As filed with the Securities and Exchange Commission on May 1, 2001
Registration No. 333-58312
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1
To
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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EMACHINES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 94-3311182
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
14350 Myford Road, Suite 100
Irvine, California 92606
(714) 481-2828
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Wayne R. Inouye
Chief Executive Officer
Emachines, Inc.
14350 Myford Road, Suite 100
Irvine, California 92606
(714) 481-2828
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copy to:
John A. Fore
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
(650) 493-9300
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
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, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
================================================================================
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. The +
+selling stockholder 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 it is not +
+soliciting an offer to buy these securities in any state where the offer or +
+sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 1, 2001
PRELIMINARY PROSPECTUS
8,000,000 Shares
[LOGO OF emachines(TM)]
Common Stock
------------
This prospectus covers 8,000,000 shares of our common stock, par value
$0.0000125 per share, that the selling stockholder, Stephen A. Dukker, may
offer at one or more times for his own account. We anticipate that Mr. Dukker
will offer the shares for sale at prevailing prices on the Nasdaq National
Market on the date of sale. We will receive no part of the proceeds from the
sales. Mr. Dukker will bear all sales commissions and similar expenses. We will
bear all of the other expenses of the registration and offering of the shares.
None of the offered shares have been registered prior to the filing of the
registration statement of which this prospectus is a part.
Our common stock is listed on the Nasdaq National Market under the symbol
EEEE. The last reported sale price of the common stock on April 27, 2001, was
$0.22 per share.
Investing in our common stock involves risks. See "Risk Factors" on page 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
------------
Prospectus dated May , 2001.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
PROSPECTUS SUMMARY......................................................... 3
RISK FACTORS............................................................... 5
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.......................... 17
USE OF PROCEEDS............................................................ 17
SELLING STOCKHOLDER........................................................ 17
PLAN OF DISTRIBUTION....................................................... 17
VALIDITY OF COMMON STOCK................................................... 18
EXPERT..................................................................... 18
ADDITIONAL INFORMATION..................................................... 19
INCORPORATION OF INFORMATION BY REFERENCE.................................. 19
</TABLE>
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. The selling stockholder may use this document
only where it is legal to sell the shares. The information in this document may
be accurate only on the date of this document.
2
PROSPECTUS SUMMARY
This summary highlights information we present more fully elsewhere in this
prospectus and in the documents incorporated by reference into this prospectus.
This summary does not contain all of the information that you should consider
before buying shares. You should read carefully the entire prospectus and all
of the documents incorporated by reference into this prospectus.
eMachines, Inc.
We sell high-quality, low-priced personal computers, or PCs, that include
Internet offerings. Since our first PC shipment in November 1998, we have sold
over 3.7 million PCs. In January 2000, we acquired FreePC, Inc., a provider of
PC-based Internet advertising services and software. Because of the slowdown in
the Internet advertising market, we have refocused our efforts away from
Internet advertising to selling high-quality, low-priced PCs. Although we have
relied on a small number of retailers for substantially all of our PC sales, we
intend to begin selling PCs directly to consumers to complement our retail
sales. In March 2000, we successfully completed the initial public offering of
our common stock generating net proceeds to us of approximately $165.0 million.
In the third quarter of 2000, we began selling PCs in the United Kingdom
through our alliance with Dixons, a prominent European retailer.
We were incorporated in Delaware in September 1998 by our founding
stockholders, Stephen A. Dukker, TriGem Corporation and Korea Data Systems
America, Inc. In April 2000, TriGem Corporation, a U.S. subsidiary of TriGem
Computer, Inc., merged with TriGem America Corporation, another U.S. subsidiary
of TriGem Computer, with TriGem America being the surviving corporation. The
discussion in this prospectus of our relationships with TriGem Corporation and
TriGem America reflects the merger. TriGem Computer is the Korea-based
manufacturer of all of our current PC offerings. Korea Data Systems America is
a wholly-owned U.S. subsidiary of Korea Data Systems Co., Ltd., the Korea-based
company that historically manufactured our eOne PCs, eSlate notebook PCs and
our monitors, as well as a limited number of eTower PCs for TriGem Computer. We
currently purchase our monitors from a different manufacturer, although we
continue to use Korea Data Systems Co. as an alternate supplier.
Our common stock is listed on the Nasdaq National Market under the symbol,
EEEE. On March 21, 2001, Nasdaq advised us that our common stock would be
delisted because the trading price of our common stock failed to satisfy the
Nasdaq National Market's $1 minimum bid price requirement. We have appealed the
delisting and expect the delisting to be stayed pending the outcome of the
appeal. The appeal will be heard at a hearing on May 10, 2001.
We sell high-quality, low-priced PCs and monitors. Our PCs have retail
prices ranging from $399 to $1,099. We also offer integrated computing and
Internet access services through our relationship with America Online and our
own Internet access service.
We outsource the design and manufacturing of our PCs and monitors as well as
customer service and technical support, warehouse staffing, inspection, repair
and repackaging of returned PCs, and administration of our rebate program to
third parties. As a result, we have a relatively small internal organization
that consisted of 131 employees at March 31, 2001. Our hardware outsourcing
strategy enables us to minimize capital investment and maintain a low product
cost structure. During the second quarter of 2000, we began using Alorica,
Inc., as our new customer service and technical support provider. We plan to
continue to establish supply relationships with other PC and monitor
manufacturers to reduce our dependence on our current suppliers.
We have derived most of our revenues from sales of PCs and monitors to a
limited number of large retailers. For the fiscal year ended December 30, 2000,
approximately 57% of our gross revenues were from sales of PCs and monitors to
our three largest retail customers, Best Buy, Circuit City and Office Depot.
3
We expect to continue to derive a significant percentage of our gross revenues
from sales of PCs and monitors to a limited number of leading retailers.
Internet revenues are not expected to account for a significant portion of our
gross revenues in the future because we are refocusing away from generating
Internet advertising revenues to selling high-quality low-cost PCs.
Our principal executive offices are located at 14350 Myford Road, Suite 100,
Irvine, California 92606 and our telephone number is (714) 481-2828. Our Web
site is located at www.e4me.com. Information contained on our Website is not
intended to constitute a part of this prospectus.
Our trademarks include the "e" logo, eMachines, eTower, eView, eBoard,
eMonster, eDestrian, eWare, eKeys and the figure logo. This prospectus contains
other trademarks and trade names of other companies.
Recent Developments
On March 21, 2001, Nasdaq advised us that it had decided to delist our
common stock from The Nasdaq National Market because of our failure to comply
with Nasdaq's $1 minimum bid price requirement. We have requested an appeal of
the delisting decision before a Nasdaq listing qualifications panel, and we
expect that our common stock will continue to be listed on The Nasdaq National
Market pending the outcome of the appeal. The hearing date for the appeal is
May 10, 2001. If our appeal is denied, we will not be notified until the
delisting has become effective.
In March 2001, we announced a major initiative for streamlining our
operations in order to focus on our primary business of selling high-quality,
low-priced PCs. As part of this restructuring plan, we will reduce our exposure
to the declining Internet advertising market by eliminating resources dedicated
to our Internet products, such as eWare(TM), eKeys(TM) and pop-up advertising,
and focusing on more profitable Internet service provider, or ISP, products. We
expect to take a restructuring charge of approximately $3.7 million in the
first quarter of 2001. Included in the charge will be costs associated with
staff reductions in our Internet business unit covering approximately 16% of
our total workforce, and the closure of our sales and development facilities in
San Francisco and Scotts Valley, California and New York City. These actions
are expected to result in a net savings of approximately $2.8 million for 2001,
after taking into account an associated reduction in revenue of approximately
$1.6 million.
On April 25, 2001, we reported revenues of $136.2 million for the quarter
ended March 31, 2001, compared to $249.8 million for the quarter ended April 1,
2000. Our net loss for the first quarter of 2001 was $31.1 million, or $0.21
per share, compared to a loss of $11.9 million, or $0.13 per share, in the
first quarter of 2000. These results reflect the substantial discounts and
incentives that we gave to retailers to enable liquidation of product
inventories.
4
RISK FACTORS
You should carefully consider the following risks before making an
investment decision. You should also review the other information contained in
this prospectus or in documents incorporated by reference into this prospectus,
including the discussion in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in our most recent quarterly
report on Form 10-Q or annual report on Form 10-K.
Risks Related to Our Business
Because we have operated for a limited period of time and our business is still
rapidly changing, there is limited information for us to use to manage our
operations and for you to evaluate our business.
We were incorporated in September 1998 and sold our first PC in November
1998. Most of our revenues have been derived from the sale of PCs and monitors.
As a result of changing market conditions, we have shifted our focus away from
generating revenues from Internet advertising to selling high quality, low-
priced PCs. Our limited operating history makes it difficult for us to
accurately identify all of the factors that may affect our business and to plan
our operations accordingly. Our limited operating history and our evolving
business make it difficult to evaluate or predict our future business
prospects.
We have incurred significant losses and expect to incur additional losses.
We have incurred significant net losses, and at December 30, 2000, we had an
accumulated deficit of $233.7 million. We anticipate that decreased consumer
demand for PCs and general weakness in retail spending will reduce sales of our
PC-products and our revenues in fiscal 2001. Our operating costs have increased
significantly as a result of the FreePC acquisition. We have not generated our
forecasted revenue from our Internet business, and we have de-emphasized
generating revenues from that business. During the fourth quarter of 2000, we
re-evaluated the carrying value of the intangible assets associated with our
fiscal 2000 acquisition of FreePC, Inc., and determined that the estimated fair
value of the intangible assets was less than the amount that we had recorded.
We reduced our estimates of the intangible assets' fair value because of our
reduced expectations for our Internet business and significant declines in the
values of Internet companies during the fourth quarter of 2000. We recorded
intangible asset impairment charges of $88.5 million for the fiscal year ended
December 30, 2000, including $85.8 million in the fourth quarter of 2000,
because our revised estimated fair value of the assets was less than their
carrying value.
Our quarterly operating results are subject to fluctuations and seasonality
that make it difficult to predict our future performance.
We expect our quarterly operating results to fluctuate significantly.
Because our PC business generates low operating margins, slight variations in
the prices of our PCs, component or manufacturing costs or operating costs
could significantly affect our future operating results. Other factors that
could affect our quarterly operating results include:
. changes in consumer acceptance of and demand for PCs;
. our ability or our suppliers' ability to effectively develop and support
new PC models;
. reductions in the prices of PC products through discounts and rebates,
and new product introductions by us or our competitors to stimulate
sales;
. fluctuations in the amount of, and the number of our PC buyers claiming,
product rebates;
. popularity of the PCs and monitors we sell, and changes in our mix of
products;
. changes in the dollar amount of ISP rebates we offer;
. achieving and maintaining a low-cost business model in our PC business
and managing the third-party relationships necessary to do so;
5
. the cost of our PC products, including our key suppliers' component costs
and ability to obtain sufficient supply;
. our key suppliers' ability to manufacture and deliver sufficient
quantities of our PC products, and to maintain the quality of our PC
products;
. our ability to manage inventory supply and accurately predict consumer
demand for our PC products and Internet services;
. increased operating expenses resulting from our acquisition of FreePC;
. our ability to adequately reserve for price protection credits to
retailers, product returns or warranty claims; and
. our ability to effectively enter new markets, including international
markets.
If our operating results in any future quarter do not meet the expectations
of securities analysts or investors, the price of our common stock could
decline further.
Seasonal fluctuations may also affect our quarterly operating results.
Historically, demand for PCs and PC-related services and consumer retail sales
have been significantly stronger in the fourth quarter of each year and weaker
in the first and second quarter of each year. We believe that the seasonal
impact on our business of these cycles may increase as PCs become more
consumer-oriented or entertainment-driven products and e-commerce continues to
gain broader acceptance. As a result, we typically expect that net revenues
from our PC business may be greater in the fourth quarter and lower in the
first and second quarters of each year. Due to a weaker than expected PC market
and overall market conditions, these trends have not materialized and we
experienced substantially lower sales in the quarter ended December 30, 2000,
than expected.
Because we depend on one manufacturer for our PCs, if supply is reduced or
discontinued, our sales would be reduced.
TriGem Computer manufactures all of our PCs under a supply agreement. Under
the supply agreement, TriGem Computer has agreed to reserve a portion of its
manufacturing capacity at its facilities to meet our supply requirements.
TriGem Computer provides other vendors with PCs. As a result, we may not
benefit from any increased production capacity or our promised capacity. If we
are unable to obtain a sufficient supply of PCs to meet the demand for our
products, our sales, revenue and market share would decline.
Some of the terms of our supply agreement with TriGem Computer are subject
to periodic adjustment. We are in the process of renegotiating the warranty and
return policies of our supply agreement with TriGem and there is no assurance
that renegotiation of those terms will be favorable to us or that such
renegotiation will not increase our supply costs and harm our financial
performance.
We plan to establish supply relationships with other PC manufacturers. We
cannot assure you that we will be able to obtain PCs from other manufacturers
on terms acceptable to us.
Because we depend on a limited number of large retailers for a significant
portion of our revenues, the loss of any of these retailers could significantly
harm our financial results.
Since we began selling products, we have derived a significant portion of
our gross revenues from sales of our PCs and monitors to a limited number of
large retailers. For the fiscal year ended December 30, 2000, approximately 57%
of our gross revenues were from sales of PCs and monitors to Best Buy, Circuit
City, and Office Depot, our three largest retail customers. We expect to
continue to derive a large percentage of our gross revenues from sales of PCs
and monitors to a limited number of leading retailers. Our retail customers are
not contractually committed to future purchases of our products and could
discontinue carrying our products at any time. We compete with an increasing
number of companies for access to limited shelf space with these retailers.
Generally, these retailers limit the number of PC brands they carry and may
stop carrying our PCs at any time.
6
Any significant disruption of our relationship with any of our major retailers,
any significant reduction in purchases by them or any significant delays in
payments by them, could affect our revenues and results of operations.
If we extend credit to retailers that do not repay us, or that pay late, we may
have unexpected losses, which would significantly harm our business.
We extend credit to our retail customers, which exposes us to credit risk.
Most of our outstanding accounts receivable are from a limited number of large
retailers. At December 30, 2000, the five highest outstanding accounts
receivable balances totaled $79.5 million, representing 83% of our gross
accounts receivable, with one customer accounting for $50.0 million,
representing 52% of our gross accounts receivable. If we fail to monitor and
manage effectively the resulting credit risk and a material portion of our
accounts receivable is not paid in a timely manner or becomes uncollectible,
our business would be significantly harmed, and we could incur a significant
loss associated with any outstanding accounts receivable.
If we lose key personnel or are unable to attract and retain additional
personnel when needed, we may not be able to successfully operate our business.
Our success depends on the skills, experience and performance of our senior
management and key personnel, especially that of our President and Chief
Executive Officer, Wayne R. Inouye who we hired on March 5, 2001. We must
retain our senior management and key personnel and be able to attract and
retain additional key personnel when needed. Competition in the PC market for
these types of individuals with business and technical expertise is high. All
of our senior management and key personnel are at-will employees and may
terminate their employment with us at any time without warning. In the second
quarter of 2000, several key personnel resigned from the company, including
Steven H. Miller, our Chief Financial Officer, and Donald S. LaVigne, our
Executive Vice President of Strategy and Business Development and the former
CEO of FreePC. Stephen A. Dukker resigned on March 4, 2001 as our President,
Chief Executive Officer and a member of our board of directors. We do not
maintain "key man" life insurance on any of our employees. If we lose key
personnel, especially Mr. Inouye, or if we are not able to attract and retain
additional personnel when needed, we may be unable to successfully introduce
new products and services or otherwise implement our business strategy.
If we are unable to manage our growth successfully, our business could be
significantly harmed.
Our total number of employees has grown from 10 at December 31, 1998 to 131
at March 31, 2001. Our growth has placed, and will continue to place, a
significant strain on our management systems, infrastructure, resources and
planning and management processes.
As we continue to operate, we will need to assimilate new employees, as well
as expand, train and manage our workforce. We hired Wayne R. Inouye, our
President and Chief Executive Officer, in March 2001, and Brian Firestone, our
Executive Vice President, Strategy and Business Development, and Adam Andersen,
our Senior Vice President and Chief Operating Officer, in April 2001. In
addition to performing their regular duties, these individuals, as well as all
new employees, must spend a significant amount of time learning our management
systems and our historical business model. Our senior management team has
limited experience in the management and administration of a public company. If
our senior management team is unable to effectively manage our operations,
integrate new employees into our business and work together as a management
team, we may be unable to manage our business causing substantial harm to our
business.
Because our business depends on outsourcing a substantial portion of our PC
operations, if we were unable to do so in the future, we could incur
significantly higher costs that would reduce our revenues and negatively impact
our operating results.
Historically, we have had relatively low manufacturing and operating costs
because we outsource most of our operating and manufacturing functions,
including system assembly, warehouse labor, distribution, research, product
design, warranty services, rebate services and customer support. We have had
relatively low
7
distribution costs because we distribute our products primarily through a
limited number of large retailers. We may not be successful in managing our
relationships with any of these third parties, and if existing third-party
suppliers cannot provide these services at commercially reasonable prices, or
at all, and we are not able to find
suitable alternative suppliers, our operating costs will increase
significantly. For example, in fiscal 2000, we began using Alorica to provide
customer support functions. If Alorica cannot provide the level of service we
require, our business may be harmed. Moreover, we may not be able to monitor or
control effectively the quality of the PCs and monitors manufactured by our
suppliers. Low-quality products, poor customer service, or similar inadequacies
may harm our brand name, which would reduce our revenues and negatively impact
our operating results.
Because our suppliers depend on a limited number of key suppliers for
microprocessors and other components used in our products, our business is
subject to supply shortages and sudden price increases.
Our suppliers depend on a limited number of key suppliers for
microprocessors and other components. If our suppliers cannot obtain sufficient
quantities of microprocessors or other components from their suppliers or
elsewhere, or if their suppliers stop producing microprocessors or other
components that meet our needs, our suppliers could experience increases in
component costs or delays in product shipments. Even where multiple vendors are
available, our suppliers' strategy has been to concentrate purchases from a
single source to obtain favorable pricing. Our profit margins may decline and
our business would be significantly harmed if supply shortages led to price
increases or production delays for our products.
We are subject to risks associated with acquisitions, in general, and with our
acquisition of FreePC, in particular.
In January 2000, we acquired FreePC. We have had difficulty integrating the
additional personnel, operations, technology and products of FreePC into our
business and have lost a significant portion of the original FreePC staff,
including all of FreePC's officers. The acquisition has placed additional
burdens on our existing financial and managerial controls and reporting systems
and procedures. The acquisition of FreePC was intended to allow us to extend
our historical business as a high-quality, low-priced PC provider to include
integrated computing and Internet advertising offerings. We have not realized
the expected benefits from these offerings and from the acquisition of FreePC.
We intend to continue to make investments in complementary companies, products
or technologies. If we buy a business, we could have difficulty in integrating
that company's personnel and operations. An acquired company's employees,
including key personnel, may decide not to work for us. If we make other types
of acquisitions, we could have difficulty integrating the acquired technology
or products into our operations. These difficulties could disrupt our ongoing
business, distract our management and employees and increase our expenses. We
may increase our debt or dilute our existing stockholders if we issue equity
securities to pay for future acquisitions.
If we do not maintain our reputation and expand our name recognition, we may
lose customers.
Developing and maintaining awareness of our "eMachines" brand name is
critical to achieving widespread acceptance of our PC offerings. Promotion and
enhancement of our brand will depend largely on whether we cost-effectively
provide reliable and desired products and services to consumers and advertisers
and the effectiveness of our marketing efforts. Currently, retailers are our
first points of contact with consumers. If these retailers reduce or cease
advertising our products, we may need to increase our own sales and marketing
expenses to create and maintain brand awareness among potential consumers. If
consumers do not perceive our products to be of high quality, our brand name
and reputation could be significantly harmed. The importance of brand
recognition will increase as competition in the PC market increases. If we fail
to successfully promote our brand name, we may lose PC sales. We may incur
significant expenses promoting and maintaining our brand name.
8
We have limited experience marketing and selling our products internationally.
We intend to expand our operations internationally, and our operating results
will suffer if we do not generate revenue from international operations that
exceeds the cost of establishing and maintaining the operations.
As part of our efforts to expand our operations into international markets,
we entered into an alliance with Dixons, a European consumer electronics
retailer, during the second quarter of 2000. International sales through our
relationship with Dixons began in the third quarter of 2000 and are expected to
account for an increasing percentage of our revenues over the foreseeable
future. Because our international sales are made through our alliance with
Dixons, they depend on Dixons' ability to distribute and market our products
and our ability to manage our relationship with Dixons. Because we have granted
Dixons exclusive distribution rights in several European countries, our
relationship with Dixons may make establishing relationships with other
European distributors more difficult. If we become dependent on Dixons for
distribution of our products in Europe and, if our relationship with Dixons
ends, we may not be able to find distributors to replace Dixons in those
markets. Our strategic alliance with Dixons will not be considered a success if
it does not generate a significant amount of PC sales in Europe and does not
expand our business internationally. Our international expansion also depends,
in part, on the acceptance of the Internet abroad.
We have limited experience in marketing, selling and distributing our PCs
internationally. International sales are subject to certain inherent risks,
including unexpected changes in regulatory requirements and tariffs,
difficulties in managing foreign operations, longer payment cycles, problems in
collecting accounts receivable and potentially adverse tax consequences.
Because our international sales are expected to be denominated in U.S. dollars,
the strengthening of the U.S. dollar relative to the currencies of other
countries into which we sell our products and services could make our products
and services relatively more expensive, thereby decreasing the price-
competitiveness of our products and services. If we are unable to expand our
international sales in a timely and cost-effective manner, our revenues could
be reduced.
The international operations of our suppliers of PCs and monitors expose us to
currency, trade, regulatory, political and other risks.
All of our PCs and monitors are manufactured in Korea, China, Taiwan and
Malaysia. Our international suppliers' operations, and in turn our operating
results, may be affected by:
. fluctuations in currency values; export duties, import controls and trade
barriers;
. restrictions on the transfer of funds;
. the ability of our international suppliers to timely deliver products to
us and to Dixons, which could be affected by, among other things, adverse
weather conditions and shortages of shipping containers;
. political and economic instability; and
. compliance with foreign laws.
If we are unable to sell America Online's Internet access services to our PC
buyers, our revenues would be reduced and our operating results would be
negatively affected.
Our future success depends, in part, on our ability to sell Internet access
services to our PC buyers. The PC industry and the Internet industry are
currently evolving and converging. We believe that this convergence will result
in the PC becoming the Internet appliance that attracts consumers to enter into
multi-year Internet access service contracts. Because we receive bounty
payments and other revenues from America Online depending on the service our PC
buyers choose, our business would be harmed if the reputation of America Online
or the popularity of America Online's AOL Classic or CompuServe 2000 suffer and
a significant number of buyers do not also purchase Internet access service
from America Online. AOL plans to discontinue the $400 CompuServe rebate that
we offer with our PCs by the end of June 2001. Termination of this or other
similar rebates that we offer may make consumers less inclined to purchase our
PCs, and our revenues may decrease. If Internet access services fees decline
significantly or become free, an ISP rebate program would be unattractive to
consumers and our revenues would be reduced and our operating results would be
negatively affected.
9
We rely on the availability of rebates offered by Internet service providers to
sell our PCs, and if such rebates are discontinued, our sales could decrease.
To help sell PCs, we rely on the availability of rebates offered by Internet
service providers to purchasers of new computers who subscribe for their
Internet access services. These rebates reduce the effective price of our PC
models, making them more affordable for consumers. If these rebates were
discontinued, the effective prices of our PCs would increase, which likely
would reduce sales of our PCs. We expect the $400 CompuServe rebate to end in
June 2001. A significant decrease in sales of PCs would harm our business.
If we are unable to monitor and manage our product rebate programs, our costs
could increase.
We currently offer product rebates to buyers of our PCs. We use our
historical data to assist us in determining the percentage of consumers who
will claim these product rebates. At the same time, we must estimate future
product rebate redemptions to price our products effectively. If an
unexpectedly large number of our PC buyers redeemed the product rebates to
which they were entitled, the effective average selling price of our products
would be reduced below the level we anticipated and our costs would increase.
We rely on a third party over which we have limited control to manage our
rebate programs. If rebate claims are not properly handled or if rebates are
not paid promptly, our reputation may be harmed and sales of our PCs may
decline.
Because we have relied on retailers to sell substantially all of our products,
our efforts to develop other methods for selling our products may not be
successful.
We intend to sell our products directly to consumers through the use of
infomercials and our website. We do not have experience developing and
implementing direct marketing programs. The success of our direct marketing
efforts will depend on our ability to establish relationships with third
parties who can effectively market our products and fill customer orders for
us. Because we must rely on third parties, over which we have limited control,
to handle our direct marketing programs, these programs will not be successful
if we cannot effectively monitor these third-party services. If we are unable
to generate revenue from our direct marketing operations that exceeds the cost
of establishing and maintaining these operations, our operating results will
suffer.
We are involved in litigation that may be costly and time-consuming.
In July 1999, Compaq Computer Corporation filed a complaint against us,
TriGem Computer, TriGem America and Korea Data Systems as defendants in the
U.S. District Court for the Southern District of Texas based on the defendants'
alleged infringement of 13 patents held by Compaq related to improved system
processing speed, enhanced video graphics, peripheral compatibility and overall
system architecture. The complaint seeks an accounting, treble damages, a
preliminary and permanent injunction from further alleged infringement,
attorneys' fees and other unspecified damages. We filed a response in September
1999, seeking declaratory judgment of noninfringement and invalidity of
Compaq's patents and asserting counterclaims against Compaq that included false
and misleading advertising under the Lanham Act, business disparagement and
unfair competition under Texas common law. Discovery in this case has been
completed. We are currently unable to estimate total expenses, possible loss or
range of loss that may be ultimately connected with these allegations. We are
indemnified against liability under the terms of our PC supply agreement. We
cannot assure you that Compaq will not succeed in obtaining monetary damages or
an injunction against the production of our PC products. Our defense of the
claims could result in significant expenses and diversion of management's
attention and other resources. Although we believe our direct financial
exposure is limited under our indemnification arrangements, the results of
complex litigation of this sort are inherently uncertain and difficult to
predict, and we cannot guarantee that the results of this litigation will not
significantly harm our business, particularly if the results affect production
of our PCs.
Packard Bell filed a complaint on October 6, 1999 in the U.S. District Court
for the Eastern District of California, alleging patent infringement of Packard
Bell patents that it asserts relate to the graphics controller, parallel port
controller, and bus interface of our eTower machine. We filed a response in
January 2000 disputing infringement and asserting that the patents at issue are
invalid. In August 2000, NEC Corp. substituted in as plaintiff in the case.
After substitutions the Court granted NEC's motion to amend the complaint in
September 2000 to add
10
an additional claim of patent infringement against the now-discontinued eSlate
related to a sleep mode feature for laptop computers. We are in the early
stages of discovery. As a result, we are currently unable to estimate total
expenses, possible loss or range of loss that may be ultimately connected with
these allegations. We are indemnified against liability under the terms of our
PC supply agreement. We cannot assure you that NEC will not succeed in
obtaining monetary damages or an injunction against the production of our PC
products. Our defense of the claims could result in significant expenses and
diversion of management's attention and other resources. Although we believe
our direct financial exposure is limited under our indemnification
arrangements, the results of complex litigation of this sort are inherently
uncertain and difficult to predict, and we cannot guarantee that the results of
this litigation will not significantly harm our business, particularly if the
results affect production of our PCs.
In October 1999, David Packard, on behalf of a putative nationwide class,
filed a complaint against us as a defendant in the U.S. District Court for the
Eastern District of Texas based on our alleged sale of defective goods.
Essentially identical complaints were filed contemporaneously against Compaq,
Hewlett-Packard and Packard Bell. The complaints claim that a chip in the
defendants' respective PC products contains a defect that may cause an error to
occur when information is written to a floppy disk. The complaint seeks
unspecified monetary damages, injunctive relief and declaratory relief. The
lawsuit against us is in the early stages and we have not yet filed a response.
Although we believe that we have meritorious defenses and intend to vigorously
defend ourselves in this action, this type of litigation is inherently complex
and unpredictable. We cannot assure you that the suit will not succeed in
obtaining unspecified monetary damages, injunctive or declaratory relief
against the production of our PC products. Our defense of the claims could
result in significant expenses and diversion of management's attention and
other resources. We cannot guarantee that the results of this litigation will
not significantly harm our business.
In September 2000, Monster Cable Products, Inc., filed a complaint against
us in the U.S. District Court for the Northern District of California. The
complaint alleges trademark infringement and dilution and unfair competition
arising out of our use of the mark "EMONSTER". Monster Cable Products is
seeking injunctive relief and monetary damages in excess of $30 million. In
November 2000, we answered the complaint by denying all of Monster Cable
Products' claims. Although we believe that we have meritorious defenses and
intend to defend ourselves vigorously in this action, given the early stage of
this litigation and the inherent uncertainty of any litigation, we cannot
assure you that our defense will be successful. Our defense of the claims could
result in significant expenses and diversion of management's attention and
other resources. We cannot guarantee that the results of this litigation will
not significantly harm our business. Trial is scheduled for May 2002.
Various other lawsuits, claims and proceedings have been or may be asserted
against us, including, without limitation, those related to product liability,
intellectual property, Internet content, privacy, safety and health and
employment matters. Litigation is expensive and time consuming regardless of
the merits of the claim and could divert management's attention from our
business. We cannot predict the outcome of any litigation. Some lawsuits,
claims or proceedings may be disposed of unfavorably to us, and we may incur
significant costs defending ourselves.
Discontinuation of our Internet products may increase our customer service
costs.
In March 2001, we announced a major initiative for streamlining our
operations in order to focus on our primary business of selling high-quality,
low-priced PCs. As part of this restructuring plan, we will reduce our exposure
to the declining Internet advertising market by eliminating resources dedicated
to our Internet products, such as eWare(TM), eKeys(TM) and pop-up advertising,
and focusing on more profitable ISP products. We cannot predict with certainty
what effect discontinuation of these Internet products will have on us, and we
may experience increased customer service costs if unexpected technical or
other problems that may arise.
Our servers are located at a single site and, if a natural disaster occurs, our
client software would not operate.
We depend on the efficient and uninterrupted operations of our Web servers
and other hardware systems. Our Web servers and other hardware systems are
located in Sunnyvale, California. Our Web servers and other
11
hardware systems are vulnerable to damage from earthquakes, fire, floods, power
loss, telecommunications failures and similar events. If any of these events
damage our Web servers or other hardware systems, we may be unable to deliver
Internet advertising and other related Internet services for our customers
until the damage is repaired. If this occurs, we may lose customers, users of
our client software and revenue, and may incur substantial costs in repairing
any damage.
Risks Related to Our Industry
Because average selling prices of PCs decline rapidly, if we fail to properly
manage our inventory, we may be unable to meet consumer demand or we could have
excess inventories.
The average selling prices of PCs are subject to rapid declines. To address
the problems created by excess inventory in the face of rapid price decreases,
PC vendors must carefully manage their inventory. Additionally, due to our
narrow margins, we must manage our inventory more efficiently than traditional
PC vendors. From time to time in the past, our inventory has been limited by
the capacity of our manufacturers and may be limited in the future. Because our
business depends on our ability to quickly sell our PC products through the
retail channel, we must carefully monitor the demand for, and supply of, our
products in an effort to match supply to consumer demand. If we overestimate
the supply needed to meet consumer demand, we could have excess inventory and
may need to liquidate such inventory, which could harm our operating results.
Because of adverse market conditions in the second and fourth quarter of 2000,
we determined that the cost of certain of our inventory was in excess of market
value and wrote down this inventory by $21.6 million in the second quarter and
$7.8 million in the fourth quarter. If we underestimate needed supply or
otherwise maintain too little inventory, we may be unable to react quickly to
sudden increases in market demand for a given product.
Retailers generally have the right to return a portion of excess inventory
purchased in the prior quarter within a limited period of time. Increased
inventory levels in our distribution channels, whether due to a decrease in
consumer demand for our products, lower-than-anticipated demand for PCs in
general, problems in managing product transitions or component pricing
movements could significantly harm our profitability. Production delays at the
beginning of a new PC product cycle could affect our sales of newer products
and how we manage the sale of older PC product inventory held by retailers. If
we are unable to sell our aging products at anticipated prices, our margins
would be reduced.
If demand for PCs does not continue to grow, we could have excess inventory
that could result in write-offs.
The success of our business depends on continued strong demand for PCs.
Although we focus our efforts on selling high-quality, low-priced PC products,
we expect consumer demand for more powerful PCs to increase with advances in
technology and declines in prices. To meet these demands, we must successfully
gauge the level and timing of consumer demand for PCs and plan our inventory
accordingly. The PC market is characterized by rapid new product and technology
introductions and generally declining prices for existing products. Demand for
PCs might be significantly reduced if consumers perceive little technological
advantage in new products or believe that the price of a new product is not
worth the perceived technical advantage. Further, if consumers view anticipated
changes as significant, such as the introduction of a new operating system or
microprocessor architecture, overall market demand for PCs may decline because
potential consumers may postpone their purchases until release of the new
product or in anticipation of lower prices on existing products following the
introduction of new models. Reduced demand could result in excessive
inventories that could lead to write-offs of some or all of the excess
inventories and could take several quarters to correct.
Our success depends on our ability to compete successfully in the PC industry.
The PC industry is highly competitive and we expect this competition to
increase significantly, particularly in the low-priced PC market. We have been
able to gain market share by selling high-quality PCs at prices significantly
lower than those offered by established PC vendors. We expect pricing pressures
in the PC market
12
to continue, particularly as more vendors combine Internet access with the
purchase of a PC. In addition, in a generally weak economic environment in
which the PC market is adversely affected, the price of PCs is more
competitive. We expect this to be the case through at least the first half of
2001. PC vendors may continue to reduce their prices to compete with us at our
low price points. Large PC vendors such as Compaq, Gateway, Hewlett-Packard and
IBM have significantly greater financial, marketing and technical resources
than we do and may decide to accept lower margins or losses on a sustained
basis on their low-priced PC sales to regain market share. The introduction of
low-priced PCs combined with the brand strength, extensive distribution
channels and financial resources of the larger PC vendors may cause us to lose
market share.
There are relatively few barriers preventing competitors from entering our
market. As a result, new market entrants pose a threat to our business. We do
not own any patented technology that precludes or inhibits competitors from
entering the low-priced PC market. Existing or future competitors may develop
or offer products or services that are comparable or superior to ours at a
lower price, which could erode our competitive position. Most major PC vendors
have begun to offer Internet access services. Some PC vendors are trying to
increase their sales of higher-priced PCs by offering additional services, such
as free Internet access for a limited period of time. In addition, other PC
vendors have adopted programs similar to ours that rebate a portion of the
purchase price of PCs in exchange for entering into multi-year Internet access
service contracts. Our PC and monitor suppliers have only limited obligations
to meet our demand for products and can divert some or all of their output to
others, including our competitors, or sell directly to the retail channel. If
any of these events occurred, our market share could be reduced unless we were
able to successfully compete with these parties and obtain high quality PCs and
monitors from other low-cost manufacturers.
If we do not regularly introduce new products and services to keep pace with
rapid technological change in the PC industry, we may not be competitive and
could experience a decline in sales and loss of market share.
The PC market is characterized by rapid ongoing technological change,
changes in user requirements and preferences, frequent new service
introductions embodying new processes and technologies and evolving industry
standards and practices that could render our existing products and services
obsolete. We must regularly introduce new products, including new PC
configurations to maintain retailer, consumer and advertiser interest in our
products and services. Any new PCs or other products that we introduce may not
be successful. The successful introduction of new products or services by our
competitors or us may significantly harm the sale of, or gross margins on, our
existing products or services. We may not be able to quickly adapt to future
changes in the PC industry because we do not maintain a PC research and
development group. If we do not have access to new technology, we may be unable
to deliver new products or features in a timely and cost-effective manner.
The future of our PC business depends on PCs remaining the predominant Internet
access device.
The future of our PC business depends on PCs remaining the predominant
Internet access device. Internet services are currently accessed primarily by
PCs. However, television set-top boxes, hand-held products and other non-PC
devices may increasingly be used to access the Internet. Television set-top
boxes equipped with modems and cable modems allow users to transmit data at
substantially faster speeds than the analog modems currently incorporated in
our PCs. If consumers prefer this or any other alternative devices to PCs to
access the Internet, sales of our PCs may slow.
Because we have limited experience selling products other than PCs and
monitors, our efforts to broaden our product line may not be successful.
To increase our revenues, we may expand our PC product line or produce other
non-PC products, such as Internet access devices. We do not have significant
experience developing or selling products other than PCs and monitors. The
success of our efforts to broaden our product line will depend on our ability
to establish relationships with third parties who can effectively develop,
manufacture and market these products and fill
13
customer orders for us. In the fourth quarter of 2000, we began selling an
Internet access device through our alliance with Microsoft. This product was
not successful, and we have written down our remaining inventory of this
product. If we are unable to generate revenue from the sale of new products
that exceed the cost of developing and marketing these products, our operating
results will suffer.
Products that contain, or are rumored to contain, defects could result in
significant costs to us, decreased sales of our products, damage to our brand
and lawsuits.
The design and production of PC components is highly complex. Because we do
not design or produce our own PC products, we must rely on suppliers and
component manufacturers to provide us with high-quality products. If any of our
PC products contain defective components, we could experience delays in
shipping these products and increased costs. The design of software is highly
complex, and software often contains defects that may be undiscovered for long
periods of time. If we or our software suppliers who have bundled their
software on our computers are not successful in designing this software, or if
defects in our software, PC products or our software suppliers' software are
discovered after we have shipped the affected software or PC products in
volume, we could be harmed in the following ways:
. upgrades, replacements or recalls could impose substantial costs on us;
. rumors, false or otherwise, could be circulated by the press and other
media, which could reduce sales of our products and significantly damage
our brand; and
. our PC buyers could sue us for damages caused by defective products.
For example, in October 1999, David Packard, on behalf of a putative
nationwide class, filed complaints against Hewlett-Packard, Compaq and us in
the U.S. District Court for the Eastern District of Texas based on the alleged
sale of defective goods. The complaint alleges that a chip in the respective
defendants' PC products contains a defect that causes an error to occur when
information is written to a floppy disk. For a discussion of these complaints
and the risks associated with the lawsuit against us, see the risk factor "We
are involved in litigation that may be costly and time-consuming" above.
Our future growth depends on the continued use of the Internet.
We believe a significant number of our PC buyers are purchasing our products
and services to access the Internet. As a result, our success substantially
depends upon continued growth in Internet use. The use and acceptance of the
Internet as a medium for commerce and communications may not increase
because of:
. actual or perceived lack of security of information, such as credit card
numbers, which are transmitted over the Internet;
. high cost or lack of availability of access;
. congestion or traffic or other usage delays on the Internet;
. inconsistent quality of service;
. possible outages due to damage to the Internet;
. uncertainty regarding intellectual property ownership;
. government regulation of the Internet; and
. delays, transmission errors and other difficulties caused by capacity
constraints.
If the necessary infrastructure, products, services or facilities are not
developed to mitigate the effects of these factors, our products and services
would be less attractive and our growth would be impaired.
14
We may not compete effectively if we are unable to protect our intellectual
property.
Monitoring and preventing the unauthorized copying of aspects of our
products and use of our intellectual property is difficult. The trademark,
trade secret, patent and copyright law and contractual restrictions on which we
rely to protect our intellectual property may be of limited value. Litigation
may be necessary to enforce our intellectual property rights, to protect our
trade secrets and to determine the validity and scope of the proprietary rights
of others. Any litigation could result in substantial costs and diversion of
our resources and could seriously harm our business and operating results. Our
inability to protect our intellectual property may harm our business and
financial prospects.
Because we depend on licenses of intellectual property from third parties to
produce our PC products, the loss of any of these licenses would significantly
harm our financial results.
We are required to obtain licenses from software providers to market and
sell our products and services. We pre-install Microsoft Windows on our PCs. If
we are unable to maintain our license with Microsoft, or obtain the necessary
licenses in the future, we may be forced to market products without Microsoft
Windows. We also may have to discontinue sales of our products that incorporate
allegedly protected technology for which we have no license or defend legal
actions taken against us relating to our use of the allegedly protected
technology. Our inability to obtain licenses on competitive terms necessary to
sell our PCs at a profit would significantly harm our financial results.
We could be exposed to liability or increased costs if new case law is decided,
or new government regulation is enacted, regarding the Internet.
The law relating to our Internet business and operations is evolving, and no
clear legal precedents have been established. The adoption of any new Internet
laws and regulations or the application of existing laws and regulations to the
Internet and e-commerce could decrease the demand for our products and services
or increase our cost of doing business. If we were alleged to have violated
federal, state or foreign civil or criminal law, even if we could successfully
defend such claims, such allegations could occupy significant amounts of
management's time, harm our business reputation and negatively affect our
operating results and financial condition.
Risks Related to Our Common Stock
Our principal stockholders can exercise a controlling influence over our
business and affairs.
Our four principal stockholders, TriGem America, Korea Data Systems America,
Bill Gross and his affiliated entities, and America Online beneficially owned
approximately 55% of our common stock at April 25, 2001. If these stockholders
acted or voted together, they would have the power to elect our directors and
to exercise a controlling influence over our business and affairs. In addition,
this concentration of ownership could prevent a change in control that might
otherwise be beneficial to our stockholders.
We may have potential conflicts of interest with our principal stockholders
that could be resolved in a manner that is inconsistent with other
stockholders' interests.
Conflicts of interest may arise between us and our principal stockholders in
a number of areas relating to our present and ongoing relationships, which
could be resolved in a manner that is inconsistent with our other stockholders'
interests. Conflicts of interests that may arise include:
. the ongoing supply relationship between us and TriGem Computer and any
future supply relationship between us and our principal corporate
stockholders that may result in terms that are not as favorable to us as
arrangements we could negotiate at arm's length between unrelated
parties;
. potential competitive business activities, such as sales of monitors by
KDS USA
. potential acquisitions or financing transactions;
15
. sales or other dispositions by these principal stockholders of shares of
our common stock; and
. tax and intellectual property matters.
Substantial future sales of our common stock in the public market may depress
our stock price.
Our current stockholders hold a substantial number of shares of our common
stock that they can sell in the public market. Sales of a substantial number of
shares of our common stock in the future could cause our stock price to fall.
The sale of these shares could impair our ability to raise capital through the
sale of additional stock.
Our charter documents and Delaware law could make it more difficult for a third
party to acquire us and discourage a takeover.
Our certificate of incorporation and bylaws are designed to make it
difficult for a third party to acquire control of us, even if a change in
control would be beneficial to stockholders. As a Delaware corporation, we are
also subject to the Delaware anti-takeover statute contained in Section 203 of
the Delaware General Corporation Law. These provisions could make it more
difficult for a third party to acquire us, even if doing so would be beneficial
to our stockholders.
Our stock price may be volatile.
The market price for our common stock has been and may continue to be highly
volatile and subject to wide fluctuations in response to factors including
those set forth in the items under "Risks That Could Affect Our Financial
Condition and Results of Operations." The stock markets in general, and The
Nasdaq National Stock Market and technology companies in particular, have
experienced extreme price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of such companies.
These broad market and industry factors may seriously impact the market price
of our common stock, regardless of our actual operating performance.
If we are delisted from The Nasdaq National Market, the liquidity of our
trading market may be harmed.
On March 21, 2001, Nasdaq advised us that it had decided to delist our
common stock from The Nasdaq National Market because of our failure to comply
with Nasdaq's $1 minimum bid price requirement. We have requested an appeal of
the delisting decision before a Nasdaq listing qualifications panel, and we
expect that our common stock will continue to be listed on The Nasdaq National
Market pending the outcome of the appeal. The hearing date for the appeal is
May 10, 2001.
There can be no assurance that our appeal will be successful or that we will
satisfy the requirements for continued listing on The Nasdaq National Market.
If our appeal is unsuccessful, our common stock will be delisted. We will not
be notified of the delisting until it becomes effective. If our common stock is
delisted, we may be unable to have our common stock listed or quoted on any
other organized market. Even if our common stock is quoted or listed on another
organized market, an active trading market may not develop.
Delisting may reduce the market price of and the liquidity of the market for
our common stock, and may subject our common stock to the "penny stock rules"
contained in Section 15(g) of the Securities Exchange Act of 1934.
16
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this prospectus that relate to future results and events are
based on our current expectations, estimates and projections about our industry
and business. Words such as "anticipate," "expect," "intend," "plan,"
"believe," "may," "will" or similar expressions are intended to identify
forward-looking statements. In addition, any statements that refer to
expectations, projections or other characterizations of future events or
circumstances, including any underlying assumptions, are forward-looking
statements. Such statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict. Therefore, our actual results could differ materially and adversely
from those expressed in any forward-looking statements as a result of various
factors. The section entitled "Risk Factors" in this prospectus discusses
factors that may affect our business, results of operations and financial
condition. You should carefully consider those risks, in addition to the other
information in this prospectus and in our other filings with the SEC, before
deciding to invest in our company or to maintain or increase your investment.
We undertake no obligation to revise or update publicly any forward-looking
statements for any reason.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares by the selling
stockholder.
SELLING STOCKHOLDER
All of the shares of common stock that are being offered for resale are
owned by Stephen A. Dukker. Mr. Dukker served as our President and Chief
Executive Officer and one of our directors from September 1998 to March 2001.
Beneficial ownership calculations are determined in accordance with the rules
of the Securities and Exchange Commission and are based on 145,477,758 shares
outstanding at April 25, 2001. The following table lists the number of shares
of common stock to be sold pursuant to this prospectus.
<TABLE>
<CAPTION>
Beneficial
Ownership of Beneficial Ownership
Common Stock of Common Stock
Prior to Offering Number of Shares After Offering
----------------- of Common Stock --------------------
Selling Stockholders Number Percent Offered Number Percent
-------------------- --------- ------- ---------------- --------------------
<S> <C> <C> <C> <C> <C>
Stephen A. Dukker... 8,000,000 5.5 8,000,000 0 0
</TABLE>
PLAN OF DISTRIBUTION
We are registering on behalf of Mr. Dukker the shares that he is offering to
sell in this prospectus. We will pay all costs, expenses and fees to register
the shares covered by this prospectus. Mr. Dukker will pay any commissions and
similar selling expenses of brokers or dealers attributable to the sale of the
shares.
Mr. Dukker may sell or distribute some or all of the shares in one or more
transactions, which may involve block transactions, on the Nasdaq National
Market, in privately negotiated transactions, in the over-the-counter market or
in a combination of these transactions. These transactions may be effected by
Mr. Dukker at market prices prevailing at the time of sale, at negotiated
prices, or at fixed prices, which may be changed. These transactions may or may
not involve brokers or dealers.
Mr. Dukker may sell the shares directly to purchasers or to or through
brokers or dealers, which may act as principals or agents. These brokers and
dealers may receive compensation in the form of discounts, concessions or
commissions from Mr. Dukker, and if they act as agent for the purchaser of the
shares, from such purchaser. This compensation may be in excess of that
customary for the type of transaction involved.
Mr. Dukker and any brokers or dealers that participate in the distribution
of the shares may be considered underwriters within the meaning of the
Securities Act of 1933. Any commissions received by brokers or dealers
17
and any profit on the resale of the shares sold by them while acting as
principals may be considered to be underwriting discounts and commissions under
the Securities Act of 1933. We know of no existing arrangements between Mr.
Dukker and any broker, dealer or other agent for the sale or distribution of
the shares. Mr. Dukker may indemnify any broker, dealer or agent and its
controlling persons against liabilities arising from the sale of the shares,
including those liabilities arising under the Securities Act of 1933.
We have advised Mr. Dukker that the anti-manipulative provisions of
Regulation M of the Securities Exchange Act of 1934 may apply to any person
engaged in the distribution of the shares. We have also informed Mr. Dukker of
the possible need to deliver copies of this prospectus to prospective
purchasers of the shares.
Any securities covered by this prospectus that qualify for sale under Rule
144 of the Securities Act of 1933 may be sold in compliance with Rule 144
rather than under this prospectus. Under Rule 144, a person generally may sell,
within any three-month period, restricted shares in an amount that does not
exceed the greater of:
. 1% of our then outstanding shares of common stock; or
. the average weekly trading volume in our common stock during the four
calendar weeks preceding the sale,
if at least one year has elapsed since the shares were acquired from us or our
affiliates. Rule 144 also restricts the manner in which the shares may be sold,
may require the filing of a notice of the proposed sale of shares and requires
the availability of current public information regarding us. However, a person
who is not an affiliate of us at any time within the three months prior to a
sale may sell restricted shares without regard to the volume limitations or
these other restrictions if at least two years have elapsed since the shares
were acquired from us or our affiliates.
If Mr. Dukker notifies us that he has engaged a broker or dealer to sell the
shares through a block trade, special offering, exchange distribution or
secondary distribution or to buy the shares, we will supplement this prospectus
as required by the Securities Act of 1933. The supplement will disclose:
. the name of the participating broker or dealer;
. the number of shares involved;
. the price at which the shares were sold;
. the commissions paid or the discounts or concessions allowed any broker
or dealers;
. that the broker or dealer did not conduct an investigation to verify the
information included or incorporated by reference in this prospectus;
and
. other facts material to the transaction.
VALIDITY OF COMMON STOCK
The validity of the issuance of the shares of common stock to be offered for
sale by the selling stockholder will be passed upon for us by Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo Alto, California.
EXPERT
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus by reference from the Annual Report on
Form 10-K of eMachines, Inc. have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports, which are incorporated herein
by reference, and have been so incorporated in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
18
ADDITIONAL INFORMATION
We are subject to the informational reporting requirements of the Securities
Exchange Act of 1934, and we file reports, proxy statements and other
information with the SEC. You may read and copy any document that we file at
the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C.,
20549. You may obtain information on the operation of the public reference room
by calling the SEC at 1-800-SEC-0330. The SEC maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements, and
other information regarding issuers, such as eMachines, that file
electronically with the SEC.
This prospectus contains information concerning us and the sale of our
common stock by the selling stockholder, but does not contain all the
information set forth in the registration statement that we filed with the SEC
under the Securities Act. Statements made in this prospectus as to the contents
of any referenced contract, agreement or other document are not necessarily
complete, and such statements are qualified by reference to the applicable
contract, agreement or other document. The registration statement, including
various exhibits, may be obtained upon payment of the fee charged by the SEC,
or may be examined without charge at the SEC's office in Washington, D.C.
INCORPORATION OF INFORMATION BY REFERENCE
We hereby incorporate by reference into this prospectus the following
documents and information that we previously filed with the SEC.
(1) Our annual report on Form 10-K for the year ended December 30, 2000,
filed under Section 13 of the Securities Exchange Act of 1934.
(2) Our current reports on Form 8-K filed on March 8, 2001, March 27, 2001
and April 27, 2001 under Section 13 of the Securities Exchange Act of
1934.
(3) Our proxy statement for our 2001 annual meeting of stockholders filed
on April 27, 2001 under Section 14 of the Securities Exchange Act of
1934.
(4) The description of our common stock contained in the registration
statement on Form 8-A (file no. 000-29715) filed on February 25, 2000,
as amended on March 15, 2000, under Section 12(g) of the Securities
Exchange Act of 1934, including any amendments or reports filed for the
purpose of updating such description.
All documents subsequently filed by us pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Securities Exchange Act of 1934, prior to the filing of a
post-effective amendment which indicates that all securities registered have
been sold or which deregisters all securities then remaining unsold, shall be
incorporated by reference into this prospectus from the date of filing of the
documents.
Any statement contained in a document incorporated by reference into this
prospectus shall be modified or superseded for purposes of this prospectus to
the extent that a statement contained in this prospectus, in a prospectus
supplement or in any other document subsequently filed with the SEC that also
is incorporated by reference into this prospectus modifies or supersedes the
statement. Any statement so modified or superseded shall not, except as so
modified or superseded, constitute a part of this prospectus.
We will provide without charge to each person to whom a copy of this
prospectus is delivered, upon written or oral request of any such person, a
copy of any document incorporated by reference in this prospectus. Requests for
such copies should be directed to Investor Relations, 14350 Myford Rd., Suite
100, Irvine, California 92606. Our telephone number at that location is (714)
481-2828.
19
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................. $ 530
Fees and expenses of counsel........................................ 10,000
Fees and expenses of accountants.................................... 10,000
Blue sky fees and expenses.......................................... 0
Miscellaneous....................................................... 200
-------
Total............................................................. $20,730
=======
</TABLE>
Except for the Securities and Exchange Commission registration fee, all of
the foregoing expenses have been estimated. All of the above expenses will be
paid by eMachines.
Item 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation to
indemnify officers, directors and third parties acting on the corporation's
behalf if the person acted in good faith and in a manner reasonably believed to
be in and not opposed to the corporation's best interest, and, with respect to
any criminal action or proceeding, the indemnified party had no reasonable
cause to believe that the party's conduct was unlawful. Section 145 also
permits a corporation to include in its charter documents, and in agreements
between the corporation and its directors and officers, provisions expanding
the scope of indemnification beyond that specifically provided by the current
law.
Article XI of our amended and restated certificate of incorporation provides
for the indemnification of directors against liability for monetary damages for
breach of fiduciary duty to the fullest extent permitted under Delaware law.
Article VI of our amended and restated bylaws provides for the
indemnification of officers and directors against liability for monetary
damages for breach of fiduciary duty incurred while acting on our behalf.
We also have entered into indemnification agreements with certain of our
directors and officers and intend to enter into indemnification agreements with
our other directors and officers in the future.
We also maintain liability insurance for the benefit of our directors and
officers.
Item 16. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Document
------- --------
<C> <S>
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, with respect to the legality of the securities being
registered
23.1 Consent of Deloitte & Touche LLP (Independent Auditors)
23.2* Consent of Counsel (contained in Exhibit 5.1)
24.1* Power of Attorney
</TABLE>
--------
* Previously filed.
II-1
Item 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change
to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) 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
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
eMachines, Inc., certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Irvine, state of
California, on May 1, 2001.
eMachines, Inc.
/s/ Wayne R. Inouye
By: _________________________________
Wayne R. Inouye
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated below on May 1, 2001:
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
/s/ Wayne R. Inouye Director, President and Chief Executive
____________________________________ Officer (principal executive officer)
Wayne R. Inouye
/s/ John Muskovich Executive Vice President and Chief Financial
____________________________________ Officer (principal financial officer and
John Muskovich principal accounting officer)
* Director
____________________________________
Lap Shun Hui
* Director
____________________________________
Michael Hong
* Director
____________________________________
Jung Koh
* Director
____________________________________
Hong Soon Lee
* Director
____________________________________
Nathan Morton
*By: /s/ John Muskovich
____________________________________
John Muskovich
Attorney-in-fact
</TABLE>
II-3
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Document
------- --------
<C> <S>
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, with respect to the legality of the securities being
registered
23.1 Consent of Deloitte & Touche LLP (Independent Auditors)
23.2* Consent of Counsel (contained in Exhibit 5.1)
24.1* Power of Attorney
</TABLE>
--------
* Previously filed.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-58312 of eMachines Inc. on Form S-3 of our
reports on the consolidated financial statements and supplemental schedule of
eMachines, Inc. and subsidiaries as of December 30, 2000 and December 31, 1999
and for each of the two years ended December 30, 2000 and for the period from
September 18, 1998 (inception) to December 31, 1998, appearing in the Annual
Report on Form 10-K of eMachines, Inc. for the year ended December 30, 2000,
and to the reference to us under the heading "Expert" in the Prospectus, which
is part of this Registration Statement.
/s/ Deloitte & Touche LLP
April 27, 2001