of advertising. This EITF consensus does not impact our
results of operations as we do not have any advertising barter transactions.
Year 2000 Issues
The impact of the Year 2000 on our technology systems to date has been
insignificant. The total cost associated with our Year 2000 remediation effort
has not been material and is not expected to be material in future periods. On
and after January 1, 2000, our customers were able to access our web site and
we were subsequently able to assemble and deliver their orders.
27
<PAGE>
Quantitative and Qualitative Disclosure About Market Risk
We maintain a short-term investment portfolio consisting of commercial paper
with maturities of four months or less. Such 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.
Our 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.
We believe that the market risk arising from our 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 January 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
------- ------ ------ ------ ------ ------ --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............ $39,806 -- -- -- -- -- $39,806
Average interest rate.. 5.8% -- -- -- -- -- 5.8%
Marketable securities... $37,762 -- -- $37,762
Average interest rate.. 5.9% -- -- -- -- -- 5.9%
Restricted cash-
certificates of
deposit................ $ 7,932 -- -- -- -- -- $ 7,932
Average interest rate.. 5.9% -- -- -- -- -- 5.9%
Capital lease
obligations............ $ 3,081 $3,463 $3,440 $2,828 $1,628 $5,682 $20,122
Average fixed
interest.............. 9.1% 9.2% 8.5% 8.2% 7.6% 7.6% 8.4%
Long-term debt.......... $ 980 $ 535 $ 214 -- -- -- 1,729
Average fixed
interest.............. 9.5% 9.5% 9.5% -- -- -- 9.5%
</TABLE>
Cash and cash equivalents and marketable securities consist primarily of
instruments with fixed rates of interest. Fair value approximates carrying
value for the above financing instruments.
28
<PAGE>
BUSINESS
Overview
HomeGrocer.com is a leading retailer of grocery and other consumer products
on the Internet. We operate our 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. Our
goals are to expand nationally and to be our customers' preferred regular
provider of household consumer products.
We have rapidly expanded since our initial launch of service in June 1998,
and currently serve customers in three markets: Seattle, Washington; Portland,
Oregon; and Orange County/Los Angeles, California. We expect to begin service
in eight to ten additional metropolitan areas, including Dallas, Texas;
Southern Connecticut; San Diego, California; Atlanta, Georgia; and the Bay
Area, California in the next 12 months. Our technology and the design of our
customer fulfillment centers permit us to rapidly expand our service into new
markets.
Our 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. We also
offer 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. Our professional buyers purchase high quality products
available from premium specialty suppliers and local sources, in addition to
national suppliers.
We believe that our emphasis on high-quality customer service has created
significant brand awareness and loyalty for the HomeGrocer.com shopping
experience. Since January 1, 1999, we have made deliveries to over 55,000
different households. Since January 1, 1999, approximately 64% of our orders
have been from repeat customers and approximately 36,000 customers have placed
an order at least two times. For the fiscal year ended January 1, 2000, our
customers' average order size was approximately $99. We believe that our core
grocery business provides us with a strong platform to expand into other
product and service areas.
Our management team has extensive technology, grocery and merchandising
experience, as well as experience in developing national distribution and
delivery systems. Amazon.com, our largest shareholder, will introduce our
service to its customers residing in our service areas under our agreement with
them.
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Industry
Growth of the Internet and E-Commerce
The Internet has emerged as a mass market communications medium, enabling
millions of users to obtain and share information, interact with each other
and conduct business electronically. The increasing affordability of personal
computers and Internet access, coupled with increasing speed, convenience and
improvements in content, have led to rapid growth in Internet usage. Market
research firm International Data Corporation estimates that the number of
individuals in the United States using the Internet will increase from
approximately 62.8 million at the end of 1998 to approximately 177.0 million
at the end of 2003, representing a compound annual growth rate of over 23%.
The chart below illustrates the historical and anticipated growth in the
number of households with personal computers and Internet subscriptions.
[Bar chart entitled "Numbers of Personal Computers and Online Subscriptions in
U.S. Households" The chart has two bars for each year from 1997 until 2002.
The first bar is labeled "Total Households with PCs at End of Year" and the
second bar is labeled "Total Households with Online Subscriptions at End of
Year." There are labels on the right side of the chart indicating that the
compounded annual growth rate is 27% for the first bar and 5% for the second
bar. Below the chart is a caption that reads: "Source: International Data
Corporation"]
The Internet has also emerged as a significant channel for the electronic
transaction of business or e-commerce. According to IDC, over the next five
years the number of individuals in the United States making purchases online
will increase at a compound annual growth rate of approximately 28% from 21.1
million in 1998 to 72.1 million in 2003. Forrester Research, another market
research firm, has estimated that this growing group of consumers, with each
individual making increasing amounts of online purchases, will cause total
U.S. Internet retail commerce to grow from approximately $20.3 billion in 1999
to approximately $184.5 billion in 2004, representing a compound annual growth
rate of over 55%.
Traditional Grocery Retailing
The grocery market is one of the largest retail segments of the U.S.
economy. Retail supermarket sales were approximately $449 billion in 1998,
according to the Food Marketing Institute. In addition, sales of over-the-
counter medication and non-medication health and beauty products were
approximately $57 billion in 1998 according to the National Association of
Chain Drug Stores. Both markets are localized and fragmented.
The retail industry has principally evolved into very large stores offering
a wide variety of items. Typical large grocery stores, for example, offer from
15,000 to as many as 40,000 items, including many different sized packages of
the same products. We estimate, based on the historical shopping patterns of
our customers, that the typical household regularly purchases less than 200
different grocery items. Hence, on a typical shopping trip to a traditional
store, the consumer must sort through thousands of items to locate the dozens
of items to be purchased. Most traditional retailers compound this burden by
positioning staple products in inconvenient locations within the store to
induce impulse purchases while the consumer seeks the items on his or her
shopping list. For example, milk is typically found at the back of a
traditional store while the checkout counter is surrounded by candies, toys
and magazines. This system is time-consuming and tiring for the consumer.
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According to the Food Marketing Institute, the average customer at a
traditional grocery store spent approximately 75 minutes per shopping trip in
1998, not including travel time. Traditional retail shoppers are also burdened
with carrying shopping bags and bulky items to their cars and then again into
their homes. Grocery shopping is inconvenient for many consumers and a
particularly difficult experience for elderly persons, disabled individuals or
parents with small children. According to a study conducted by the Food
Marketing Department of Philadelphia's St. Joseph's University, two-thirds of
U.S. consumers dislike the grocery shopping experience. Yet, according to A.C.
Nielsen, the average U.S. household shops for groceries more than 100 times per
year, spending, according to FMI, more than $4,500 per year. Based on the above
data, the average U.S. household spends over 125 hours per year on a necessary
task that most consumers dislike.
The traditional grocery store format also creates numerous difficulties for
the retailer. Grocery chains typically have distribution centers near each
major city and multiple stores, each with a large parking lot, on expensive
real estate throughout the metropolitan area. Large inventories must be
maintained within each store in order to provide the consumer with the expected
visual appearance. The size of such inventories can result in spoilage or less
fresh product being sold to the consumer. Often, the ambient temperature and
lighting that is preferred by the customer in such stores is not the ideal
environment for the products themselves, particularly for meats, dairy products
and produce. Additionally, fruits and vegetables, in particular are regularly
handled by numerous employees and customers, resulting in significant product
damage. Finally, each store must have a sufficient number of checkout and food
service counters. The needs for staffing these areas can vary widely during the
year, the week and the operating day.
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Online Grocery Retailing Opportunity
The evolution of the Internet and other computer technologies has created
opportunities to provide a much more convenient shopping experience at prices
similar to those available in traditional stores. Forrester Research estimates
that online grocery spending in the United States will grow at a compound
annual growth rate of 101% over the next five years, from $513 million in 1999
to $16.9 billion by 2004. Despite its size in absolute terms, this spending is
expected to represent less than 5% of the total U.S. market for grocery
products in 2004. Forrester Research also estimates that online sales of
health and beauty products, another market that HomeGrocer.com addresses, will
grow from $509 million in 1999 to $10.3 billion in 2004. Even at that level,
online sales will represent only a small part of the total U.S. market for
health and beauty products in 2004. Given the growing use of the Internet,
online grocery retailers have the opportunity to expand rapidly into a void in
a large marketplace.
The chart below shows the total sizes of various retail segments in which
products are offered by HomeGrocer.com. Currently, we offer only best-selling
books and videos and we may not be able to sell alcoholic beverages in every
market.
[Bar chart entitled "Total U.S. Retail Market Segments" The chart contains
eight bars that are labeled from left to right as follows: "Groceries(1)";
"Home Meal Replacements(2); "OTC Medications and Non-Medication HBA(3)";
"Wine/Beer/Spirits(4)"; "Books(5)"; "Pet Food/Pet Supplies(6)";
"Videocassettes(7)"; "Cut Flowers and Cut Greens(8)." Below the chart is a
caption that reads: "Source: (1) Food Marketing Institute; (2) AC Nielsen; (3)
IMS Health, National Association of Chain Drug Stores, A.C. Nielsen; (4) Adams
Business Media; (5) American Association of Publishers; (6) Pet Industry Joint
Advisory Council; (7) Paul Kagan Associates; (8) U.S. Department of
Agriculture."]
We believe online grocery retailing permits operators to offer a better
shopping experience while having reduced capital and operating expenses
compared to traditional retail stores. For example, our search, personal
shopping list and checkout functions can greatly expedite the process of
selecting and purchasing a customer's groceries. Meanwhile, online operators
can also avoid many of the significant real estate, personnel and inventory
costs of operating multiple stores in a particular area.
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The HomeGrocer.com Solution
We provide a compelling value proposition for our customers by providing
high quality products at competitive prices in a convenient manner. The
HomeGrocer.com solution provides:
Convenience. Our service makes it easy for consumers to restock their
households. Our Internet ordering process, available 24 hours each day, seven
days each week, allows our 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, we transform an unpleasant task
into a fast, enjoyable shopping experience.
High Quality Products. We focus on earning our customers' trust by
delivering high quality products, especially perishable items such as meat,
breads, fruits and vegetables. Before we enter a geographic market, we identify
and establish relationships with high quality suppliers. We equip both our
trucks and our customer fulfillment centers with ambient, refrigerated and
frozen zones to ensure product freshness at the customer's door. Our personal
shoppers, proprietary technology and distribution process ensure that our
products are inspected for quality, handled fewer times than both our online
and offline competitors and stored in proper temperature settings, leading to
improved product quality and reduced spoilage. For example, we designed our
distribution process to handle our produce six times or less prior to delivery.
In comparison, produce is handled an average of eight times before the customer
receives it from one of our online competitors. In local supermarkets,
employees handle produce at least seven times prior to its display and
customers handle the produce countless times prior to its purchase.
Competitive Prices. Our prices are competitive with local supermarket
prices. We do not charge any membership fees or delivery fees for first-time
orders or for subsequent orders over $75. Our efficient supply chain and
proprietary technology allow us to provide free home delivery, while charging
competitive prices for our products.
Complete Product Offering. We offer a broad range of consumer products and
strive to satisfy all of our customers' household needs. This includes offering
a significant number of specialty products, such as premium pet supplies that
generally are not available at traditional grocery stores, and products that
reflect local market tastes. We have relationships with local suppliers in each
of our markets.
High Quality Customer Service. We seek to provide the best customer service
at every opportunity. Our toll-free help line is staffed seven days each week
from 7 a.m. to 11 p.m., and we strive to answer customer emails within four
hours. Those customers who have shopped with us at least five times shop an
average of approximately twice every four weeks. Each shopping experience
concludes with a HomeGrocer.com delivery person interacting face-to-face with
our customer, typically in our customer's kitchen. Our delivery staff is
selected and trained to deliver friendly, efficient and reliable customer
service. From January through December 1999, our on-time delivery rate was
greater than 97%.
Highly Interactive and Personalized Storefront. Our web site, which we call
our Storefront, is designed to provide our customers with a convenient shopping
experience. Our personalization features can reduce the average shopping time
for a repeat shopper to as little as 10-15 minutes. Our 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. Customers can
also order all of the ingredients for featured recipes with a single click.
Accurate and Timely Fulfillment. Our technologies fully integrate our
Storefront, warehouse management, inventory, billing and routing systems.
Throughout the process, our proprietary software maintains a perpetual
inventory of the items on the shelves of each customer fulfillment center, the
precise location within the customer fulfillment center of each item, the items
in each customer's tote and the location of each tote. This system ensures the
accuracy and timeliness of delivery of each customer's order.
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Growth Strategy
HomeGrocer.com intends to establish itself as the leading provider of
friendly, reliable home delivery of groceries. Our goal is to establish a long-
term relationship with our customers and earn their trust to deliver other high
quality products to their homes. Key elements of our growth strategy include:
Accelerate National Expansion. We believe that a significant opportunity
exists to expand our service into metropolitan areas across the United States.
We currently offer service in Seattle, Washington; Portland, Oregon; and Orange
County/Los Angeles, California. We intend to initiate delivery service in
approximately eight to ten additional U.S. markets over the next 12 months
including Dallas, Texas; Southern Connecticut; San Diego, California; Atlanta,
Georgia; and the Bay Area, California. In some markets, we anticipate that
multiple customer fulfillment centers will be required to adequately serve
demand. In those markets, we may open with a single "hub" customer fulfillment
center servicing the entire metropolitan area. As demand grows, we may add
additional customer fulfillment centers in those markets.
Capitalize on Easily Replicated Model. By converting existing warehouse
space or warehouses already under construction, we are able to establish
operations in new markets rapidly. We can use an existing customer fulfillment
center to begin to serve nearby areas and generate revenues, while we establish
a new customer fulfillment center for that area. Our customer fulfillment
centers and delivery services are designed to be easily and rapidly replicated.
Our warehouse management system has been designed to be flexible to allow
different product and warehouse configurations and to enable us to add new
customer fulfillment centers on an aggressive rollout schedule. By opening
three new facilities in three months during the fall of 1999, we have proven
our ability to expand quickly and to operate in multiple locations.
Extend Our Brand to Expand Market Share. We have positioned HomeGrocer.com
as a leading brand for quality products and convenient, friendly and reliable
delivery service. Through our television and radio advertising campaigns,
community promotional activities, media relationships and the visibility of our
logo on our trucks, we build and reinforce consumer recognition of our brand.
We believe that becoming a reliable supplier of quality groceries to the home
is a platform for us to expand our offerings into numerous other consumer
products and services. Since inception, we have expanded our product offerings
to include pet supplies, fresh flowers, health and beauty products, wine,
postage stamps and top-selling books, video games and movies. We intend to
continue to expand our product and service offerings in an effort to become an
essential shopping resource for the home. Such additional products may include
cookware and housewares, photo finishing and prepared meals.
Maximize Delivery Density in Each Market. By providing excellent and
reliable service and through direct marketing programs, we intend to build the
density of our customer base in each market. This density is important in
increasing the efficiency of the distribution network and creating a
competitive advantage over our traditional and online competitors.
Realize Economies of Scale and Purchasing Power. We have invested heavily in
our Storefront and other technologies and have assembled a corporate team to
plan and execute our national expansion. We expect that overhead expenses will
not grow as rapidly as our revenue in future periods. Furthermore, as we grow,
we intend to take advantage of our increased purchasing power to receive better
pricing from our suppliers, to purchase more frequently directly from
manufacturers rather than wholesalers and to expand our private label
offerings, which have higher profit margins.
HomeGrocer.com Operations
There are three key operational aspects to HomeGrocer.com: our Storefront,
our customer fulfillment centers and our delivery service with its integrated
technology and distinctive trucks with the "Peach" logo. Our commitment to
technology and our focus on satisfying our customers permeate our operations.
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The HomeGrocer.com Storefront
Our 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 our Storefront are evident in
the illustrations and description below:
The "What's New" page is the home page for repeat shoppers.
[Screen shot of HomeGrocer's "What's New" web site page.]
The main shopping page currently features the major categories on the left,
the items in a selected category in the center and a perpetual shopping basket
on the right.
[Screen shot of HomeGrocer's main shopping web site page]
. The main shopping page allows access to all of the approximately 9,000
to 12,000 items 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.
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. We provide high-quality pictures of products photographed in our 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.
. 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.
. Throughout the shopping experience, the customer's screen contains a
continuously updated list of the items in the customer's virtual
shopping cart and the total cost of the order.
. The "Recipes" function provides menu planning suggestions and allows the
customer to order all of the ingredients for a recipe with a single
click.
. The customer's shopping cart is maintained at all times on our 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 our 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. We currently use 90 minute delivery windows and, in
fiscal year 1999 had on-time delivery rates of greater than 97%.
. We currently offer delivery windows from 1:30 p.m. to 9:30 p.m. Monday
through Friday, 9:30 a.m. to 4:00 p.m. on Saturday, and 1:30 p.m. to
8:00 p.m. on Sunday.
. The customer can modify his or her order until 11:00 p.m. on the day
prior to the scheduled delivery.
Customer Fulfillment Centers
We operate 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.
We locate our customer fulfillment centers in non-retail districts where
real estate is considerably less expensive than the locations of most
supermarkets. Given the size of our facilities and because there is no need to
have surplus product for customer displays, our customer fulfillment centers
can operate with less inventory relative to sales than traditional supermarkets
and have higher inventory turnover. Our customer fulfillment centers also have
fewer limitations on shelf space and are designed to serve a larger customer
base than traditional supermarkets; therefore, we believe we can eventually
offer a significantly larger selection of products than most traditional
grocery stores.
We currently operate customer fulfillment centers of approximately 100,000
square feet each in Renton, Washington, and Irvine, Fullerton and Azusa,
California. We also operate a smaller customer fulfillment center of
approximately 20,000 square feet in Tualatin, Oregon that, together with our
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
our 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.
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Our Technology and Delivery Systems
We have invested heavily in proprietary and third party technologies that
fully integrate our Storefront and our 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 our
proprietary software that enables reliable and efficient transaction processing
through Internet and application servers. This technology enables our Internet
and application servers to scale up to large volumes of transactions at
multiple locations.
We designed our 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. We have successfully deployed this technology in all of our
customer fulfillment centers in multiple markets. We have designed the process
to establish new distribution operations quickly and efficiently and to
increase volume without compromising product quality or order accuracy.
We also employ 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 us to provide high quality and
timely service to our customers.
Our drivers are our 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, we schedule our drivers
to visit the same neighborhoods on a regular schedule, thereby providing the
drivers an opportunity to establish relationships with our regular customers.
We believe the direct personal interaction between our employees and our
customers, which is rare in the Internet industry, fosters the development of
long-term relationships with our customers.
Customer Care
Ongoing customer support is important to our ability to establish and
maintain long-term relationships with our customers. We seek frequent
meaningful communication with our customers to enable us to continually improve
our service. For example, a customer service representative calls each customer
after the delivery of the first order to ensure his or her satisfaction. We
also offer numerous automated help options on the Storefront and a rapid email
response service. Our 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. Our
customer service representatives are available through our toll free telephone
number seven days each week from 7 a.m. to 11 p.m.
Marketing and Promotion
Our marketing and promotion programs are designed to strengthen the
HomeGrocer.com brand name, encourage trials of our service in our target
markets, build strong customer loyalty, maximize repeat purchases and increase
our average order size. We intend to build our brand name and customer loyalty
through our 100% customer satisfaction guarantee, public relations programs,
advertising campaigns, promotional activities and the visibility of our branded
trucks and uniformed delivery employees in customer neighborhoods.
Amazon.com, our largest shareholder, will introduce our service to its
customers residing in our service areas under our agreement with them.
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We have recently begun television advertising to build consumer awareness
for HomeGrocer.com. In addition, we utilize extensive radio advertising and
direct mail programs to attract first-time shoppers. To encourage a second
shopping experience and to demonstrate the high quality of our fresh produce,
we provide a free bag of produce with every first-time order. The second
shopping experience also allows a customer to experience the "My HomeGrocer
List" feature, which is designed to make online shopping faster and more
convenient with every subsequent purchase.
We also conduct corporate and "Peach Party" marketing programs. Through our
corporate programs, we offer employees of some Fortune 500 and other large
corporations special incentives and discounts to encourage their use of our
service. The "Peach Party" marketing programs involve a customer hosting a
party for acquaintances and neighbors. We provide sample food and refreshments
and a trained representative demonstrates the use of our Storefront.
In the future, we expect to be able to provide, using collaborative
filtering technology, increasingly targeted and customized services based on
customer purchasing, preference and behavioral data generated through our
Storefront. We believe that personalization of our services will significantly
increase the value of our shopping experience for our customers.
Supply Relationships
We source products from a network of food, houseware and health and beauty
aid manufacturers, wholesalers, brokers and distributors. We currently rely on
rapid fulfillment from national and regional distributors for a substantial
portion of our products. In the Seattle and Portland markets, approximately 47%
of our current product offerings are sourced through a single wholesaler,
SuperValu. For our three new customer fulfillment centers in Orange County/Los
Angeles, California, we are using Certified Grocers, who supplies approximately
50% of our current product offering in that market. We purchase a number of top
brands and high volume items directly from manufacturers and may increase our
use of this direct purchasing as our product volumes increase with additional
customer fulfillment centers. We also utilize premium specialty suppliers or
local sources for gourmet foods, traditional and organic produce, bakery items,
fish and meats and floral products. As of January 1, 2000, we were purchasing
products from over 85 distributors and directly from over 100 manufacturers.
Competition
We are the first major online grocery retailer to operate in the Seattle,
Portland and Orange County/Los Angeles markets. However, the grocery retailing
market is extremely competitive. Local, regional, and national grocery stores,
independent food stores and supermarkets, as well as online grocery retailers,
comprise our principal competition, although we also face substantial
competition from convenience stores, liquor retailers, membership warehouse
clubs, specialty retailers, supercenters, and drugstore chains. Many of our
existing and potential competitors, primarily traditional grocers and retailers
including Albertson's, Walmart, Safeway, Quality Food Centers and Kroger, are
larger and have substantially greater resources than we do. We expect online
competition from other online and traditional grocers and retailers to
intensify in the future.
Currently, our potential competitors include between five and ten online
grocery retailers such as Webvan, Peapod, NetGrocer, HomeRuns, ShopLink.com and
Streamline.com and an expanding number of traditional retailers entering the
market. For example, in November 1999, Albertson's introduced an Internet based
service in the Seattle area, and Webvan recently announced it will introduce
its online grocery service in the Seattle area sometime in 2000. The number and
nature of competitors and the amount of competition we will experience will
vary over time and by market area.
The principal competitive factors that affect our business are convenience,
quality of products and service, breadth of product selection, price and
customer loyalty to traditional and online grocery retailers. We believe that
we compare favorably to other online grocery retailers with respect to each of
these factors. However,
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many traditional grocery retailers may have substantially greater levels of
customer loyalty and serve many more locations than we currently do. Consumers
are often familiar with the layout of a specific traditional store and may be
resistant to learning other layouts or shopping techniques. If we fail to
effectively compete in any one of these areas, we may lose existing and
potential customers. This could materially harm our business.
Government Regulation
In addition to regulations applicable to businesses generally or directly
applicable to e-commerce, we are subject to a variety of regulations concerning
the handling, sale and delivery of food, alcohol and tobacco products.
Currently, we are not subject to regulation by the U.S. Department of
Agriculture, or USDA. Whether the handling of food items in our distribution
facility, such as meat and fish, will subject us to USDA regulation in the
future will depend on several factors, including whether we sell food products
on a wholesale basis or whether we obtain food products from non-USDA inspected
facilities. Although we have designed our food handling operations to comply
with USDA regulations, in the future the USDA may require changes to our food
handling operations. We are also required to comply with local health
regulations concerning the preparation and packaging of any prepared food
items, such as deli salads that we prepare on site. Any applicable federal,
state or local regulations may cause us to incur substantial compliance costs
or delay the availability of a number of items at one or more of our customer
fulfillment centers. In addition, any inquiry or investigation from a food
regulatory authority could have a negative impact on our reputation. Any of
these events could delay or impair our business and expansion plans and could
cause us to lose customers.
We 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 we
deliver. We cannot assure you that we will be able to obtain any required
permits or licenses in a timely manner, or at all. We 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 our inability to obtain required permits
or licenses could prevent us from selling alcohol or tobacco products in one or
more of our geographic markets or a portion of those markets where a market
extends over two or more licensing jurisdictions. In those locations where we
cannot obtain alcohol permits or licenses, we will be unable to sell these
items, which could hurt our business.
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 we currently conduct our 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 us. 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 we are required
to comply with new regulations or legislation or new interpretations of
existing regulations or legislation, this compliance could cause us to incur
additional expenses or alter our business model.
We are not certain how our 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 our services or increase
the cost of doing business as a result of litigation costs or increased service
delivery costs.
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Intellectual Property
We regard patents, copyrights, service marks, trademarks, trade secrets and
similar intellectual property as important to our success. We rely on patent,
trademark and copyright law, trade secret protection and confidentiality or
license agreements with our employees, customers, partners and others to
protect our proprietary rights; however, the steps we take to protect our
proprietary rights may be inadequate. We have a registered trademark in the
United States for "HomeGrocer," and have filed trademark registration
applications for the marks "HomeGrocer.com," "Peach Party," the HomeGrocer.com
logo in the United States and abroad. We have also filed a trademark
application for our slogan "here comes the grocery store" in the United States.
On January 10, 2000, we filed three provisional patent applications with the
U.S. Patent and Trademark Office. From time to time, we may file additional
patent applications directed to aspects of our proprietary technology. We
currently have no patents protecting our technology. We cannot assure you that
any of our pending patent applications will be approved, that any issued
patents will protect our intellectual property or that any issued patents or
trademark registrations will not be challenged by third parties.
Employees
As of January 1, 2000, we had 1,064 employees, consisting of 128 employed in
the information technology area, 72 in operations and administration, 38 in
merchandising, 23 in marketing and 803 at our customer fulfillment centers and
performing related delivery services. We expect to hire additional personnel as
we expand operations and staff additional customer fulfillment centers.
Although some companies that operate in the trucking, warehouse and grocery
industries are subject to collective bargaining agreements, we are not
currently represented by a labor union. We have not experienced any work
stoppages and consider our employee relations to be good.
Development of Our Business
We believe that due to our current cash position, which includes the
proceeds from the sale of our preferred stock in September, October and
November of 1999, and our flexibility with respect to the number and timing of
additional customer fulfillment centers we open, the net proceeds of this
offering, together with our available funds, will be sufficient to meet our
anticipated needs for working capital and capital expenditures through the next
12 months. Our future capital needs will be highly dependent on the pace of our
expansion plans while conversely our expansion plans may be affected by the
availability and cost of capital. During the next few years, we expect a
substantial increase in our capital expenditures and lease commitments as we
equip customer fulfillment centers and begin operations in new markets. Our
expansion will result in a material increase in our number of employees as we
staff our new customer fulfillment centers and add personnel engaged in systems
development and technology, operations, marketing and merchandising.
Legal Proceedings
From time to time, we may be involved in litigation relating to claims
arising out of our ordinary course of business.
We have received a letter from a graphic artist alleging that our corporate
peach logo violates that artist's copyright. The artist has threatened, but not
instituted, legal proceedings. We do not believe that the artist's allegations
have merit. However, this claim, even if not meritorious, could be expensive
and could divert our attention from our core business operations. If we become
liable to the artist for copyright infringement, we could be required to pay
substantial damages, obtain a license from the artist or modify our corporate
logo, any of which could be expensive or compromise our brand identity.
On January 7, 2000, a personal injury action was filed against us in the
Superior Court of California for Orange County. The plaintiffs are seeking
compensatory damages in the amount of approximately $3.2 million
40
<PAGE>
plus loss of earnings and future earning capacity resulting from a motor
vehicle accident involving one of our delivery trucks. We believe our insurance
policies will cover us for any damages awarded to plaintiffs.
Facilities
Our corporate offices are located in Kirkland, Washington where we lease
approximately 81,000 square feet. We lease approximately 72,000 square feet of
that space under a lease that expires in 2004, with an option to renew for two
additional five-year terms. We sublease from another tenant the remaining
approximately 9,000 square feet of space under a sublease that expires in 2008,
with no option to renew. Of this 81,000 square feet, we currently occupy
approximately 64,000 square feet and sublease approximately 17,000 square feet
to another tenant under a sublease that expires in August 31, 2000. We
anticipate we will require additional office space in the future to accommodate
our growth.
We lease approximately 320,000 square feet for our Renton, Washington
customer fulfillment center under a lease that expires in 2007, with an option
to renew for an additional five years. We currently sublease approximately
200,000 square feet of this space to third parties. We also lease an aggregate
of approximately 1,368,000 square feet for our current and future customer
fulfillment centers in the Portland, Oregon; Southern California; Dallas,
Texas; San Diego, California; Stamford, Connecticut; Atlanta, Georgia; and the
Bay Area, California markets under leases that expire from 2009 to 2015. We are
evaluating sites and negotiating leases for customer fulfillment centers in
additional markets. Although we expect those sites to be available, we cannot
assure you that suitable sites will be available on commercially reasonable
terms. We do not own any real estate and we expect, wherever possible, to lease
customer fulfillment centers in the additional markets we enter.
Environmental Matters
We are subject to various environmental laws and regulations governing the
maintenance of our 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 our employees.
These laws may impose liability even if we did not know of, or were not
responsible for, the contamination or other damage. Based on current
information, however, we are aware of no liabilities under environmental laws
which would be expected to have a material adverse effect on our business,
results of operations or financial condition.
41
<PAGE>
MANAGEMENT
Executive Officers and Directors
The names and ages of the executive officers and directors of HomeGrocer.com
as of January 1, 2000 are as follows:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<C> <C> <S>
Mary Alice Taylor........... 49 Chief Executive Officer and Chairman of the
Board
J. Terrence Drayton......... 40 President and Director
Daniel R. Lee............... 43 Senior Vice President and Chief Financial
Officer
Mary B. Anderson............ 44 Vice President of Finance
Rex L. Carter............... 47 Senior Vice President of Systems Development
& Technology
Ken Deering................. 40 Vice President of Storefront
Robert G. Duffy............. 39 Chief Information Officer
Corwin J. Karaffa........... 45 Senior Vice President of Operations
Jonathan W. Landers......... 47 Senior Vice President of Marketing and Sales
Daniel J. Murphy............ 53 Vice President of Merchandising
David A. Pace............... 40 Senior Vice President of People Capability
Kristin H. Stred............ 40 Senior Vice President, General Counsel and
Secretary
Tom A. Alberg(1)............ 59 Director
Charles K. Barbo............ 58 Director
James L. Barksdale(2)....... 56 Director
Mark P. Gorenberg(1)........ 44 Director
Jonathan D. Lazarus(2)...... 48 Director
Douglas Mackenzie(2)........ 40 Director
David Risher(1)............. 34 Director
Philip S. Schlein........... 65 Director
</TABLE>
- --------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Mary Alice Taylor has served as chairman and chief executive officer of
HomeGrocer.com since September 1999. Prior to joining HomeGrocer.com, 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 supplier of PC
design software, and Dell Computer. Previously she served on the boards of The
Perrigo Company, a manufacturer of store brand items, and Allstate Insurance
Company. Ms. Taylor holds a B.A. in finance from Mississippi State University
and is a Certified Public Accountant.
J. Terrence Drayton co-founded HomeGrocer.com and has served as its
president since the incorporation of its predecessor in January 1997. Mr.
Drayton also served as chief executive officer of HomeGrocer.com from January
1997 until September 1999. From February 1996 through January 1997, Mr. Drayton
was the President of Terran Ventures, Inc., a venture capital and consulting
company, where he focused on activities leading to the formation of
HomeGrocer.com's predecessor company. Prior to co-founding HomeGrocer.com,
42
<PAGE>
Mr. Drayton was involved for more than ten years as co-founder and senior
manager of two of the leading bottled water companies in Canada. From November
1991 to January 1996, Mr. Drayton was the president of the home and office
division of Aquaterra, a Canadian bottled water company producing the brand
names Crystal Springs and Labrador. From September 1989 through September 1991
Mr. Drayton served as chairman and chief executive officer of Telepost
Communications, a publicly traded Canadian film and video post-production
company. From March 1986 to May 1989 Mr. Drayton was the co-founder, executive
vice president and co-chief executive officer for Laurentian Spring Valley
Water. He holds a B.Comm. from the University of Calgary and an M.B.A. from
York University.
Daniel R. Lee joined HomeGrocer.com as chief financial officer in November
1999 and was also appointed senior vice president in December 1999. From
February 1992 to September 1999, Mr. Lee served as chief financial officer,
treasurer and senior vice president of finance and development for Mirage
Resorts, a publicly traded company (NYSE:MIR) that develops and operates large-
scale resort hotels. From February 1990 to February 1992, he was a director of
equity research for CS First Boston, an investment bank. From July 1980 to
February 1990, he held various positions with the investment bank Drexel
Burnham Lambert, most recently as a managing director. Mr. Lee holds a B.S. and
an M.B.A., both from Cornell University, and he is a Chartered Financial
Analyst.
Mary B. Anderson joined HomeGrocer.com as a full-time consultant in February
1999 and has served as vice president of finance since August 1999. Prior to
joining HomeGrocer.com, Ms. Anderson was executive vice president and chief
financial officer of CyberSafe, an enterprise network security software
company, from June 1997 to November 1998. From June 1995 to June 1997, Ms.
Anderson served as chief financial officer and vice president of business
operations at AT&T Wireless Services, Wireless Data Division; a
telecommunications company, (formerly McCaw Cellular Communications). From
April 1991 to June 1995, Ms. Anderson served as vice president of finance for
McCaw Cellular Communications and LIN Broadcasting, each a telecommunications
company. From June 1979 to April 1991 she served in various capacities at
Seafirst Bank, most recently as senior vice president. Ms. Anderson holds a
B.S. in Management from Purdue University and an M.B.A. from the University of
Washington. She is also a Washington State Certified Public Accountant.
Rex L. Carter has served as vice president of systems development and
technology of HomeGrocer.com since November 1999 and was also appointed senior
vice president in December 1999. Prior to joining HomeGrocer.com, 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 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.
Ken Deering co-founded HomeGrocer.com. Since inception, he has held several
positions with HomeGrocer.com and its predecessor, including marketing manager
from August 1996 to October 1997, vice president of business development from
October 1997 to May 1999 and vice president of storefront from May 1999 to the
present. Prior to his involvement with HomeGrocer.com, Mr. Deering was an
independent management consultant through his firm, Heldeer Ventures, from
August 1994 to August 1996. From January 1992 to July 1994, Mr. Deering held
the positions of general manager and then vice president of sales and marketing
for Offshore Systems, a developer of electronic marine positioning systems.
Over the prior 12 years, Mr. Deering held various marketing and operations
positions, including six years at Glenayre Technologies, a developer of
software for wireless personal communication systems. Mr. Deering has a sales
and marketing management diploma from the University of British Columbia.
43
<PAGE>
Robert G. Duffy joined HomeGrocer.com in June 1998 as its chief technology
officer and since September 1998 has served as its chief information officer.
From January 1998 to May 1998, Mr. Duffy was a management consultant at
Analytical Software, a technology consulting firm, where he led the technology
initiatives that launched HomeGrocer.com. From March 1993 to December 1997, Mr.
Duffy was a management consultant and one of the founders of the systems
integration practice of BEST Consulting where he provided management and
technology consulting services to various Fortune 100 companies. From October
1985 to February 1993, he worked for Andersen Consulting, a management
consulting company, and co-founded Andersen's Workstation Technology Group
where he managed the development of a high volume perishables warehouse
management system. From May 1983 to September 1985, he was a software engineer
with NASA's Johnson Space Center. Mr. Duffy has a B.S. in applied
mathematics/operations research from the University of Tulsa's College of
Engineering.
Corwin J. Karaffa has served as vice president of operations of
HomeGrocer.com since September 1999 and was appointed senior vice president in
December 1999. Before joining HomeGrocer.com, 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.
Jonathan W. Landers has served as vice president of marketing and sales for
HomeGrocer.com since November 1998 and was appointed senior vice president in
December 1999. Prior to joining HomeGrocer.com, Mr. Landers was the vice
president of marketing for Norm Thompson Outfitters, Inc., a consumer specialty
retailer of high quality merchandise, in Hillsboro, Oregon from May 1997 to
November 1998. From April 1992 to April 1997, Mr. Landers was vice president of
corporate marketing and new business development for the National Geographic
Society in Washington D.C. From October 1991 to March 1992, he was interim vice
president of corporate marketing for Russell Athletic, a clothing manufacturer,
in Alexander City, Alabama. From February 1989 to December 1991, Mr. Landers
was the president and chief executive officer of Neuhaus (U.S.A.), a Belgian
chocolate retailer, in Port Washington, New York and from August 1983 to
January 1989, Mr. Landers held various positions within Sara Lee subsidiaries
including Hanes, a manufacturer of cotton goods, and Coach Leatherware, a
specialty retailer of leather goods. Mr. Landers holds a B.A. in government
from Bowdoin College and an M.B.A. from Columbia University.
Daniel J. Murphy has served as vice president of merchandising for
HomeGrocer.com since May 1999. Prior to joining HomeGrocer.com, from October
1998 to May 1999, Mr. Murphy was vice president of U.S.A., Retail Client
Services for Inter-Act Systems, a provider of electronic coupon technology to
manufacturers and retailers. Prior to that, from October 1997 to October 1998,
Mr. Murphy was vice president of sales and merchandising for Super Fresh Food
Markets. From July 1989 to October 1997, he was vice president of sales and
merchandising for Shop Rite Supermarkets, a subsidiary of Wakefern Food
Corporation. From May 1985 to July 1989, Mr. Murphy was the director of
merchandising for Wakefern Food Corporation, a member-owned food cooperative,
and from September 1979 to May 1985, he was the director of chain store sales
for The Coca-Cola Bottling Co. of New York. He holds a B.A. in business
administration and a B.S. in secondary education from John F. Kennedy College.
David A. Pace joined HomeGrocer.com in September 1999 as vice president of
people capability, with primary responsibility for human resources, and was
appointed senior vice president in December 1999. Prior to joining
HomeGrocer.com, from October 1997 to September 1999, Mr. Pace was with Tricon
Restaurants International, a restaurant management company, most recently as
senior vice president of human resources. Prior to his position with Tricon,
from June 1981 to October 1997, Mr. Pace was with PepsiCo, a beverage and
restaurant company, throughout the United States, Africa, Middle East and
Europe, most recently as senior vice president, Human Resources for PepsiCo
Restaurants International. Mr. Pace holds a B.S. in industrial and labor
relations from Cornell University.
44
<PAGE>
Kristin H. Stred joined HomeGrocer.com as vice president and general counsel
in September 1999 and was appointed senior vice president in December 1999.
Prior to joining HomeGrocer.com, from July 1992 to September 1999, Ms. Stred
held various positions with Shurgard Storage Centers, a developer of self-
storage properties, and its predecessor companies, where she was most recently
senior vice president and general counsel. From October 1991 to July 1992, she
was an attorney with Boeing and from July 1987 to September 1991, Ms. Stred was
assistant general counsel at King Broadcasting, a regional broadcasting
company. From June 1984 to July 1987, she practiced law at Garvey, Schubert &
Barer, a Seattle based law firm. Ms. Stred holds a B.A. in history and a J.D.,
both from Harvard University.
Tom A. Alberg has served as a director of HomeGrocer.com since June 1998 as
Madrona Investment Group's designee under a voting agreement that will expire
upon effectiveness of this offering. He has been a principal of Madrona
Investment Group, a venture investment firm focused on capital investments in
early stage technology companies, since January 1996 and a managing director of
Madrona Venture Fund, a venture capital fund, since October 1999. Prior to that
time, Mr. Alberg was the President and a director of LIN Broadcasting, a
cellular telephone company, from April 1991 to October 1995, and an Executive
Vice President of AT&T Wireless Services, formerly McCaw Cellular
Communications, from July 1990 to October 1995. Prior to July 1990, Mr. Alberg
was chairman of the executive committee and a partner in the law firm of
Perkins Coie in Seattle. Mr. Alberg is also a director of Active Voice, a
provider of unified messaging and computer telephony software, Advanced Digital
Information, a hardware and software based data storage solutions company,
Amazon.com, an Internet retailer of books and other consumer products,
Emeritus, an assisted living community company, Teledesic, a telecommunications
network provider, and Visio Corporation, a diagramming software provider. Mr.
Alberg received his B.A. from Harvard University and his J.D. from Columbia
University.
Charles K. Barbo has served as a director of HomeGrocer.com since October
1997. In 1972, Mr. Barbo co-founded the predecessor of Shurgard Storage
Centers, a developer of self-storage properties, and served most recently as
president and chairman of the board until March 1995 when he became chairman
and chief executive officer of Shurgard Storage Centers. Mr. Barbo is a
graduate of the Owner/President Management Program of Harvard Business School
and has a B.A. in history from the University of Washington.
James L. Barksdale has served as a director of HomeGrocer.com since April
1999 as The Barksdale Group's designee under a voting agreement that will
expire upon effectiveness of this offering. 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; 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; and America Online. Mr. Barksdale
holds a B.A. in business from the University of Mississippi.
Mark P. Gorenberg has served as a director of HomeGrocer.com since March
1999 as Hummer Winblad Venture Partners' designee under a voting agreement that
will expire upon effectiveness of this offering. Since July 1993, Mr. Gorenberg
has been a general partner of Hummer Winblad Venture Partners, an investment
partnership, and, from July 1990 to June 1993, Mr. Gorenberg was an associate
of Hummer Winblad Venture Partners. Prior to joining Hummer Winblad Venture
Partners, Mr. Gorenberg was a senior software manager in Advanced Product
Development at Sun Microsystems. Mr. Gorenberg is also a director of AdForce, a
provider of online advertisement management services, and seven private
companies. Mr. Gorenberg received a B.S. in electrical engineering from the
Massachusetts Institute of Technology, an M.S. in electrical engineering from
the University of Minnesota and an M.S. in engineering management from Stanford
University.
45
<PAGE>
Jonathan D. Lazarus has served as a director of HomeGrocer.com since
September 1998. Since retiring from Microsoft in September 1996, Mr. Lazarus
has spent most of his time working with small companies who are exploring the
commercial entrepreneurial opportunities of the Internet and personal
computing. From July 1988 to September 1996, Mr. Lazarus worked at Microsoft,
where he served most recently as vice president, strategic relations. Mr.
Lazarus currently serves on the boards of directors of Ziff-Davis, a technology
media and marketing company; DataChannel, a XML-based enterprise information
portal provider; and Vision Solutions, a developer of information management
software. Mr. Lazarus holds a B.S. in communications from Temple University.
Douglas Mackenzie has served as a director of HomeGrocer.com since September
1998 as Kleiner Perkins Caufield & Byers's designee under a voting agreement
that will expire upon effectiveness of this offering. Mr. Mackenzie has been a
partner with Kleiner Perkins Caufield & Byers, a venture capital firm, since
1992. Currently, Mr. Mackenzie also serves on the boards of directors of Visio
Corporation, a diagramming software provider; Marimba, a provider of Internet
management software; Pivotal Corporation, a developer of e-commerce solutions;
and E.piphany, a provider of real-time analytical applications. Mr. Mackenzie
holds an A.B. in economics and an M.S. in industrial engineering, both from
Stanford University, and an M.B.A. from Harvard Business School.
David Risher has served as a director of HomeGrocer.com since April 1999 as
Amazon.com's designee under a voting agreement that will expire upon
effectiveness of this offering. From February 1997 to the present, Mr. Risher
has held several positions at Amazon.com., an Internet retailer of books and
other consumer products, where he is presently the senior vice president of
product development. From July 1991 to February 1997, Mr. Risher held a variety
of marketing and project management positions at Microsoft, most recently as
founder and product unit manager for MS Investor, Microsoft's web site for
personal investment. Mr. Risher received his B.A. in comparative literature
from Princeton University and an M.B.A. from Harvard Business School.
Philip S. Schlein has served as a director of HomeGrocer.com from October
1997 to December 1997 and from April 1998 through the present. Mr. Schlein has
been a general partner, and subsequently a venture partner, of U.S. Venture
Partners, a venture capital firm, since April 1985. Mr. Schlein held various
executive positions with Macy's, a retail department store, from 1957 to 1973
and was president and chief executive officer of Macy's California division
from 1974 to 1985. Additionally, Mr. Schlein currently serves as a director of
bebe stores, a women's specialty clothing retailer; Ross Stores, a discount
department store; Xoom.com, a direct e-commerce retailer; Burnham Pacific, a
real estate investment trust; and Quick Response Services, a provider of
business-to-business e-commerce services. Mr. Schlein holds a B.S. in economics
from the University of Pennsylvania.
Board Composition
Our bylaws currently authorize ten directors and we have ten directors on
our board. Each director is elected for a period of one year at the annual
meeting of stockholders and serves until the next annual meeting or until a
successor is duly elected and qualified. Our executive officers serve at the
discretion of our board of directors. There are no family relationships among
any of our directors or executive officers.
Our board of directors will be divided into three classes effective upon an
amendment to our articles of incorporation which will occur upon the closing of
the offering. The Class I directors, James L. Barksdale, Mark P. Gorenberg, and
Philip S. Schlein, will serve an initial term until the 2000 annual meeting of
stockholders, the Class II directors, Charles K. Barbo, J. Terrence Drayton,
Jonathan D. Lazarus and Douglas Mackenzie, will serve an initial term until the
2001 annual meeting of stockholders, and the Class III directors, Tom A.
Alberg, David Risher and Mary Alice Taylor, will serve an initial term until
the 2002 annual meeting of stockholders. Each class will be elected for a
three-year term following its initial term.
46
<PAGE>
Board Compensation
We reimburse directors for reasonable out-of-pocket expenses incurred in
attending meetings of the board of directors. Directors are also eligible to
participate in our 1997 stock incentive compensation plan and our 1999 stock
incentive plan, and beginning as of the effective date of this offering, they
will be eligible to participate in our 1999 Directors' Stock Option Plan and in
our 1999 Employee Stock Purchase Plan. All of our 1999 plans are subject to
stockholder approval, which we expect to receive prior to the closing of this
offering. See "Stock Plans."
Pursuant to our 1997 stock incentive compensation plan, in April 1998, Mr.
Barbo was granted an option to purchase 500,000 shares of common stock and an
additional option to purchase 200,000 shares of common stock, each with an
exercise price of $0.25 per share; in April 1998, Mr. Schlein was granted an
option to purchase 200,000 shares of common stock at an exercise price of $0.25
per share; in June 1998, Mr. Alberg was granted an option to purchase 200,000
shares of common stock at an exercise price of $0.25 per share; in November
1998, Mr. Lazarus was granted an option to purchase 200,000 shares of common
stock at an exercise price of $0.25 per share; and in April 1999, Mr. Barksdale
was granted an option to purchase 200,000 shares of common stock at an exercise
price of $0.45 per share. Each of these options is fully vested and exercisable
at this time.
Board Committees
In April 1998, the board established an audit committee and a compensation
committee. The audit committee reviews our annual audit, meets with independent
auditors and oversees the effectiveness of financial management practices. The
audit committee currently consists of Tom A. Alberg, Mark P. Gorenberg and
David Risher. The compensation committee recommends compensation for senior
management to the board and administers our stock plans. The compensation
committee currently consists of James L. Barksdale, Jonathan D. Lazarus and
Douglas Mackenzie.
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between our board of directors or
compensation committee and the board of directors or compensation committee of
any other company, nor has any interlocking relationship existed in the past.
47
<PAGE>
Executive Compensation
The following table provides summary information concerning the compensation
received for services rendered to HomeGrocer.com during the fiscal years ended
January 2, 1999 and January 1, 2000 by our chief executive officer and each of
the other most highly compensated executive officers whose aggregate
compensation during fiscal years 1998 and 1999 exceeded $100,000. Throughout
this prospectus, we refer to the following officers as our named executive
officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------------------------------- ------------
Securities
Name and Principal Fiscal Other Annual Underlying
Positions Year Salary ($) Bonus ($) Compensation ($) Options (#)
- ------------------ ------ ---------- --------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Mary Alice Taylor(1).... 1999 $63,846 $ -- $29,316 4,500,000
Chief Executive Officer
and Chairman
of the Board
J. Terrence Drayton(2).. 1999 172,446 -- 8,740 1,650,000
President, Director and 1998 81,411 -- -- --
Former Chief
Executive Officer
Ken Deering............. 1999 131,388 41,137 4,596 200,000
Vice President of
Storefront 1998 99,539 43,468 -- 520,000
Robert G. Duffy......... 1999 124,788 38,438 92 100,000
Chief Information
Officer 1998 69,231 9,885 -- 200,000
Jonathan W. Landers..... 1999 182,150 56,209 8,517 100,000
Senior Vice President
of Marketing and Sales 1998 20,192 -- -- 200,000
</TABLE>
- --------
(1) Mary Alice Taylor has served as chief executive officer of HomeGrocer.com
since September 2, 1999.
(2) Mr. Drayton served as chief executive officer of HomeGrocer.com from
January 1997 to September 1999.
48
<PAGE>
Option Grants
The following table provides summary information regarding stock options
granted to the named executive officers during the fiscal year ended January 1,
2000. The options were granted pursuant to our 1997 stock incentive
compensation plan and 6,150,000 options were granted to two officers outside
the plan. In accordance with the rules of the Securities and Exchange
Commission, also shown below is the potential realizable value over the term of
the option, the period from the grant date to the expiration date, giving
effect to an assumed initial public offering price of $11.00 per share and
based on assumed rate of stock appreciation of 5% and 10%, compounded annually.
These rates are mandated by the Securities and Exchange Commission and do not
represent our estimate of our future common stock price. Actual gains, if any,
on stock option exercises will depend on the future performance of our common
stock. In the fiscal year ended January 1, 2000, we granted options to acquire
up to an aggregate of 16,960,400 shares of common stock to employees,
consultants and directors, all at exercise prices equal to the deemed fair
market value of our common stock on the date of grant as determined in good
faith by our board of directors.
Option Grants in the Fiscal Year Ended January 1, 2000
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
----------------------------------------------- Value At Assumed
Number Of Percent Of Annual Rates of Stock
Securities Total Options Price Appreciation
Underlying Granted To Exercise Or For Option Term
Options Employees In Base Price Expiration ------------------------
Name Granted(#) Fiscal Year ($/Share) Date 5% 10%
- ---- ---------- ------------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Mary Alice Taylor(1).... 4,500,000 26.5% $0.45 9/9/09 $75,596,474 $117,862,774
J. Terrence Drayton(2).. 1,650,000 9.7 0.45 9/9/09 27,718,707 43,216,351
Ken Deering(3).......... 200,000 1.2 0.45 6/11/09 3,319,487 5,115,668
Robert G. Duffy(4)...... 100,000 0.6 0.45 6/11/09 1,659,744 2,557,834
Jonathan W. Landers(5).. 100,000 0.6 0.45 6/11/09 1,659,744 2,557,834
</TABLE>
- --------
(1) Ms. Taylor's option was granted outside of the 1997 stock incentive
compensation plan and she exercised this option in full on September 9,
1999. Ms. Taylor has granted us a right of repurchase on these shares.
This right lapses as to one-fourth of the shares on September 2, 2000, and
thereafter on the second day of every month at a rate of one forty-eighth
of the total number of shares until all the shares are released from the
repurchase option.
(2) Mr. Drayton's option was granted outside of the 1997 stock incentive
compensation plan and he exercised this option in full on September 9,
1999. Mr. Drayton has granted us a right of repurchase on these shares.
This right lapses as to one-fourth of the shares on June 11, 2000, and
thereafter on the eleventh day of every month at a rate of one forty-
eighth of the total number of shares until all the shares are released
from the repurchase option.
(3) Mr. Deering exercised this option as to 100,000 shares on September 22,
1999 and 50,000 shares on December 13, 1999 and has granted us a right of
repurchase to these shares as required under the 1997 stock incentive
compensation plan.
(4) Mr. Duffy exercised this option as to 50,000 shares on November 10, 1999
and has granted us a right of repurchase to these shares as required under
the 1997 stock incentive compensation plan.
(5) Mr. Landers exercised this option in full on December 13, 1999 and has
granted us a right of repurchase to these shares as required under the
1997 stock incentive compensation plan.
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<PAGE>
Option Exercises and Holdings
The following table provides summary information concerning the shares of
common stock represented by outstanding stock options held by each of the named
executive officers as of January 1, 2000.
Aggregated Option Exercises in Fiscal 1999 and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options at
Acquired Options at January 1, 2000 January 1, 2000(2)
On Option -------------------------------- -------------------------
Name Exercise Value Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------- ---------------- -------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mary Alice Taylor....... 4,500,000 $ -- -- -- $ -- --
J. Terrence Drayton..... 1,650,000 -- -- -- -- --
Ken Deering............. 670,000 225,700 50,000 -- 527,500 --
Robert G. Duffy......... 250,000 -- 50,000 -- 527,500 --
Jonathan W. Landers..... 300,000 655,000 -- -- -- --
</TABLE>
- --------
(1) Equal to the deemed fair market value of the purchased shares on option
exercise date as determined in good faith by our board of directors, less
the exercise price paid for such shares.
(2) Value is determined by subtracting the exercise price from the proposed
initial public offering price of $11 for the common stock, and multiplying
by the number of shares underlying the options.
Employment Agreements
We have entered into employment agreements with five of our executive
officers:
Mary Alice Taylor. In September 1999, we entered into an employment
agreement with Mary Alice Taylor, our chairman and chief executive officer.
Under the agreement, we agreed to pay Ms. Taylor an annual base salary of
$200,000 and a quarterly bonus to be determined by the compensation committee.
In connection with this employment agreement we also granted Ms. Taylor an
option to purchase 4,500,000 shares of our common stock. On September 9, 1999
Ms. Taylor purchased 1,500,000 shares of our common stock at a purchase price
of $0.45 per share for an aggregate purchase price of $675,000 and exercised
options to purchase 4,500,000 shares of common stock at an exercise price of
$0.45 per share for an aggregate purchase price of $2,025,000. We also loaned
Ms. Taylor a total of $2,241,000 pursuant to two full recourse promissory
notes, each with an annual interest rate of 5.98%. Ms. Taylor used this loan
and cash to purchase the 1,500,000 shares and to exercise the 4,500,000
options. All principal and accrued interest under the loan remains outstanding
and is due and payable on September 9, 2004. As of January 1, 2000, the
outstanding balance of Ms. Taylor's loan was approximately $2,283,000.
As of January 1, 2000, HomeGrocer.com had a right to repurchase 4,500,000
shares of unvested common stock held by Ms. Taylor. This right lapses with
respect to one-fourth ( 1/4th) of the unvested shares on September 2, 2000, and
thereafter on the second day of every month at a rate of one forty-eighth (
1/48th) of the total number of shares, until all of the shares are released
from the repurchase option, subject to Ms. Taylor's continued service with
HomeGrocer.com. If Ms. Taylor dies or becomes permanently disabled, the
repurchase right will lapse to the extent of the greater of 50% of the shares
still subject to the repurchase right or the number of shares that would have
vested had Ms. Taylor continued in the employment of HomeGrocer.com for an
additional 12 months. If Ms. Taylor's employment is terminated without cause or
she resigns for good reason, the lesser of 750,000 shares or all of the shares
still subject to the repurchase right shall be released from the repurchase
right and we will pay Ms. Taylor's salary for two years after the date of her
termination or resignation. If HomeGrocer.com merges into or is acquired by
another entity and Ms. Taylor is not offered a similar position with similar
responsibilities by the surviving entity, the greater of 3,000,000 shares or
the number of shares that would have been released from the repurchase right if
Ms. Taylor had continued her employment for another two years, will be released
from the repurchase right. Under the terms of the agreement, we also granted
Ms. Taylor piggyback registration rights for her shares of common stock.
HomeGrocer.com will also pay relocation-related expenses incurred by Ms.
Taylor.
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<PAGE>
J. Terrence Drayton. In June 1999, we entered into an employment agreement
with J. Terrence Drayton, our president. Under the employment agreement, we
agreed to pay Mr. Drayton a base salary of $200,000 per year and a quarterly
bonus to be determined by the compensation committee. In connection with this
employment agreement, we also granted Mr. Drayton an option to purchase
1,650,000 shares of our common stock. On September 9, 1999 Mr. Drayton
purchased 550,000 shares of HomeGrocer.com common stock at a price of $0.45 per
share for an aggregate purchase price of $247,500 and exercised options to
purchase 1,650,000 shares of common stock at an exercise price of $0.45 per
share for an aggregate purchase price of $742,500. We also loaned Mr. Drayton
$990,000 pursuant to two full recourse promissory notes, each with an annual
interest rate of 5.98%. Mr. Drayton used this loan to purchase the 550,000
shares and to exercise the 1,650,000 options. All principal and accrued
interest under the loan remains outstanding and is due and payable on September
9, 2004. As of January 1, 2000, the outstanding balance of Mr. Drayton's loan
was approximately $1,008,000.
As of January 1, 2000, HomeGrocer.com had a right to repurchase 1,650,000
shares of unvested common stock held by Mr. Drayton. This right will lapse with
respect to one-fourth ( 1/4th) of the total number of shares as of June 11,
2000, and thereafter on the eleventh day of every month at a rate of one forty-
eighth ( 1/48th) of the total number of shares, until all of the shares are
released from the repurchase option, subject to Mr. Drayton's continued service
with HomeGrocer.com. If Mr. Drayton dies or becomes permanently disabled, the
repurchase right will lapse to the extent of the greater of 50% of the shares
still subject to the repurchase right or the number of shares that would have
vested had Mr. Drayton continued in the employment of HomeGrocer.com for 12
months. Under the agreement, if Mr. Drayton's employment is terminated without
cause or he resigns for good reason, the lesser of 270,000 shares or all of the
shares still subject to the repurchase right shall be released from the
repurchase right and we will pay Mr. Drayton's salary for two years after the
date of his termination or resignation. If HomeGrocer.com merges into or is
acquired by another entity and Mr. Drayton is not offered a similar position
with similar responsibilities by the surviving entity, the greater of
1,100,000 shares or the number of shares that would have been released from the
repurchase right if Mr. Drayton had continued his employment for another two
years will be released from the repurchase right. Under the terms of the
agreement, we also granted Mr. Drayton piggyback registration rights for his
shares of common stock.
Daniel R. Lee. In November 1999, we entered into an employment agreement
with Daniel R. Lee, our senior vice president and chief financial officer.
Under the agreement, we agreed to pay Mr. Lee a base salary of $180,000 per
year and a quarterly bonus to be determined by the compensation committee. The
bonus is guaranteed to be at least $50,000 for 2000. We granted Mr. Lee an
option to purchase 1,200,000 shares of our common stock at an exercise price of
$2.50 per share. Mr. Lee exercised such options on December 13, 1999 for an
aggregate purchase price of $3,000,000. As of January 1, 2000, HomeGrocer.com
had a right to repurchase the 1,200,000 shares held by Mr. Lee. Such right
lapses with respect to one-fourth of the shares on November 3, 2000 and as to
25,000 additional shares on the third day of every month thereafter at the rate
of 25,000 shares per month. If Mr. Lee's employment is terminated by
HomeGrocer.com during the first year, HomeGrocer.com's repurchase right shall
lapse in accordance with the pro-rated number of months that he was employed
with HomeGrocer.com. HomeGrocer.com will also pay relocation-related expenses
incurred by Mr. Lee.
David A. Pace. In August 1999, we entered into an employment agreement with
David A. Pace, our senior vice president of people capability. Under the
agreement, we agreed to pay Mr. Pace a base salary of $175,000 per year and a
quarterly bonus guaranteed to be $50,000 for 1999. If Mr. Pace's employment is
terminated by HomeGrocer.com during the first year, Mr. Pace is entitled to
receive continuation of his salary for 12 months beyond the date of his
termination.
Rex L. Carter. In November 1999, we entered into an employment agreement
with Rex L. Carter, our senior vice president of systems development and
technology. Under the agreement, we agreed to pay
Mr. Carter a base salary of $175,000 per year and an annual bonus of $50,000
based on the achievement of mutually agreed upon objectives for the calendar
year. In addition, Mr. Carter is entitled to receive
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<PAGE>
reimbursement of reasonable expenses incurred by him and his family relating
to his move to the Seattle, Washington region from Minnesota.
Stock Plans
1999 Stock Incentive Plan. The 1999 stock incentive plan was adopted by the
board of directors in December 1999. We will be submitting it for approval by
the stockholders prior to the closing of this offering. We have reserved a
total of 12,500,000 shares plus an annual increase on the first day of each of
the next five HomeGrocer.com fiscal years beginning in 2001 equal to the
lesser of 2,500,000 shares or 2.5% of the outstanding shares of common stock
on the last day of the preceding fiscal year for issuance under the 1999 stock
incentive plan. HomeGrocer.com has not issued any options or other stock
awards under the 1999 stock incentive plan to date. The 1999 stock incentive
plan provides for the grant of incentive stock options to employees and
directors who are employees, and the grant of nonstatutory stock options and
awards of restricted stock, stock appreciation rights and stock units to
employees, non-employee directors and consultants. The compensation committee
currently administers the 1999 stock incentive plan. The administrator of the
1999 stock incentive plan will determine number, vesting schedule, and
exercise price for options, or conditions for awards of restricted stock,
stock appreciation rights and stock units granted under the 1999 stock
incentive plan, provided, however, an individual employee may not receive
aggregate option grants and other stock awards for more than 2,500,000 shares
in any fiscal year, and the exercise price of incentive stock options must be
at least equal to the fair market value of the common stock on the date of
grant or, in the case of a 10% shareholder, at least equal to 110% of the fair
market value of the common stock on the date of grant. Payment of the exercise
price or purchase price may be made in cash or other consideration as
determined by the administrator. In the event a participant is terminated from
service for HomeGrocer.com in circumstances that may constitute cause, the
participant's right to exercise any award is suspended until the administrator
determines whether cause existed, and if so, the participant's rights with
respect to the award are forfeited.
In the event of a sale of all or substantially all of the assets of
HomeGrocer.com, or the merger or consolidation of HomeGrocer.com with or into
another corporation, the administrator may take any one or more of the
following actions, in its discretion:
. Provide that outstanding awards, or types of outstanding awards, shall
be assumed or equivalent awards be substituted by the successor
corporation;
. Provide notice to award recipients that all awards, or types of awards,
to the extent then exercisable or to be exercisable as a result of the
transaction, must be exercised on or before a specified date after which
the awards terminate;
. Terminate each award, or types of awards, in exchange for a payment
equal to the excess of the fair market value of the shares underlying
the award that are vested and exercisable immediately prior to the
closing of the transaction over the exercise price with respect to such
shares;
. Facilitate the exercise of awards that become exercisable as a result of
the transaction by adopting procedures providing for the exercise of
unvested awards contingent on the consummation of the transaction; or
. Provide that repurchase rights with respect to stock purchased upon
exercise of an option or a stock purchase right be assigned to the
successor corporation, or if not so assigned, lapse in full upon the
consummation of the transaction.
The board of directors may amend or terminate the 1999 stock incentive plan
provided that no action that impairs the rights of any holder of an
outstanding option may be taken without the holder's consent. In addition, we
will obtain requisite stockholder approval for any action requiring
stockholder approval under applicable law. The 1999 stock incentive plan will
terminate in December 2009 unless the board of directors terminates it
earlier.
1997 Stock Incentive Compensation Plan. The 1997 plan was adopted by the
board of directors and approved by the stockholders on October 7, 1997. It
provides for the grant of incentive stock options to employees and the grant
of nonstatutory stock options and stock awards to employees, non-employee
directors
52
<PAGE>
and consultants. A total of 15,924,334 shares of common stock has been reserved
for issuance under the 1997 plan as of the date of this offering. As of January
1, 2000, options to purchase 8,250,870 shares of common stock had been
exercised, options to purchase a total of 5,886,342 shares at a weighted
average exercise price of $1.69 were outstanding and 1,787,122 shares remained
available for future grants. The plan has no fixed expiration date; provided,
however, that no incentive stock options may be granted more than ten years
after the plan's adoption (on October 7, 1997). Accordingly, after October 7,
2007, no incentive stock options may be granted under the 1997 plan.
The 1997 plan is currently administered by the compensation committee of the
board of directors. The terms of options and stock awards granted under the
1997 Plan are determined by the administrator, including the number of shares
underlying options, exercise price, term and exercisability. The term of
options shall be 10 years from date of grant unless otherwise established by
the administrator, and options generally vest at the rate of 25% of the total
number of shares subject to options 12 months after the date of grant and
1/48th of the total number of shares subject to options each month thereafter.
The exercise price of incentive stock options must be at least equal to the
fair market value of the common stock on the date of grant or, in the case of a
10% shareholder, at least equal to 110% of the fair market value of the common
stock on the date of grant. Payment of the exercise price or purchase price may
be made in cash or other consideration as determined by the administrator. The
1997 plan does not impose an annual limitation on the number of shares subject
to options that may be issued to any individual employee.
In addition, upon a sale of all or substantially all of the HomeGrocer.com
assets, or a merger or consolidation of HomeGrocer.com with or into another
corporation, all options outstanding under the 1997 plan will be assumed or
equivalent options substituted by the successor corporation, unless the
successor corporation does not agree to this assumption or substitution, in
which case the options shall automatically accelerate so that each option
shall, immediately prior to the closing of the transaction, become 100% vested
and exercisable. Any options that are assumed or replaced in the sale, merger
or consolidation that do not otherwise accelerate, shall be accelerated in the
event that the option holder's employment or services are terminated within two
years following the transaction unless the option holder is terminated for
cause or leaves voluntarily without good reason. Also, the acceleration of
options shall not occur if it would make unavailable "pooling of interest"
accounting treatment for the sale, merger or consolidation.
1999 Directors' Stock Option Plan. The 1999 directors' plan was adopted by
our board of directors in December 1999. We will be submitting it for approval
by the stockholders prior to the closing of this offering. A total of 500,000
shares of common stock has been reserved for issuance under the directors'
plan. The directors' plan provides for the grant of nonstatutory stock options
to non-employee directors of HomeGrocer.com. The directors' plan is designed to
work automatically without administration; however, to the extent
administration is necessary, it will be performed by the board of directors. To
the extent that conflicts of interest arise, it is expected that conflicts will
be addressed by having any interested director abstain from both deliberations
and voting regarding matters in which the director has a personal interest.
Unless terminated earlier, the directors' plan will terminate in December 2009.
The directors' plan provides that each person who becomes a non-employee
director of HomeGrocer.com will be granted a nonstatutory stock option to
purchase 20,000 shares of common stock on the date on which he or she first
becomes a non-employee director of HomeGrocer.com, which option will vest and
become exercisable in installments of 25% of the total number of shares subject
to the option on the first, second, third and fourth anniversaries of the date
of grant. Thereafter, on the date of our annual stockholders' meeting each year
following the year of the initial grant, each non-employee director of
HomeGrocer.com will be granted an additional option to purchase 5,000 shares of
common stock if, on that date, he or she has served on our board of directors
for at least six months, which option shall be fully vested and exercisable on
the date of grant. Such annual grants become exercisable in full on the fourth
anniversary of the date of grant. No option granted under the directors' plan
is transferable by the option holder other than by will or the laws of descent
or distribution or under a domestic relations order, and each option is
exercisable, during the lifetime of the option holder, only by that option
holder. The exercise price of all stock options granted under the directors'
plan shall
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<PAGE>
be equal to the fair market value of a share of HomeGrocer.com common stock on
the date of grant of the option. Options granted under the directors' plan have
a term of ten years. However, unvested options will terminate when the optionee
ceases to serve as a director and vested options will terminate if they are not
exercised within 12 months after the director's death or disability or within
90 days after the director ceases to serve as a director for any other reason.
In the event of a sale of all or substantially all of the assets of
HomeGrocer.com, or the merger or consolidation of HomeGrocer.com with or into
another corporation in which HomeGrocer.com is not the surviving corporation or
in which the ownership of more than 50% of the total combined voting power of
HomeGrocer.com outstanding securities changes hands, or if during any two
consecutive two-year periods persons who constitute the board at the beginning
of such period (or who were appointed by a majority of the board in place at
the beginning of such period) cease to constitute at least 50% of the board,
each option outstanding under the directors' plan will be assumed or equivalent
options substituted by our acquirer, unless our acquirer does not agree to such
assumption or substitution, in which case the options will terminate upon
consummation of the transaction to the extent not previously exercised. In
connection with any acquisition, each director holding options under the
directors' plan will have the right to exercise his or her options immediately
before the consummation of the merger as to all shares underlying the options,
including shares which would not have been vested and exercisable but for the
acquisition. Our board of directors may amend or terminate the directors' plan
as long as such action does not adversely affect any outstanding option and we
obtain stockholder approval for any amendment to the extent required by law.
1999 Employee Stock Purchase Plan. Our 1999 Employee Stock Purchase Plan, or
the 1999 purchase plan, provides our employees with an opportunity to purchase
our common stock through accumulated payroll deductions. This plan will become
effective upon the closing of this offering. A total of 3,000,000 shares of
common stock have been reserved for issuance under the 1999 purchase plan, plus
an annual increase on the first day of each of our next five fiscal years from
2001 through 2005 equal to the lesser of:
. 500,000 shares;
. 0.5% of our outstanding common stock on the last day of the immediately
preceding fiscal year; or
. any lesser amount determined by the board.
The 1999 purchase plan will be administered by the board of directors or by
a committee appointed by the board. The 1999 purchase plan permits eligible
employees to purchase common stock through payroll deductions up to a maximum
of $25,000 of fair market value of such stock in each calendar year or up to a
maximum of 2,500 shares for each purchase period, whichever is lesser.
Employees are eligible to participate if they are employed by us or any
majority-owned subsidiary for at least an average of 20 hours per week and
customarily more than five months in any calendar year. However, an employee
cannot participate in the plan at any time his or her participation in the plan
would cause his or her outstanding options plus ownership of stock to equal 5%
or more of the total voting power or value of all classes of our stock.
The 1999 purchase plan provides that unless the board of directors or its
committee determines otherwise, the plan will operate by a series of
overlapping offering periods of approximately 12 months' duration, with new
offering periods (other than the first offering period) commencing on the first
trading day on or after January 1 and July 1 of each year. Each offering period
will generally consist of two consecutive purchase periods of six months'
duration, at the end of which the amount in participants' accounts will be used
to make an automatic purchase of shares to be held in a plan account on their
behalf.
The board has determined that the first offering period will commence upon
the effective date of this offering and end on December 31, 2000 with a single
corresponding purchase period, and that, notwithstanding the flexibility in the
plan that allows twelve month periods, beginning January 1, 2001, the offering
period shall be of six months' duration with a coinciding six month purchase
period. The price at which common stock will be purchased under the 1999
purchase plan is equal to 85% of the fair market value of the common stock on
the first day of the offering period or on the last day of the applicable
purchase period, whichever is lower. The
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<PAGE>
initial purchase period will commence on the date of this prospectus and end on
the last trading day on or before June 30, 2000, with a subsequent purchase
period commencing on the first trading day on or after July 1 and ending on the
last day of the offering period in December 2000. Employees may end their
participation in an offering period at any time, and participation
automatically ends on termination of employment, with accrued funds as of the
date of termination being returned to the employee.
In the event we are acquired or we sell substantially all of our assets,
each outstanding option to purchase shares under the 1999 purchase plan will be
assumed or an equivalent option substituted by our acquirer. If our acquirer
does not agree to assume or substitute for the option, any offering period then
in progress will be shortened and a new purchase date occurring prior to the
closing of the transaction will be set.
Generally, our board may change or terminate offering, holding and purchase
periods, including extending new offering periods to up to 27 months' duration,
and may amend, modify or terminate the 1999 purchase plan at any time as long
as such action does not adversely affect any outstanding rights to purchase
stock under the 1999 purchase plan. However, the board may amend or terminate
the 1999 purchase plan or an offering period even if it would adversely affect
outstanding options in order to avoid our incurring adverse accounting charges.
The employee may be required to hold the stock for a minimum period established
at the board of directors' or its committee's discretion within the applicable
laws, after purchase. Unless terminated earlier by the board, the 1999 purchase
plan will terminate twenty years after the closing of the offering. The 1999
purchase plan is intended to qualify under Section 423 of the Internal Revenue
Code of 1986, as amended.
401(k) Plan
We maintain the HomeGrocer.com 401(k) Plan for eligible employees. In order
to be a participant in the 401(k) plan, an employee must have attained age 21
and have worked for HomeGrocer.com for three months. Eligible employees may
join the plan at the beginning of each quarter. A participant may contribute up
to the lesser of 20% of his or her total annual compensation to the 401(k) plan
on a pre-tax basis, or a statutorily prescribed pre-tax annual limit. The
annual limit for 1999 is $10,000. Each participant is fully vested in his or
her deferred salary contributions. Participant contributions are held and
invested by the 401(k) plan's trustee.
Currently, we match participant contributions dollar for dollar up to 5% of
their compensation if the participant has performed at least 1,000 hours of
service during the year. Matching contributions vest 33% after two years of
service, 66% after three years of service, and 100% after four years of
service. HomeGrocer.com currently pays the administrative costs for the plan.
The 401(k) plan is intended to qualify under Section 401 of the Internal
Revenue Code, so that contributions by us or our employees to the 401(k) plan,
and income earned on the 401(k) plan contributions, are not taxable to
employees until withdrawn from the 401(k) plan, and so that our contributions
will be deductible by us when made.
Limitation of Liability and Indemnification Matters
Our articles of incorporation which we expect to be in force on the date of
this prospectus, limit the liability of directors to the fullest extent
permitted by the Washington Business Corporation Act as it currently exists or
as it may be amended in the future. Consequently, subject to the Washington
Business Corporation Act, no director shall be personally liable to
HomeGrocer.com or its shareholders for monetary damages resulting from his or
her conduct as a director of HomeGrocer.com, except liability for:
. acts or omissions involving intentional misconduct or knowing violations
of law;
. unlawful distributions; or
. transactions from which the director personally receives a benefit in
money, property or services to which the director is not legally
entitled.
Our articles of incorporation also provide that we shall indemnify any
individual made a party to a proceeding because that individual is or was a
director of HomeGrocer.com and shall advance or reimburse reasonable expenses
incurred by such individual in advance of the final disposition of the
proceeding to the full extent permitted by applicable law. Any repeal of or
modification to our articles of incorporation may not
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<PAGE>
adversely affect any right of a director of HomeGrocer.com who is or was a
director at the time of such repeal or modification. To the extent the
provisions of our articles of incorporation provide for indemnification of
directors for liabilities arising under the Securities Act of 1933, those
provisions are, in the opinion of the Securities and Exchange Commission,
against public policy as expressed in the Securities Act and they are therefore
unenforceable.
Our bylaws provide that we shall indemnify our directors and officers and
may indemnify our employees and agents to the full extent permitted by law. In
addition, we have entered into separate indemnification agreements with our
directors and executive officers that could require us, among other things, to
indemnify them against liabilities that arise because of their status or
service as directors or executive officers and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified. Finally, we intend to purchase and maintain a liability insurance
policy pursuant to which our directors and officers may be indemnified against
liability they may incur for serving in their capacities as directors and
officers of HomeGrocer.com.
We believe that the limitation of liability provision in our articles of
incorporation, the indemnification provisions in our bylaws, the
indemnification agreements and the liability insurance policy will facilitate
our ability to continue to attract and retain qualified individuals to serve as
directors and officers of HomeGrocer.com.
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RELATED PARTY TRANSACTIONS
From our inception through January 1, 2000, we have issued and sold shares
of our capital stock as follows:
. 29,605,536 shares of common stock at a weighted average price of $0.52
per share of cash and other consideration,
. 8,000,000 shares of Series A preferred stock at a price of $0.50 per
share in February, April, June and July 1998,
. 16,857,142 shares of Series B preferred stock at a price of $0.35 per
share in September 1998,
. 29,942,050 shares of Series C preferred stock at a price of $1.75 per
share in April and May 1999,
. 18,407,546 shares of Series D preferred stock at a price of $5.80 per
share in September through November 1999,
. warrants to purchase 1,800,000 shares of common stock at a price of
$0.375 per share,
. warrants to purchase 1,269,786 shares of common stock at a price of
$0.50 per share,
. warrants to purchase 153,600 shares of Series C preferred stock at a
price of $0.78125 per share, and
. warrants to purchase 275,862 shares of Series D preferred stock at a
price of $5.80 per share.
The following table summarizes the shares of capital stock purchased by
executive officers, directors and five-percent shareholders of HomeGrocer.com,
and persons and entities associated with them, in the private placement
transactions described above. Shares held by affiliated persons and entities
have been added together for the purposes of this chart.
<TABLE>
<CAPTION>
Outstanding
Warrants
Series A Series B Series C Series D to Purchase
Common Preferred Preferred Preferred Preferred Common
Investor Stock Stock Stock Stock Stock Stock
- -------- --------- --------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mary Alice Taylor (1)... 6,000,000 -- -- -- 17,240 --
J. Terrence Drayton
(2).................... 6,150,000 -- -- 2,758 -- 100,000
Amazon.com, Inc. (3).... -- -- -- 24,285,716 3,448,274 --
Hummer Winblad Venture
Partners (3)........... 700,000 800,000 8,285,714 484,732 3,448,274 --
Kleiner Perkins Caufield
& Byers (4)............ 1,300,000 200,000 8,285,714 484,732 3,448,274 200,000
The Barksdale Group,
L.L.C. (5)............. 200,000 -- -- 2,857,142 2,586,206 --
Charles Barbo (6)....... 1,000,000 700,000 -- 38,618 229,490 --
Madrona Investment
Group, LLC (7)......... 200,000 500,000 -- 27,586 862,068 300,000
Ken Deering (8)......... 1,170,000 -- -- -- -- --
Lazarus Family
Investments LLC (9).... 200,000 200,000 285,714 26,798 170,756 --
Philip S. Schlein....... 200,000 50,000 -- 2,758 20,000 --
</TABLE>
- --------
(1) 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 is our chief executive officer and a
director of HomeGrocer.com. 4,500,000 of Ms. Taylor's shares are subject
to a repurchase right in favor of HomeGrocer.com pursuant to an agreement
between Ms. Taylor and HomeGrocer.com.
(2) Includes shares held by J. Terrence Drayton, Terran Ventures, Inc.,
Drayton Resources Ltd. and Drayton Consulting Services, Ltd. Mr. Drayton
is our president and a director of HomeGrocer.com. 1,650,000 of Mr.
Drayton's shares are subject to a repurchase right in favor of
HomeGrocer.com pursuant to an agreement between Mr. Drayton and
HomeGrocer.com. Includes warrants to purchase 100,000 shares of common
stock held by Terran Ventures, Inc.
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(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., together a 13% shareholder of HomeGrocer.com.
(4) 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., together a 13% shareholder of HomeGrocer.com Includes warrants to
purchase 200,000 shares of common stock held by Kleiner Perkins Funds-
related entities.
(5) Includes shares held by The Barksdale Group, L.L.C., Peter L.S. Currie (a
principal and officer of The Barksdale Group, LLC), James L. Barksdale,
Pickwick Group, L.P. and Barksdale Investments, L.L.C., together a 5.5%
shareholder of HomeGrocer.com The other Barksdale-related entities
disclaim beneficial ownership of 344,740 shares of Series D preferred
stock held by Mr. Currie.
(6) Includes shares held by C&LB Family Limited Partnership, Charles Barbo, a
director of HomeGrocer.com, Charles K. and Linda K. Barbo, Anne Barbo,
Julie Anne Barbo Trust dated 12/10/91 and Sarah Barbo Staiger.
(7) Includes warrants to purchase 300,000 shares of common stock held by
Madrona Investment Group, LLC, 431,034 shares held by Madrona Holding 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, LLC.
(8) Does not include an option to purchase 50,000 shares of common stock held
by Mr. Deering, our vice president of Storefront.
(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.
HomeGrocer.com has had discussions with Fitpro Pty Ltd., an Australian
company and a shareholder of HomeGrocer.com, concerning the possibility of
developing a joint venture to introduce the HomeGrocer.com business to South
East Asia, including Australia, New Zealand and Singapore. In the absence of
an agreement on mutually satisfactory terms to form such a joint venture,
Fitpro Pty Ltd. may have certain rights of first refusal regarding the
HomeGrocer.com service in South East Asia. HomeGrocer.com has no current plans
to expand to the South East Asian market in the foreseeable future.
In September 1999, we made loans to Mary Alice Taylor, our chief executive
officer, and Mr. Drayton in connection with their exercises of stock options
and purchases of our common stock. See "Management--Employment Agreements."
In September 1999, we entered into an agreement with Ms. Taylor pursuant to
which she purchased an aggregate of 6,000,000 shares of our common stock
outside of our 1997 stock incentive compensation plan. As part of such
agreement, Ms. Taylor has granted to us a right of repurchase with respect to
4,500,000 shares of our common stock. Our repurchase right lapses over a
period of four years.
In June 1999, we entered into an agreement with Mr. Drayton pursuant to
which he purchased an aggregate of 2,200,000 shares of our common stock
outside of our 1997 stock incentive compensation plan. As part of such
agreement, Mr. Drayton has granted to us a right of repurchase with respect to
1,650,000 shares of our common stock. Our repurchase right lapses over a
period of four years.
In November 1999, we entered into an agreement with Amazon.com, LLC under
which we have agreed to pay Amazon an aggregate of $10 million over the next
two years for advertising services. Amazon.com, LLC is a wholly owned
subsidiary of Amazon.com, Inc., a 27% shareholder. Two of our board members,
Tom Alberg and David Risher, are Amazon.com affiliates: Mr. Alberg is a member
of Amazon.com's board of directors and Mr. Risher is Amazon.com's senior vice
president of product development.
Amazon.com, Inc. also has special shareholder rights pursuant to an
agreement with Homegrocer.com:
. If we receive an offer to purchase capital stock representing more than
20% of our capital stock or all or substantially all of our assets, we
must give notice of the terms of the offer to Amazon.com, and
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Amazon.com then has seven days to determine whether to accept the terms.
If Amazon.com does not accept the terms, we are free to complete such a
transaction with a third party on no more favorable terms for a period
of 60 days. After this 60 day period, we must again give Amazon notice
of any such offer. This right expires four years after the closing of
this offering.
. Amazon.com had the right to purchase its pro rata portion of the shares
issued in this offering to maintain its percentage ownership of
HomeGrocer.com. Amazon.com has waived this right.
. Amazon.com may not acquire more than 35% of our capital stock unless
Amazon.com first negotiates with us to purchase all of our capital
stock. This restriction will terminate on the closing of this offering.
Julie Barbo, daughter of HomeGrocer.com director Charles K. Barbo, has
served as a business and legal consultant to HomeGrocer.com and was our
assistant secretary until December 1999.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of January 1, 2000 and as adjusted to reflect
the sale of the common stock offered by HomeGrocer.com under this prospectus
by:
. each of HomeGrocer.com 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 our common
stock.
Except as otherwise noted, the address of each person listed in the table is
c/o HomeGrocer.com, 10230 N.E. Points Drive, Kirkland, Washington 98033. The
table includes all shares of common stock issuable within 60 days of January 1,
2000 upon the exercise of options and other rights beneficially owned by the
indicated stockholders on that date. 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.com, except under applicable community property laws or as
otherwise indicated, the persons named in the table have sole voting and sole
investment control with respect to all shares beneficially owned. Assuming the
conversion of all outstanding shares of preferred stock, the applicable
percentage of ownership for each stockholder is based on 102,812,274 shares of
common stock outstanding as of January 1, 2000, together with applicable
options for that stockholder. The number of shares underlying options and
warrants listed below includes only those shares underlying options and
warrants immediately exercisable or exercisable within 60 days of January 1,
2000. Shares of common stock issuable upon exercise of options and other rights
beneficially owned 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>
Percentage of
Common Stock
Number of Shares Outstanding (1)
Shares Underlying -----------------
Name and Address of Beneficial Beneficially Options & Before After
Owner Owned Warrants Offering Offering
- ------------------------------ ------------ ---------- -------- --------
<S> <C> <C> <C> <C>
Amazon.com, Inc. (2)............... 27,733,990 -- 26.98% 22.22%
1200 12th Avenue S., Suite 1200
Seattle, WA 98144
Kleiner Perkins Caufield & Byers
(3)............................... 13,718,720 200,000 13.51 11.13
2750 Sand Hill Road
Menlo Park, CA 94025
Hummer Winblad Venture Partners
(4)............................... 13,718,720 -- 13.34 10.99
2 South Park, 2nd Floor
San Francisco, CA 94107
J. Terrence Drayton (5)............ 6,152,758 100,000 6.08 5.01
Mary Alice Taylor (6).............. 6,017,240 -- 5.85 4.82
The Barksdale Group, L.L.C. (7).... 5,643,348 -- 5.49 4.52
2730 Sand Hill Road, Suite 100
Menlo Park, CA 94043
Charles K. Barbo (8)............... 1,968,108 -- 1.91 1.58
1155 Valley Street, Suite 400
Seattle, WA 98109
Madrona Investment Group, LLC (9).. 1,589,654 300,000 1.83 1.51
1000 Second Avenue, Suite 3700
Seattle, WA 98104
Ken Deering........................ 1,170,000 50,000 1.19 *
Jonathan D. Lazarus (10)........... 883,268 -- * *
One Mercer Plaza 2835 82nd Avenue
S.E., Suite 310
Mercer Island, WA 98040
Jonathan W. Landers................ 300,000 -- * *
Philip S. Schlein.................. 272,758 -- * *
2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
Robert G. Duffy.................... 250,000 50,000 * *
All directors and executive
officers as a group (20 persons)
(11).............................. 81,697,564 1,551,000 79.77 65.88
</TABLE>
- -------
* Less than 1% of the outstanding shares of common stock.
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(1) Assumes no exercise of the underwriters' over-allotment option.
(2) David Risher, a director of HomeGrocer.com and a vice president of
Amazon.com, Inc., disclaims beneficial ownership of the shares held by
Amazon.com.
(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.com, 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 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.com, 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; also includes 200,000 shares issuable upon exercise of
warrants held by affiliates of Kleiner Perkins Caufield & Byers VIII, L.P.
(5) Includes shares held by J. Terrence Drayton, Terran Ventures, Inc.,
Drayton Resources Ltd. and Drayton Consulting Services Ltd. Mr. Drayton
disclaims beneficial ownership of shares held by Drayton Consulting
Services, Ltd. As of January 1, 2000, 1,650,000 of Mr. Drayton's shares
are subject to a repurchase right in favor of HomeGrocer.com pursuant to
an agreement between Mr. Drayton and HomeGrocer.com; also includes
100,000 shares issuable upon exercise of warrants held by Terran Ventures,
Inc.
(6) 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. As of January 1, 2000,
4,500,000 of Ms. Taylor's shares are subject to a repurchase right in
favor of HomeGrocer.com pursuant to an agreement between Ms. Taylor and
HomeGrocer.com.
(7) Includes shares held by The Barksdale Group, L.L.C., Peter LS Currie (a
principal and officer of The Barksdale Group, LLC), James L. Barksdale,
Pickwick Group, L.P. and Barksdale Investments, L.L.C. The other
Barksdale-related entities disclaim beneficial ownership of 344,740 shares
of Series D preferred stock held by Mr. Currie.
(8) 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.com, disclaims beneficial ownership of the shares held by Anne
Barbo, the Julie Anne Barbo Trust dated 12/10/91 and Sarah Barbo Staiger.
(9) Includes 300,000 shares issuable upon exercise of warrants held by Madrona
Investment Group, LLC and 431,034 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 Madrona Investment Group, LLC and the Madrona funds except to the
extent of his pecuniary interest therein.
(10) 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.
(11) Includes all shares described above and an additional 3,130,000 shares
held by other executive officers, of which 2,279,000 shares were
outstanding as of January 1, 2000 and 851,000 shares were subject to
options exercisable within 60 days of January 1, 2000.
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DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, HomeGrocer.com will be authorized to
issue 1,000,000,000 shares of common stock, no par value per share, and
10,000,000 shares of undesignated preferred stock, no par value per share. All
currently outstanding shares of preferred stock will be converted into common
stock upon the closing of this offering.
Common Stock
As of January 1, 2000, there were 102,812,274 shares of common stock
outstanding that were held of record by 348 stockholders after giving effect to
the conversion of all outstanding shares of our preferred stock into common
stock. After giving effect to this offering and the conversion of our currently
outstanding preferred stock into common stock upon the closing of this
offering, there will be 124,812,274 shares of common stock outstanding,
assuming no exercise of the underwriter's over-allotment option.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any preferred stock that may be
outstanding after the completion of this offering, holders of common stock are
entitled to receive ratably such dividends as may be declared by the board of
directors out of funds legally available for that purpose. In the event of
liquidation, dissolution or winding up of HomeGrocer.com, the holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to the prior distribution rights of any preferred stock
that may be outstanding after the completion of this offering. The common stock
has no preemptive or conversion rights or other subscription rights. The
outstanding shares of common stock are, and the shares of common stock to be
issued upon completion of this offering will be, fully paid and non-assessable.
Preferred Stock
Upon the closing of the offering, all outstanding shares of preferred stock
will be converted into 73,206,738 shares of common stock and automatically
retired. Thereafter, the board of directors will have the authority, without
further action by the stockholders, to issue up to 10,000,000 shares of
preferred stock, no par value, in one or more series. The board of directors
will also have the authority to designate the rights, preferences, privileges
and restrictions of each such series, including dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption, redemption
prices, liquidation preferences and the number of shares constituting any
series. The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of HomeGrocer.com without further
action by the stockholders. The issuance of preferred stock with voting and
conversion rights may also adversely affect the voting power of the holders of
common stock. In some circumstances, an issuance of preferred stock could have
the effect of decreasing the market price of the common stock. HomeGrocer.com
currently has no plans to issue any shares of preferred stock.
Warrants
As of January 1, 2000, there were warrants outstanding to purchase an
aggregate of 2,749,248 shares of common stock, at a weighted average exercise
price of $1.00 per share. Warrants to purchase 2,015,666 shares of common stock
will expire, if not exercised, upon completion of the offering. Warrants to
purchase the other 733,582 shares of common stock will expire between July 20,
2005 and September 15, 2009. Generally, each warrant contains provisions for
the adjustment of the exercise price and the aggregate number of shares
issuable upon the exercise of the warrant under some circumstances, including
stock dividends, stock splits, reorganizations, reclassifications or
consolidations.
Registration Rights
The holders of 84,481,738 shares of common stock (assuming the conversion of
all outstanding preferred stock upon completion of this offering) and warrants
to purchase 2,749,248 shares of common stock or their
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transferees are entitled to rights with respect to the registration of such
shares under the Securities Act. These rights are provided under the terms of
various agreements between HomeGrocer.com and the holders of these securities.
Subject to limitations in these agreements, the holders of at least 25% of
these securities then outstanding, or a lesser amount if the offering price to
the public would be an aggregate of at least $5,000,000, may require on two
occasions beginning six months after the date of this prospectus that we use
our best efforts to register these securities for public resale if Form S-3 is
not available. If HomeGrocer.com registers any of its common stock either for
its own account or for the account of other security holders, the holders of
these securities are entitled to include their shares of common stock in that
registration, subject to the ability of the underwriters to limit the number of
shares included in the offering. The holders of these securities may also
require us, not more than twice in any 12-month period, to register all or a
portion of these securities on Form S-3 when the use of that form becomes
available, provided, among other limitations, that the proposed aggregate
selling price, net of any underwriters' discounts or commissions, is at least
$1,000,000. We will be responsible for paying all registration expenses, and
the holders selling their shares will be responsible for paying all selling
expenses.
State Anti-Takeover Law and Charter and Bylaw Provisions
Provisions of state law and our articles of incorporation and bylaws could
make more difficult the acquisition of HomeGrocer.com by means of a tender
offer, a proxy contest or otherwise and the removal of incumbent officers and
directors. These provisions, summarized below, are expected to discourage
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of HomeGrocer.com to first negotiate with
us. We believe that the benefits of increased protection of our potential
ability to negotiate with the proponent of an unfriendly or unsolicited
proposal to acquire or restructure HomeGrocer.com outweigh the disadvantages of
discouraging such proposals because, among other things, negotiation of such
proposals could result in an improvement of their terms.
Election and Removal of Directors. Effective upon the closing of this
offering, our articles of incorporation will provide for the division of our
board of directors into three classes, as nearly as equal in number as
possible, with the directors in each class serving for a three-year term, and
one class being elected each year by our shareholders. The initial term of the
Class I directors expires at our annual meeting of shareholders to be held in
2000; the initial term of the Class II directors expires at our annual meeting
of shareholders to be held in 2001; and the initial term of the Class III
directors expires at our annual meeting of shareholders to be held in 2002.
Thereafter, the term of each class of directors will be three years. This
system of electing and removing directors generally makes it more difficult for
shareholders to replace a majority of the members of our board of directors and
may tend to discourage a third party from making a tender offer or otherwise
attempting to gain control of HomeGrocer.com and may have the effect of
maintaining the incumbency of our board of directors.
Supermajority Vote to Amend Bylaw Provisions. Effective upon the completion
of this offering, our bylaws will provide that (1) any amendment to the bylaws
that increases or reduces the authorized number of directors shall require the
affirmative approval of at least two-thirds of the directors and (2) any
amendment or repeal of the bylaws relating to these provisions by the
shareholders will require the affirmative approval of holders of at least two-
thirds of our outstanding capital stock. This provision is principally intended
to prevent a shareholder or shareholders having a majority of the common stock
from making changes in the bylaws to increase the number of directors or reduce
the authority of our board or directors. It also may have the effect of
discouraging efforts to acquire control of the board of directors and thus make
takeovers or changes in control more difficult.
Shareholder Meetings. Effective upon the completion of this offering, our
bylaws will provide that, except as otherwise required by law or by our
articles of incorporation, special meetings of the shareholders may only be
called pursuant to a resolution adopted by our chief executive officer,
president, the chairman of our board of directors or a majority of the board of
directors. These provisions of our articles of incorporation and bylaws could
discourage potential acquisition proposals and could delay or prevent a change
of control.
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Our intent in using these provisions is to enhance the likelihood of continuity
and stability in the composition of our board of directors and in the policies
formulated by them and to discourage transactions that may involve an actual or
threatened change of control. These provisions are designed to reduce our
vulnerability to an unsolicited acquisition proposal and to discourage tactics
that may be used in proxy fights. However, these provisions could have the
effect of discouraging others from making tender offers for our shares and, as
a consequence, they could inhibit fluctuations in the market price of our
shares that could result from actual or rumored takeover attempts. Such
provisions could have the effect of preventing changes in our management.
Requirements for Advance Notification of Shareholder Nominations and
Proposals. Effective upon the completion of this offering, our bylaws will
contain advance notice procedures with respect to shareholder proposals and the
nomination of candidates for election as directors, other than nominations made
by or at the direction of the board of directors or a committee thereof.
Elimination of Shareholder Action by Written Consent. Effective upon the
closing of this offering, our articles of incorporation will not permit
shareholders to act by written consent.
Elimination of Cumulative Voting. Effective upon the closing of this
offering, our articles of incorporation and bylaws will not provide for
cumulative voting in the election of directors.
Undesignated Preferred Stock. Effective upon the closing of this offering,
our board of directors, without shareholder approval, has the authority under
our articles of incorporation to issue up to 10,000,000 shares of preferred
stock with rights superior to the rights of our common stock. The authorization
of undesignated preferred stock makes it possible for our board of directors to
issue preferred stock with voting or other rights or preferences that could
defer hostile takeovers or delay changes in control or management of
HomeGrocer.com.
Approval of Business Combinations. Upon completion of this offering, our
articles of incorporation will require that business combinations (including a
merger, share exchange and the sale, lease, exchange, mortgage, pledge,
transfer or other disposition or encumbrance of a substantial portion of our
assets other than in the usual and regular course of business) be approved by
the holders of at least two-thirds of our outstanding capital stock.
Washington Anti-Takeover Law. Washington law imposes restrictions on some
transactions between a corporation and significant shareholders. Chapter 23B.19
of the Washington Business Corporation Act prohibits a "target corporation",
with some exceptions, from engaging in significant business transactions with
an "acquiring person", which is defined as a person or group of persons that
beneficially owns 10% or more of the voting securities of the target
corporation, for a period of five years after such acquisition, unless the
transaction or acquisition of shares is approved by a majority of the members
of the target corporation's board of directors prior to the time of such
acquisition. Such prohibited transactions include, among other things:
. a merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from the acquiring person;
. termination of 5% or more of the employees of the target corporation as
a result of the acquiring person's acquisition of 10% or more of the
shares; or
. allowing the acquiring person to receive any disproportionate benefit as
a shareholder.
After the five-year period, a "significant business transaction" may occur,
as long as it complies with the "fair price" provisions of the statute. A
corporation may not opt out of this statute. This provision may have the effect
of delaying, deterring or preventing a change of control of HomeGrocer.com.
Delaware Anti-Takeover Law. Prior to our reincorporation from the state of
Delaware into the state of Washington, Section 203 of the Delaware General
Corporation Law, which regulates corporate acquisitions, will apply to us and
could make more difficult the acquisition of HomeGrocer.com by a third party
and the
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removal of incumbent officers and directors. These provisions, summarized
below, are expected to discourage certain types of coercive takeover practices
and inadequate takeover bids and to encourage persons seeking to acquire
control of HomeGrocer.com to first negotiate with us. We believe that the
benefits of increased protection of our ability to negotiate with the proponent
of an unfriendly or unsolicited proposal to acquire or restructure
HomeGrocer.com outweigh the disadvantages of discouraging such proposals
because, among other things, negotiation of such proposals could result in an
improvement of their terms. In general, Section 203 prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years following the date the
person became an interested stockholder, unless:
. the board of directors approved the transaction in which such
stockholder became an interested stockholder prior to the date the
interested stockholder attained such status;
. upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, he or she owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also
officers and shares in employee stock plans in which the participants
have no right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer; or
. on or subsequent to such date the business combination is approved by
the board of directors and authorized by 66 2/3% vote at an annual or
special meeting of stockholders.
A business combination generally includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. In general, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock.
In addition to the provisions summarized above, Amazon.com's right of first
refusal may also delay, defer or prevent a change of control. See "Related
Party Transactions."
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services LLC. The Transfer Agent's address is 520 Pike Street,
Suite 1220, Seattle, WA 98101, and its telephone number is (206) 674-3030.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. Furthermore, since only a limited
number of shares will be available for sale shortly after this offering
because of contractual and legal restrictions on resale, sales of substantial
amounts of our common stock in the public market after the restrictions lapse
could adversely affect the prevailing market price and our ability to raise
equity capital in the future.
Upon completion of the offering, we will have 124,812,274 shares of common
stock outstanding. Of these shares, 22,000,000 shares sold in the offering
(plus any shares issued upon exercise of the underwriters' over-allotment
option) will be freely tradable without restriction under the Securities Act,
unless purchased by "affiliates" of HomeGrocer.com as that term is defined in
Rule 144 under the Securities Act, which generally includes officers,
directors or 10% stockholders, or unless purchased by employees of
HomeGrocer.com directly from the underwriters'.
The remaining 102,812,274 shares outstanding are "restricted securities"
within the meaning of Rule 144 under the Securities Act. These shares may be
sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144 or 701 promulgated under the
Securities Act, which are summarized below. Sales of these shares in the
public market, or the availability of such shares for sale, could adversely
affect the market price of the common stock.
Each of our officers, directors and most of our stockholders have entered
into lock-up agreements generally providing that they will not sell, otherwise
dispose of or transfer any of the economic consequences of ownership of our
common stock or other securities during the period ending 180 days after the
date of this prospectus without the prior written consent of Morgan Stanley &
Co. Incorporated. See "Underwriters" for a more complete description of the
lock-up agreements. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144 and 701, shares subject to lock-up agreements will not be salable
from the date of this prospectus until such agreements expire or are waived by
the designated underwriters' representative. Taking into account the lock-up
agreements, and assuming Morgan Stanley & Co. Incorporated does not release
stockholders from these agreements, the following shares will be eligible for
sale in the public market at the following times:
. Beginning on the effective date of this prospectus, only the shares sold
in the offering will be immediately available for sale in the public
market.
. Beginning 180 days after the effective date, approximately
shares will be eligible for sale pursuant to Rule 701 and approximately
additional shares will be eligible for sale pursuant to Rule
144, of which all but shares are held by affiliates.
. An additional shares will be eligible for sale pursuant to
Rule 144 by . Shares eligible to be sold by affiliates
pursuant to Rule 144 are subject to volume restrictions as described
below.
In general, under Rule 144 as currently in effect, and beginning after the
expiration of the lock-up agreements (180 days after the date of this
prospectus) of a person (or persons whose shares are aggregated) who has
beneficially owned restricted shares for at least one year would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of: (1) 1% of the number of shares of common stock then
outstanding (which will equal approximately 1,248,123 shares immediately after
the offering); or (2) the average weekly trading volume of the common stock
during the four calendar weeks preceding the sale. Sales under Rule 144 are
also subject to manner of sale provisions and notice requirements and to the
availability of current public information about HomeGrocer.com. Under Rule
144(k), a person who is not deemed to have been an affiliate of HomeGrocer.com
at any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, is entitled to
sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
66
<PAGE>
The holders of approximately 84,481,738 shares of common stock and warrants
to purchase 2,749,248 shares of common stock or their transferees are also
entitled to rights with respect to registration of their shares of common stock
for offer or sale to the public. If the holders, by exercising their
registration rights, cause a large number of shares to be registered and sold
in the public market, the sales could have a material adverse effect on the
market price for our common stock.
As a result of the lock-up agreements, all of our employees holding over
shares of common stock or stock options may not sell shares acquired
upon exercise until 180 days after the date of this prospectus. Beginning 180
days after the date of this prospectus, any employee, officer or director of or
consultant to HomeGrocer.com who purchased shares pursuant to a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. In addition,
we intend to file registration statements under the Securities Act as promptly
as possible after the effective date to register shares to be issued pursuant
to our employee benefit plans. As a result, any options exercised under the
Stock Plan or any other benefit plan after the effectiveness of such
registration statement will also be freely tradable in the public market,
except that shares held by affiliates will still be subject to the volume
limitation, manner of sale, notice and public information requirements of Rule
144 unless otherwise resalable under Rule 701. As of January 1, 2000, there
were outstanding options to purchase 5,886,342 shares of common stock, of which
options to purchase approximately 327,352 shares were vested and exercisable.
67
<PAGE>
MATERIAL U.S. FEDERAL TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS
The following is a general discussion of the material U.S. federal income
and estate tax consequences of the ownership and disposition of common stock by
a beneficial owner that is a "Non-U.S. Holder." A "Non-U.S. Holder" is a person
or entity that, for U.S. federal income tax purposes, is a non-resident alien
individual, a foreign corporation, a foreign partnership, or a foreign estate
or trust.
This discussion is based on the Internal Revenue Code of 1986, as amended,
and administrative interpretations as of the date of this prospectus, all of
which are subject to change, including changes with retroactive effect. This
discussion does not address all aspects of U.S. federal income and estate
taxation that may be relevant to Non-U.S. Holders in light of their particular
circumstances and does not address any tax consequences arising under the laws
of any state, local or foreign jurisdiction. Prospective holders should consult
their tax advisors with respect to the particular tax consequences to them of
owning and disposing of common stock, including the consequences under the laws
of any state, local or foreign jurisdiction.
Dividends
Dividends paid to a Non-U.S. Holder of common stock generally will be
subject to withholding tax at a 30% rate or a reduced rate specified by an
applicable income tax treaty. For purposes of determining whether tax is to be
withheld at a reduced rate under an income tax treaty, HomeGrocer.com will
presume that dividends, if any, paid on or before December 31, 2000 to an
address in a foreign country are paid to a resident of that country unless it
has knowledge that the presumption is not warranted.
In order to obtain a reduced rate of withholding for dividends paid after
December 31, 2000, a Non-U.S. Holder will be required to provide an Internal
Revenue Service Form W-8BEN certifying its entitlement to benefits under a
treaty. In addition, in cases where dividends are paid to a Non-U.S. Holder
that is a partnership or other pass-through entity, persons holding an interest
in the entity may need to provide the required certification.
The withholding tax does not apply to dividends paid to a Non-U.S. Holder
that provides a Form 4224 or, after December 31, 2000, a Form W-8ECI,
certifying that the dividends are effectively connected with the Non-U.S.
Holder's conduct of a trade or business within the United States. Instead, the
effectively connected dividends will be subject to regular U.S. income tax as
if the Non-U.S. Holder were a U.S. resident. A non-U.S. corporation receiving
effectively connected dividends may also be subject to an additional "branch
profits tax" imposed at a rate of 30% (or a lower treaty rate) on an earnings
amount that is net of the regular tax.
We do not anticipate paying any dividends in the foreseeable future.
Gain on Disposition of Common Stock
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
on gain realized on a sale or other disposition of common stock unless:
. the gain is effectively connected with a trade or business of the Non-
U.S. Holder in the United States,
. in the case of Non-U.S. Holders who are non-resident alien individuals
and hold the common stock as a capital asset, the individuals are
present in the United States for 183 or more days in the taxable year of
the disposition,
. the Non-U.S. Holder is subject to tax under the provisions of the Code
regarding the taxation of U.S. expatriates, or
. HomeGrocer.com is or has been a U.S. real property holding corporation
at any time within the five-year period preceding the disposition or the
Non-U.S. Holder's holding period, whichever period is shorter.
68
<PAGE>
The tax relating to stock in a U.S. real property holding corporation does
not apply to a Non-U.S. Holder whose holdings, actual and constructive, at all
times during the applicable period, amount to 5% or less of the common stock of
a U.S. real property holding corporation, provided that the common stock is
regularly traded on an established securities market. Generally, a corporation
is a U.S. real property holding corporation if the fair market value of its
U.S. real property interests, as defined in the Code and applicable
regulations, equals or exceeds 50% of the aggregate fair market value of its
worldwide real property interests and its other assets used or held for use in
a trade or business. HomeGrocer.com believes that it is not, and does not
anticipate becoming, a U.S. real property holding corporation.
Information Reporting Requirements and Backup Withholding
HomeGrocer.com must report to the IRS the amount of dividends paid, the name
and address of the recipient, and the amount of any tax withheld. A similar
report is sent to the Non-U.S. Holder. Under tax treaties or other agreements,
the IRS may make its reports available to tax authorities in the recipient's
country of residence. Dividends paid on or before December 31, 2000 at an
address outside the United States are not subject to backup withholding, unless
the payor has knowledge that the payee is a U.S. person. However, a Non-U.S.
Holder may need to certify its non-U.S. status in order to avoid backup
withholding at a 31% rate on dividends paid after December 31, 2000 or
dividends paid on or before that date at an address inside the United States.
U.S. information reporting and backup withholding generally will not apply
to a payment of proceeds of a disposition of common stock where the transaction
is effected outside the United States through a non-U.S. office of a non-U.S.
broker. However, a Non-U.S. Holder may need to certify its non-U.S. status in
order to avoid information reporting and backup withholding at a 31% rate on
disposition proceeds where the transaction is effected by or through a U.S.
office of a broker. In addition, U.S. information reporting requirements may
apply to the proceeds of a disposition effected by or through a non-U.S. office
of a U.S. broker, or by a non-U.S. broker with specified connections to the
United States.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. When withholding results in an overpayment of taxes, a refund may be
obtained if the required information is furnished to the IRS.
Federal Estate Tax
An individual Non-U.S. Holder who is treated as the owner of, or has made
lifetime transfers of, an interest in the common stock will be required to
include the value of the stock in his gross estate for U.S. federal estate tax
purposes, and may be subject to U.S. federal estate tax unless an applicable
estate tax treaty provides otherwise.
69
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the U.S. underwriters named below,
for whom Morgan Stanley & Co. Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation, Hambrecht & Quist LLC, Banc of America Securities LLC
and J.C. Bradford & Co. are acting as U.S. representatives, and the
international underwriters named below for whom Morgan Stanley & Co.
International Limited, Donaldson, Lufkin & Jenrette International, Hambrecht &
Quist LLC, Bank of America International Limited and J.C. Bradford & Co. are
acting as international representatives, have severally agreed to purchase, and
HomeGrocer.com has agreed to sell to them, severally, the number of shares
indicated below:
<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated................................
Donaldson, Lufkin & Jenrette Securities Corporation..............
Hambrecht & Quist LLC............................................
Banc of America Securities LLC...................................
J.C. Bradford & Co. .............................................
Morgan Stanley Dean Witter Online Inc............................
DLJdirect Inc....................................................
Subtotal.........................................................
=========
International Underwriters:
Morgan Stanley & Co. International Limited.......................
Donaldson, Lufkin & Jenrette International.......................
Hambrecht & Quist LLC............................................
Bank of America International Limited............................
J.C. Bradford & Co. .............................................
Subtotal.........................................................
Total..........................................................
=========
</TABLE>
The U.S. underwriters and the international underwriters, and the U.S.
representatives and the international representatives, are collectively
referred to as the "underwriters" and the "representatives," respectively. The
underwriters are offering the shares of common stock subject to their
acceptance of the shares from HomeGrocer.com and subject to prior sale. The
underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares of common stock
offered by this prospectus are subject to the approval of legal matters by
their counsel and to other conditions. The underwriters are obligated to take
and pay for all of the shares of common stock offered by this prospectus if any
such shares are taken. However, the underwriters are not required to take or
pay for the shares covered by the underwriters' over-allotment option described
below.
In the agreement between U.S. and international underwriters, sales may be
made between U.S. underwriters and international underwriters of any number of
shares as may be mutually agreed. The per share price of any shares sold by the
underwriters shall be the public offering price listed on the cover page of
this prospectus, in U.S. dollars, less an amount not greater than the per share
amount of the concession to dealers described below.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price listed on the cover
page of this prospectus and part to dealers at a price that represents a
concession not in excess of $ a share under the public offering price. Any
underwriter may allow, and such dealers may reallow, a concession not in excess
of $ a share to other underwriters or to dealers. After the initial
offering of the shares of common stock, the offering price and other selling
terms may from time to time be varied by the representatives.
70
<PAGE>
HomeGrocer.com has granted to the U.S. underwriters an option, exercisable
for 30 days from the date of this prospectus, to purchase up to an aggregate
of additional shares of common stock at the public offering price listed on
the cover page of this prospectus, less underwriting discounts and
commissions. The U.S. underwriters may exercise this option solely for the
purpose of covering overallotments, if any, made in connection with the
offering of the shares of common stock offered by this prospectus. To the
extent the option is exercised, each U.S. underwriter will become obligated,
subject to conditions, to purchase about the same percentage of the additional
shares of common stock as the number listed next to the U.S. underwriter's
name in the preceding table bears to the total number of shares of common
stock listed next to the names of all U.S. underwriters in the preceding
table. If the U.S. underwriters' option is exercised in full, the total price
to the public would be $ , the total underwriters' discounts and
commissions would be $ and total proceeds to HomeGrocer.com would be
$ .
Morgan Stanley Dean Witter Online Inc., an affiliate of Morgan Stanley &
Co. Incorporated, and DLJdirect Inc., are acting as underwriters in connection
with the offering and will distribute shares of common stock over the Internet
to their respective eligible account holders.
The underwriters have informed HomeGrocer.com that they do not intend sales
to discretionary accounts to exceed 5% of the total number of shares of common
stock offered by them.
We will apply for quotation of our common stock on the Nasdaq National
Market under the symbol "HOMG."
Each of HomeGrocer.com and the directors, executive officers and other
stockholders of HomeGrocer.com have agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, it
will not, during the period ending 180 days after the date of this prospectus:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock
whether any transaction described above is to be settled by delivery of common
stock or such other securities, in cash or otherwise. In addition, employees
of HomeGrocer.com who purchase reserved shares directly from the Underwriters
will also be required to agree to these restrictions. The restrictions
described in this paragraph do not apply to:
. the sale of shares to the underwriters;
. the issuance by HomeGrocer.com of shares of common stock upon the
exercise of an option or a warrant or the conversion of a security
outstanding on the date of this prospectus of which the underwriters
have been advised in writing;
. transactions by any person other than HomeGrocer.com relating to shares
of common stock or other securities acquired in open market transactions
after the completion of the offering of the shares; or
. shares of stock issued in conjunction with an acquisition.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the common stock, the underwriters may bid for, and purchase,
shares of common stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the common stock in the offering, if the syndicate repurchases
previously distributed common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market
71
<PAGE>
price of the common stock above independent market levels. The underwriters are
not required to engage in these activities, and may end any of these activities
at any time.
HomeGrocer.com and the underwriters have agreed to indemnify each other
against some liabilities, including liabilities under the Securities Act.
At the request of HomeGrocer.com, the underwriters have reserved for sale,
at the initial offering price, up to 2.2 million shares offered hereby for our
directors, officers, employees, business associates, and related persons.
Employees of HomeGrocer.com who purchase these reserved shares will be subject
to contractual resale restrictions for a period of 180 days beginning on the
date of this prospectus. The shares of common stock available for sale to the
general public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares that are not so purchased will be offered
by the underwriters to the general public on the same basis as the other shares
offered hereby.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
between HomeGrocer.com and the U.S. representatives. Among the factors to be
considered in determining the initial public offering price will be the future
prospects of HomeGrocer.com and its industry in general, sales, earnings and
other financial operating information of HomeGrocer.com in recent periods, and
the price-earnings ratios, price-sales ratios, market prices of securities and
financial and operating information of companies engaged in activities similar
to those of HomeGrocer.com. The estimated initial public offering price range
set forth on the cover page of this preliminary prospectus is subject to change
as a result of market conditions and other factors.
As of the date of this prospectus, Access Technology Partners, L.P. owns
689,656 shares of our Series D preferred stock. Access Technology Partners is a
fund of investors that is managed by an entity associated with Hambrecht &
Quist LLC, one of the representatives in this offering. Employees and entities
associated with Hambrecht & Quist LLC own an aggregate of 172,412 shares of our
Series D preferred stock.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
HomeGrocer.com by Venture Law Group, A Professional Corporation, Kirkland,
Washington. Legal matters in connection with this offering will be passed upon
for the underwriters by Davis Polk & Wardwell, Menlo Park, California. As of
the date of this prospectus, directors of Venture Law Group and an investment
partnership affiliated with Venture Law Group own 53,878 shares of our Series D
preferred stock, which will convert into 53,878 shares of common stock upon
completion of this offering.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at January 2, 1999 and January 1, 2000 and for the period from
January 15, 1997 (inception) to January 3, 1998 and for the years ended January
2, 1999 and January 1, 2000, as set forth in their report. We have included our
financial statements in the prospectus and elsewhere in the registration in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
72
<PAGE>
ADDITIONAL INFORMATION AVAILABLE TO YOU
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered hereby. This prospectus does not contain all of the information set
forth in the registration statement and the exhibits and schedules. For further
information with respect to HomeGrocer.com and the common stock offered hereby,
we refer you to the registration statement and to the exhibits and schedules.
Statements made in this prospectus concerning the contents of any document
referred to herein are not necessarily complete. With respect to each such
document filed as an exhibit to the registration statement, we refer you to the
exhibit for a more complete description of the matter involved. The
registration statement and the exhibits and schedules may be inspected without
charge at the public reference facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC
located at Seven World Trade Center, 13th Floor, New York, NY 10048, and the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of all or any part of the registration statement may be
obtained from the SEC's offices upon payment of fees prescribed by the SEC. The
SEC maintains a web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC. The address of the site is www.sec.gov.
73
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................... F-2
Balance Sheets.............................................................. F-3
Statements of Operations.................................................... F-4
Statements of Shareholders' Equity.......................................... F-5
Statements of Cash Flows.................................................... F-6
Notes to Financial Statements............................................... F-7
</TABLE>
F-1
<PAGE>
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
F-2
<PAGE>
HOMEGROCER.COM, INC.
BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Shareholders'
Equity
January 2, January 1, January 1,
1999 2000 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............... 10,614 236,239 236,239
Notes receivable from officers for common
stock................................... -- (3,231) (3,231)
Deferred stock-based compensation........ -- (33,664) (33,664)
Accumulated deficit...................... (9,264) (87,300) (87,300)
------- -------- --------
Total shareholders' equity.............. 1,387 112,147 $112,147
------- -------- ========
Total liabilities & shareholders'
equity................................. $ 3,558 $146,929
======= ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
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............................. 1,064 7,455 59,208
Stock-based compensation expense...... 230 412 22,201
---------- ---------- ----------
Loss from operations................ (1,294) (7,791) (79,276)
Interest expense...................... (61) (172) (384)
Interest income....................... -- 54 2,232
Other expense......................... -- -- (608)
---------- ---------- ----------
Net loss............................ $(1,355) $(7,909) $(78,036)
========== ========== ==========
Basic and diluted net loss per share.. $ (0.14) $ (0.72) $ (5.17)
========== ========== ==========
Pro forma basic and diluted net loss
per share (unaudited)................ $ (1.19)
==========
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 (unau-
dited)............................... 65,382,807
==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
HOMEGROCER.COM, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Convertible Preferred Stock
----------------------------------------------------------------------
Notes
Series A Series B Series C Series D Common Stock Additional Receivable
---------------- ----------------- ----------------- ----------------- ------------------ Paid-in from
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Capital Officers
--------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C> <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 $74.... 7,500,000 8 -- -- -- -- -- -- -- -- 3,669 --
Issuance of
Series A
preferred stock
for consulting
services........ 500,000 -- -- -- -- -- -- -- -- -- 250 --
Issuance of
Series B
preferred stock,
net of offering
costs of $48.... -- -- 16,857,142 17 -- -- -- -- -- -- 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............ 8,000,000 8 16,857,142 17 -- -- -- -- 12,416,666 12 10,614 --
Issuance of
Series C
preferred stock,
net of offering
costs of $48.... -- -- -- -- 29,942,050 30 -- -- -- -- 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........ -- -- -- -- -- -- -- -- -- -- 1,833 --
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.... -- -- -- -- -- -- -- -- -- -- 54,032 --
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 18,407,546 $ 18 29,605,536 $ 30 $236,239 $(3,231)
========= ==== ========== ==== ========== ==== ========== ==== ========== ==== ======== =======
<CAPTION>
Total
Deferred Shareholders'
Stock-based Accumulated Equity
Compensation Deficit (Deficit)
------------ ----------- -------------
<S> <C> <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 $74.... -- -- 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........ -- -- 1,833
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.... (54,032) -- 0
Amortization of
stock-based
compensation.... 20,368 -- 20,368
Net loss and
comprehensive
loss for the
year ended
January 1,
2000............ -- (78,036) (78,036)
------------ ----------- -------------
Balance at
January 1,
2000............ $ (33,664) $ (87,300) $ 112,147
============ =========== =============
</TABLE>
See accompanying notes.
F-5
<PAGE>
HOMEGROCER.COM, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
51 Weeks Ended 52 Weeks 52 Weeks
January 15, 1997 Ended Ended
(inception) to January 2, January 1,
January 3, 1998 1999 2000
---------------- ---------- ----------
<S> <C> <C> <C>
Operating Activities:
Net loss............................... $(1,355) $(7,909) $(78,036)
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 22,201
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-6
<PAGE>
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-7
<PAGE>
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.
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.
F-8
<PAGE>
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 $1.0 million and $7.7 million for 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 option.
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.
F-9
<PAGE>
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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) $ (78,036)
=========== =========== ===========
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) $ (5.17)
=========== =========== ===========
Pro forma basic and diluted
(unaudited).......................... $ (1.19)
===========
</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.
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.
F-10
<PAGE>
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
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.
F-11
<PAGE>
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 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.
F-12
<PAGE>
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
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 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%.
F-13
<PAGE>
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
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, January 1,
1999 2000
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $ 2,796 $ 23,109
Stock-based compensation.............................. -- 286
Accrued liabilities and other......................... 336 370
------- --------
Total deferred tax assets........................... 3,132 23,765
Deferred tax liabilities--depreciation and other...... 46 575
------- --------
Net deferred tax assets............................. 3,086 23,190
Less valuation allowance............................ (3,086) (23,190)
------- --------
$ 0 $ 0
======= ========
</TABLE>
F-14
<PAGE>
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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. Stockholders' 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.
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
F-15
<PAGE>
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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
stockholders, 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.
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.
F-16
<PAGE>
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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. 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.
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
----------- ----------
Balance, January 1, 2000......... 1,787,122 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-Average Number
Range of Number of Weighted-Average Remaining of Weighted-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 $54.0 million in fiscal
1999 and will amortize the deferred stock-based compensation over the vesting
period of the underlying options. Amortization of deferred stock-based
compensation was $20.4 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 $75.2 million or $(4.98) 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
F-17
<PAGE>
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 $3.14 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 years, when the effect of the amortization of
multiple awards will be reflected in the results of operations.
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.
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........................ 1,787,122
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................ 83,629,450
==========
</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
F-18
<PAGE>
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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. 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.
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.
F-19
<PAGE>
Back Inside Cover
The back inside cover contains a heading reading "Easy to navigate web site" and
three screen shots of HomeGrocer's web site having the following three captions:
1. "Large selection of products with personalized lists for quick
shopping;"
2. "Easy-to-shop categories, product photos, nutritional information and
more;"
3. "Simple and quick checkout."
The HomeGrocer peach logo and corporate name are at the bottom of the page.
<PAGE>
[ARTWORK]
[Photograph of the back of a HomeGrocer.com delivery truck displaying
HomeGrocer.com's peach logo driving through a neighborhood]
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued , 2000
Shares
[LOGO OF HOMEGROCER.COM]
Common Stock
------------
HomeGrocer.com, Inc. is offering shares of common stock. This is
our initial public offering and no public market currently exists for our
shares.
------------
We will apply to list our common stock on the Nasdaq National Market under the
symbol "HOMG."
------------
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 7.
------------
PRICE $ A SHARE
------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions HomeGrocer.com
-------- ------------- --------------
<S> <C> <C> <C>
Per Share................................ $ $ $
Total.................................... $ $ $
</TABLE>
HomeGrocer.com has granted the underwriters the right to purchase up to an
additional shares to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. International Limited expects to deliver the shares of
common stock to purchasers on , 2000.
------------
MORGAN STANLEY DEAN WITTER_____________________DONALDSON, LUFKIN & JENRETTE
CHASE H&Q
BANK OF AMERICA INTERNATIONAL LIMITED
J.C. BRADFORD & CO.
MORGAN STANLEY DEAN WITTER ONLIN_____________________________DLJdirectEINC.
, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by HomeGrocer.com in connection
with the sale of common stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fee and the Nasdaq National
Market listing fee.
<TABLE>
<CAPTION>
Amount
to be Paid
----------
<S> <C>
SEC registration fee............................................ $80,151
NASD filing fee................................................. $30,500
Nasdaq National Market listing fee.............................. *
Printing and engraving expenses................................. *
Legal fees and expenses......................................... *
Accounting fees and expenses.................................... *
Blue Sky qualification fees and expenses........................ *
Transfer Agent and Registrar fees............................... *
Miscellaneous fees and expenses................................. *
Total....................................................... *
</TABLE>
- --------
* to be filed by amendment
Item 14. Indemnification of Directors and Officers
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act (the "WBCA") and Section 145 of the Delaware General
Corporation Law (the "DGCL") authorize a court to award, or a corporation's
board of directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under some circumstances for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). The registrant's Bylaws (Exhibits 3.4 and 3.5 hereto)
provide for indemnification of the registrant's directors, officers, employees
and agents to the maximum extent permitted by Washington or Delaware law, as
applicable. The directors and officers of the registrant also may be
indemnified against liability they may incur for serving in that capacity
pursuant to a liability insurance policy maintained by the registrant for such
purpose.
Section 23B.08.320 of the WBCA authorizes a corporation to limit a
director's liability to the corporation or its shareholders for monetary
damages for acts or omissions as a director, except in circumstances involving
intentional misconduct, knowing violations of law or illegal corporate loans or
distributions, or any transaction from which the director personally receives a
benefit in money, property or services to which the director is not legally
entitled. The registrant's Articles of Incorporation (Exhibit 3.2 hereto) and
Certificate of Incorporation (Exhibit 3.1) contain provisions implementing, to
the fullest extent permitted by Washington or Delaware law, as applicable, such
limitations on a director's liability to the registrant and its shareholders.
The registrant will enter into indemnification agreements with its officers
and directors, the form of which is attached as Exhibit 10.26 to this
Registration Statement and incorporated herein by reference. The
indemnification agreements provide the registrant's officers and directors with
indemnification to the maximum extent permitted by the WBCA.
Item 15. Recent Sales of Unregistered Securities
Since HomeGrocer.com's inception through January 1, 2000, HomeGrocer.com has
issued and sold the following unregistered securities:
1. From inception to January 1, 2000, HomeGrocer.com granted and issued
options to purchase 15,319,400 shares of its common stock with a weighted
average price of $1.05 to a number of employees,
II-1
<PAGE>
directors and consultants of HomeGrocer.com pursuant to its 1997 stock
incentive compensation plan. Among those receiving options were Tom A.
Alberg, Mary B. Anderson, Charles K. Barbo, James L. Barksdale, Rex L.
Carter, Ken Deering, Robert Duffy, Corwin Karaffa, Jonathan Landers,
Jonathan D. Lazarus, Daniel R. Lee, Daniel J. Murphy, David A. Pace, Philip
S. Schlein and Kristin H. Stred.
2. From inception to January 1, 2000, HomeGrocer.com has issued an
aggregate of 8,250,870 shares of its common stock to executive officers,
directors and employees upon the exercise of stock options granted pursuant
to the HomeGrocer.com 1997 stock incentive compensation plan with an
aggregate exercise price of $5,674,568. Among those that HomeGrocer.com
issued shares to were Tom A. Alberg, Mary B. Anderson, Charles K. Barbo,
James L. Barksdale, Rex L. Carter, Ken Deering, Robert Duffy, Corwin
Karaffa, Jonathan D. Lazarus, Jonathan Landers, Daniel R. Lee, David A.
Pace, Philip S. Schlein and Kristin H. Stred.
3. On September 29, 1997, HomeGrocer.com issued an aggregate of
15,200,000 shares of its common stock to investors and J. Terrence Drayton,
our president, in connection with the domestication of its Canadian
predecessor into the state of Delaware for consideration of the Canadian
shares.
4. On October 15, 1997 and September 1, 1998, HomeGrocer.com issued
Organic Online, Inc. a total of 800,000 shares of its common stock and
500,000 shares of its Series A preferred stock for consideration of
services rendered. On May 21, 1999, HomeGrocer repurchased 250,000 shares
of this common stock from Organic Online, Inc. in connection with an
agreement to terminate services.
5. On February 11, 1998, HomeGrocer.com granted and issued warrants with
an expiration date of December 31, 2000, to purchase an aggregate of
1,800,000 shares of its common stock, at an exercise price of $0.375 per
share, to the following investors in connection with a bridge loan
financing: an entity affiliated with the Barbo Group, Madrona Investment
Group, LLC, Geoffrey A. Boguch, an entity affiliated with Kleiner Perkins
Group, Michael B. Donald, an entity affiliated with the Heffring Group,
Richard J. Robbins and Bonnie B Robbins (as Tenants in Common), Spanish
Caravan Investments, LLC, Dennis M. Weibling, Arthur W. Harrigan, John
Maynard and Terran Ventures, Inc., Terran Ventures is an affiliate of J.
Terrence Drayton, an executive officer.
6. On June 25, 1998, HomeGrocer.com granted and issued a warrant with an
expiration date of December 31, 2000, to purchase 965,666 shares of its
common stock at an exercise price of $0.50 per share to Fitpro Pty. Ltd, in
connection with a bridge loan financing.
7. In July 1998, HomeGrocer.com granted and issued warrants with an
expiration date of July 2005 or three years from the effective date of this
offering, whichever is earlier,, to purchase an aggregate of 300,000 shares
of its common stock at an exercise price of $0.50 per share to First
Portland Corp. and Silicon Valley Bank, each in connection with a
commercial loan.
8. On September 1, 1998, HomeGrocer.com issued 16,857,142 shares of its
Series B preferred stock to investors, including to entities affiliated
with Hummer Winblad Group, entities affiliated with Kleiner Perkins Group
and the Lazarus Family Investments LLC for an aggregate cash consideration
of approximately $5,900,000.
9. On October 19, 1998, HomeGrocer.com granted and issued a warrant with
an expiration date of October 19, 2005 or three years from the effective
date of this offering, whichever is earlier, to purchase 4,120 shares of
its common stock at an exercise price of $0.50 per share to First Portland
Corp. in connection with a equipment leasing arrangement.
10. On November 9, 1998, HomeGrocer.com granted and issued a warrant,
with an expiration date of November 9, 2005 or three years from the
effective date of this offering, whichever is earlier, to purchase 153,600
shares of its Series C to Comdisco, Inc., with an exercise price of
$0.78125 per share, in connection with a equipment leasing arrangement.
11. On February 11, 1999, April 3, 1998, June 2, 1998, and July 16,
1998, HomeGrocer.com issued 8,000,000 shares of its Series A preferred
stock to investors, including but not limited to Fitpro Pty Ltd., Stewart
A. Konzen, entities affiliated with Hummer Winblad Group, entities
affiliated with the Barbo Group, Madrona Investment Group, LLC, Organic,
Inc., Richard J. Robbins and Bonnie B. Robbins
II-2
<PAGE>
(Tenants in Common), Geoffrey A. Boguch, R. Kirk Wilson, entities
affiliated with the Sonntag Group, Lazarus Family Investments LLC, and
entities associated with Kleiner Perkins Group for an aggregate cash
consideration of $4,000,000. Of the 8,000,000 shares of Series A preferred
stock, HomeGrocer.com issued 50,000 shares to Terran Ventures, Inc., an
affiliate of our president, J. Terrence Drayton. Of the 8,000,000 shares of
Series A preferred stock, HomeGrocer.com issued 100,000 shares to Director
Charles Barbo.
12. On March 15, 1999, HomeGrocer.com issued 300,000 shares of its
common stock at an exercise price of $0.375 per share to C&LB Family
Limited Partnership, an entity associated with the Barbo Group, pursuant to
a common stock warrant dated February 11, 1998, for an aggregate cash
consideration of $112,500.
13. On March 30, 1999, HomeGrocer.com issued 300,000 shares of its
common stock at an exercise price of $0.375 per share to Geoffrey A.
Boguch, pursuant to a common stock warrant dated February 11, 1998, for an
aggregate cash consideration of $112,500.
14. On April 13, 1999 and May 13, 1999, HomeGrocer.com issued 29,942,050
shares of its Series C preferred stock to investors, including but not
limited to Amazon.com, Inc., entities affiliated with the Barksdale Group,
Liberty HG, Inc., entities affiliated with the Hummer Winblad Group and
entities affiliated with the Kleiner Perkins Group for an aggregate cash
consideration of approximately $52,399,000. Of the issued 29,942,050 shares
of its Series C preferred stock, HomeGrocer.com issued 5,516 shares to
director Charles Barbo.
15. On September 9, 1999, HomeGrocer.com granted Mary Alice Taylor, our
Chairman and Chief Executive Officer and J. Terrence Drayton, our president
and a director of HomeGrocer.com, options to purchase an aggregate of
6,150,000 shares of common stock at an exercise price of $0.45 per share
and the two officers exercised the options to purchase the shares on that
date. The options were exercised for aggregate consideration of $2,767,500
in the form of cash and promissory notes from the officers. Additionally,
on September 9, 1999, HomeGrocer.com sold the two officers an aggregate of
2,050,000 shares of common stock at an exercise price of $0.45 per share
for aggregate consideration of $922,500 in the form of cash and promissory
notes from the officers.
16. On September 15, 1999, HomeGrocer.com granted and issued a warrant,
with an expiration date of September 15, 2006 or three years from the
effective date of this offering to purchase 275,862 shares of its Series D
preferred stock to Comdisco, Inc., with an exercise price $5.80 per share.
17. On October 19, 1999, HomeGrocer.com issued 100,000 shares of its
common stock at an exercise price of $0.375 per share to Spanish Caravan
Investments, LLC, pursuant to a common stock warrant dated February 11,
1998, for an aggregate cash consideration of $37,500.
18. On October 21, 1999, HomeGrocer.com issued 50,000 shares of its
common stock at an exercise price of $0.375 per share to Arthur W.
Harrigan, Jr., pursuant to a common stock warrant dated February 11, 1990,
for an aggregate cash consideration of $18,750.
19. On September 30, 1999, October 13, 1999, October 29, 1999, November
12, 1999 and November 18, 1999, HomeGrocer.com issued 18,407,546 shares of
its Series D preferred stock to investors, including but not limited to
Amazon.com, Inc., an entity affiliated with the Hummer Winblad Group,
entities affiliated with the Kleiner Perkins Group, entities associated
with the Barksdale Group, entities associated with Hambrecht & Quist Group,
Liberty HG, Inc., Madrona Investment Group, entities affiliated with Van
Wagoner Group, Martha Stewart, Comdisco, Inc., and entities affiliated with
the Lazarus Group for an aggregate cash consideration of approximately
$106,764,000. Of the 18,407,546 shares of its Series D preferred stock,
HomeGrocer.com also issued 17,200 shares to Director Charles Barbo.
Additionally, chief executive officer Mary Alice Taylor was issued 17,240
shares.
II-3
<PAGE>
20. In December 1999 and January 2000, HomeGrocer.com issued an
aggregate of 1,050,000 shares of its common stock at an exercise price of
$0.375 per share upon the exercise of common stock warrants dated February
11, 1998 and April 26, 1999, for an aggregate cash consideration of
$393,750, to: Madrona Investment Group, Michael B. Donald, Heffring
Investment Group, Richard & Bonnie Robbins, Spanish Caravan Investments,
Dennis M. Weibling, Arthur W. Harrigan, Jr., Terran Ventures, Inc., John
Maynard and entities affiliated with the Kleiner Perkins Group.
The issuances of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) and
Regulation D as transactions by an issuer not involving any public offering. In
addition, issuances described in Items 1 and 2 were deemed exempt from
registration under the Securities Act in reliance upon Rule 701 promulgated
under the Securities Act. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and warrants issued
in such transactions. All recipients had adequate access, through their
relationships with HomeGrocer.com, to information about HomeGrocer.com.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1** Restated Certificate of Incorporation of HomeGrocer.com.
3.2 Amended and Restated Articles of Incorporation of HomeGrocer.com.
3.3 Second Amended and Restated Articles of Incorporation of
HomeGrocer.com (proposed).
3.4** Bylaws of HomeGrocer.com (Delaware).
3.5 Bylaws of HomeGrocer.com (Washington).
4.1 Specimen Stock Certificate.
4.2** Third Amended and Restated Investors Rights Agreement dated September
30, 1999, as amended.
4.3** Warrant Agreement to purchase Series C Preferred Stock dated November
9, 1998 issued by HomeGrocer.com in favor of Comdisco, Inc.
4.4** Warrant Agreement to purchase Series D Preferred Stock dated September
15, 1999 issued by HomeGrocer.com in favor of Comdisco, Inc.
4.5** Form of Common Stock Purchase Warrant issued by HomeGrocer.com to
certain lenders.
4.6** Form of Common Stock Warrant Certificate issued by HomeGrocer.com in
connection with its preferred stock financings.
5.1* Opinion of Venture Law Group regarding the legality of the common
stock being registered.
10.1**+ Advertising Agreement dated November 18, 1999 between HomeGrocer.com
and Amazon.com, LLC.
10.2** Lease Agreement dated August 16, 1999 between HomeGrocer.com and
Valley Freightliner, Inc.
10.3** Revolving Line of Credit Commitment Letter dated June 11, 1999 by
Mercedes-Benz Credit Corporation in favor of HomeGrocer.com, Inc.
10.4** Master Lease Agreement dated November 9, 1998 between HomeGrocer.com
and Comdisco, Inc.
10.5** Addendum to Master Lease Agreement dated as of November 9, 1999
between HomeGrocer.com and Comdisco, Inc.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.6** Subordinated Loan and Security Agreement dated September 15, 1999
between HomeGrocer.com and Comdisco, Inc.
10.7** Form of Promissory Note dated September 9, 1999 issued by Mary Alice
Taylor in favor of HomeGrocer.com.
10.8** Form of Promissory Note dated September 9, 1999 issued by J. Terrence
Drayton in favor of HomeGrocer.com.
10.9 Employment Agreement dated September 2, 1999 between HomeGrocer.com
and Mary Alice Taylor.
10.10 Employment Agreement dated June 1, 1999 between HomeGrocer.com and J.
Terrence Drayton.
10.11 Employment Agreement dated November 3, 1999 between HomeGrocer.com and
Daniel R. Lee.
10.12 Employment Agreement dated August 31, 1999 between HomeGrocer.com and
David A. Pace.
10.13** Facility Lease dated May 19, 1999 between HomeGrocer.com, as
sublessee, and The Plaza at Yarrow Bay, LLC.
10.14** Facility Sublease dated July 22, 1999 between HomeGrocer.com, as
sublessor, and AT&T Wireless Services of Washington, Inc.
10.15** Facility Sublease dated April 8, 1999 between HomeGrocer.com, as
sublessee, and Delta Engineering and Manufacturing.
10.16** Facility Lease dated July 23, 1999 between HomeGrocer.com, as lessee,
and Exposition Property Associates (interest transferred from The
Ezralow Company, LLC).
10.17** Facility Lease dated November 4, 1996 between HomeGrocer.com, as
successor in interest to the lessee, and Benaroya Capital Company,
LLC.
10.18** Facility Sublease dated June 24, 1999 between HomeGrocer.com, as
sublessor, and A&M Warehouses, Incorporated.
10.19** Facility Lease dated July 8, 1999 between HomeGrocer.com, as lessee,
and Lincoln-RECP Fullerton OPCO, LLC.
10.20** Facility Lease dated August 10, 1999 between HomeGrocer.com, as
lessee, and Realty Associates Iowa Corporation.
10.21** Facility Lease dated May 24, 1999 between HomeGrocer.com, as
sublessee, and The Concourse Joint Venture.
10.22** Amendment No. 1 dated June 21, 1999 to the Facility Lease dated May
24, 1999 between HomeGrocer.com, as sublessee, and The Concourse Joint
Venture.
10.23** Facility Sublease dated November 15, 1999 between HomeGrocer.com, as
sublessee, and Thyssen Dover Elevator.
10.24** Facility Lease dated November 15, 1999 between HomeGrocer.com, as
lessee, and Watson Partners, L.P.
10.25** Commercial Lease Agreement dated December 17, 1999 between
HomeGrocer.com as Lessee, and CB Luna Industrial No. 3, Ltd.
10.26** Form of Indemnification Agreement between HomeGrocer.com and each of
its Officers and Directors.
10.27 1997 Stock Incentive Compensation Plan dated April 1997.
10.28 1999 Stock Incentive Plan dated December 1999.
10.29 1999 Employee Stock Purchase Plan dated December 1999.
10.30 1999 Directors' Stock Option Plan dated December 1999.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.31 Network Services Agreement dated December 17, 1997 between
HomeGrocer.com and InterNAP Network Services Corporation.
10.32 Employment Agreement dated November 22, 1999 between HomeGrocer.com and
Rex L. Carter.
10.33 Facility Lease dated January 14, 2000 between HomeGrocer.com and
Reliance Hamilton Associates, LLC.
10.34* Facility Lease dated October 1, 1999 between HomeGrocer.com and Waples
Corporation.
10.35* Facility Lease dated between HomeGrocer.com and The
Irvine Company.
10.36* Facility Lease dated January 25, 2000 between HomeGrocer.com and Mercy
Capital Center Joint Venture.
21.1** List of Subsidiaries.
23.1 Consent of Ernst & Young LLP.
23.2* Consent of Venture Law Group (included in Exhibit 5.1).
24.1** Power of Attorney (included in signature page to Registration
Statement).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment has been requested for portions of the copy of the
exhibit filed with the Securities and Exchange Commission. The omitted
information has been filed separately with the Securities and Exchange
Commission under our application for confidential treatment.
(b) Financial Statement Schedules
Schedules have been omitted because the information required to be set forth
therein is not applicable or is shown in the financial statements or notes
thereto.
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as 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 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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Kirkland,
State of Washington on January 31, 2000.
HomeGrocer.com, Inc.
/s/ Mary Alice Taylor
By: _________________________________
Mary Alice Taylor
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Mary Alice Taylor Chairman of the Board and January 31, 2000
______________________________________ Chief Executive Officer
Mary Alice Taylor
* Chief Financial Officer January 31, 2000
______________________________________
Daniel R. Lee
* President and Director January 31, 2000
______________________________________
J. Terrence Drayton
* Director January 31, 2000
______________________________________
Tom A. Alberg
* Director January 31, 2000
______________________________________
Charles K. Barbo
* Director January 31, 2000
______________________________________
James L. Barksdale
* Director January 31, 2000
______________________________________
Mark P. Gorenberg
* Director January 31, 2000
______________________________________
Jonathan D. Lazarus
* Director January 31, 2000
______________________________________
Douglas Mackenzie
* Director January 31, 2000
______________________________________
David Risher
* Director January 31, 2000
______________________________________
Philip S. Schlein
/s/ Mary Alice Taylor January 31, 2000
*By: _________________________________
Mary Alice Taylor
Attorney-in-Fact
</TABLE>
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1** Restated Certificate of Incorporation of HomeGrocer.com.
3.2 Amended and Restated Articles of Incorporation of HomeGrocer.com.
3.3 Second Amended and Restated Articles of Incorporation of
HomeGrocer.com (proposed).
3.4** Bylaws of HomeGrocer.com (Delaware).
3.5 Bylaws of HomeGrocer.com (Washington).
4.1 Specimen Stock Certificate.
4.2** Third Amended and Restated Investors Rights Agreement dated September
30, 1999, as amended.
4.3** Warrant Agreement to purchase Series C Preferred Stock dated November
9, 1998 issued by HomeGrocer.com in favor of Comdisco, Inc.
4.4** Warrant Agreement to purchase Series D Preferred Stock dated September
15, 1999 issued by HomeGrocer.com in favor of Comdisco, Inc.
4.5** Form of Common Stock Purchase Warrant issued by HomeGrocer.com to
certain lenders.
4.6** Form of Common Stock Warrant Certificate issued by HomeGrocer.com in
connection with its preferred stock financings.
5.1* Opinion of Venture Law Group regarding the legality of the common
stock being registered.
10.1**+ Advertising Agreement dated November 18, 1999 between HomeGrocer.com
and Amazon.com, LLC.
10.2** Lease Agreement dated August 16, 1999 between HomeGrocer.com and
Valley Freightliner, Inc.
10.3** Revolving Line of Credit Commitment Letter dated June 11, 1999 by
Mercedes-Benz Credit Corporation in favor of HomeGrocer.com, Inc.
10.4** Master Lease Agreement dated November 9, 1998 between HomeGrocer.com
and Comdisco, Inc.
10.5** Addendum to Master Lease Agreement dated as of November 9, 1999
between HomeGrocer.com and Comdisco, Inc.
10.6** Subordinated Loan and Security Agreement dated September 15, 1999
between HomeGrocer.com and Comdisco, Inc.
10.7** Form of Promissory Note dated September 9, 1999 issued by Mary Alice
Taylor in favor of HomeGrocer.com.
10.8** Form of Promissory Note dated September 9, 1999 issued by J. Terrence
Drayton in favor of HomeGrocer.com.
10.9 Employment Agreement dated September 2, 1999 between HomeGrocer.com
and Mary Alice Taylor.
10.10 Employment Agreement dated June 1, 1999 between HomeGrocer.com and J.
Terrence Drayton.
10.11 Employment Agreement dated November 3, 1999 between HomeGrocer.com and
Daniel R. Lee.
10.12 Employment Agreement dated August 31, 1999 between HomeGrocer.com and
David A. Pace.
10.13** Facility Lease dated May 19, 1999 between HomeGrocer.com, as
sublessee, and The Plaza at Yarrow Bay, LLC.
10.14** Facility Sublease dated July 22, 1999 between HomeGrocer.com, as
sublessor, and AT&T Wireless Services of Washington, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.15** Facility Sublease dated April 8, 1999 between HomeGrocer.com, as
sublessee, and Delta Engineering and Manufacturing.
10.16** Facility Lease dated July 23, 1999 between HomeGrocer.com, as lessee,
and Exposition Property Associates (interest transferred from The
Ezralow Company, LLC).
10.17** Facility Lease dated November 4, 1996 between HomeGrocer.com, as
successor in interest to the lessee, and Benaroya Capital Company,
LLC.
10.18** Facility Sublease dated June 24, 1999 between HomeGrocer.com, as
sublessor, and A&M Warehouses, Incorporated.
10.19** Facility Lease dated July 8, 1999 between HomeGrocer.com, as lessee,
and Lincoln-RECP Fullerton OPCO, LLC.
10.20** Facility Lease dated August 10, 1999 between HomeGrocer.com, as
lessee, and Realty Associates Iowa Corporation.
10.21** Facility Lease dated May 24, 1999 between HomeGrocer.com, as
sublessee, and The Concourse Joint Venture.
10.22** Amendment No. 1 dated June 21, 1999 to the Facility Lease dated May
24, 1999 between HomeGrocer.com, as sublessee, and The Concourse Joint
Venture.
10.23** Facility Sublease dated November 15, 1999 between HomeGrocer.com, as
sublessee, and Thyssen Dover Elevator.
10.24** Facility Lease dated November 15, 1999 between HomeGrocer.com, as
lessee, and Watson Partners, L.P.
10.25** Commercial Lease Agreement dated December 17, 1999 between
HomeGrocer.com as Lessee, and CB Luna Industrial No. 3, Ltd.
10.26** Form of Indemnification Agreement between HomeGrocer.com and each of
its Officers and Directors.
10.27 1997 Stock Incentive Compensation Plan dated April 1997.
10.28 1999 Stock Incentive Plan dated December 1999.
10.29 1999 Employee Stock Purchase Plan dated December 1999.
10.30 1999 Directors' Stock Option Plan dated December 1999.
10.31 Network Services Agreement dated December 17, 1997 between
HomGrocer.com and InterNAP Network Services Corporation.
10.32 Employment Agreement dated November 22, 1999 between HomeGrocer.com
and Rex L. Carter.
10.33 Facility Lease dated January 14, 2000 between HomeGrocer.com and
Reliance Hamilton Associates, LLC.
10.34* Facility Lease dated October 1, 1999 between HomeGrocer.com and Waples
Corporation.
10.35* Facility Lease dated between HomeGrocer.com and The
Irvine Company.
10.36* Facility Lease dated January 25, 2000 between HomeGrocer.com and Mercy
Capital Center Joint Venture.
21.1** List of Subsidiaries.
23.1 Consent of Ernst & Young LLP.
23.2* Consent of Venture Law Group (included in Exhibit 5.1).
24.1** Power of Attorney (included in signature page to Registration
Statement).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment has been requested for portions of the copy of the
exhibit filed with the Securities and Exchange Commission. The omitted
information has been filed separately with the Securities and Exchange
Commission under our application for confidential treatment.
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
HOMEGROCER.COM WASHINGTON, INC.
ARTICLE 1. NAME
The name of this corporation is HomeGrocer.com, Inc (the "Corporation").
ARTICLE 2. SHARES
2.1 Authorized Shares
The total authorized stock of this Corporation shall consist of 130,000,000
shares of common stock having no par value per share (the "Common Stock") and
78,357,142 shares of preferred stock having no par value per share (the
"Preferred Stock").
The Preferred Stock shall be divided into series: 8,000,000 shares of
Preferred Stock shall be designated Series A Preferred Stock (the "Series A
Stock"), 16,857,142 shares of Preferred Stock shall be designated Series B
Preferred Stock (the "Series B Stock"), 30,200,000 shares of Preferred Stock
shall be designated Series C Preferred Stock (the "Series C Stock"), and
23,300,000 shares of Preferred Stock shall be designated Series D Preferred
Stock (the "Series D Stock").
The relative powers, preferences, special rights, qualifications,
limitations and restrictions granted to or imposed on the Preferred Stock and
the Common Stock are set forth below.
2.2 Preferred Stock
The rights, preferences, restrictions and other matters relating to
Preferred Stock are set forth below.
2.2.1 Liquidation Rights
Upon the voluntary or involuntary dissolution, liquidation or winding up of
the Corporation, the Corporation's assets available for distribution to the
Corporation's stockholders shall be distributed in the following order and
amounts:
(a) General. The holders of Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the Corporation's
assets to the holders of Common Stock by reason of their ownership thereof, an
amount per share equal to the sum of: (i) Fifty Cents ($.50) for each
outstanding share of Series A Stock, Thirty-Five Cents ($.35) for each
outstanding share of Series B Stock, One Dollar Seventy Five Cents ($1.75) for
each outstanding share of Series C Stock, and Five Dollars Eighty Cents ($5.80)
for each outstanding share of Series D Stock; and (ii) all
<PAGE>
declared but unpaid dividends on such shares of Preferred Stock. If, upon the
occurrence of such voluntary or involuntary dissolution, liquidation or winding
up of the Corporation, the assets and funds thus distributed among the holders
of Preferred Stock shall be insufficient to permit the payment to such holders
of the full aforesaid preferential amounts, then the entire assets and funds of
the Corporation legally available for distribution shall be distributed ratably
among the holders of Preferred Stock in the same proportions as the full
preferential amount each such holder would otherwise be entitled to receive
bears to the total of the full preferential amount that would otherwise be
payable to the holders of Preferred Stock.
(b) Limitation. Upon the completion of the distributions set forth
in Section 2.2.1(a), if assets remain in the Corporation, the holders of Common
Stock, Series A Stock, Series B Stock, and Series C Stock shall be entitled to
share ratably (as though all such shares of Preferred Stock were converted to
Common Stock under the provisions of this Restated Articles of Incorporation, as
at any time amended) in the Corporation's remaining assets until such time as
the holders of Series A Stock have been paid an aggregate of One Dollar Fifty
Cents ($1.50) per share of Series A Stock, the holders of Series B Stock have
been paid an aggregate of One Dollar Five Cents ($1.05) per share of Series B
Stock, the holders of Series C Stock have been paid an aggregate of Five Dollars
Twenty-Five Cents ($5.25) per share of Series C Stock, pursuant to Section
2.2.1(a) and this Section 2.2.l(b). After the holders of the Series A Stock,
Series B Stock, and Series C Stock have received an aggregate amount under
Section 2.2.1(a) and this Section 2.2.1(b) equal to One Dollar Fifty Cents
($1.50) per share, One Dollar Five Cents ($1.05) per share, and Five Dollars
Twenty-Five Cents ($5.25) per share, respectively, the remaining assets of the
Corporation available for distribution to stockholders shall be distributed
ratably among the holders of Common Stock.
(c) Treatment of Consolidations, Mergers and Sales of Assets. The
sale of all or substantially all of the Corporation's assets or stock, or the
acquisition of the Corporation by another entity by means of any transaction or
Series of related transactions (including, without limitation, any merger,
consolidation, share exchange or reorganization), that results in the transfer
of fifty percent (50%) or more of the outstanding voting power of the
Corporation shall be regarded as a liquidation within the meaning of this
Section 2.2.1; provided, however, that each holder of Preferred Stock shall have
the right to elect the benefits of the provisions of Section 2.2.3 or other
applicable conversion provisions prior to any distribution in connection with
the liquidation, dissolution or winding up of the Corporation pursuant to this
Section 2.2.1.
(d) Distributions Other Than Cash. Whenever the distribution
provided for in this Section 2.2.1 shall be payable in property other than cash,
the value of such distribution shall be the fair market value of such property
as determined in good faith by the Corporation's Board of Directors. Any
securities shall be valued as follows:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability covered by (ii) below:
(A) If traded on a securities exchange or through the
Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange or system over the thirty (30)
day period ending three (3) days prior to the closing;
<PAGE>
(B) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing prices of the securities on such
exchange or system over the thirty (30) day period ending three (3) days prior
to the closing; and
(C) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by this Corporation and
the holders of at least a majority of shares of Preferred Stock, voting together
as a single class and on an as-converted to Common Stock basis.
(ii) The method of valuation of securities subject to investment
letter or other restrictions on free marketability (other than restrictions
arising solely by virtue of a stockholder's status as an affiliate or former
affiliate) shall be to make an appropriate discount from the market value
determined as above in (i) (A), (B) and (C) to reflect the approximate fair
market value thereof, as mutually determined by this Corporation and the holders
of at least a majority of shares of Preferred Stock, voting together as a single
class and on an as-converted to Common Stock basis.
2.2.2 Voting Power
(a) General. Subject to Section 2.2.2(c) hereof, and except as
provided in Section 2.2.2(d), each holder of Preferred Stock shall be entitled
to vote on all matters and shall be entitled to that number of votes equal to
the largest number of whole shares of Common Stock into which such holder's
shares of Preferred Stock could be converted under Section 2.2.3, at the record
date for the determination of stockholders entitled to vote on such matter, or,
if no such record date is established, at the date on which notice of the
meeting of stockholders at which the vote is to be taken is mailed, or the date
any written consent of stockholders is solicited if the vote is not to be taken
at a meeting. Except as otherwise expressly provided herein or by RCW, the
holders of shares of Preferred Stock and Common Stock shall vote together as a
single class on all matters.
(b) Board of Directors.
(i) As long as at least a majority of the shares of Series A
Stock originally issued remain outstanding, the holders of such shares of Series
A Stock shall be entitled to elect one (1) director of the Corporation at each
annual election of directors. As long as at least a majority of the shares of
Series B Stock originally issued remain outstanding, the holders of such shares
of Series B Stock shall be entitled to elect two (2) directors of the
Corporation at each annual election of directors. As long as at least a majority
of the shares of Series C Stock originally issued remain outstanding, the
holders of such shares of Series C Stock shall be entitled to elect one (1)
director of the Corporation at each annual election of directors. The holders of
outstanding Common Stock shall be entitled to elect two (2) directors of the
Corporation at each annual election of directors. The holders of Preferred Stock
and Common Stock, voting together as a single class and not as separate Series
and on an as-converted to Common Stock basis, shall be entitled to elect any
remaining directors of the Corporation.
(ii) In the case of any vacancy (other than a vacancy caused by
removal) in the office of a director occurring among the directors elected by
the holders of a class or Series of
<PAGE>
stock pursuant to this Section 2.2.2(b)(ii), the remaining directors so elected
by that class or Series may by affirmative vote of a majority thereof (or the
remaining director so elected if there be but one, or if there are no such
directors remaining, by the affirmative vote of the holders of a majority of the
shares of that class or series), elect a successor or successors to hold office
for the unexpired term of the director or directors whose place or places shall
be vacant. Any director who shall have been elected by the holders of a class or
Series of stock or by any directors so elected as provided in the immediately
preceding sentence hereof may be removed during the aforesaid term of office,
either with or without cause, by, and only by, the affirmative vote of the
holders of the shares of the class or Series of stock entitled to elect such
director or directors, given either at a special meeting of such stockholders
duly called for that purpose or pursuant to a written consent of stockholders,
and any vacancy thereby created may be filled by the holders of that class or
Series of stock represented at the meeting or pursuant to such written consent.
(c) Preferred Stock Voting. For as long as at least ten percent
(10%) of the originally issued shares of the Preferred Stock remains
outstanding, without the affirmative consent of the holders of at least a
majority of Preferred Stock then outstanding, voting together as a separate
class and on an as-converted to Common Stock basis, given by written consent or
by vote at a meeting called for such purpose for which notice shall have been
given to the holders of Preferred Stock, the Corporation shall not:
(i) create or issue (or obligate itself to authorize or issue),
by reclassification or otherwise, any security of the Corporation having rights,
preferences or privileges senior to or on parity with the Series A Stock, Series
B Stock, Series C Stock or Series D Stock with respect to dividends or upon
liquidation, or superior to the Series A Stock, Series B Stock, Series C Stock
or Series D Stock with respect to voting rights;
(ii) sell, convey or otherwise dispose of all or substantially
all of its property or business or merge into or consolidate with any other
corporation (other than a wholly owned subsidiary corporation) or effect any
transaction or Series of related transactions in which more than fifty percent
(50%) of the voting power of the Corporation is disposed of, unless holders of
the Corporation's equity securities hold a majority of the voting power of the
surviving entity;
(iii) redeem or repurchase, or declare or pay any dividend or
distribution on, any of the Corporation's capital stock (except for (A) cash
dividends declared in accordance with Section 2.2.6 and (B) the repurchase or
redemption of shares from employees, officers, directors, consultants or other
persons performing work for the Corporation pursuant to employment or similar
vesting agreements or other stock repurchase agreements approved by the Board of
Directors);
(iv) authorize any increase in the number of authorized shares of
Common Stock or Preferred Stock;
(v) change or modify the terms, rights or preferences of the
Preferred Stock or any Series thereof;
(vi) increase the aggregate number of shares of Common Stock
issuable under the Corporation's 1997 Stock Incentive Compensation Plan to more
than 15,924,334 (as
<PAGE>
proportionally adjusted to take into account stock splits, stock dividends,
stock consolidations and the like), unless such increase is unanimously approved
by the Corporation's Board of Directors;
(vii) take any action that would result in the taxation of the
holders of Preferred Stock under Section 305 of the Internal Revenue Code;
(viii) increase the size of the Board of Directors to more than
ten (10) members; or
(ix) amend the Articles of Incorporation or the Bylaws of the
Corporation in any manner adverse to the holders of Preferred Stock.
For as long as at least ten percent (10%) of the originally issued shares
of any Series of Preferred Stock remains outstanding, without the affirmative
consent of the holders of at least a majority of that Series then outstanding,
voting together as a separate Series and on an as-converted to Common Stock
basis, given by written consent or by vote at a meeting called for such purpose
for which notice shall have been given to the holders of the shares of that
series, the Corporation shall not:
(x) authorize any increase in the number of authorized shares of
that series;
(xi) change or modify the terms, rights or preferences of that
series; or
(xii) amend the Restated Articles of Incorporation or the bylaws
of the Corporation in any manner adverse to the holders of that series.
(d) Except as required by law, the holders of the Series D Stock shall
have none of the voting rights described in this Section 2.2.2 until the date
that is one day after the earlier of the date of termination or expiration of
the waiting period required under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, with respect to each of the holders listed on Exhibit A
of that certain Series D Preferred Stock Purchase Agreement between the
Corporation and the purchasers of the Corporation's Series D Preferred Stock to
which such waiting period would apply.
2.2.3 Conversion Rights
The holders of Preferred Stock shall have the following rights with respect
to the conversion of Preferred Stock into Common Stock:
(a) General.
(i) Voluntary Conversion. Any share of Preferred Stock may, at
the option of the holder, be converted at any time into such number of fully
paid and nonassessable shares of Common Stock as is equal to the product
obtained by multiplying the applicable Conversion Rate (determined under Section
2.2.3(b)) by the number of shares of Preferred Stock being converted.
(ii) Mandatory Conversion. Without any further action by the
holder of such shares and whether or not the Certificates representing such
shares are surrendered to the
<PAGE>
Corporation or its transfer agent, shares of Preferred Stock shall be
automatically converted into that number of shares of Common Stock into which
such Preferred Stock is convertible pursuant to Section 2.2.3(a)(i), as follows:
(A) all outstanding shares of Preferred Stock shall convert into Common Stock
immediately prior to the closing of a firm commitment underwritten public
offering of shares of Common Stock (any such underwritten offering, regardless
of compliance with clause (1) and (2) herein, being a "Public Offering") in
which (1) the net proceeds from such offering to the Corporation shall be at
least $75,000,000 (after deduction of underwriters' discounts and commissions
and expenses of the offering) and (2) the price paid by the public for such
shares shall be at least Five Dollars Eighty Cents ($5.80) (appropriately
adjusted to reflect the occurrence of any event described in paragraph
2.2.3(d)(i)) and (B) all outstanding shares of a particular Series of Preferred
Stock shall convert into Common Stock on the date specified by written consent
or agreement of the holders of at least a majority of the shares of that Series
then outstanding, voting together as a separate Series and on an as-converted to
Common Stock basis.
(b) Conversion Rates. The conversion rate for Series A Stock in
effect at any time (the "Series A Conversion Rate") shall equal Fifty Cents
($.50) divided by the Series A Conversion Price, calculated as provided in
Section 2.2.3(c). The conversion rate for the Series B Stock in effect at any
time (the "Series B Conversion Rate") shall equal Thirty-Five Cents ($.35)
divided by the Series B Conversion Price, calculated as provided in Section
2.2.3(c). The conversion rate for the Series C Stock in effect at any time (the
"Series C Conversion Rate") shall equal One Dollar Seventy-Five Cents ($1.75)
divided by the Series C Conversion Price, calculated as provided in Section
2.2.3(c). The conversion rate for the Series D Stock in effect at any time (the
"Series D Conversion Rate") shall equal Five Dollars Eighty Cents ($5.80)
divided by the Series D Conversion Price calculated as provided in Section
2.2.3(c).
(c) Conversion Prices. The conversion price for Series A Stock in
effect from time to time, except as adjusted in accordance with Section
2.2.3(d), shall be Fifty Cents ($.50) per share (the "Series A Conversion
Price"). The conversion price for Series B Stock in effect from time to time,
except as adjusted in accordance with Section 2.2.3(d), shall be Thirty-Five
Cents ($.35) per share (the "Series B Conversion Price"). The conversion price
for Series C Stock in effect from time to time, except as adjusted in accordance
with Section 2.2.3(d) shall be One Dollar Seventy-Five Cents ($1.75) per share
(the "Series C Conversion Price"). The conversion price for Series D Stock in
effect from time to time, except as adjusted in accordance with Section 2.2.3(d)
shall be Five Dollars Eighty Cents ($5.80) per share (the "Series D Conversion
Price"). The Series A Conversion Price, the Series B Conversion Price, the
Series C Conversion Price and the Series D Conversion Price are collectively
referred to herein as the "Conversion Prices."
(d) Adjustments to Applicable Conversion Prices.
(i) Extraordinary Common Stock Event. Upon the happening of an
Extraordinary Common Stock Event (as defined below) after April 13, 1999, the
Conversion Prices shall, simultaneously with the happening of such Extraordinary
Common Stock Event, be adjusted by multiplying the then effective Conversion
Prices by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such Extraordinary Common Stock
Event and the denominator of which shall be the number of shares of
<PAGE>
Common Stock outstanding immediately after such Extraordinary Common Stock
Event, and the product so obtained shall thereafter be the Series A Conversion
Price, the Series B Conversion Price, the Series C Conversion Price and the
Series D Conversion Price, respectively. The Conversion Prices, as so adjusted,
shall be readjusted in the same manner upon the happening of any successive
Extraordinary Common Stock Event or Events. "Extraordinary Common Stock Event"
shall mean (A) the issuance of additional shares of Common Stock as a dividend
or other distribution on outstanding Common Stock of the Corporation, (B) a
subdivision of outstanding shares of Common Stock into a greater number of
shares of Common Stock, or (C) a combination of outstanding shares of Common
Stock into a smaller number of shares of Common Stock.
(ii) Sale of Shares Below Applicable Conversion Prices.
(A) If at any time after April 13, 1999, the Corporation
shall issue any Additional Stock (as defined below) without consideration or for
a consideration per share less than the Series A Conversion Price, the Series B
Conversion Price, the Series C Conversion Price or the Series D Conversion
Price, as the case may be, in effect immediately before the issuance of such
Additional Stock, the Series A Conversion Price, the Series B Conversion Price,
the Series C Conversion Price and the Series D Conversion Price in effect upon
issuance (except as otherwise provided in this Section 2.2.3(d)(ii)) shall be
adjusted to a price equal to the quotient obtained by dividing the total
computed under clause (y) below by the total computed under clause (z) below, as
follows:
(y) an amount equal to the sum of (1) the result
obtained by multiplying the number of shares of Common Stock deemed outstanding
immediately before such issuance (which shall include the actual number of
shares outstanding, plus all shares issuable upon the conversion or exercise of
all outstanding convertible securities, warrants and options) by the Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price or Series
D Conversion Price then in effect and (2) the aggregate consideration, if any,
received by the Corporation upon the issuance of such Additional Stock; and
(z) the number of shares of Common Stock outstanding
immediately after such issuance (including the shares deemed outstanding as
provided above).
(B) No adjustment of the applicable Conversion Price shall
be made in an amount less than $.01 per share, provided that any adjustments
that are not required to be made by reason of this sentence shall be carried
forward and shall be taken into account in any subsequent adjustment made to the
Conversion Prices. Except as provided in Sections 2.2.3(d)(ii)(E)(x) and (y), no
adjustment of the Conversion Prices shall have the effect of increasing the
Conversion Prices above the Conversion Prices in effect immediately before such
adjustment.
(C) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor before
deducting any discounts, commissions or other expenses allowed, paid or incurred
by the Corporation for any underwriting or otherwise in connection with the
issuance and sale thereof.
<PAGE>
(D) In the case of the issuance of Common Stock for
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined in good faith by
the Corporation's Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance of options to purchase or
rights to subscribe for Common Stock, securities by their terms convertible into
or exchangeable for Common Stock, or options to purchase or rights to subscribe
such convertible or exchangeable securities (which options, rights or
convertible or exchangeable securities are not excluded from the definition of
Additional Stock), the following provisions shall apply:
(v) the aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock, but without taking into account potential
antidilution adjustments, shall be deemed to have been issued at the time such
options or rights were issued for a consideration equal to the consideration
(determined in the manner provided in Sections 2.2.3(d)(ii)(C) and (D)) received
by the Corporation upon the issuance of such options or rights, plus the minimum
purchase price provided in such options or rights, but without taking into
account potential antidilution adjustments, for the Common Stock covered
thereby, but no further adjustment to the Conversion Prices shall be made for
the actual issuance of Common Stock upon the exercise of such options or rights
in accordance with their terms;
(w) the aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange, but without taking into
account potential antidilution adjustments, for any such convertible or
exchangeable securities or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued for a
consideration equal to the consideration received by the Corporation for any
such securities and related options or rights, plus the additional
consideration, if any, to be received by the Corporation, but without taking
into account potential antidilution adjustments, upon the conversion or exchange
of such securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in Sections
2.2.3(d)(ii)(C) and (D)), but no further adjustments to the Conversion Prices
shall be made for the actual issuance of Common Stock upon the conversion or
exchange of such securities in accordance with their terms;
(x) if such options, rights or convertible or
exchangeable securities by their terms provide, with the passage of time or
otherwise, for any increase in the consideration payable to the Corporation, or
decrease in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Conversion Prices computed upon the original
issue thereof, and any subsequent adjustments based thereon, shall, upon such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease with respect to such options, rights and securities not already
exercised, converted or exchanged before such increase or decrease became
effective, but no further adjustment to the Conversion Prices shall be made for
the actual issuance of Common Stock upon the exercise of any such options or
rights or the conversion or exchange of such securities in accordance with their
terms;
<PAGE>
(y) upon the expiration of any such options or rights,
the termination of any such rights to convert or exchange, or the expiration of
any options or rights related to such convertible or exchangeable securities,
the Conversion Prices shall forthwith be readjusted to such Conversion Prices as
would have been obtained had the adjustment that was made upon the issuance of
such options, rights or securities, or options or rights related to such
securities, been made upon the basis of the issuance of only the number of
shares of Common Stock actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities or upon the exercise
of the options or rights related to such securities and the number of shares of
Common Stock deemed issued and the consideration deemed paid therefor pursuant
to subsections 2.2.3(d)(ii)(E)(v) and (w) shall be appropriately adjusted to
reflect any change, termination or expiration of the type described in either
subsection 2.2.3(d)(ii)(E)(x) or (y); and
(z) if any such options or rights shall be issued in
connection with the issuance and sale of other securities of the Corporation,
together comprising one integral transaction in which no specific consideration
is allocated to such options or rights by the parties thereto, such options or
rights shall be deemed to have been issued for such consideration as determined
in good faith by the Corporation's Board.
(iii) Additional Stock. "Additional Stock" shall mean any
shares of Common Stock or securities convertible into or exchangeable or
exercisable for shares of Common Stock issued (or deemed to have been issued
pursuant to Section 2.2.3(d)(ii)(E)) by the Corporation after April 13, 1999
other than:
(A) Common Stock issued pursuant to a transaction described
in Section 2.2.3(d)(i);
(B) up to 15,924,334 shares of Common Stock (as
proportionally adjusted to take into account stock splits, stock dividends,
stock consolidations and the like) issued or issuable pursuant to stock options
granted to officers, employees, directors, consultants, agents, advisors or
independent contractors (unless a greater number is unanimously approved by the
Corporation's Board of Directors) and up to an aggregate of 2,899,248 shares of
Preferred Stock and Common Stock (as proportionally adjusted to take into
account stock splits, stock dividends, stock consolidations and the like)
issuable upon the exercise of warrants outstanding on the date this Articles of
Incorporation is filed with the Secretary of State of the State of Washington;
(C) Common Stock issued or issuable upon conversion of
Preferred Stock;
(D) capital stock, or options or warrants to purchase
capital stock, issued to financial institutions or lessors in connection with
commercial credit arrangements, equipment financing or similar transactions
which are not primarily for equity financing purposes and that are unanimously
approved by the Board of Directors of the Corporation;
(E) capital stock or warrants or options to purchase
capital stock issued in connection with bona fide acquisitions, mergers or
similar transactions, the terms of which are unanimously approved by the Board
of Directors of the Corporation;
<PAGE>
(F) Common Stock issued or issuable in a public offering
prior to or in connection with the conversion of all outstanding shares of
Preferred Stock converted to Common Stock;
(G) Common Stock issued to corporate partners or in
connection with other strategic alliances unanimously approved by the Board of
Directors; and
(H) Such additional securities that are designated as
excluded from the definition of Additional Stock by the unanimous approval of
the Board of Directors.
(e) Capital Reorganization or Reclassification. If the Common Stock
issuable upon the conversion of Preferred Stock shall be changed into the same
or a different number of shares of any class or classes of stock of the
Corporation, whether by capital reorganization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend provided
for in Section 2.2.3(d) or a merger, consolidation, share exchange or
reorganization provided for in Section 2.2.1(c)), then and in each such event
the holder of each share of Preferred Stock shall have the right thereafter to
convert such share into the kind and amount of shares of stock and other
securities and property receivable upon such reorganization, reclassification or
other change by holders of the number of shares of Common Stock into which such
share of Preferred Stock might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided herein.
(f) Certificate as to Adjustments; Notice by the Corporation. In
each case of an adjustment or readjustment of the Series A Conversion Rate,
Series B Conversion Rate, Series C Conversion Rate, or Series D Conversion Rate,
the Corporation at its expense will furnish each holder of Series A Stock,
Series B Stock, Series C Stock or Series D Stock, as applicable, with a
certificate, signed by the Corporation's Chief Financial Officer or Treasurer,
showing such adjustment or readjustment and stating in detail the facts upon
which such adjustment or readjustment is based.
(g) Mechanics of Conversion. Before any holder of Preferred Stock
shall be entitled to convert the same into shares of Common Stock, such holder
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the Preferred Stock, and
shall give written notice to the Corporation at its principal corporate office,
of the election to convert the same and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Preferred Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. If the
conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, as amended, the conversion
may, at the option of any holder tendering Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which
<PAGE>
event the person(s) entitled to receive Common Stock upon conversion of such
Preferred Stock shall not be deemed to have converted such Preferred Stock until
immediately prior to the closing of such sale of securities.
(h) Cash in Lieu of Fractional Shares. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Preferred Stock, but the Corporation shall pay to the
holder of such shares a cash adjustment in respect of such fractional shares in
an amount equal to the same fraction of the market price per share of the Common
Stock (as determined in a reasonable manner prescribed by the Corporation's
Board of Directors) at the close of business on the Conversion Date. The
determination as to whether or not any fractional shares are issuable shall be
based upon the total number of shares of Preferred Stock being converted at any
one time by any holder thereof, not upon each share of Preferred Stock being
converted.
(i) Partial Conversion. In the event some but not all of the shares
of Preferred Stock represented by a certificate or certificates surrendered by a
holder are converted, the Corporation shall execute and deliver to or on the
order of the holder, at the expense of the Corporation, a new certificate
representing the shares of Preferred Stock that were not converted.
(j) Reservation of Common Stock. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of the
Preferred Stock, such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of the
Preferred Stock and, if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of all then-
outstanding shares of the Preferred Stock, the Corporation shall as soon as
reasonably practicable take such corporate action as may be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
2.2.4 No Reissuance of Stock
No share or shares of Preferred Stock converted, purchased or otherwise
acquired by the Corporation shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares that the Corporation shall be
authorized to issue. The Corporation may from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of shares
of Preferred Stock accordingly.
2.2.5 No Redemption
The Preferred Stock is not redeemable.
2.2.6 Dividends
(a) Holders of shares of Series A Stock, Series B Stock, Series C
Stock and Series D Stock shall be entitled, in preference to dividends on shares
of Common Stock, to receive out of funds that are legally available therefor, on
a pari passu basis per share, when, as and if
<PAGE>
declared by the Board of Directors, noncumulative cash dividends at the rate of
$.045 per annum, $.0315 per annum, $.1575 per annum and $.522 per annum on each
outstanding share of Series A Stock, Series B Stock, Series C Stock and Series D
Stock, respectively (as adjusted for any stock dividends, combinations or splits
with respect to such shares).
(b) So long as any shares of Preferred Stock shall remain
outstanding, no dividend, whether in cash or property, shall be paid or
declared, nor shall any other distribution be made, on shares of Common Stock
until all declared and unpaid dividends on the Preferred Stock have been paid.
(c) No cash dividends shall be declared on the Common Stock unless
and until a cash dividend in an amount equal to or greater than the dividend
declared on the Common Stock shall have been paid to, or declared and a sum
sufficient for the payment thereof set apart for the Preferred Stock. For
purposes of this provision, dividends shall be compared on an as-converted-to-
Common Stock basis.
2.2.7 Notices of Record Date
In the event of:
(a) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation; or
(b) any voluntary or involuntary dissolution, liquidation or winding
up of the Corporation, then and in each such event the Corporation shall mail or
deliver, or cause to be mailed or delivered, to each holder of Preferred Stock,
a notice specifying: (i) the date on which any such reorganization,
reclassification, recapitalization, merger, consolidation, transfer,
dissolution, liquidation or winding up is expected to become effective; and (ii)
the time, if any, that is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property deliverable
upon such reorganization, reclassification, recapitalization, merger,
consolidation, transfer, dissolution, liquidation or winding up. Such notice
shall be mailed or delivered at least twenty (20) days prior to the date
specified in such notice on which such action is to be taken.
<PAGE>
2.3 Common Stock
The rights, preferences, privileges and restrictions granted to and imposed
on the Common Stock are as set forth below:
(a) Dividend Rights. Subject to prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the Corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
(b) Liquidation Rights. Upon the liquidation, dissolution or winding
up of the Corporation, the assets of the Corporation shall be distributed as
provided in Section 2.2.1.
(c) Redemption. The Common Stock is not redeemable.
(d) Voting Rights. The holder of each share of Common Stock shall
have the right to one vote for each such share, and shall be entitled to notice
of any stockholders' meeting in accordance with the Bylaws of the Corporation,
and shall be entitled to vote upon such matters and in such manner as may be
provided by law.
ARTICLE 3. REGISTERED OFFICE AND AGENT
The name of the registered agent of this corporation and the address of its
registered office are as follows:
Corporation Service Company
1010 Union Avenue, Suite B
Olympia, Washington 98501-1539
ARTICLE 4. PREEMPTIVE RIGHTS
No preemptive rights shall exist with respect to shares of stock or
securities convertible into shares of stock of this corporation.
<PAGE>
ARTICLE 5. CUMULATIVE VOTING
Subject to certain rights of the holders of Preferred Stock and Common
Stock with respect to the election of Directors as provided in Section 2.2.4(b)
of these Articles of Incorporation, the right to cumulate votes in the election
of Directors shall not exist with respect to shares of stock of this
corporation.
ARTICLE 6. DIRECTORS
The number of Directors of this corporation shall be determined in the
manner provided by the Bylaws and may be increased or decreased from time to
time in the manner provided therein.
ARTICLE 7. ACTION BY MAJORITY VOTE
Except as provided elsewhere in these Articles of Incorporation and to the
extent permitted under RCW 23B, the Corporation's shareholders may take action
by the affirmative vote of a simple majority of all shareholders of the
Corporation entitled to vote on an action. This Article 7 is specifically
intended to reduce the voting requirements otherwise prescribed under RCW
23B.10.030, 23B.11.030, and 23B.12.020, in accordance with RCW 23B.07.270.
ARTICLE 8. BYLAWS
The Board of Directors shall have the power to adopt, amend or repeal the
Bylaws of this corporation, subject to the power of the shareholders to amend or
repeal such Bylaws. The shareholders shall also have the power to amend or
repeal the Bylaws of this corporation and to adopt new Bylaws.
ARTICLE 9. AMENDMENTS TO ARTICLES OF INCORPORATION
This corporation reserves the right to amend or repeal any of the
provisions contained in these Articles of Incorporation in any manner now or
hereafter permitted by law or by these Articles of Incorporation, and the rights
of the shareholders of this corporation are granted subject to this reservation.
ARTICLE 10. ACTION BY SHAREHOLDERS WITHOUT A MEETING
Any action which could be taken at a meeting of the shareholders of this
corporation may be taken without a meeting or a vote if the action is taken by
shareholders holding of record or otherwise entitled to vote in the aggregate
not less than the minimum number of votes necessary to authorize or take such
action at a meeting at which all shares entitled to vote on the action were
present and voted, provided that at the time the action is taken this
corporation is not a Public Company (as defined in the Washington Business
Corporation Act, as amended, the "Act"). Notice of the taking of action by
shareholders without a meeting by less than unanimous written consent of all
shareholders entitled to vote on the action shall be given to those shareholders
entitled to vote on the action who have not consented in writing, and whose
consent was not solicited and such notice shall be deemed effective (in the
manner described below) no fewer than one day before the effective date of the
action, except where longer notice is required under the Act. The notice shall
be in
<PAGE>
writing and may be transmitted by: mail, private carrier or personal delivery;
telegraph or teletype; telephone, wire or wireless equipment which transmits a
facsimile of the notice; or by any other means permitted by the Act. Written
notice shall be effective as provided in Section 23B.01.410 of the Act
(specifically including paragraph 5(a) thereof) or any successor provisions
thereto. The taking of action by shareholders without a meeting or vote must be
evidenced by one or more written consents describing the action taken, signed by
shareholders holding of record or otherwise entitled to vote in the aggregate
not less than the minimum number of votes necessary in order to take such action
by written consent.
ARTICLE 11. LIMITATION OF DIRECTOR LIABILITY
To the full extent that the Washington Business Corporation Act, as it
exists on the date hereof or may hereafter be amended, permits the limitation or
elimination of the liability of Directors, a Director of this corporation shall
not be liable to this corporation or its shareholders for monetary damages for
conduct as a Director. Any amendments to or repeal of this Article 11 shall not
adversely affect any right or protection of a Director of this corporation for
or with respect to any acts or omissions of such Director occurring prior to
such amendment or repeal.
<PAGE>
EXHIBIT 3.3
SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
HOMEGROCER.COM INC.
ARTICLE I. NAME
The name of this corporation shall be HomeGrocer.com, Inc. (the
"Corporation").
-----------
ARTICLE II. PURPOSE
To engage in and carry on any lawful business or trade and exercise all
powers granted to a corporation formed under the Washington Business Corporation
Act (the "WBCA"), including any amendments thereto or successor statute that may
----
hereinafter be enacted.
ARTICLE III. REGISTERED OFFICE; REGISTERED AGENT
The name of the registered agent of this corporation and the address of its
registered office are as follows:
Corporation Service Company
1010 Union Avenue, Suite B
Olympia, Washington 98501-1539
ARTICLE IV. SHARES
(a) Authorized Stock. The Corporation is authorized to issue two classes
----------------
of capital stock to be designated, respectively, "Common Stock" and "Preferred
------------ ---------
Stock." The total number of shares of capital stock that the Corporation
- -----
shall have authority to issue is 1,010,000,000 consisting of 1,000,000,000
shares of Common Stock, no par value per share, and 10,000,000 shares of
Preferred Stock, no par value per share.
(b) Issuance of Preferred Stock in Series. The Preferred Stock may be
-------------------------------------
issued from time to time in one or more series in any manner permitted by law
and the provisions of these Amended and Restated Articles of Incorporation (the
"Articles of Incorporation"), as determined from time to time by the Board
-------------------------
of Directors of the Corporation (the "Board") and stated in the resolution or
-----
resolutions providing for the issuance thereof, prior to the issuance of any
shares thereof. In addition, such resolution or resolutions shall set forth the
voting powers, full or limited or none, of each such series of Preferred Stock
and shall fix the designations, preferences and relative, participating,
optional or other special rights and qualifications, limitations or restrictions
of each such series of Preferred Stock. The Board is authorized to alter the
designation, rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock and, within the
limits and restrictions stated in any
<PAGE>
resolution or resolutions of the Board originally fixing the number of shares
constituting any series of Preferred Stock, to increase or decrease (but not
below the number of shares of any such series then outstanding) the number of
shares of any such series subsequent to the issue of shares of that series. In
case the number of shares of any series shall be decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series. The Corporation shall from time to time, in accordance with the laws of
the State of Washington, increase the authorized amount of its Common Stock if
at any time the number of shares of Common Stock remaining unissued and
available for issuance shall not be sufficient to permit conversion of the
Preferred Stock.
ARTICLE V. PREEMPTIVE RIGHTS
No preemptive rights to acquire additional securities issued by the
Corporation shall exist with respect to shares of the Corporation's capital
stock, or securities convertible into shares of the Corporation's capital stock.
ARTICLE VI. CUMULATIVE VOTING
Shareholders of the Corporation shall not be entitled to cumulate votes for
the election of directors.
ARTICLE VII. DIRECTORS
(a) Number of Directors. The number of directors of this Corporation shall
-------------------
be determined in the manner provided by the Corporation's bylaws (the "Bylaws")
------
and may be increased or decreased from time to time in the manner provided
therein.
(b) Classified Board. The directors shall be divided into three classes
----------------
designated as Class I, Class II and Class III, respectively. Directors shall be
assigned to each class in accordance with a resolution or resolutions adopted by
the Board. Each class shall consist, as nearly as may be possible, of one-third
(1/3) of the total number of directors constituting the entire Board. The
initial term of office of the Class I directors shall expire at the annual
meeting of shareholders in 2000 and Class I directors shall subsequently be
elected for a full term of three (3) years. The initial term of office of the
Class II directors shall expire at the annual meeting of shareholders in 2001
and Class II directors shall subsequently be elected for a full term of three
(3) years. The initial term of office of the Class III directors shall expire at
the annual meeting of shareholders in 2002 and Class III directors shall
subsequently be elected for a full term of three (3) years. Thereafter, the term
of office of each class of directors shall be three years and directors shall
hold office until the annual meeting for the year in which their terms expire
and until their successors shall be elected and shall qualify, subject, however,
to prior death, resignation, retirement, disqualification or removal from
office. If the number of directors is changed, any increase or decrease in
directorships shall be apportioned among the classes so as to maintain the
number of directors in each class as nearly equal as possible, and any
additional directors of any class elected to fill a vacancy resulting from an
increase in such class shall hold
-2-
<PAGE>
office only until next election of directors by the shareholders, but in no case
will a decrease in the number of directors shorten the term of any incumbent
director.
ARTICLE VII. AMENDMENT OF BYLAWS
The shareholders shall have the power to adopt, amend or repeal the Bylaws
of the Corporation by the affirmative vote of the holders of not less than two-
thirds of the outstanding shares, and, to the extent, if any, provided by
resolution or resolutions of the Board of Directors providing for the issuance
of a series of Common or Preferred Stock, not less than two-thirds of the
outstanding shares of such class or series entitled to vote thereon, voting as a
class. Any Bylaw of the Corporation may be amended or repealed at any time by
the Board of Directors in the manner provided in the Bylaws; provided, however,
-------- -------
that the Board of Directors may not repeal or amend any Bylaw that the
shareholders have expressly provided may not be amended or repealed by the Board
of Directors.
ARTICLE VIII. SHAREHOLDER ACTION
All shareholder action must be taken at a meeting of shareholders and may
not be taken by written consent.
ARTICLE IX. SPECIAL MEETINGS OF SHAREHOLDERS
A special meeting of the shareholders may be called, at any time for any
purpose or purposes for which such a meeting may lawfully be called, only by (i)
the Chairman of the Board, (ii) the Chief Executive Officer, (iii) the President
or (iv) a majority of the Corporation's Board of Directors.
ARTICLE X. SHAREHOLDER VOTING REQUIREMENTS FOR CERTAIN TRANSACTIONS
(a) Definitions. For purposes of this Article X:
-----------
(i) "Business Combination" means (a) a merger, share exchange or
--------------------
consolidation of the Corporation or any of its Subsidiaries with any other
corporation or other entity; (b) the sale, lease, exchange, mortgage, pledge,
transfer or other disposition or encumbrance, whether in one transaction or a
series of transactions, by the Corporation or any of its Subsidiaries of all or
a substantial part of the Corporation's assets otherwise than in the usual and
regular course of business; or (c) any agreement, contract or other arrangement
providing for any of the foregoing transactions.
(ii) "Subsidiary" means a domestic or foreign corporation that has a
----------
majority of its outstanding voting shares owned, directly or indirectly by the
Corporation.
-3-
<PAGE>
(b) Vote Required for Business Combinations. The affirmative vote of the
---------------------------------------
holders of not less than two-thirds of the outstanding shares of stock entitled
to vote thereon and, to the extent, if any, provided by resolution adopted by
the Board of Directors authorizing the issuance of a class or series of
Preferred Stock, the affirmative vote of the holders of not less than two-thirds
of the outstanding shares of such class or series, voting as a separate voting
group, shall be required for the adoption or authorization of any Business
Combination.
ARTICLE XI. LIMITATION OF LIABILITY OF DIRECTORS
To the full extent that the WBCA, as it exists on the date hereof or may
hereafter be amended, permits the limitation or elimination of the liability of
directors, a director shall not be liable to this Corporation or its
shareholders for monetary damages for conduct as a director, except for acts or
omissions that involve intentional misconduct by the director, or a knowing
violation of law by the director, or for conduct violating Section 23B.08.310 of
the WBCA, or for any transaction from which the director will personally receive
a benefit in money, property or services to which the director is not legally
entitled. If the WBCA is hereafter amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director shall be eliminated or limited to the full extent permitted by the
WBCA, as so amended. Any repeal or modification of this Article shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification for or with respect to an
act or omission of such director occurring prior to such repeal or modification.
ARTICLE XII. AMENDMENTS TO ARTICLES
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in the Articles of Incorporation, in the manner now or
hereafter permitted by the WBCA, and all rights and powers conferred herein on
shareholders and directors are subject to this reserved power.
Dated: _______________, 2000.
HomeGrocer.com, Inc.,
a Washington corporation
___________________________________
Mary Alice Taylor
Chief Executive Officer
-4-
<PAGE>
EXHIBIT 3.5
BYLAWS
OF
HOMEGROCER.COM, INC.
EFFECTIVE AS OF JANUARY 20, 2000
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE I - RECORDS AND REPORTS........................................................... 1
1.1 Registered Office................................................................ 1
1.2 Other Office..................................................................... 1
ARTICLE II - MEETINGS OF SHAREHOLDERS..................................................... 1
2.1 Date, Time And Place Of Meetings................................................. 1
2.2 Annual Meeting................................................................... 1
2.3 Special Meeting.................................................................. 2
2.4 Notice of Shareholders'Meeting................................................... 2
2.5 Manner Of Giving Notice; Affidavit Of Notice..................................... 2
2.6 Quorum........................................................................... 2
2.7 Adjourned Meeting; Notice........................................................ 3
2.8 Voting; No Cumulative Voting..................................................... 3
2.9 Waiver Of Notice................................................................. 3
2.10 Action By Shareholders Without A Meeting......................................... 3
2.11 Record Date For Shareholder Notice; Voting; Giving Consents...................... 3
2.12 Proxies.......................................................................... 4
2.13 List Of Shareholders Entitled To Vote............................................ 4
2.14 Advance Notice Of Shareholder Nominations And Proposals.......................... 4
ARTICLE III - DIRECTORS................................................................... 5
3.1 Powers........................................................................... 5
3.2 Number of Directors.............................................................. 5
3.3 Election, Qualification And Term Of Office Of Directors.......................... 6
3.4 Resignation; Removal; Vacancies.................................................. 6
3.5 Place Of Meetings; Meetings By Telephone......................................... 7
3.6 Annual And Regular Meetings...................................................... 7
3.7 Special Meetings; Notice......................................................... 7
3.8 Adjourned Meeting; Notice........................................................ 8
3.9 Waiver Of Notice................................................................. 8
3.10 Quorum........................................................................... 8
3.11 Action By Board Or Committees Without A Meeting.................................. 8
3.12 Executive And Other Committees; Authority; Minutes............................... 8
3.13 Approval Of Loans To Officers.................................................... 9
3.14 Fees And Compensation Of Directors............................................... 9
ARTICLE IV - OFFICERS..................................................................... 10
4.1 Officers......................................................................... 10
4.2 Election Of Officers............................................................. 10
4.3 Subordinate Officers............................................................. 10
4.4 Contract Right Of Officers....................................................... 10
4.5 Removal And Resignation Of Officers.............................................. 10
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
4.6 Vacancies In Offices............................................................. 11
4.7 Chairman Of The Board............................................................ 11
4.8 President........................................................................ 11
4.9 Vice President................................................................... 11
4.10 Secretary........................................................................ 11
4.11 Treasurer........................................................................ 12
4.12 Assistant Secretary.............................................................. 12
4.13 Assistant Treasurer.............................................................. 12
4.14 Authority And Duties Of Officers................................................. 12
ARTICLE V - INDEMNITY..................................................................... 13
5.1 Right To Indemnification......................................................... 13
5.2 Restrictions On Indemnification.................................................. 13
5.3 Advancement Of Expenses.......................................................... 13
5.4 Right Of Indemnitee To Bring Suit................................................ 14
5.5 Procedures Exclusive............................................................. 14
5.6 Nonexclusivity Of Rights......................................................... 14
5.7 Insurance........................................................................ 14
5.8 Indemnification Of Employees And Agents Of The Corporation....................... 15
5.9 Persons Serving Other Entities................................................... 15
ARTICLE VI -RECORDS AND REPORTS........................................................... 15
6.1 Maintenance And Inspection Of Records............................................ 15
6.2 Representation Of Shares Of Other Corporations................................... 16
ARTICLE VII -GENERAL MATTERS.............................................................. 16
7.1 Checks........................................................................... 16
7.2 Execution Of Corporate Contracts And Instruments................................. 16
7.3 Stock Certificates; Partly Paid Shares........................................... 17
7.4 Special Designation On Certificates.............................................. 17
7.5 Lost, Stolen Or Destroyed Certificates........................................... 18
7.6 Construction; Definitions........................................................ 18
7.7 Dividends........................................................................ 18
7.8 Fiscal Year...................................................................... 18
7.9 Seal............................................................................. 18
7.10 Transfer Of Stock; Restrictions On Transfer...................................... 18
7.11 Stock Transfer Agreements........................................................ 19
7.12 Registered Shareholders.......................................................... 19
ARTICLE VIII - AMENDMENTS................................................................. 19
</TABLE>
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<PAGE>
BYLAWS
OF
HOMEGROCER.COM, INC.
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 Registered Office
-----------------
The registered office of Homegrocer.com, Inc. (the "Corporation")
-----------
shall at all times be located in the State of Washington. The name of the
registered agent of the Corporation at such location is the agent named in the
Articles of Incorporation until changed by the Board of Directors of the
Corporation (the "Board").
-----
1.2 Other Offices.
-------------
The Board may at any time establish other offices at any place or
places where the Corporation is qualified to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
2.1 Date, Time And Place Of Meetings.
--------------------------------
Meetings, annual or special, of the shareholders shall be held at such
place as shall be designated by the Board, or in the absence of such a
designation, at the principal office of the Corporation. Shareholders may
participate in any meeting of shareholders by any means of communication by
which all persons participating in the meeting can hear each other during such
meeting. Participation by such means shall constitute presence in person at such
meeting.
2.2 Annual Meeting.
--------------
The annual meeting of the shareholders (the "Annual Meeting") of the
--------------
Corporation shall be held each year on a date and time designated by the Board.
At the Annual Meeting, directors shall be elected and any other proper
business may be transacted.
-1-
<PAGE>
2.3 Special Meeting.
---------------
A special meeting of the shareholders (a "Special Meeting") may be
---------------
called, at any time for any purpose or purposes for which such a meeting may
lawfully be called, only by (i) the Chairman of the Board, (ii) a majority of
the Board or (iii) the President or Chief Executive Officer of the Corporation.
2.4 Notice Of Shareholders' Meetings.
--------------------------------
All notices of meetings of shareholders shall be given by or at the
direction of the Board, the Chairman of the Board, the President or the
Secretary and shall be in writing and sent or otherwise given in accordance with
Section 2.5 of these Bylaws not less than 10 nor more than 60 days before the
date of the meeting to each shareholder entitled to vote at such meeting;
provided, however, that notice of a meeting to act on an amendment to the
- -------- -------
Articles of Incorporation, a plan of merger or share exchange, the sale, lease,
exchange or other disposition of all or substantially all of the Corporation's
assets other than in the regular course of business or the dissolution of the
Corporation shall be given not less than 20 nor more than 60 days before such
meeting. All notices of meetings shall specify the place, date, and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called.
2.5 Manner Of Giving Notice; Affidavit Of Notice.
--------------------------------------------
Written notice of any meeting of shareholders may be transmitted by
mail, private carrier, personal delivery, telegraph, teletype or communications
equipment that transmits a facsimile of the notice. Notice, if mailed, is
effective when deposited in the United States mail, postage prepaid, directed to
the shareholder at his address as it appears on the current records of the
Corporation. Notice given in any manner other than by mail, is effective when
dispatched to the shareholder's address, telephone number or other number
appearing on the current records of the Corporation. An affidavit of the
Secretary or an assistant secretary or of the transfer agent of the Corporation
that the notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
2.6 Quorum.
------
The holders of a majority of the issued and outstanding shares
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders for the transaction of business except as otherwise
provided by the Washington Business Corporation Act (the "Act") or by the
---
Articles of Incorporation. If, however, a quorum is not present or represented
at any meeting of shareholders , the chairman of the meeting or the holders of a
majority of the shares present, either in person or by proxy, shall have the
power to adjourn the meeting to such time and place as may be decided upon by
the chairman of the meeting or the holders of the majority of the shares
present, without notice other than announcement at the meeting, until a quorum
is present or represented. Any business that might have been transacted at the
meeting as originally noticed may be transacted at a reconvened meeting,
provided that a quorum is present or represented at such meeting. Once a share
is represented for any purpose at a meeting, other than solely to object to
holding the meeting or transacting business, it is deemed
-2-
<PAGE>
present for quorum purposes for the remainder of such meeting and any
adjournment (unless a new record date is or must be set for the adjourned
meeting), notwithstanding the withdrawal of enough shareholders to leave less
than a quorum.
2.7 Adjourned Meeting; Notice.
-------------------------
If a meeting of shareholders is adjourned to a different date, time
or place, unless these Bylaws otherwise require, no notice of the new date, time
or place shall be required if they are announced at the meeting before
adjournment. At the adjourned meeting, the Corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each shareholder of record entitled to notice of or to vote as of the new record
date.
2.8 Voting; No Cumulative Voting.
----------------------------
The shareholders entitled to vote at any meeting of shareholders
shall be determined in accordance with the provisions of Section 2.11 of these
Bylaws. Except as may be otherwise provided in the Articles of Incorporation,
each shareholder shall be entitled to one vote for each share of capital stock
held by such shareholder. Shareholders of the Corporation are not entitled to
cumulate their votes for directors.
2.9 Waiver Of Notice.
----------------
Whenever notice is required to be given to any shareholder under the
provisions of these Bylaws, the Articles of Incorporation or the Act, a waiver
in writing, signed by the person or persons entitled to such notice and
delivered to the Corporation, whether before or after the date and time of the
meeting or before or after the action to be taken by consent is effective, shall
be deemed equivalent to the giving of such notice. Further, notice of the time,
place and purpose of any meeting will be deemed to be waived by any shareholder
by attendance in person or by proxy at the meeting, unless such shareholder, at
the beginning of the meeting, objects to holding the meeting or transacting
business at the meeting. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the shareholders need be specified
in any written waiver of notice unless so required by the Articles of
Incorporation or these Bylaws.
2.10 Record Date For Shareholder Notice; Voting; Giving Consents.
-----------------------------------------------------------
In order that the Corporation may determine the shareholders entitled
to notice of or to vote at any meeting of shareholders or any adjournment
thereof, or entitled to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board may fix a future date as the record date, which shall not be
more than 70, and, in case of a meeting of shareholders, not less than 10 days,
prior to the date on which the particular action requiring such determination is
to be taken. If the Board does not so fix a record date, the record date shall
be the day immediately preceding the date on which notice of the
-3-
<PAGE>
meeting is first given to shareholders, or, if notice is waived, at the close of
business on the day immediately preceding the day on which the meeting is held.
Such determination shall apply to any adjournment of the meeting unless the
Board fixes a new record date, which the Board shall do if the meeting is
adjourned to a date more than 120 days after the date fixed for the original
meeting. The record date for determining shareholders for any other purpose
shall be at the close of business on the day on which the Board adopts the
resolution relating thereto.
2.11 Proxies.
--------
Each shareholder entitled to vote at a meeting of shareholders, or to
express consent or dissent to corporate action in writing without a meeting, may
authorize another person or persons to act for him by a written proxy, signed by
the shareholder and filed with the Secretary or other officer or agent of the
Corporation authorized to tabulate votes. A proxy shall become invalid 11 months
after the date of its execution, unless a longer period is expressly provided in
the proxy. A proxy shall be deemed signed if the shareholder's name is placed on
the proxy (whether by manual signature, typewriting, telegraphic transmission or
otherwise) by the shareholder or his attorney-in-fact. The revocability of a
proxy that states on its face that it is irrevocable shall be governed by the
provisions of Section 23B.07.220 of the Act.
2.12 List Of Shareholders Entitled To Vote.
--------------------------------------
At least 10 days before every meeting of shareholders, a complete
list of the shareholders entitled to notice of such meeting shall be made. The
list shall be arranged in alphabetical order and show the address of each
shareholder and the number of shares registered in the name of each shareholder
(arranged by voting group and by each class or series of shares). The list shall
be available for inspection by any shareholder, beginning 10 days prior to the
meeting and continuing through the meeting, at the Corporation's principal
office or at a place identified in the meeting notice in the city where the
meeting will be held. A shareholder is entitled to inspect the list, during
regular business hours and at the shareholders' expense, during the period it is
available for inspection.
2.13 Advance Notice Of Shareholder Nominations And Proposals.
--------------------------------------------------------
Nominations of persons for election to the Board and the proposal of
business to be considered by the shareholders may be made at any meeting of
shareholders only (a) pursuant to the Corporation's notice of meeting, (b) by or
at the direction of the Board, or (c) by any shareholder of the Corporation who
was a shareholder of record at the time of giving of notice provided for in
these Bylaws, who is entitled to vote at the meeting and who complies with the
notice procedures set forth in this Section 2.13.
In addition to any other applicable legal or regulatory requirements,
for nominations or other business to be properly brought before a shareholders
meeting by a shareholder pursuant to clause (c) of the preceding sentence, the
shareholder must have given timely notice thereof in writing to the Secretary of
the Corporation, and such other business must otherwise be a proper matter for
shareholder action. To be timely, a shareholder's notice must be given either by
personal delivery or by United States mail, postage prepaid, to the Secretary of
-4-
<PAGE>
the Corporation and received by the 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 first mailed to shareholders. In no event shall the public
announcement of an adjournment of a shareholders meeting commence a new time
period for the giving of a shareholder's notice as described above. Such
shareholder's notice shall set forth (a) as to each person, if any, whom the
shareholder proposes to nominate for election or re-election as a director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (or any successor thereto) and Rule 14a-11
thereunder (or any successor thereto) (including such persons' written consent
to being named in the proxy statement as a nominee and to serving as a director
if elected), (b) as to any other business that the shareholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting, and
any material interest in such business of such shareholder and the beneficial
owner, if any, on whose behalf the proposal is made, and (c) as to the
shareholder giving notice and the beneficial owner, if any, on whose behalf the
nomination or proposal is made (i) the name and address of such shareholder, as
they appear on the Corporation's books, and of such beneficial owners, and (ii)
the class and number of shares of the Corporation which are owned beneficially
and of record by such shareholder and such beneficial owner. Notwithstanding any
provision herein to the contrary, no business shall be conducted at a
shareholders meeting except in accordance with the procedures set forth in this
Section 2.13.
The person presiding over the shareholders meeting shall, if the facts
warrant, determine and declare at the meeting that the nomination was not
properly made or that the business was not properly brought before the meeting,
as the case may be, in accordance with the provisions of this Section 2.13, and,
if he or she should so determine, he or she shall so declare at the meeting that
any such person not properly nominated shall not be eligible to receive votes in
the election of directors at the meeting or that any such business not properly
brought before the meeting shall not be transacted, as the case may be.
ARTICLE III
DIRECTORS
---------
3.1 Powers.
------
All corporate powers shall be exercised by or under the authority of,
and the business and affairs of the Corporation shall be managed under the
direction of, the Board, except as may be otherwise provided in these Bylaws,
the Articles of Incorporation or the Act.
3.2 Number Of Directors.
-------------------
The number of Directors of the Corporation shall be fixed from time to
time by resolution of the Board. The number of Directors may be changed from
time to time by amendment to these Bylaws, but no decrease in the number of
Directors shall have the effect of removing any Director before his term of
office expires.
-5-
<PAGE>
3.3 Election, Qualification And Term Of Office Of Directors.
-------------------------------------------------------
Except as provided in Section 3.4 of these Bylaws, the directors shall
be divided into three classes designated as Class I, Class II and Class III,
respectively. Directors need not be shareholders of the Corporation or
residents of the State of Washington unless so required by the these Bylaws or
the Articles of Incorporation, wherein other qualifications for directors may be
prescribed. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board. Each class shall consist, as
nearly as may be possible, of one-third of the total number of directors
constituting the entire Board. The current term of office of the Class I
directors shall expire at the annual meeting of shareholders in 2000 and Class I
directors shall subsequently be elected for a full term of three years. The
current term of office of the Class II directors shall expire at the annual
meeting of shareholders in 2001 and Class II directors shall subsequently be
elected for a full term of three years. The initial term of office of the Class
III directors shall expire at the annual meeting of shareholders in 2002 and
Class III directors shall subsequently be elected for a full term of three
years. Thereafter, the term of office of each class of directors shall be three
years and directors shall hold office until the annual meeting for the year in
which their terms expire and until their successors shall be elected and shall
qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. If the number of directors is changed,
any increase or decrease in directorships shall be apportioned among the classes
so as to maintain the number of directors in each class as nearly equal as
possible, and any additional directors of any class elected to fill a vacancy
resulting from an increase in such class shall hold office only until next
election of directors by the shareholders, but in no case will a decrease in the
number of directors shorten the term of any incumbent director.
3.4 Resignation; Removal; Vacancies.
-------------------------------
Any Director may resign from the Board or any committee of the Board
at any time by delivering either oral tender of resignation at any meeting of
the Board or any committee thereof, or written notice to the Chairman of the
Board, the President, the Secretary or the Board. Any such resignation is
effective upon delivery thereof unless the notice of resignation specifies a
later effective date and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
At a meeting of shareholders called expressly for that purpose, one or
more members of the Board, including the entire Board, may be removed with or
without cause by the holders of the shares entitled to elect the Director or
Directors whose removal is sought if the number of votes cast to remove the
Director exceeds the number of votes cast not to remove the Director.
Unless the Articles of Incorporation provide otherwise, any vacancy
occurring on the Board may be filled by the shareholders, by the Board or, if
the Directors in office constitute fewer than a quorum, by the affirmative vote
of a majority of the remaining Directors. Any vacant office to be held by a
Director elected by holders of one or more authorized classes or series of
shares entitled to vote and be counted collectively thereon shall be filled only
by the
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vote of the holders of such classes or series of shares. A vacancy that will
occur at a specific later date, by reason of a resignation effective at a later
date or otherwise, may be filled before the vacancy occurs but the new Director
may not take office until the vacancy occurs. A Director elected to fill a
vacancy shall serve only until the next election of Directors by the
shareholders.
3.5 Place Of Meetings; Meetings By Telephone.
----------------------------------------
The Board may hold meetings, both regular and special, either within
or outside the State of Washington.
Members of the Board, or of any committee thereof, may participate in
a meeting of the Board, or committee, by, or conduct the meeting through the use
of, any means of communication by which all Directors who are participating in
the meeting can hear each other during the meeting. Participation by such means
shall constitute presence in person at the meeting.
3.6 Annual And Regular Meetings.
---------------------------
An annual Board meeting shall be held without notice immediately after
and at the same place as the Annual Meeting. By resolution, the Board, or any
committee thereof, may specify the date, time and place for holding regular
meetings without notice other than such resolution.
3.7 Special Meetings; Notice.
------------------------
Special meetings of the Board, or of any committee thereof, may be
called by or at the request of the Chairman of the Board, the President, the
Secretary or, in the case of special Board meetings, any two (2) Directors and,
in the case of any special meeting of any committee of the Board, by its
Chairman. The person or persons authorized to call special meetings may fix any
place for holding any special Board or committee meeting called by them.
Notice of a special Board or committee meeting stating the date, time
and place of the meeting shall be delivered personally or by telephone to each
Director or sent by first class mail or facsimile addressed to each Director at
his address as it is shown on the records of the Corporation. If the notice is
mailed, it shall be deposited in the United States mail at least five (5) days
before the time of the holding of the meeting. If the notice is delivered
personally or by telephone or by facsimile, it shall be delivered at least two
(2) days before the meeting. Any oral notice given personally or by telephone
may be communicated either to the director or to a person at the office of the
director who the person giving the notice has reason to believe will promptly
communicate it to the director. The notice need not specify the purpose or the
place of the meeting, if the meeting is to be held at the principal executive
office of the Corporation.
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3.8 Adjourned Meeting; Notice.
-------------------------
If a quorum is not present at any meeting of the Board, or of any
committee thereof, then the Directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum is present.
3.9 Waiver Of Notice.
----------------
Whenever notice is required to be given to any Director under any
provisions of these Bylaws, the Articles of Incorporation or the Act, a written
waiver thereof, signed by the person entitled to notice and delivered to the
Corporation, whether before or after the date and time of the meeting, shall be
deemed equivalent to the giving of such notice. A Director's attendance at or
participation in a meeting of the Board, or of any committee thereof, shall
constitute a waiver of notice of such meeting, unless the Director at the
beginning of the meeting, or promptly upon his arrival, objects to holding the
meeting or transacting business at such meeting and does not thereafter vote for
or assent to action taken at the meeting. Neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the Board, or of any
committee thereof, need be specified in any written waiver of notice unless so
required by these Bylaws or the Articles of Incorporation.
3.10 Quorum.
------
At all meetings of the Board, or of any committee thereof, a majority
of the authorized number of Directors shall constitute a quorum for the
transaction of business and the act of majority of the directors present at any
meeting at which there is a quorum shall be the act of the Board, or of the
committee thereof, except as the Articles of Incorporation or the Act may
otherwise specifically provide. If a quorum is not present at any meeting of the
Board, or of the committee thereof, then the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum is present.
3.11 Action By Board Or Committees Without A Meeting.
-----------------------------------------------
Any action required or permitted to be taken at any meeting of the
Board, or of any committee thereof, may be taken without a meeting if one or
more written consents setting forth the action so taken are signed by each of
the Directors or by each committee member, either before or after the action is
taken, and delivered to the Corporation. Action taken by written consent of
Directors without a meeting is effective when the last Director signs the
consent, unless the consent specifies a later effective date. Any such consent
shall be filed with the minutes of proceedings of the Board or committee
meeting.
3.12 Executive And Other Committees; Authority; Minutes.
--------------------------------------------------
The Board, by resolution adopted by the greater of (a) a majority of
the Directors then in office and (b) the number of Directors required to take
action in accordance with these Bylaws, may create standing or temporary
committees, including an Audit Committee and Compensation Committee, and appoint
members from its own number and invest such
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committees with such powers as it may see fit, subject to such conditions as may
be prescribed by the Board, these Bylaws, the Articles of Incorporation and
applicable law. Each committee must have two (2) or more members, who shall
serve at the pleasure of the Board. The Board may remove any member of any
committee elected or appointed by the Board but only by the affirmative vote of
the greater of (x) a majority of the Directors then in office and (y) the number
of Directors required to take action in accordance with these Bylaws.
Each committee shall have and may exercise all the authority of the
Board to the extent provided in the resolution of the Board creating the
committee and any subsequent resolutions adopted in like manner, except that no
such committee shall have the authority to (i) authorize or approve a
distribution except according to a general formula or method prescribed by the
Board, (ii) approve or propose to shareholders actions or proposals required by
the Act to be approved by shareholders, (iii) fill vacancies on the Board or any
committee thereof, (iv) amend the Articles of Incorporation pursuant to Section
23B.10.020 of the Act, (v) adopt, amend or repeal Bylaws, (vi) approve a plan of
merger not requiring shareholder approval, or (vii) authorize or approve the
issuance or sale of contract for sale of shares, or determine the designation
and relative rights, preferences and limitations of a class or series of shares
except that the Board may authorize a committee or a senior executive officer of
the Corporation to do so within limits specifically prescribed by the Board.
All committees shall keep regular minutes of their meetings and shall
cause them to be recorded in books kept for that purpose.
3.13 Approval Of Loans To Officers.
-----------------------------
Unless these Bylaws, the Articles of Incorporation or the Act
otherwise specifically provide, the Corporation may lend money to, or guarantee
any obligation of, or otherwise assist any officer or other employee of the
Corporation or of its subsidiary, including any officer or employee who is a
Director of the Corporation, or its subsidiary, whenever, in the judgment of the
Directors, such loan, guaranty or assistance may reasonably be expected to
benefit the Corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the Board
shall approve, including, without limitation, a pledge of shares of stock of the
Corporation. Nothing contained in this Section 3.13 shall be deemed to deny,
limit or restrict the powers of guaranty or warranty of the Corporation at
common law or under any statute.
3.14 Fees And Compensation Of Directors.
----------------------------------
Unless otherwise restricted by these Bylaws or the Articles of
Incorporation, the Board shall have the authority to fix the compensation of
Directors and committee members. By resolution, Directors and committee members
may be paid their expenses, if any, of attendance at each Board or committee
meeting, or a fixed sum for attendance at each Board or committee meeting, or a
stated salary as Director or a committee member, or a combination of any of the
foregoing. No such payment shall preclude any Director or committee member from
serving the Corporation in any other capacity and receiving compensation
therefor.
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ARTICLE IV
OFFICERS
--------
4.1 Officers.
--------
The officers of the Corporation shall be a chief executive officer,
president, one or more senior vice presidents, a secretary, and a treasurer. The
Corporation may also have, at the discretion of the Board, a chairman of the
Board, a chief executive officer, one or more vice presidents or assistant vice
presidents, assistant secretaries, assistant treasurers, and any such other
officers as may be appointed in accordance with the provisions of Section 4.3 of
these Bylaws. Any number of offices may be held by the same person.
4.2 Election Of Officers.
--------------------
The officers of the Corporation, except such officers as may be
appointed in accordance with the provisions of Sections 4.3 or 4.6 of these
Bylaws, shall be chosen by the Board, subject to the rights, if any, of an
officer under any contract of employment.
4.3 Subordinate Officers.
--------------------
The Board may appoint, or empower the Chief Executive Officer to
appoint, such other officers and agents as the business of the Corporation may
require, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these Bylaws or as the Board may from
time to time determine.
4.4 Contract Right Of Officers.
--------------------------
The appointment of an officer does not, by itself, create contract
rights.
4.5 Removal And Resignation Of Officers.
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the Board at any regular or special meeting
of the Board or, except in the case of an officer chosen by the Board, by any
officer upon whom such power of removal may be conferred by the Board.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Corporation under any contract to which the officer is a
party.
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<PAGE>
4.6 Vacancies In Offices.
--------------------
Any vacancy occurring in any office of the Corporation shall be
filled by the Board.
4.7 Chief Executive Officer.
-----------------------
The Chief Executive Officer exercise and perform such powers and
duties as may from time to time be assigned to him or her by the Board or as may
be prescribed by these Bylaws. The Chief Executive Officer shall have the
powers and duties prescribed in Section 4.8 of these bylaws.
4.8 President.
---------
Subject to such supervisory powers, if any, as may be given by the
Board to the Chairman of the Board or the chief executive officer, the President
shall, subject to the control of the Board, have general supervision, direction,
and control of the business and the officers of the Corporation. In general,
the President shall perform all duties incident to the office of President and
such other duties as are prescribed by the Board from time to time. If no
Secretary has been appointed, the President shall have responsibility for the
preparation of minutes of meetings of the Board and shareholders and for
authentication of the records of the corporation.
4.9 Senior Vice President.
---------------------
In the absence or disability of the Chief Executive Officer or the
President, the Senior Vice Presidents, if any, in order of their rank as fixed
by the Board or, if not ranked, a senior vice president designated by the Board,
shall perform all the duties of the Chief Executive Officer or President and
when so acting shall have all the powers of that office. The Senior Vice
Presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board, these Bylaws,
the President or the Chief Executive Officer.
4.10 Secretary.
---------
The Secretary shall keep or cause to be kept, at the principal
executive office of the Corporation or such other place as the Board may direct,
a book of minutes of all meetings and actions of the Board, committees of the
Board, and shareholders. The minutes shall show the time and place of each
meeting, whether regular or special (and, if special, how authorized and the
notice given), the names of those persons present at Board meetings or committee
meetings, the number of shares present or represented at meetings of
shareholders, and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal
offices of the Corporation or at the office of the Corporation's transfer agent
or registrar a share register, or a duplicate share register, showing the names
of all shareholders and their addresses, the number
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and classes of shares held by each, the number and date of certificates
evidencing such shares, and the number and date of cancellation of every
certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all
meetings of the shareholders and of the Board required to be given by law or by
these Bylaws. He or she shall keep the seal of the Corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the Board or by these Bylaws.
4.11 Treasurer.
---------
The Treasurer shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the properties
and business transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings,
and shares. The books of account shall at all reasonable times be open to
inspection by any Director.
The Treasurer shall deposit all money and other valuables in the name
and to the credit of the Corporation with such depositaries as may be designated
by the Board. He or she shall disburse the funds of the Corporation as may be
ordered by the Board, shall render to the Chief Executive Officer and Directors,
whenever they request it, an account of all of transactions as Treasurer and of
the financial condition of the Corporation, and shall have such other powers and
perform such other duties as may be prescribed by the Board or these Bylaws.
4.12 Assistant Secretary.
-------------------
The Assistant Secretary, or, if there is more than one, the Assistant
Secretaries in the order determined by the shareholders or Board (or if there be
no such determination, then in the order of their election) shall, in the
absence of the Secretary or in the event of his or her inability or refusal to
act, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as the Board or the
shareholders may from time to time prescribe.
4.13 Assistant Treasurer.
-------------------
The Assistant Treasurer, or, if there is more than one, the Assistant
Treasurers, in the order determined by the shareholders or Board (or if there be
no such determination, then in the order of their election), shall, in the
absence of the Treasurer or in the event of his or her inability or refusal to
act, perform the duties and exercise the powers of the Treasurer and shall
perform such other duties and have such other powers as the Board or the
shareholders may from time to time prescribe.
4.14 Authority And Duties Of Officers.
--------------------------------
In addition to the foregoing authority and duties, all officers of
the Corporation shall respectively have such authority and perform such duties
in the management of the business of the Corporation as may be designated from
time to time by the Board or the shareholders.
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ARTICLE V
INDEMNITY
---------
5.1 Right To Indemnification.
------------------------
Each person who was, is or is threatened to be made a party to or is
otherwise involved (including, without limitation, as a witness) in any
threatened, pending or completed action, suit, claim or proceeding, whether
civil, criminal, administrative or investigative and whether formal or informal
(a "Proceeding"), by reason of the fact that he or she is or was a Director or
----------
officer of the Corporation or, that being or having been such a Director or
officer or an employee of the Corporation, is or was serving at the request of
the Corporation as a Director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise (an "Indemnitee"), whether the basis of a Proceeding is alleged
----------
action in an official capacity or in any other capacity while serving as a
Director, officer, partner, trustee, employee or agent, shall be indemnified and
held harmless by the Corporation against all loses, claims, damages
(compensatory, exemplary, punitive or otherwise), liabilities and expenses
(including attorneys' fees, costs, judgments, fines, ERISA excise taxes or
penalties, amounts to be paid in settlement and any other expenses) actually and
reasonably incurred or suffered by such Indemnitee in connection therewith and
such indemnification shall continue as an Indemnitee who has ceased to be a
Director or officer of the Corporation or a Director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise shall inure to the benefit of the
Indemnitee's heirs, executors and administrators. Except as provided in Section
5.4 with respect to proceedings seeking to enforce rights to indemnification,
the Corporation shall indemnify any such Indemnitee in connection with a
Proceeding (or part thereof) initiated by such Indemnitee only if a Proceeding
(or part thereof) was authorized or ratified by the Board. The right to
indemnification conferred in this Article 5 shall be a contract right.
5.2 Restrictions On Indemnification.
-------------------------------
No indemnification shall be provided to any such Indemnitee for acts
or omissions of the Indemnitee finally adjudged to be intentional misconduct or
a knowing violation of law, for conduct of the Indemnitee finally adjudged to be
in violation of Section 23B.08.310 of the Act, for any transaction with respect
to which it was finally adjudged that such Indemnitee personally received a
benefit in money, property or services to which the Indemnitee was not legally
entitled or if the Corporation is otherwise prohibited by applicable law from
paying such indemnification. Notwithstanding the foregoing, if Section
23B.08.560 or any successor provision of the Act is hereafter amended, the
restrictions on indemnification set forth in this Section 5.2 shall be set forth
in such amended statutory provision.
5.3 Advancement Of Expenses.
-----------------------
The right to indemnification conferred in this Article 5 shall include
the right to be paid by the Corporation the expenses incurred in defending any
proceeding in advance of its final disposition (an "Advancement of Expenses").
-----------------------
An Advancement of Expenses shall be made
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<PAGE>
upon delivery to the Corporation of an undertaking (an "Undertaking"), by or on
-----------
behalf of such Indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal that such Indemnitee is not entitled to be indemnified.
5.4 Right Of Indemnitee To Bring Suit.
---------------------------------
If a claim under Section 5.1 or 5.3 is not paid in full by the
Corporation with 60 days after a written claim has been received by the
Corporation, except in the case of a claim for an Advancement of Expenses, in
which case the applicable period shall be 20 days, the Indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim.
If successful in whole or in part, in any such suit of in a suit
brought by the Corporation to recover an Advancement of Expenses pursuant to the
terms of an undertaking, the Indemnitee shall be entitled to be paid also the
expense of litigating such suit. The Indemnitee shall be presumed to be entitled
to indemnification under this Article 5 upon submission of a written claim (and,
in an action brought to enforce a claim for an Advancement of Expenses, when the
required undertaking has been tendered to the Corporation) and thereafter the
Corporation shall have the burden of proof to overcome the presumption that the
Indemnitee is so entitled.
5.5 Procedures Exclusive.
--------------------
Pursuant to Section 23B.08.560(2) or any successor provision of the
Act, the procedures for indemnification and the Advancement of Expenses set
forth in this Article 5 are in lieu of the procedures required by Section
23B.08.550 or any successor provision of the Act.
5.6 Nonexclusivity Of Rights.
------------------------
Except as set forth in Section 5.5, the right to indemnification and
the Advancement of Expenses conferred in this Article 5 shall not be exclusive
of any other right that any person may have or hereafter acquire under any
statute, provision of the Articles of Incorporation or these Bylaws, general or
specific action of the Board or shareholders, contract or otherwise.
5.7 Insurance.
---------
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee, or agent of the Corporation,
or who, while a director, officer, employee, or agent of the Corporation, is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of the Act. The Corporation may enter into
contracts with any Director, officer, partner, trustee, employee or
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agent of the Corporation in furtherance of the provisions of this Article 5 and
may create a trust fund, grant a security interest, or use other means
(including, without limitation, a letter of credit) to ensure the payment of
such amounts as may be necessary to effect indemnification as provided in this
Article 5.
5.8 Indemnification Of Employees And Agents Of The Corporation.
----------------------------------------------------------
In addition to the rights of indemnification set forth in Section 5.1,
the Corporation may, by action of the Board, grant rights to indemnification and
the Advancement of Expenses to employees and agents or any class or group of
employees and agents of the Corporation (a) with the same scope and effect as
the provisions of this Article 5 with respect to indemnification and the
Advancement of Expenses of Directors and officers of the Corporation; (b)
pursuant to rights granted or provided by the Act; or (c) as are otherwise
consistent with law.
5.9 Persons Serving Other Entities.
------------------------------
Any person who, while a Director, officer or employee of the
Corporation, is or was serving (a) as a director, officer, employee or agent of
another corporation of which a majority of the shares entitled to vote in the
election of its directors is held by the Corporation or (b) as a partner,
trustee or otherwise in an executive or management capacity in a partnership,
joint venture, trust, employee benefit plan or other enterprise of which the
Corporation or a majority owned subsidiary of the Corporation is a general
partner or has a majority ownership shall conclusively be deemed to be so
serving at the request of the Corporation and entitled to indemnification and
the Advancement of Expenses under Sections 5.1 and 5.3.
ARTICLE VI
RECORDS AND REPORTS
-------------------
6.1 Maintenance And Inspection Of Records.
-------------------------------------
The Corporation shall, either at its principal office or at such place
or places as designated by the Board:
(a) Keep as permanent records minutes of all meetings of the Board and
shareholders, a record of all actions taken by the Board or shareholders without
a meeting, and a record of all actions taken by a committee of the Board
exercising the authority of the Board on behalf of the Corporation;
(b) Maintain appropriate accounting records; and
(c) Maintain a record of its shareholders, in a form that permits
preparation of a list of the name and addresses of all shareholder, in
alphabetical order by class of shares showing the number and class of shares
held by each shareholder.
(d) Keep a copy of the following records at its principal office:
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(i) the Article of Incorporation and all amendments thereto as
currently in effect;
(ii) these Bylaws and all amendments thereto as currently in
effect;
(iii) the minutes of all meetings of shareholders and records of
all action taken by shareholders without a meeting, for the past three (3)
years;
(iv) the financial statements described in Section 23B.16.200(1)
of the Act, for the past three (3) years;
(v) all written communications to shareholders generally within
the past three (3) years;
(vi) a list of the names and business addresses of the current
Directors and officers; and
(vii) the most recent annual report delivered to the Secretary
of State of the State of Washington.
6.2 Representation Of Shares Of Other Corporations.
----------------------------------------------
The Chairman of the Board, the Chief Executive Officer, the President,
any Senior Vice President, the Treasurer, the Secretary or assistant secretary
of this Corporation, or any other person authorized by the Board or the
President or a vice president, is authorized to vote, represent, and exercise on
behalf of this Corporation all rights incident to any and all shares of any
other corporation or corporations standing in the name of this Corporation. The
authority granted herein may be exercised either by such person directly or by
any other person authorized to do so by proxy or power of attorney duly executed
by such person having the authority.
ARTICLE VII
GENERAL MATTERS
---------------
7.1 Checks.
------
From time to time, the Board shall determine by resolution which
person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the Corporation, and only the persons so authorized
shall sign or endorse those instruments.
7.2 Execution Of Corporate Contracts And Instruments.
------------------------------------------------
The Board, except as otherwise provided in these Bylaws, may authorize
any officer or officers, or agent or agents, to enter into any contract or
execute any instrument in the name of and on behalf of the Corporation; such
authority may be general or confined to specific instances. Unless so authorized
or ratified by the Board or within the agency power of an officer,
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<PAGE>
no officer, agent or employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
7.3 Stock Certificates; Partly Paid Shares.
--------------------------------------
The shares of a Corporation shall be represented by certificates,
provided that the Board may provide by resolution or resolutions that some or
all of any or all classes or series of its stock shall be uncertificated shares.
Any such resolution shall not apply to shares represented by a certificate until
such certificate is surrendered to the Corporation. Notwithstanding the adoption
of such a resolution by the board of directors, every holder of stock
represented by certificates and upon request every holder of uncertificated
shares shall be entitled to have a certificate signed by, or in the name of the
Corporation by the Chief Executive Officer or the President, and by the
Treasurer or an assistant treasurer or the Secretary or an assistant secretary
of the Corporation representing the number of shares registered in certificate
form. Any or all of the signatures on the certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue.
The Corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
Corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
Corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
7.4 Special Designation On Certificates.
-----------------------------------
If the Corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 23B.06.270 of the Act, in lieu of the
foregoing requirements there may be set forth on the face or back of the
certificate that the Corporation shall issue to represent such class or series
of stock a statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, the designations, the preferences, and
the relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
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7.5 Lost, Stolen Or Destroyed Certificates.
--------------------------------------
Except as provided in this Section 7.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the Corporation and cancelled at the same time. The Corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
7.6 Construction; Definitions.
-------------------------
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the Act shall govern the construction of
these Bylaws. Without limiting the generality of this provision, the singular
number includes the plural, the plural number includes the singular, and the
term "person" includes both an individual and an entity, as those terms are
defined in the Act.
7.7 Dividends.
---------
The Board, subject to any restrictions contained in the Articles of
Incorporation, may declare and pay dividends upon the shares of its capital
stock pursuant to the Act. Dividends may be paid in cash, in property, or in
shares of the Corporation's capital stock.
The Board may set apart out of any of the funds of the Corporation
available for dividends a reserve or reserves for any proper purpose and may
abolish any such reserve. Such purposes shall include but not be limited to
equalizing dividends, repairing or maintaining any property of the Corporation,
and meeting contingencies.
7.8 Fiscal Year.
-----------
The fiscal year of the Corporation shall be fixed by resolution of the
Board and may be changed by the Board.
7.9 Seal.
----
The Board may provide for a corporate seal that shall consist of the
name of the Corporation, the state of its incorporation, and the year of its
incorporation.
7.10 Transfer Of Stock; Restrictions On Transfer.
-------------------------------------------
Upon surrender to the Corporation or its transfer agent of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
-18-
<PAGE>
Except to the extent that the Corporation has obtained an opinion of
counsel acceptable to the Corporation that transfer restrictions are not
required under applicable federal and state securities laws, all certificates
representing shares of the Corporation shall bear a legend on the face of the
certificate, or on the reverse of the certificate if a reference to the legend
is contained on the face thereof, which reads substantially as follows:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR OFFERED
---
FOR SALE OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT AND ANY STATE
SECURITIES LAWS."
7.11 Stock Transfer Agreements.
-------------------------
The Corporation shall have power to enter into and perform any
agreement with any number of shareholders of any one or more classes of stock of
the Corporation to restrict the transfer of shares of stock of the Corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the Act.
7.12 Registered Shareholders.
-----------------------
The Corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of the
State of Washington.
ARTICLE VIII
AMENDMENTS
----------
These Bylaws may be altered, amended or repealed and new Bylaws may
be adopted by the Board, except that the Board may not amend or repeal any Bylaw
that the shareholders have expressly provided, in amending or repealing such
Bylaw, may not be amended or repealed by the Board. The shareholders may also
adopt, amend or repeal the Bylaws of this corporation by the affirmative vote of
the holders of not less than two-thirds of the outstanding shares, and, to the
extent, if any, provided by resolution or resolutions of the Board of Directors
providing for the issuance of a series of Common or Preferred Stock, not less
than two-thirds of the outstanding shares of such class or series entitled to
vote thereon, voting as a class.
-19-
<PAGE>
EXHIBIT 4.1
[SPECIMEN STOCK CERTIFICATE OF HOMEGROCER.COM,INC.]
<TABLE>
<S> <C> <C> <C> <C>
COMMON STOCK
[LOGO OF HOMEGROCER.COM, INC.] [STAMP]
SEE REVERSE FOR CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF WASHINGTON CUSIP 43740K 10 0
THIS CERTIFICATE IS TRANSFERABLE IN THE CITIES OF RIDGEFIELD PARK, NJ AND NEW YORK, NY
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK
HOMEGROCER.COM, INC.
transferable on the books of the Corporation by the holder hereof in person or by duly
authorized attorney upon surrender of this certificate properly endorsed. This certificate
is not valid unless countersigned and registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of its duly
authorized officers.
Dated:
[HOMEGROCER.COM INC. SEAL]
/s/ Mary Alice Taylor
CHAIRMAN AND CHIEF EXECUTIVE OFFICER COUNTERSIGNED AND REGISTERED
CHASEMELLON SHAREHOLDER SERVICES LLC
/s/ Kristin H. Stred TRANSFER AGENT AND REGISTER
CORPORATE SECRETARY BY
AUTHORIZED SIGNATURE
</TABLE>
<PAGE>
THE CORPORATION WILL FURNISH WITHOUT CHANGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be continued as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT-__________________ Custodian ____________________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of Under Uniform Gifts to Minors
survivorship and not as tenants Act_____________________________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _________________hereby sell, assign and transfer unto
PLEASE INSERT SPECIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF ASSIGNEE
- --- ---
| |
| |
- --- ---
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said shares on the books of the within named Company with
full power of substitution in the premises.
Dated __________________________
_______________________________________________
NOTICE: The signature to the assignment must
correspond with the name as written
upon the face of the certificate in
every particular without alteration
or enlargement or any change
whatsoever, and must be guaranteed by
an eligible institution as defined in
rule 17Ad-1 under the securities
exchange act of 1934 which may include
a commercial bank, trust company or
savings association, credit union or
member firm of the American Stock
Exchange, New York Stock Exchange or
Midwest Stock Exchange.
<PAGE>
EXHIBIT 10.9
September 2, 1999
Ms. Mary Alice Taylor
16605 Villalenda de Avila
Tampa, Florida 33613
Dear Mary Alice:
It gives us great pleasure to offer you the position of Chairman of the Board of
Directors ("Chairman") and Chief Executive Officer of Homegrocer.com, Inc.
("Homegrocer.com", or the "Company"). The Board of Directors intends to elect
you Chairman in a meeting immediately following your acceptance of this offer.
We feel that you will add substantially to the team and provide HomeGrocer.com
with extraordinary leadership. We look forward to helping you to build the
Company into one of the most important new Internet companies and a powerful
player in the American economy. We also want you to know that you can count on
the full resources of HomeGrocer.com's venture capital partners (The Barksdale
Group, Kleiner Perkins, Hummer Winblad, and Madrona Group) to assist you in
your efforts.
We understand the nature of the commitment you are making to join HomeGrocer.com
and want you to do so with great confidence. We believe that you have the
characteristics and values of great business executives: high integrity,
intelligence, compassion, leadership, a bias to action and a sense of urgency.
We are extremely enthusiastic about your accepting this CEO position. The terms
of your employment offer ("Offer") are as follows:
Title: Chairman & Chief Executive Officer
Reporting to: Board of Directors
Base Salary: An annual salary of $200,000 to be paid bi-weekly. The position
is classified as exempt and, as such is not eligible for overtime
pay.
Performance Bonus is subject to definition by the Board (Compensation
Bonus: Committee) based on criteria determined after consultation with
you. Such bonus to be paid quarterly after your first full
quarter of employment and paid in the last pay period of the
month following.
Reviews: Performance and reviews will "normally" or "generally" be held on
a semi-annual basis and salary reviews on an annual basis, but
they may be conducted more frequently, depending upon the
business needs.
<PAGE>
Stock Options Restricted stock for 750,000 common shares at a purchase
and price of $0.90 per share will be issued to you and will be
Restricted Stock: immediately vested. Options will be granted to you to
acquire 2,250,000 additional common shares at an exercise
price of $0.90 per share. The restricted stock and options
will be granted by the Board of Directors in the meeting
immediately following your signing of this agreement, will
not be contingent on shareholder approval, and may at the
Board's discretion be granted outside of the Company's Stock
Incentive Compensation Plan. The option will vest monthly
over three years with vesting commencing on the first
anniversary of the grant date. At your request, to be made
within 60 days of the commencement of your employment, the
Company will allow you to exercise all or a part of your
options, but in that event the Company will have a
repurchase right (at your cost) for those shares that will
lapse on the same schedule as your option vesting (i.e.,
over 4 years). Any reference herein below to non-vested
options shall include shares issued pursuant to the exercise
of non-vested options to the extent the shares remain
subject to repurchase. In the event of your death or
permanent disability, as to all non-vested options and
restricted stock then held by you (including any options and
restricted stock granted in excess of the 3,000,000 shares
provided for herein), the options and restricted stock will
become vested to the extent of the greater of 50% of the
non-vested options and/or shares or the options and/or
shares which would have vested had you continued in
employment for 12 months. You will have the right to borrow
from the Company (on a recourse basis) any amount necessary
to cover the exercise price of options and the purchase
price of restricted stock. Any such loan will bear interest
at the lowest rate allowable under federal law. Any proceeds
you receive from the sale of the Company's stock shall first
go to repay the loan. Any such loan will be due and payable
in any event in 5 years. All options and restricted stock
issued to you will be pursuant to Stock Option Letter
Agreement(s) and Restricted Stock Purchase Agreement(s)
which include the foregoing provisions as well as other
customary provisions.
You may, in your sole discretion, subject to applicable
securities laws (including requirements for accredited
investors) and contractual agreements (including without
limitation the Restricted Stock Purchase Agreement
applicable to the purchase of your shares), transfer all or
any portion of the options (or stock issued pursuant to the
exercise of options) or restricted stock held by you
(including any options and restricted stock granted in
excess of the 3,000,000 shares provided for herein) to any
member of your immediate family, your siblings and the
descendants of any of them (your "Immediate Family"), or to
any trust or family partnership for the benefit of any such
individuals; provided, that (i) you or your spouse shall
retain the right to vote such restricted stock (or stock
-2-
<PAGE>
issued pursuant to the exercise of options), and (ii) such
options or restricted stock (or stock issued pursuant to the
exercise of options) shall remain subject to the same risk
of forfeiture and the same contractual and other
restrictions as would have applied to you in the absence of
such transfer.
You, any member of your Immediate Family or any estate
planning entity established for you or for the benefit of
any Immediate Family member will additionally have the right
to purchase up to $500,000 of the security issued in the
Company's next round of pre-IPO equity financing, if any.
Vacation: Unlimited
Benefits Plan: You will be eligible for the Company's competitive benefits
plan the first of the month following 30 days employment.
The plan will include medical, dental, vision, and life
insurance. The Company will pay all premiums, including cost
of one dependent (additional dependents covered at 50%).
Short-term disability and long-term disability will be a
100% employee paid contributory benefit. These benefits will
be described to you at the time that you begin your
employment. However, if you have any questions about your
benefits prior to that time, we will be happy to answer
them.
401(k) Plan: The Company provides a 401(k) plan with Company matching.
The details of the plan will be provided in a separate
document.
At Will: You should also understand that HomeGrocer.com employs its
employees on an at will basis. This means that your
employment is voluntary and for no set period. If you accept
employment with the Company, you will be free to resign at
any time, without cause. Likewise, the company will be free
to terminate your employment at any time, with or without
cause.
Termination If the Company terminates your employment for any reason
Without Cause without "cause", or if you resign your employment for
or Resignation "good reason", then (i) the Company shall pay you all
By You for Good compensation (including base salary and bonus) due to you at
Reason: the date of your termination, (ii) non-vested options and
restricted stock that would otherwise have vested over the
next 6 months of your employment, or 375,000 non-vested
options or shares of restricted stock then held by you, if
greater, shall become immediately vested, and (iii) the
Company shall continue to pay, monthly, one-twelfth of your
then current annual base salary plus bonus, for a period of
two years after the date of such termination or resignation.
Termination With For purposes of this Offer, termination of your employment
by the
-3-
<PAGE>
Cause: Company shall be regarded as termination for "cause" only
upon:
(i) your willful and continued failure to substantially
perform your duties with the Company after there is
delivered to you by the Board of Directors a written demand
for substantial performance which sets forth in detail the
specific respects in which it believes you have not
substantially performed your duties;
(ii) your willfully engaging in gross misconduct which is
materially detrimental to the Company;
(iii) your committing a felony or act of fraud against the
Company or its affiliates; or
(iv) your breaching materially the terms of your employee
non-disclosure and invention agreement with the Company or
any other similar agreement that may be in effect from time
to time.
In the event of termination for cause, the Company shall pay
you all compensation (including base salary and accrued
vacation but excluding bonus) due to you on the date of
termination.
Resignation For purposes of this Offer, "good reason" shall mean:
Other Than for
Good Reason: (i) a material reduction in your base salary or bonus,
without your prior written consent;
(ii) a material reduction in your position, duties or
responsibilities, without your prior written consent;
(iii) a change in your place of employment which is not
within a 35 mile radius of your place of employment
immediately before such change, without your prior written
consent; or
(iv) any material breach by the Company of the terms of
this Offer.
In the event of your resignation other than for good reason,
the Company shall pay you all compensation (including base
salary and accrued vacation but excluding bonus) due to you
on the date of resignation.
Acceleration: In the event the Company:
(i) sells all or substantially all of its assets; or is
acquired by another entity by means of consolidation or
merger after which the stockholders of the
-4-
<PAGE>
Company immediately prior to the transaction hold less than
50% of the voting power of the surviving corporation; and
(ii) you are not offered a position having substantially the
same duties and responsibilities as you had prior to such a
sale or acquisition and comparable compensation; then; you
will become immediately vested in all options and restricted
stock that would have become vested had you continued in
your then-current position for a period of 2 years from the
date of such sale of acquisition, or in 1,500,000 non-vested
options or shares of restricted stock then held by you, if
greater.
For purposes of this "acceleration" paragraph, we agree that
managing the online division of a major grocery chain will
not constitute a position with similar duties and
responsibilities. We also agree that if the capital or
operating budgets of the Company are substantially reduced
(by more than 50%) within 6 months of any such sale or
acquisition, then that will not constitute a position with
similar duties and responsibilities. With those exceptions,
you agree that a position with similar duties and
responsibilities will include any position in which you
continue to run the operations of the Company with full
executive responsibility for strategic and business
planning, profit and loss, marketing, pricing and sales. You
also agree that you will not consider your responsibilities
to be dissimilar solely because the acquiring company
combines and operates warehousing, distribution and other
similar operations.
Registration The Company will grant you "piggy-back" registration rights
Rights: for Company securities held by you on the same terms as
those given to the investors holding the Company's Preferred
Stock under its current Investor Rights Agreement.
Expenses: The Company will reimburse any expenses you reasonable incur
in the course of carrying out business for the Company.
Moving: You agree to relocate to the Seattle region within six
months. The Company will reimburse reasonable expenses,
including, but not limited to, temporary accommodation,
movers, realty fees, transfer taxes and two house hunting
trips. The Company will also pay for the cost of carrying
your Tampa residence during any period of time in which you
are residing in the Seattle region, but not for more than
one year.
Outside You may continue to serve on all corporate, civic and
Activities: charitable boards or committees on which you are currently
serving. In addition, you may serve on other corporate,
civic or charitable boards or committees (in addition to the
Company's Board) so long as such service does not prevent
-5-
<PAGE>
you from carrying out your duties and responsibilities as
Chairman and Chief Executive Officer of the Company.
To indicate your acceptance of this Offer, please sign this letter. We are
pleased to have you as HomeGrocer.com's Chairman and Chief Executive Officer:
Yours very truly,
HomeGrocer.com, Inc.
/s/ Terry Drayton
L. John Doerr Terry Drayton
Director Co-founder & President
By accepting this Offer you agree this is a full time position and you will make
every effort necessary to perform adequately the duties that are assigned to
you. Notwithstanding the foregoing, HomeGrocer.com acknowledges that you will
also remain an employee of Citigroup Inc. until September 1, 1999. As a pre-
condition of this Offer you agree to execute the Company's "Employee Non-
Disclosure and Invention Agreement."
Agreed to and accepted:
/s/: Mary Alice Taylor
Mary Alice Taylor
-6-
<PAGE>
EXHIBIT 10.10
June 1, 1999
Mr. Terry Drayton
1526 - 79/th/ Place NE
Medina, WA 98039
Dear Terry:
On behalf of the Compensation Committee of the Board of Directors, it gives me
great pleasure to confirm your position as President of HomeGrocer.com, Inc.
("HomeGrocer.com", or the "Company") following the recruitment of a new Chairman
and Chief Executive Officer ("CEO"). We would also like to offer you a new
compensation arrangement designed to put you and the new CEO on the same basis.
Thank you for providing HomeGrocer.com with extraordinary leadership during your
tenure as CEO since the inception of the Company over two years ago. We look
forward to continue helping you to build the Company into one of the most
important new Internet companies and a powerful player in the American economy.
We also want you to know that you can continue to count on the full resources of
HomeGrocer.com's venture capital partners (the Barksdale Group, Kleiner Perkins,
Hummer Winblad, and Madrona Group) to assist in your and the CEO's efforts.
We understand the nature of the commitment you have made to HomeGrocer.com and
thank you for it. We believe that you have the characteristics and values of
great business executives: high integrity, intelligence, compassion, leadership,
a bias to action and a sense of urgency. We are extremely enthusiastic about
your continued involvement and accepting this President position. The terms of
your employment offer ("Offer") are as follows:
Title: President (you remain CEO until the new one is recruited)
Reporting to: Chairman & CEO. As Founder and a major shareholder you will
continue to be a member of the Board of Directors.
Base Salary: An annual salary of $200,000 to be paid bi-weekly. The position
is classified as exempt and, as such is not eligible for overtime
pay.
Performance Bonus is subject to definition by the Board (Compensation
Bonus: Committee) based on criteria determined after consultation with
you. Such bonus to be paid quarterly after your first full
quarter of employment and paid in the last pay period of the
month following.
Reviews: Performance and reviews will "normally" or "generally" be held on
a semi-annual basis and salary reviews on an annual basis, but
they may be conducted more frequently, depending upon the
business needs.
<PAGE>
Stock Options Restricted stock for 275,000 common shares at a purchase price
and Restricted of $0.90per share will be issued to you and will be immediately
Stock: of Options will be granted to you to acquire 825,000 additional
common shares at an exercise price of $0.90 per share. The
restricted stock and options will be granted by the Board of
Directors at the June 11, 1999 meeting, will not be contingent
on shareholder approval, and may at the Board's discretion be
granted outside of the Company's Stock Incentive Compensation
Plan. The option will vest monthly over three years with vesting
commencing on the first anniversary of the grant date. At your
request, to be made within 120 days of the date of this letter,
the Company will allow you to exercise all or a part of your
options, but in that event the Company will have a repurchase
right (at your cost) for those shares that will lapse on the
same schedule as your option vesting (i.e., over 4 years). Any
reference herein below to non-vested options shall include
shares issued pursuant to the exercise of non-vested options to
the extent the shares remain subject to repurchase. In the event
of your death or permanent disability, as to all non-vested
options and restricted stock then held by you (including any
options and restricted stock granted in excess of the 1,100,000
shares provided for herein), the options and restricted stock
will become vested to the extent of the greater of 50% of the
non-vested options and/or shares or the options and/or shares
which would have vested had you continued in employment for 12
months. You will have the right to borrow from the Company (on a
recourse basis) any amount necessary to cover the exercise price
of options and the purchase price of restricted stock. Any such
loan will bear interest at the lowest rate allowable under
federal law. Any proceeds you receive from the sale of the
Company's stock shall first go to repay the loan. Any such loan
will be due and payable in any event in 5 years. All options and
restricted stock issued to you will be pursuant to Stock Option
Letter Agreement(s) and Restricted Stock Purchase Agreement(s)
which include the foregoing provisions as well as other
customary provisions.
You may, in your sole discretion, subject to applicable
securities laws (including requirements for accredited
investors) and contractual agreements (including without
limitation the Restricted Stock Purchase Agreement applicable to
the purchase of your shares), transfer all or any portion of the
options (or stock issued pursuant to the exercise of options) or
restricted stock held by you (including any options and
restricted stock granted in excess of the 1,100,000 shares
provided for herein), to any member of your immediate family,
your siblings and the descendants of any of them (your
"Immediate Family"), or to any trust or family
-2-
<PAGE>
partnership for the benefit of any such individuals; provided,
that (i) you or your spouse shall retain the right to vote such
restricted stock (or stock issued pursuant to the exercise of
options), and (ii) such options or restricted stock (or stock
issued pursuant to the exercise of options) shall remain
subject to the same risk of forfeiture and the same contractual
and other restrictions as would have applied to you in the
absence of such transfer.
You, any member of your Immediate Family or any estate planning
entity established for you or for the benefit of any Immediate
Family member will additionally have the right to purchase up
to $183,333 of the security issued in the Company's next round
of pre-IPO equity financing, if any.
Vacation: Unlimited
Benefits Plan: You will be continued to be covered by the Company's
competitive benefits. The plan includes all medical, dental,
vision, and life insurance. The Company will pay all premiums.
Short-term disability and long-term disability will be a 100 %
employee paid contributory benefit.
401(k) Plan: The Company provides a 401(k) plan with company matching. The
details of the plan will be provided in a separate document.
At Will: You should also understand that HomeGrocer.com employs its
employees on an at will basis. This means that your employment
is voluntary and for no set period. If you accept employment
with the Company, you will be free to resign at any time,
without cause. Likewise, the company will be free to terminate
your employment at any time, with or without cause.
Termination If the Company terminates your employment for any reason
Without Cause without "cause", or if you resign your employment for "good
or Resignation reason", then (i) the Company shall pay you all compensation
By You for Good (including base salary and bonus) due to you at the date of
Reason: your termination, (ii) non- vested options and restricted stock
that would otherwise have vested over the next 6 months of your
employment, or 137,500 non-vested options or shares of
restricted stock then held by you, if greater, shall become
immediately vested, and (iii) the Company shall continue to
pay, monthly, one-twelfth of your then current annual base
salary plus bonus, for a period of two years after the date of
such termination or resignation.
Termination For purposes of this Offer, termination or your employment by
With Cause: the Company shall be regarded as termination for "cause" only
upon:
-3-
<PAGE>
(i) your willful and continued failure to substantially
perform your duties with the Company after there is delivered
to you by the Board of Directors a written demand for
substantial performance which sets forth in detail the specific
respects in which it believes you have not substantially
performed your duties;
(ii) your willfully engaging in gross misconduct which is
materially detrimental to the Company;
(iii) your committing a felony or act of fraud against the
Company or its affiliates; or
(iv) your breaching materially the terms of your employee
non-disclosure and invention agreement with the Company or any
other similar agreement that may be in effect from time to
time.
In the event of termination for cause, the Company shall pay
you all compensation (including base salary and accrued
vacation but excluding bonus) due to you on the date of
termination.
Resignation For purposes of this Offer, "good reason" shall mean:
Other Than for
Good Reason: (i) a material reduction in your base salary or bonus,
without your prior written consent;
(ii) a material reduction in your position, duties or
responsibilities, without your prior written consent;
(iii) a change in your place of employment which is not within
a 35 mile radius of your place of employment immediately before
such change, without your prior written consent; or
(iv) any material breach by the Company of the terms of this
Offer.
In the event of your resignation other than for good reason,
the Company shall pay you all compensation (including base
salary and accrued vacation but excluding bonus) due to you on
the date of resignation.
Acceleration: In the event the Company:
(i) sells all or substantially all of its assets; or is
acquired by another entity by means of consolidation or merger
after which the stockholders of the Company immediately prior
to the transaction hold less than 50% of the voting power of
the surviving corporation; and
-4-
<PAGE>
(ii) you are not offered a position having substantially the same
duties and responsibilities as you had prior to such a sale or
acquisition and comparable compensation; then;
you will become immediately vested in all options and restricted
stock that would have become vested had you continued in your
then-current position for a period of 2 years from the date of
such sale of acquisition, or in 550,000 non-vested options or
shares of restricted stock then held by you, if greater.
For purposes of this "acceleration" paragraph, we agree that a
position with the online division of a major grocery chain will
not constitute a position with similar duties and
responsibilities. We also agree that if the capital or operating
budgets of the Company are substantially reduced (by more than
50%) within 6 months of any such sale or acquisition, then that
will not constitute a position with similar duties and
responsibilities. With those exceptions, you agree that a
position with similar duties and responsibilities will include
any position in which you continue to run the customer centric
operations or the Company with full executive responsibility for
marketing and sales, merchandising, storefront and business
development. You also agree that you will not consider your
responsibilities to be dissimilar solely because the acquiring
company combines and operates warehousing, distribution and other
similar operations.
Registration The Company will grant you "piggy-back" registration rights for
Rights: Company securities held by you on the same terms as those given
to the investors holding the Company's Preferred Stock under its
current Investor Rights Agreement.
Expenses: The Company will reimburse any expenses you reasonable incur in
the course of carrying your business for the Company.
Outside You may continue to serve on all corporate, civic and charitable
Activities: boards or committees on which you are currently serving. In
addition, you may serve on other corporate, civic or charitable
boards or committees (in addition to the Company's Board) so long
as such service does not prevent you from carrying out your
duties and responsibilities as President of the Company.
-5-
<PAGE>
To indicate your acceptance of this Offer, please sign this letter. We are
pleased to have you continue as HomeGrocer.com's President.
Yours very truly,
HomeGrocer.com, Inc.
/s/ John Doerr
----------
L. John Doerr
Director
By accepting this Offer you agree this is a full time position and you will make
every effort necessary to perform adequately the duties that are assigned to
you.
Agreed to and accepted:
/s/ Terry Drayton
-------------
J. Terrence Drayton
<PAGE>
EXHIBIT 10.11
November 3, 1999
Mr. Daniel Lee
2919 Reiger Court
Las Vegas, NV 89117
Dear Dan:
Further to our discussion, we are thrilled to have you join the team! We promise
you and Susie will also have a lot of fun. The terms of our offer are as
follows:
Title: Chief Financial Officer
Reporting to: CEO
Base Salary: An annual salary of $180,000 to be paid bi-weekly. This
position is classified as exempt and, as such, is not
eligible for overtime pay.
Performance Bonus: An annual bonus of up to $50,000 based on the achievement of
mutually agreed upon objectives for each calendar year. Such
bonus to be paid quarterly after your first full quarter of
employment and paid in the last pay period of the month
following. This bonus will be guaranteed for the first year.
Reviews: Performance and reviews will "normally" or "generally" be
held on a semi-annual basis, but they may be conducted more
frequently or less frequently, depending upon the business
needs.
Stock Options: Options issued under the Company's Stock Option Plan to
acquire 600,000 common shares at a price to be set by the
board. These shares will vest over 48 months in accordance
with the vesting schedule in your Stock Option Letter
Agreement. This will be provided in a separate document.
Vacation: 4 weeks with one extra day added after each year worked.
<PAGE>
Benefits Plan: You will be eligible for the Company's competitive benefits
plan immediately. This plan will include medical, dental,
vision, and life insurance. The Company will pay all
premiums, including cost of one dependent (additional
dependents are covered at 50%). Short-term disability and
long-term disability will be a 100% employee paid
contributory benefit. These benefits will be described to
you at the time you begin your employment. However, if you
have any questions about your benefits prior to that time,
we will be happy to answer them.
401(k) Plan: The Company provides a 401(k) plan with company matching.
The details of the plan will be provided in a separate
document.
At Will: You should also understand that HomeGrocer.com employs its
employees on an at will basis. This means that your
employment is voluntary and for no set period. If you accept
employment with the Company, you will be free to resign at
any time, without cause. Likewise, the company will be free
to terminate your employment at any time, with or without
cause. If the Company terminates your employment during your
first year, your option vesting will be prorated for the
number of months you were employed.
Expenses: The Company will reimburse any reasonable expenses incurred
by the employee in the course of carrying out business for
the Company.
Moving: You agree to relocate to the Seattle region within six
months. The Company will reimburse all reasonable expenses
incurred by you and your family relating to the move to the
Seattle region including, but not limited to, temporary
accommodation, movers, realty fees, transfer taxes and two
house hunting trips. To assist with moving the Company will
allow you to have your entire first year's bonus paid up
front. If you leave the employment of the Company before
your first year is served you would have to repay the
unearned portion.
Please sign this letter and return one copy to me. Welcome aboard!
Yours very truly,
HomeGrocer.com, Inc.
/s/: Mary Alice Taylor
-----------------
Mary Alice Taylor
Chairman and CEO
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<PAGE>
By accepting this offer you agree to: this is a full time position and you will
make every effort necessary to perform adequately the duties that are assigned
to you. As a pre-condition of this offer you agree to execute the Company's
"Employee Non-Disclosure and Invention Agreement."
Agreed to and accepted:
/s/: Daniel Lee
----------
Daniel Lee
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<PAGE>
EXHIBIT 10.12
August 31, 1999
Mr. David Pace
5432 Edgehollow Place
Dallas, TX 75287
Dear David:
Further to our discussion this evening, we are thrilled to have you join the
team! We promise you and Patti will also have a lot of fun. The terms of our
offer are as follows:
Title: Vice-President, Human Resources
Reporting to: CEO
Base Salary: An annual salary of $175,000 to be paid bi-weekly. This
position is classified as exempt and, as such is not
eligible for overtime pay.
Performance Bonus: An annual bonus of up to $50,000 based on the achievement of
mutually agreed upon objectives for each calendar year. Such
bonus to be paid quarterly after your first full quarter of
employment and paid in the last pay period of the month
following. This bonus is guaranteed for the first year.
Reviews: Performance and reviews will "normally' or "generally" be
held on a semi-annual basis and salary reviews on an annual
basis, but they may be conducted more frequently or less
frequently, depending upon the business needs.
Stock Options: Options issued under the Company's Stock Option Plan to
acquire 200,000 common shares at the fair market price,
currently $0.90 per share, on the day the board approves
this option grant. These shares will vest over 48 months in
accordance with the vesting schedule in you Stock Option
Letter Agreement. This will be provided in a separate
document.
Vacation: 4 weeks with one extra day added after each year worked.
<PAGE>
Benefits Plan: You will be eligible for the Company's competitive benefits
plan the first of the month following 30 days employment.
This plan will include medical, dental, vision, and life
insurance. The Company will pay all premiums, including cost
of one dependent (additional dependents covered at 50%).
Short-term disability and long-term disability will be a
100% employee paid contributory benefit. These benefits will
be described to you at the time that you begin your
employment. However, if you have any questions about your
benefits prior to that time, we will be happy to answer
them.
401(k) Plan: The Company provides a 401(k) plan with company matching.
The details of the plan will be provided in a separate
document.
At Will: You should also understand that HomeGrocer.com employs its
employees on an at will basis. This means that your
employment is voluntary and for no set period. If you accept
employment with the Company, you will be free to resign at
any time, without cause. Likewise, the company will be free
to terminate your employment at any time, with or without
cause. Notwithstanding the above, the Company guarantees an
additional 12 months if terminated at any point during the
first year of employment.
Expenses: The Company will reimburse any reasonable expenses incurred
by the employee in the course of carrying out business for
the Company.
Moving: You agree to relocate to the Seattle region within six
months. The Company will reimburse all reasonable expenses
incurred by you and your family relating to the move to the
Seattle region including, but not limited to, temporary
accommodation, movers, realty fees, transfer taxes and two
house hunting trips. To assist with moving the Company will
allow you to have your entire first year's bonus paid up
front. If you leave the employment of the Company before
your first year is served you would have to repay the
unearned portion.
We would like you to start as soon as possible but no later than September 21st.
Please sign this letter and return one copy to me. Welcome aboard!
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<PAGE>
Yours very truly,
HomeGrocer.com, Inc.
/s/: Terry Drayton
--------------
Terry Drayton
Co-Founder & President
By accepting this offer you agree to: this is a full time position and you will
make every effort necessary to perform adequately the duties that are assigned
to you. As a pre-condition of this offer you agree to execute the Company's
"Employee Non-Disclosure and Invention Agreement."
Agreed to and accepted:
/s/: David Pace
----------
David Pace
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<PAGE>
EXHIBIT 10.27
HomeGrocer.com, Inc.
1997 STOCK INCENTIVE COMPENSATION PLAN
SECTION 1. PURPOSE
The purpose of the HomeGrocer.com, Inc. 1997 Stock Incentive Compensation
Plan (the "Plan") is to enhance the long-term shareholder value of
HomeGrocer.com, Inc., a Delaware corporation (the "Company"), by offering
opportunities to employees, directors, officers, consultants, agents, advisors
and independent contractors of the Company and its Subsidiaries (as defined in
Section 2) to participate in the Company's growth and success, and to encourage
them to remain in the service of the Company and its Subsidiaries and to acquire
and maintain stock ownership in the Company.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
2.1 Award
"Award" means an award or grant made pursuant to the Plan, including,
without limitation, awards or grants of Options and Stock Awards, or any
combination of the foregoing.
2.2 Board
"Board" means the Board of Directors of the Company.
2.3 Cause
"Cause" means dishonesty, fraud, misconduct, unauthorized use or disclosure
of confidential information or trade secrets, or conviction or confession of a
crime punishable by law (except minor violations), in each case as determined by
the Plan Administrator, and its determination shall be conclusive and binding.
2.4 Code
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.5 Common Stock
"Common Stock" means the common stock, par value $0.001 per share, of the
Company.
<PAGE>
2.6 Corporate Transaction
"Corporate Transaction" means any of the following events:
(a) Consummation of any merger or consolidation of the Company if
following such merger or consolidation the holders of the Company's
outstanding voting securities immediately prior to such merger or
consolidation own less than 66-2/3% of the outstanding voting securities of
the surviving corporation;
(b) Consummation of any sale, lease, exchange or other transfer in one
transaction or a series of related transactions of all or substantially all
of the Company's assets other than a transfer of the Company's assets to a
majority-owned subsidiary corporation (as the term "subsidiary corporation"
is defined in Section 8.3) of the Company; or
(c) Approval by the holders of the Common Stock of any plan or
proposal for the liquidation or dissolution of the Company.
Ownership of voting securities shall take into account and shall include
ownership as determined by applying Rule 13d-3(d)(1)(i) (as in effect on the
date of adoption of the Plan) under the Exchange Act.
2.7 Disability
"Disability" means "disability" as that term is defined for purposes of
Section 22(e)(3) of the Code.
2.8 Early Retirement
"Early Retirement" means early retirement as that term is defined by the
Plan Administrator from time to time for purposes of the Plan.
2.9 Exchange Act
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.10 Fair Market Value
"Fair Market Value" shall be as established in good faith by the Plan
Administrator or (a) if the Common Stock is listed on the Nasdaq National
Market, the average of the high and low per share sales prices for the Common
Stock as reported by the Nasdaq National Market for a single trading day or (b)
if the Common Stock is listed on the New York Stock Exchange or the American
Stock Exchange, the average of the high and low per share sales prices for the
Common Stock as such price is officially quoted in the composite tape of
transactions on such exchange for a single trading day. If there is no such
reported price for the Common Stock for the date in question, then such
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<PAGE>
price on the last preceding date for which such price exists shall be
determinative of Fair Market Value.
2.11 Section Intentionally Left Blank
2.12 Grant Date
"Grant Date" means the date the Plan Administrator adopted the granting
resolution or a later date designated in a resolution of the Plan Administrator
as the date an Award is to be granted.
2.13 Holder
"Holder" means: (i) the person to whom an Award is granted; (ii) for a
Holder who has died, the personal representative of the Holder's estate, the
person(s) to whom the Holder's rights under the Award have passed by will or by
the applicable laws of descent and distribution, or the beneficiary designated
in accordance with Section 10; or (iii) the person(s) to whom an Award has been
transferred in accordance with Section 10.
2.14 Incentive Stock Option
"Incentive Stock Option" means an Option to purchase Common Stock granted
under Section 7 with the intention that it qualify as an "incentive stock
option" as that term is defined in Section 422 of the Code.
2.15 Nonqualified Stock Option
"Nonqualified Stock Option" means an Option to purchase Common Stock
granted under Section 7 other than an Incentive Stock Option.
2.16 Option
"Option" means the right to purchase Common Stock granted under Section 7.
2.17 Plan Administrator
"Plan Administrator" means the Board or any committee of the Board
designated to administer the Plan under Section 3.1.
2.18 Restricted Stock
"Restricted Stock" means shares of Common Stock granted under Section 9,
the rights of ownership of which are subject to restrictions prescribed by the
Plan Administrator.
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<PAGE>
2.19 Retirement
"Retirement" means retirement as of the individual's normal retirement
date as that term is defined by the Plan Administrator from time to time for
purposes of the Plan.
2.20 Securities Act
"Securities Act" means the Securities Act of 1933, as amended.
2.21 Stock Award
"Stock Award" means an Award granted under Section 9.
2.22 Subsidiary
"Subsidiary," except as provided in Section 8.3 in connection with
Incentive Stock Options, means any entity that is directly or indirectly
controlled by the Company or in which the Company has a significant ownership
interest, as determined by the Plan Administrator, and any entity that may
become a direct or indirect parent of the Company.
2.23 Successor Corporation
"Successor Corporation" has the meaning set forth under Section 11.2.
SECTION 3. ADMINISTRATION
3.1 Plan Administrator
The Plan shall be administered by the Board or a committee or committees
(which term includes subcommittees) appointed by, and consisting of two or more
members of, the Board. If and so long as the Common Stock is registered under
Section 12(b) or 12(g) of the Exchange Act, the Board shall consider in
selecting the Plan Administrator and the membership of any committee acting as
Plan Administrator, with respect to any persons subject or likely to become
subject to Section 16 of the Exchange Act, the provisions regarding (a) "outside
directors" as contemplated by Section 162(m) of the Code and (b) "nonemployee
directors" as contemplated by Rule 16b-3 under the Exchange Act. The Board may
delegate the responsibility for administering the Plan with respect to
designated classes of eligible persons to different committees consisting of one
or more members of the Board, subject to such limitations as the Board deems
appropriate. Committee members shall serve for such term as the Board may
determine, subject to removal by the Board at any time.
3.2 Administration and Interpretation by the Plan Administrator
Except for the terms and conditions explicitly set forth in the Plan, the
Plan Administrator shall have exclusive authority, in its discretion, to
determine all matters
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<PAGE>
relating to Awards under the Plan, including the selection of individuals to be
granted Awards, the type of Awards, the number of shares of Common Stock subject
to an Award, all terms, conditions, restrictions and limitations, if any, of an
Award and the terms of any instrument that evidences the Award. The Plan
Administrator shall also have exclusive authority to interpret the Plan and may
from time to time adopt, and change, rules and regulations of general
application for the Plan's administration. The Plan Administrator's
interpretation of the Plan and its rules and regulations, and all actions taken
and determinations made by the Plan Administrator pursuant to the Plan, shall be
conclusive and binding on all parties involved or affected. The Plan
Administrator may delegate administrative duties to such of the Company's
officers as it so determines.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 Authorized Number of Shares
Subject to adjustment from time to time as provided in Section 11.1, a
maximum of 15,924,334 shares of Common Stock shall be available for issuance
under the Plan. Shares issued under the Plan shall be drawn from authorized and
unissued shares or shares now held or subsequently acquired by the Company.
4.2 Reuse of Shares
Any shares of Common Stock that have been made subject to an Award that
cease to be subject to the Award (other than by reason of exercise or payment of
the Award to the extent it is exercised for or settled in shares) shall again be
available for issuance in connection with future grants of Awards under the
Plan.
SECTION 5. ELIGIBILITY
Awards may be granted under the Plan to those officers, directors and
employees of the Company and its Subsidiaries as the Plan Administrator from
time to time selects. Awards may also be made to consultants, agents, advisors
and independent contractors who provide services to the Company and its
Subsidiaries.
SECTION 6. AWARDS
6.1 Form and Grant of Awards
The Plan Administrator shall have the authority, in its sole discretion, to
determine the type or types of Awards to be made under the Plan. Such Awards
may include, but are not limited to, Incentive Stock Options, Nonqualified Stock
Options and Stock Awards. Awards may be granted singly or in combination.
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<PAGE>
6.2 Acquired Company Awards
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Awards under the Plan in substitution for awards issued
under other plans, or assume under the Plan awards issued under other plans, if
the other plans are or were plans of other acquired entities ("Acquired
Entities") (or the parent of the Acquired Entity) and the new Award is
substituted, or the old award is assumed, by reason of a merger, consolidation,
acquisition of property or of stock, reorganization or liquidation (the
"Acquisition Transaction"). In the event that a written agreement pursuant to
which the Acquisition Transaction is completed is approved by the Board and said
agreement sets forth the terms and conditions of the substitution for or
assumption of outstanding awards of the Acquired Entity, said terms and
conditions shall be deemed to be the action of the Plan Administrator without
any further action by the Plan Administrator, except as may be required for
compliance with Rule 16b-3 under the Exchange Act, and the persons holding such
Awards shall be deemed to be Holders.
SECTION 7. AWARDS OF OPTIONS
7.1 Grant of Options
The Plan Administrator is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock
Options, which shall be appropriately designated.
7.2 Option Exercise Price
The exercise price for shares purchased under an Option shall be as
determined by the Plan Administrator, but shall not be less than 100% of the
Fair Market Value of the Common Stock on the Grant Date with respect to
Incentive Stock Options.
7.3 Term of Options
The term of each Option shall be as established by the Plan Administrator
or, if not so established, shall be 10 years from the Grant Date.
7.4 Exercise of Options
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the time at which or the installments in which the
Option shall vest and become exercisable, which provisions may be waived or
modified by the Plan Administrator at any time. If not so established in the
instrument evidencing the Option, the Option will vest and become exercisable
according to the following schedule, which may be waived or modified by the Plan
Administrator at any time:
Period of Holder's Continuous Employment or
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<PAGE>
Service With the Company or Its Subsidiaries Percent of Total Option
From the Option Grant Date That Is Vested and Exercisable
-------------------------- ------------------------------
After 1 year 25% (vests after 12 months)
After 2 years 25% (vests monthly)
After 3 years 25% (vests monthly)
After 4 years 25% (vests monthly)
To the extent that the right to purchase shares has accrued thereunder, an
Option may be exercised from time to time by written notice to the Company, in
accordance with procedures established by the Plan Administrator, setting forth
the number of shares with respect to which the Option is being exercised and
accompanied by payment in full as described in Section 7.5. The Plan
Administrator may determine at any time that an Option may not be exercised as
to less than 100 shares at any one time (or the lesser number of remaining
shares covered by the Option).
7.5 Payment of Exercise Price
The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash or by check or, unless the Plan Administrator in its sole
discretion determines otherwise, either at the time the Option is granted or at
any time before it is exercised, a combination of cash and/or check (if any) and
one or both of the following alternative forms: (a) tendering (either actually
or, if and so long as the Common Stock is registered under Section 12(b) or
12(g) of the Exchange Act, by attestation) Common Stock already owned by the
Holder for at least six months (or any shorter period necessary to avoid a
charge to the Company's earnings for financial reporting purposes) having a Fair
Market Value on the day prior to the exercise date equal to the aggregate Option
exercise price; or (b) if and so long as the Common Stock is registered under
Section 12(b) or 12(g) of the Exchange Act, delivery of a properly executed
exercise notice, together with irrevocable instructions, to (i) a brokerage firm
designated by the Company to deliver promptly to the Company the aggregate
amount of sale or loan proceeds to pay the Option exercise price and any
withholding tax obligations that may arise in connection with the exercise and
(ii) the Company to deliver the certificates for such purchased shares directly
to such brokerage firm, all in accordance with the regulations of the Federal
Reserve Board. In addition, to the extent permitted by the Plan Administrator
in its sole discretion, the price for shares purchased under an Option may be
paid, either singly or in combination with one or more of the alternative forms
of payment authorized
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<PAGE>
by this Section 7.5, by (y) a promissory note delivered pursuant to Section 13;
or (z) such other consideration as the Plan Administrator may permit.
7.6 Post-Termination Exercises
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option whether the Option will continue to be exercisable, and
the terms and conditions of such exercise, if a Holder ceases to be employed by,
or to provide services to, the Company or its Subsidiaries, which provisions may
be waived or modified by the Plan Administrator at any time. If not so
established in the instrument evidencing the Option, the Option will be
exercisable according to the following terms and conditions, which may be waived
or modified by the Plan Administrator at any time.
In case of termination of the Holder's employment or services other than by
reason of death or Cause, the Option shall be exercisable, to the extent of the
number of shares purchasable by the Holder at the date of such termination, only
(a) within one year if the termination of the Holder's employment or services is
coincident with Retirement, Early Retirement at the Company's request or
Disability or (b) within three months after the date the Holder ceases to be an
employee, director, officer, consultant, agent, advisor or independent
contractor of the Company or a Subsidiary if termination of the Holder's
employment or services is for any reason other than Retirement, Early Retirement
at the Company's request or Disability, but in no event later than the remaining
term of the Option. Any Option exercisable at the time of the Holder's death
may be exercised, to the extent of the number of shares purchasable by the
Holder at the date of the Holder's death, by the personal representative of the
Holder's estate, the person(s) to whom the Holder's rights under the Award have
passed by will or the applicable laws of descent and distribution or the
beneficiary designated pursuant to Section 10, at any time or from time to time
within one year after the date of death, but in no event later than the
remaining term of the Option. Any portion of an Option that is not exercisable
on the date of termination of the Holder's employment or services shall
terminate on such date, unless the Plan Administrator determines otherwise. In
case of termination of the Holder's employment or services for Cause, the Option
(including any exercisable portion thereof) shall automatically terminate upon
first notification to the Holder of such termination, unless the Plan
Administrator determines otherwise. If a Holder's employment or services with
the Company are suspended pending an investigation of whether the Holder shall
be terminated for Cause, all the Holder's rights under any Option likewise shall
be suspended during the period of investigation.
A transfer of employment or services between or among the Company and its
Subsidiaries shall not be considered a termination of employment or services.
The effect of a Company-approved leave of absence on the terms and conditions of
an Option shall be determined by the Plan Administrator, in its sole discretion.
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<PAGE>
SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, Incentive Stock Options
shall be subject to the following additional terms and conditions:
8.1 Dollar Limitation
To the extent the aggregate Fair Market Value (determined as of the Grant
Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time during any calendar year (under the Plan and all
other stock option plans of the Company) exceeds $100,000, such portion in
excess of $100,000 shall be treated as a Nonqualified Stock Option. In the
event the Holder holds two or more such Options that become exercisable for the
first time in the same calendar year, such limitation shall be applied on the
basis of the order in which such Options are granted.
8.2 10% Shareholders
If an individual owns more than 10% of the total voting power of all
classes of the Company's stock, then the exercise price per share of an
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Common Stock on the Grant Date and the Option term shall not exceed five
years. The determination of 10% ownership shall be made in accordance with
Section 422 of the Code.
8.3 Eligible Employees
Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 8.3, "parent corporation" and "subsidiary
corporation" shall have the meanings attributed to those terms for purposes of
Section 422 of the Code.
8.4 Term
The term of an Incentive Stock Option shall not exceed 10 years.
8.5 Exercisability
To qualify for Incentive Stock Option tax treatment, an Option designated
as an Incentive Stock Option must be exercised within three months after
termination of employment for reasons other than death, except that, in the case
of termination of employment due to total disability, such Option must be
exercised within one year after such termination. Employment shall not be
deemed to continue beyond the first 90 days of a leave of absence unless the
Holder's reemployment rights are guaranteed by statute or contract. For
purposes of this Section 8.5, "total disability" shall mean a mental or physical
impairment of the Holder that is expected to result in death or that has lasted
or is expected to last for a continuous period of 12 months or more and that
causes the Holder to be unable, in the opinion of the Company and two
independent physicians, to perform his or her duties for the Company and to be
engaged in any substantial gainful
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<PAGE>
activity. Total disability shall be deemed to have occurred on the first day
after the Company and the two independent physicians have furnished their
opinion of total disability to the Plan Administrator.
8.6 Taxation of Incentive Stock Options
In order to obtain certain tax benefits afforded to Incentive Stock Options
under Section 422 of the Code, the Holder must hold the shares issued upon the
exercise of an Incentive Stock Option for two years after the Grant Date of the
Incentive Stock Option and one year from the date of exercise. A Holder may be
subject to the alternative minimum tax at the time of exercise of an Incentive
Stock Option. The Plan Administrator may require a Holder to give the Company
prompt notice of any disposition of shares acquired by the exercise of an
Incentive Stock Option prior to the expiration of such holding periods.
8.7 Promissory Notes
The amount of any promissory note delivered pursuant to Section 13 in
connection with an Incentive Stock Option shall bear interest at a rate
specified by the Plan Administrator but in no case less than the rate required
to avoid imputation of interest (taking into account any exceptions to the
imputed interest rules) for federal income tax purposes.
SECTION 9. STOCK AWARDS
9.1 Grant of Stock Awards
The Plan Administrator is authorized to make Awards of Common Stock on such
terms and conditions and subject to such restrictions, if any (which may be
based on continuous service with the Company or the achievement of performance
goals), as the Plan Administrator shall determine, in its sole discretion, which
terms, conditions and restrictions shall be set forth in the instrument
evidencing the Award. The terms, conditions and restrictions that the Plan
Administrator shall have the power to determine shall include, without
limitation, the manner in which shares subject to Stock Awards are held during
the periods they are subject to restrictions and the circumstances under which
forfeiture of Restricted Stock shall occur by reason of termination of the
Holder's services.
9.2 Issuance of Shares
Upon the satisfaction of any terms, conditions and restrictions prescribed
in respect to a Stock Award, or upon the Holder's release from any terms,
conditions and restrictions of a Stock Award, as determined by the Plan
Administrator, the Company shall release, as soon as practicable, to the Holder
or, in the case of the Holder's death, to
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<PAGE>
the personal representative of the Holder's estate or as the appropriate court
directs, the appropriate number of shares of Common Stock.
9.3 Waiver of Restrictions
Notwithstanding any other provisions of the Plan, the Plan Administrator
may, in its sole discretion, waive the forfeiture period and any other terms,
conditions or restrictions on any Restricted Stock under such circumstances and
subject to such terms and conditions as the Plan Administrator shall deem
appropriate.
SECTION 10. ASSIGNABILITY
No Option granted under the Plan may be assigned or transferred by the
Holder other than by will or by the applicable laws of descent and distribution,
and, during the Holder's lifetime, such Awards may be exercised only by the
Holder. Notwithstanding the foregoing, and to the extent permitted by Section
422 of the Code, the Plan Administrator, in its sole discretion, may permit such
assignment, transfer and exercisability and may permit a Holder of such Awards
to designate a beneficiary who may exercise the Award or receive compensation
under the Award after the Holder's death; provided, however, that any Award so
assigned or transferred shall be subject to all the same terms and conditions
contained in the instrument evidencing the Award.
SECTION 11. ADJUSTMENTS
11.1 Adjustment of Shares
In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to shareholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (a) the outstanding shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or class of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company or of any other corporation being received
by the holders of shares of Common Stock of the Company, then the Plan
Administrator shall make proportional adjustments in (i) the maximum number and
kind of securities subject to the Plan as set forth in Section 4.1 and (ii) the
number and kind of securities that are subject to any outstanding Award and the
per share price of such securities, without any change in the aggregate price to
be paid therefor. The determination by the Plan Administrator as to the terms
of any of the foregoing adjustments shall be conclusive and binding.
Notwithstanding the foregoing, a Corporate Transaction shall not be governed by
this Section 11.1 but shall be governed by Section 11.2.
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<PAGE>
11.2 Corporate Transaction
(a) Except as otherwise provided in the instrument that evidences the
Award, in the event of any Corporate Transaction, each Award that is at the time
outstanding shall automatically accelerate so that each such Award shall,
immediately prior to the specified effective date for the Corporate Transaction,
become 100% vested and exercisable; provided, however, that no such Award shall
accelerate if and to the extent such Award is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation or parent thereof
(the "Successor Corporation") or to be replaced with a comparable award for the
purchase of shares of the capital stock of the Successor Corporation.
(b) Whether or not an Award is assumed or replaced shall be determined
by the Company and the Successor Corporation in connection with the Corporate
Transaction. The determination of Award comparability shall be made by the Plan
Administrator, and its determination shall be conclusive and binding. All such
Awards shall terminate and cease to remain outstanding immediately following the
consummation of the Corporate Transaction, except to the extent assumed by the
Successor Corporation.
(c) Subsection intentionally left blank.
(d) The acceleration of any Award as provided in this Section 11.2 shall
not occur if, in the opinion of the Company's outside accountants, it would
render unavailable "pooling of interest" accounting for a Corporate Transaction
that would otherwise qualify for such accounting treatment.
11.3 Further Adjustment of Awards
Subject to Section 11.2, the Plan Administrator shall have the discretion,
exercisable at any time before a sale, merger, consolidation, reorganization,
liquidation or change in control of the Company, as defined by the Plan
Administrator, to take such further action as it determines to be necessary or
advisable, and fair and equitable to Holders, with respect to Awards. Such
authorized action may include (but shall not be limited to) establishing,
amending or waiving the type, terms, conditions or duration of, or restrictions
on, Awards so as to provide for earlier, later, extended or additional time for
exercise, lifting restrictions and other modifications, and the Plan
Administrator may take such actions with respect to all Holders, to certain
categories of Holders or only to individual Holders. The Plan Administrator may
take such action before or after granting Awards to which the action relates and
before or after any public announcement with respect to such sale, merger,
consolidation, reorganization, liquidation or change in control that is the
reason for such action.
-12-
<PAGE>
11.4 Limitations
The grant of Awards will in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
SECTION 12. WITHHOLDING
The Company may require the Holder to pay to the Company the amount of any
withholding taxes that the Company is required to withhold with respect to the
grant, vesting or exercise of any Award. Subject to the Plan and applicable law,
the Plan Administrator may, in its sole discretion, permit the Holder to satisfy
withholding obligations, in whole or in part, (a) by paying cash, (b) by
electing to have the Company withhold shares of Common Stock from the shares to
be issued upon exercise that number of shares having a Fair Market Value,
determined as of the applicable Tax Date (as defined below) equal to the minimum
statutory withholding rates for federal and state tax purposes, including
payroll taxes, or (c) by transferring shares of Common Stock to the Company that
(i) in the case of shares previously acquired from the Company, have been owned
by the Holder for more than six (6) months on the date of transfer and (ii) have
a Fair Market Value determined as of the applicable Tax Date equal to the
minimum statutory withholding rates for federal and state tax purposes,
including payroll taxes. For purposes of this Section 12, the Fair Market Value
of the shares to be withheld or transferred shall be determined on the date that
the amount of tax to be withheld is to be determined under applicable law (the
"Tax Date"). The Company shall have the right to withhold from any Award or any
shares of Common Stock issuable pursuant to an Award shares with a Fair Market
Value equal to the minimum statutory withholding rates for federal and state tax
purposes, including payroll taxes, or from any cash amounts otherwise due or to
become due from the Company to the Holder an amount equal to such taxes. The
Company may also deduct from any Award any other amounts due from the Holder to
the Company or a Subsidiary.
SECTION 13. LOANS, INSTALLMENT PAYMENTS AND
LOAN GUARANTEES
To assist a Holder (including a Holder who is an officer or a director of
the Company) in acquiring shares of Common Stock pursuant to an Award granted
under the Plan, the Plan Administrator, in its sole discretion, may authorize,
either at the Grant Date or at any time before the acquisition of Common Stock
pursuant to the Award, (a) the extension of a loan to the Holder by the Company,
(b) the payment by the Holder of the purchase price, if any, of the Common Stock
in installments, or (c) the guarantee by the Company of a loan obtained by the
Holder from a third party. The terms of any loans, installment payments or loan
guarantees, including the interest rate and terms of and security for repayment,
will be subject to the Plan Administrator's discretion. Loans, installment
payments and loan guarantees may be granted with or without security. The
maximum credit available is the purchase price, if any, of the Common Stock
acquired,
-13-
<PAGE>
plus the maximum federal and state income and employment tax liability that may
be incurred in connection with the acquisition.
SECTION 14. REPURCHASE AND FIRST REFUSAL RIGHTS
14.1 Repurchase Rights
The Plan Administrator shall have the discretion to authorize the
issuance of unvested shares of Common Stock pursuant to the exercise of an
Option. Should the Holder cease to be employed by or provide services to the
Company, then all shares of Common Stock issued upon exercise of an Option which
are unvested at the time of cessation of employment or services shall be subject
to repurchase at the exercise price paid for such shares. The terms and
conditions upon which such repurchase right shall be exercisable (including the
period and procedure for exercise) shall be established by the Plan
Administrator and set forth in the agreement evidencing such right.
All of the Company's outstanding repurchase rights under this Section
14.1 are assignable by the Company at any time. Such rights shall automatically
terminate, and all shares subject to such terminated rights shall immediately
vest in full, upon the occurrence of a Corporate Transaction, except to the
extent: (i) any such repurchase right is expressly assigned to the Successor
Corporation in connection with the Corporate Transaction or (ii) such
termination is precluded by other limitations imposed by the Plan Administrator
at the time the repurchase right is issued.
The Plan Administrator shall have the discretionary authority,
exercisable either before or after the Holder's cessation of employment or
service, to cancel the Company's outstanding repurchase rights with respect to
one or more shares purchased or purchasable by the Holder under an Option and
thereby accelerate the vesting of such shares in whole or in part at any time.
14.2 First Refusal Rights
Until the date on which the initial registration of the Common Stock
under Section 12(b) or 12(g) of the Exchange Act first becomes effective, the
Company shall have the right of first refusal with respect to any proposed sale
or other disposition by the Holder of any shares of Common Stock issued pursuant
to an Award granted under the Plan. Such right of first refusal shall be
exercisable in accordance with the terms and conditions established by the Plan
Administrator and set forth in the agreement evidencing such right.
SECTION 15. MARKET STANDOFF
In connection with the initial public offering of the Company's
securities and upon request of the Company or the underwriters managing any
underwritten offering of the Company's securities, a person shall not sell, make
any short sale of, loan, hypothecate, pledge, grant any option for the purchase
of, or otherwise dispose or transfer for value or
-14-
<PAGE>
otherwise agree to engage in any of the foregoing transactions with respect to,
any shares issued pursuant to an Award granted under the Plan (other than those
included in the registration) without the prior written consent of the Company
or such underwriters, as the case may be, for such period of time (not to exceed
180 days) from the effective date of such registration as may be requested by
the Company or such managing underwriters and to execute an agreement reflecting
the foregoing as may be requested by the underwriters at the time of the public
offering.
In the event of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
Company's outstanding Common Stock effected as a class without the Company's
receipt of consideration, then any new, substituted or additional securities
distributed with respect to the purchased shares shall be immediately subject to
the provisions of this Section 15, to the same extent the purchased shares are
at such time covered by such provisions.
In order to enforce the limitations of this Section 15, the Company may
impose stop-transfer instructions with respect to the purchased shares until the
end of the applicable standoff period.
SECTION 16. AMENDMENT AND TERMINATION OF PLAN
16.1 Amendment of Plan
The Plan may be amended only by the Board in such respects as it shall
deem advisable; however, to the extent required for compliance with Section 422
of the Code or any applicable law or regulation, shareholder approval will be
required for any amendment that will (a) increase the total number of shares as
to which Options may be granted under the Plan or that may be issued as Stock
Awards, (b) modify the class of persons eligible to receive Options, or (c)
otherwise require shareholder approval under any applicable law or regulation.
16.2 Termination of Plan
The Board may suspend or terminate the Plan at any time. The Plan will
have no fixed expiration date; provided, however, that no Incentive Stock
Options may be granted more than 10 years after the earlier of the Plan's
adoption by the Board and approval by the shareholders.
16.3 Consent of Holder
The amendment or termination of the Plan shall not, without the consent of
the Holder of any Award under the Plan, impair or diminish any rights or
obligations under any Award theretofore granted under the Plan. Any change or
adjustment to an outstanding Incentive Stock Option shall not, without the
consent of the Holder, be made in a manner so as to constitute a "modification"
that would cause such Incentive Stock Option to fail to continue to qualify as
an Incentive Stock Option.
-15-
<PAGE>
SECTION 17. GENERAL
17.1 Award Agreements
Awards granted under the Plan shall be evidenced by a written agreement
that shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and that are not inconsistent with the
Plan.
17.2 Continued Employment or Services; Rights in Awards
None of the Plan, participation in the Plan or any action of the Plan
Administrator taken under the Plan shall be construed as giving any person any
right to be retained in the employ of the Company or limit the Company's right
to terminate the employment or services of any person.
17.3 Registration
The Company shall be under no obligation to any Holder to register for
offering or resale or to qualify for exemption under the Securities Act, or to
register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan, or to continue in effect any such registrations or qualifications if made.
The Company may issue certificates for shares with such legends and subject to
such restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.
Inability of the Company to obtain, from any regulatory body having
jurisdiction, the authority deemed by the Company's counsel to be necessary for
the lawful issuance and sale of any shares hereunder or the unavailability of an
exemption from registration for the issuance and sale of any shares hereunder
shall relieve the Company of any liability in respect of the nonissuance or sale
of such shares as to which such requisite authority shall not have been
obtained.
As a condition to the exercise of an Option or any other receipt of Common
Stock pursuant to an Award under the Plan, the Company may require the Holder to
represent and warrant at the time of any such exercise or receipt that such
shares are being purchased or received only for the Holder's own account and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any
relevant provision of the aforementioned laws. At the option of the Company, a
stop-transfer order against any such shares may be placed on the official stock
books and records of the Company, and a legend indicating that such shares may
not be pledged, sold or otherwise transferred, unless an opinion of counsel is
provided (concurred in by counsel for the Company) stating that such transfer is
not in violation of any applicable law or regulation, may be stamped on stock
certificates to ensure exemption from registration. The Plan Administrator may
also
-16-
<PAGE>
require such other action or agreement by the Holder as may from time to time be
necessary to comply with the federal and state securities laws.
17.4 No Rights as a Shareholder
No Option shall entitle the Holder to any cash dividend, voting or other
right of a shareholder unless and until the date of issuance under the Plan of
the shares that are the subject of such Option, free of all applicable
restrictions.
17.5 Compliance With Laws and Regulations
Notwithstanding anything in the Plan to the contrary, the Board, in its
sole discretion, may bifurcate the Plan so as to restrict, limit or condition
the use of any provision of the Plan to Holders who are officers or directors
subject to Section 16 of the Exchange Act without so restricting, limiting or
conditioning the Plan with respect to other Holders. Additionally, in
interpreting and applying the provisions of the Plan, any Option granted as an
Incentive Stock Option pursuant to the Plan shall, to the extent permitted by
law, be construed as an "incentive stock option" within the meaning of Section
422 of the Code.
17.6 No Trust or Fund
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Holder, and no Holder shall
have any rights that are greater than those of a general unsecured creditor of
the Company.
17.7 Severability
If any provision of the Plan or any Award is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Award under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator's determination, materially altering the intent of the
Plan or the Award, such provision shall be stricken as to such jurisdiction,
person or Award, and the remainder of the Plan and any such Award shall remain
in full force and effect.
17.8. Awards Granted to California Residents
Options and Stock Purchase Rights granted under the Plan to persons
resident in California shall be subject to the provisions set forth in
Attachment A hereto. To the extent the provisions of the Plan conflict with the
- ------------
provisions set forth on Attachment A, the provisions on Attachment A shall
------------ ------------
govern the terms of such Options.
-17-
<PAGE>
SECTION 18. EFFECTIVE DATE
The Plan's effective date is the date on which it is adopted by the Board,
so long as it is approved by the Company's shareholders at any time within 12
months of such adoption.
Adopted by the Board on October 7, 1997 and approved by the Company's
shareholders on October 7, 1997.
-18-
<PAGE>
Attachment A
------------
Provisions Applicable to Award Recipients
-----------------------------------------
Resident in California
----------------------
Until such time as any security of the Company becomes a Listed Security
and if required by Applicable Laws, the following additional terms shall apply
to Options and Stock Awards, and Shares issued upon exercise of such awards,
granted under the HomeGrocer.com, Inc. 1997 Stock Incentive Compensation Plan
(the "Plan") to persons resident in California as of the Grant Date of any such
----
award (each such person, a "California Recipient"):
--------------------
1. In the case of an Option, whether an Incentive Stock Option or a
Nonqualified Stock Option, that is granted to granted to a California Recipient
who, at the time of the grant of such Option, owns stock representing more than
10% of the total combined voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value on the Grant Date.
2. In the case of a Nonqualified Stock Option that is granted to any
other California Recipient, the per Share exercise price shall be no less than
85% of the Fair Market Value per Share on the Grant Date.
3. In the case of a Stock Award granted to a California Recipient, the
purchase price applicable to stock purchased under such Stock Award shall not be
less than 85% of the Fair Market Value of the Shares as of the Grant Date, or,
in the case of a person owning stock representing more than 10% of the total
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary, the price shall not be less than 100% of the Fair Market Value of
the Shares as of the Grant Date.
4. With respect to an Option or Stock Award issued to any California
Recipient who is not an Officer, Director or Consultant, such Option or Stock
Award shall become exercisable, or any repurchase option in favor of the Company
shall lapse, at the rate of at least 20% per year over five years from the Grant
Date.
5. The following rules shall apply to an Option issued to any California
Recipient in the event of termination of the California Recipient's employment
or services with the Company:
(a) If such termination was for reasons other than death or
disability, the California Recipient shall have at least 30 days after the date
of such termination (but in no event later than the expiration of the term of
such Option established by the Plan Administrator as of the Grant Date) to
exercise such Option.
-19-
<PAGE>
(b) If such termination was on account of the death or disability of
the California Recipient, the Holder of the Option may, but only within six
months from the date of such termination (but in no event later than the
expiration date of the term of such Option established by the Plan Administrator
as of the Grant Date), exercise the Option to the extent the California
Recipient was otherwise entitled to exercise it at the date of such termination.
To the extent that the California Recipient was not entitled to exercise the
Option at the date of termination, or if the Holder does not exercise such
Option to the extent so entitled within six months from the date of termination,
the Option shall terminate and the Common Stock underlying the unexercised
portion of the Option shall revert to the Plan.
6. The Company shall provide financial statements at least annually to
each California Recipient during the period such person has one or more Options
or Stock Awards outstanding, and in the case of an individual who acquired
Shares pursuant to the Plan, during the period such individual owns such Shares.
The Company shall not be required to provide such information if the issuance of
awards under the Plan is limited to key employees whose duties in connection
with the Company assure their access to equivalent information.
7. Unless defined below or otherwise in this Attachment, Capitalized
terms shall have the meanings set forth in the Plan. For purposes of this
Attachment, the following definitions shall apply:
"Applicable Laws" means the legal requirements relating to the
administration of stock option and restricted stock purchase plans under
applicable U.S. state corporate laws, U.S. federal and applicable state
securities laws, the Code, any stock exchange rules or regulations and the
applicable laws of any other country or jurisdiction where Options or Stock
Awards are granted under the Plan, as such laws, rules, regulations and
requirements shall be in place from time to time.
"Consultant" means any person, including an advisor, who renders services
to the Company, or any Parent or Subsidiary, and is compensated for such
services, and any Director of the Company whether compensated for such services
or not.
"Director" means a member of the Board.
"Listed Security" means listed or approved for listing on a national
securities exchange or designated or approved for designation as a national
market system security on an interdealer quaotation system by the national
Association of Securities Dealers, Inc.
"Officer" means a person who is an officer of the Company within the
meaning of Section 16(a) of the Exchange Act and the rules and regulations
promulgated thereunder.
"Parent" means a "parent corporation," whether now or hereafter existing,
as defined in Section 424(e) of the Code, or any successor provision.
-20-
<PAGE>
PLAN ADOPTION AND AMENDMENTS/ADJUSTMENTS
<TABLE>
<CAPTION>
Date of
Adoption/
Amendment/ Date of Shareholder
Adjustment Section Effect of Amendment Approval
---------- ------- ------------------- --------
<S> <C> <C> <C>
8/31/98 4.1 Increase shares 8/25/98
reserved by 3,062,167
9/25/99 4.1 Increase shares 9/25/99
reserved by 2,900,000
11/23/99 4.1 Increase shares 11/22/99
reserved to reflect
11/23/99 2 for 1 split
1/10/00 2.11; 11.2(c); Remove section 2.11 board approval 1/10/00
12;17.8; Attachment A regarding Good Reason;
remove subsection
11.2(c) regarding
acceleration; add
language to Section 12
to comply with new
accounting rules; add
Section 17.8 and
Attachment A regarding
California optionees.
</TABLE>
-21-
<PAGE>
EXHIBIT 10.28
HOMEGROCER.COM, INC.
1999 STOCK INCENTIVE PLAN
-------------------------
SECTION I. PURPOSE
Purposes of the Plan. The purpose of the HomeGrocer.com, Inc. 1999 Stock
--------------------
Incentive Plan is to enhance the Company's long-term shareholder value by
offering opportunities to employees, directors, officers, consultants and
advisors of the Company and its affiliates to participate in the Company's
growth and success and to acquire and maintain stock ownership in the Company.
The Plan seeks to achieve this purpose by providing for Awards in the form of
Options, Stock Purchase Rights, Stock Appreciation Rights and Stock Units.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
2.1 "Administrator" means the Board or any of its Committees designated
-------------
pursuant to Section 4.1 of the Plan.
2.2 "Affiliate" means an entity other than a Subsidiary (as defined below) in
---------
which the Company owns an equity interest.
2.3 "Applicable Laws" means the legal requirements relating to the
---------------
administration of stock option and restricted stock purchase plans under
applicable U.S. state corporate laws, U.S. federal and applicable state
securities laws, the Code, any stock exchange rules or regulations and the
applicable laws of any other country or jurisdiction where Options or Stock
Purchase Rights are granted under the Plan, as such laws, rules, regulations and
requirements shall be in place from time to time.
2.4 "Award" means a grant of an Option, Stock Purchase Right, Stock
-----
Appreciation Right or Stock Unit under the Plan. Any Award under the Plan may
include one of these elements or a combination of several elements.
2.5 "Award Agreement" means a written agreement between a recipient of a Stock
---------------
Appreciation Right or Stock Unit Award under the Plan and the Company reflecting
the terms of the Stock Appreciation Right or Stock Unit Award, and includes any
documents attached to such Award Agreement, including, but not limited to, a
notice of grant and a form of exercise notice.
2.6 "Board" means the Board of Directors of the Company.
-----
2.7 "Change in Control" means (a) a sale of all or substantially all of the
-----------------
Company's assets, or (b) a merger, consolidation or other capital reorganization
of the Company with or into another corporation where the holders of more than
50% of the shares of capital stock of the Company outstanding immediately prior
to such transaction do not immediately after such
<PAGE>
transaction continue to hold (either by the voting securities remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 50% of the total voting power represented by the voting
securities of the Company, or such surviving entity, or (c) a change in the
composition of the Board such that during any consecutive two (2) year period
persons who constitute the Board at the beginning of such period (or who were
appointed or approved by a majority of the Board in place at the beginning of
such period) cease to constitute at least 50% of the Board.
2.8 "Code" means the Internal Revenue Code of 1986, as amended.
----
2.9 "Committee" means one or more committees or subcommittees of the Board
---------
appointed to administer the Plan in accordance with Section 4 below.
2.10 "Common Stock" means the Common Stock of the Company.
------------
2.11 "Company" means HomeGrocer.com, Inc., a Delaware corporation.
-------
2.12 "Consultant" means any person, including an advisor, agent or independent
----------
contractor, who renders services to the Company, or any Parent, Subsidiary or
Affiliate other than in the capacity of an Employee, including any director of
the Company, whether compensated for such services or not.
2.13 "Continuous Service" means the absence of any interruption or termination
------------------
of service as an Employee or Consultant. Continuous Service shall not be
considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Administrator, provided that
such leave is for a period of not more than ninety (90) days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company, its Parent(s), Subsidiaries, Affiliates or their
respective successors. Unless otherwise determined by the Administrator or the
Company, a change in status from a Consultant to an Employee will not constitute
an interruption of Continuous Service. The Administrator shall determine whether
a change in status from an Employee to a Consultant shall constitute an
interruption of Continuous Service.
2.14 "Corporate Transaction" means a sale of all or substantially all of the
---------------------
Company's assets, or a merger, consolidation or other capital reorganization of
the Company with or into another corporation.
2.15 "Director" means a member of the Board.
--------
2.16 "Disability" means total and permanent disability within the meaning of
----------
Section 22(e)(3) of the Code.
2.17 "Employee" means any person (including if appropriate, any Named
--------
Executive, Officer or Director) employed by the Company or any Parent,
Subsidiary or Affiliate of the Company, with the status of employment determined
based upon such minimum number of hours or
-2-
<PAGE>
periods worked as shall be determined by the Administrator in its discretion,
subject to any requirements of the Code. The payment by the Company of a
director's fee to a director shall not be sufficient to constitute "employment"
of such director by the Company.
2.18 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
2.19 "Fair Market Value" means, as of any date, the fair market value of Common
-----------------
Stock determined as follows:
(a) If the Common Stock is listed on any established stock exchange
or a national market system including without limitation the National Market of
the National Association of Securities Dealers, Inc. Automated Quotation
("Nasdaq") System, its Fair Market Value shall be the closing sales price for
------
such stock (or the closing bid, if no sales were reported), as quoted on such
system or exchange, or the exchange with the greatest volume of trading in
Common Stock for the last market trading day prior to the time of determination,
as reported in The Wall Street Journal or such other source as the Administrator
deems reliable;
(b) If the Common Stock is quoted on the Nasdaq System (but not on
the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high bid and low asked prices for the Common Stock for the last
market trading day prior to the time of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(c) In the absence of an established market for the Common Stock, the
Fair Market Value thereof shall be determined in good faith by the
Administrator.
2.20 "Grant Date" means the date the Administrator adopted the granting
----------
resolution or a later date designated in a resolution of the Administrator as
the date an Award is to be granted. In the case of any grant of an Incentive
Stock Option, the Grant Date shall be the later of the date of the granting
resolution, the date designation in the granting resolution, or the date of
commencement of the Optionee's employment relationship with the Company.
2.21 "Holder" means (i) the person to whom an Award is granted; (ii) for a
------
Holder who has died, the personal representative of the Holder's estate, the
person(s) to whom the Holder's rights under the Award have passed by will or by
the applicable laws of descent and distribution, or the beneficiary designated
in accordance with the terms of an Award Agreement; or (iii) the person(s) to
whom an Award has been transferred in accordance with Section 6.2.
2.22 "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable written Option Agreement.
2.23 "Listed Security" means any security of the Company that is listed or
---------------
approved for listing on a national securities exchange or designated or approved
for designation as a national
-3-
<PAGE>
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc.
2.24 "Named Executive" means any individual who, on the last day of the
---------------
Company's fiscal year, is the chief executive officer of the Company (or is
acting in such capacity) or among the four most highly compensated officers of
the Company (other than the chief executive officer). Such officer status shall
be determined pursuant to the executive compensation disclosure rules under the
Exchange Act.
2.25 "Nonstatutory Stock Option" means an Option not intended to qualify as an
-------------------------
Incentive Stock Option, as designated in the applicable written Option
Agreement.
2.26 "Officer" means a person who is an officer of the Company within the
-------
meaning of Section 16(a) of the Exchange Act and the rules and regulations
promulgated thereunder.
2.27 "Option" means a stock option granted pursuant to the Plan. Options
------
granted under the Plan may be Incentive Stock Options (as defined under
Section 422 of the Code) or Nonstatutory Stock Options, as determined by the
Administrator at the time of grant of an Option and subject to the applicable
provisions of Section 422 of the Code, as amended, and the regulations
promulgated thereunder.
2.28 "Option Agreement" means a written agreement between an Optionee and the
----------------
Company reflecting the terms of an Option granted under the Plan and includes
any documents attached to such Option Agreement, including, but not limited to,
a notice of stock option grant and a form of exercise notice.
2.29 "Option Exchange Program" means a program whereby outstanding Options are
-----------------------
exchanged for Options with a lower exercise price.
2.30 "Optioned Stock" means the Common Stock subject to an Option or a Stock
--------------
Purchase Right.
2.31 "Optionee" means an Employee or Consultant who receives an Option or a
--------
Stock Purchase Right.
2.32 "Parent" means a "parent corporation," whether now or hereafter existing,
------
as defined in Section 424(e) of the Code, or any successor provision.
2.33 "Participant" means any holder of one or more Awards, or the Shares
-----------
issuable or issued upon exercise of such awards, under the Plan.
2.34 "Plan" means this 1999 Stock Incentive Plan.
----
2.35 "Reporting Person" means an Officer, Director, or greater than 10%
----------------
stockholder of the Company within the meaning of Rule 16a-2 under the Exchange
Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange
Act.
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<PAGE>
2.36 "Restricted Stock" means shares of Common Stock acquired pursuant to a
----------------
grant of a Stock Purchase Right under Section 11 below.
2.37 "Restricted Stock Purchase Agreement" means a written agreement between a
-----------------------------------
holder of a Stock Purchase Right and the Company reflecting the terms of a Stock
Purchase Right granted under the Plan and includes any documents attached to
such agreement.
2.38 "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, as the
----------
same may be amended from time to time, or any successor provision.
2.39 "Share" means a share of the Common Stock, as adjusted in accordance with
-----
Section 13 of the Plan.
2.40 "Stock Appreciation Right" means a right to receive in cash from the
------------------------
Company the difference between an Exercise Price and the Fair Market Value of a
designated number of Shares.
2.41 "Stock Exchange" means any stock exchange or consolidated stock price
--------------
reporting system on which prices for the Common Stock are quoted at any given
time.
2.42 "Stock Purchase Right" means the right to purchase Common Stock pursuant
--------------------
to Section 11 below.
2.43 "Stock Unit" means an unfunded bookkeeping entry representing the
----------
equivalent of one Share.
2.44 "Subsidiary" means a "subsidiary corporation," whether now or hereafter
----------
existing, as defined in Section 424(f) of the Code, or any successor provision.
2.45 "Tax Date" for purposes of Section 11 shall mean the date that the amount
--------
of tax to be withheld is to be determined under the Applicable Laws.
2.46 "Ten Percent Holder" means any person who owns stock representing more
------------------
than ten percent (10%) of the voting power of all classes of stock of the
Company or any parent or Subsidiary.
SECTION 3. STOCK SUBJECT TO THE PLAN
3.1 Authorized Number of Shares. Subject to adjustment under the provisions
---------------------------
of Section 13 of the Plan, the maximum aggregate number of Shares that may be
optioned and sold under the Plan pursuant to Options or Stock Purchase Rights or
otherwise designated as underlying Stock Appreciation Rights or Stock Units is
12,500,000 Shares of Common Stock, plus an annual increase on the first day of
each of the Company's fiscal years beginning in 2001, 2002, 2003, 2004 and 2005
equal to the lesser of (i) 2,500,000 Shares, (ii) two and one-half percent
(2.5%) of the Shares outstanding on the last day of the immediately preceding
fiscal year, or (iii) such lesser number of Shares as is determined by the
Board. The Shares may be authorized, but unissued, or reacquired Common Stock.
-5-
<PAGE>
3.2 Reuse of Shares. If an Option, Stock Purchase Right, Stock Appreciation
---------------
Right or Stock Unit Award should expire or become unexercisable for any reason
without having been exercised in full, or if an Option is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares that were subject thereto
shall, unless the Plan shall have been terminated, become available for future
grant under the Plan. In addition, any Shares of Common Stock that are retained
by the Company upon exercise of an Option or Stock Purchase Right in order to
satisfy the exercise or purchase price for such Option or Stock Purchase Right
or any withholding taxes due with respect to such exercise shall be treated as
not issued and shall continue to be available under the Plan. Shares issued
under the Plan and later repurchased by the Company pursuant to any repurchase
right which the Company may have shall not be available for future grant under
the Plan.
SECTION 4. ADMINISTRATION
4.1 Plan Administrator.
------------------
(a) General. The Plan shall be administered by the Board or a
-------
Committee, or a combination thereof, as determined by the Board. The Plan may be
administered by different administrative bodies with respect to different
classes of Optionees and, if permitted by the Applicable Laws, the Board may
authorize one or more officers (who may (but need not) be Officers) to grant
Awards to Employees and Consultants.
(b) Administration With Respect to Reporting Persons. With respect
------------------------------------------------
to Awards granted to Reporting Persons and Named Executives, the Plan may (but
need not) be administered so as to permit such Awards to qualify for the
exemption set forth in Rule 16b-3 and to qualify as performance-based
compensation under Section 162(m) of the Code.
(c) Committee Composition. If a Committee has been appointed
---------------------
pursuant to this Section 4, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time the
Board may increase the size of any Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies (however caused) and remove all members of
a Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws and, in the case of a Committee administering
the Plan pursuant to Section 5(b) above, to the extent permitted or required by
Rule 16b-3 and Section 162(m) of the Code.
4.2 Powers of the Administrator. Subject to the provisions of the Plan and in
---------------------------
the case of a Committee, the specific duties delegated by the Board to such
Committee, and subject to the approval of any relevant authorities, including
the approval, if required, of any Stock Exchange, the Administrator shall have
the exclusive authority, in its discretion to determine all matters relating to
Awards under the Plan, including the selection of individuals to be granted
Awards, the type of Awards, the number of Shares of Common Stock subject to an
Award, the Fair Market Value of Common Stock, all terms, conditions,
restrictions and limitations of an Award (including, without limitation, the
exercise or purchase price, the exercisability or settlement time, any vesting
requirements based on service or performance criteria, and any vesting
acceleration or waiver of forfeiture restrictions), and the terms of any
instrument that evidences
-6-
<PAGE>
the Award. The Administrator shall also have the exclusive authority, in its
discretion, to determine whether and under what circumstances an Award may be
settled in cash instead of Common stock, to reduce the exercise price of any
Award to the then current Fair Market Value if the Fair Market Value of the
Common Stock covered by such Award shall have declined since the date the Award
was granted, to initiate an Option Exchange Program, and in order to fulfill the
purposes of the Plan and without amending the Plan, to modify grants of Awards
to Participants who are foreign nationals or employed outside of the United
States in order to recognize differences in local law, tax policies or customs.
The Administrator may delegate administrative duties to such of the Company's
Officers as it so determines.
4.3 Interpretation by the Administrator. The Administrator shall have
-----------------------------------
exclusive authority to interpret the Plan and the terms of an Award granted
under the Plan, and may from time to time adopt, and change, rules and
regulations of general application for the Plan's administration. The
Administrator's interpretation of the Plan and its rules and regulations, and
all actions taken and determinations made by the Plan Administrator pursuant to
the Plan, shall be conclusive and binding on all parties involved or affected.
SECTION 5. ELIGIBILITY
5.1 Recipients of Awards. Awards may be granted to Employees and Consultants
--------------------
selected by the Administrator from time to time. Any Participant may, if he or
she is otherwise eligible, be granted additional Awards.
5.2 Limitation on Awards. Subject to adjustment as provided in Section 13 of
--------------------
the Plan, the maximum number of Shares which may be subject to Awards granted to
any one Employee under this Plan for any fiscal year of the Company shall be
2,500,000 Shares.
5.3 No Employment Rights. The Plan shall not confer upon the holder of any
--------------------
Award any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with such
holder's right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
SECTION 6. AWARDS
6.1 Form and Grant of Awards. The Administrator shall have the authority, in
------------------------
its sole discretion, to determine the type or types of Awards to be made under
the Plan. Such Awards may include, but are not limited to, Incentive Stock
Options, Nonstatutory Stock Options, Stock Purchase Rights, Stock Appreciation
Rights and Stock Units. In addition, the provisions of Awards need not be the
same with respect to each type of award or with respect to each Participant.
6.2 Assignability of Awards. No Award granted under the Plan may be assigned,
-----------------------
transferred, sold, pledged, or disposed of in any manner by the Holder other
than by will or by the laws of descent or distribution, provided that, after the
date upon which the Common Stock becomes a Listed Security, the Administrator
may, in its discretion grant transferable Nonstatutory Stock Options pursuant to
Option Agreements specifying (i) the manner in which
-7-
<PAGE>
such Nonstatutory Stock options are transferable, (ii) that any Option so
assigned or transferred shall be subject to all the same terms and conditions
contained in the Option Agreement, and (ii) that any such transfer shall be
subject to the Applicable Laws. The designation of a beneficiary by a Holder
will not constitute a transfer. An Award may be exercised, during the lifetime
of a Holder of the Award, only by such Holder or a transferee permitted by this
Section 6.2.
6.3 Acquired Company Awards. Notwithstanding anything in the Plan to the
-----------------------
contrary, the Administrator may grant Awards under the Plan in substitution for
awards issued under other plans, or assume under the Plan awards issued under
other plans, if the other plans are or were plans of other acquired entities
(the "Acquired Entities") (or the parent of the Acquired Entity) and the new
-----------------
Award is substituted, or the old award is assumed, by reason of a merger,
consolidation, acquisition of property or of stock reorganization or liquidation
(the "Acquisition Transaction"). In the event that a written agreement pursuant
-----------------------
to which the Acquisition Transaction is completed is approved by the Board and
said agreement sets forth the terms and conditions of the substitution of or
assumption of outstanding awards of the Acquired Entity, said terms and
conditions shall be deemed to be the action of the Administrator without any
further action by the Administrator, except as may be required for compliance
with Rule 16b-3 under the Exchange Act, and the persons holding such Awards
shall be deemed to be Participants.
SECTION 7. AWARDS OF OPTIONS
7.1 Grant of Options. The Administrator is authorized under the Plan, in its
----------------
sole discretion, to issue Options as Incentive Stock Options or as Nonstatutory
Stock Options, provided that Incentive Stock Options may be granted only to
Employees of the Company or of a Subsidiary or Parent with respect to the
Company. Nonstatutory Stock Options may be awarded to Employees or Consultants
as determined by the Administrator. Stock Options may be granted either alone,
in addition to, or in tandem with other Awards granted under the Plan and/or
cash awards made outside of the Plan. The terms and conditions of a Stock Option
shall be set forth in an Option Agreement between the Participant and the
Company.
7.2 Designation of Type of Option. Each Option shall be designated in the
-----------------------------
Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of Shares with respect to which Options designated
as Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 7.2, Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares subject to an Incentive Stock Option shall
be determined as of the Grant Date with respect to such Option. An Option that
is designated as an Incentive Stock Option that fails to meet the requirements
under Code section 422 at the time of grant, or at any later time in connection
with a change to the terms of such Option, shall be deemed to be a Nonstatutory
Stock Option as of the date such Option fails to meet the requirements under
Code section 422.
-8-
<PAGE>
7.3 Term of Option. The term of each Option shall be the term stated in the
--------------
Option Agreement; provided however that the term shall be no more than ten (10)
years from the Grant Date thereof and provided further that, in the case of an
Incentive Stock Option granted to a Ten Percent Holder, the term of the Option
shall be no more than five (5) years from the Grant Date thereof.
7.4 Option Exercise Price.
---------------------
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the
Administrator and set forth in the Option Agreement, but shall be subject to the
following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option is a Ten Percent Holder, the per Share
exercise price shall be no less than 110% of the Fair Market Value per
Share on the Grant Date.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on
the Grant Date.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator, provided however
that the per share exercise price of an Option granted to a Named Executive
of the Company shall be no less than 100% of the Fair Market Value per
Share on the Grant Date if such Option is intended to qualify as
performance-based compensation under Section 162(m) of the Code.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price other than as required above pursuant to an
Acquisition Transaction described in Section 6.2.
7.5 Exercise of Options.
-------------------
(a) Vesting. An Option granted hereunder shall be exercisable at
-------
such times and under such conditions as determined by the Administrator and
reflected in the Option Agreement (or other documentation provided by the
Company), which may include vesting requirements including performance criteria
with respect to the Company and/or the Optionee. The Administrator shall have
the discretion, after the grant of an Option, to adjust the vesting of an Option
held by a Participant as a result in a change in the terms or conditions under
which such person is providing services to the Company, or for any other reason.
The Administrator shall have the discretion to determine whether and to what
extent the vesting of Options shall be tolled during any unpaid leave of
absence; provided however that in the absence of such determination, vesting of
Options shall be tolled during any such leave. The Administrator may also
determine, at the time of grant of a Stock Option or thereafter, the
circumstances under which the Award will become fully vested, including in the
event of a Change of Control.
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<PAGE>
(b) Exercise Period; Termination of Continuous Service. The
--------------------------------------------------
Administrator shall establish and set forth in each instrument that evidences an
Option the exercise period for such Option, including whether the Option will
continue to be exercisable, and the terms and conditions of such exercise, if an
Optionee's Continuous Service is terminated, which provisions may be waived or
modified by the Administrator at any time in the Administrator's sole
discretion, provided that no Option shall be exercisable later than the
expiration of the term of such Option as set forth in the Option Agreement. If
not so established in the instrument evidencing the Option or later at the
discretion of the Administrator, the Option will be exercisable to the extent
the Optionee was entitled to exercise it at the date of such termination for
ninety (90) days after the date of termination of Continuous Service and, in the
event the termination of Continuous Service was on account of the Optionee's
retirement (as of the Optionee's normal retirement date determined by the
Administrator from time to time for purposes of the Plan), death or Disability
or in the event of death of the Optionee within ninety (90) days of termination
of Continuous Service, the Option will be exercisable to the extent the Optionee
was entitled to exercise it at the date of such termination for twelve (12)
months following the date of termination, provided that no Option shall be
exercisable later than the expiration of the term of such Option as set forth in
the Option Agreement.
(c) Expiration of Option. To the extent the Optionee was not entitled
--------------------
to exercise the Option at the date of termination of Continuous Service, or does
not become entitled to exercise the Option under the terms of the Option
Agreement during a period following termination of Continuous Service, or if the
Option is not exercised by the Holder to the extent so entitled within the time
permitted under the Option Agreement or otherwise by the Administrator, the
Option shall terminate and the Optioned Stock underlying the unexercised portion
of the Option shall revert to the Plan.
(d) Suspension and Forfeiture of Option Rights upon Termination for
---------------------------------------------------------------
Cause. In the event a Participant is terminated from his or her Continuous
- -----
Service by the Company in circumstances that may constitute Cause, such
Participant's right to exercise an Option shall be immediately suspended until
such time as it is determined by the Administrator, in its sole discretion,
whether such circumstances constitute Cause. The Administrator shall notify the
Participant, in writing, within ninety (90) days of the termination of the
Participant's Continuous Service, of its determination with respect to Cause or
of the suspension of its determination until the resolution of any pending
mediation, arbitration or litigation with respect to such termination of
Participant's Continuous Service, and in the absence of such notice, solely for
purposes of this Section 7.5(d), the Administrator shall be deemed to have
determined that the Participant was not terminated from his or her Continuous
Service for Cause. In the event the Administrator determines that such
circumstances constitute Cause, the Administrator shall provide written notice
of such determination to the Participant, and all rights of the Participant with
respect to the Option shall be immediately forfeited and the Option shall be
deemed to have expired on the date of termination of such Participant's
Continuous Service. In the event the Administrator determines that such
circumstances do not constitute Cause, the Administrator shall provide notice of
such determination to Participant and Participant shall have ninety (90) days
from the date of such notice to exercise the Option in accordance with Section
7.5(b) above, provided that no Option shall be exercisable later than the
expiration of the term of such
-10-
<PAGE>
Option as set forth in the Option Agreement. For purposes of this Section
7.5(d), "Cause" shall mean (i) the Participant's disclosure or misuse of Company
confidential or proprietary information, (ii) the Participant's violation of the
Company's policy prohibiting insider trading; (iii) the Participant's violation
of Company policies prohibiting discrimination and harrassment or violation of
any other Company policy under circumstances in which the Company could be held
liable for Participant's actions by a third party; or (iv) any other act of the
Participant that is materially damaging to the reputation of the Company.
7.6 Permissible Consideration. The consideration to be paid for the Shares to
-------------------------
be issued upon exercise of an Option, including the method of payment, shall be
determined by the Administrator and, in the case of an Incentive Stock Option,
shall be determined at the time of grant. Such consideration must be paid in
cash or by check or, if the Administrator in its sole discretion determines,
either at the time the Option is granted or at any time before it is exercised,
a combination of cash and/or check (if any) and one or more of the following
alternative forms:
(a) by tendering (either actually or, if and so long as the Common
Stock is registered under Section 12(b) or 12(g) of the Exchange Act, by
attestation) Common Stock already owned by the Holder for at least six months
(or any shorter period necessary to avoid a charge to the Company's earnings for
financial reporting purposes) having a Fair Market Value on the date of
surrender equal to the aggregate option exercise price; or
(b) by authorization for the Company to retain from the total number
of Shares as to which the Option is exercised that number of Shares having a
Fair Market Value on the date of exercise equal to the exercise price for the
total number of Shares as to which the Option is exercised plus any applicable
withholding tax obligations that may arise in connection with the exercise; or
(c) if and so long as the Common stock is registered under
Section 12(b) or 12(b) of the Exchange Act, by delivery of a properly executed
exercise notice, together with irrevocable instructions, to (i) a brokerage firm
designated by the Company to deliver promptly to the Company the aggregate
amount of sale or loan proceeds to pay the Option exercise price and any
withholding tax obligations that may arise in connection with the exercise and
(ii) the Company to deliver the certificates for such purchased shares directly
to such brokerage firm, all in accordance with the regulations of the Federal
Reserve Board; or
(d) by tendering such other consideration as the Administrator may
permit, including a promissory note delivered pursuant to Section 12.
In making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company, and the Administrator may refuse to
accept a particular form of consideration at the time of any Option exercise if,
in its sole discretion, acceptance of such form of consideration is determined
not in the best interests of the Company at such time.
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<PAGE>
7.7 Procedure for Exercise of Options. An Option may not be exercised for a
---------------------------------
fraction of a Share. An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and the
Company has received full payment for the Shares with respect to which the
Option is exercised. Full payment may, as authorized by the Administrator,
consist of any consideration and method of payment allowable under Section 7.6
of the Plan. Exercise of an Option in any manner shall result in a decrease in
the number of Shares that thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
7.8 Rights as a Shareholder. Until the issuance (as evidenced by the
-----------------------
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, not withstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such stock certificate promptly
upon exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 13 of the Plan.
7.9 Rule 16b-3. Options granted to Reporting Persons shall comply with Rule
----------
16b-3 and shall contain such additional conditions or restrictions as may be
required thereunder to qualify for the maximum exemption for Plan transactions.
7.10 Buy-Out Provisions. The Administrator may at any time offer to buy out
------------------
for a payment in cash or Shares an Option previously granted based on such terms
and conditions as the Administrator shall establish and communicate to the
Optionee at the time such offer is made.
SECTION 8. STOCK PURCHASE RIGHTS
8.1 Grant of Stock Purchase Rights. Stock Purchase Rights may be granted
------------------------------
either alone, in addition to, or in tandem with other Awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing of the terms, conditions and restrictions related
to the offer, including the number of Shares that such person shall be entitled
to purchase, the price to be paid, the permissible consideration, the time
within which such person must accept such offer, and the restrictions applicable
to the Shares purchased under the offer. The offer shall be accepted by
execution of a Restricted Stock Purchase Agreement in the form determined by the
Administrator setting forth the terms and conditions applicable to the
Restricted Stock purchased pursuant to the Stock Purchase Right.
8.2 Repurchase Option. Unless the Administrator determines otherwise, the
-----------------
Restricted Stock Purchase Agreement shall grant the Company a repurchase option
exercisable upon the termination of the purchaser's Continuous Service. The
purchase price for Shares repurchased pursuant to the Restricted Stock Purchase
Agreement shall be the original purchase price paid by the purchaser and may be
paid by cash, check or cancellation of any indebtedness of the purchaser to the
Company. The repurchase option shall lapse at such time or times as the
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<PAGE>
Administrator shall determine. The Administrator may also determine, at the time
of granting a Stock Purchase Right or thereafter, the circumstances under which
the repurchase option will fully lapse, including in the event of a Change of
Control.
8.3 Other Provisions. The Restricted Stock Purchase Agreement shall contain
----------------
such other terms, provisions and conditions not inconsistent with the Plan as
may be determined by the Administrator in its sole discretion. The Administrator
has the authority, it its sole discretion, to waive or modify any terms of the
Restricted Stock Purchase Agreement to the extent such waiver or modification
does not adversely impact the rights of the purchaser, or otherwise to waive or
modify any terms of the Restricted Stock Purchase Agreement with the consent of
the purchaser.
8.4 Rights as a Stockholder. Once the Stock Purchase Right is exercised, the
-----------------------
purchaser shall have the rights equivalent to those of a stockholder, and shall
be a stockholder when his or her purchase is entered upon the records of the
duly authorized transfer agent of the Company. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the Stock
Purchase Right is exercised, except as provided in Section 13 of the Plan.
8.5 Rule 16b-3. Stock Purchase Rights granted to Reporting Persons shall
----------
comply with Rule 16b-3 and shall contain such additional conditions or
restrictions as may be required thereunder to qualify for the maximum exemption
for Plan transactions, and shall contain such additional conditions or
restrictions as may be required under Applicable Laws.
SECTION 9. STOCK APPRECIATION RIGHTS
9.1 Grant of Stock Appreciation Rights. The Administrator is authorized under
----------------------------------
the Plan, in its sole discretion, to grant Stock Appreciation Rights to
Employees and Consultants. Stock Appreciation Rights may be granted either
alone, in addition to, or in tandem with other Awards granted under the Plan
and/or cash awards made outside of the Plan. Such Award may provide that the
Stock Appreciation Right will not be exercisable unless the Participant's rights
with respect to the related Awards are forfeited. The terms of each grant of a
Stock Appreciation Right under the Plan as determined by the Administrator,
including the number of shares subject to the Stock Appreciation Right, the
exercise price and exercise period and any vesting conditions, shall be set
forth in an Award Agreement between the participant and the Company. The
Administrator may modify, extend or renew outstanding Stock Appreciation Rights
or may cancel or accept the surrender of outstanding Stock Appreciation Rights
in return for the grant of new Stock Appreciation Rights at the same or a
different price. Any such modification, however, will not alter a Participant's
rights or obligations under a Stock Appreciation Right without the consent of
the Participant.
9.2 Term of Stock Appreciation Right. The term of each Stock Appreciation
--------------------------------
Right shall be the term stated in the Award Agreement; provided however that the
term shall be no more than ten (10) years from the Grant Date thereof.
9.3 Stock Appreciation Right Exercise Price. The Exercise Price for a Stock
---------------------------------------
Appreciation Right shall be set forth in the Award Agreement and shall be the
base amount that is subtracted
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<PAGE>
from the Fair Market Value of the Shares at the time of exercise to determine
how much compensation the Participant is entitled to receive in cash and/or
Shares upon exercise of the Stock Appreciation Right, as determined by the
Administrator in its sole discretion. The Exercise Price shall be determined by
the Administrator in its sole discretion, provided however that the Exercise
Price of a Stock Appreciation Right granted to a Named Executive of the Company
shall be no less than 100% of the Fair Market Value per Share on the Grant Date
if such Stock Appreciation Right is intended to qualify as performance-based
compensation under Section 162(m) of the Code.
9.4 Exercise of Stock Appreciation Rights.
-------------------------------------
(a) Vesting. A Stock Appreciation Right granted hereunder shall be
-------
exercisable at such times and under such conditions as determined by the
Administrator and reflected in the Award Agreement (or other documentation
provided by the Company), which may include vesting requirements including
performance criteria with respect to the Company and/or the Holder or may
provide that the Stock Appreciation Right is exercisable only if and when a
Change of Control occurs. The Administrator shall have the discretion, after the
grant of a Stock Appreciation Right, to adjust the vesting of a Stock
Appreciation Right held by a Participant as a result in a change in the terms or
conditions under which such person is providing services to the Company, or for
any other reason. The Administrator shall have the discretion to determine
whether and to what extent the vesting of Stock Appreciation Rights shall be
tolled during any unpaid leave of absence; provided however that in the absence
of such determination, vesting of Stock Appreciation Rights shall be tolled
during any such leave. The Administrator may also determine, at the time of
making an Award of Stock Appreciation Rights or thereafter, the circumstances
under which the Award will become fully vested, including in the event of a
Change of Control.
(b) Exercise Period; Termination of Continuous Service. The
--------------------------------------------------
Administrator shall establish and set forth in each Award Agreement the exercise
period for such Stock Appreciation Right, including whether the Stock
Appreciation Right will continue to be exercisable, and the terms and conditions
of such exercise, if the Holder's Continuous Service is terminated, which
provisions may be waived or modified by the Administrator at any time in the
Administrator's sole discretion, provided that no Stock Appreciation Right shall
be exercisable later than the expiration of the term of such Stock Appreciation
Right as set forth in the Award Agreement. If not so established in the Award
Agreement or later at the discretion of the Administrator pursuant to a written
instrument, the Stock Appreciation Right will terminate on the date the Holder's
Continuous Service is terminated.
(c) Expiration of Stock Appreciation Right. To the extent the Holder
--------------------------------------
of a Stock Appreciation Right was not entitled to exercise the Stock
Appreciation Right at the date of termination of Continuous Service, or if the
Stock Appreciation Right is not exercised by the Holder to the extent so
entitled within the time permitted under the Award Agreement or otherwise by the
Administrator, the Stock Appreciation Right shall terminate and the Shares
underlying the unexercised portion of the Stock Appreciation Right shall revert
to the Plan.
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<PAGE>
9.5 Payment of Compensation to Holder upon Exercise. Upon exercise of a Stock
-----------------------------------------------
Appreciation Right, the Holder shall be entitled to receive compensation in cash
equal to the spread between the Exercise Price and the Fair Market Value of each
Share subject to the Stock Appreciation Right with respect to which it is
exercised, less applicable withholding taxes; provided, however, that in its
sole discretion the Administrator may determine that the Participant shall
receive all or a portion of such compensation in Shares with a Fair Market Value
at the time of exercise equal to the cash compensation that would otherwise be
paid to the Participant, less applicable withholding taxes. The Administrator
may, in its sole discretion, reduce the amount of compensation to be paid to the
Holder of a Stock Appreciation Right upon exercise of the Stock Appreciation
Right by the amount of any indebtedness of such Holder to the Company.
9.6 Procedure for Exercise of Stock Appreciation Rights. A Stock Appreciation
---------------------------------------------------
Right may be exercised by written notice to the Company in such form and manner
as determined by the Administrator. Exercise of a Stock Appreciation Right shall
result in a decrease in the number of Shares that thereafter may be available,
both for purposes of the Plan and for purposes of the Stock Appreciation Right,
by the number of Shares as to which the Stock Appreciation Right is exercised.
9.7 Rights as a Shareholder. A Holder of a Stock Appreciation Right shall have
-----------------------
no right to vote or receive dividends or any other rights as a stockholder with
respect to the Shares underlying the Stock Appreciation Right; provided however
that in the event the Administrator determines that any compensation upon
exercise of a Stock Appreciation Right shall be paid in Shares, upon the
issuance (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares as the Administrator shall determine, the recipient of
such Shares shall have the rights equivalent to those of a stockholder. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 13 of the Plan.
9.8 Creditors' Rights. A Holder of a Stock Appreciation Right has no rights
-----------------
other than those of a general creditor of the Company. Stock Appreciation Rights
represent an unfunded and unsecured obligation of the Company, subject to the
terms and conditions of the applicable Award Agreement.
9.9 Rule 16b-3. Stock Appreciation Rights granted to Reporting Persons shall
----------
comply with Rule 16b-3, shall contain such additional conditions or restrictions
as may be required thereunder to qualify for the maximum exemption for Plan
transactions, and shall contain such additional conditions or restrictions as
may be required under Applicable Laws.
9.10 Buy-Out Provisions. The Administrator may at any time offer to buy out
------------------
for a payment in cash or Shares a Stock Appreciation Right previously granted
based on such terms and conditions as the Administrator shall establish and
communicate to the Holder at the time such offer is made.
-15-
<PAGE>
SECTION 10. STOCK UNITS
10.1 Grant of Stock Units. Stock Units may be granted either alone, in
--------------------
addition to, or in tandem with other Awards granted under the Plan and/or cash
awards made outside of the Plan. The terms and conditions of a Stock Unit shall
be set forth in an Award Agreement between the Participant and the Company.
10.2 Vesting Conditions of Stock Unit Awards. The Administrator shall
---------------------------------------
determine the terms and conditions of Stock Unit Awards, including vesting
conditions based on the recipient's service, individual performance or the
Company's performance or such other criteria as the Administrator may establish,
or the Administrator may determine that no vesting conditions shall apply. The
Administrator may also determine, at the time of making an Award or thereafter,
the circumstances under which the Award will become fully vested, including in
the event of a Change of Control.
10.3 Dividend Equivalents. The Administrator may specify that a Holder of
--------------------
Stock Units is entitled to receive dividend equivalents equal the to amount of
cash dividends paid on the same number of Shares. Dividend equivalents may be
converted into additional Stock Units, at the discretion of the Administrator.
The Administrator will determine the time(s) at which dividend equivalents
payable with respect to Stock Units, if any, are distributed and whether
settlement is made in the form of cash, Shares or a combination of both. Prior
to distribution, dividend equivalents will be subject to the same conditions and
restrictions (including forfeiture conditions) as the Stock Units to which they
attach.
10.4 Settlement of Stock Units. Settlement of vested Stock Units will be made
-------------------------
in cash, Shares or a combination of both, as determined by the Administrator
before distribution begins. For this purpose, the Administrator may designate
the method of converting the value of Stock Units to cash, including a method
based upon the Fair Market Value of Shares over a series of trading days.
Distribution shall be made in a lump sum or installments, less applicable
withholding taxes, as determined by the Administrator, after all vesting
conditions have been satisfied or have lapsed. The administrator may defer
distribution, or it may permit the Holder to elect a deferred distribution. In
either case, the Administrator may provide for interest or additional dividend
equivalents to be credited on the deferred payment.
10.5 Death of Stock Units Award Holder. Each Participant who receives an Award
---------------------------------
of Stock Units may, by filing the prescribed form with the Company, designate
one or more beneficiaries to receive any settlement of Stock Units that becomes
payable upon the Participant's death. If no designated beneficiary survives the
participant, payment will be made to the Participant's estate. The Administrator
shall determine the time and form of distributions to a Participant's
beneficiary or estate.
10.6 Rights as a Shareholder. Prior to settlement of Stock Units, a Holder of
-----------------------
Stock Units shall have no voting rights or other privileges of a stockholder. In
the event the Administrator determines that Stock Units shall be settled in
Shares, the Holder shall have no voting rights or other privileges of a
stockholder until the issuance (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company) of
the stock
-16-
<PAGE>
certificate evidencing such Shares as the Administrator shall determine shall be
distributed in settlement of such Stock Units. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 10.3 of the Plan.
10.7 Creditors' Rights. A Holder of Stock Units has no rights other than those
-----------------
of a general creditor of the Company. Stock Units represent an unfunded and
unsecured obligation of the Company, subject to the terms and conditions of the
applicable Stock Unit Award Agreement.
10.8 Rule 16b-3. Stock Units granted to Reporting Persons shall comply with
----------
Rule 16b-3 and shall contain such additional conditions or restrictions as may
be required thereunder to qualify for the maximum exemption for Plan
transactions, and shall contain such additional conditions or restrictions as
may be required under Applicable Laws.
SECTION 11. WITHHOLDING
11.1 General. The Company may require the Holder to pay to the Company the
-------
amount of any withholding taxes that the Company is required to withhold with
respect to the grant, vesting or exercise of any Award. As a condition to the
exercise of Awards granted hereunder, the Holder of such Award shall make such
arrangements as the Administrator may require for the satisfaction of any
federal, state, local or foreign withholding tax obligations that may arise in
connection with the exercise, receipt or vesting of such Award. Subject to
Applicable Law, the Administrator, in its discretion, may permit the Holder to
satisfy his or her tax withholding obligations by one or more of the following
methods: (i) cash payment; (ii) payroll deduction out of the Participant's
current compensation; (iii) withholding from the Shares to be issued upon the
exercise of an Option or Stock Purchase Right or upon settlement of a Stock
Unit, as described in Section 11.3 below; or (iv) surrender to the Company of
Shares that (A) in the case of Shares previously acquired from the Company, have
been owned by the participant for more than six (6) months on the date of
surrender, and (B) have a Fair Market Value determined as of the applicable Tax
Date equal to the minimum statutory withholding rates for federal and state tax
purposes, including payroll taxes. The Company shall not be required to issue
any Shares or make any payments under the Plan until such obligations are
satisfied. The Company, in its sole discretion, may also deduct from any Award
any other amounts due from the Holder to the Company or a Subsidiary.
11.2 Withholding for Employee Participants. In the case of an Employee and in
-------------------------------------
the absence of any other arrangement, the Employee shall be deemed to have
directed the Company to withhold or collect from his or her compensation an
amount sufficient to satisfy applicable withholding obligations from the cash
amount payable with respect to any Award, and otherwise from the next payroll
payment otherwise payable after the date of an exercise of an Award.
11.3 Stock Withholding to Satisfy Withholding Tax Obligations. This Section
--------------------------------------------------------
11.3 shall apply only after the date, if any, upon which the Common Stock
becomes a Listed Security.
(a) In the case of a Participant other than an Employee (or in the
case of an Employee where the next payroll payment is not sufficient to satisfy
such tax obligations, with respect to any remaining tax obligations), in the
absence of any other arrangement and to the extent permitted under the
Applicable Laws, the Participant shall be deemed to have elected to
-17-
<PAGE>
have the Company withhold from the Shares to be issued upon the exercise of an
Option or Stock Purchase Right, or upon settlement of a Stock Unit, as
applicable, that number of Shares having a Fair Market Value determined on the
applicable Tax Date equal to the minimum statutory withholding rates for federal
and state tax purposes, including payroll taxes.
(b) At the discretion of the Administrator, a Participant may be
permitted to elect to satisfy his or her tax withholding obligations arising in
connection with an Option or a Stock Purchase Right, or in connection with a
Stock Unit to be settled by distribution of Shares, by authorizing the Company
to withhold from the Shares to be issued upon the exercise of an Option or Stock
Purchase Right, or upon settlement of a Stock Unit, as applicable, that number
of Shares having a Fair market Value determined on the applicable Tax Date equal
to the minimum statutory withholding rates for federal and state tax purposes,
including payroll taxes.
(c) Any election or deemed election by a participant to have Shares
withheld to satisfy tax withholding obligations under this Section 11.3 shall be
irrevocable as to the particular Shares as to which the election is made and
shall be subject to the consent or disapproval of the Administrator. Any
election under Section 11.3(b) above must be made on or prior to the applicable
Tax Date.
(d) In the event an election to have Shares withheld is made by a
participant and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the participant shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised but such participant shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
11.4 Reporting Persons. Any surrender by a Reporting Person of previously
-----------------
owned Shares to satisfy tax withholding obligations arising upon exercise of an
Award must comply with the applicable provisions of Rule 16b-3.
SECTION 12. LOANS, INSTALLMENT PAYMENTS AND LOAN GUARANTEES
To assist a Holder (including a Holder who is an Officer or Director, in
acquiring Shares of Common Stock pursuant to an Award granted under the Plan,
the Administrator, in its sole discretion, may authorize, either at the Grant
Date or at any time before acquisition of the Common Stock pursuant to the
Award, a (i) the extension of a loan to the Holder by the Company, (ii) the
payment by the Holder of the purchase price, if any, of the Common Stock in
installments, or (c) the guarantee by the Company of a loan obtained by the
Holder from a third party. The terms of any loans, installment payments or loan
guarantees may be granted with or without security. The maximum credit available
is the purchase price, if any, of the Common Stock acquired, plus the maximum
federal and state income and employment tax liability that may be incurred in
connection with the acquisition. The amount of any promissory note delivered
pursuant to this Section 12 in connection with a purchase of Common Stock under
the Plan shall bear an interest rate specified by the Administrator but in no
case less than the rate required to avoid imputation of interest as compensation
(taking into consideration any exceptions to the imputed interest rules) for
income tax purposes.
-18-
<PAGE>
SECTION 13. ADJUSTMENTS
13.1 Changes in Capitalization; Protection Against Dilution. Subject to any
------------------------------------------------------
required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Award, and the number of shares of
Common Stock that have been authorized for issuance under the Plan but as to
which no Awards have yet been granted or that have been returned to the Plan
upon cancellation or expiration of an Award, the number of Shares set forth in
Section 5.2 above, as well as the Exercise Price for each outstanding Award,
shall be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination, recapitalization or reclassification of the Common
Stock, or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Award.
13.2 Dissolution or Liquidation. In the event of the proposed dissolution or
--------------------------
liquidation of the Company not constituting a Corporate Transaction, to the
extent it has not been previously exercised or settled prior to the consummation
of such dissolution or liquidation, an Award under the Plan will terminate
immediately prior to the consummation of such proposed action.
13.3 Corporate Transactions; Change in Control.
-----------------------------------------
(a) In the event of a Corporate Transaction, including a Change in
Control, the Administrator may, as to outstanding Awards, (i) provide that
outstanding Awards, or certain types of Awards, shall be assumed or equivalent
Awards shall be substituted by the successor corporation or a Parent or
Subsidiary of such successor corporation (such entity, the "Successor
---------
Corporation"), unless the Successor Corporation does not agree to such
- -----------
assumption or substitution, in which case such Award shall terminate upon
consummation of the transaction; (ii) provide upon notice to Holders that all
Awards, or certain types of Awards, to the extent then exercisable or to be
exercisable as a result of the Change of Control, must be exercised on or before
a specified date after which the Awards shall terminate; and/or (iii) terminate
all Awards, or certain types of Awards, in their entirety in exchange for a
payment of cash, securities and/or other property equal to the excess of the
Fair Market Value of the Shares with respect to which the Award is vested and
exercisable immediately prior to the Corporate Transaction over the aggregate
exercise price thereof. To facilitate the exercise of Awards that become
exercisable as a result of the Change of Control, the Administrator may adopt
procedures providing for the exercise of unvested Awards contingent on the
consummation of such Change of Control. In addition, the Administrator may
provide that any repurchase right in favor of the Company with respect to Shares
purchased upon exercise of an Option or a Stock Purchase Right shall be
-19-
<PAGE>
assigned to the Successor Corporation, or if not so assigned, shall lapse in
full upon the consummation of the Corporate Transaction.
(b) For purposes of this Section 13.3, an Award shall be considered
assumed, or substituted, without limitation, if, at the time of issuance of the
stock or other consideration upon such Change in Control, the Holder of the
assumed or substitute Award would be entitled to receive upon exercise of the
Award the same number and kind of shares of stock or the same amount of
property, cash or securities as such Holder would have been entitled to receive
upon the occurrence of the transaction if the Holder had been, immediately prior
to such transaction, the Holder of the number of Shares of Common Stock covered
by the Award at such time (after giving effect to any adjustments in the number
of Shares covered by the Award as provided for in this Section 13) and the terms
of the assumed or substitute Award are otherwise substantially equivalent to the
terms of the Award immediately prior to the transaction (including the
acceleration of and deemed satisfaction of all vesting conditions of the Award);
provided however that in the case of an Option, if such consideration received
in the Change in Control was not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon
exercise of the Option to be solely common stock of the successor corporation or
its Parent equal to the Fair Market Value of the per Share consideration
received by holders of Common Stock in the transaction. Whether or not an Award
is to be assumed or substituted in connection with a Corporate Transaction shall
be determined by the Company, with the determination of comparability made by
the Administrator.
13.4 Certain Distributions. In the event of any distribution to the Company's
---------------------
stockholders of securities of any other entity or other assets (other than
dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Award to reflect the effect of such distribution.
SECTION 14: AMENDMENT AND TERMINATION OF THE PLAN
-------------------------------------------------
14.1 Authority to Amend or Terminate. The Board may at any time amend, alter,
-------------------------------
suspend or discontinue the Plan, but no amendment, alteration, suspension or
discontinuation (other than an adjustment made pursuant to Section 13 above)
shall be made that would impair the rights of any Holder under any outstanding
grant, without his or her consent. Any change or adjustment to an outstanding
incentive stock Option shall not, without the consent of the Holder, be made in
a manner so as to constitute a "modification" that would cause such Incentive
Stock Option to fail to continue to qualify as an Incentive Stock Option. In
addition, to the extent necessary and desirable to comply with the Applicable
Laws the Company shall obtain stockholder approval of any Plan amendment in such
a manner and to such a degree as required.
14.2 Effect of Amendment or Termination. No amendment or termination of the
----------------------------------
Plan shall adversely affect Awards already granted, unless mutually agreed
otherwise between the Holder of such Award and the Administrator, which
agreement must be in writing and signed by the Holder and the Company.
-20-
<PAGE>
SECTION 15. GENERAL PROVISIONS
15.1 Conditions Upon Issuance of Shares. Shares shall not be issued pursuant
----------------------------------
to the exercise of an Award unless the exercise of such Award and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any Stock Exchange.
15.2 Warranty of Holder. As a condition to the exercise of an Award, the
------------------
Company may require the Holder to represent and warrant at the time of any such
exercise that any Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by Applicable Law.
15.3 Reservation of Shares. The Company, during the term of this Plan, will at
---------------------
all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
15.4 Stockholder Approval. If required by the Applicable Laws, continuance of
--------------------
the Plan shall be subject to approval by the stockholders of the Company within
twelve months before or after the date the Plan is adopted. Such stockholder
approval shall be obtained in the degree and manner required under the
Applicable Laws. All Awards issued under the Plan shall become void in the event
such approval is not obtained.
15.5 Documents to Optionees. At the time of issuance of any awards under the
----------------------
Plan, the Company shall provide to the recipient of such award a copy of the
Plan and any agreement(s) pursuant to which awards granted under the Plan are
issued.
15.6 Market Standoff. In connection with the initial public offering of the
---------------
Company's securities and upon request of the Company or the underwriters
managing any underwritten offering of the Company's securities, a person shall
not sell, make any short sale of, loan, hypothecate, pledge, grant any option
for the purchase of, or otherwise dispose or transfer for value or otherwise
agree to engage in any of the foregoing transactions with respect to, any shares
issued pursuant to an Award granted under the Plan (other than those included in
the registration) without prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters and to execute an agreement reflecting the
foregoing as may be requested by the underwriters at the time of the public
offering.
15.7 Registration. The Company shall be under no obligation to any Holder to
------------
register for offering or resale or to qualify for exemption under the Securities
Act, or to register or qualify
-21-
<PAGE>
under state securities laws, any Shares, security or interest in a security paid
or issued under, or created by, the Plan, or to continue in effect any such
registrations or qualifications if made. The Company may issue certificates for
Shares with such legends and subject to such restrictions on transfer and stop-
transfer instructions as counsel for the Company deems necessary or desirable
for compliance by the Company with Applicable Laws. Inability of the Company to
obtain, from any regulatory body having jurisdiction, the authority deemed by
the Company's counsel to be necessary for the lawful issuance and sale of any
Shares hereunder or the unavailability of an exemption from registration for the
issuance and sale of any Shares hereunder shall relieve the Company of any
liability in respect of the nonissuance or sale of such Shares as to which such
requisite authority shall not have been obtained. The Administrator may also
require such other action or agreement by the Holder as may from time to time be
necessary to comply with Applicable Laws.
15.8 Compliance with Applicable Laws. Notwithstanding anything in the Plan to
-------------------------------
the contrary, the board, in its sole discretion, may bifurcate the Plan so as to
restrict, limit or condition the use of any provision of the Plan to Holders who
are Reporting Persons without so restricting, limiting or condition the Plan
with respect to other Holders.
15.9 Awards Granted to California Residents. Options and Stock Purchase Rights
--------------------------------------
granted under the Plan to persons resident in California shall be subject to the
provisions set forth in Attachment A hereto. To the extent the provisions of
------------
the Plan conflict with the provisions set forth on Attachment A, the provisions
------------
on Attachment A shall govern the terms of such Options.
------------
-22-
<PAGE>
Attachment A
Provisions Applicable to Award Recipients Resident in California
----------------------------------------------------------------
Until such time as any security of the Company becomes a Listed Security
and if required by the Applicable Laws, the following additional terms shall
apply to Options and Stock Purchase Rights, and Shares issued upon exercise of
such awards, granted under the HomeGrocer.com, Inc. 1999 Stock Incentive
Compensation Plan (the "Plan") to persons resident in California as of the Grant
----
Date of any such award (each such person, a "California Recipient"):
--------------------
1. In the case of a Nonstatutory Stock Option, the per Share exercise
price shall be no less than 85% of the Fair Market Value per Share on the Grant
Date.
2. In the case of Stock Purchase Rights, the purchase price applicable to
such right shall not be less than 85% of the Fair Market Value of the Shares as
of the date of the offer, or, in the case of a Ten Percent Holder, the price
shall not be less than 100% of the Fair Market Value of the Shares as of the
date of the offer.
3. With respect to an Option or Stock Purchase Right issued to any
California Recipient who is not an Officer, Director or Consultant, such Option
or Stock Purchase Right shall become exercisable, or any repurchase option in
favor of the Company shall lapse, at the rate of at least 20% per year over five
years from the date the award is granted.
4. (a) In the event of termination of a California Recipient's
Continuous Service, such California Recipient shall have at least thirty (30)
days after the date of such termination (but in no event later than the
expiration of the term of such Option as set forth in the Option Agreement) to
exercise such Option.
(b) In the event of termination of a California Recipient's
Continuous Service as an Employee or Consultant as a result of a disability
which does not fall within the meaning of total and permanent disability (as set
forth in Section 22(e)(3) of the Code), such California Recipient may, but only
within six (6) months from the date of such termination (but in no event later
than the expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination. However, to the extent that such California
Recipient fails to exercise an Option which is an Incentive Stock Option (within
the meaning of Section 422 of the Code) within three months of the date of such
termination, the Option will not qualify for Incentive Stock Option treatment
under the Code.
5. The Company shall provide financial statements at least annually to
each California Recipient during the period such person has one or more Options
or Stock Purchase Rights outstanding, and in the case of an individual who
acquired Shares pursuant to the Plan, during the period such individual owns
such Shares. The Company shall not be required to provide such information if
the issuance of awards under the Plan is limited to key employees whose duties
in connection with the Company assure their access to equivalent information.
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<PAGE>
Exhibit 10.29
HOMEGROCER.COM
1999 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
The following constitute the provisions of the 1999 Employee Stock Purchase
Plan of HomeGrocer.com.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" means the Common Stock of the Company.
------------
(d) "Company" means HomeGrocer.com, Inc., a Delaware corporation.
-------
(e) "Compensation" means all regular straight time gross earnings and
------------
shall include commissions or payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses and other compensation. Compensation
shall exclude one-time payments such as relocation or hiring bonuses, severance
pay as well as stock option proceeds.
(f) "Continuous Status as an Employee" means the absence of any
--------------------------------
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of (i) sick leave; (ii)
military leave; (iii) any other leave of absence approved by the Plan
Administrator, provided that such leave is for a period of not more than 90
days, unless reemployment upon the expiration of such leave is guaranteed by
contract or statute, or unless provided otherwise pursuant to Company policy
adopted from time to time; or (iv) in the case of transfers between locations of
the Company or between the Company and its Designated Subsidiaries.
(g) "Contributions" means all amounts credited to the account of a
-------------
participant pursuant to the Plan.
(h) "Corporate Transaction" means a sale of all or substantially all
---------------------
of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation.
(i) "Designated Subsidiaries" means the Subsidiaries which have been
-----------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the
<PAGE>
Plan; provided however that the Board shall only have the discretion to
designate a Subsidiary if the issuance of options to such Subsidiary's Employees
pursuant to the Plan would not cause the Company to incur adverse accounting
charges.
(j) "Employee" means any person, including an Officer, who is
--------
regularly scheduled to work at least an average of twenty (20) hours per week
and whose customary employment is for more than five (5) months in a calendar
year by the Company or any of the Designated Subsidiaries.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(l) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined by the Board in its discretion based on the closing sales price
of the Common Stock for such date (or, in the event that the Common Stock is not
traded on such date, on the immediately preceding Trading Day), as reported by
the National Association of Securities Dealers Automated Quotation (Nasdaq)
National Market or, if such price is not reported, the mean of the bid and asked
prices per share of the Common Stock as reported by Nasdaq or, in the event the
Common Stock is listed on a stock exchange, the Fair Market Value per share
shall be the closing sales price on such exchange on such date (or, in the event
that the Common Stock is not traded on such date, on the immediately preceding
Trading Day), as reported in The Wall Street Journal. For purposes of the
Offering Date of the first Offering Period under the Plan, the Fair Market Value
of a share of the Common Stock of the Company shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission pursuant
to Rule 424 under the Securities Act of 1933, as amended, for the initial public
offering of the Company's Common Stock (the "Registration Statement").
----------------------
(m) "Offering Date" means the first Trading Day of each Offering
-------------
Period of the Plan.
(n) "Offering Period" means a period of months not exceeding twenty-
---------------
seven (27) months, as determined by the Board. The duration and timing of the
Offering Periods may be changed pursuant to Section 4 of the Plan.
(o) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "Payroll Period" means the cycle under which the Company processes
--------------
normal, regular employee paychecks.
(q) "Plan" means this Employee Stock Purchase Plan.
----
(r) "Plan Administrator" means the Board or Committee designated in
------------------
accordance with Section 15 with authority to administer the Plan.
(s) "Purchase Date" means the last day of each Purchase Period of the
-------------
Plan.
-2-
<PAGE>
(t) "Purchase Period" means a period of six (6) months within an
---------------
Offering Period, except for the first Purchase Period as set forth in Section
4(b).
(u) "Purchase Price" means with respect to a Purchase Period an amount
--------------
equal to 85% of the Fair Market Value (as defined in Section 2(l) above) of a
Share of Common Stock on the Offering Date or on the Purchase Date, whichever is
lower; provided, however, that in the event (i) of any increase in the number of
Shares available for issuance under the Plan (including without limitation an
automatic increase pursuant to Section 14 below or as a result of a stockholder-
approved amendment to the Plan), and (ii) all or a portion of such additional
Shares are to be issued with respect to one or more Offering Periods that are
underway at the time of such increase ("Additional Shares"), and (iii) the Fair
-----------------
Market Value of a Share of Common Stock on the date of such increase is higher
than the Fair Market Value on the Offering Date for any such Offering Period,
then in such instance the Purchase Price with respect to such Additional Shares
shall be 85% of the Fair Market Value of a Share of Common Stock on the date of
such increase or the Fair Market Value of a Share of Common Stock on the
Purchase Date, whichever is lower.
(v) "Share" means a share of Common Stock, as adjusted in accordance
-----
with Section 20 of the Plan.
(w) "Subsidiary" means a corporation, domestic or foreign, of which
----------
not less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
(x) "Trading Day" means a day on which national stock exchanges and
-----------
the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any person who is an Employee as of the Offering Date of a given
Offering Period shall be eligible to participate in such Offering Period under
the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code; provided however that eligible.
(b) Employees may not participate in more than one Offering Period at
a time.
(c) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own capital stock of
the Company and/or hold outstanding options to purchase stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or of any subsidiary of the Company, or (ii) if such
option would permit his or her rights to purchase stock under all employee stock
purchase plans (described in Section 423 of the Code) of the Company and its
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) of the Fair Market Value (as defined in
-3-
<PAGE>
Section 2(l) above) of such stock (determined at the time such option is
granted) for each calendar year in which such option is outstanding at any time.
4. Offering Periods and Purchase Periods.
-------------------------------------
(a) Offering Periods. The Plan shall be implemented by a series of
----------------
Offering Periods generally of twelve (12) months duration, with new Offering
Periods commencing on or about January 1 and July 1 of each year (or at such
other time or times as may be determined by the Board of Directors). The first
Offering Period shall commence on the beginning of the effective date of the
Registration Statement on Form S-1 for the initial public offering of the
Company's Common Stock (the "IPO Date") and continue until December 31, 2000.
--------
The Plan shall continue until terminated in accordance with Section 20 hereof.
The Board of Directors of the Company shall have the power to change the
duration and/or the frequency of Offering Periods with respect to future
offerings (provided that no Offering Period shall be extended to a period beyond
twenty-seven (27) months) without stockholder approval if such change is
announced at least five (5) days prior to the scheduled beginning of the first
Offering Period to be affected.
(b) Purchase Periods. Each Offering Period shall generally consist of
----------------
consecutive purchase periods of six (6) months' duration. The last day of each
Purchase Period shall be the "Purchase Date" for such Purchase Period. A
-------------
Purchase Period commencing on January 1 shall end on the next June 30. A
Purchase Period commencing on July 1 shall end on the next December 31. The
first Purchase Period shall commence on the IPO Date and shall end on December
31, 2000. The Board of Directors of the Company shall have the power to change
the duration and/or frequency of Purchase Periods with respect to future
purchases without stockholder approval if such change is announced at least five
(5) days prior to the scheduled beginning of the first Purchase Period to be
affected.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by the Company and
filing it with the Company's payroll office prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given Offering Period.
(b) The subscription agreement shall set forth the Employee's
participation election in the form of a designation of the percentage of the
participant's Compensation to be paid as Contributions pursuant to the Plan,
which percentage shall be not less than one percent (1%) and not more than
fifteen percent 15% or such greater percentage as the Board may establish from
time to time before an Offering Date, which percentage shall not exceed twenty
percent (20%) of such participant's Compensation on each payday during the
Offering Period.
(c) A participant's subscription shall be effective for each
successive Offering Period in which he or she is eligible to participate, unless
the participant withdraws in accordance with Section 11(a).
-4-
<PAGE>
(d) In addition to the limits on an Employee's participation in the
Plan set forth herein, the Board may establish limits on the number of shares an
Employee may elect to purchase with respect to any Offering Period if such limit
is announced at least fifteen (15) days prior to the scheduled beginning of the
first Offering Period to be affected.
6. Grant of Option. On the Offering Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Purchase Date a number of Shares of the Company's
Common Stock determined by dividing such Employee's Contributions accumulated
prior to such Purchase Date and retained in the participant's account as of the
Purchase Date by the applicable Purchase Price; provided however that the
maximum number of Shares an Employee may purchase during each Purchase Period
shall be 2,500 Shares, and provided further that such purchase shall be subject
to the limitations set forth in Sections 3(c), 8(b) and 14, as applicable.
7. Method of Payment of Contributions.
----------------------------------
(a) A participant's payment of contributions to the Plan shall be made
by payroll deductions made on each payday during the Offering Period, commencing
on the first payroll following the Offering Date and shall end on the last
payroll paid on or prior to the last Purchase Period of the Offering Period to
which the subscription agreement is applicable, unless sooner terminated by the
participant as provided in Section 11. All payroll deductions made by a
participant shall be credited to his or her account under the Plan.
(b) A participant may discontinue his or her participation in the Plan
as provided in Section 11, or, on one occasion only during the Offering Period
may decrease the rate of his or her Contributions with respect to the Offering
Period by completing and filing with the Company a new subscription agreement
authorizing a change in the payroll deduction rate. The change in rate shall be
effective as of the beginning of the next payroll period following the date of
filing of the new subscription agreement, if the agreement is filed at least ten
(10) business days prior to such date and, if not, as of the beginning of the
next succeeding payroll period.
(c) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b), a participant's payroll
deductions may be decreased by the Company to 0% at any time during a Purchase
Period. Payroll deductions shall re-commence at the rate provided in such
participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10. In addition, a
participant's payroll deductions may be decreased by the Company to 0% at any
time during a Purchase Period in order to avoid unnecessary payroll
contributions as a result of application of the maximum share limit set forth in
Section 7(a), in which case payroll deductions shall re-commence at the rate
provided in such participant's subscription agreement at the beginning of the
next Purchase Period, unless terminated by the participant as provided in
Section 10.
(d) In the event a participant's contributions cannot be made by
payroll deduction because such participant is on an unpaid military leave, sick
leave or other approved
-5-
<PAGE>
leave of absence not exceeding 90 days, or during a longer approved leave so
long as the participant's right to reemployment with the Company is guaranteed
by statute or by contract, such participant's payment of contributions to the
Plan shall be suspended during such unpaid leave. Upon such participant's return
to active service, such participant's contributions shall recommence in
accordance with the participant's participation election.
8. Exercise of Option.
------------------
(a) Unless a participant withdraws from the Plan as provided in
Section 11 or 12, his or her option for the purchase of Shares will be exercised
automatically on each Purchase Date of an Offering Period, and the maximum
number of full Shares subject to the option will be purchased at the applicable
Purchase Price with the accumulated Contributions in his or her account. No
fractional Shares shall be issued. The Shares purchased upon exercise of an
option hereunder shall be deemed to be transferred to the participant on the
Purchase Date. During his or her lifetime, a participant's option to purchase
Shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Purchase Date, the number
of Shares with respect to which options are to be exercised may exceed (i) the
number of Shares of Common Stock that were available for sale under the Plan on
the Offering Date of the applicable Offering Period (after deduction of all
Shares for which options have been exercised or are then outstanding), or (ii)
the number of shares available for sale under the Plan on such Purchase Date
(after deduction of all Shares for which options have been exercised or are then
outstanding), the Board may, in its sole discretion, provide that the Shares of
Common Stock available for purchase on such Offering Date or Purchase Date, as
applicable, shall be allocated pro rata, in as uniform a manner as shall be
practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Purchase Date and (x) continue all Offering Periods then in effect or (y)
pursuant to Section 21 below, terminate any or all Offering Periods then in
effect. The Board may direct that the Shares available on the Offering Date of
any applicable Offering Period pursuant to the preceding sentence be allocated
pro rata, notwithstanding any authorization of additional Shares for issuance
under the Plan by the Company's stockholders subsequent to such Offering Date.
(c) Any cash remaining to the credit of a participant's account under
the Plan after a purchase by him or her of Shares at the termination of each
Purchase Period which is insufficient to purchase a full Share shall be carried
over to the next Purchase Period if the Employee continues to participate in the
Plan, or if the Employee does not continue to participate, shall be returned to
the participant. Any other amounts left over in a participant's account after a
Purchase Date shall be returned to the participant.
9. Withholding Tax Obligations. At the time the option is exercised, in
---------------------------
whole or in part, or at the time some or all of the Company's Common Stock
issued under the Plan is disposed of, the participant must make adequate
provision for payment to the Company of the Company's federal, state or other
tax withholding obligations, if any, which arise upon the exercise of the option
or the disposition of the Common Stock. At any time, the Company may withhold
from the participant's compensation the amount necessary for the Company to meet
-6-
<PAGE>
applicable federal, state and other withholding obligations, including any
withholding required to make available to the Company any tax deductions or
benefits attributable to the sale or early disposition of Common Stock by the
participant.
10. Rights as Stockholder; ESPP Stock Account; Delivery of Certificate.
------------------------------------------------------------------
(a) The participant shall have no interest or voting right in Shares
covered by his or her option until such option has been exercised.
(b) The Company may require that all Shares purchased under the Plan
be held in an account (the participant's "ESPP Stock Account) established in the
name of the participant (or in the name of the participant and his or her
spouse, as designated by the participant on his or her subscription agreement).
In such event the Company or, in the event the Plan Administrator designates or
approves a stock brokerage or other financial services firm (an "ESPP Broker")
to hold Shares purchased under the Plan for the accounts of participants then
such ESPP Broker, shall hold all Shares purchased by a participant under the
Plan in his or her ESPP Stock Account and the participant (and his or her
spouse, if applicable) shall be the beneficial owner of the Shares in his or her
ESPP Stock Account. The following rules shall apply to ESPP Stock Accounts:
(i) Promptly following each Purchase Date the number of Shares
purchased by each participant shall be deposited into the participant's
ESPP Stock Account.
(ii) Each participant shall receive periodic statements of his
or her ESPP Stock Account.
(iii) The Plan Administrator may establish a holding requirement
for Shares in a participant's ESPP Stock Account for a period not exceeding
the holding periods set forth in Code section 423. In the absence of such
holding requirement, a participant shall be free to undertake a disposition
of the Shares in his or her ESPP Stock Account at any time by giving notice
to the ESPP Broker (or the Company, if the Company maintains the account)
in such form and manner as determined by the Plan Administrator.
(iv) In the absence of such a disposition by the participant,
until the holding period set forth in Code section 423 has been satisfied
with respect to Shares in a participant's ESPP Stock Account, such Shares
must remain in the participant's ESPP Stock Account. A participant may
transfer Shares as to which such holding period has been satisfied to
another brokerage account of the participant's choosing, or may request
that a stock certificate be issued and delivered to him or her with respect
to Shares as to which such holding period has been satisfied.
(v) Dividends paid in the form of Shares with respect to
Shares in a participant's ESPP Stock Account shall be credited to such
account.
-7-
<PAGE>
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
11. Voluntary Withdrawal.
--------------------
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
each Purchase Date by giving written notice to the Company. All of the
participant's Contributions credited to his or her account will be paid to him
or her promptly after receipt of his or her notice of withdrawal and his or her
option for the current Offering Period will be automatically terminated, and no
further Contributions for the purchase of Shares will be made during and with
respect to such Offering Period.
(b) A participant's voluntary withdrawal from the Plan with respect to
an Offering Period will not have any effect upon his or her eligibility to
participate in a succeeding Offering Period or in any similar plan which may
hereafter be adopted by the Company.
12. Automatic Withdrawal.
--------------------
(a) Termination of Employment. Upon termination of the participant's
-------------------------
Continuous Status as an Employee prior to the Purchase Date of an Offering
Period (other than on account of death), he or she will be automatically
withdrawn from the Plan effective as of the date of such termination of his or
her Continuous Status as an Employee, the Contributions credited to his or her
account will be returned to him or her, and his or her option will be
automatically terminated.
(b) Death of Participant. Upon the death of a participant prior to
--------------------
the Purchase Date of an Offering Period, he or she will be automatically
withdrawn from the Plan, the Contributions credited to his or her account will
be returned to the person or persons entitled thereto under Section 16, and his
or her option will be automatically terminated.
(c) Reduction of Hours. In the event a participant fails to remain
-------------------
in Continuous Status as an Employee of the Company for at least an average of
twenty (20) hours per week during the Offering Period in which the employee is a
participant, he or she will be deemed to have elected to withdraw from the Plan
and the Contributions credited to his or her account will be returned to him or
her and his or her option terminated. Notwithstanding the preceding sentence,
if such participant's reduction in hours is on account of an unpaid military
leave, sick leave or other approved leave of absence not exceeding ninety (90)
days, or during a longer approved leave so long as the participant's right to
reemployment with the Company is guaranteed by statute or by contract (including
a temporary reduction in hours for purposes of a leave taken under the Family
Medical Leave Act or similar applicable state law), such participant shall not
be deemed to have withdrawn from the Plan during such leave. A participant who
fails to return to active employment following such leave shall be deemed to
have withdrawn from the Plan on the 91st day following the commencement of the
leave or, if later, the date such participant ceases to have a right to
reemployment with the Company guaranteed by statute or contract.
-8-
<PAGE>
(d) Reduction in Fair Market Value. To the extent permitted by any
------------------------------
applicable laws, regulations or stock exchange rules, if the Fair Market Value
of the Shares on a Purchase Date of an Offering Period (other than the final
Purchase Date of such Offering Period) is less than the Fair Market Value of the
Shares on the Offering Date for such Offering Period, then every participant
shall automatically be withdrawn from such Offering Period at the close of such
Purchase Date and after the acquisition of Shares for such Purchase Period.
Participants shall thereafter automatically be re-enrolled in the first Offering
Period commencing subsequent to such Purchase Date. All payroll deductions
accumulated in a participant's account as of a withdrawal date pursuant to this
Section 12(d) shall be retained in the participant's account.
13. Interest. No interest shall accrue on the Contributions of a
--------
participant in the Plan.
14. Stock. Subject to adjustment as provided in Section 20, the maximum
-----
number of Shares which shall be made available for sale under the Plan shall be
3,000,000 Shares, subject to further adjustment pursuant to Section 20 below,
plus an annual increase on the first day of each of the Company's fiscal years
beginning in 2001, 2002, 2003, 2004 and 2005 equal to the lesser of (i) 500,000
Shares subject to further adjustment pursuant to Section 20 below, (ii) five
tenths of one percent (.5%) of the Shares outstanding on the last day of the
immediately preceding fiscal year, or (iii) such lesser number of Shares as is
determined by the Board.
15. Administration. The Board, or a committee named by the Board (the
--------------
"Plan Administrator"), shall supervise and administer the Plan and shall have
- -------------------
full power to adopt, amend and rescind any rules deemed desirable and
appropriate for the administration of the Plan and not inconsistent with the
Plan, to construe and interpret the Plan, and to make all other determinations
necessary or advisable for the administration of the Plan. The Plan
Administrator may delegate its duties to such of the Company's officers as it so
determines.
16. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any Shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of a
Purchase Period but prior to delivery to him or her of such Shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to the Purchase Date of an Offering Period.
If a participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
(and his or her spouse, if any) at any time by written notice. In the event of
the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such Shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such Shares and/or cash to the spouse or to any
one or more dependents or relatives of the participant,
-9-
<PAGE>
or if no spouse, dependent or relative is known to the Company, then to such
other person as the Company may designate.
17. Transferability. Neither Contributions credited to a participant's
---------------
account nor any rights with regard to the exercise of an option or to receive
Shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 16) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with Section 10.
18. Use of Funds. All Contributions received or held by the Company under
------------
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such Contributions.
19. Reports. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of Contributions,
the per Share Purchase Price, the number of Shares purchased and the remaining
cash balance, if any.
20. Adjustments Upon Changes in Capitalization; Corporate Transactions.
------------------------------------------------------------------
(a) Adjustment. Subject to any required action by the stockholders of
----------
the Company, the number of Shares covered by each option under the Plan which
has not yet been exercised and the number of Shares which have been authorized
for issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"), the number of shares of Common Stock set forth
--------
in Section 14(a)(i) above, and the price per Share of Common Stock covered by
each option under the Plan which has not yet been exercised, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock (including any such change
in the number of Shares of Common Stock effected in connection with a change in
domicile of the Company), or any other increase or decrease in the number of
Shares effected without receipt of consideration by the Company; provided
however that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no issue
by the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of Shares subject to an
option.
(b) Corporate Transactions. In the event of a dissolution or
----------------------
liquidation of the Company, any Purchase Period and Offering Period then in
progress will terminate immediately prior to the consummation of such action,
unless otherwise provided by the Board. In the event of a Corporate Transaction,
each option outstanding under the Plan shall be assumed or an equivalent option
shall be substituted by the successor corporation or a parent or Subsidiary of
such successor corporation. In the event that the successor corporation refuses
to assume or substitute for outstanding options, each Purchase Period and
Offering Period then in progress
-10-
<PAGE>
shall be shortened and a new Purchase Date shall be set (the "New Purchase
------------
Date"), as of which date any Purchase Period and Offering Period then in
- ----
progress will terminate. The New Purchase Date shall be on or before the date of
consummation of the transaction and the Board shall notify each participant in
writing, at least ten (10) days prior to the New Purchase Date, that the
Purchase Date for his or her option has been changed to the New Purchase Date
and that his or her option will be exercised automatically on the New Purchase
Date, unless prior to such date he or she has withdrawn from the Offering Period
as provided in Section 11 or Section 12. For purposes of this Section 20, an
option granted under the Plan shall be deemed to be assumed, without limitation,
if, at the time of issuance of the stock or other consideration upon a Corporate
Transaction, each holder of an option under the Plan would be entitled to
receive upon exercise of the option the same number and kind of shares of stock
or the same amount of property, cash or securities as such holder would have
been entitled to receive upon the occurrence of the transaction if the holder
had been, immediately prior to the transaction, the holder of the number of
Shares of Common Stock covered by the option at such time (after giving effect
to any adjustments in the number of Shares covered by the option as provided for
in this Section 20); provided however that if the consideration received in the
transaction is not solely common stock of the successor corporation or its
parent (as defined in Section 424(e) of the Code), the Board may, with the
consent of the successor corporation, provide for the consideration to be
received upon exercise of the option to be solely common stock of the successor
corporation or its parent equal in Fair Market Value to the per Share
consideration received by holders of Common Stock in the transaction.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per Share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of Shares of its outstanding Common Stock, and
in the event of the Company's being consolidated with or merged into any other
corporation.
21. Amendment or Termination.
------------------------
(a) The Board may at any time and for any reason terminate or amend
the Plan. Except as provided in Section 20, no such termination of the Plan may
affect options previously granted, provided that the Plan or an Offering Period
may be terminated by the Board on a Purchase Date or by the Board's setting a
new Purchase Date with respect to an Offering Period and Purchase Period then in
progress if the Board determines that termination of the Plan and/or the
Offering Period is in the best interests of the Company and the stockholders or
if continuation of the Plan and/or the Offering Period would cause the Company
to incur adverse accounting charges as a result of a change after the effective
date of the Plan in the generally accepted accounting rules applicable to the
Plan. Except as provided in Section 20 and in this Section 21, no amendment to
the Plan shall make any change in any option previously granted which adversely
affects the rights of any participant. In addition, to the extent necessary to
comply with Rule 16b-3 under the Exchange Act, or under Section 423 of the Code
(or any successor rule or provision or any applicable law or regulation), the
Company shall obtain stockholder approval in such a manner and to such a degree
as so required.
-11-
<PAGE>
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board
(or its committee) shall be entitled to change the Offering Periods and Purchase
Periods, limit the frequency and/or number of changes in the amount withheld
during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from
the participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole discretion
advisable which are consistent with the Plan.
22. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
23. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such Shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, applicable state securities laws and the requirements of
any stock exchange upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
24. Term of Plan; Effective Date. The Plan shall become effective upon
----------------------------
the IPO Date. It shall continue in effect for a term of twenty (20) years
unless sooner terminated under Section 20.
25. Additional Restrictions of Rule 16b-3. The terms and conditions of
-------------------------------------
options granted hereunder to, and the purchase of Shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the Shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
-12-
<PAGE>
EXHIBIT 10.30
HOMEGROCER.COM
1999 DIRECTORS' STOCK OPTION PLAN
---------------------------------
1. Purposes of the Plan. The purposes of this Directors' Stock Option
--------------------
Plan are to attract and retain the best available personnel for service as
Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean HomeGrocer.com, a Delaware corporation.
-------
(e) "Continuous Status as a Director" shall mean the absence of any
-------------------------------
interruption or termination of service as a Director.
(f) "Director" shall mean a member of the Board.
--------
(g) "Employee" shall mean any person, including any officer or
--------
director, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(i) "Option" shall mean a stock option granted pursuant to the Plan.
------
All options shall be nonstatutory stock options (i.e., options that are not
intended to qualify as incentive stock options under Section 422 of the Code).
(j) "Optioned Stock" shall mean the Common Stock subject to an
--------------
Option.
(k) "Optionee" shall mean an Outside Director who receives an Option.
--------
(l) "Outside Director" shall mean a Director who is not an Employee.
----------------
(m) "Parent" shall mean a "parent corporation," whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
<PAGE>
(n) "Plan" shall mean this HomeGrocer.com 1999 Directors' Stock Option
----
Plan.
(o) "Share" shall mean a share of the Common Stock, as adjusted in
-----
accordance with Section 11 of the Plan.
(p) "Subsidiary" shall mean a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be sold under the
Plan is 500,000 Shares (the "Pool") of Common Stock. The Shares may be
----
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. If Shares which were acquired upon exercise of an
Option are subsequently repurchased by the Company, such Shares shall not in any
event be returned to the Plan and shall not become available for future grant
under the Plan.
4. Administration of and Grants of Options under the Plan.
------------------------------------------------------
(a) Administrator. Except as otherwise required herein, the Plan
-------------
shall be administered by the Board.
(b) Procedure for Grants. All grants of Options hereunder shall be
--------------------
automatic and nondiscretionary and shall be made strictly in accordance with the
following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted an
Option to purchase 20,000 Shares (the "First Option") on the date on which such
------------
person first becomes an Outside Director, whether through election by the
stockholders of the Company or appointment by the Board of Directors to fill a
vacancy.
(iii) After the First Option has been granted to an Outside
Director, such Outside Director shall thereafter be automatically granted an
Option to purchase 5,000 Shares (a "Subsequent Option") on the date of each
-----------------
Annual Meeting of the Company's stockholders immediately following which such
Outside Director is serving on the Board, provided that, on such date, he or she
shall have served on the Board for at least six (6) months prior to the date of
such Annual Meeting.
(iv) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, in the event that a grant would cause the number of Shares subject to
outstanding Options plus the
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<PAGE>
number of Shares previously purchased upon exercise of Options to exceed the
Pool, then each such automatic grant shall be for that number of Shares
determined by dividing the total number of Shares remaining available for grant
by the number of Outside Directors receiving an Option on such date on the
automatic grant date. Any further grants shall then be deferred until such time,
if any, as additional Shares become available for grant under the Plan through
action of the stockholders to increase the number of Shares which may be issued
under the Plan or through cancellation or expiration of Options previously
granted hereunder.
(v) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, any grant of an Option made before the Company has obtained
stockholder approval of the Plan in accordance with Section 17 hereof shall be
conditioned upon obtaining such stockholder approval of the Plan in accordance
with Section 17 hereof.
(vi) The terms of each First Option granted hereunder shall be
as follows:
(1) the First Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Section 9 hereof;
(2) the exercise price per Share shall be 100% of the fair
market value per Share on the date of grant of the First Option, determined in
accordance with Section 8 hereof; and
(3) the First Option shall become vested and exercisable in
installments cumulatively as to 25% of the Shares subject to the First Option on
each of the first, second, third and fourth anniversaries of the date of grant
of the Option.
(vii) The terms of each Subsequent Option granted hereunder
shall be as follows:
(1) the Subsequent Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Section 9 hereof;
(2) the exercise price per Share shall be 100% of the fair
market value per Share on the date of grant of the Subsequent Option, determined
in accordance with Section 8 hereof; and
(3) the Subsequent Option shall be 100% vested and
exercisable as of the date of grant of the Option.
(c) Powers of the Board. Subject to the provisions and restrictions
-------------------
of the Plan, the Board shall have the authority, in its discretion: (i) to
determine, upon review of relevant information and in accordance with Section
8(b) of the Plan, the fair market value of the Common Stock; (ii) to determine
the exercise price per share of Options to be granted, which exercise price
shall be determined in accordance with Section 8(a) of the Plan; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations
relating to the Plan; (v) to authorize any person to execute on behalf of the
Company any instrument required to effectuate
-3-
<PAGE>
the grant of an Option previously granted hereunder; (vi) to make all other
determinations deemed necessary or advisable for the administration of the Plan;
and (vii) to delegate its powers to a committee of the Board or to two or more
Company Officers.
(d) Effect of Board's Decision. All decisions, determinations and
--------------------------
interpretations of the Board or its delegates shall be final and binding on all
Optionees and any other holders of any Options granted under the Plan.
(e) Suspension or Termination of Option. If the Chief Executive
-----------------------------------
Officer or his or her designee reasonably believes that an Optionee has
committed an act of misconduct, the Chief Executive Officer may suspend the
Optionee's right to exercise any option pending a determination by the Board of
Directors (excluding the Outside Director accused of such misconduct). If the
Board of Directors (excluding the Outside Director accused of such misconduct)
determines an Optionee has committed an act of embezzlement, fraud, dishonesty,
nonpayment of an obligation owed to the Company, breach of fiduciary duty or
deliberate disregard of the Company rules resulting in loss, damage or injury to
the Company, or if an Optionee makes an unauthorized disclosure of any Company
trade secret or confidential information, engages in any conduct constituting
unfair competition, induces any Company customer to breach a contract with the
Company or induces any principal for whom the Company acts as agent to terminate
such agency relationship, neither the Optionee nor his or her estate shall be
entitled to exercise any Option whatsoever. In making such determination, the
Board of Directors (excluding the Outside Director accused of such misconduct)
shall act fairly and shall give the Optionee an opportunity to appear and
present evidence on Optionee's behalf at a hearing before the Board or a
committee of the Board.
5. Eligibility. Options may be granted only to Outside Directors. All
-----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof. An Outside Director who has been granted an Option may, if
he or she is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his or her directorship at any time.
6. Term of Plan; Effective Date. The Plan shall become effective on the
----------------------------
effectiveness of the registration statement under the Securities Act of 1933, as
amended, relating to the Company's initial public offering of securities. It
shall continue in effect for a term of ten (10) years unless sooner terminated
under Section 13 of the Plan.
7. Term of Options. The term of each Option shall be ten (10) years from
---------------
the date of grant thereof.
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<PAGE>
8. Exercise Price and Consideration.
--------------------------------
(a) Exercise Price. The per Share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be 100% of the fair market value
per Share on the date of grant of the Option.
(b) Fair Market Value. The fair market value of Common Stock shall
-----------------
be determined, as of any date, as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sales
------
price for such stock (or the closing bid, if no sales were reported), as quoted
on such system or exchange, or the exchange with the greatest volume of trading
in Common Stock for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but not
on the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high bid and low asked prices for the Common Stock for the last
market trading day prior to the time of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
With respect to any Options granted hereunder concurrently with the
initial effectiveness of the Plan, the fair market value shall be the Price to
Public as set forth in the final prospectus relating to such initial public
offering.
(c) Form of Consideration. The consideration to be paid for the
---------------------
Shares to be issued upon exercise of an Option shall consist entirely of cash,
check, other Shares of Common Stock having a fair market value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised (which, if acquired from the Company, shall have been
held for at least six months), or any combination of such methods of payment
and/or any other consideration or method of payment as shall be permitted under
applicable corporate law.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4(b) hereof; provided, however, that no Options shall be exercisable prior to
stockholder approval of the Plan in accordance with Section 17 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
-5-
<PAGE>
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be issued
to the Optionee as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as a Director. If an Outside Director
-----------------------------------
ceases to serve as a Director, he or she may, but only within seven (7) months
after the date he or she ceases to be a Director of the Company, exercise his or
her Option to the extent that he or she was entitled to exercise it at the date
of such termination. Notwithstanding the foregoing, in no event may the Option
be exercised after its term set forth in Section 7 has expired. To the extent
that such Outside Director was not entitled to exercise an Option at the date of
such termination, or does not exercise such Option (which he or she was entitled
to exercise) within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding Section 9(b) above, in
----------------------
the event a Director is unable to continue his or her service as a Director with
the Company as a result of his or her total and permanent disability (as defined
in Section 22(e)(3) of the Code), he or she may, but only within twelve (12)
months from the date of such termination, exercise his or her Option to the
extent he or she was entitled to exercise it at the date of such termination.
Notwithstanding the foregoing, in no event may the Option be exercised after its
term set forth in Section 7 has expired. To the extent that he or she was not
entitled to exercise the Option at the date of termination, or if he or she does
not exercise such Option (which he or she was entitled to exercise) within the
time specified herein, the Option shall terminate.
(d) Death of Optionee. Notwithstanding Section 9(b) above, in the
-----------------
event a Director's Continuous Status as a Director terminates as a result of his
or her death, the Option may be exercised, at any time within twelve (12) months
following the date of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent the Optionee was entitled to exercise it at the date of death.
Notwithstanding the foregoing, in no event may the Option be exercised after its
term set forth in Section 7 has expired. To the extent that the Optionee was
not entitled to exercise the Option at the date of death, or if the Option is
not exercised in accordance with the preceding sentence within the time
specified therein, the Option shall terminate.
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<PAGE>
10. Nontransferability of Options. The Option may not be sold, pledged,
-----------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution or pursuant to a qualified
domestic relations order (as defined by the Code or the rules thereunder). The
designation of a beneficiary by an Optionee does not constitute a transfer. An
Option may be exercised during the lifetime of an Optionee only by the Optionee
or a transferee permitted by this Section.
11. Adjustments Upon Changes in Capitalization; Corporate Transactions.
------------------------------------------------------------------
(a) Adjustment. Subject to any required action by the stockholders of
----------
the Company, the number of shares of Common Stock covered by each outstanding
Option and the number of shares of Common Stock which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, as well as the price per share of Common Stock covered by each such
outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
- -------- -------
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option.
(b) Corporate Transactions. In the event of a dissolution or
----------------------
liquidation of the Company, Options not exercised as of the consummation of the
transaction shall terminate. In the event of (i) a sale of all or substantially
all of the Company's assets, (ii) a merger, consolidation or other capital
reorganization of the Company with or into another corporation where the holders
of more than fifty percent (50%) of the shares of capital stock of the Company
outstanding immediately prior to such transaction do not immediately after such
transaction continue to hold (either by the voting securities remaining
outstanding or by being converted into voting securities of the surviving
entity), or (iii) a change in the composition of the Board such that during any
consecutive two (2) year period persons who constitute the Board at the
beginning of such period (or who were appointed or approved by a majority of the
Board in place at the beginning of such period ) cease to constitute at least
50% of the Board, the Company shall give to the Eligible Director, at the time
of adoption of the plan for liquidation, dissolution, sale, merger,
consolidation or reorganization, either a reasonable time thereafter within
which to exercise the Option, including Shares as to which the Option would not
be otherwise exercisable, prior to the effectiveness of such liquidation,
dissolution, sale, merger, consolidation or reorganization, at the end of which
time the Option shall terminate, or the right to exercise the Option, including
Shares as to which the Option would not be otherwise exercisable (or receive a
substitute option with comparable terms), as to an equivalent number of shares
of stock of the corporation succeeding the Company or acquiring its business by
reason of such sale, merger, consolidation or reorganization.
-7-
<PAGE>
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may amend or terminate the
-------------------------
Plan from time to time in such respects as the Board may deem advisable;
provided that, to the extent necessary and desirable to comply with Rule 16b-3
- -------- ----
under the Exchange Act (or any other applicable law or regulation), the Company
shall obtain approval of the stockholders of the Company to Plan amendments to
the extent and in the manner required by such law or regulation.
Notwithstanding the foregoing, the provisions set forth in Section 4 of this
Plan (and any other Sections of this Plan that affect the formula award terms
required to be specified in this Plan by Rule 16b-3) shall not be amended more
than once every six months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan that would impair the rights of any Optionee shall not
affect Options already granted to such Optionee and such Options shall remain in
full force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance. As a
condition to the exercise of an Option, the Company may require the person
exercising such Option to represent and warrant at the time of any such exercise
that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares, if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. Inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
16. Option Agreement. Options shall be evidenced by written notice or
----------------
option agreements setting forth the terms of the Options.
-8-
<PAGE>
17. Stockholder Approval. If required by the applicable laws, continuance
--------------------
of the Plan shall be subject to approval by the stockholders of the Company.
Such stockholder approval shall be obtained in the manner and to the degree
required under the applicable laws. Options may be granted, but not exercised,
before such stockholder approval.
-9-
<PAGE>
EXHIBIT 10.31
INTERNAP NETWORK SERVICES
TERMS AND CONDITIONS OF SERVICE
This Agreement is made and entered into this day of December l7th, 1997, by and
between InterNAP Network Services Corporation, a Washington Company
("InterNAP"), 2001 Sixth Avenue, Suite 300, Seattle, Washington 98121, and
HomeGrocer.com. a corporation or business entity, having its office at 1445
120th Ave N.E., Bellevue, WA 93005 ("Customer"). When referred to collectively,
InterNAP and Customer shall be referred to as the "Parties'.
1. Scope of the Services.
A. Service. Customer agrees to purchase from InterNAP, and InterNAP
shall, subject to the terms and conditions of this Agreement, provide the
service ("Service") described in Attachment A to this Agreement.
B. Support Services. InterNAP shall provide Customer with a policies and
procedures document which discusses standard technical support relative to the
Service, and instructs Customer how to contact InterNAP, and the InterNAP
technical support staff, by means of telephone, email, and pager. The InterNAP
Network Operations Center ("NOC") will monitor the service being provided to
Customer for purposes of ensuring that TCP/IP connectivity relating to the
Service is maintained, and also for providing reasonable and appropriate outage
response and trouble-shooting related to the maintenance of such connectivity.
In the event of an outage or failure of connectivity relating to the Service,
the InterNAP NOC will follow InterNAP's standard outage response and
troubleshooting protocols which will include notification to Customer in a
manner consistent to a notification process mutually agreed upon between the
Parties. Customer will submit a Customer Installation Form which outlines
trouble contacts and Service configuration details to InterNAP prior to
scheduling of the Service installation. Information provided on the Customer
Installation Form will remain in effect until amended or rescinded by Customer
in writing in advance.
Further, InterNAP will provide Customer with an emergency access telephone
number. Customer agrees to use this emergency number only in instances which
could reasonably be described as emergency in nature, and which have occurred
through no fault of Customer. InterNAP reserves the right, at its sole
discretion, to bill Customer for all non-emergency calls directed to InterNAP
via the InterNAP emergency number. In the event that Customer requires a non-
standard form of technical support, where such non-standard form of support is
not in the nature of an emergency, Customer may make special contractual
arrangements with InterNAP to provide such non-standard service under terms and
conditions to be mutually agreed upon between the Parties.
2. Contract Term and Termination.
A. The term of the Agreement shall commence on the above date, and shall
continue for a minimum period of one (1) year, unless specified as a longer term
under the formerly quoted
<PAGE>
terms on the attached Sales Order Form provided to Customer and incorporated
herein by reference. After completion of the first full term of this Agreement,
this Agreement shall be automatically renewed for successive one-year periods
unless either Party hereto provides written notice of termination at least
thirty (30) days prior to expiration of the then current Term.
B. This Agreement may be terminated without notice upon the occurrence of
any of the following: 1) Any material breach of this Agreement; 2) Customer's
failure to continue to function as a going concern, or to operate in the
ordinary course of business; 3) any assignment by Customer for the benefit of
creditors; 4) any filing of either voluntary or involuntary bankruptcy by
Customer or Customer's creditors; 5) a failure by either Party hereto to honor
any non-disclosure or confidentiality obligations arising under this Agreement
or failing to honor the employee recruitment restrictions set forth within this
Agreement below.
C. InterNAP shall provide Customer a ninety (90) Day Satisfaction
Guarantee whereby Customer may cancel or terminate this Agreement for any reason
within the first ninety days of service without an Early Cancellation Penalty.
In the event that Customer elects to terminate or cancel this Agreement after
the first ninety days (90) days of service and prior to the expiration date of
the then current term of the Agreement, and does so without the express written
consent of InterNAP, then Customer shall be liable to InterNAP for an early
cancellation penalty in an amount equal to twenty-five percent (25%) of the
dollar amount, in USD currency, that Customer would otherwise be paying to
InterNAP over the remainder of the term of this Agreement. In such a case,
Customer agrees to pay said penalty amount without any invoice or demand for
same from InterNAP, and do so within thirty (30) days after effecting the early
termination/cancellation of this Agreement.
D. This Agreement may be terminated by mutual consent between the Parties
as expressed in a duly executed writing between the Parties.
3. Service Fees and Invoicing.
A. Customer agrees to pay InterNAP all recurring and non-recurring fees
in connection within the Service as detailed in the Sales Order Form attached
hereto, and incorporated herein by reference.
B. Any fees or charges for the Service provided under this Agreement will
be invoiced to Customer at the beginning of each month in which the Service is
to be provided or at the end of the month if the Service is usage-based. Payment
terms for any invoices to Customer by InterNAP are Net 30 days, unless stated
otherwise in the Sales Order Form.
C. Any fees or charges invoiced to Customer, and due under the terms of
this Agreement, which are not paid by Customer within 45 days after the date of
an invoice shall be subject to late charges. Late charges assessed by InterNAP
to Customer shall accrue at a rate of 1.5% interest per month on any unpaid
balances which are delinquent. Extended delinquency and nonpayment on the part
of Customer for any amounts invoiced to Customer by InterNAP shall entitle
InterNAP to either suspend its performance obligations under this Agreement, or
terminate this
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<PAGE>
Agreement along with Customer's access to use of the Service.
D. Upon request, InterNAP agrees to provide Customer with a schedule of
any additional fees that Customer may, from time to time, incur for services not
covered under this Agreement. Customer acknowledges and agrees that InterNAP
reserves the right to price certain services, which shall be described and
indicated in any such Schedule, in accordance with the reasonable circumstances
which might give rise to the provision of any such services.
E. InterNAP reserves the right to reclassify service levels, publish
revised formal descriptions of standard InterNAP products or services, and
modify any and all published prices. Any such modifications shall be subject to
the requirement that InterNAP provide Customer with a written notice of such
changes at least sixty (60) days prior to such changes or modifications taking
effect. In the event that InterNAP and Customer fail to agree on a
reclassification of service, or any price modification consequent thereto, then
either Party hereto may terminate this Agreement in accordance with the
termination procedures stated herein. Upgrades in service requested by Customer
may result in additional set-up fees.
4. Service Delivery.
InterNAP shall schedule the delivery of the Service in accordance with the
delivery date specified in the Sales Order Form attached hereto and incorporated
herein by reference, unless an alternative installation date is agreed upon
between the Parties and expressed in a further writing which may be incorporated
herein by reference. InterNAP will allow one Customer-requested delay in the
delivery date, provided that such a delay does not exceed thirty (30) calendar
days from the original delivery date specified in the Sales Order Form, InterNAP
receives Customer's requested delay in writing no less than five (5) working
days prior to the original delivery date, and Customer agrees to pay any
additional charges or costs to InterNAP resulting from the requested delay.
Should Customer delay delivery of the Service for more than thirty (30) calendar
days beyond the original specified delivery date, then InterNAP shall invoice
Customer for all applicable charges for the Service effective thirty (30)
calendar days from the originally specified delivery date unless InterNAP
receives Customer's written notice to cancel the affected Services on or before
the date which is thirty (30) calendar days from the original delivery date,
subject to InterNAP's standard cancellation charges under this Agreement.
5. Non-disclosure/Confidentiality/Non-interference.
A. InterNAP and Customer agree that during the course of dealing with
each other leading up to and during the existence of this Agreement. The Parties
may have access to and may become aware of information about the other Party
which is confidential or proprietary in nature. Therefore, the Parties agree to
take all reasonable steps necessary to maintain the confidentiality of any such
information, to protect any such information as confidential, whether or not it
is described as such by the communicating Party, and not to disclose any such
information to any third party without the prior written consent of the
disclosing party hereto, unless such third party is an authorized agent or
employee having the need to know such information in the normal course of their
work on behalf of either Party hereto.
-3-
<PAGE>
B. The Parties agree to not use any information disclosed within the
business relationship between the Parties, or under this Agreement, for any
purpose other than to effectuate and bring about the central purposes of this
Agreement.
C. The Parties hereto agree to not offer employment or any other
financial relationship to employees of the other Party to this Agreement for a
period of no less than six (6) months after the other Party's employee has
terminated his/her employment, or for a period of three (3) months after this
Agreement is otherwise terminated, whichever occurs first.
D. The Parties hereto agree that their obligations under Section 5 of
this Agreement shall continue for the duration of the Agreement, and for a
period of two (2) years beyond any termination of this Agreement. Failure to
comply with any provisions in this Section on the part of one Party shall
entitle the other Party to recovery of reasonable damages and attorneys fees for
any legal action in which an injured Party prevails.
6. InterNAP Duties and Responsibilities.
A. InterNAP shall provide, install, operate. and maintain the Service in
accordance with the descriptions of the Service provided within the Sales Order
Form and relevant Service Description, both of which are attached hereto and
incorporated herein by reference, InterNAP shall provide such Service within the
terms and conditions of this Agreement. InterNAP shall not be responsible for
any equipment or cabling that connects equipment of any kind that is not
provided by InterNAP in conjunction with delivery of the Service.
B. InterNAP warrants that the Service will be in good working order and
will, in all material respects, conform to the requirements of the Service
Description attached hereto, as well as those of the terms and conditions
contained in this Agreement. Customer's sole remedy for performance or
nonperformance of delivery of the Service in accordance with the terms and
conditions of this Agreement shall be repair or replacement of the Service. THE
FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO. THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE. Nothing contained within this Section shall
limit Customer's damages that they may be entitled to by law.
7. Duties and Responsibilities of Customer.
A. Customer shall, at its own expense, provide all necessary preparations
required to comply with InterNAP's installation and maintenance specifications
for delivery of the Service. Customer shall be responsible for the costs of
relocation or removal of connectivity that results from the actions of Customer,
and shall provide InterNAP, or its agents, with reasonable access to Customer's
premises to perform any acts required by the terms and conditions of this
Agreement.
B. Customer agrees to properly and lawfully use the Service it is
procuring from InterNAP.
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<PAGE>
Customer shall be liable for any and all damages to InterNAP property that may
be located on Customer's premises, excluding reasonable wear and tear. Upon
expiration or termination of this Agreement, Customer shall surrender to
InterNAP any equipment or other property owned by InterNAP that has been
provided to Customer.
C. Customer shall not, nor shall it permit or assist others to, use the
Service for any purpose other than that for which it is intended; fail to
maintain a suitable environment in accordance with either InterNAP's, or the
relevant equipment manufacturer's, specifications; alter, tamper with, adjust,
or repair the Service. Upon the occurrence of any of the above, InterNAP shall
be completely released from any liability or obligation (including any warranty
or indemnity obligations) to Customer relative to the Service, and Customer
shall be liable to InterNAP for costs or damages incurred by InterNAP resulting
therefrom.
D. Customer shall not utilize, nor permit others to utilize, the Service
for any unlawful purpose. Customer shall not, nor shall it permit or assist
others to, abuse or fraudulently use the Service, including but not limited to
the following circumstances: 1) obtaining or attempting to obtain service by any
means or device with intent to avoid payment; 2) unauthorized access,
alteration, destruction. or any attempt thereof, of. any information of another
InterNAP customer by any means or device; 3) using the Service so as to
interfere with the use of the InterNAP network by other customers or authorized
users, or in violation of the law, or in aid of any unlawful act; 4) using the
Service in a manner which, in the sole opinion of InterNAP, is not in accordance
with the generally accepted rules of Internet conduct and etiquette as may be
reasonably adopted and interpreted by InterNAP.
E. Upon the occurrence of any of the foregoing violations of Customer's
responsibilities, InterNAP may suspend its performance and/or terminate the
Agreement with no further obligation to Customer.
8. Systems Not Provided by InterNAP.
A. InterNAP shall not be responsible for the installation, operation, or
maintenance of hardware or software not provided by InterNAP unless specifically
agreed to in writing between the Parties. Further, InterNAP shall not be
responsible for the transmission or reception of information by such hardware or
software in conjunction with the Service.
B. Customer shall be responsible for the selection, use, and
compatibility of hardware or software not provided by InterNAP. In the event
that such hardware or software impairs Customer's use of the Service, Customer
shall nonetheless be liable for payment to InterNAP for provision of the
Service. Upon notice from InterNAP that the hardware or software not provided by
InterNAP is causing, or is likely to cause, a hazard, interference, or
obstruction of the Service, Customer shall eliminate such hazard, interference,
or Service obstruction. InterNAP reserves the right to disconnect the Service
until such hazard, interference, or Customer corrects Service obstruction. If
requested by Customer, InterNAP may, at its then current rates, trouble-shoot
difficulties caused by hardware or software not provided by InterNAP in the
event that such troubleshooting is outside the scope of Service to be provided
by InterNAP to Customer.
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<PAGE>
C. InterNAP shall not be responsible if any changes in the Service cause
hardware or software not provided by InterNAP to become obsolete, requirement,
modification or alteration, or otherwise affect performance of such hardware or
software.
D. If Customer provides its own router in conjunction with the Service,
such as in the case of a remote frame relay or private line connection from
Customer's premises to an InterNAP facility, then Customer is fully responsible
for the installation, maintenance, and configuration of such Customer-provided
router, unless otherwise agreed to in writing between the Parties hereto.
InterNAP must approve in advance the make, model, and/or software revision of a
Customer-provided router, and InterNAP shall have the right, in cooperation with
Customer, to set she initial configuration for the router interface into the
Service should this be agreed to between the Parties.
9. Limitation of Liability.
A. Under no circumstances shall InterNAP be liable, either in contract or
in tort, for unauthorized access to Customer's network or transmission
facilities or Customer-premise equipment; or for the unauthorized access to or
alteration, theft, or destruction of Customer's data files, programs, procedure,
or information through accident, fraudulent means or devices, or any other
method.
B. Except to the extent caused by the negligence of InterNAP, InterNAP
shall not be liable for claims or damages resulting from or caused by:
1) Customer's fault. negligence or failure to perform Customer's
responsibilities; 2) claims against Customer by any other party; .3) any act or
omission of any other party; and, 4) equipment or services furnished by a third
party.
C. For any claim arising under or related to a provision of the Service,
Customer's damages, if any, shall be limited to those actually proven as
directly attributable to InterNAP, subject to the following limitations:
InterNAP will not be liable under any circumstances for any indirect,
incidental, or consequential damages including, but not limited to, lost
profits, even if InterNAP has been advised of the possibility of such damages.
10. Indemnities.
A. If promptly notified of any action brought against Customer based on a
claim that the Service provided by InterNAP and used by Customer infringes on a
United States patent or copyright, InterNAP will defend such action at its
expense and will pay any and all fees, costs, or damages that may be finally
awarded in such action or resulting settlement. In the event that a final
injunction is obtained against Customer prohibiting use of the Service by reason
of infringement of the United States patent or copyright, InterNAP will, at its
option and expense, either procure the right for Customer to continue using the
service, or, procure alternative Service which furnishes equivalent
functionality, or direct Customer to return or rescind the Service
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<PAGE>
provided by InterNAP, and in such event, terminating by mutual consent this
Agreement for the Service.
B. InterNAP will be indemnified and saved harmless by Customer from and
against all loss, liability, damage, and expense, including reasonable attorneys
fees, caused by negligent acts or omissions of officers. employees, agents,
vendors or contractors of Customer which result in claims or demands for damages
to property or for injury or death to persons, including payments made under any
Worker's Compensation Law or under any plan for employee's disability or death
benefits; any claims arising from information, data, or messages transmitted
over InterNAP's network by Customer including, but not limited to, claims for
libel, slander, invasion of privacy, infringement of copyright, and invasion
and/or alteration of private records or data, claims for infringement of patents
arising from the use of hardware or software not provided by InterNAP in
connection with the Service, and; any damages or loss incurred directly by
InterNAP as a result of a failure of any piece of' Customer-provided equipment
that may be installed within InterNAP's facilities in conjunction with provision
of the Service by InterNAP to Customer including, but not limited to, failures
resulting in fire, electrical, heat, and/or water resulting from any such
failure, even when such equipment is installed with the permission of, or
assistance of, InterNAP.
11. Miscellaneous Terms and Conditions.
A. Customer shall not assign or transfer this Agreement without the prior
written consent of InterNAP. InterNAP may, however, assign this Agreement to any
parent company or company under common ownership, management, and control with
InterNAP with thirty (30) days written notice to Customer.
B. InterNAP will not be responsible for performance of its obligations
under this Agreement where delayed or hindered by war, riots, embargoes,
strikes, casualties, accidents or other occurrence beyond InterNAP's control.
InterNAP shall notify Customer in the event of any of the foregoing occurrences.
Should such occurrences continue for more than sixty (60) days, InterNAP or
Customer may cancel this Agreement with no further liability.
C. Provision of the Service hereunder is subject to InterNAP's continuing
approval of Customer's credit-worthiness. Customer shall furnish financial
information as InterNAP may, from time to time, reasonably request to determine
Customer's creditworthiness.
D. Any disputes or claims arising out of or relating to this Agreement
shall be brought within one (1) year of the occurrence of any such dispute or
claim.
E. The terms and conditions of this Agreement may not be modified, except
by written amendment by the Parties hereto. No agent. employee, or
representative of InterNAP or Customer has the authority to bind the Parties to
any representation or warranty unless such is specifically included in the terms
and conditions of this Agreement, or within any written amendments thereto.
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<PAGE>
F. Notice to the Parties hereto of any modifications of the Service,
modifications to pricing, changes of address, disputes, or intentions to
terminate this Agreement shall be sent by registered mail to the address of the
Party being notified which is shown within the first paragraph of this
Agreement. All other notices may be sent by regular mail between the Parties.
G. The Parties shall attempt to resolve all disputes arising out of, or
related to, this Agreement through good-faith negotiations.
H. This Agreement, including all Attachments. Sales Order Forms, and
other documents that are incorporated herein by reference, shall be construed
and enforced in accordance with, and the laws of the State of Washington shall
govern the validity and performance.
I. This Agreement consists only of the document upon which the authorized
representatives of the Parties have affixed their signatures, these specific
terms and conditions, and those documents specifically incorporated herein by
reference or formally executed Addendum. This Agreement, as so constituted, is
the entire Agreement between the Parties with respect to the Service, and may
not be modified in any way unless such modification is by means of written
Addendum, signed and dated by the duly authorized representatives of the Parties
hereto.
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<PAGE>
EXHIBIT 10.32
November 22, 1999
Mr. Rex Carter
400 Oxford Road
Orono, MN 55356
Dear Rex:
We are thrilled to have you join the team! We promise you will also have a lot
of fun. The terms of our offer are as follows:
Title: Vice President, Systems Development and Technology
Reporting To: CEO
Base Salary: An annual salary of $175,000 to be paid bi-weekly.
This position is classified as exempt and, as
such, is not eligible for overtime pay.
Performance Bonus: An annual bonus of $50,000 based on the
achievement of mutually agreed upon objectives for
each calendar year. Such bonus to be paid
quarterly after your first full quarter of
employment and paid in the last pay period of the
month following.
Reviews: Performance and reviews will "normally" or
"generally" be held on a semi-annual basis, but
they may be conducted more frequently or less
frequently, depending upon the business needs.
Stock Options: Options issued under the Company's Stock Option
Plan to acquire 275,000 common shares at the fair
market price on the day the board approves this
option grant. These shares will vest over 48
months in accordance with the vesting schedule in
your Stock Option Letter Agreement. This will be
provided in a separate document.
Vacation: 4 weeks with one extra day added after each year
worked.
Benefits Plan: You will be eligible for the Company's competitive
benefits plan immediately. This plan will include
medical, dental, vision, and life insurance. The
Company will pay all premiums, including cost of
one dependent (additional dependents are covered
at 50%). Short-term disability and
<PAGE>
long-term disability will be a 100% employee paid
contributory benefit. These benefits will be
described to you at the time you begin your
employment. However, if you have any questions
about your benefits prior to that time, we will be
happy to answer them.
401(k) Plan: The Company provides a 401(k) plan with company
matching. The details of the plan will be provided
in a separate document.
At Will: You should also understand that HomeGrocer.com
employs its employees on an at will basis. This
means that your employment is voluntary and for no
set period. If you accept employment with the
Company, you will be free to resign at any time,
without cause. Likewise, the company will be free
to terminate your employment at any time, with or
without cause.
Expenses: The Company will reimburse any reasonable expenses
incurred by the employee in the course of carrying
out business for the company.
Moving: The Company will reimburse any reasonable expenses
incurred by you and your family relating to the
move to the Seattle region including, but not
limited to, temporary accommodation, movers,
realty fees, transfer taxes and two house hunting
trips.
Start Date: The effective date of your employment is November
22, 1999.
Please sign this letter and return one copy to me. Welcome aboard!
Yours very truly,
HomeGrocer.com, Inc.
/s/ Mary Alice Taylor
Mary Alice Taylor
Chairman and CEO
<PAGE>
By accepting this offer you agree to: this is a full time position and you will
make every effort necessary to perform adequately the duties that are assigned
to you. As a pre-condition of this offer you agree to execute the Company's
"Employee Non-Disclosure and Invention Agreement."
Agreed to and accepted:
/s/ Rex L. Carter
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Rex Carter
<PAGE>
Exhibit 10.33
LEASE
-----
THIS LEASE ("LEASE") entered into as of the 14th day of January, 2000, between
Reliance Hamilton Associates, LLC, a Connecticut limited liability company
("Landlord"), having an address at 1430 Wynnton Road, Columbus, GA, 31906
[facsimile 706-322-3450] and HomeGrocer.com, Inc., a Delaware corporation, with
its principal place of business at 10230 N.E. Points Drive, Kirkland, WA 98033
("Tenant") (collectively the `Parties', or individually a ("Party").
W I T N E S S E T H:
In consideration of the mutual covenants herein set forth, and intending to
be legally bound, the parties hereto covenant and agree as follows:
1. SUMMARY OF DEFINED TERMS.
The parties agree that the following defined terms, as used in this Lease,
shall have the meanings and shall be construed as set forth below:
(a) "Building": The entire Building located in the Complex, as shown on
the plan attached hereto as Exhibit A and made a part hereof.
(b) "Complex": Hamilton Industrial Park, Stamford, Connecticut, as shown
on the plan attached hereto as Exhibit A and made a part hereof.
(c) "Term": Ten years plus any partial month, commencing on the Rent
Commencement Date, provided that if there are two Rent Commencement Dates, the
Term shall start on the first Rent Commencement Date.
(d) "Fixed Rent": One Million Sixty Thousand Dollars ($1,060,000.00) per
annum for the first five (5) years after the Rent Commencement Date, and One
Million One Hundred Sixty Thousand Dollars ($1,160,000.00) per annum for the
remainder of the Term; provided, however, that if the Premises are delivered to
Tenant in two stages as hereinafter provided, until the entire Premises are
delivered to Tenant, Fixed Rent shall be $9.00 per rentable square foot per
annum for the approximately 60,000 square foot "High Bay" space and $13.00 per
square foot per annum for the approximately 40,000 square foot "Adjacent
"Space", all as depicted on Exhibit A attached hereto. Fixed Rent shall be
payable in monthly installments, in advance.
(e) "Late Charge": Four percent (4%) of amount due for payments not
received within five (5) days of due date, as described herein.
(f) "Rent Commencement Date": For each of the "High Bay" space and the
"Adjacent Space" as shown on Exhibit A attached hereto, the first to occur of
the following: (1) Tenant shall commence its business operations in the Premises
(or in the "High Bay Space" or the "Adjacent Space, as the case may be, or (2)
upon completion of Landlord's Work in the relevant space pursuant to Section 3.
Tenant shall have no obligation to pay Fixed Rent,
<PAGE>
Additional Rent or any other amount under this Lease until the Rent Commencement
Date. The entry of Tenant into the Premises for the purpose of installing
Tenant's fixtures and stock-in-trade, or making alterations and improvements to
the Premises, shall not constitute acceptance of the Premises, and shall not
cause the Rent Commencement Date to occur.
(g) "Tenant's Allocated Share": as to expenses which are the
responsibility of Tenant pursuant to the provisions of this Lease primarily to
the Building, 64% (or the percentage calculated by dividing the Rentable area of
the Premises by the Rentable Area of the Building), and as to expenses
hereinafter set forth primarily relating to the, Complex, 39% (or the percentage
calculated by dividing the Rentable area of the Premises by the Rentable Area of
the Complex), as both may be adjusted from time to time.
(h) "Initial Year Common Area Charge Installment": $___ TBD__________ per
month, in advance.
(i) "Rentable Area": Premises: 1 00,000rentable square feet
Building: 157,000 rentable square feet
Complex: 255,000 rentable square feet
(j) "Permitted Uses": Tenant's use of the Premises shall be limited to
storage, warehouse, retail distribution of grocery and other consumer products
and general office uses, along with any other legally permitted uses; provided,
however, that the phrase "retail distribution" is limited to the delivery or
Tenant's merchandise to retail customers off of the Premises and shall not be
construed to allow Tenant to engage in a retail operation which permits or
invites the public to patronize the Premises by arrival and departure from the
Complex to place orders, to pick up merchandise, or for any other reason (for
example and without limitation, the use of the Premises as a traditional grocery
store, such as Winn Dixie or Food Lion currently operates, is not a Permitted
Use).
(k) "Notice Address" means the address of Landlord set forth above and for
Tenant:
HomeGrocer.com, Inc.
10230 NE. Points Drive
Kirkland, WA 98033
Attn: Legal Dept
Fax: 425-201-7875
HomeGrocer.com, Inc.
10230 NE. Points Drive
Kirkland, WA 98033
Attn:Vice President of Operations
Fax: 425-201-7875
(l) "Premises": that part of the Building leased to Tenant for its
exclusive use as shown on the plan attached hereto as Exhibit A and made a part
hereof.
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<PAGE>
2. PREMISES.
Landlord does hereby lease, demise and let unto Tenant and Tenant does
hereby hire and lease from Landlord the Premises, common and parking areas and
appurtenant rights for the Term upon the provisions, conditions and limitations
set forth herein.
3. CONSTRUCTION BY LANDLORD.
(a) Landlord shall diligently construct such work ("Landlord's Work") in
substantial conformity with the plans and outline specifications, if any, which
are listed on Exhibit B hereto attached, which have been initialed by the
parties, and which are herein incorporated by reference. If any revision or
supplement to Landlord's Work is requested by Tenant in writing or if Tenant
fails to provide previously requested information in. a timely manner, or such
other reasonable cooperation of Tenant is required by Landlord in connection
with the diligent completion of Landlord's Work (each, a "Tenant's Delay") then,
after written notice by Landlord, such occurrence shall not change the Rent
Commencement Date of the Term and shall not alter Tenant's obligations under
this Lease. The Rent Commencement Date shall commence on the date all of the
conditions set forth in Section 1(f) would have been satisfied but for Tenant's
Delay.
(b) That part of Landlord's Work described as Phase I of Exhibit B
regarding the "High Bay" portion of the Premises shall be substantially
completed by March 1, 2000, 2000, and that part of Landlord's Work described as
Phase I of Exhibit B regarding the "Adjacent Space" portion of the Premises
shall be substantially completed by March 15, 2000; provided, however, that such
date shall be reasonably extended for that additional time equal to the
aggregate time lost by Landlord due to strikes or other labor disputes,
unavailability of labor or materials, approval from municipal/utility entities,
war or other emergency, accidents, floods, fire or other casualties, weather
conditions, or any cause similar or dissimilar to the foregoing which is beyond
reasonable control of Landlord.
(c) Delay in possession: Subject to any extensions contemplated in
subparagraph (b)above,
(i) In the event Landlord fails to deliver the entire Premises in
accordance with Phase I of Exhibit B to Tenant by April 30, 2000, Rent
and Additional Rent on the Premises shall be abated until the date the
entire Premises are delivered.
(ii) In the event Landlord fails to deliver the entire Premises in
accordance with Phase I. Phase II, and Phase IV of Exhibit B to Tenant
by July 1, 2000, Tenant may terminate this lease upon written notice
to Landlord stating that if Premises are not delivered within 30 days
of the date of the notice the Lease shall terminate. Tenant's option
to terminate this Lease shall expire on December 31, 2000 at which
time, if the Premises have not been delivered this Lease shall
terminate.
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<PAGE>
(iii) Landlord shall pay Tenant liquidated damages of $250 per day
for each day after April 30 2000 that the work described in Phase I of
Exhibit B is not completed
(iv) If there is work required per Phase IV of Exhibit B, and such
installation is not completed as of the First Rent Commencement Date,
Tenant shall be entitled to a rental rate reduction of 50% for the
portion(s) of the Premises so affected by the work necessary to
install such system (i.e, the "High Bay" or "Adjacent Space" spaces,
or both, as the case may be) through April 30, and a full rent
abatement thereafter, until that work is substantially completed as
reasonably established by Landlord's in a written notice to Tenant
that such work has been completed.
(v) In the event that (x) electric power to the Premises is
available by means other than as described as Phase Ill on Exhibit B,
(y) such means are acceptable to Tenant in its discretion reasonably
exercised, and (z) Landlord fails to deliver Phase Ill of Exhibit III
on or before July 1, 2000, Tenant shall have the option to assume the
responsibility to obtain its own electric power in lieu of the
requirements of Landlord as set forth in Phase Ill of Exhibit B. If
neither Tenant nor Landlord have been able, after exercising best
efforts, to complete Phase Ill of Exhibit B on or before December 1,
2000, Tenant shall have the option to terminate this Lease by written
notice to Landlord given not later than December 31, 2000.
(vi) Upon termination by Tenant under this Article 3 (c), Landlord
shall, within 10 days of date of termination, return the security
deposit received from Tenant in connection herewith.
(d) Special Provision: If it is determined by Landlord that structural
work to the Building is required due to the installation of loading docks and
doors on the west facade of the Premises by Tenant, Tenant shall pay the first
$50,000.00 of the cost thereof, Landlord and Tenant shall each pay 50% of the
next $300,000 of the cost thereof, and Tenant shall pay the remainder of the
cost thereof.
4. FIXED RENT
(a) Tenant shall pay to Landlord without notice or demand, and without
set-off (except as provided herein or if allowed by law)), the annual Fixed Rent
payable in equal monthly installments, in advance on the first day of each
calendar month during the Term commencing on the Rent Commencement Date, except
that an amount equal to one month's full installment of $88,333.33 shall be paid
upon the full execution of this Lease by the Parties which shall be applied to
the first full month's installment of Fixed Rent, due hereunder. In the event
the Rent Commencement Date shall be on any other day than the first day of the
month, the Tenant shall also pay a prorated portion of the monthly installment
applicable to the period from the Rent Commencement Date to the end of the
calendar month (utilizing thirty (30) days as a calendar month), in advance on
the first (15t) day of the second (2nd) month of the term. Fixed
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<PAGE>
Rent and all other sums payable by Tenant to Landlord hereunder shall be paid to
Landlord or to such other person and at such other place as Landlord may from
time to time designate in advance and in writing.
(b) In the event any Fixed Rent or Additional Rent, charge, fee or other
amount due from Tenant under the terms of this Lease are not paid to Landlord
within five (5) days of the date due, Tenant shall also pay as Additional Rent
service and handling charge equal to the Late Charge times the total payment
then due. This provision shall not prevent the Landlord from exercising any
other remedy herein provided in the event of any default by Tenant.
(c) Within 60 days after delivery of the Premises to Tenant, Tenant may
cause its architect to measure the size of the Premises using the standard
method of measuring floor areas in building comparable to the Building as
established by BOMA, if such standards exist, or if such standards do not exist,
using any other reasonable standard of measurement mutually acceptable to Tenant
and Landlord in their respective discretion reasonably exercised. Tenant shall
provide Landlord a copy of Tenant's measurements and the method of computation,
and Landlord's architect shall be entitled to review and approve of the same,
such approval not to be unreasonably withheld or delayed. If the results of such
measurement show the "High Bay" space to be different than 60,000 square feet,
and/or the "Adjacent Space" space to be different than 40,000 square feet, Fixed
Rent shall be adjusted upward or downward, as the case may be, at the rate of
$9.00 per square foot per annum for the "High Bay" space and $13.00 per square
foot per annum, on the "adjacent Space" space for the first five years of the
term, and at $10.00 per square foot per annum and $14.00 per square foot per
annum, respectively, for the remainder of the Term; a the fractions used to
determine Tenant's Allocable Share shall be appropriately adjusted.
5. ADDITIONAL RENT.
Tenant shall pay to Landlord, as additional rent ("Additional Rent"),
within thirty (30) days after Landlord certifies to Tenant in writing,
accompanied by reasonable detail, the amount thereof, Tenant's Allocated Share
of the following charges:
(a) Taxes. All ad valorem taxes and special assessments ("impositions")
which are levied or assessed against the Premises during the Term or, if levied
or assessed prior or subsequent to the Term, which properly are allocable to the
Term, and real estate tax appeal expenditures incurred by Landlord. If such
impositions are levied or assessed against a larger property of which the
Premises are a part, those levied or assessed against the Premises shall be
deemed to be that proportion of those levied or assessed against such larger
property, which the square foot area of the Premises bears to the total square
foot area of space in the larger property. Landlord shall pay prior to
delinquency, all impositions legally imposed and other governmental charges of
any nature which constitute (or which, if not paid, would constitute), a lien
upon Landlord's title to the property of which other Premises form a part. In
the event any of the impositions payable by Tenant hereunder may be legally paid
in installments (whether by subjecting the Premises to bond or otherwise),
Tenant shall have the option to pay such impositions in installments over the
longest possible time period, and, in the event of such
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<PAGE>
election, Tenant shall be liable only for those installments of such impositions
which become due and payable during, or which are attributable to, the Term
after the Rent Commencement Date (which shall be prorated at the Rent
Commencement Date and the end of the Term). Landlord agrees to execute or join
with Tenant in the execution of any application or other instrument that may be
necessary to permit the payment of such impositions in installments; provided
Landlord does not incur any cost in connection therewith.
In any year which Landlord does not protest the real property tax
assessment levied against the Premises (or such larger parcel of real property
of which the Premises are a part) Tenant may choose to protest the assessment in
Landlord's name and without expense to Landlord. If Tenant chooses to protest
the assessment, Landlord shall fully cooperate with Tenant's efforts provided
Tenant pays all costs and expenses necessary to conduct such protest. In the
event Landlord protests such assessment and a reduction in the taxes for the
Property results, Tenant shall be entitled to the benefit of such reduction ,
either as a credit against the next payments of Rent and Additional Rent due
under this Lease or as a refund if this Lease has expired. If Tenant protests
the assessment and the taxes for the Property are reduced as a result of such
protest, Landlord and Tenant shall each be entitled to the benefit of such
reduction Tenant shall also be entitled to reimbursement of it expenses in
conducting such protest, prorata to the extent Landlord (but not other tenants
of the Complex) benefits therefrom, such reimbursement to be in the form of a
credit against Rent and Additional Rent, but Tenant shall not be entitled to a
credit in excess of the reduced taxes which accrue to Landlord's benefit during
the remainder of the Term.
(b) Insurance Premiums. All premiums paid by Landlord for insurance as
follows:
(i) Fire and extended coverage insurance for one-hundred percent
(100%) replacement of the Premises (including demolition and debris
removal);
(ii) Insurance against Landlord's rental loss or abatement (up to
one year), from damage to or destruction of the Premises from fire or
other casualty;
(iii) Landlord's comprehensive liability insurance (including bodily
injury and property damage) and boiler insurance; and
(iv) Such other insurance as any reputable mortgage lending
institution holding a mortgage on the Premises may reasonably require.
If any insurance covers a larger property of which the Premises are a
part, the part of the premium therefore allocated to the Premises shall be that
proportion which the square foot area of the Premises bears to the total square
foot area of the space in the larger property. If the coverage period of any of
such insurance obtained by Landlord commences before or extends beyond the
rental term, the premium therefore shall be prorated to the Term. Should
Tenant's occupancy or use of the Premises, at any time cause an increase in such
insurance premiums on the Premises and/or on the building of which the Premises
are a part, Tenant shall pay to Landlord the entire amount of such increase
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<PAGE>
(c) Common Area Charges. The common area charges ("Common Area Charges")
actually and reasonably incurred by Landlord during the Term including repairs
and maintenance performed pursuant to Articles 11(c) and 11(d), maintenance of
parking areas, driveways, sidewalks (including snow removal therefrom), building
landscaping, utilities charges (including water and septic/sewer charges) for
the Complex, trash removal, security, and actual management fees (not to exceed
4% of rents) but not in excess of competitive rates generally charged in the
area for comparable purposes, electronic and physical security as is customary
for industrial/distribution facility taking into consideration the ability of
Tenant to operate its business 24 hours per day, seven days per week.
(i) For the period commencing with the Commencement Date and ending
at the end of the initial calendar year within the Term (the "Initial
Year"), Tenant shall pay, in monthly installments in advance, on
account of Tenant's Allocated Share of Common Area Charges, the
Initial Year Common Area Charge Installment. Prior to the end of the
Initial Year and thereafter for each successive calendar year (each, a
"Lease Year"), or part thereof, Landlord shall send to Tenant a
statement of projected Common Area Charges and shall indicate what
Tenant's projected share of Common Area Charges shall be. Said amount
shall be paid in equal monthly installments in advance by Tenant as
Additional Rent commencing January 1st of the applicable Lease Year.
Projected Common Area Charges shall not exceed 105% of the actual
charges incurred in the prior year, however, Landlord may, upon
presentation of external documents evidencing a greater than 5%
increase in actual cost, increase that item to the estimated actual
cost.
(ii) Within four (4) months following the end of each Lease Year,
Landlord shall send to Tenant a reasonably detailed statement of
actual expenses incurred for Common Area Charges for the prior Lease
Year showing the pro rata share due from Tenant. Within 30 days of
receipt of statement Tenant shall pay Landlord additional amounts
owed. If estimated payments exceeded Tenant's prorata share of actual
expenses, Tenant may deduct the over payment from the next estimated
payment of Common Area Charges and any remaining balance shall be paid
to Tenant at the end of the Term..
(iii) Each of the Common Area Charge amounts, whether requiring lump
sum payment or constituting projected monthly amounts added to the
Fixed Rent, shall for all purposes be treated and considered as
Additional Rent and the failure of Tenant to pay the same as and when
due in advance shall be deemed a failure to pay Fixed Rent.
(iv) Tenant or its agent shall have the right at any time and from
time to time to inspect and/or audit, and make appropriate copies of
reasonably required information of Landlord's books and records
pertaining to any and every component of additional rent. Any
discrepancies, subject to Landlord review, between the amounts
actually billed to Tenant and those owed under this Lease, if
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in favor of Landlord, shall be paid to Landlord within 30 days of the
end of the audit or if in favor of Tenant, shall be paid to Tenant
within 30 days of the end of the audit. If the audit discloses a
discrepancy in excess of 10% of the amount billed Tenant, Landlord
shall pay for the reasonable costs of the audit. The rights and
obligations of the parties under this Article 5 shall survive the
termination or expiration of the Term.
(d) Utility Charges. If the Premises are not directly metered for actual
measurement of Tenant's utilities' consumption, Tenant shall pay to Landlord, as
Additional Rent, all reasonable and proportionate charges billed by the utility
provider to Landlord for utilities, such actual charges shall be based upon
Tenant's monthly consumption as reasonably determined by Landlord.
(e) Tenant shall pay and have the right to contest as allowed by law all
personal property taxes, income taxes and other taxes which are or may be
assessed, levied or imposed upon Tenant by any governmental authority and which,
if not paid, could be levied as a lien against the Building, or Tenant's
property in the Premises, or against Tenant's leasehold estate.
6. USE OF PREMISES AND COMMON AREAS.
Tenant may use and occupy the Premises only for the Permitted Uses (which
may include, if lawful, distribution of alcoholic beverages for off-site
consumption) and none other. Provided, however, that to the extent legally
necessary to enable Tenant to sell off-site distribution alcoholic beverages as
part of its retail home grocery distribution business, Tenant may operate an on-
site store for the retail sale of alcoholic beverages, of a size and capacity
not larger than the minimum reasonably necessary, in the opinion of Tenant's
counsel, to qualify for the license needed for the sale of off-site delivery of
alcoholic beverages as part of Tenant's home grocery retail sale and
distribution business. Tenant shall not commit or suffer any waste or nuisance
in or upon the Premises or the Building.
Tenant shall have the right, non-exclusive and in common with others, to
use the exterior paved driveways and walkways of the Building for vehicular and
pedestrian access to the Building. Tenant shall also have the exclusive right to
use the designated parking areas of the Building and for the parking of
automobiles and delivery vehicles of Tenant and its employees and business
visitors, incident to Tenant's permitted use of the Premises as depicted in
Exhibit "A" attached hereto. Landlord has established Rules and Regulations
attached hereto as Exhibit "C" and incorporated herein. Tenant shall abide by
such Rules and Regulations provided they are enforced in a reasonable and
nondiscriminatory manner.. Landlord may reasonably modify the Rules and
Regulations, and when communicated by written notification from Landlord to
Tenant, such modification shall be incorporated herein and made part of this
Lease; provided that no such modification shall materially adversely affect the
conduct of, or interrupt, Tenant's business provided its business is then being
operated in accordance with Tenant's business plan. Tenant shall have the right
to secure its truck parking area. Landlord hereby consents to the parking and
storage of Tenant's delivery fleet on the Premises.
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In the event of any conflict between the terms of the Lease and the Rules
and Regulations, the terms of the Lease shall prevail. Landlord shall use
reasonable business efforts to enforce the Rules and Regulations among all of
the tenants of the Building.
Landlord reserves the right to make changes in the common areas provided
such changes do not adversely affect Tenant's business operations at the
Premises. Landlord shall use reasonable business efforts to restrict the use of
the common areas adjacent to the Premises by other tenants of the Building so
that such use of the common areas shall not interfere with Tenant's loading and
unloading of goods at the Premises and other normal requirements of Tenant's
business conducted at the Premises. Landlord shall keep the common areas
adequately lighted at all times when lighting is necessary.
7. ENVIRONMENTAL MATTERS.
(a) Tenant shall not engage in operations at the Premises which involve
the generation, manufacture, refining, transportation, treatment, storage,
handling or disposal of "hazardous substances" as such term is defined under the
Comprehensive Environmental Response, Compensation and Liability Act ("ERLA"),
as amended, 42 US (S)9601 et seq, excepting Tenant may store, handle and
distribute hazardous substances (i) contained in products used by Tenant in
reasonable quantities for ordinary cleaning and janitorial supplies; (ii) used
for office purposes (which may include "White Out", copier toner, etc.), and
(iii) so long as Tenant secures approvals from all applicable governmental
jurisdictions regarding the use and storage on the Premises, Tenant shall have
the right to store, handle and distribute packaged products intended for resale
to customers (including, but not limited to hair spray, household cleaners,
automotive products, antifreeze, dog food, and fertilizer) and shall indemnify
Landlord from all liabilities excepting due to Landlord's negligence or
intentional acts or omissions. Tenant further covenants that it will not cause
or permit to exist, as a result of an intentional or unintentional action or
omission on its part, the release, spill, leak, emission or discharge from, on
or about the Premises of any hazardous substance brought on to the Premises by
Tenant, or by any employee, agent, invitee or licensee of Tenant. In the event
there occurs such a discharge of any hazardous substance by, through or under
Tenant, Tenant shall promptly give Landlord notice thereof. In the event such
occurrence is due to the act or neglect of Tenant, or by, through or under
Tenant (such as a business invitee), Tenant shall thereafter proceed with
reasonable diligence to remediate the discharge and clean up the Premises to
completion in accordance with applicable law. If reasonably indicated by the
presence of hazardous substances on the Premises arising by, through or under
Tenant, Landlord may require, but generally no more than twice in any one
calendar year, at Tenant's reasonable expense, reasonable inspections and
testing of the Premises by Landlord's environmental consultant in order to
assure that the Premises do not contain hazardous substances in violation of
applicable law.
(b) Landlord shall have the ongoing duty to advise Tenant of the existence
of any hazardous substances or hazardous conditions which exist in or about the
Premises, common areas, parking areas or other parts of the Complex and as to
which Landlord has actual knowledge. Landlord has heretofore advised Tenant of
the existence of toxic materials, hazardous substances or hazardous conditions
which exist in or about the Premises, Building,
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parking areas, and land area in which it is located. Landlord shall, at its sole
cost, subject to approval by applicable governmental authorities, undertake a
remediation plan following the completion of the testing plan, a copy of which
is attached hereto as Exhibit D. That part of the testing plan attached
identified on Exhibit D-1 shall be completed by Landlord prior to the Rent
Commencement Date, and the remediation plan, when approved, shall be completed
by Landlord promptly at its expense after the Rent Commencement Date (including
the removal of any hazardous substances required by such plan). Landlord shall
obtain written "no action letters', or similar documentation if and as issued by
the appropriate State of Connecticut governmental authority and deliver copies
thereof to Tenant following the plan's completion.
(c) Landlord shall indemnify, defend, reimburse and hold Tenant and its
employees harmless from and against any and all losses, claims, demands,
actions, suits, damages (including without limitation punitive damages),
expenses (including without limitation remediation, removal, repair, corrective
action or clean up expenses), and costs (including without limitation,
reasonable attorneys fees, consultants fees or expert fees) which are brought or
recoverable against, or suffered or incurred by Tenant as a result of the
presence of hazardous substances on the Premises prior to the Rent Commencement
date or which are caused by Landlord, or its agents or employees, intentional or
negligent acts or omissions, whether or not Landlord had actual knowledge of any
noncompliance. This Section 7 (c) shall survive the expiration or sooner
termination of this Lease.
8. TENANT'S ALTERATIONS.
(a) Tenant will not make structural alterations, structural improvements
or structural physical additions of any kind to any part of the Premises, nor
use or employ any contractor, architect. engineer or other professional without
first obtaining the written consent of Landlord, which consent shall not be
unreasonable withheld, or conditioned or delayed. As part of giving its consent,
Landlord will, among other criteria, evaluate the proven track record for the
respective contractor in the local market. If Landlord shall deny or condition
its approval, the reasons therefor and nature thereof shall be set forth with
reasonable specificity. Landlord shall respond to each Tenant proposal within 10
business days of receipt of request. Any other improvements may be made by
Tenant upon notice to Landlord subject to Landlord's consent, which may not be
unreasonably withheld. If Landlord approves Tenant's alterations and agrees to
permit Tenant's contractor to do the work, Tenant, prior to the commencement of
labor or supply of any materials, must furnish to Landlord (I) a policy or
certificates of insurance evidencing (a) general public liability insurance for
personal injury and property damage in the minimum amount of $2,000,000.00
combined single limit, (b) statutory workman's compensation insurance, and (c)
employer's liability insurance from each contractor to be employed (all such
policies shall be non-cancelable without thirty (30) days prior written notice
to Landlord and shall be in reasonable amounts and with companies reasonably
satisfactory to Landlord); (ii) construction documents prepared and sealed by a
registered Connecticut architect or engineer; (iii) all applicable permits
required by law; and (iv) appropriate mechanic's lien waivers signed by Tenant's
contractor and all subcontractors. Any consent by Landlord permitting Tenant to
do any or cause any work to be done in or about the Premises shall be and hereby
is conditioned upon Tenant's work being performed by workmen and mechanics
working
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in harmony and not materially interfering with labor employed by Landlord,
Landlord's mechanics or their contractors or by any other tenant or their
contractors.
(b) All alterations, additions or improvements (whether temporary or
permanent in character) made in or upon the Premises, excepting Tenant's trade
fixtures, equipment and personal property, either by Landlord or Tenant, shall
be Landlord's property upon installation and shall remain on the Premises
without compensation to Tenant; and all furniture, trade fixtures, personal
property and equipment installed by Tenant shall remain Tenant's property, free
of any lien for the payment of rent by Tenant or for the performance of any
other obligation of Tenant under the Lease; provided, however, that if at the
time of the installation of any of the foregoing the Parties shall identify in
writing that a contrary election has been made as to any such installation, such
election shall govern and control. Tenant's furniture, trade fixtures, personal
property and equipment may be removed by Tenant at the end of the Term if Tenant
so elects, and if not so removed shall, at the option of Landlord, become the
property of Landlord. If Landlord declines to exercise such option, Tenant shall
remove any and every item designated by Landlord. All installations shall be
accomplished in a good and workmanlike manner so as not to damage the Premises
or Building and in such manner so as not to disturb other tenants in the
Building. Tenant shall at its expense repair any and all damage caused by the
removal of any and all of the items or installations it removes.
(c) Prior to Tenant performing any construction or other work on or about
the Premises for which a lien could be filed against the Premises or the
Building, Tenant shall, to the extent lawful, have its contractor execute a
Waiver of Mechanics' Lien, reasonably satisfactory to Landlord, and provide
Landlord with the original copy of the same. Notwithstanding the foregoing, if
any mechanics' or other lien shall be filed against the Premises or the Building
purporting to be for labor or material actually furnished or to be furnished at
the request of Tenant, then Tenant shall at its expense cause such lien to be
discharged by payment, bond or otherwise, within ten (10) business days after
receipt of notice of the filing. Tenant shall have the right to contest any such
lien as permitted by law. Tenant shall indemnify and hold Landlord harmless
against any and all claims, costs, damages, liabilities and expenses (including
reasonable attorney fees) which may be brought or imposed against or incurred by
Landlord by reason of any such lien or its discharge.
9. ASSIGNMENT AND SUBLETTING.
(a) Except as expressly permitted pursuant to this Article, Tenant shall
not, without the prior written consent of Landlord, which consent shall not be
unreasonably withheld, conditioned or delayed, assign or hypothecate this Lease
or any interest herein or sublet the Premises or any part thereof. Any of the
foregoing acts without such consent shall be void, and shall, at the option of
Landlord be an Event of Default under this Lease. Notwithstanding the foregoing,
Tenant shall have the right to assign this Lease in its entirety or to sublease
all or any portion of the Premises upon notice to but without the consent of
Landlord to (I) any entity resulting from a merger or consolidation with Tenant;
(ii) any subsidiary or affiliate of Tenant or (iii) a sale of all or
substantially all of Tenant's assets on the Premises, where the assets continue
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to be used on the Premises. This Lease shall not, nor shall any interest herein,
be assignable as to the interest of Tenant by operation of law without the
written consent of the Landlord.
(b) If Landlord is required to and does consent to the assignment or
subletting, such consent shall not be valid and no subtenant or assignee shall
take possession of the premises subleased or assigned until an executed
counterpart of such assignment or sublease has been delivered to Landlord.
(c) Fifty percent (50%) of any net profits received by Tenant as a result
of any subletting or assignment (the phrase "net profits" means gross rents and
other consideration received by Tenant as a consequence of such assignment or
subletting, less the cost of leasehold improvements made to the sublet or
assigned portion of the Premises by Tenant for subtenant or assignee, up to 3
months of Fixed Rent and Additional Rent to enable Tenant time to market the
Premises, and other reasonable expenses incident to the subletting or
assignment, including standard leasing commissions) whether denominated rentals
or otherwise under the sublease or assignment, which exceed, in the aggregate,
the total sums which Tenant is obligated to pay Landlord under this Lease
(prorated to reflect obligations allocable to that portion of the Premises
subject to such sublease or assignment) shall be payable to Landlord as
additional rental under this Lease without affecting or reducing any other
obligation of Tenant hereunder.
(d) No subletting or assignment shall release Tenant of Tenant's
obligation or alter the primary liability of Tenant to pay the rental and to
perform all other obligations to be performed by Tenant hereunder; provided,
however, that in the case of an assignment to which Landlord's consent is
required and has been given, if the assignee has a net worth greater than the
higher of (i) Tenant's then net worth, or (ii) One Hundred Million Dollars
($100,000,000.00), then Tenant shall be released from its liability under this
Lease, such release to be solely evidenced by a written release executed by
Landlord. The acceptance of rental by Landlord from any other person shall not
be deemed to be a waiver by Landlord of any provision hereof. Consent to one
assignment or subletting shall not be deemed consent to any subsequent
assignment or subletting. In the event of default by any assignee of Tenant or
any successor of Tenant in the performance of any of the terms hereof, Landlord
may proceed directly against Tenant without the necessity of exhausting remedies
against such assignee or successor, after written notice is required to be given
by the terms of this Lease to cure any such default within applicable cure
periods.
10. LANDLORD'S RIGHT OF ENTRY.
Landlord and persons authorized by Landlord may enter the Premises at all
reasonable times for the purpose of inspections, repairs, alterations to
adjoining space, appraisals, or other reasonable purposes, including enforcement
of Landlord's rights under this Lease, provided that Landlord shall first have
given Tenant 48 hours prior written notice other than in the case of an
emergency. Landlord shall also have the right to enter the Premises to exhibit
the Premises to any prospective purchaser or mortgagee, and during the last six
months of the Term, to prospective tenants, after providing Tenant with forty
eight hour prior notice to the Notice Address (notice via facsimile is
acceptable), except in an emergency or if Tenant is in material default, and
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during normal business hours. Such entry by Landlord shall be accompanied by
Tenant or Tenant's representative if Tenant so elects and if Tenant is then in
physical possession of the Premises. Landlord acknowledges that Tenant's use of
the Premises and business is in a competitive industry, and certain aspects of
Tenant's use, trade fixtures, and equipment encompass confidential and
privileged trade secrets, and as such, Tenant in an effort to protect such
secrets, shall rely on Landlord's commercially reasonable efforts to protect the
same. Unless due to Landlord's gross negligence or willful misconduct, Landlord
shall not be liable for inconvenience to or disturbance of Tenant by reason of
any such entry; provided, however, that Landlord shall use commercially
reasonable efforts that such entry shall be diligently done and accomplished, so
far as practicable, so as to not materially interfere with Tenant's use and
occupancy of the Premises.
11. REPAIRS AND MAINTENANCE.
(a) Except due to negligent acts or willful misconduct by Landlord or as
specifically otherwise provided in this lease or in Paragraphs (b) and (c) of
this Article, and acts of god or war, Tenant, at its sole cost and expense and
throughout the Term of this Lease, shall keep and maintain all interior portions
of the Premises (other than the structural items specified in subparagraph (b)
below) in good order and condition, free of accumulation of dirt and rubbish,
and shall promptly make all repairs necessary to keep and maintain such good
order and condition. Tenant shall not use or permit the use of any portion of
the Premises for outdoor storage. When used in this Article 11, the term
"repairs" shall include replacements and renewals when necessary. All repairs
made by Tenant shall utilize materials and equipment which are equal (or better)
in quality and usefulness to those originally used in constructing the Building
and the Premises Tenant shall maintain all HVAC systems appurtenant to and
serving the Premises.
(b) Landlord, throughout the Term of this Lease and at Landlord's sole
cost and expenses, shall promptly make all necessary repairs to the footings and
foundations, structural walls, and the structural steel columns and girders
forming a part of the Premises (including such repairs as may be required by
Applicable Requirements, as such term is defined below); provided, however, that
Landlord shall have no responsibility to make any repair unless and until
Landlord receives written notice of the need for such repair. Tenant
acknowledges that Landlord will not be responsible for any repair or maintenance
during the term of this Lease for structural work performed by Tenant.
(c) Landlord, throughout the Term of this Lease, shall maintain and
diligently make all necessary repairs to and replacement of the roof and
exterior portions of the Premises and the Building, utility lines, equipment and
other utility facilities exterior to but serving the Premises, and to Common
Areas including without limitation all driveways, sidewalks, curbs, loading,
parking and landscaped areas, and other exterior improvements for the Building
(excluding any exterior area which Tenant has secured by a fence or gate, as to
which Tenant shall be solely responsible) ; provided, however, that Landlord
shall have no responsibility to make any repairs unless and until Landlord
receives written notice of the need for such repair, or verbal notice in the
case of an emergency. Tenant shall pay its Allocated Share of the reasonable
cost of all
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repairs to be performed by Landlord pursuant to this Paragraph 11(c). Costs of a
capital nature shall be capitalized and amortized over the useful life of the
expenditures over the life according to Generally Accepted Accounting
Principals. Tenant acknowledges that Landlord will not be responsible for any
repair or maintenance during the term of this Lease for work performed by
Tenant.
(d) Landlord shall keep and diligently maintain all common areas
appurtenant to the Building and any sidewalks, parking areas, curbs and access
ways adjoining the Property in a clean and orderly condition, free of
accumulation of dirt, rubbish, snow and ice, and shall keep and maintain all
landscaped areas in a neat and orderly condition. Tenant shall pay its Allocated
Share of the reasonable cost of all work to be performed by Landlord pursuant to
this subparagraph (d) as Additional Rent.
(e) Notwithstanding anything herein to the contrary, repairs to the
Premises and the Building and its appurtenant common areas made necessary by
Tenant's use, manner of use or occupancy of the Premises or due to an act or
omission of Tenant or any employee, agent, contractor or invitee of Tenant shall
be made at the sole cost and expense of Tenant.
(f) In the event Tenant incurs any reasonable out of pocket expenses to
correct or remedy Landlord's failure to fulfill its obligations set forth in
this Article after notice and the passage of the applicable cure period,
Landlord agrees to reimburse Tenant for such expense upon demand by Tenant; in
the event of the failure of Landlord to so reimburse Tenant, Tenant may deduct
such expense, together with interest at the Default Rate, out of any rent then
or thereafter becoming due to Landlord hereunder.
(f) In the event of emergency, Tenant may expend a sum not to exceed Two
Thousand Dollars ($2,000.00) for Landlord's account in satisfaction of
Landlord's obligations contained in this Article and in the event Landlord does
not pay to Tenant the amounts expended by Tenant concerning such emergency
repairs within fifteen (15) days of Tenant's billing of Landlord therefor,
Tenant may deduct the amount, or amounts, so expended and unpaid by Landlord,
out of any rent then or thereafter becoming due to Landlord hereunder.
12. LIABILITY INSURANCE; SUBROGATION RIGHTS.
Tenant shall obtain and keep in force at all times during the term hereof,
at its own expense, public liability insurance with companies with a minimum
rating of Best's A or equivalent, with minimum limits of $5,000,000.00 on
account of bodily injury to or death of one or more persons as the result of any
one accident or disaster and $1 000,000.00 on account of damage to property, or
in such other amounts as Landlord may from time to time reasonably require and
is customary in Tenants business, Such insurance shall not be subject to
cancellation without at least thirty (30) days prior notice to all insureds, and
shall name Landlord as additional insured and Tenant as insured, as their
interests may appear, and, if requested by Landlord, shall also name as an
additional insured any mortgagee holding or intended to hold a lien upon
Premises, after prior written notice. Prior to the commencement of the term
hereof, Tenant shall provide Landlord with certificates or copies of the policy
or policies of insurance above referred to. Tenant shall also furnish to
Landlord throughout the term hereof replacement certificates or
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copies of renewal polices, together with evidence of like paid premiums at least
ten (10) days prior to the expiration dates of the then current policy or
policies.
Each party hereto waives any cause of action it might have against the
other party on account of any loss or damage that is insured against under any
insurance policy (to the extent that such loss or damage is recoverable under
such insurance policy) that covers the Building, Landlord's or Tenant's
fixtures, personal property, leasehold improvements or business and which names
Landlord or Tenant, as the case may be, as a party insured. Each party hereto
agrees that it will cause its insurance carrier to endorse all applicable
policies waiving the carrier's right of recovery under subrogation or otherwise
against the other party. If Tenant enters into a similar agreement with a
subtenant of it, which agreement extends to Landlord, the agreement of Landlord
contained in this paragraph shall also extend to such subtenant. The waiver of
claims and subrogation applies eve if one or either of the parties does not
carry the requisite insurance.
13. INDEMNIFICATION.
(a) Except due to Landlord's intentional acts or omissions, negligence or
willful misconduct, Tenant shall indemnify and hold harmless Landlord from and
against any and all claims, actions, damages, liability and expense arising from
Tenant's use of the Premises, or from the conduct of Tenant's business or from
any activity, work or things done, permitted or suffered by Tenant in or about
the Premises or elsewhere and shall further indemnify and hold harmless Landlord
from and against any and all claims, actions, damages, liability and expense
arising from any breach or default in the performance of any obligation of
Tenant's part to be performed under the terms of this Lease, or arising from any
negligence of Tenant, any of Tenant's agents, contractors or employees, and from
and against all reasonable costs, reasonable attorney's fees, expenses and
liabilities incurred in defense of any such claim or any action or proceeding
brought thereon, and in case Landlord shall be made a party to any litigation
commenced by or against Tenant, its agents, subtenants, licensees,
concessionaires, contractors, customers or employees, then Tenant shall defend,
indemnify and hold harmless Landlord and shall pay all reasonable costs,
expenses and reasonable attorney's fees incurred or paid by Landlord in
connection with such litigation and upon notice from Landlord shall defend the
same at Tenant's expense by counsel satisfactory to Landlord. Tenant shall
indemnify and hold harmless Landlord from and against any and all claims,
actions, damages, liability and expense which may be imposed upon or incurred by
or asserted against Landlord by reason of (a) loss of life, personal injury
and/or damage to property occurring in or about, or arising out of, the
Premises, adjacent sidewalks and loading platforms or areas and common areas
appurtenant to the Building occasioned wholly or in part by reason of any act or
omission of Tenant, its agents, subtenants, licensees, concessionaires,
contractors, customers or employees and (b) any failure on the part of Tenant to
keep, observe and perform any of the terms, covenants, agreements, conditions or
limitations contained in this Lease on Tenant's part to be kept, observed and
performed.
(b) Except due to Tenant's intentional acts or omissions, negligence or
willful misconduct, Landlord shall indemnify and hold harmless Tenant from and
against any and all claims, actions, damages, liability and expense arising from
Landlord or from the conduct of
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Landlord's business or from any activity, work or things done, permitted or
suffered by Landlord in or about the Premises or elsewhere and shall further
indemnify and hold harmless Tenant from and against any and all claims, actions,
damages, liability and expense arising from any breach or default in the
performance of any obligation of Landlord's part to be performed under the terms
of this Lease, or arising from any negligence of Landlord or any of Landlord's
agents, contractors or employees, and from and against all reasonable costs,
reasonable attorney's fees, expenses and liabilities incurred in defense of any
such claim or any action or proceeding brought thereon, and in case Tenant shall
be made a party to any litigation commenced by or against Landlord, its agents,
subtenants, licensees, concessionaires, contractors, customers or employees,
then Landlord shall defend, indemnify and hold harmless Tenant and shall pay all
reasonable costs, expenses and reasonable attorney's fees incurred or paid by
Tenant in connection with such litigation and upon notice from Tenant shall
defend the same at Landlord's expense by counsel reasonably satisfactory to
Tenant.
14. QUIET ENJOYMENT.
Provided an Event of Default has not occurred, Tenant shall peaceably and
quietly hold and enjoy the Premises and all appurtenant rights for the Term,
without hindrance from Landlord or its agents, under and subject to the terms
and conditions of this Lease. If Tenant is unable to use the Premises for its
conduct of business for due to circumstances within the sole and reasonable
control of Landlord to cure (other than on account of Tenant's act or neglect,
and other than due to fire, other casualty or condemnation, for which separate
provision is made in this Lease, and other than for the time periods
contemplated in Article 3 above) (i) for three (3) days or more after Landlord
has been given written notice and the applicable cure period has expired without
cure, Fixed Rent, Additional Rent and all other amount payable by Tenant
hereunder shall abate until Tenant is able to resume its conduct of its business
at the Premises; and (ii) for sixty (60) days or more after Landlord has been
given written notice and the applicable cure period has expired, Tenant shall
have the right to terminate this Lease upon written notice to Landlord.
15. DAMAGE.
Except as provided below, in case of damage to the Premises or common areas
utilized by Tenant in the conduct of its business by fire or other casualty,
Landlord shall repair the damage. Such repair work shall be commenced promptly
following notice of the damage and completed with due diligence, except for
delays due to governmental regulation, lack of availability of insurance
proceeds, unavailability of or inability to obtain labor or materials,
intervening Acts of God or other similar or dissimilar causes beyond Landlord's
reasonable control.
(a) Notwithstanding the foregoing, if (i) the damage is of a nature or
extent that, in Landlord's reasonable judgment, the repair and restoration work
cannot be completed within 180 consecutive business days of the date of the
casualty , or (ii) if more than thirty (30%) percent of the total area of the
Premises is damaged, Landlord or Tenant shall have the right to terminate this
Lease and all the unaccrued obligations of the parties hereto, by sending
written notice of such termination to the other party within thirty (30) days of
the casualty. If this Lease is so
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terminated, Fixed Rent and Additional Rent shall be adjusted between the parties
as of the date of the casualty.
(b) If the insurance proceeds received by Landlord (excluding any rent
insurance proceeds) are required to be applied on account of any mortgage which
encumbers any part of the Premises or Building, or if the nature of loss is not
covered by Landlord's insurance coverage and (i) exceeds $1,000,000.00 Landlord
may elect either to (y) repair the damage as above provided notwithstanding such
fact or (z) terminate this Lease by giving Tenant notice of Landlord's election
within thirty (30) days after Landlord's knowledge of the damage and of the
unavailability or insufficiency of insurance proceeds; provided, however, that
if Landlord elects to terminate the Lease Tenant may cancel such termination by
giving Landlord written notice prior to the termination date that Tenant elects
to restore the damage, and in such event Tenant, at its sole cost and expense,
shall restore the Premises or the Building, and Landlord shall then reimburse
Tenant $500,000 towards Tenant's cost of restoration; or (ii) is less than or
equals $1,000,000.00, Landlord shall repair the damage and the Parties shall
each pay 50% of the costs thereof.
(c) In the event of damage or destruction to the Premises, Common Area
utilized by Tenant in the conduct of its business and Tenant's use or occupancy
of the Premises is materially disrupted, Tenant's obligation to pay Fixed Rent,
Additional Rent and all other amounts payable by Tenant hereunder shall be
equitably adjusted or abated until the Premises, Common Area or any part thereof
are wholly restored.
(d) Notwithstanding any other provision hereof, if a total destruction of
the Premises, or Building occurs, this Lease shall terminate upon such
destruction.
16. SUBORDINATION; RIGHTS OF MORTGAGEE.
(a) This Lease shall be subject and subordinate at all times to the lien
of any mortgages now or hereafter placed upon the Premises or the Building and
land of which they are a part without the necessity of any further instrument or
act on the part of Tenant to effectuate such subordination, subject to section
(c) below. Tenant further agrees to execute and deliver upon demand such further
reasonable instrument or instruments evidencing such subordination of this Lease
to the lien of any such mortgage, in form and substance as the form of
subordination and nondisturbance agreement attached hereto as Exhibit G, and
such further instrument or instruments of attornment, in form and substance
acceptable to Tenant in its judgment reasonably exercised, as shall be desired
by any mortgagee or proposed mortgagee or by any other person, in consideration
for such mortgage/proposed mortgagee/other person's agreement not to disturb
Tenant's occupancy of the Premises and to perform all of Landlord's obligations
under this Lease if such mortgagee/proposed mortgagee/other person comes to own
the Premises.. Notwithstanding the foregoing, any mortgagee may at any time
subordinate its mortgage to this Lease, without Tenant's consent, by notice in
writing to Tenant, and thereupon this Lease shall be deemed prior to such
mortgage without regard to their respective dates of execution and delivery and
in that event such mortgagee shall have the same rights with respect to this
Lease as though it had been executed prior to the execution and delivery of the
mortgage.
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(b) In the event Landlord shall be or is alleged to be in default of any
of its obligations owing to Tenant under this Lease, Tenant agrees to give to
the holder of any mortgage (collectively the "Mortgagee") now or hereafter
placed upon the Premises or the Building and land, notice by registered mail of
any such default which Tenant shall have served upon Landlord, provided that
prior thereto Tenant has been previously notified in writing by Landlord or by
the Mortgagee of the name and addresses of any such Mortgagee. Excepting in an
emergency, Tenant shall not be entitled to exercise any right or remedy as there
may be because of any default by Landlord without having given such notice to
the Mortgagee; and Tenant further agrees that if Landlord shall fail to cure
such default: (i) the Mortgagee shall have an additional thirty (30) days
(measured from the later of the date on which the default should have been cured
by Landlord or the Mortgagee's receipt of such notice from Tenant) within which
to cure such default; and (ii) Tenant shall not exercise any right or remedy as
there may be arising because of Landlord's default, including but not limited to
termination of this Lease as may be expressly provided for herein or available
to Tenant as a matter of law, if the Mortgagee has cured the default within such
additional thirty (30) day period.
(c) Nothing in this Article 16 grants any Mortgagee or any party taking
title to the Premises through Landlord the right to terminate or modify this
Lease, it being agreed that any such rights of Mortgagee or other party to
terminate arise out of and are exercised pursuant to and in accordance with
Article 19 hereof.
17. CONDEMNATION.
(a) If any part of the Premises or parking areas used exclusively by
Tenant or Tenant's means of vehicular ingress and egress, which, in Tenant's
reasonable judgment shall have a material and adverse effect upon the conduct of
Tenant's business from the Premises, is taken or condemned for a public or
quasi-public use, and Landlord cannot provide substitute property, and in
Tenant's judgment reasonably exercised renders the Premises unsuitable for
Tenant's intended use, Tenant shall have the option to terminate this Lease as
of the date title to the condemned real estate vests in the condemnor or taking
occurs and the Fixed Rent and Additional Rent shall be apportioned and paid to
Landlord to that date and all rent prepaid for periods beyond that date shall
forthwith be repaid by Landlord to Tenant and neither party shall thereafter
have any liability hereunder. A sale or other transfer in lieu of a taking shall
be deemed a taking for the purpose of this Lease.
(c) If the provisions of subparagraph (a) above do not apply, Landlord, as
expeditiously as reasonably possible after receipt of the condemnation proceeds
and at its sole expense shall diligently do and complete such work as may be
reasonably necessary to restore the portion of the Premises and common areas not
taken to tenantable condition, but shall not be required to expend more than the
net award awarded or which Landlord reasonably expects to be available for
restoration. If Landlord reasonably determines that the damages for restoration
of the Building will not be sufficient to pay the cost of restoration, or if the
condemnation damage award is required to be applied on account of any mortgage
which encumbers any part of the Building, Landlord may terminate this Lease by
giving Tenant thirty (30) days prior notice specifying the termination date as
of the date title to the condemned real estate vests in the
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condemnor, or the taking occurs, excepting however, Tenant may at its option,
within twenty (20) days after receipt of Landlord's termination notice, and
after written notice to Landlord, advance Landlord the reasonable amount of
funds to reasonably complete the restoration, and this Lease shall continue in
full force and effect. In such event, rents due hereunder shall be appropriately
and proportionally reduced as to the portion of the Premises so taken, and in
addition, Tenant's rents due hereunder shall be equally reduced over the
remaining Term by the same amount Tenant advanced to Landlord to complete said
restoration. Tenant shall have the right to terminate this Lease upon written
notice to Landlord if Landlord is unable to or fails to wholly restore the
remaining portion of the Premises and the common areas to tenantable condition
with 180 days after the date of taking. Until the Premises and the common areas
are wholly restored to tenantable condition, Fixed Rent, Additional Rent and all
other amounts payable by Tenant hereunder shall equitably reduce or abated.
(d) If this Lease is not terminated after any such taking or condemnation,
the Fixed Rent, Additional Rent and all other amounts payable by Tenant
hereunder shall be equitably reduced in proportion to the area of the Premises
and the common areas which has been taken for the balance of the Term.
(d) If a part or all of the Premises be taken or condemned, all
compensation awarded upon such condemnation or taking shall go to Landlord and
Tenant shall have no claim thereto; and Tenant hereby expressly waives,
relinquishes and releases to Landlord any claim for damages or other
compensation to which Tenant might otherwise be entitled because of any such
taking or limitation of the leasehold estate hereby created, and irrevocably
assigns and transfers to Landlord any right to compensation of all or a part of
the Premises or the leasehold estate, provided, however, that Tenant reserves
the right to pursue, obtain and receive reasonable compensation for its losses
to include goodwill, trade fixtures, personal property, equipment, business
disruption, moving expenses, and similar awards which may be available under
applicable law, provided the same does not reduce the compensation or award
payable to Landlord, all without regard to whether or not this Lease is
terminated pursuant to this Article 17.
(e) Upon service on either party hereto of any legal process in connection
with any condemnation proceedings involving the Building, the Premises or common
areas in any way, the party so served shall give prompt notice thereof to the
other party hereto.
18. TENANT'S CERTIFICATE.
Tenant agrees at any time and from time to time, within ten (10) business
days after Landlord's written request, to execute, acknowledge and deliver to
Landlord a written instrument in recordable form certifying that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that it is in full force and effect as modified and stating the modifications),
and the dates in which Fixed Rent, Additional Rent, and other charges have been
paid in advance, if any, and stating whether or not to the best knowledge of the
signer of such certificate Landlord is in default in the performance of any
covenant, agreement or condition contained in this Lease and, if so, specifying
each such default of which the signer may have
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knowledge. It is intended that any such certification and statement delivered
pursuant to this Article may be relied upon by any prospective purchaser of the
fee or any mortgagee thereof or any assignee of Landlord's interest in this
Lease or of any mortgage upon the fee of the Premises or any part thereof
provided that Tenant need not state or certify as to any matter which is not
true.
19. DEFAULT.
If: (i) Tenant fails to pay any installment of Fixed Rent or any amount of
Additional Rent when due and such failure continues for a period of three (3)
business days after Tenant's receipt of written notice from Landlord; (ii)Tenant
fails to observe or perform or violates any of the other Tenant's agreements of
a material nature herein contained and such failure or violation continues for a
period of thirty (30) days or such additional time, if any, as is reasonably
necessary to cure such failure, following Tenant's receipt of written notice
from Landlord specifying with precision the nature of the default; (iii) Tenant
makes any assignment for the benefit of creditors; (iv) Tenant commits an act of
bankruptcy or files a petition or commences any proceeding under any bankruptcy
or insolvency law; (v) a petition is filed or any proceeding is commenced
against Tenant under any bankruptcy or insolvency law and such petition or
proceeding is not dismissed within sixty (60) days; (vi) Tenant is adjudicated a
bankrupt; (vii) Tenant by any act indicates its consent to, approval of or
acquiescence in, or a court approves, a petition filed or proceeding commenced
against Tenant under any bankruptcy or insolvency law; (viii) a receiver or
other official is appointed for Tenant or for a substantial part of Tenant's
assets or for Tenant's interests in this Lease; (ix) any attachment or execution
against a substantial part of Tenant's assets or of Tenant's interests in this
Lease remains unstayed or undismissed for a period of more than thirty (30)
days; or (x) a substantial part of Tenant's assets or of Tenant's interest in
this Lease is taken by legal process in any action against Tenant when such
remaining assets are not reasonably sufficient to allow Tenant to perform its
obligations under this Lease, then, in any such event, an Event of Default shall
be deemed to exist and Tenant shall be in default hereunder.
If an Event of Default shall occur, Landlord shall have the rights and
remedies set forth herein, which rights and remedies may be exercised upon or at
any time following the occurrence of an Event of Default unless, prior to such
exercise, Landlord shall agree in writing with Tenant that the Event(s) of
Default has been cured by Tenant in all respects:
(a) Landlord may perform for the account of Tenant any such default of
Tenant and immediately recover as Additional Rent any reasonable expenditures
made and the amount of any obligations incurred in connection therewith;
(b) Landlord may accelerate all Fixed Rent and Additional Rent due for the
balance of the Term (but for any termination of this Lease) and declare the
same, discounted to present value based upon the then prevailing Federal Funds
Rate, along with all sums past due, to be immediately due and payable. In
determining the amount of any future payments due Landlord on account of
Additional Rent, Landlord may make such determination based upon the amount of
Additional Rent paid by Tenant for the full year immediately prior to such
default;
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(c) Landlord may immediately proceed to distrain, collect and bring action
for the whole rent or such part thereof as aforesaid, as being rent in arrears,
or may file a Proof of Claim in any bankruptcy or insolvency proceeding for such
rent, or Landlord may institute any other legal proceedings, whether similar to
the foregoing or not, to enforce payment thereof;
(d) With court process Landlord may re-enter and repossess the Premises
breaking open locked doors, if necessary, and may use as much force as necessary
to effect such entrance without being liable to any action or prosecution for
such entry or the manner thereof, other than in the case of Landlord's or its
agents/employees' negligence or intentional misconduct), nor shall Landlord be
liable for the loss of any property upon the Premises. Landlord may remove all
of Tenant's goods and property from the Premises. Landlord shall have no
liability for any damage to such goods and property, and Landlord shall not
responsible for the storage or protection of the same upon removal except to the
extent required by applicable law;
(e) With court process Landlord may, at any time after the occurrence of
any Event of Default, re-enter and repossess the Premises and any part thereof
and attempt to relet all or any part of such Premises for and upon such terms
and to such persons, firms or corporations and for such period or periods as
Landlord, in its reasonable discretion, shall determine, including the term
beyond the expiration date of the Term and Landlord shall not be required to
accept any tenant offered by Tenant or observe any instruction given by Tenant
about such reletting. For the purpose of such reletting, Landlord may make
repairs, and restore the Premises to the condition at the Commencement Date; and
the measurable cost of such repairs and/or restorations, shall be charged to and
be payable by Tenant as additional rent hereunder, as well as any reasonable
brokerage and legal fees expended by Landlord; and any sums collected by
Landlord from any new tenant obtained on account of the Tenant shall be credited
against the balance of the rent due hereunder as aforesaid. Tenant shall pay to
Landlord monthly, on the days when the rent would have been payable under this
Lease, the amount due hereunder less the amount obtained by Landlord from such
new tenant;
(f) In the event of a monetary or other material event of default,
Landlord, at its option, may serve notice upon Tenant that this Lease and the
then unexpired Term shall cease and expire and become absolutely void on the
date specified in such notice, to be not less than five (5) days after the date
of such notice without any right on the part of the Tenant to save the
forfeiture by payment of any sum due or by the performance of any term,
provision, covenant, agreement or condition broken except to the extent
permitted by applicable laws; and, thereupon and at the expiration of the time
limit in such notice, this Lease and the Term hereof granted, as well as the
right, title and interest of Tenant hereunder, shall wholly cease and expire and
become void in the same manner and with the same force and effect as if the date
fixed in such notice were the date herein granted for expiration of the Term of
this Lease. Thereupon, Tenant shall immediately quit and surrender to Landlord
the Premises, and Landlord may enter into and repossess the Premises by summary
proceedings, detainer, ejectment or otherwise and remove all occupants thereof
and, at Landlord's option, any property thereon without being liable to
indictment, prosecution or damages therefor (except in the event of Landlord's
or its agents/employees intentional misconduct). In the event of termination of
this Lease pursuant to provisions of this subparagraph (f), Tenant shall pay to
Landlord all rental and other charges
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payable hereunder due and unpaid to the date of termination. In the event any
judgment has been entered against Tenant for any amount in excess of the total
amount required to be paid by Tenant to Landlord hereunder, then the damages
assessed under said judgment shall be re-assessed and a credit granted to the
extent of such excess; However, Tenant access the Premises for a period of six
months following the date of the notice by payment to Landlord of six months
Rent and Additional Rent at 125% of the rates in effect at the time of delivery
of the notice.
(g) Landlord shall have the right of injunction, in the event of a breach
or threatened breach by Tenant of any of the agreements, conditions, covenants
or terms hereof, to restrain the same and the right to invoke any remedy allowed
by law or in equity, whether or not other remedies, indemnity or reimbursements
are herein provided.
(h) The rights and remedies given to Landlord in this Lease are distinct,
separate and cumulative remedies: and no one of them, whether or not exercised
by Landlord, shall be deemed to be in exclusion of any of the others, nor an
election of remedies by Landlord;
(i) Any sums payable by Tenant hereunder, which are not paid after the
same shall be due, and within three (3) business days after Tenant's receipt of
Landlord's written notice relating thereto shall bear interest from that day
until paid at the lower of the highest nonusurious rate or four (4%) percent
over the then Prime Rate as published in the Wall Street Journal (the "Default
Rate").
(j) Landlord shall have all rights and remedies now or hereafter existing
at law with respect to the enforcement of Tenant's obligations hereunder and the
recovery of the Premises.
(k) Nothing herein contained shall limit or prejudice the right of
Landlord to exercise any or all rights and remedies available to Landlord by
reason of an Event of Default by Tenant or to prove for and obtain in
proceedings under any bankruptcy or insolvency laws, an amount equal to the
maximum allowed by any law in effect at the time when, and governing the
proceedings in which, the damages are to be proved, whether or not the amount be
greater, equal to, or less than the amount of the loss or damage referred to
above.
(l) No delay or forbearance by Landlord or Tenant in exercising any right
or remedy hereunder, or Landlord's or Tenant's undertaking or performing any act
or matter which is not expressly required to be undertaken by Landlord or Tenant
shall be construed, respectively, to be a waiver of Landlord's or Tenant's
rights or to represent any agreement by Landlord or Tenant to undertake or
perform such act or matter thereafter. Waiver by Landlord or Tenant of any
breach by the other Party of any covenant or condition herein contained (which
waiver shall be effective only if so expressed in writing by Landlord or Tenant)
or failure by the Landlord or Tenant to exercise any right or remedy in respect
of any such breach shall not constitute a waiver or relinquishment for the
future of Landlord's or Tenant's right to have any such covenant or condition
duly performed or observed by Tenant, or of Landlord's rights arising because of
any subsequent breach of any such covenant or condition nor bar any right or
remedy of Landlord in respect of such breach or any subsequent breach.
Landlord's receipt and acceptance of any payment from Tenant which is tendered
not in conformity with the provisions of this Lease or following an Event of
Default (regardless of any endorsement or notation on any check or any
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statement in any letter accompanying any payment) shall not operate as an accord
and satisfaction or a waiver of the right of Landlord to recover any payments
then owing by Tenant which are not paid in full, or act as a bar to the
termination of this Lease and the recovery of the Premises because of Tenant's
previous default.
(m) In the event of occurrence of an Event of Default by Tenant, Landlord
without prejudice and in addition to any other rights it may have in law or in
equity, and after written notice may cure such defaults(s) on behalf of Tenant;
and Tenant shall reimburse Landlord on demand for all costs incurred by Landlord
in that regard plus interest thereon from the date(s) of expenditure at the
Default Rate (unless such rate be usurious as applied to Tenant, in which case
the highest permitted legal rate shall apply), which shall be deemed Additional
Rent payable hereunder.
(n) Should Landlord default in the performance of any covenant or
agreement herein, and such default continues for thirty (30) days after receipt
by Landlord of written notice thereof from Tenant (except as otherwise provided
herein), or if the default of Landlord is of a type which is not reasonably
possible to cure within thirty (30) days, if Landlord has not commenced to cure
said default within said thirty (30) day period and does not thereafter
diligently prosecuted the curing of said default to completion, Tenant may i)
pay any sums necessary to perform any obligation of Landlord in default
hereunder and deduct the cost thereof, with interest at the Default Rate, from
rent then and thereafter becoming due to Landlord hereunder; or (ii) pursue any
other available legal or equitable remedy.
20. SURRENDER.
Tenant shall, at the expiration of the Term or earlier termination as
herein provided, promptly quit and surrender the Premises in good order and
condition, excepting only reasonable wear and tear and damage by fire or other
casualty. Unless consented to in writing by Landlord, Tenant shall have no right
to hold over beyond the expiration of the Term and in the event Tenant shall
fail to deliver possession of the Premises as herein provided, such occupancy
shall not be construed to effect or constitute other than a tenancy at will.
During any period of occupancy beyond the expiration of the Term without
Landlord's written consent, all of the terms and provisions of the Lease shall
continue to apply, except for the Term, and, unless the Parties are then if good
faith negotiations regarding the extension or renewal of this Lease, the amount
of rent owed to Landlord by Tenant shall automatically become 150% of the sum of
the Fixed Rent and Additional Rent. The acceptance of rent by Landlord or the
failure or delay of Landlord in notifying or evicting Tenant following the
expiration or sooner termination of the Term shall not create any tenancy rights
in Tenant and any such payments by Tenant may be applied by Landlord against its
costs and expenses, including attorney's fees and damages incurred by Landlord
as a result of such holdover.
21. GOVERNMENTAL REGULATIONS.
Landlord has no actual knowledge whether or not the improvements on and in
the Premises and the Common Areas comply with the building codes that were in
effect at the time that each such improvement, or portion thereof, was
constructed, or applicable laws, covenants or
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restrictions of record, regulations, and ordinances in effect on the
Commencement Date ("Applicable Requirements"). Except as provided below, Tenant
shall, in the acceptance, alteration, improvement, use and occupancy of the
Premises and the conduct of Tenant's business or profession therein, at all
times comply with all Applicable Requirements.. Tenant shall as required (i)
obtain, at Tenant's expense, before engaging in Tenant's business or profession
within the Premises, all necessary licenses and permits including (but not
limited to) state and local business licenses or permits, and (ii) remain in
compliance with and keep in force at all times all licenses, consents and
permits necessary for the lawful conduct of Tenant's business or profession at
the Premises. Tenant shall pay and shall have the right to contest as allowed by
law all personal property taxes, income taxes and other taxes which are or may
be assessed, levied or imposed upon Tenant by any governmental agency having
such authority and which, if not paid, could be liened against the Premises or
against Tenant's property therein or against Tenant's leasehold estate.
Any structural changes, alterations or additions in or to the Building, the
Premises or the common areas which may be necessary or require by reason of any
law, rule, regulation or order promulgated by competent governmental authority
and not the responsibility of Tenant as set forth in elsewhere in this Lease
shall be made promptly by Landlord at the sole cost and expense of Landlord.
Landlord may contest the validity of any such law, rule, regulation or order,
but shall indemnify and save harmless Tenant (including reasonable attorneys'
fees) against the consequences of continued violation thereof during such
contest.
22. NOTICES.
Wherever in this Lease it shall be required or permitted that notice or
demand be given or served by either party to this Lease to or on the other
party, such notice or demand shall be deemed to have been duly given or served
if in writing by facsimile, overnight delivery or by a nationally recognized
carrier, or by Registered or Certified mail, return receipt requested, postage
prepaid, and addressed to the parties at the addresses set forth at the top of
this Lease. Each such mailed notice shall be deemed to have been given to or
served upon the party to which addressed on the date the same is received Either
party hereto may change its address to which said notice shall be delivered or
mailed by giving prior written notice of such change to the other party hereto,
as herein provided.
23. BROKERS.
Each of Landlord and Tenant represents and warrants to the other party that
it has had no dealings, negotiations or consultations with respect to the
Premises or this transaction with any broker or finder other than Reliance
Property Group, LLC ("Reliance") and Ernst & Young, LLP ("Ernst"); and that
otherwise no broker or finder called the Premises to Tenant's attention for
lease or took any part in any dealings, negotiations or consultations with
respect to the Premises or this Lease. Landlord shall pay all fees and
commissions owed to Reliance in connection with the negotiation and execution of
this Lease pursuant to separate agreement. No payment is due Ernst pursuant to
separate letter of instruction received by Landlord from Ernst. Each of Tenant
and Landlord agrees to indemnify and hold the other party harmless from and
against all liability,
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cost and expense, including attorney's fees and court costs, arising out of any
misrepresentation or breach of warranty or covenant by Tenant or Landlord under
this Article, and the foregoing indemnification obligation shall survive the
termination or expiration of this Lease.
24. ENTIRE AGREEMENT.
This Lease including all exhibits attached hereto and expressly made a part
hereof represents the entire agreement between the parties hereto and there are
no collateral or oral agreements or understandings. This Lease shall not be
modified in any manner except by an instrument in writing executed by the
Parties. Each and all of the covenants, agreements, obligations, conditions and
provisions of this Lease shall inure to the benefit of and shall bind the
permitted successors and assigns of the respective Parties. Upon the request of
either party, the parties shall execute and acknowledge a memorandum of this
Lease, which may be recorded in the real estate record of the county where the
Real Property is located by and at the expense of the requesting party.
25. SEVERABILITY.
If any clause or provision of this Lease is illegal, invalid or
unenforceable under present or future laws effective during the Term, then and
in that event, it is the intention of the parties hereto that the remainder of
this Lease shall not be affected thereby and it is also the intention of the
parties to this Lease that in lieu of each clause or provision of this Lease
that is illegal, invalid or unenforceable, there be added as a part of this
Lease a clause or provision as similar in terms to such illegal, invalid or
unenforceable clause or provision as may be possible and be legal, valid and
enforceable.
26. LANDLORD'S LIABILITY.
Landlord's obligations hereunder shall be binding upon Landlord only for
the period of time that Landlord is in ownership of the Building; if the
succeeding owner of the Building assumes in writing all of Landlord's
obligations under this lease, a copy of which shall be provided to Tenant; and,
upon termination of that ownership, and Tenant's receipt of such assumption
agreement, and after written notice, Tenant, except as to any prior or existing
obligations which have then matured, shall look solely to Landlord's successor
in interest in the Building for the satisfaction of each and every obligation of
Landlord hereunder arising after the effective date of the succeeding owner's
assumption of Landlord's obligations hereunder. Landlord shall transfer any
security deposit held by it to the Landlord's successor and after Tenant's
receipt of the purchaser's written acknowledgement of its receipt of the
security and assumption of Landlord's obligations hereunder, Landlord shall be
discharged from any further liability in reference thereto.
Except due to its illegal acts or willful misconduct, Landlord shall have
no personal liability under any of the terms, conditions or covenants of this
Lease and Tenant shall look solely to the equity of the Landlord in the Building
of which the Premises form a part, future rents of the Premises, and Landlord's
insurance for the satisfaction of any claim, remedy or cause of action accruing
to Tenant as a result of the breach of any action of this Lease by Landlord.
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27. SECURITY DEPOSIT
With the execution of this Lease, Tenant has deposited with Landlord an
unconditional letter of credit (the "LC") issued by U.S. Bank National
Association ("Issuer") in the amounts and in the form attached hereto as Exhibit
F. The LC shall be held by Landlord as a security deposit for the performance
by Tenant of each and all of its obligations hereunder. Without waiving any
other right or remedy of Landlord, Landlord may draw upon the LC at any time
after the occurrence of an Event of Default by Tenant. By its terms the LC shall
automatically renew annually, or Tenant shall cause the Issuer to renew the LC
annually, in either case 30 days prior to the expiry date of the LC, failing
which Landlord may draw upon the LC and hold the proceeds thereof as a security
deposit hereunder. Within fifteen (15) days after the later of the expiration or
termination of this Lease (other than Lease due to an Event of Default by
Tenant) or the completion of all of Tenant's repair and restoration obligations,
Landlord shall refund to Tenant the LC or the unused portion of such security
deposit; provided that if the Term is terminated under the provisions of Article
19 (f) and Tenant access to the Premises as provided in the last sentence of
paragraph 19 (f), such return shall be delayed until Tenant's access has ceased
and its restoration obligations have been completed.
28. Non-Disturbance Agreement. Tenant's subordination of this Lease shall be
subject to receiving a commercially reasonable non-disturbance agreement (a
"Non-Disturbance Agreement") from the Mortgagee which Non-Disturbance Agreement
provides that Tenant's possession of the Premises, and this Lease, including any
options to extend the term hereof, will not be disturbed so long as Tenant is
not in an uncured default or Event of Default beyond any applicable cure periods
hereof and attorns to the record owner of the Premises.
29. Early Possession. Tenant, at its option, may enter into the Premises to
undertake improvements and alterations thereto prior to the first Rent
Commencement Date, If Tenant so enters the Premises, all of the terms and
conditions shall apply to such early possession and occupancy, except that
Tenant shall have no obligation to pay Fixed Rent or Additional Rent until the
Rent Commencement Date occurs.
30. Performance by Tenant on Behalf of Landlord. In the event that neither
Landlord nor Mortgagee cures any breach by Landlord within the applicable cure
period, or if
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having commenced said cure they do not diligently pursue it to completion, then
Tenant may elect to cure said breach at Landlord's expense. Tenant shall present
a bill and reasonable detail of expenses incurred by Tenant in connection
therewith. If such bill is not paid within 5 business days after receipt by
Landlord or Mortgagee, Tenant may offset the amount thereof until Tenant's
reasonable cost for the cure is recovered. If Tenant's reasonable costs for cure
exceeds the remaining financial obligations under this Lease or earlier
termination thereof, Landlord shall reimburse any remaining balances to Tenant
upon demand. Tenant shall reasonably document the cost of said cure and supply
said documentation to Landlord upon written request.
31. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
32. Binding Effect; Choice of Law. This Lease shall be binding upon the
parties, successors and assigns and be governed by the laws of the State in
which the Premises are located. Any litigation between the Parties hereto
concerning this Lease shall be initiated in the county in which the Premises are
located.
33. Authority. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, each individual executing
this Lease on behalf of such entity represents and warrants that he or she is
duly authorized to execute and deliver this Lease on its behalf. Each party
shall, within thirty (30) days after request, deliver to the other party
satisfactory evidence of such authority.
34. Rooftop Installations. Tenant, at its sole cost and expense (including
costs and expenses relating to additional structural requirements), may install
(a) antennas and satellite dishes, (b) refrigeration equipment, and (c) HVAC
equipment on the roof of the Premises, subject to Applicable Requirements and
the terms and provisions of this Lease, without payment of any additional Fixed
Rent or Additional Rent under this Lease. These items are deemed by the Parties
to be Tenant's trade fixtures, removable by Tenant at the end of the Term,
provided that Tenant shall repair any and all damage caused by such removal.
Tenant must engage Landlord's roofing contractor for all rooftop work that would
otherwise jeopardize the warranty of the roof system.
35. Options to Extend. Provided no Event of Default exists and is continuing,
Tenant shall have the option to extend the Term for two consecutive periods five
years each (each, a Renewal Term), upon all of the terms and conditions set
forth in this Lease, except for Fixed Rent as hereinafter provided, and except
for the matters set forth on Exhibit B and Exhibit E. Tenant, if it elects to
exercise it option, shall do so by written notice to Landlord given not earlier
than 18 months, nor later than 9 months, before the expiration of the Term or
the first Renewal Term, as the case may be.
Fixed Rent for each Renewal Term shall be the greater of the Fixed Rent
payable for the last year of the Term or the preceding Renewal Term, as the case
may be, or "Fair Market Rent". Fair Market Rent means the fair market Fixed Rent
for the Premises at the time, taking into account the then fixed rent for
comparable premises in the local marketplace, the condition of the Premises, the
credit worthiness of Tenant, costs and expenses incurred by landlords similar to
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<PAGE>
Landlord in the leasing of such space (such as concessions, brokers fees, and
the like) and all other appropriate factors.
Within 15 days after Tenant has exercised its option to renew, the Parties
shall meet to attempt to negotiate Fair Market Rent. If the Parties are unable
to agree upon Fair Market Rent within 45 days after Tenant has exercised its
option, each Party, within 10 days thereafter, shall designate an MAI appraiser,
real estate broker or other qualified professional ("Consultant") doing business
in Fairfield County, Connecticut, experienced in the appraisal of fixed rent for
real property comparable to the Premises and the Complex. Such Consultants shall
attempt to agree upon the Fair Market Rent for the Premises within 30 days after
their appointment, which shall become the Fixed Rent for the renewal Term. If
the Consultants shall not be able to agree upon the Fair Market Rent, they shall
designate a third consultant who, alone, shall determine Fair Market Rent for
the Renewal Term within 30 days of appointment. The Fair Market Rent for the
Renewal Term shall be the Fair Market Rent determined by Landlord's Consultant
or Tenant's Consultant which is the closest to the Fair Market Rent determined
by the third consultant. All Consultants shall be instructed to deliver written
reports to the Parties. Each Party shall pay for the Consultant chosen by it and
shall pay 50 % of the costs of the third Consultant if required.
36. Non-Competition. During the Term, Landlord shall not (nor shall any
subsidiary or affiliate of Landlord) lease to any third person or entity any
land or building whether presently owned or hereinafter acquired within a radius
of 5 miles from the Premises for use as a online retail grocery distribution
center, nor shall Landlord, directly or indirectly, own or operate any such
center within such radius. In the event of a breach by Landlord of this Article
36, Tenant shall be entitled to all equitable relief available, including
without limitation injunctive relief, temporary and permanent.
37. Landlord's Approval of Tenant's Initial Leasehold Improvements. Attached
hereto as Exhibit E is a description of the initial improvements Tenant intends
to make to the Premises. Except as noted on Exhibit E, Landlord approves such
improvements to be constructed by Tenant pursuant to the other provisions of
this Lease.
38. SIGNS
- --- -----
(a) Tenant shall have the right to install, erect and maintain upon the
Premises, but in accordance with Applicable Requirements, all signs necessary or
appropriate to the conduct of its business, as determined by Tenant in its sole
discretion, including signs on the exterior of the Premises and Landlord's free-
standing pylon or monument sign tower (if any) constructed or to be constructed
in the Complex. Tenant shall not install, erect, or maintain any sign in
violation of any applicable law, ordinance or use permit of any governmental
authority. Tenant shall remove the same not later than thirty (30) days after
the expiration or termination of the Term, and Tenant at its own expense shall
repair any damage caused by the removal thereof by Tenant.
(b) Landlord shall not install, erect or maintain any signs on the
exterior or interior of the Premises during the Term, except that Landlord may
erect a "For Rent" sign during the last
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<PAGE>
six (6) months of the Term; provided, however, that such sign shall not obstruct
any sign of Tenant or interfere unreasonably with the conduct of Tenant's
business at the Premises.
39. ATTORNEYS'FEES
- --- --------------
If suit or action is instituted to enforce any of the terms of this Lease,
including any and all bankruptcy claims, actions and proceedings deemed
necessary or desirable to enforce any of the terms of this Lease or otherwise
protect the interest of either party, the prevailing party shall be entitled to
recover such sums as the court may adjudge reasonable as attorneys' fees and
expenses, including fees or expenses that may be incurred in any appellate,
bankruptcy, insolvency or similar proceeding, In the event neither party wholly
prevails, the party which substantially prevails shall be awarded a reasonable
sum as attorneys' fees and litigation expenses.
40. CONFIDENTIALITY All of the terms and conditions of this Lease shall remain
- --- ---------------
confidential between the Parties, and shall not be disclosed to any third party
(other than the Parties' respective lenders, attorneys, professional
consultants, and other having a "need to know"), except as otherwise required to
by court order or as agreed between the Parties. The provisions of this Article
encompass press releases concerning the existence of this Lease or any other
public announcement.
41. CONDITION PRECEDENT.
- --- -------------------
The Parties acknowledge that as of the date of signature of this Lease
Landlord is a contract purchaser of, but does not own, the Complex. Accordingly,
this Lese shall become effective only on the date Landlord closes the purchase
of the Complex. Unless and until Landlord acquires the Complex, the rights and
obligation of the Parties hereunder are not enforceable. If Landlord does not
close the purchase of the Complex on or before March 1, 2000, this Lease shall
be null and void and of no force or effect. Through the date Landlord closes the
purchase of the Complex or March 1, 2000, whichever first occurs, this Lease
shall not be subject to cancellation or recission by either of the Parties.
42. COUNTERPARTS.
- --- ------------
This Lease may be executed in one or more counterparts, each of which, when
taken together, shall constitute one and the same instrument
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease under seal the
day and year first above written.
WITNESSES: LANDLORD:
RELIANCE HAMILTON ASSOCIATES, LLC
_____________________ By: WCP Holdings, LLC, a Georgia limited
liability company, its manager
By: Wynnton Capital Partners, L.P., a
Georgia limited partnership, its manager
_____________________ By: Wynnton International, Inc., a
Georgia corporation, its general partner
By:____________, its ______ president
/s/:___________________ TENANT:
/s/:___________________ HomeGrocer.com, Inc., a Delaware
corporation
By:
/s/ Mary Alice Taylor
-----------------------------------------
Its: Chief Executive Officer
[Corporate Seal]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease under seal the
day and year first above written.
WITNESSES: LANDLORD:
RELIANCE HAMILTON ASSOCIATES, LLC
/s/: Tami S. Suter By: WCP Holdings, LLC, a Georgia limited
------------- liability company, its manager
By: Wynnton Capital Partners, L.P., a
Georgia limited partnership, its manager
/s/: Lena Capriola By: Wynnton International, Inc., a
------------- Georgia corporation, its general partner
By: /s/: [illegible] , its Vice
----------------
president
_______________________ TENANT:
_______________________ HomeGrocer.com, Inc., a Delaware
corporation
By: ___________________________________
Its: Chief Executive Officer
[Corporate Seal]
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<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated January 18,
2000, in the Registration Statement (Form S-1) and related Prospectus of
HomeGrocer.com, Inc. for the registration of shares of its common stock.
Ernst & Young LLP
Seattle, Washington
January 28, 2000
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