DETAILS DISCLOSED ON PEAPOD ACQUISITION

JON SPRINGER

CHICAGO -- When a sudden liquidity crisis struck Internet grocer Peapod here this spring, dozens of companies expressed interest, but only one -- Dutch supermarket operator Ahold -- came up with a potential solution.

In a filing with the Securities and Exchange Commission last week, Peapod and its New York-based financial advisor, Wasserstein Perella, revealed details about the events surrounding Peapod's crisis and its last-minute rescue by Ahold.

Peapod shareholders will vote on Ahold's $73 million offer to buy 51% of Peapod in June or July.

Peapod's troubles began in March, when chief executive officer Bill Malloy resigned and a group of investors, led by The Apollo Group, Pequot Capital Management and The Yucaipa Cos., pulled out of a $120 million private financing deal. According to Peapod, the investors arrived for a meeting in Chicago March 7 expecting to close the transaction, which had been in the works since early December.

Malloy however, had phoned ahead and said he would be unable to attend the meeting due to health reasons. "Because Malloy had led the negotiations and post-transaction planning on behalf of Peapod, the investors expressed concern regarding his absence and indicated a desire to meet with Mr. Malloy the following morning," the filing said.

However, Malloy, suffering from exhaustion, did not return to work. On March 15, Peapod was informed Malloy had resigned. The investor group terminated its letters of intent the same day, according to the filing.

Left with around $3 million cash and a stock price that dropped from $7.81 to $2.72, Peapod had to act quickly.

Wasserstein Perella contacted 34 potential strategic or financial partners in the next few days, the filing said. Between March 16 and March 28, Wasserstein met with 11 parties who expressed an interest. The parties ranged from traditional and on-line grocers, distribution and delivery companies and financial firms. Peapod also met with nine firms willing to provide bridge financing.

However, none of the potential partners made a proposal by Peapod's self-imposed deadline of March 29. In addition, bridge financing offers were considered "unattractive," according to Wasserstein, because lenders demanded large equity stakes in return, which would make subsequent partnerships more difficult. Peapod at this point had no offers but had granted an extension to certain parties who had requested one. It was also soliciting bridge financing from its institutional stockholders but was told the investors would only commit in the event of a firm proposal.

On March 31, Ahold submitted three proposals to Peapod, the filing said. One was a cash offer to acquire the entire company at $3.50 per share; the second was a stock offer to purchase 51% of Peapod at $3.25 per share with warrant to gain 75% ownership; and the third was a stock offer to acquire 33.8% of the company at $2.75 per share, with warrants to increase Ahold's stake to 50%. Ahold's offer also included a $20 million working capital facility and required a supply and services agreement between the companies.

Representatives of Ahold and Peapod met to discuss the transaction and on April 4, Ahold submitted a revised proposal to acquire 51% of the company for $3.75 a share, with warrants to increase ownership to 75%, along with the credit facility and the supply and services agreement. The companies finalized the deal in discussions between April 4 and April 14.

Peapod said it could not have survived without the investment from Ahold. "The transaction with Ahold represented the only readily available transaction to Peapod that would provide the cash necessary to enable Peapod to fund its ongoing operations and offer a reasonable opportunity to enable Peapod to reach its strategic objectives," the report said.