<PAGE>
As filed with the Securities and Exchange Commission on September 22, 1999
Registration No. 333-87377
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ONSALE, INC.
(Exact name of Registrant as specified in its charter)
---------------
Delaware 7389 77-0408319
(State or other (Primary standard (I.R.S. employer
jurisdiction of industrial identification no.)
incorporation or classification code
organization) number)
ONSALE, Inc.
1350 Willow Road, Suite 100
Menlo Park, California 94025
(650) 470-2400
(Address and telephone number of Registrant's principal executive offices)
S. Jerrold Kaplan
President and Chief Executive Officer
ONSALE, Inc.
1350 Willow Road, Suite 100
Menlo Park, California 94025
(650) 470-2400
(Name, address and telephone number of agent for service)
---------------
Copies to:
Horace L. Nash, Esq. David F. McShea, Esq.
Thomas J. Hall, Esq. Daniel F. Vaughn, Esq.
FENWICK & WEST LLP PERKINS COIE LLP
Two Palo Alto Square 1201 Third Avenue, 40th Floor
Palo Alto, California 94306 Seattle, Washington 98101-3099
(650) 494-0600 (206) 583-8888
---------------
Approximate date of commencement of proposed sale to the public: Upon
consummation of the merger described herein (the "Merger").
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement number for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Title of each class Proposed maximum Proposed maximum Proposed maximum Amount of
of securities to amount to be offering price aggregate registration
be registered registered per share offering price fee
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<S> <C> <C> <C> <C>
Common Stock,
$0.0001 par
value 17,395,208(1) $7.53125(3) $131,007,660(3) $36,421(5)
- ------------------------------------------------------------------------------------
Common Stock,
$0.001 par
value 1,896,525(2) $7.75(4) $14,698,069(4) $4,086(5)
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</TABLE>
(1)Computed based on 30,787,980 shares of common stock of Egghead.com, Inc.
("Egghead common stock") outstanding as of September 16, 1999 and a fixed
exchange ratio of 0.565 shares of Onsale common stock for each share of Egghead
common stock.
(2)Computed based on 3,356,582 shares of Egghead common stock subject to
options and purchase rights outstanding as of September 20, 1999, 99 shares of
Egghead common stock issued pursuant to option exercises after September 17,
1999 and through September 20, 1999, and a fixed exchange ratio of 0.565 shares
of Onsale common stock for each share of Egghead common stock.
(3)Computed pursuant to Rules 457(f)(l) and 457(c) under the Securities Act
based on the average of the high and low per share prices of Egghead common
stock on the Nasdaq National Market on September 9, 1999.
(4)Computed pursuant to Rules 457(f)(l) and 457(c) under the Securities Act
based on the average of the high and low per share prices of Egghead common
stock on the Nasdaq National Market on September 15, 1999.
(5)Pursuant to Rule 457(b) under the Securities Act, the entire amount of the
registration fee is offset by the filing fee of $43,291 previously paid by
Onsale in connection with the filing of preliminary proxy materials on Schedule
14A on August 10, 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 which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
[LOGO OF ONSALE APPEARS HERE]
1350 Willow Road
Menlo Park, California 94025
September 21, 1999
To our stockholders:
You are cordially invited to attend a special meeting of stockholders of
Onsale, Inc. This meeting will be held at Onsale's headquarters at 1350 Willow
Road, Menlo Park, California on Thursday, November 4, 1999 at 10:00 a.m.,
Pacific time.
At the meeting, we will ask you to vote on a proposal to combine our company
with Egghead.com, Inc. If the merger proposal is approved, you collectively
will own about 53% of the combined company. Although the proposed merger is
structured as an acquisition of Egghead by Onsale, the name of the combined
company will be changed to "Egghead.com, Inc." after the merger.
After careful consideration, our board of directors unanimously approved this
proposed merger and determined the merger to be fair and in the best interests
of Onsale and you, our stockholders. Our board of directors has approved the
issuance of shares of Onsale common stock in the merger, adopted Onsale's
amended and restated certificate of incorporation and approved the amendment to
our 1995 Equity Incentive Plan.
Our board of directors unanimously recommends a vote FOR each proposal to be
voted upon at the meeting.
A notice of the meeting and a disclosure document relating to the proposed
merger is enclosed. The disclosure document describes each proposal in detail
and presents significant related information. Please read it carefully.
It is important that you use this opportunity to take part in the affairs of
Onsale by voting on the business to come before this meeting. Whether or not
you expect to attend the meeting, please complete, date, sign and promptly
return the accompanying proxy in the enclosed postage-paid envelope so that
your shares may be represented at the meeting. Your vote is very important.
Returning the proxy does not deprive you of your right to attend the meeting
and to vote your shares in person.
You will not be required to exchange your Onsale stock certificates for stock
certificates of the combined company. PLEASE DO NOT SEND YOUR STOCK
CERTIFICATES.
Sincerely,
/s/ S Jerrold Kaplan
S. Jerrold Kaplan
Chairman of the Board, President and
Chief Executive Officer
This document is being first sent to stockholders on or about September 24,
1999.
<PAGE>
[LOGO OF ONSALE.COM APPEARS HERE]
1350 Willow Road
Menlo Park, California 94025
---------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be held Thursday, November 4, 1999 at 9:00 a.m.
---------------
To our stockholders:
Onsale, Inc. will hold a special meeting of its stockholders at its
headquarters at 1350 Willow Road, Menlo Park, California on Thursday, November
4, 1999 at 10:00 a.m., Pacific time. At the meeting, you will be asked:
1. To approve the issuance of shares of Onsale common stock in connection
with our proposed merger with Egghead.com, Inc. and to adopt Onsale's
amended and restated certificate of incorporation, which will:
. change the name of the corporation from Onsale, Inc. to Egghead.com,
Inc.;
. increase the authorized number of shares of all classes of stock to
100,000,000 and the authorized number of shares of common stock to
98,000,000 shares;
. divide the Onsale board of directors into three classes;
. incorporate provisions currently included in Onsale's amended and
restated bylaws related to the election and removal of Onsale
directors, vacancies on Onsale's board and transaction of business by
Onsale's stockholders; and
. add a two-thirds vote requirement to amend or repeal certain
provisions of the certificate of incorporation, including those
related to the classified board, election and removal of Onsale
directors, vacancies on Onsale's board and transaction of business by
Onsale stockholders.
2. To approve an amendment to our 1995 Equity Incentive Plan which increases
by 950,000 the number of shares of common stock authorized and reserved for
issuance under the plan and provides for automatic grants of stock options
to Onsale directors.
We do not anticipate that any other matter will be presented for action at
the meeting. If any other matters are properly brought before the meeting, the
persons named in the proxies will have discretion to vote on these matters in
accordance with their respective judgments.
These proposals are more fully described in the disclosure document that
accompanies this notice. You should read this document carefully.
Only Onsale stockholders of record at the close of business on September 20,
1999 are entitled to notice of and to vote at the meeting or at any adjournment
of the meeting.
By Order of the Board of Directors
of Onsale, Inc.
/s/ John E. Labbett
John E. Labbett
Senior Vice President,
Chief Financial Officer and Secretary
Menlo Park, California
September 21, 1999
<PAGE>
[LOGO OF EGGHEAD(R).COM APPEARS HERE]
521 SE Chkalov Drive
Vancouver, Washington 98683
September 21, 1999
Dear Shareholder:
This is an important letter regarding Egghead.com, Inc. ("Egghead") and the
upcoming special meeting of our shareholders. Please read on and vote your
shares of Egghead common stock. Your vote is important because a failure to
vote will have the effect of a vote against the merger.
We cordially invite you to attend a special meeting of our shareholders at
the Hilton Garden Inn, located at 12048 N.E. Airport Way, Portland, Oregon on
Thursday, November 4, 1999 at 8 a.m., local time. Whether or not you plan to
attend the meeting, we urge you to complete, sign and date the enclosed proxy
card and return it in the enclosed, postage-paid envelope to ensure your shares
are represented at the meeting.
At the meeting, the shareholders of Egghead will be asked to consider and
vote upon a single proposal to adopt and approve a merger agreement with
Onsale, Inc. and approve a merger that will combine our company with Onsale.
Based on the capitalization of Egghead and Onsale as of September 20, 1999,
Egghead shareholders will own approximately 47% of the outstanding common stock
of the combined company after the merger. You are entitled to receive in the
merger 0.565 of a share of Onsale's common stock for each share of Egghead
common stock you own.
YOUR VOTE IS VERY IMPORTANT. The merger cannot be completed unless the
holders of at least two-thirds of the shares of Egghead common stock
outstanding as of the record date adopt and approve the merger agreement and
approve the merger. Only shareholders of Egghead common stock on the close of
business on September 20, 1999 will be entitled to vote at the special meeting.
Egghead's board of directors has determined that the merger is advisable and
fair to, and in the best interests of, Egghead and its shareholders. Egghead's
board of directors unanimously approved the merger agreement and unanimously
recommends that you vote "FOR" adoption and approval of the merger agreement
and approval of the merger.
Attached is a notice of special meeting of shareholders and a disclosure
document relating to the merger. The disclosure document describes the merger
in detail. For your convenience, we have prepared "Frequently Asked Questions"
and related answers about the proposed merger, which are set forth in the first
three, blue-colored pages of the disclosure document. Please review the
disclosure document carefully. In particular, you should carefully consider the
discussion in the section entitled "Risk Factors" on page 18 of this document.
It is important that your shares be represented at the special meeting,
whether or not you plan to attend the meeting. Please complete, sign and date
the enclosed proxy and promptly return it to us in the enclosed, postage-paid
envelope to ensure your shares are represented at the meeting. If you attend
the meeting, you may vote in person if you wish, even though you have
previously returned your proxy.
If you would like assistance in completing your proxy card or if you have any
questions about the procedure for voting your shares described in the attached
disclosure document, please call MacKenzie Partners, Inc. at 1-800-322-2885.
Sincerely,
/s/ George P. Orban
George P. Orban
Chairman of the Board and Chief
Executive Officer
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this disclosure document. Any representation to the
contrary is a criminal offense.
This document is being first sent to shareholders on or about September 24,
1999.
<PAGE>
[LOGO OF EGGHEAD(R).COM APPEARS HERE]
521 SE Chkalov Drive
Vancouver, Washington 98683
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 4, 1999
----------------
To Our Shareholders:
We will hold a special meeting of shareholders of Egghead.com, Inc. at 8 a.m.
local time, on Thursday, November 4, 1999, at the Hilton Garden Inn located at
12048 N.E. Airport Way, Portland, Oregon, for the following purpose:
To consider and vote upon a proposal to adopt and approve the merger
agreement among Onsale, Inc., EO Corporation, a wholly-owned subsidiary of
Onsale, and Egghead.com, Inc., and approve the merger that will cause
Egghead to become a wholly-owned subsidiary of Onsale. Under the merger
agreement, among other things, each outstanding share of Egghead common
stock (other than dissenters' shares) will be converted into the right to
receive 0.565 of a share of Onsale common stock.
This proposal is more fully described in the accompanying disclosure document
that accompanies this notice, which you should read carefully.
We will conduct no other business at the Egghead shareholders' special
meeting, except business which may be properly brought before the special
meeting and which is within the purpose of the special meeting described above.
We cannot complete the merger unless the holders of at least two-thirds of
the shares of Egghead stock outstanding as of the record date vote to adopt and
approve the merger agreement. Holders of Egghead common stock are or may be
entitled to assert dissenters' rights with respect to the merger under Chapter
23B.13 of the Washington Business Corporation Act.
We have fixed the close of business on September 20, 1999 as the record date
for the determination of our shareholders entitled to vote at this meeting or
any adjournment or postponement of it.
By Order of the Board of Directors
of Egghead.com, Inc.
/s/ Brian W. Bender
Brian W. Bender
Vice President, Chief Financial
Officer and Corporate Secretary
Vancouver, WA
September 21, 1999
To assure that your shares are represented at the meeting, please
complete, date and sign the enclosed proxy and mail it promptly in the
postage-paid envelope provided, whether or not you plan to attend the
meeting. You can revoke your proxy at any time before it is voted.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
FREQUENTLY ASKED QUESTIONS ............................................... 1
SUMMARY................................................................... 4
The Companies........................................................... 4
Summary of the Transaction.............................................. 5
Selected Historical and Selected Unaudited Pro Forma Condensed Combined
Consolidated Financial Data............................................ 13
Onsale's Selected Historical Financial Data............................. 14
Egghead's Selected Historical Financial Data............................ 15
Selected Unaudited Pro Forma Condensed Combined Consolidated Financial
Data................................................................... 16
Comparative Historical and Unaudited Pro Forma Per Share Data........... 17
RISK FACTORS.............................................................. 18
Risks relating to the proposed merger .................................. 18
Risks related to the business of the combined company after the merger.. 20
THE ONSALE MEETING........................................................ 27
THE EGGHEAD MEETING....................................................... 37
THE MERGER................................................................ 40
Background of the merger................................................ 40
Onsale's reasons for the merger......................................... 45
Recommendation of Onsale's board of directors........................... 46
Egghead's reasons for the merger........................................ 47
Recommendation of Egghead's board of directors.......................... 49
Opinion of Onsale's financial advisor................................... 49
Opinion of Egghead's financial advisor.................................. 53
Interests of executive officers and directors in the merger............. 57
Closing and effectiveness of the merger................................. 59
Structure of the merger................................................. 59
Conversion of Egghead common stock...................................... 59
Exchange of Egghead stock certificates for stock certificates in the
combined company....................................................... 60
Material United States federal income tax consequences of the merger.... 60
Accounting treatment of the merger...................................... 61
Regulatory filings and approvals required to complete the merger........ 62
Dissenters' rights...................................................... 62
Restrictions on sales of shares of Onsale common stock issued in the
merger by affiliates of Egghead and Onsale............................. 62
Listing on the Nasdaq National Market of shares of Onsale common stock
to be issued in the merger............................................. 63
Delisting and deregistration of Egghead common stock after the merger... 63
Operations of the combined company after the merger..................... 63
THE MERGER AGREEMENT...................................................... 64
Representations and warranties.......................................... 64
Conduct of business before the closing of the merger.................... 65
No other negotiations................................................... 65
Public disclosure....................................................... 67
Egghead's employee benefit plans........................................ 67
Treatment of Egghead stock options and purchase rights.................. 68
Conditions to closing the merger........................................ 68
Termination of the merger agreement..................................... 70
Termination fee......................................................... 71
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Termination loan and expenses.......................................... 72
Amendment, extension and waiver of the merger agreement................ 72
RELATED AGREEMENTS....................................................... 73
The stock option agreements............................................ 73
The voting agreements.................................................. 75
COMPARATIVE PER SHARE MARKET PRICE DATA.................................. 77
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL
STATEMENTS.............................................................. 79
COMPARISON OF RIGHTS OF HOLDERS OF EGGHEAD COMMON STOCK AND ONSALE COMMON
STOCK................................................................... 88
SHARE OWNERSHIP BY PRINCIPAL STOCKHOLDERS, MANAGEMENT AND DIRECTORS OF
ONSALE.................................................................. 99
SHARE OWNERSHIP BY PRINCIPAL SHAREHOLDERS, MANAGEMENT AND DIRECTORS OF
EGGHEAD................................................................. 101
RELATED PARTY TRANSACTIONS............................................... 103
DISSENTERS' RIGHTS....................................................... 103
LEGAL OPINION............................................................ 105
EXPERTS.................................................................. 105
STOCKHOLDER PROPOSALS.................................................... 106
DOCUMENTS INCORPORATED BY REFERENCE IN THIS DOCUMENT..................... 106
WHERE YOU CAN FIND MORE INFORMATION...................................... 107
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION......................... 109
ANNEX A--AGREEMENT AND PLAN OF MERGER.................................... A-1
ANNEX B--AMENDED AND RESTATED CERTIFICATE OF INCORPORATION............... B-1
ANNEX C--EGGHEAD STOCK OPTION AGREEMENT.................................. C-1
ANNEX D--ONSALE STOCK OPTION AGREEMENT................................... D-1
ANNEX E--FORM OF EGGHEAD VOTING AGREEMENT................................ E-1
ANNEX F--FORM OF ONSALE VOTING AGREEMENT................................. F-1
ANNEX G--OPINION OF MORGAN STANLEY & CO. INCORPORATED.................... G-1
ANNEX H--OPINION OF HAMBRECHT & QUIST LLC................................ H-1
ANNEX I--CHAPTER 23B.13 OF THE WASHINGTON BUSINESS CORPORATION ACT....... I-1
</TABLE>
ii
<PAGE>
FREQUENTLY ASKED QUESTIONS
Q:Why are Onsale and Egghead proposing to merge?
A: This merger will combine two leading Internet retailers of computers and
related products, with the objective of consolidating and extending
their leadership position. Overall, both Onsale and Egghead believe that
the merger will provide added value to their respective stockholders.
For a complete description of Onsale's and Egghead's reasons for the
merger, we encourage you to refer to pages 45-49 of this document.
Q:What will Egghead shareholders receive in the merger?
A: As a result of the merger, Egghead shareholders will receive shares of
Onsale common stock in exchange for their shares of Egghead common
stock. The shares of Onsale common stock that they receive in the merger
will represent stock ownership in the combined company after the merger.
Specifically, each Egghead shareholder will receive 0.565 shares of
Onsale common stock for each share of Egghead common stock owned. For
example, if you own 100 shares of Egghead common stock, you will receive
56 shares of Onsale common stock in exchange for your Egghead shares.
Onsale will not issue fractional shares of common stock. Each Egghead
shareholder will receive cash instead of any fractional shares, based on
the market value of Onsale common stock. In the above example, in
addition to the 56 shares of Onsale common stock, you would also receive
cash instead of the .5 shares of Onsale common stock.
The number of shares of Onsale common stock to be issued for each share
of Egghead common stock is fixed and will not be adjusted based upon
changes in the values of Onsale or Egghead common stock. As a result,
the value of the Onsale shares you will receive in the merger will not
be known before the merger, and will go up or down as the market price
of Onsale common stock goes up or down. To estimate the value of the
Onsale shares you will receive for your Egghead shares, multiply the
number of Egghead shares you own times 0.565 times the market price of a
share of Onsale common stock. However, this is only an estimate. The
actual value of the Onsale shares you will receive will fluctuate with
the market price of Onsale common stock up until the merger and
afterward.
Onsale's and Egghead's stock prices are volatile. We encourage you to
obtain current market quotations of Onsale common stock and Egghead
common stock.
For a more complete description of what you will receive in the merger,
see the section entitled "The Merger -- Conversion of Egghead common
stock" on page 59.
Q:What will Onsale stockholders receive in the merger?
A: Onsale stockholders will not receive any new shares of Onsale common
stock as a result of the merger. Onsale stockholders before the merger
will continue to own their shares of Onsale common stock, which will
represent stock ownership in the combined company, after the merger.
Q:What is the merger?
A: The merger is the combination of two businesses, Onsale and Egghead,
which will result in Egghead becoming a wholly-owned subsidiary of
Onsale. The merger will be effected by converting the outstanding shares
of Egghead common stock into shares of Onsale common stock.
Based on the exchange ratio of 0.565 and the capitalization of Onsale and
Egghead as of September 20, 1999, those persons who are shareholders of
Egghead immediately before the merger will own approximately 47% of the
combined company afterward, and those persons who are stockholders of
Onsale immediately before the merger will own approximately 53% of the
combined company afterward. Holders of Egghead employee stock options
will automatically receive options to purchase
1
<PAGE>
Onsale common stock on terms substantially the same as their Egghead
stock options, with quantity and exercise price adjusted for the
exchange ratio.
For a more complete description of the merger, see the section entitled
"The Merger" on page 40.
Q:What will the name of the combined company be after the merger?
A: Onsale will change its name after the merger, so that the combined
company will be known as "Egghead.com, Inc."
Q:Do the boards of directors of Egghead and Onsale recommend voting in favor of
the merger?
A: Yes. After careful consideration, Egghead's board of directors
unanimously recommends that its shareholders vote in favor of the
proposal to adopt and approve the merger agreement and approve the
merger. Likewise, after careful consideration, the Onsale board of
directors unanimously recommends that its stockholders vote in favor of
the proposal to issue Onsale common stock in the merger and to adopt
Onsale's amended and restated certificate of incorporation.
For a more complete description of the recommendations of the boards of
directors of Onsale and Egghead, see the sections entitled "The
Merger -- Onsale's reasons for the merger" on page 45, "--
Recommendation of Onsale's board of directors" on page 46, "--
Egghead's reasons for the merger" on page 47 and "-- Recommendation of
Egghead's board of directors" on page 49.
Q: Have the executive officers and directors of Onsale and Egghead agreed to
vote their shares in favor of the merger?
A: Yes.
Q:Are there risks I should consider in deciding whether to vote for the merger?
A: Yes. For example, the combined company might not realize the expected
benefits of the merger. In evaluating the merger, you should carefully
consider the factors discussed in the section entitled "Risk Factors" on
page 18.
Q:What do I need to do now?
A: Mail your signed proxy card in the enclosed return envelope as soon as
possible so that your shares may be represented at your stockholders'
meeting. If you return your signed proxy but do not include instructions
on how to vote it, your shares will be voted "FOR" the merger-related
proposal.
IF YOUR SHARES ARE NOT VOTED, THIS WILL HAVE THE EFFECT OF A VOTE
AGAINST THE MERGER. For a more complete description of voting your
shares, see the sections entitled "The Onsale Meeting -- Voting of
proxies" on page 28 and "The Egghead Meeting -- Voting of proxies;
abstentions and broker non-votes" on page 37.
Q:If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: No, unless you instruct your broker to do so. Your broker does not have
discretion to vote your shares on the merger-related proposal. As a
result, because of the vote required for approval by Egghead's
shareholders, if you are an Egghead shareholder and you fail to vote
directly or by instructing your broker to vote your shares, this will
have the effect of a vote against the merger.
For a more complete description of voting shares held in "street name,"
see the sections entitled "The Onsale Meeting -- Voting of proxies" on
page 28 and "The Egghead Meeting -- Voting of proxies; absentions and
broker non-votes" on page 37.
2
<PAGE>
Q:If I am an Egghead shareholder, should I send in my Egghead stock
certificates now?
A: No. After the merger is completed, we will send you written instructions
for exchanging your Egghead stock certificates for Onsale stock
certificates representing your stock ownership in the combined company.
Q:If I am an Onsale stockholder, should I do anything with my Onsale stock
certificates?
A: No. Your Onsale stock certificates will represent stock ownership of the
combined company after the merger.
Q: When do you expect the merger to be completed?
A: We are working toward completing the merger as quickly as possible. We
hope to complete it promptly following the Onsale and Egghead
stockholder meetings, which are scheduled for November 4, 1999. However,
the merger is subject to several conditions which could affect the
timing of the completion of the merger.
For a more complete description of the conditions to the merger, see the
section entitled "The Merger Agreement -- Conditions to closing the
merger" on page 68.
Q:Will I recognize a taxable gain or loss as a result of the merger?
A: We expect that if the merger is completed, you will not recognize gain
or loss for income tax purposes, except that Egghead shareholders will
recognize gain or loss with respect to cash received by dissenting
shareholders or for fractional shares. However, we urge you to consult
your own tax advisor to determine your particular tax consequences.
For a more complete description of the tax consequences, see the section
entitled "The Merger -- Material United States federal income tax
consequences of the merger" on page 60.
Q:Who should I call with questions?
A: Onsale stockholders should call Onsale Investor Relations at (650) 470-
2480 with any questions about the merger. Egghead shareholders should
call Egghead Investor Relations at (360) 816-7727 with any questions
about the merger.
If you are an Egghead shareholder and have any
question about the procedures for voting your shares,
please call MacKenzie Partners at 1-800-322-2885.
You may also obtain additional information about Onsale and Egghead from
documents each of us files or has filed with the Securities and Exchange
Commission by following the instructions in the section entitled "Where
You Can Find More Information" on page 107.
3
<PAGE>
SUMMARY
The Companies
[LOGO OF ONSALE(R).COM APPEARS HERE]
Onsale, Inc.
1350 Willow Road, Suite 100
Menlo Park, California 94025
(650) 470-2400
Onsale is a leading Internet retailer providing low prices and personalized
service through automation. Onsale atCost offers computer equipment at
wholesale prices directly to businesses and consumers. Onsale atAuction offers
bargains on excess merchandise and services through online auctions, such as
personal computers, consumer electronics, sports and fitness equipment and
vacation packages.
[LOGO OF EGGHEAD(R).COM APPEARS HERE]
Egghead.com, Inc.
521 SE Chkalov Drive
Vancouver, Washington 98683
(360) 883-3447
Egghead is a leading online retailer of personal computer hardware, software,
peripherals and accessories. Egghead has a well-recognized brand and brings
over 14 years of retailing experience to Internet commerce. Through its web
site, Egghead sells current version computer-related products, consumer
electronics and other consumer and business goods, as well as close-out,
excess, refurbished and reconditioned goods, through fixed-price and auction
formats.
4
<PAGE>
Summary of the Transaction
The merger
If the merger is approved, Egghead will become a wholly-owned subsidiary of
Onsale. Onsale's name will be changed so that the combined company will be
known as "Egghead.com, Inc." effective upon the closing of the merger.
The merger agreement is attached to this document as Annex A. We encourage
you to read the merger agreement carefully. For a more complete description of
the merger agreement, see the section entitled "The Merger Agreement" beginning
on page 64.
Potential benefits
We believe the merger will provide the combined company with the opportunity
to realize several benefits, including the potential to:
. consolidate and extend the position of the combined company as a
leading Internet retailer of personal computers and related products;
. build a single, widely-recognized online brand;
. increase sales by leveraging Egghead's traffic with Onsale's higher
sales-per-visitor ratio;
. reduce costs and achieve economies of scale;
. combine traffic and customer bases; and
. combine technological expertise and retail experience.
Risks
Risks associated with the merger include:
. the possibility that the value of the Onsale common stock to be
issued to Egghead shareholders in the merger will increase or
decrease before the closing of the merger;
. the risk that the combined company may not achieve the expected ratio
of sales to visitors;
. the possibility that the expected benefits of the merger might not be
realized;
. the technical, operational, managerial and personnel-related
challenges of integrating the two companies;
. the possible loss of key employees as a result of the merger; and
. the possibility that the merger might not be accounted for as a
pooling of interests.
Please refer to the risks described in "Risk Factors" on page 18 and the
sections entitled "The Merger -- Onsale's reasons for the merger" on page 45
and "--Egghead's reasons for the merger" on page 47.
No other negotiations
Until the merger is completed or the merger agreement is terminated, each of
us has agreed, with limited exceptions, not to take any action, directly or
indirectly, with respect to an Acquisition Proposal, as defined on page 66 of
this document.
If either of us receives an unsolicited, written, bona fide Acquisition
Proposal at least 20 business days before the date of our respective
stockholders' meetings that our board reasonably concludes may constitute a
Superior Offer, as defined on page 67 of this document, that company may
furnish non-public information regarding it and may enter into discussions with
the person or group who has made the Acquisition Proposal if it provides
written notice to the other company and follows other specified procedures.
5
<PAGE>
We each have agreed to inform the other promptly as to any Acquisition
Proposal, request for non-public information or inquiry which we believe would
lead to an Acquisition Proposal. We each have agreed to inform the other of the
status and details of any Acquisition Proposal.
Either of our boards may change its recommendation in favor of the merger if
it receives a Superior Offer and the other company does not respond with a
corresponding offer at least as favorable as the Superior Offer.
For a more complete description of these limitations on each of our actions
with respect to an Acquisition Proposal, please refer to the sections entitled
"The Merger Agreement--No other negotiations," on page 65, "--Termination of
the merger agreement" on page 70 and "--Termination fee" on page 71 of this
document and the corresponding sections of the merger agreement.
Conditions to closing the merger
Our respective obligations to complete the merger are subject to the prior
satisfaction or waiver of several conditions. The conditions that must be
satisfied or waived before the merger can be completed include the following,
subject to exceptions and qualifications:
. the merger agreement must be adopted and approved and the merger must
be approved by the holders of two-thirds of Egghead common stock
outstanding as of the record date;
. the proposal to issue shares of Onsale common stock in the merger and
to adopt Onsale's amended and restated certificate of incorporation,
as described in this document, must be approved by the holders of a
majority of the shares of Onsale common stock outstanding as of the
record date;
. Onsale's registration statement must be declared effective by the
Securities and Exchange Commission;
. Waiting periods under applicable antitrust laws must expire or be
terminated;
. no governmental injunction or order preventing the closing of the
merger or restricting Onsale's conduct or operation of the business
of Egghead in a material way may be in effect;
. we must obtain all required government approvals;
. we must each receive an opinion of our own tax counsel to the effect
that the merger will qualify as a tax-free reorganization;
. the shares of Onsale common stock to be issued to Egghead
shareholders in the merger must have been approved for quotation on
the Nasdaq National Market;
. Onsale's board of directors must amend Onsale's bylaws to increase
the size of Onsale's board of directors from five to nine directors,
and actions must be taken to cause the board of directors of the
combined company to consist immediately after the merger of four
Onsale designees, four Egghead designees and one designee mutually
selected by Onsale and Egghead;
. the respective representations and warranties of Onsale and Egghead
in the merger agreement must be true and correct in all material
respects;
. we must comply in all material respects with our respective
agreements in the merger agreement;
. no material adverse change must have occurred with respect to Onsale
or Egghead;
. we must each obtain all required consents, waivers and approvals
required in connection with the consummation of the merger in
connection with the agreements listed on each company's disclosure
letter;
6
<PAGE>
. the independent accountants for Onsale and Egghead must each provide a
letter regarding the appropriateness of pooling-of-interest accounting
for the merger; and
. the aggregate number of dissenting Egghead shares must not exceed five
percent of the aggregate number of shares of Egghead common stock
outstanding immediately before the closing of the merger.
Some of the conditions may be waived by Onsale and some may be waived by
Egghead. For a more complete description of the conditions to closing the
merger, see the section entitled "The Merger Agreement--Conditions to closing
the merger" on page 68.
Votes required for approval
Egghead proposal. The holders of two-thirds of the shares of Egghead common
stock as of September 20, 1999, the record date, must adopt and approve the
merger agreement and approve the merger. Egghead shareholders are entitled to
cast one vote per share of Egghead common stock owned as of the record date.
The directors and executive officers of Egghead, who collectively hold
approximately 0.3% of Egghead common stock outstanding as of the record date,
have agreed to vote in favor of the merger.
Onsale proposal. The holders of a majority of the shares of Onsale common
stock outstanding as of September 20, 1999, the record date, must approve the
proposal to issue Onsale common stock in the merger and to adopt Onsale's
amended and restated certificate of incorporation. Onsale stockholders holding
approximately 51.7% of the outstanding shares of Onsale common stock as of the
record date have agreed to vote all of their shares of Onsale common stock in
favor of this proposal. As a result, assuming these stockholders vote as
required by their voting agreements, this proposal will be approved.
For a more complete description of the votes required for approval of the
merger see the sections entitled "The Onsale Meeting--Vote and quorum required"
on page 27 and "The Egghead Meeting--Vote required" on page 37.
Termination of the merger agreement
The merger agreement may be terminated under specified circumstances at any
time prior to closing the merger, as follows:
. by our mutual consent;
. by either of us, if the merger is not completed by April 13, 2000,
except that this right is not available to any party whose breach of
the merger agreement resulted in the failure of the merger to occur
by this date;
. by either of us, if an order, decree or ruling of a governmental
entity prohibiting the merger is issued and not appealable;
. by either of us, if the Egghead shareholders do not adopt and approve
the merger agreement and approve the merger at the Egghead
shareholders' meeting;
. by either of us, if the Onsale stockholders do not approve the
proposal to adopt Onsale's amended and restated certificate of
incorporation and to issue shares in the merger at the Onsale
stockholders' meeting;
. by either of us, prior to approval of the merger-related proposal by
the other's stockholders, if a Trigger Event, as defined on page 71,
occurs with respect to the other; or
. by either of us, upon a breach of any representation or warranty or
other specified provisions of the merger agreement that is not
curable, or is not cured, before April 13, 2000.
7
<PAGE>
For a more complete description of the manner in which the merger agreement
may be terminated, see the section entitled "The Merger Agreement--Termination
of the merger agreement" on page 70.
Termination fee and loan
If the merger agreement is terminated, Egghead or Onsale may be required to
pay the other party a termination fee equal to 4% of the paying company's
equity value. Generally, this obligation arises on the part of one company if:
. its board adversely amends or withdraws its recommendation to its
stockholders in favor of the merger-related proposal or similar
specified events occur;
. its stockholders fail to approve the merger-related proposal by the
required vote, a third party publicly announces an Acquisition
Proposal with respect to that company before the merger agreement is
terminated, and within one year after termination that company and a
third party enter into an agreement for or complete an Acquisition,
as defined on page 72; or
. the merger is not completed by April 13, 2000, and
-- a third party publicly announces an Acquisition Proposal with
respect to that company before the merger agreement is terminated,
and within one year after termination that company and a third
party enter into an agreement for or complete an Acquisition, or
-- that company's breach of the merger agreement caused the failure
to complete this merger and within one year after the merger
agreement is terminated that company and a third party enter into
an agreement for or complete an Acquisition.
In addition, Egghead is obligated to make an unsecured loan to Onsale for up
to $16 million and to reimburse Onsale for expenses incurred in connection with
the merger agreement and related transactions, including investment banking,
legal and accounting fees and expenses, if:
. the merger agreement is terminated by either of us because
-- the merger was not completed by April 13, 2000, and in the case of
this termination, Egghead's shareholders had failed to approve the
merger at the Egghead shareholders' meeting, or
-- Egghead's shareholders failed to approve the merger at the Egghead
shareholders' meeting; and
. Egghead had not paid the termination fee described above to Onsale
within two days after the merger agreement had been terminated.
For a more complete description of the payment of the termination fee, see
the sections entitled "The Merger Agreement--Termination fee" on page 71 and
"--Termination loan and expenses" on page 72.
The stock option agreements
We entered into reciprocal stock option agreements with each other. Egghead
granted Onsale the option to buy up to a number of shares of Egghead common
stock equal to 19.9% of the outstanding shares of Egghead common stock on the
date of exercise of the option at an exercise price of $12.06 per share. Onsale
granted Egghead the option to buy up to a number of shares of Onsale common
stock equal to 19.9% of the outstanding shares of Onsale common stock on the
date of exercise of the option at an exercise price of $22.50 per share.
Based on the number of shares of Egghead common stock outstanding on
September 20, 1999, Onsale's option would be exercisable for approximately
6,126,827 shares of Egghead common stock. Based on the number
8
<PAGE>
of shares of Onsale common stock outstanding on September 20, 1999, Egghead's
option would be exercisable for approximately 3,918,115 shares of Onsale common
stock. However, neither option is currently exercisable, and these options will
only become exercisable if specified conditions are triggered. These triggering
conditions include failure by the other company's stockholders to approve the
merger-related proposal at that company's stockholders' meeting, entering into
an agreement for an alternative merger transaction or similar transaction and
other actions inconsistent with closing the merger. For a more detailed
description of these triggering conditions and a description of when these
options terminate, you should read the section entitled "Related Agreements--
The stock option agreements" on page 73.
Each of us required the other to grant the option as a prerequisite to
entering into the merger agreement. The options may discourage third parties
who are interested in acquiring a significant stake in either of us and is
intended by us to increase the likelihood that the merger will be completed.
For a more complete description of the Egghead and Onsale stock option
agreements, please refer to the section entitled "Related Agreements--The stock
option agreements" on page 73. The Egghead stock option agreement is attached
to this document as Annex C, and the Onsale stock option agreement is attached
to this document as Annex D. We urge you to read both agreements in their
entirety.
The voting agreements
Egghead securityholders Brian W. Bender, Jonathan W. Brodeur, Tommy E.
Collins, C. Scott Gibson, Norman F. Hullinger, James F. Kalasky, George P.
Orban, Eric P. Robison, Robert T. Wall, Karen L. White and Melvin A. Wilmore
entered into voting agreements with Onsale. The voting agreements require these
persons to vote all the shares of Egghead common stock they own in favor of the
merger-related proposal. These persons collectively held approximately 0.3% of
the outstanding Egghead common stock as of the record date.
Onsale securityholders Bari Abdul, Alan Fisher, Peter Harris, Peter Jackson,
John Labbett, Jerry Kaplan, Merle McIntosh, Razi Mohiuddin, Ken Orton and Jeff
Sheahan entered into voting agreements with Egghead. The voting agreements
require them to vote all the shares of Onsale common stock that they own in
favor of the merger-related proposal. These persons collectively held
approximately 51.7% of the outstanding Onsale common stock as of the record
date. As a result, assuming these persons vote as required by their voting
agreements, the Onsale merger-related proposal will be approved.
For a more complete description of the Egghead shareholders' and Onsale
stockholders' voting agreements, please refer to the section entitled "Related
Agreements--The voting agreements" on page 75. The form of Egghead voting
agreement is attached to this document as Annex E, and the form of Onsale
voting agreement is attached to this document as Annex F. We urge you to read
both agreements in their entirety.
Opinions of financial advisors
In deciding to approve the merger, our boards of directors considered
opinions from our respective financial advisors as to the fairness of the
exchange ratio from a financial point of view. Onsale received an opinion from
its financial advisor, Morgan Stanley & Co. Incorporated, and Egghead received
an opinion from its financial advisor, Hambrecht & Quist LLC. For a more
complete description of the financial advisors' opinions see the sections
entitled "The Merger--Opinion of Onsale's financial advisor" on page 49 and "--
Opinion of Egghead's financial advisor" on page 53. These opinions are attached
to this document as Annexes G and H, and we urge you to read both opinions in
their entirety.
9
<PAGE>
Accounting treatment of the merger
We intend to account for the merger as a pooling of interests for financial
reporting and accounting purposes, in accordance with generally accepted
accounting principles. After the merger, the results of operations of Egghead
will be included in the consolidated financial statements of Onsale.
Interests of executive officers and directors in the merger
When considering the recommendations of Onsale's and Egghead's boards of
directors, you should be aware that the directors and executive officers of
Onsale and Egghead have interests in the merger and have arrangements that are
different from those of Onsale stockholders and Egghead shareholders generally.
These include:
. George Orban, the Chief Executive Officer and Chairman of the board
of directors of Egghead, will become the Chairman of the board of
directors of the combined company after the merger;
. Jerry Kaplan, the Chief Executive Officer, President and Chairman of
the board of directors of Onsale, will become the Chief Executive
Officer of the combined company after the merger;
. C. Scott Gibson, Robert Wall and Karen White, who currently serve on
Egghead's board, will also become members of the board of directors
of the combined company;
. Jerry Kaplan, Alan Fisher, Peter Harris and Ken Orton, who currently
serve on Onsale's board, will continue as members of the board of
directors of the combined company;
. Several other executive officers of Onsale and Egghead will become
officers of the combined company after the merger;
. At the effective time of the merger, each outstanding option to
purchase Egghead common stock, including any stock option held by any
executive officer or director of Egghead, will be assumed by Onsale
and will become an option to acquire common stock of the combined
company after the merger, with the number of shares subject to the
option and the option exercise price to be adjusted according to the
0.565 exchange ratio;
. Several executive officers of Egghead have agreements that provide
for benefits, including severance and other payments and acceleration
of stock option vesting, that may be triggered upon the closing of
the merger or a subsequent termination of employment;
. Non-employee directors of Egghead have options, the vesting of which
will accelerate in connection with the merger; and
. Onsale and Egghead directors and executive officers have customary
rights to indemnification against specified liabilities.
As a result, these directors and executive officers could be more likely to
vote to approve the merger agreement and the merger than if they did not hold
these interests. For a more complete description of the interests of persons in
the merger, see the section entitled "The Merger--Interests of executive
officers and directors in the merger" on page 57 and "Related Party
Transactions" on page 103.
Appraisal and dissenters' rights
Under Delaware law, Onsale stockholders are not entitled to appraisal or
dissenters' rights in the merger.
Under Washington law, Egghead shareholders have the right to dissent from the
merger and to receive payment in cash for the fair value of their shares of
Egghead common stock. To preserve their rights, Egghead shareholders who wish
to exercise their statutory dissenters' rights must follow the procedures
described in Chapter 23B.13 of the Washington Business Corporation Act, a copy
of which is attached as Annex I to this document. See also "The Merger--
Dissenters' rights" on page 62 and "Dissenters' Rights" on page 103.
10
<PAGE>
Antitrust approval required to complete the merger
The merger is subject to antitrust laws. We have made the required filings
with the Department of Justice and the Federal Trade Commission, and we
obtained early termination of the applicable waiting period on September 7,
1999. The Department of Justice or the Federal Trade Commission, as well as a
foreign regulatory agency or government, state or private person, may challenge
the merger at any time before or after its completion. For a more complete
description of the antitrust issues in connection with the merger see the
section entitled "The Merger--Regulatory filings and approvals required to
complete the merger" on page 62.
Restrictions on selling Onsale common stock received in the merger
All shares of Onsale common stock received by Egghead shareholders in
connection with the merger will be freely transferable unless the holder is
considered an affiliate of Onsale or Egghead under the Securities Act. For a
more complete description of transfer restrictions applicable to our
affiliates, see the section entitled "The Merger--Restrictions on sales of
shares of Onsale common stock issued in the merger by affiliates of Egghead and
Onsale" on page 62.
Affiliates of Onsale and Egghead must not sell any shares of either company's
stock, except in specified limited amounts, until the day that the combined
company publicly announces financial results covering at least 30 days of
combined operations after the merger.
Forward-looking statements in this document
This document and the documents incorporated into this prospectus/proxy
statement by reference contain forward-looking statements within the safe
harbor provisions of the Private Securities Litigation Reform Act. These
statements include statements with respect to Onsale's and Egghead's financial
condition, results of operations and business and the expected impact of the
merger on the combined company's financial performance. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates"
and similar expressions identify forward-looking statements.
These forward-looking statements are not guarantees of future performance and
are subject to certain risks and uncertainties that could cause actual results
to differ materially from the results contemplated by the forward-looking
statements. These risks and uncertainties include:
. the possibility that the value of the Onsale common stock to be
issued to Egghead shareholders in the merger will increase or
decrease prior to closing the merger;
. the technical, operational and personnel-related challenges in
integrating Egghead and Onsale;
. the possibility that the anticipated benefits from the merger,
including increased web site traffic and the expected sales-to-
visitors ratio for the combined company, will not be fully realized;
. the possible loss of key employees as a result of the merger;
. the possibility that the merger might not be accounted for as a
pooling of interests;
. other risks and uncertainties, including the possibility that intense
competition will not allow the combined company to increase margins,
the impact of competitive services, products and prices on the
combined company's market share and the risk of increased government
regulation; and
. other risk factors described in the section entitled "Risk Factors"
and as may be detailed from time to time in Onsale's and Egghead's
public announcements and filings with the Securities and Exchange
Commission.
In evaluating the merger, you should carefully consider the discussion of
these and other factors in the section entitled "Risk Factors" on page 18.
11
<PAGE>
Comparative market price information
Shares of both Onsale common stock and Egghead common stock are listed on the
Nasdaq National Market. On July 12, 1999, the last full trading day prior to
the public announcement of the proposed merger, Onsale's common stock closed at
$22.75 per share, and Egghead's common stock closed at $11.94 per share. On
September 20, 1999, Onsale's common stock closed at $15.00 per share, and
Egghead's common stock closed at $7.56 per share. We urge you to obtain current
market quotations. For a more complete description of market price information,
see the section entitled "Comparative Per Share Market Price Data" on page 77.
This summary may not contain all of the information that is important to you.
You should read carefully this entire document and the other documents we refer
to for a more complete understanding of the merger. In particular, you should
read the annexes to this document, including the merger agreement, the Egghead
and Onsale stock option agreements, the Egghead and Onsale stockholders' voting
agreements, the opinion of Morgan Stanley, the opinion of Hambrecht & Quist and
Chapter 23B.13 of the Washington Business Corporation Act.
In addition, we incorporate important business and financial information
about Onsale and Egghead into this document by reference. See "Documents
Incorporated by Reference in this Document" on page 106. You may obtain the
information incorporated into this document by reference without charge by
following the instructions in the section entitled "Where You Can Find More
Information" on page 107.
12
<PAGE>
Selected Historical and Selected Unaudited Pro Forma
Condensed Combined Consolidated Financial Data
The following selected historical financial data of Onsale and Egghead has
been derived from their respective historical financial statements, and should
be read in conjunction with those financial statements and the related notes,
including those incorporated into this document by reference. Egghead uses a
52/53 week fiscal year ending on the Saturday nearest March 31; for
convenience, these fiscal years are referred to as "March 31."
The following selected unaudited pro forma condensed combined consolidated
financial data gives effect to the merger pursuant to which Egghead will become
a subsidiary of Onsale, which Onsale plans to account for as a pooling of
interests. The unaudited pro forma condensed combined consolidated balance
sheet data presents the combined financial position of Onsale and Egghead as of
June 30, 1999 assuming that the proposed merger had occurred as of June 30,
1999. This pro forma information is based upon the historical balance sheet
data of Onsale and Egghead as of that date. The unaudited pro forma condensed
combined consolidated statements of operations data gives effect to the
proposed merger of Onsale and Egghead by combining the results of operations of
Onsale for each of the three years ended December 31, 1998 and for the six-
month periods ended June 30, 1998 and 1999 with the results of continuing
operations of Egghead for each of the three years ended March 31, 1999 and the
six-month periods ended June 30, 1998 and 1999, respectively, on a pooling of
interests basis. The continuing operations of Egghead for the three-month
period ended March 31, 1999, resulting in net sales and a net loss from
continuing operations of $42.3 million and $12.8 million, respectively, have
been included in the pro forma statements of operations data for the year ended
December 31, 1998 and for the six-month period ended June 30, 1999. The
continuing operations of Egghead for the three-month period ended March 31,
1998, resulting in net sales and a net loss from continuing operations of $74.5
million and $39.3 million, respectively, have been included in the pro forma
statements of operations data for the year ended December 31, 1997 and for the
six-month period ended June 30, 1998. This unaudited pro forma condensed
combined consolidated financial data should be read in conjunction with the
historical financial statements of Onsale and Egghead and the related notes,
including those incorporated into this document by reference.
The unaudited pro forma condensed combined consolidated information is
presented for illustrative purposes only and is not necessarily indicative of
the operating results or financial position that would have occurred if the
transaction had been completed at the times indicated, nor is it necessarily
indicative of future operating results or financial position of the combined
company. The unaudited pro forma condensed combined consolidated financial data
as of June 30, 1999 and for each of the three years ended December 31, 1998 and
for the six-month periods ended June 30, 1999 and 1998, are derived from the
unaudited pro forma condensed combined consolidated financial statements
included elsewhere in this document and should be read in conjunction with
those financial statements and related notes. Please refer to the section
entitled "Unaudited Pro Forma Condensed Combined Consolidated Financial
Statements" beginning on page 79.
13
<PAGE>
Onsale's Selected Historical Financial Data
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months
Ended
Year ended December 31, June 30,
------------------------- ------------------
Inception in
July, 1994 to
December 31,
1995(1) 1996 1997 1998 1998 1999
------------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Historical statements of
operations data:
Revenue:
Merchandise--Online... $ 30 $12,573 $85,997 $204,124 $89,450 $144,096
Commission and other.. 110 1,696 2,984 3,627 1,515 5,082
------- ------- ------- -------- ------- --------
Total revenue....... 140 14,269 88,981 207,751 90,965 149,178
Gross profit............ 113 3,074 13,645 22,006 10,498 8,511
Total operating
expenses............... 553 2,707 17,016 39,218 20,169 26,590
Net income (loss)....... (440) 361 (2,472) (14,666) (8,228) (17,363)
Net income (loss) per
share--
Basic................. (0.04) 0.03 (0.16) (0.77) (0.44) (0.89)
Diluted............... $ (0.04) $ 0.03 $ (0.16) $ (0.77) $ (0.44) $ (0.89)
Shares used in per share
calculations--
Basic................. 12,015 12,090 15,742 18,953 18,753 19,552
Diluted............... 12,015 13,536 15,742 18,953 18,753 19,552
<CAPTION>
December 31,
--------------------------------------- June 30,
1995 1996 1997 1998 1999
------------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Historical balance sheet
data:
Cash and cash
equivalents............ $ 20 $ 2,729 $56,566 $ 26,008 $19,893
Working capital
(deficiency)........... (449) 1,731 60,579 46,320 30,825
Total assets............ 73 5,680 67,143 69,426 58,080
Long-term liabilities... -- -- -- 2,016 2,033
Total stockholders'
equity (deficit)....... (419) 2,328 62,269 50,514 35,147
</TABLE>
14
<PAGE>
Egghead's Selected Historical Financial Data
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Six months
ended
Year ended March 31, June 30,
-------------------------------------------- ------------------
1995 1996 1997 1998 1999 1998 1999
------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Historical statements of
operations data:
Net sales:(2)
Online................ $ -- $ 149 $ 1,408 $59,737 $148,721 $ 56,107 $ 82,839
Retail................ 434,021 403,692 359,307 233,342 -- 47,922 --
------- ------- ------- ------- -------- -------- --------
Total net sales..... 434,021 403,841 360,715 293,079 148,721 104,029 82,839
Gross profit............ 72,454 69,262 56,464 35,904 14,380 2,801 7,126
Total operating
expenses............... 81,213 90,065 104,366 93,375 55,366 49,148 33,311
Net loss from continuing
operations............. (3,291) (11,121) (48,961) (54,531) (34,423) (44,889) (23,328)
Net loss from continuing
operations per share--
basic and diluted...... $ (0.19) $ (0.64) $ (2.78) $ (2.60) $ (1.40) $ (1.92) $ (0.83)
Number of shares used in
per share
calculations--basic and
diluted................ 17,281 17,437 17,581 20,967 24,569 23,357 28,170
</TABLE>
<TABLE>
<CAPTION>
March 31,
-------------------------------------------- June 30,
1995 1996 1997 1998 1999 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Historical balance sheet
data:
Cash and cash
equivalents............ $ 42,592 $ 49,590 $ 83,473 $ 67,381 $119,467 $109,803
Working capital......... 118,728 105,113 87,250 50,135 99,950 89,744
Total assets............ 270,141 284,232 175,520 131,152 176,185 165,787
Long-term liabilities... 1,420 1,183 438 3 -- --
Total shareholders'
equity................. 146,416 139,269 100,047 86,087 140,994 130,947
</TABLE>
15
<PAGE>
Selected Unaudited Pro Forma Condensed Combined Consolidated Financial Data
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended Six months ended
December 31, June 30,
---------------------------- ------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Unaudited pro forma
statements of operations
data:
Revenue:
Merchandise -- Online...... $ 13,981 $145,734 $352,491 $145,557 $226,261
Retail..................... 358,786 231,724 -- 47,502 --
Commission and other....... 2,217 4,602 3,981 1,935 5,756
-------- -------- -------- -------- --------
Total revenue............. 374,984 382,060 356,472 194,994 232,017
Gross profit................ 59,538 49,549 36,386 13,299 15,637
Total operating expenses.... 107,073 110,391 94,584 69,317 59,901
Net loss from continuing
operations................. (48,600) (57,003) (49,089) (53,117) (40,691)
Net loss from continuing
operations per share --
basic and diluted.......... $ (2.21) $ (2.07) $ (1.50) $ (1.66) $ (1.15)
Number of shares used in per
share calculation -- basic
and diluted................ 22,023 27,588 32,834 31,950 35,468
</TABLE>
<TABLE>
<CAPTION>
June 30,
1999
--------
<S> <C>
Unaudited pro forma balance sheet data:
Cash and cash equivalents....................................... $129,696
Working capital................................................. $106,569
Total assets.................................................... $183,665
Long-term liabilities........................................... $ 2,033
Total stockholders' equity...................................... $111,892
</TABLE>
- --------
(1) Onsale's results of operations for the period from inception (July 1994) to
December 31, 1994 have been combined with the results of operations for the
year ended December 31, 1995 due to its limited activity during the earlier
period. During 1994, Onsale incurred expenses and reported a net loss of
$41,000.
(2) Egghead's online net sales consist of the results of Egghead's online
shopping web sites and inbound telephone orders. Egghead's retail net sales
consist of the results of the retail stores and the direct response and
catalog/mail-order divisions. Egghead completed the closure of the retail
stores and the catalog/mail-order divisions on February 28, 1998.
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Comparative Historical and Unaudited Pro Forma Per Share Data
The following tables reflect (1) the historical net income (loss) and book
value per share of Onsale common stock and the historical net loss from
continuing operations and book value per share of Egghead common stock in
comparison with the unaudited pro forma net loss from continuing operations and
book value per share after giving effect to the proposed merger on a "pooling
of interests" basis and (2) the equivalent historical net loss from continuing
operations and book value per share attributable to the 0.565 shares of Onsale
common stock which will be received for each share of Egghead common stock. The
information presented in the following tables should be read in conjunction
with the unaudited pro forma condensed combined consolidated financial
statements included elsewhere in this document and the historical financial
statements and related notes of Onsale and Egghead which are incorporated by
reference in this document.
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months
Onsale historical per share data December 31, Ended June 30,
-------------------------------- ---------------------- ----------------
1996 1997 1998 1998 1999
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Net income (loss) per common share --
basic and diluted(1)............... $ 0.03 $(0.16) $(0.77) $ (0.44) $ (0.89)
Book value per share(2).............. $1.79
<CAPTION>
Fiscal Year Ended Six Months
Egghead historical per share data March 31, Ended June 30,
--------------------------------- ---------------------- ----------------
1997 1998 1999 1998 1999
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Net loss from continuing operations
per common share -- basic and
diluted(1).......................... $(2.78) $(2.60) $(1.40) $ (1.92) $ (0.83)
Book value per share(2).............. $ 4.26
<CAPTION>
Onsale and Egghead Fiscal Year Ended Six Months
Pro forma combined per share data December 31, Ended June 30,
--------------------------------- ---------------------- ----------------
1996 1997 1998 1998 1999
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Net loss from continuing operations
per Onsale share -- basic and
diluted(1).......................... $(2.21) $(2.07) $(1.50) $ (1.66) $ (1.15)
Net loss from continuing operations
per equivalent Egghead share --
basic and diluted(3)............... $(1.25) $(1.17) $(0.85) $ (0.94) $ (0.64)
Book value per Onsale share(2)....... $ 3.03
Book value per equivalent Egghead
share(3)............................ $ 1.71
</TABLE>
- --------
(1) Basic net income (loss) from continuing operations per share is computed
using the weighted average number of common shares outstanding during the
period. Diluted net income (loss) from continuing operations per share is
computed using the weighted average number of common and common equivalent
shares outstanding during the period. Common equivalent shares consist of
shares issuable upon the exercise of stock options and warrants (using the
treasury stock method). Common equivalent shares are excluded from the
computations if their effect is antidilutive.
(2) The historical book value per share is computed by dividing stockholders'
equity by the number of shares of common stock outstanding at June 30,
1999. The pro forma combined book value per share is computed by dividing
pro forma stockholders' equity by the pro forma number of shares of Onsale
common stock outstanding at June 30, 1999 assuming the merger had occurred
as of that date.
(3) The pro forma combined per equivalent Egghead share data is calculated by
multiplying the pro forma combined net loss from continuing operations and
book value per Onsale share by the exchange ratio of 0.565.
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<PAGE>
RISK FACTORS
In evaluating the merger-related proposal to be voted on at your meeting,
which if approved will result in shareholders of Egghead becoming stockholders
of Onsale and the business of Egghead combining with the business of Onsale,
please carefully consider the information presented throughout this document,
and in particular the following risk factors. Some of those risk factors relate
to the merger itself, and the balance relate to the business of the combined
company after the merger. In addition, you should refer to the risks associated
with the businesses of Onsale and Egghead which are described in materials
incorporated into this document by reference.
RISKS RELATING TO THE PROPOSED MERGER
Egghead shareholders will receive shares of Onsale common stock based on a
fixed ratio, even if the market value of Egghead common stock or Onsale common
stock changes before the merger closes.
The exchange ratio of 0.565 shares of Onsale common stock per outstanding
share of Egghead common stock is fixed. The exchange ratio will not be
adjusted, regardless of fluctuations in the market price of Egghead common
stock or Onsale common stock. The specific dollar value of common stock of the
combined company that Egghead shareholders will receive when the merger closes
will depend on the market value of Onsale common stock at the time of the
merger. The prices of both companies' common stock are subject to price
fluctuations and have experienced significant volatility. We cannot predict the
market prices for either company's common stock at any time before the merger
closes, nor can we predict the market price for the common stock of the
combined company after the merger closes. We encourage you to obtain current
market quotations of Onsale common stock and Egghead common stock, each of
which is quoted on the Nasdaq National Market.
The integration of our two companies may be difficult.
Merging our two companies involves technological, operational and personnel-
related risks. The integration process will be complex, time-consuming and
expensive, and will disrupt the business of the combined company after the
merger if not completed in a timely and efficient manner. If the merger is
approved, the combined company will utilize common information and
communication systems, facilities, operating procedures, financial controls and
human resources practices. We may encounter difficulties, costs and delays
involved in integrating these operations, including:
. Integrating the information and communications systems, and
particularly the web site operations, of our companies may be more
challenging, expensive and time-consuming than we anticipate;
. Combining other operational systems, such as product fulfillment and
customer service, may be more difficult than we anticipate;
. We may lose key employees that we do not anticipate losing, and the
attention of our management team may be diverted from other ongoing
business concerns more than we anticipate; and
. Our business cultures may be more difficult to integrate than we
anticipate.
The timing of the completion of the merger creates a special risk. If the
merger is completed later than early November 1999, the integration process
would be likely to interfere with operations of the combined company entering
into the busiest season of the year. Accordingly, we expect that we would
choose to postpone operational integration of the two companies under those
circumstances until January 2000. This delay in operational integration would
postpone achievement of expected benefits of the merger, and may have other
unforeseen consequences that could harm the business of the combined company.
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<PAGE>
Executive officers and directors of both companies have different interests
from yours.
The directors and executive officers of both Onsale and Egghead have
interests in the merger that are different from yours. Because of these
benefits, these persons may be influenced to vote in favor of or to recommend
the merger. These benefits include:
. George Orban, the Chief Executive Officer and Chairman of the board
of directors of Egghead, will become the Chairman of the board of
directors of the combined company after the merger;
. Jerry Kaplan, the Chief Executive Officer, President and Chairman of
the board of directors of Onsale, will become the Chief Executive
Officer of the combined company after the merger;
. C. Scott Gibson, Robert Wall and Karen White, who currently serve on
Egghead's board, and Jerry Kaplan, Alan Fisher, Peter Harris and Ken
Orton, who currently serve on Onsale's board, will become members of
the board of directors of the combined company;
. Several other executive officers of Onsale and Egghead will become
officers of the combined company after the merger;
. At the effective time of the merger, each outstanding option to
purchase Egghead common stock, including any stock option held by
any executive officer or director of Egghead, will be assumed by
Onsale and will become an option to acquire common stock of the
combined company after the merger, with the number of shares subject
to the option and the option exercise price to be adjusted according
to the 0.565 exchange ratio;
. Several executive officers of Egghead have agreements that provide
for benefits, including severance and other payments and
acceleration of stock option vesting, that may be triggered upon the
closing of the merger or a subsequent termination of employment;
. Non-employee directors of Egghead have options the vesting of which
will accelerate in connection with the merger; and
. Egghead and Onsale directors and executive officers have customary
rights to indemnification against specified liabilities.
Failure of the merger to qualify as a pooling of interests would harm the
financial results of the combined company.
If the merger does not qualify for pooling of interests accounting treatment
for financial reporting purposes, the future reported earnings of the combined
company would be harmed due to amortization of goodwill and other intangible
assets, which would be likely to harm the trading price of the combined
company's stock. The availability of pooling of interests accounting treatment
for this merger depends upon circumstances and events occurring after the
effective time of the merger. For example, there must not be any significant
changes in the business of the combined company, including significant
dispositions of assets, for a period of 2 years following completion of the
merger. In addition, the aggregate number of shares with respect to which
dissenters' rights are exercised must not exceed 10% of the shares of Egghead
common stock outstanding immediately before the merger. Affiliates of Onsale
and Egghead must not sell any shares of either company's stock, except in
specified limited amounts, until the day that the combined company publicly
announces financial results covering at least 30 days of combined operations
after the merger. If the effective time of the merger occurs prior to December
1, we expect that these combined financial results would be published in
January 2000. If affiliates of either company sell shares in excess of the
limited exception prior to that time, the merger may not qualify for accounting
as a pooling of interests.
Failure to complete the merger could harm each company's stock price and future
business and operations.
Both Onsale and Egghead face a number of special risks if the merger is not
completed, including the following:
. Either party may be required to pay the other a termination fee
equal to 4% of the equity value of the paying party;
. Egghead may be required to make an unsecured loan to Onsale for up
to $16 million;
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<PAGE>
. Either the option Egghead granted to Onsale to purchase up to a
number of shares of Egghead common stock equal to 19.9% of Egghead's
outstanding common stock or the option that Onsale granted to Egghead
to purchase up to a number of shares of Onsale common stock equal to
19.9% of Onsale's outstanding common stock may become exercisable;
. the price of each company's common stock may decline to the extent
that the current market price of each company's common stock reflects
a market assumption that the merger will be completed; and
. costs related to the merger, such as legal and accounting fees and
some financial advisor fees, must be paid even if the merger is not
completed.
In addition, current and prospective Egghead and Onsale employees may
experience uncertainty about their future roles with the combined company,
which may hurt each company's ability to attract and retain key management,
marketing, technical and administrative personnel. This may impede subsequent
integration of the two companies, and if the merger is not completed it may
harm Egghead in particular.
Further, if the merger is terminated and Egghead's board of directors
determines to seek another business combination, Egghead cannot assure you
that it will be able to find a party willing to combine with it on equivalent
or more attractive terms. Furthermore, the option that each company granted to
the other, if exercised, would make it impossible for the company which
granted the option to account for future business combinations as a "pooling
of interests," which would make it less likely that an attractive offer for
that company would be found.
Egghead may lose contractual rights due to the merger.
Egghead maintains real property leases in several states. Some of these
leases require Egghead to obtain the consent of a third party in connection
with the proposed merger. Egghead has agreed to obtain the necessary consents,
except where the failure to do so would not have a material adverse effect on
the combined company. Egghead may not be able to obtain all of the necessary
consents. If Egghead cannot obtain these consents and the merger is completed,
the combined company may be required to pay termination fees which could harm
its operating results.
RISKS RELATED TO THE BUSINESS OF THE COMBINED COMPANY AFTER THE MERGER
Unless otherwise stated, the terms "we" and "our" in this section refer to
the combined company after the merger.
The expected benefits of the merger might not be realized.
The potential benefits that Onsale or Egghead expect to achieve as a result
of the merger may be more difficult to achieve than expected, or may not be
achievable at all. For example:
. We may be unable to derive an amount of revenue per visitor to the
combined company's web site that is similar to the amount Onsale
currently derives from visitors to its web site;
. Our efforts to build a single, widely-recognized online brand may be
more expensive than anticipated, or may be of limited utility in
product areas outside of computer-related products;
. Anticipated cost reductions may not be available, or may be offset by
unanticipated cost increases;
. Economies of scale may not be available--in particular, our
purchasing power leverage with vendors may not increase as a result
of the merger;
. The customer bases of Onsale and Egghead may overlap more than
anticipated, resulting in a smaller-than-expected customer base for
the combined company; and
20
<PAGE>
. Visitor traffic on the web site of the combined company may not be
as high as Onsale and Egghead anticipate due to several factors,
including consolidation of operations, customer overlap and brand
consolidation, and may not increase in the future.
Onsale and Egghead have limited operating histories as online commerce
companies, which will make the business of the combined company difficult to
evaluate.
The merger will combine two companies that have limited operating histories
as online commerce companies. Onsale was incorporated in 1994 and did not
generate any revenues until July 1995. Egghead was incorporated in 1984 but
changed its business model from a chain of retail stores to an online commerce
web site beginning in February 1998. The prospects of the combined company will
therefore be subject to the risks, expenses and uncertainties frequently
encountered by young companies that operate in the new and rapidly evolving
markets for Internet products and services. These risks include:
. evolving and unpredictable business models;
. intense competition;
. our need and ability to manage growth; and
. the rapid evolution of technology in electronic commerce.
We will likely incur net losses for the foreseeable future.
Based on pro forma financial statements, we would have incurred net losses in
each of 1997 and 1998. As of June 30, 1999, Onsale had a net accumulated
deficit of approximately $34.6 million and Egghead had a net accumulated
deficit of approximately $119.8 million. Onsale and Egghead expect the combined
company to experience substantial quarterly net losses for the foreseeable
future, due primarily to the following factors:
. Competitive pricing pressures are expected to continue to negatively
affect gross margins;
. We will likely spend significant amounts on operating expenses, in
particular marketing expenses; and
. We will likely purchase large volumes of merchandise and spend a
substantial amount on our infrastructure.
Due to efforts to expand and maintain market share, our profit margins may
remain low for the foreseeable future.
Onsale and Egghead plan to make aggressive efforts to expand and maintain the
market share of the combined company, and our profit margins may continue to be
negatively affected as a result. We may attempt to expand our market share for
auctioned goods by increasing the quantity of products available for bid at any
one time, which tends to decrease revenues per unit. We may also use
promotional pricing and enhanced customer service to increase our market share
for current version sales. One of the effects of these strategies may be low
margins, and we may not be successful in increasing or maintaining our market
share in either or both lines of business. Even if we are successful in
increasing our market share, continued competition and customer expectations
may make it difficult to improve profit margins in the future. Accordingly, our
profits and stock price may be harmed.
Some competitors of the combined company sell products that are commonly
available from major distributors at or near their purchase price. This may
cause us to reduce our selling prices on the same or similar goods, which would
reduce profit margins.
Our operating results may fluctuate significantly and may be difficult to
predict.
Onsale's and Egghead's operating results have fluctuated in the past, and the
operating results of the combined company will likely fluctuate in the future
due to a number of factors, many of which will be outside our control. These
factors include:
. pricing competition;
21
<PAGE>
. the availability and pricing of merchandise from vendors;
. our ability to manage our inventory mix and the mix of products
offered for auction, and take other actions required to maintain
customer satisfaction;
. the degree to which our sales of current version merchandise at
attractive prices reduces sales of similar products on our auction
site;
. seasonal fluctuations in buying patterns of new and reconditioned
merchandise and in the availability of reconditioned merchandise;
. the level of traffic at our web site, and our ability to attract new
customers and to retain existing customers;
. the announcement or introduction of new types of merchandise,
service offerings or customer services by us or our competitors;
. the timing, cost and availability of web advertising;
. the amount and timing of costs relating to expansion of our
operations;
. interruptions to or increases in the costs associated with the
normal flow of our business operations, including the occurrence of
technical or communications failures or stoppages by common carriers
such as United Parcel Service; and
. governmental regulation and taxation policies.
Due to these factors, factors discussed elsewhere in this document, or
unforeseen factors, in some future quarter our operating results may not meet
the expectations of securities analysts and investors, and in this event the
trading price of the common stock of the combined company may decline.
We will operate in an extremely competitive market and we could lose revenue
and customers to our competitors.
Existing competitors. The electronic commerce market, particularly over the
Internet, is new, rapidly evolving and competitive, and we expect competition
to intensify in the future. We will compete with many other companies which
either offer the same types of merchandise or provide the same or a similar
type of sales format to customers. Some current competitors of Onsale and
Egghead include:
. Companies with online commerce sites such as Amazon.com, Inc.,
Beyond.com Corporation, Buy.com Inc., Cyberian Outpost, Inc. and
Dell Computer Corporation; and
. Companies offering certain types of Internet auctions, such as uBid,
Inc., Internet Shopping Network, Inc. (the FirstAuction site) and
Micro Warehouse, Inc.
This is not an exhaustive list of current competitors, and you should refer
to the reports of Onsale and Egghead filed with the Securities and Exchange
Commission for a list of additional competitors.
New competitors. It is not difficult to enter the online commerce market, and
current and new competitors can launch new online commerce web sites at
relatively low cost. Competition in online commerce will likely increase as
retailers, suppliers, manufacturers and direct marketers who have not
traditionally sold computer products and consumer goods directly to consumers
through the Internet enter this market segment. Increased competition may
result in price reductions, fewer customer orders, reduced gross margins,
increased marketing costs or loss of market share, or any combination of these
problems.
New competitors may emerge and rapidly acquire market share in several ways,
including through mergers or by alliances among competitors and vendors. For
example, Dell Computer Corporation and Amazon.com, Inc. have agreed to provide
links from their Web sites to new Web pages that advertise their respective
products. Through such alliances, competitors may also obtain exclusive or
semi-exclusive sources of
22
<PAGE>
merchandise. In addition, manufacturers may elect to liquidate their products
directly over the Internet. Companies that primarily conduct online person-to-
person auctions, such as eBay Inc., may develop into direct competitors in the
future.
We may not be successful in competing against competitors. Many of these
competitors have greater financial, marketing, customer support, technical and
other resources than we will. As a result, they may be able to secure
merchandise from suppliers on more favorable terms than us, and they may be
able to respond more quickly to changes in customer preference or to devote
greater resources to the development, promotion and sale of their merchandise
than we can. If competition increases and our branding efforts are not
successful, we may not be able to command higher margins on the products we
sell, or we may lose revenue and customers to our competitors.
Our business may face increased government regulation.
Auctioneering and other laws. Several states have laws that regulate auctions
and auction companies within their jurisdiction. Some states may interpret
their statutes to apply to our transactions with consumers in such states. The
burdens of complying with auctioneering laws could materially increase our cost
of doing business. Similarly, states may construe their existing laws governing
issues such as property ownership, sales tax, libel and personal privacy to
apply to Internet companies servicing consumers within their boundaries.
Resolution of whether or how these laws will be applied is uncertain and may
take years to resolve.
Consumer protection laws. We could be subject to regulation under consumer
protection laws in various states. Several states, including California and
Washington, have laws regulating the disclosure of pricing information by
wholesalers and comparable businesses. In the future, governments of
California, Washington and other states could require additional disclosure in
order to comply with other regulations.
Tax laws. The tax treatment of the Internet and electronic commerce is
currently unsettled. A number of proposals have been made at the federal, state
and local level and by certain foreign governments that could impose taxes on
the sale of goods and services and certain other Internet activities. Our
business may be harmed by the passage of laws in the future imposing taxes or
other burdensome regulations on online commerce.
New Internet laws. Due to the increasing popularity and use of the Internet,
it is possible that a number of laws and regulations may be adopted with
respect to the Internet generally, covering issues such as user privacy,
pricing and characteristics and quality of products and services. Similarly,
the growth and development of the market for Internet commerce may prompt calls
for more stringent consumer protection laws that may impose additional burdens
on those companies conducting business over the Internet. The adoption of any
additional laws or regulations may decrease the growth of commerce over the
Internet, increase our cost of doing business or otherwise have a harmful
effect on our business.
We may have to qualify to do business in other jurisdictions. Because the
combined company's service will be available over the Internet in multiple
states and foreign countries, and the combined company will sell to consumers
resident in such states and foreign countries, such jurisdictions may claim
that it is required to qualify to do business as a foreign corporation in each
of these states and foreign countries. If we fail to qualify as a foreign
corporation in a jurisdiction where we are required to do so, we could be
subject to taxes and penalties.
We cannot predict our future capital needs and we may not be able to secure
additional financing.
To fully implement our current business plan, we will likely need to raise
additional funds within the next 12 months in order to fund continuing
operating losses or to acquire complementary businesses, technologies or
services. Additional financing may not be available on terms favorable to us,
or may not be available to us at all. If we raise additional funds by issuing
equity securities, you may experience significant dilution of your ownership
interest, and these securities may have rights senior to the rights of common
stock holders. If
23
<PAGE>
additional financing is not available when required or is not available on
acceptable terms, we may be unable to fund continuing operations, promote our
brand name, enhance or develop our services, take advantage of business
opportunities or respond to competitive pressures, any of which could harm our
business.
We will face risks associated with purchasing and carrying our own inventory.
We will purchase inventory from vendors. Risks of carrying inventory include:
. potential declines in the market value of the goods that we
purchase;
. difficulties managing customer returns and credits associated with
merchandise to be returned to vendors;
. shrinkage resulting from theft, loss or inaccurate inventory
recording; and
. unpredictable sale prices due to the nature of our auction process.
If we manage our inventory poorly, we may be forced to sell our inventory at
a discount or loss.
We will rely on merchandise vendors for supply, shipping and quality of
products.
Supply. We will rely on vendors to supply us with merchandise. In the quarter
ended June 30, 1999, purchases from Ingram Micro Inc., a distributor of
computers and related products, accounted for approximately 26% of Egghead's
aggregate merchandise purchases, and purchases from TechData, a distributor of
computers and related products, and Hewlett Packard, a manufacturer of
computers and peripheral products, accounted for approximately 33% and 10%,
respectively, of Onsale's aggregate merchandise purchases. We will likely not
have any long-term contracts or arrangements with our vendors that guarantee
the availability of merchandise. We may not be able to obtain sufficient
quality and quantities of merchandise at competitive prices. Also, the quality
of service provided by such parties may fall below the standard needed to
enable us to conduct our business effectively. Onsale and Egghead cannot assure
you that their current vendors will continue to supply merchandise or that we
will be able to establish new vendor relationships that will ensure that
merchandise will be available.
Customer service--shipping and quality of products (returns). We will rely on
some of our vendors to ship merchandise directly to customers. Consequently, we
will have limited control over the goods shipped by these vendors, and
shipments of goods may be subject to delays. In addition, we may accept returns
from customers for which we will not receive reimbursements from manufacturers
or vendors. If the quality of service provided by such vendors falls below a
satisfactory standard or if our level of returns exceeds expectations, this
could have a harmful effect on our business.
We will rely on other third parties in conducting our operations.
In conducting our operations, we may depend on several other third parties,
including the following:
. Fulfillment. Third parties will fulfill a significant portion of our
sales. Any service interruptions experienced by these distribution
centers as a result of labor problems or otherwise could disrupt or
prevent fulfillment of customer orders;
. Operating software. Our internally-developed auction software
depends on operating systems, database and server software that have
been developed, produced by and licensed from third parties;
. Payment processing. We will rely on one or two processors of credit
card transactions. If computer systems failures or other problems
were to prevent them from processing our credit card transactions,
we would experience delays and business disruptions; and
. Shipping. We will use one or two primary delivery services to ship
our products. Our business would suffer if labor problems or other
causes prevented these or any other major carriers from delivering
our products for significant time periods.
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<PAGE>
We may not be able to maintain satisfactory relationships with any of the
above parties on acceptable commercial terms, and the quality of services that
they provide may not remain at the levels needed to enable us to conduct our
business effectively.
Year 2000 issues could affect the performance of our systems.
The "Year 2000" issue generally refers to the problems that some date-
sensitive computer systems and software may have in recognizing and processing
date information beyond the year 1999, and in particular distinguishing whether
"00" means 1900 or 2000. This may cause systems errors or failures that disrupt
or prevent normal business operations. We will rely on computer programs and
systems in connection with our internal and external communication networks and
systems, the operation of our web site, customer use of our web site, order
processing and fulfillment, accounting and financial systems and other business
functions. We will also rely on several non-information technology systems,
including our security system, building and telephone equipment and embedded
microcontrollers. Not all of the systems on which we will rely are Year 2000
compliant, and we will not be able to assure you that all of our systems or
systems of third parties as they relate to our business will achieve Year 2000
compliance in a timely manner. Additionally, we will continue to seek
assurances from third parties, including vendors and payment processors, that
their systems are Year 2000 compliant as they relate to our business. In
particular, telecommunication and computer systems on which we, our customers
and Internet services providers will rely could be affected by year 2000 issues
which could materially harm our business.
Our online commerce systems will be vulnerable to interruption.
Customer access to our web site will directly affect the volume of orders and
thus affects our revenues. System interruptions may make our web site
unavailable or prevent us from fulfilling orders efficiently, reducing the
volume of goods we sell and the attractiveness of our products and services. We
may need to add hardware and software and further develop and upgrade our
existing technology, transaction-processing systems and network infrastructure
to accommodate increased traffic on our web site and increased sales volume. We
will maintain substantially all of our computer and communications hardware at
two facilities, in Menlo Park, California and Vancouver, Washington. Our
systems and operations could be damaged or interrupted by fire, flood, power
loss, telecommunications failure, network break-ins, earthquake and similar
events. Our backup systems and disaster recovery plan may not be adequate, and
we may not have sufficient business interruption insurance to compensate us for
losses from a major interruption. Computer viruses, physical or electronic
break-ins, deliberate attempts by third parties to exceed the capacity of our
systems and similar disruptions could cause system interruptions, delays and
loss of critical data, and could prevent us from providing services and
accepting and fulfilling customer orders.
If we are unable to manage our growth, our business could be harmed.
In order to manage our growth, we will face many challenges, including:
. improving existing and implementing new operational, financial and
inventory systems, procedures and controls;
. integrating new key managerial and technical employees into our
existing management team;
. training, motivating and managing a growing employee base;
. managing relationships with third parties;
. managing risks associated with accounts receivable expansion and
collection; and
. meeting our growing needs for working capital.
We will depend on key employees.
Our future performance will depend upon contributions from members of our
senior management and other key personnel. Most of our key personnel will not
have long-term employment agreements, and we will
25
<PAGE>
likely not maintain any key person life insurance. Competition for attracting
and retaining personnel in our industry is intense, especially in the San
Francisco Bay area where we will have our headquarters and an operating site,
and we may fail to attract and retain the personnel we will need to succeed in
the future. If one or more of our key personnel leaves us or joins a
competitor, our business could be harmed.
We expect our stock price to be volatile.
The market price of the shares of the common stock of Onsale and Egghead has
been, and the market price of the shares of common stock of the combined
company is likely to be, subject to wide fluctuations in response to several
factors, such as:
. actual or anticipated variations in our results of operations;
. announcements of technological innovations;
. new sales formats, services or product introductions by us or our
competitors;
. developments with respect to patents, copyrights or proprietary
rights;
. changes in financial estimates by securities analysts; and
. conditions and trends in the Internet and electronic commerce
industries.
The stock markets generally, and the Nasdaq National Market in particular,
have experienced extreme price and volume fluctuations that have particularly
affected the market prices of equity securities of many technology companies
and that often have been unrelated or disproportionate to the operating
performance of such companies. These market fluctuations, as well as general
economic, political and market conditions such as recessions, interest rates or
international currency fluctuations may adversely affect the market price of
the common stock of the combined company. In the past, stockholders have
instituted securities class action litigation against several companies
following periods of volatility in the market price of their securities. Such
litigation, if instituted against us, could result in diversion of our
management's attention and resources and substantial financial costs.
Onsale's and Egghead's businesses differ, and Onsale's results of operations,
as well as the price of Onsale common stock, may be affected by factors
different from those affecting Egghead's results of operations and the price of
Egghead common stock. For a discussion of Onsale's and Egghead's businesses and
factors to consider in connection with these businesses, see Onsale's annual
report on Form 10-K for the year ended December 31, 1998 and subsequent
quarterly and current reports and Egghead's annual report on Form 10-K for the
fiscal year ended April 3, 1999, as amended, and subsequent quarterly and
current reports, all of which are incorporated into this document by reference.
This document contains and incorporates by reference forward-looking
statements within the safe harbor provisions of the Private Securities
Litigation Reform Act. See "Statements Regarding Forward-Looking Information"
on page 109. Forward-looking statements are based on our current expectations
and involve a number of uncertainties, including those described in the "Risk
Factors" section above, elsewhere in this document and in documents
incorporated into this document by reference. Actual results could differ
materially from what is expected.
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THE ONSALE MEETING
Date, time, place and purpose of the Onsale meeting
Onsale, Inc. will hold a special meeting of its stockholders at its
headquarters at 1350 Willow Road, Menlo Park, California on Thursday, November
4, 1999 at 10:00 a.m., Pacific time. At the meeting, Onsale stockholders of
record at the close of business on September 20, 1999 will be asked:
1. To approve the issuance of shares of Onsale common stock in connection
with Onsale's proposed merger with Egghead and to adopt Onsale's amended
and restated certificate of incorporation, which will:
. change the name of the corporation from Onsale, Inc. to Egghead.com,
Inc.;
. increase the authorized number of shares of all classes of stock to
100,000,000 and the authorized number of shares of common stock to
98,000,000 shares;
. divide the Onsale board of directors into three classes;
. incorporate provisions currently included in Onsale's amended and
restated bylaws related to the election and removal of Onsale
directors, vacancies on Onsale's board and transaction of business by
Onsale's stockholders; and
. add a two-thirds vote requirement to amend or repeal certain
provisions of the certificate of incorporation, including those
related to the classified board, election and removal of Onsale
directors, vacancies on Onsale's board and transaction of business by
Onsale's stockholders.
2. To approve an amendment to Onsale's 1995 Equity Incentive Plan which
increases by 950,000 the number of shares of common stock authorized and
reserved for issuance under the plan and provides for automatic grants of
stock options to Onsale directors.
Onsale does not anticipate that any other matter will be presented for action
at the meeting. If any other matters are properly brought before the meeting,
the persons named in the proxies for the Onsale meeting will have discretion to
vote on these matters in accordance with their respective judgments.
Record date and outstanding shares
The record date for the Onsale stockholders' meeting is September 20, 1999.
Only holders of record of Onsale common stock at the close of business on the
record date are entitled to notice of and to vote at the meeting. As of the
close of business on the record date, there were 19,689,024 shares of Onsale
common stock outstanding and entitled to vote, held of record by approximately
161 stockholders, although Onsale has been informed that there are in excess of
28,000 beneficial owners. Each Onsale stockholder is entitled to one vote for
each share of Onsale common stock held as of the record date.
On the record date, directors, executive officers and affiliates of Onsale as
a group beneficially owned 10,379,131 shares of Onsale common stock. These
shares constituted approximately 52.7% of all of the outstanding shares of
Onsale common stock as of the record date.
Vote and quorum required
The holders of a majority of the shares of Onsale common stock entitled to
vote at the Onsale stockholders' meeting, present in person or represented by
proxy, will constitute a quorum for the purposes of the meeting. Proposal No. 1
must be approved by the holders of a majority of the outstanding shares of
Onsale common stock as of the record date. Proposal No. 2 must be approved by
the holders of a majority of the shares held by those present at the meeting or
represented by proxy at the meeting that are voted "for," "against" or
"abstain" on this proposal.
Abstentions will have the same effect as votes against the proposals. If a
broker, bank, custodian, nominee or other record holder of Onsale common stock
indicates on a proxy that it does not have discretionary authority to vote
certain shares on a particular matter, which is called a broker non-vote, those
shares will be
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counted for purposes of determining the presence or absence of a quorum for the
Onsale stockholders' meeting, will have the same effect as votes against
Proposal No. 1, and will not be considered present at the meeting with respect
to Proposal No. 2.
Onsale stockholders holding approximately 51.7% of the outstanding shares of
Onsale common stock as of the record date have agreed to vote all of their
shares of Onsale common stock in favor of Proposal No. 1. See "Related
Agreements -- The voting agreements" on page 75. As a result, assuming these
stockholders vote as required by their voting agreements, this proposal will be
approved.
Expenses of proxy solicitation
Onsale will pay the expenses of soliciting proxies to be voted at the Onsale
stockholders' meeting. Following the original mailing of the proxies and other
soliciting materials, Onsale and its agents also may solicit proxies by mail,
telephone, telegraph or in person. Following the original mailing of the
proxies and other soliciting materials, Onsale will request brokers,
custodians, nominees and other record holders of Onsale common stock to forward
copies of the proxy and other soliciting materials to persons for whom they
hold shares of Onsale common stock and to request authority for the exercise of
proxies. In these cases, upon the request of the record holders, Onsale will
reimburse these holders for their reasonable expenses.
Voting of proxies
The proxy relating to the Onsale stockholders' meeting that accompanies this
document is solicited on behalf of the Onsale board of directors for use at the
Onsale stockholders' meeting. Please complete, date and sign this accompanying
proxy and promptly return it in the enclosed envelope or otherwise mail it to
Onsale. All properly signed proxies that Onsale receives prior to the vote at
the Onsale stockholders' meeting and that are not revoked will be voted at the
meeting according to the instructions indicated on the proxies or, if no
direction is indicated, in favor of each proposal. An Onsale stockholder may
revoke his or her proxy at any time before it is exercised at the meeting by
taking any of the following actions:
. delivering to the secretary of Onsale a written notice, bearing a
date later than the date of the proxy, stating that the proxy is
revoked;
. signing and delivering to the secretary of Onsale a proxy relating
to the same shares and bearing a later date prior to the vote at the
meeting; or
. attending the Onsale stockholders' meeting and voting in person,
although attendance at the meeting will not, by itself, revoke a
proxy. Please note, however, that if your shares are held of record
by a broker, bank or other nominee and you vote at the Onsale
stockholders' meeting, you must bring to the meeting a letter from
the broker, bank or other nominee confirming your beneficial
ownership of the shares.
No dissenters' or appraisal rights
Holders of Onsale common stock are not entitled to dissenters' rights or
appraisal rights with respect to the merger-related proposal to be considered
at the Onsale stockholders' meeting.
PROPOSAL NO. 1--ISSUANCE OF SHARES IN THE MERGER AND ADOPTION OF
ONSALE'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
Based on the shares of Egghead common stock outstanding as of September 20,
1999 and on the exchange ratio of 0.565 shares of Onsale common stock for each
share of Egghead common stock outstanding immediately before the consummation
of the merger, Onsale will issue approximately 17,395,264 shares of Onsale
common stock in the merger. In addition, each option and purchase right to
acquire Egghead common stock that is outstanding immediately before the merger
will be assumed by Onsale and converted into an
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option to acquire 0.565 shares of Onsale common stock after the merger. As of
September 20, 1999, options and purchase rights to acquire approximately
3,356,582 shares of Egghead common stock were outstanding, which based on the
0.565 exchange ratio will be converted into options and purchase rights to
acquire approximately 1,896,469 shares of Onsale common stock.
For a discussion of the merger as it relates to the proposal to issue shares
of Onsale common stock in connection with the merger, please refer to the
sections entitled "The Merger" beginning on page 40 and "The Merger Agreement"
beginning on page 64. The merger agreement is included as Annex A to this
document.
Onsale's certificate of incorporation currently authorizes the issuance of
30,000,000 shares of common stock, par value $.001 per share, and 2,000,000
shares of preferred stock, par value $.001 per share. On September 10, 1999,
Onsale's board of directors adopted Onsale's amended and restated certificate
of incorporation, subject to stockholder approval. This new certificate of
incorporation will:
. increase the authorized number of shares of all classes of stock to
100,000,000 shares;
. increase the authorized number of shares of common stock to
98,000,000 shares;
. change the name of the corporation from Onsale, Inc. to Egghead.com,
Inc.;
. divide the Onsale board of directors into three classes;
. incorporate provisions currently included in Onsale's amended and
restated bylaws related to the election and removal of Onsale
directors, vacancies on Onsale's board and transaction of business
by Onsale stockholders; and
. add a two-thirds vote requirement to amend or repeal certain
provisions of the certificate of incorporation, including those
related to the classified board, election and removal of Onsale
directors, vacancies on Onsale's board and transaction of business
by Onsale's stockholders.
The number of authorized shares of preferred stock would remain unchanged.
Onsale's amended and restated certificate of incorporation is included as Annex
B to this document.
Current commitments for use of shares
As of September 20, 1999, Onsale had:
. 19,689,024 shares of common stock outstanding; and
. 6,281,333 shares reserved for future issuance under employee stock
option and employee stock purchase plans, of which 4,463,661 shares
were subject to issuance upon the exercise of currently outstanding
options and purchase rights.
Based upon these numbers, Onsale has 4,029,643 shares of common stock
remaining available for other purposes. Therefore, without amending its
certificate of incorporation to authorize additional shares of common stock,
Onsale would not have a sufficient number of shares authorized for issuance in
connection with the merger.
Purpose and effect of Onsale's amended and restated certificate of
incorporation
Purpose of changes to authorized stock. Onsale's board believes that it is in
Onsale's best interest to increase the number of shares of common stock that it
is authorized to issue in order to give Onsale the number of shares required to
effect the merger with Egghead.
Onsale's board also believes that the availability of additional authorized
shares will provide Onsale with the flexibility to issue securities for other
proper corporate purposes which may be identified in the future, such as to
raise equity capital, to adopt additional employee benefit plans or reserve
additional shares for issuance under such plans and to acquire other companies.
No additional action or authorization by the stockholders of the combined
company would be necessary prior to the issuance of these additional shares,
unless required by applicable law or the rules of any stock exchange or
national securities association trading system on which the common stock of the
combined company is then listed or quoted.
Dilutive effect of potential new stock issuances. Onsale's stockholders
generally do not have preemptive rights with respect to its common stock.
Should the board of directors of the combined company elect to issue additional
shares of common stock, existing stockholders would not have any preferential
rights to purchase
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these shares. Therefore, additional issuances of common stock by the combined
company could have a dilutive effect on the earnings per share, voting power
and share holdings of current stockholders.
Anti-takeover effect of increase in authorized common stock. The proposed
increase in the authorized number of shares of common stock of the combined
company could, under some circumstances, have an anti-takeover effect, although
this is not the intention of this proposal. For example, in the event of a
hostile attempt to take over control of the combined company, it may be
possible for the combined company to seek to impede the attempt by issuing
shares of its common stock, which could dilute the voting power of the other
outstanding shares and increase the potential cost to acquire control of the
combined company. Therefore, the increase in authorized shares may have the
effect of discouraging unsolicited takeover attempts. By potentially
discouraging unsolicited takeover attempts, the increase may limit the
opportunity for the stockholders of the combined company to dispose of their
shares at the higher price generally available in takeover attempts or that may
be available under a merger or acquisition proposal. The increase may also have
the effect of permitting the combined company's management, including its board
of directors, to retain its position, and place it in a better position to
resist changes that stockholders may wish to make if they are dissatisfied with
the conduct of the business of the combined company. However, Onsale's board of
directors is not aware of any attempt to take control of Onsale and has not
presented this proposal with the intent that it be utilized as a type of anti-
takeover device.
Purpose and effect of changing the corporate name from Onsale, Inc. to
Egghead.com, Inc. Changing the corporate name of Onsale, Inc. to Egghead.com,
Inc. after the merger was a negotiated aspect of the merger agreement that each
party concluded would be beneficial to the combined entity going forward. As a
result, although Onsale will continue as a corporate entity after the merger,
Onsale's legal corporate name will be changed to Egghead.com, Inc.
Purpose and effect of dividing the Onsale board into three classes. Dividing
the Onsale board of directors into three classes creates what is called a
classified board. Onsale's board, which in connection with the combination with
Egghead.com is being increased to nine directors, will be divided into three
classes, each with three directors. The term of office of the Class I directors
would expire at Onsale's 2000 annual stockholders meeting, the term of office
of the Class II directors would expire at Onsale's 2001 annual stockholders
meeting and the term of office of the Class III directors would expire at
Onsale's 2002 annual stockholders meeting. Beginning with Onsale's 2000 annual
stockholders meeting, directors elected to succeed the directors of the class
whose terms expire at that annual meeting will be elected for a term of three
years.
Immediately following consummation of the proposed merger, the combined
company's board of directors would have the following members:
Class I (to be elected in 2000)
1. Peter L. Harris
2. Robert T. Wall
3. Karen White
Class II (to be elected in 2001)
1. Alan S. Fisher
2. C. Scott Gibson
3. Kenneth J. Orton
Class III (to be elected in 2002)
1. S. Jerrold Kaplan
2. George Orban
3. (vacant)
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This proposed amendment may have the effect of deterring or slowing down
attempts to take over control of Onsale. Because Onsale's stockholders would
only be allowed to elect three new directors per year, it would take a large
Onsale stockholder at least two years to elect enough new directors to acquire
control of Onsale's board. This amendment may have the effect of permitting the
combined company's directors to retain their positions and to better resist
changes that stockholders may wish to make if they are dissatisfied with the
conduct of the business of the combined company.
Purpose and effect of incorporating provisions from Onsale's amended and
restated bylaws. Onsale's amended and restated certificate of incorporation
also incorporates provisions related to the election and removal of directors
from Onsale's board, vacancies on Onsale's board and the transaction of
business by Onsale's stockholders. Incorporating these provisions, which are
already in Onsale's bylaws, may have the effect of impeding others from taking
control of Onsale, because amending these provisions in the future would
require an amendment to Onsale's certificate of incorporation, which would
require approval by Onsale's stockholders. By contrast, amending Onsale's
bylaws only requires approval by Onsale's board of directors, and if a
stockholder has elected enough new directors to acquire control of Onsale's
board, this would be a quicker and easier process.
Purpose and effect of the two-thirds vote requirement to amend or repeal
certain provisions. Onsale's amended and restated certificate of incorporation
requires a two-thirds stockholders vote to amend or repeal its provisions
relating to the classified board, election and removal of Onsale directors,
vacancies on Onsale's board and transaction of business by Onsale stockholders.
This two-thirds vote requirement may impede others from taking control of
Onsale by making it more difficult to amend provisions that may impede a
takeover attempt.
Onsale's board of directors recommends a vote for the proposal to issue shares
of Onsale common
stock in the merger and to adopt Onsale's amended and restated certificate of
incorporation.
PROPOSAL NO. 2--AMENDMENT TO ONSALE'S 1995 EQUITY INCENTIVE PLAN
Onsale is asking its stockholders to approve an amendment to Onsale's 1995
Equity Incentive Plan, to increase the number of shares of common stock
authorized and reserved for issuance under the plan by 950,000 shares and to
provide for automatic grants of stock options to directors. The purpose of this
amendment is to secure sufficient additional shares under the plan to account
for option grants to former Egghead employees that become employees of the
combined company after the merger, and to add director option grants to the
1995 Equity Incentive Plan in connection with the termination of the 1995
Directors Stock Plan.
On September 10, 1999, Onsale's board adopted the proposed amendment to
Onsale's 1995 Equity Incentive Plan, to be effective upon stockholder approval,
and approved the termination of Onsale's 1995 Directors Stock Option Plan,
contingent upon stockholder approval of this proposal.
Summary of 1995 Equity Incentive Plan
Plan History
The following is a summary of the principal provisions of Onsale's 1995
Equity Incentive Plan. This summary is not necessarily complete. You should
refer to the full text of the plan.
In November 1995, Onsale's board adopted and its stockholders approved
Onsale's 1995 Equity Incentive Plan and authorized and reserved 1,500,000
shares of common stock for issuance under the plan. The purpose of the plan is
to provide incentives to attract, retain and motivate eligible persons whose
present and potential contributions are important to Onsale's success, by
offering them an opportunity to participate in Onsale's future performance
through awards of stock options, restricted stock and stock bonuses. In August
1996,
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Onsale amended the plan to increase the number of shares authorized for
issuance under the plan to 3,032,250. In December 1996, Onsale amended the plan
to become effective upon our initial public offering and to increase the shares
authorized for issuance under the plan to 3,500,000. In May 1998, Onsale
amended the plan to increase the number of shares authorized for issuance under
the plan to 5,300,000. In May 1999, Onsale amended the plan again to increase
the number of shares reserved for issuance under the plan to 5,691,610, and to
provide for an automatic increase in the shares reserved under the plan, on
January 1, 2000 and each anniversary thereafter, of 4% of the total shares
outstanding as of the immediately preceding December 31.
As of August 31, 1999, options to purchase an aggregate of 2,937,056 shares
of common stock were outstanding under the plan, with exercise prices ranging
from $0.033 to $63.50 per share, and options to purchase 1,709,828 shares were
available for grant. If the proposed amendment had been approved by Onsale's
stockholders as of this date, there would have been 2,659,828 shares available
under the plan. The closing price of Onsale common stock on the Nasdaq National
Market was $15.19 per share as of September 17, 1999, the last trading day
before the record date for the Onsale stockholders' meeting.
As of August 31, 1999, Onsale's executive officers as a group, consisting of
7 persons, held options under the plan to purchase an aggregate of 741,334
shares. Onsale's non-employee directors as a group held options to purchase an
aggregate of 40,300 shares. Onsale's employees as a group, including officers
who are not executive officers, held options under the plan to purchase an
aggregate of 2,035,256 shares.
Shares
The number of shares of Onsale common stock authorized for issuance under the
plan is 5,691,610 shares, of which 1,044,726 shares have been issued pursuant
to option exercises, 2,937,056 shares are subject to outstanding options and
1,709,828 represent shares available for grant. Proposal No. 2 seeks to
increase the number of shares of common stock authorized for issuance under the
plan by 950,000 shares, to a total of 6,641,610 shares. Shares subject to
options granted pursuant to the plan that expire or are terminated for any
reason without being exercised, shares subject to awards granted pursuant to
the plan that are forfeited or repurchased by Onsale at the original issue
price, and shares subject to awards granted pursuant to the plan that otherwise
terminate without shares being issued will again become available for grant and
issuance pursuant to the plan. This number of shares available is subject to
proportional adjustment to reflect stock splits, stock dividends and other
similar events.
Eligibility
Employees, officers, directors, consultants, independent contractors and
advisors of Onsale or any parent or subsidiary of Onsale, collectively referred
to as participants, are eligible to receive awards under the plan. No person
will be eligible to receive more than 250,000 shares in any calendar year
pursuant to awards granted under the plan. Notwithstanding the foregoing, a new
employee is eligible to receive up to a maximum of 750,000 shares pursuant to
the plan in the calendar year in which he or she commences employment. As of
August 31, 1999, approximately 250 persons were eligible to participate in the
plan.
Administration
The plan is administered by the Compensation Committee of the Onsale board,
the members of which are appointed by Onsale's board of directors. The
Compensation Committee currently consists of Peter L. Harris and Peter H.
Jackson, both of whom are non-employee directors, as defined in Rule 16b-3
promulgated under the Exchange Act, and outside directors, as defined pursuant
to Section 162(m) of the Internal Revenue Code.
Subject to the terms of the plan, the Compensation Committee determines the
persons who are to receive awards, the number of shares subject to each such
award and the terms and conditions of such awards. The Compensation Committee
has authorized S. Jerrold Kaplan, Onsale's President and Chief Executive
Officer, to
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grant options to purchase up to 25,000 shares of Onsale common stock to
employees whose transactions in Onsale common stock are not subject to Section
16 of the Exchange Act. The Compensation Committee also has the authority to
construe and interpret any of the provisions of the plan or any awards granted
under the plan.
Stock options
. Type of Option. The plan permits Onsale to grant options that are
intended to qualify either as incentive stock options, known as ISOs, or
non-qualified stock options, known as NQSOs. ISOs may be granted only to
employees, including officers and directors who are also employees, of
Onsale or any parent or subsidiary of Onsale.
. Vesting. Options granted under the incentive plan generally become
exerciseable, or "vest," over a four-year period.
. Expiration Date. The maximum term of options granted under the plan is
ten years.
. Exercise Price. The option exercise price for each ISO share must be no
less than 100% of the fair market value, as defined in the plan, of a
share of our common stock at the time the ISO is granted. The per share
exercise price of an ISO granted to a 10% stockholder must be no less
than 110% of the fair market value of a share of Onsale common stock at
the time the ISO is granted. The option exercise price for each NQSO
share must be no less than 85% of the fair market value of a share of
common stock at the time of grant. Onsale has not granted options under
the plan at less than fair market value and does not intend to do so in
the foreseeable future.
. Option Exercise and Payment Alternatives. The exercise price of options
granted under the plan may be paid, as approved by the Compensation
Committee at the time of grant, either
-- in cash (by check),
-- by cancellation of indebtedness of Onsale to the participant,
-- by surrender of shares of Onsale common stock owned by the
participant for at least six months and having a fair market value on
the date of surrender equal to the aggregate exercise price of the
option,
-- by tender of a full recourse promissory note,
-- by waiver of compensation due to or accrued by the participant for
services rendered,
-- by a same-day sale commitment from the participant and a National
Association of Securities Dealers, Inc. broker,
-- by a margin commitment from the participant and a National
Association of Securities Dealers, Inc. broker, or
-- by any combination of the foregoing.
Restricted stock awards
The Compensation Committee may grant participants restricted stock awards to
purchase stock either in addition to, or in tandem with, other awards under the
plan, under such terms, conditions and restrictions as the Compensation
Committee may determine. The purchase price for such awards must be no less
than 85% of the fair market value of our common stock on the date of the award,
or in the case of an award granted to a 10% stockholder, the purchase price
must be 100% of fair market value, and can be paid for in any of the first five
forms of consideration listed above, as approved by the Compensation Committee
at the time of grant. Onsale has not granted any restricted stock awards under
the plan to date, and does not intend to do so in the foreseeable future.
Stock bonuses
The Compensation Committee may grant participants stock bonuses either in
addition to or in tandem with other awards under the plan, under such terms,
conditions and restrictions as the Compensation Committee may
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determine. Onsale has not granted any stock bonuses under the plan to date, and
does not intend to grant stock bonuses from shares now authorized or proposed
to be authorized for issuance under the plan.
Directors' stock option grants
Under the plan as proposed to be amended, each eligible director who is not
an Onsale employee and who first becomes a member of the board after the
consummation of the combination with Egghead (not as a result of that
combination) will be granted an option to purchase 15,000 shares of common
stock under the plan. Immediately following each annual meeting of
stockholders, each eligible director will automatically be granted an
additional option to purchase 10,000 shares of common stock under the plan if
the director has served continuously as a member of the board (including
service on the Egghead board) for at least one year (5,000 shares if the
director has served more than six months but less than one year). Each director
eligible to receive a grant of 10,000 shares in the following year may, in
advance of the annual meeting date as communicated by the Compensation
Committee, elect to receive in lieu thereof $20,000 cash and an option to
purchase 5,000 shares of common stock. Once made, such election may not be
changed; however, a participant may make different elections with respect to
subsequent periods.
The options will have 10-year terms and will terminate three months following
the date the director ceases to be one of our directors or consultants or 12
months following that date if the termination is due to death or disability.
All options granted under the plan will vest over 12 months and be exerciseable
at a price per share equal to the closing price of Onsale common stock on the
date of grant. In the event of a merger, consolidation, dissolution or
liquidation of Onsale, the sale of substantially all of its assets, or any
other similar corporate transaction, the vesting of all stock options awarded
to directors pursuant to the plan will accelerate and become immediately
exerciseable in full.
In 1998, non-employee directors were entitled to an annual, automatic grant
of 5,000 shares. If Proposal No. 2 is approved, non-employee directors will
become entitled to an annual, automatic grant of 10,000 shares or, in lieu
thereof, $20,000 and an option to purchase 5,000 shares.
Mergers, consolidations, change of control
In the event of a merger, consolidation, dissolution or liquidation of
Onsale, the sale of substantially all of its assets, or any other similar
corporate transaction, the successor corporation may assume awards under the
plan, substitute equivalent awards in exchange for those granted under the
plan, or provide consideration substantially similar to that which is provided
to our stockholders in such transaction. In the event that the successor
corporation does not assume or substitute awards, such awards will expire upon
the closing of such transaction at the time and upon the conditions as the
Compensation Committee determines. However, the Compensation Committee may, in
its sole discretion, provide that the vesting of any or all awards granted
pursuant to the plan will accelerate.
Amendment or termination of the plan
Onsale's board may at any time terminate or amend the plan, including
amending any form of award agreement or instrument to be executed pursuant to
the plan. However, the board may not amend the plan in any manner that requires
stockholder approval pursuant to the Internal Revenue Code or its regulations,
or pursuant to the Exchange Act or Rule 16b-3 promulgated under the Exchange
Act.
Term of the plan
Unless terminated earlier as provided in the plan, the plan will expire in
November 2005, ten years from the date it was adopted by the Onsale board.
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Federal income tax information
The following is a general summary as of the date of this proxy statement of
the federal income tax consequences to Onsale and participants under the plan.
Federal tax laws may change and the federal, state and local tax consequences
for any participant will depend upon his or her individual circumstances. Each
participant has been and is encouraged to seek the advice of a qualified tax
advisor regarding the tax consequences of participation in the plan.
Incentive stock options. A participant will recognize no income upon grant of
an ISO and incur no tax on its exercise, unless the participant is subject to
the alternative minimum tax, referred to as AMT. If the participant holds
shares acquired upon exercise of an ISO, or the ISO shares, for more than one
year after the date the option was exercised and for more than two years after
the date the option was granted, the participant generally will realize capital
gain or loss, rather than ordinary income or loss, upon disposition of the ISO
shares. This gain or loss will be equal to the difference between the amount
realized upon such disposition and the amount paid for the ISO shares.
If the participant disposes of ISO shares prior to the expiration of either
required holding period, known as a disqualifying disposition, the gain
realized upon such disposition, up to the difference between the fair market
value of the ISO shares on the date of exercise (or, if less, the amount
realized on a sale of such shares) and the option exercise price, will be
treated as ordinary income. Any additional gain will be long-term or short-term
capital gain, depending upon the amount of time the ISO shares were held by the
participant.
Alternative minimum tax. The difference between the fair market value of the
ISO shares on the date of exercise and the exercise price is an adjustment to
income for purposes of AMT. The AMT, imposed to the extent it exceeds the
taxpayer's regular tax, is 26% of the portion of an individual taxpayer's
alternative minimum taxable income that would otherwise be taxable as ordinary
income, and 28% in the case of alternative minimum taxable income in excess of
$175,000. A maximum 20% AMT rate applies to the portion of alternative minimum
taxable income that would otherwise be taxable as net capital gain. Alternative
minimum taxable income is determined by adjusting regular taxable income for
certain items, increasing that income by certain tax preference items,
including the difference between the fair market value of the ISO shares on the
date of exercise and the exercise price, and reducing this amount by the
applicable exemption amount ($45,000 in case of a joint return, subject to
reduction under certain circumstances). If a disqualifying disposition of the
ISO shares occurs in the same calendar year as exercise of the ISO, there is no
AMT adjustment with respect to those ISO shares. Also, upon a sale of ISO
shares that is not a disqualifying disposition, alternative minimum taxable
income is reduced in the year of sale by the excess of the fair market value of
the ISO shares at exercise over the amount paid for the ISO shares.
Non-qualified stock options. A participant will not recognize any taxable
income at the time an NQSO is granted. However, upon exercise of an NQSO, the
participant must include in income as compensation an amount equal to the
difference between the fair market value of the shares on the date of exercise
and the participant's exercise price. The included amount must be treated as
ordinary income by the participant and may be subject to withholding by Onsale,
either by payment in cash or withholding out of the participant's salary. Upon
resale of the shares by the participant, any subsequent appreciation or
depreciation in the value of the shares will be treated as capital gain or
loss.
Restricted stock awards and stock bonuses. Restricted stock and stock bonuses
will generally be subject to tax at the time of receipt, unless there are
restrictions that enable the participant to defer tax. At the time the tax is
incurred, the tax treatment will be similar to that discussed above for NQSOs.
Maximum tax rates. The maximum tax rate applicable to ordinary income is
39.6%. Long-term capital gain will be taxed at a maximum of 20%. For this
purpose, in order to receive long-term capital gain treatment, the shares must
be held for more than twelve months. Capital gains may be offset by capital
losses and up to $3,000 of capital losses may be offset annually against
ordinary income.
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Tax treatment of Onsale. Onsale generally will be entitled to a deduction in
connection with the exercise of an NQSO by a participant or the receipt of
restricted stock or stock bonuses by a participant to the extent that the
participant recognizes ordinary income and Onsale withholds tax. Onsale will be
entitled to a deduction in connection with the disposition of ISO shares only
to the extent that the participant recognizes ordinary income on a
disqualifying disposition of the ISO shares.
ERISA. The plan is not subject to any of the provisions of the Employee
Retirement Income Security Act of 1974 and is not qualified under Section
401(a) of the Internal Revenue Code.
Onsale's board recommends a vote for the proposed amendment to Onsale's 1995
Equity Incentive Plan.
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THE EGGHEAD MEETING
Proposal to be considered
Adoption and approval of the merger agreement among Onsale, Inc., EO
Corporation, Inc., a wholly-owned subsidiary of Onsale, and Egghead.com, Inc.
and approval of the merger that will cause Egghead to become a wholly-owned
subsidiary of Onsale.
Date, time and location of the Egghead meeting
Egghead will hold a special meeting of its shareholders at the Hilton Garden
Inn at 12048 N.E. Airport Way, Portland, Oregon, on Thursday, November 4, 1999
at 8:00 a.m. local time.
If the Egghead shareholders adopt and approve the merger agreement and
approve the merger and the other conditions to the merger are satisfied or
waived, Egghead will become a wholly-owned subsidiary of Onsale. The merger
agreement is attached to this document as Annex A.
Record date and outstanding shares
Only holders of record of Egghead common stock at the close of business on
the record date, September 20, 1999, are entitled to notice of, and to vote at,
the meeting. As of the close of business on the record date, there were
30,788,079 shares of Egghead common stock outstanding and entitled to vote.
Each Egghead shareholder is entitled to one vote for each share of common stock
held as of the record date.
Vote required
The affirmative vote of holders of shares representing two-thirds of the
Egghead common stock outstanding as of the record date is required to adopt and
approve the merger agreement and to approve the merger.
Share ownership of management and certain shareholders
On the record date, directors, executive officers and affiliates of Egghead
as a group beneficially owned 1,740,190 shares of Egghead common stock, or
approximately 5.4% of the outstanding shares on that date. Directors and
executive officers who collectively own 92,901 shares of Egghead common stock,
or approximately 0.3% of the outstanding shares on the record date, have
executed voting agreements with Onsale, under which they have agreed to vote
their shares in favor of the merger. See "Related Agreements--The voting
agreements" on page 75.
Quorum
A majority of the outstanding common stock of Egghead entitled to vote at the
Egghead shareholders' meeting, represented in person or by proxy, will
constitute a quorum for purposes of the meeting.
Expenses of proxy solicitation
Egghead will pay the expenses of soliciting proxies to be voted at the
Egghead shareholders' meeting. Following the original mailing of the proxies
and other soliciting materials, Egghead and its agents also may solicit proxies
personally, or by mail, telephone, telegraph, facsimile or messenger. In
addition, MacKenzie Partners, Inc. will assist in the solicitation of proxies
by Egghead for a fee of approximately $12,500, plus reasonable expenses.
Egghead will pay persons holding shares of common stock in their names or in
the names of nominees, but not owning such shares beneficially, such as
brokerage houses, banks, and other fiduciaries, for the expense of forwarding
soliciting materials to their principals.
Voting of proxies; absentions and broker non-votes
The proxy accompanying this document is solicited on behalf of the Egghead
board of directors for use at the meeting. You are requested to complete, date
and sign the accompanying proxy and promptly return it in
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the enclosed envelope or otherwise mail it to Egghead. If you have any
questions about the procedures for voting of proxies or for voting your
shares, please call MacKenzie Partners at 1-800-322-2885.
All shares represented by properly signed proxies received by Egghead prior
to the vote at the meeting that are not revoked will be voted at the meeting
according to the instructions indicated on the proxies. Properly executed
proxies received by Egghead prior to the meeting that are not revoked and that
do not contain voting instructions will be voted "FOR" adoption and approval
of the merger agreement and approval of the merger.
Shares of Egghead common stock represented at the shareholders' meeting but
not voting, including shares of Egghead stock for which proxies have been
received but for which holders of the shares have abstained, will be treated
as present at the shareholders' meeting for purposes of determining the
presence or absence of a quorum for the transaction of all business.
Only shares affirmatively voted for adoption and approval of the merger
agreement and approval of the merger, including shares represented by properly
executed proxies that do not contain voting instructions, will be counted as
votes for that proposal. If an Egghead shareholder abstains from voting or
does not vote, either in person or by proxy, it will have the effect of a vote
against adoption and approval of the merger agreement and approval of the
merger. Brokers who hold shares of Egghead common stock in street name for
customers who are the beneficial owners of those shares may not give a proxy
to vote those customers' shares in the absence of specific instructions from
the customers. These non-voted shares are referred to as broker non-votes and
have the effect of votes against adoption and approval of the merger agreement
and approval of the merger. Your broker will vote your shares only if you
provide instructions on how to vote by following the information provided to
you by your broker.
The persons named as proxies by an Egghead shareholder may propose and vote
for one or more adjournments of the special meeting, including adjournments to
permit further solicitation of proxies.
Egghead's board of directors does not know of any matter to be presented for
action at the meeting other than adoption and approval of the merger agreement
and approval of the merger. If any other matters are properly brought before
the meeting, the persons named in the proxies will have discretion to vote on
such matters in accordance with their respective judgments.
How to revoke your proxy
An Egghead shareholder may revoke his or her proxy at any time before it is
exercised at the Egghead shareholders' meeting, by taking any of the following
actions:
. delivering to the secretary of Egghead a written notice, bearing a
date later than the date of the proxy, stating that the proxy is
revoked;
. signing and delivering to the secretary of Egghead a proxy relating
to the same shares and bearing a later date prior to the vote at the
meeting; or
. attending the meeting and voting in person, although attendance at
the meeting will not, by itself, revoke a proxy.
Dissenters' rights
Under Washington law, Egghead shareholders have the right to dissent from
the merger and to receive payment in cash for the fair value of their shares
of Egghead common stock. To preserve their rights, Egghead shareholders who
wish to exercise their statutory dissenters' rights must:
. deliver to Egghead before the Egghead shareholders' meeting written
notice of their intent to demand payment for their shares of Egghead
common stock if the merger is effected; and
. not vote their shares in favor of approval of the merger agreement
and the merger.
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Merely voting against the merger agreement and the merger will not preserve
an Egghead shareholder's dissenters' rights. Chapter 23B.13 of the Washington
Business Corporation Act is reprinted in its entirety in Annex I to this
document. Egghead shareholders should review the section entitled "Dissenters'
Rights" beginning on page 103 and Annex I carefully if they wish to exercise
statutory dissenters' rights or preserve their right to dissent. Failure to
comply with the procedures described in Annex I will result in the loss of
dissenters' rights.
See "The Merger--Dissenters' rights" on page 62 and "Dissenters' Rights" on
page 103.
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THE MERGER
This section of the document describes various aspects of the proposed
merger, including the merger agreement and the Egghead and Onsale stock option
agreements. While we believe that the description covers the material terms of
the merger and the related transactions, this summary may not contain all of
the information that is important to you. You should carefully read this entire
document and the other documents to which we refer for a more complete
understanding of the merger. In addition, we incorporate important business and
financial information about each of us into this document by reference. See
"Documents Incorporated by Reference in this Document" on page 106. You may
obtain the information incorporated by reference into this document without
charge by following the instructions in the section entitled "Where You Can
Find More Information" on page 107.
Background of the merger
On December 9, 1998, George Orban, Chairman of the Board and Chief Executive
Officer of Egghead, called Jerry Kaplan, Chairman of the Board, President and
Chief Executive Officer of Onsale, and offered to meet to discuss the
competitive environment and potential areas of cooperation between the two
companies.
On December 15, 1998, Mr. Orban, together with a representative of Donaldson
Lufkin Jenrette, an investment bank, met Mr. Kaplan and John Labbett, Chief
Financial Officer of Onsale, to discuss a variety of topics, including Egghead,
Onsale and the possible merits of a business combination between the two
companies. Mr. Orban and Mr. Kaplan decided not to pursue further discussions
about a possible business combination at that time. No further discussions
occurred as a result of this meeting until March 17, 1999.
On March 17, 1999, Mr. Orban requested a representative of Hambrecht & Quist
LLC, to contact Ken Orton, a director of Onsale, to inquire whether Onsale
would be interested in revisiting with Egghead the matters discussed at the
December 15, 1998 meeting. The representative of Hambrecht & Quist contacted
Mr. Orton that same day. On March 17, 1999, Mr. Kaplan received an e-mail from
Mr. Orton stating that he had received a call from Hambrecht & Quist asking if
Onsale would like to talk with Egghead. Mr. Kaplan responded by e-mail to Mr.
Orton that he was not interested in further discussions at this time.
On March 23, 1999, Mr. Orban sent an e-mail to Mr. Kaplan regarding the
benefits of scale that might be achieved by a business combination. On March 28
and 29, 1999, Mr. Orban and Mr. Kaplan exchanged e-mails related to the
possible benefits of scale in Internet retailing generally.
On March 30, 1999, Mr. Orban called Mr. Kaplan to discuss a variety of
topics, including the competitive environment of the Internet computer
retailing market and a potential business combination.
On April 2, 1999, Mr. Orban met Mr. Kaplan, Mr. Labbett and Jeff Sheahan,
Onsale's Chief Operating Officer at Onsale's offices in Menlo Park, California,
to discuss the business environment generally, the possible benefits of a
business combination between the companies and the possibility of entering into
a mutual nondisclosure agreement to facilitate further preliminary discussions.
On April 6, 1999 Onsale provided a draft mutual nondisclosure agreement to
Egghead for review.
On April 8, 1999 Mr. Orban and Mr. Kaplan held a telephone discussion in
which they expressed their mutual interest in facilitating further preliminary
discussions once a nondisclosure agreement was in place.
On April 8, 1999, Mr. Orban held a conference call with Egghead's legal
advisors, Brian Bender, Chief Financial Officer of Egghead, Jonathan Brodeur, a
director of Egghead and an officer of Egghead's primary operating subsidiary,
and Gregory Boudreau, Scott Gibson, Eric Robison and Robert Wall, members of
the board of directors of Egghead, to discuss his communications with
Mr. Kaplan.
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On April 9, 1999, Mr. Orban sent Mr. Kaplan an e-mail recommending that the
two companies enter into a mutual nondisclosure agreement before exchanging
preliminary information. Discussions continued from April 9, 1999, through
April 12, 1999.
On April 12, 1999, Mr. Labbett and Mr. Kaplan e-mailed Onsale's preliminary
list of questions to Mr. Orban, and indicated the process of responding to the
questions could proceed when the mutual nondisclosure agreement was completed.
On April 15, 1999, Egghead and Onsale entered into a mutual nondisclosure
agreement.
On April 21, 1999, members of Onsale's senior management, including Mr.
Kaplan, Mr. Sheahan, Alan Fisher, Onsale's Chief Technical Officer and Mr.
Labbett, met members of Egghead's management, including Mr. Orban, Mr. Bender,
Tommy E. Collins, Vice President of Information Systems and Chief Technology
Officer, Norman F. Hullinger, Vice President of Sales and Operations, James F.
Kalasky, Vice President of Merchandising and Advertising, and Mr. Brodeur, in
Portland, Oregon, to compare the customers, operations and sales patterns of
the two companies and to identify the potential merits of a possible business
combination between the companies and potential operational strategies,
marketing strategies and organizational structures of a combined entity.
From April 21, 1999, through mid-May, 1999, members of each company's
management exchanged a variety of documents, primarily relating to a
determination of the degree of overlap between their respective customer bases.
From April 21, 1999, through July 13, 1999, members of Onsale's senior
management held regular discussions with Morgan Stanley, Onsale's financial
advisor, regarding a possible business combination with Egghead compared with
Onsale's other strategic alternatives.
On April 29, 1999, Mr. Labbett left a voicemail message with Mr. Orban
indicating that Onsale was interested in pursuing discussions further.
On April 29, 1999, at a regular meeting of the board of directors of Egghead,
Mr. Orban and the Egghead board of directors discussed the strategic business
alternatives for Egghead, including a possible business combination with
Onsale. Mr. Orban discussed with the board of directors his communications with
Hambrecht & Quist regarding companies other than Onsale that were potential
candidates for a business combination with Egghead, and summarized the recent
discussions between Egghead and Onsale. The Egghead board of directors directed
Mr. Orban to discuss with Hambrecht & Quist formally retaining that firm to
serve as Egghead's financial advisor to review and evaluate Egghead's strategic
alternatives with its board of directors and management.
From May 1999 through July 13, 1999, representatives of Hambrecht & Quist,
members of Egghead's management and members of Egghead's board of directors
held regular discussions regarding the possible business combination with
Onsale and Egghead's other strategic alternatives. During this period,
Hambrecht & Quist and management of Egghead identified several companies that
could be potential candidates for a business combination with Egghead, and
Hambrecht & Quist or Mr. Orban communicated with representatives of these
companies and updated members of Egghead's board of directors regarding these
communications.
From May 4, 1999 to May 12, 1999, members of the senior management of each
company had many communications regarding possible next steps in consideration
of a business combination and planning for a further meeting on May 19, 1999.
On May 7, 1999, Mr. Orban, other members of the Egghead board of directors
and representatives of Hambrecht & Quist discussed by telephone companies that
Egghead might acquire or combine with and that had been contacted by Hambrecht
& Quist, and the substance of Hambrecht & Quist's discussions with those
companies or their representatives to date.
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On May 17, 1999, Onsale's board of directors held a regular meeting, at which
the potential merits of a combination with Egghead were discussed. Onsale's
board encouraged the Onsale management team to consider the possible merger
seriously.
On May 19, 1999, Mr. Kaplan, Mr. Labbett and Merle McIntosh, Onsale's Senior
Vice President Merchandise Acquisition, and representatives of Morgan Stanley,
met Mr. Orban, Mr. Bender and Mr. Kalasky and representatives of Hambrecht &
Quist in Portland, Oregon, to discuss the possible terms of a business
combination and the possible structure of the board of directors and management
of a combined entity.
On May 26, 1999, Mr. Kaplan and Mr. Labbett, together with representatives of
Morgan Stanley, held a conference call with Mr. Orban and Mr. Bender, together
with representatives of Hambrecht & Quist, to conduct preliminary financial due
diligence.
On June 2, 1999, Mr. Labbett, Mr. Sheahan, Mr. Orban, Mr. Bender and Mr.
Hullinger held a joint conference call to discuss further business due
diligence.
On June 2, 1999, Onsale provided Egghead with a preliminary proposal of key
terms of a possible merger between the companies.
On June 4, Mr. Orban held a conference call with members of Egghead's board
of directors and discussed Onsale's preliminary proposed terms for a possible
merger.
On June 8, 1999, members of management of Onsale and Egghead met in
Vancouver, Washington to conduct further business due diligence.
On June 10, 1999, at a meeting of the Egghead board of directors, Mr. Orban
and the members of the board discussed strategic business alternatives
available to Egghead, and Mr. Orban discussed Egghead's communications with
other companies that were possible candidates for a business combination, and
Egghead's communication with Onsale and the terms of a possible combination
with Onsale. Representatives of Hambrecht & Quist attended the meeting and
discussed the terms of the possible merger with Onsale.
On June 15, 1999, at a meeting of the Egghead board of directors, Mr. Orban
discussed recent communications between Egghead and Onsale, including
communications regarding the proposed terms of the possible merger between
Egghead and Onsale. Representatives of Hambrecht & Quist participating in the
meeting by telephone updated Egghead's board of directors regarding discussions
between Hambrecht & Quist and the financial advisors of companies that might be
potential candidates for a business combination with Egghead. Representatives
of Hambrecht & Quist discussed the strategic alternatives of Egghead, discussed
the possible merger with Onsale, and reviewed with the board of directors
financial and other analyses by Hambrecht & Quist regarding a possible merger
between Egghead and Onsale. The Egghead board of directors formed a special
committee, comprising Scott Gibson, Eric P. Robison, Robert T. Wall, Karen
White and Melvin A. Wilmore, who were all of the nonemployee directors of
Egghead, to assist Egghead management in connection with negotiation of a
potential transaction between Onsale and Egghead.
On June 16, 1999, Mr. Orban spoke with each of Mr. Kaplan, Mr. Fisher, Mr.
Sheahan and Mr. Labbett, and discussed various aspects of a potential business
combination, including the management, staffing, technology and expense
structure of a combined entity.
On June 18, 1999, Mr. Orban, and Karen White and Melvin Wilmore, members of
Egghead's board of directors, had a dinner in Palo Alto, California with Mr.
Kaplan and Mr. Fisher, and Mr. Orton, a member of the board of directors of
Onsale, to provide an opportunity for some outside directors of Egghead to
become acquainted with key members of Onsale's management and board of
directors, and to discuss the possible merits of a business combination between
Onsale and Egghead.
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From June 20, 1999 through July 13, 1999, members of Onsale's management team
conducted further business due diligence investigations of Egghead. From June
27, 1999 through July 13, 1999, members of Egghead's management team conducted
further business due diligence of Onsale.
On June 21, 1999, Mr. Orban and Mr. Kaplan discussed by telephone various
aspects of the proposed merger.
On June 21 and June 22, 1999, Mr. Labbett and Mr. Bender conducted financial
and accounting diligence regarding the companies and the potential time table
for a transaction between the companies, by telephone.
On June 23, 1999, Mr. Collins met Mr. Fisher and Greg Boiles of Onsale in
Menlo Park, California to discuss the technological infrastructure of Onsale
and Egghead.
From June 23, 1999 to July 13, 1999, Onsale's legal advisors conducted legal
due diligence on Egghead, and from June 28, 1999 through July 13, 1999,
Egghead's legal advisors conducted legal due diligence on Onsale.
On June 24, 1999, Mr. Orban and representatives of Hambrecht & Quist
discussed by telephone various aspects of the proposed merger.
On June 24, 1999, Mr. Labbett and members of Onsale's independent
accountants, together with representatives of Morgan Stanley and Hambrecht &
Quist, conducted financial and business due diligence on Egghead in Spokane,
Washington.
On June 24, 1999, Onsale's legal advisors sent a first draft of a proposed
merger agreement between Onsale and Egghead to Egghead's legal advisors. From
this date to the execution of the definitive agreement on July 13, 1999, the
parties and their legal advisors exchanged several revisions of the proposed
merger agreement and related documents and held several conference calls to
negotiate the merger agreement and related agreements.
On June 29, 1999, members of Egghead's management and its independent
accountants, together with representatives of Morgan Stanley and Hambrecht &
Quist, conducted financial and business due diligence on Onsale in Palo Alto,
California.
On June 30, 1999, Egghead's board of directors held a regularly scheduled
meeting. At the meeting, Mr. Orban and representatives of Hambrecht & Quist
made a presentation to the board of directors regarding recent negotiations
between Egghead and Onsale regarding the financial and other terms of the
proposed merger. After the presentation, Mr. Kaplan of Onsale joined the
meeting and made a presentation to the board of directors regarding the merits
of a merger between Onsale and Egghead. Mr. Kaplan departed the meeting and the
board of directors discussed the proposed terms of the merger and Mr. Kaplan's
presentation, including the proposed exchange ratio. During a recess in the
proceedings of the board meeting, a joint meeting of Egghead's compensation
committee and special committee convened with Mr. Orban in attendance.
Mr. Kaplan joined this committee meeting, and the members of the committees and
Mr. Kaplan discussed retention matters related to Egghead's senior management
and discussed the proposed management structure of a combined company. Mr.
Kaplan departed the meeting. The committee meeting adjourned. The meeting of
the Egghead board of directors reconvened and discussed the proposed
transaction with Onsale.
On July 1, 1999, the Onsale board of directors held a special meeting. Morgan
Stanley summarized for the board the material financial analyses that it
performed related to the proposed transaction. Morgan Stanley and
PricewaterhouseCoopers LLP, independent accountants, reported on the results of
their due diligence investigations of Egghead.
On July 7, 1999, meetings were held in Menlo Park, California, in which each
of the members of senior management of Onsale met individually with each member
of senior management of Egghead to discuss their
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specific areas of responsibility at the respective companies. The participants
also met as a group to discuss potential timetables and integration of the two
companies.
On July 9, 1999, the Onsale board of directors held a special meeting. Morgan
Stanley summarized for the board the material financial analyses that it
performed related to the proposed transaction. Morgan Stanley verbally stated
that it would be ready as of July 13, 1999 to render its oral opinion to the
board of directors of Onsale to the effect that, as of that date and based upon
the assumptions made, matters considered and limits of such review, as set
forth in its opinion, the exchange ratio in the merger was fair to Onsale from
a financial point of view. Onsale's management, legal advisors, independent
accountants and financial advisor then reported on the results of their due
diligence investigations of Egghead.
On July 13, 1999, the Onsale board of directors held a special meeting.
Onsale's legal advisors reviewed the principal terms of the merger agreement
and related agreements. Morgan Stanley summarized for the board the material
financial analyses that it performed related to the proposed transaction.
Morgan Stanley rendered its oral opinion to the board of directors of Onsale,
subsequently confirmed in writing as of July 13, 1999, to the effect that, as
of that date and based upon the assumptions made, matters considered and limits
of such review, as set forth in its opinion, the exchange ratio in the merger
was fair to Onsale from a financial point of view. Onsale's management, legal
advisors and financial advisor then reported on the results of their due
diligence investigations of Egghead. After discussion, the Onsale board
approved the merger agreement and related agreements and the issuance of Onsale
common stock in the merger. The Onsale board determined to recommend to the
Onsale stockholders that they approve the issuance of shares of Onsale common
stock in the merger.
On July 13, 1999, Egghead's board of directors held a special meeting with
members of Egghead's senior management and legal and financial advisors of
Egghead, and reviewed the following:
. the status of the negotiations of the proposed transaction;
. the principal terms of the merger agreement and related documents;
. the benefits and potential risks of the transaction with Onsale; and
. the results of the due diligence evaluation of Onsale.
Egghead's legal advisors discussed the board of directors' fiduciary duties
in considering a strategic business combination and further discussed the terms
of the merger agreement and related documents. Egghead's independent
accountants joined the meeting by telephone and discussed accounting aspects of
the proposed merger. During a recess in the board of directors meeting, Egghead
convened a meeting of the special committee of the board of directors, attended
by Mr. Orban and Egghead's legal advisors. The special committee discussed
personnel retention issues and certain terms of the merger. Representatives of
Egghead's independent accountants, Mr. Kaplan, Mr. Labbett, representatives of
Onsale's independent accountants and a representative of Morgan Stanley, joined
the meeting by telephone and representatives of Hambrecht & Quist joined the
meeting. The terms of retention arrangements for Egghead's senior management
other than Mr. Orban were discussed. The representatives of Egghead's and
Onsale's independent accountants both departed the meeting and a representative
of Onsale's legal advisors joined the meeting by telephone. Mr. Orban, members
of Egghead's special committee, representatives of Egghead's legal and
financial advisors, Mr. Kaplan, Mr. Labbett, and representatives of Onsale's
legal and financial advisors negotiated certain terms of the merger relating to
termination fees and a loan to Onsale in the event of termination of the merger
agreement under specified circumstances. The meeting of the special committee
adjourned. Thereafter the meeting of the Egghead board of directors reconvened,
attended by representatives of Egghead's legal and financial advisors.
Representatives of Hambrecht & Quist reviewed the strategic rationale for,
benefits and transactions risks relating to, and financial analyses relating
to, the proposed merger. In addition, at the meeting, Hambrecht & Quist
reviewed various analyses and rendered its oral opinion to the Egghead board of
directors, subsequently confirmed in writing, that the exchange ratio in the
merger was fair, from a financial point of view, to Egghead's shareholders.
Following discussion, the Egghead board determined that the proposed merger was
advisable and fair to, and in the best interests of, Egghead and its
shareholders, and unanimously approved the merger agreement and related
documents and resolved to recommend the approval and adoption of the merger
agreement and approval of the merger by the Egghead shareholders.
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In the evening of July 13, 1999, the parties executed the merger agreement,
the Egghead stock option agreement and the Onsale stock option agreement, and
some officers and directors of each company executed voting agreements. On the
morning of July 14, 1999, the parties publicly announced the agreement to
merge.
Onsale's reasons for the merger
At a meeting held on July 13, 1999, the board of directors of Onsale
concluded that the merger was in the best interests of Onsale and its
stockholders and determined to recommend that the Onsale stockholders approve
the stockholder proposal relating to the merger.
The decision of the board of directors of Onsale was based upon several
potential benefits of the merger, including the potential to:
+ Develop a stronger leadership position for the combined
company. Onsale believes that the combined company will have the
opportunity to consolidate and extend its position as a leading
Internet retailer of computers and related products, with combined
sales, customer bases and traffic greater than most of its
competitors in the online technology retail market, and as a result
to build greater stockholder value;
+ Build a single, widely-recognized online brand. The merger will
enable the combined company to pool marketing expenditures in order
to strengthen the nationally-recognized Egghead brand, rather than
making expenditures to create competing brands;
+ Increase sales. The combined company plans to leverage Egghead's
higher number of daily visitors with Onsale's ability to generate
higher revenue per visitor, resulting in higher revenues overall;
+ Reduce costs. The merger will enable the combined company to achieve
increased economies of scale, including more efficient use of
promotional expenditures, elimination of duplicated expenses for web
site operation, technology development, order processing, customer
service and general and administrative, and greater buying leverage
with suppliers;
+ Combine traffic and customer bases. Onsale's studies suggest an
overlap of only approximately fifteen percent in monthly visitors,
registered customers and electronic mailing lists, indicating that
the combined company would address a substantially larger base of
potential and actual customers;
+ Leverage complementary organizational strengths. The merged
companies can take advantage of the relative strengths of each
company, such as Onsale's Internet e-commerce technology and
Egghead's retailing expertise;
+ Increase financial strength by combining cash reserves. The
combination of Egghead's and Onsale's cash reserves will give the
combined company greater financial strength to compete in the
intensely competitive e-commerce market; and
+ Expand into new product categories. The financial strength and
market position of the combined company will provide the opportunity
for the combined company to expand into additional product
categories either directly or through the acquisition of other
companies.
In its evaluation of the merger, the Onsale board reviewed several factors,
including, but not limited to, the following:
. historical information concerning our respective businesses,
financial performance and condition, operations, technology and
management, including reports concerning results of operations;
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. Onsale management's view of the financial condition, results of
operations and businesses of Onsale and Egghead before and after
giving effect to the merger and the Onsale board's determination of
the merger's effect on stockholder value;
. current financial market conditions and historical market prices,
volatility and trading information;
. the consideration Egghead shareholders will receive in the merger in
light of comparable merger transactions;
. the opinion of Morgan Stanley that, as of the date of its opinion
and subject to the considerations described in the opinion, the
exchange ratio in the merger is fair from a financial point of view
to Onsale;
. the belief that the terms of the merger agreement and the Egghead
and Onsale stock option agreements are reasonable;
. the impact of the merger on Onsale's customers and employees;
. reports from management, legal, financial and accounting advisors as
to the results of the due diligence investigation of Egghead; and
. the expectation that the merger will be accounted for as a "pooling
of interests."
The Onsale board also identified and considered a number of potentially
negative factors in its deliberations concerning the merger including the
following:
- the possibility that the value of the Onsale common stock to be
issued to Egghead shareholders in the merger will increase or
decrease before the completion of the merger;
- the risk that the anticipated benefits of the merger may not be
realized;
- the possibility that the merger may not be completed;
- the possibility that the merger might not be accounted for as a
pooling of interests;
- the technical, operational and personnel-related challenges to
integrating the two companies;
- the risk of management and employee disruption associated with the
merger, including the risk that despite the efforts of the combined
company, key technical, sales and management personnel might not
remain employed by the combined company;
- the risk that the combined company may not achieve the expected ratio
of sales to visitors;
- the risk that the merger may result in some lost customers due to
consolidation of operations of the companies and brand consolidation;
and
- other applicable risks, including the risks related to Egghead's
business and how they would affect the operations of the combined
company.
The board concluded, however, that the potential benefits to Onsale and its
stockholders of the merger outweighed the risks associated with the merger.
The discussion of the information and factors considered by the Onsale board
is not intended to be exhaustive. In view of the variety of factors considered
in connection with its evaluation of the merger, the Onsale board did not find
it practicable to, and did not, quantify or otherwise assign relative weight to
the specific factors considered in reaching its determination.
Recommendation of Onsale's board of directors
After careful consideration, the Onsale board of directors has determined the
merger agreement and the merger to be fair to and in the best interests of the
Onsale stockholders. In connection with the merger, Onsale's board of directors
recommends approval of the proposal to issue shares of Onsale common stock in
the merger and to adopt Onsale's amended and restated certificate of
incorporation.
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<PAGE>
In considering the recommendation of the Onsale board of directors with
respect to the merger, you should be aware that some directors and officers of
Onsale have interests in the merger that are different from, or are in addition
to, the interests of Onsale stockholders generally. Please see "Interests of
executive officers and directors in the merger" on page 57.
Egghead's reasons for the merger
At the meeting held on July 13, 1999, the board of directors of Egghead
determined that the merger was advisable and fair to, and in the best interests
of, Egghead and its shareholders and resolved to recommend the adoption and
approval of the merger agreement and approval of the merger by Egghead's
shareholders. Egghead's board of directors believes that there are several
potential benefits of the merger that are reasons for shareholders of Egghead
to vote FOR adoption and approval of the merger agreement and approval of the
merger, including the potential to:
+ Strengthen our leadership position. The combined company will have
the opportunity to consolidate and strengthen the leadership of
Egghead and Onsale in the online retailing of personal computers and
related products. Egghead expects that the combined company will be
able to have greater sales, number of customer accounts and traffic
than most of its competitors in the online technology retail market;
+ Achieve economies of scale. The merger will enable the combined
company to achieve benefits of economies of scale, particularly with
respect to marketing, merchandise procurement and infrastructure
development;
+ Expand the customer base. Given the small overlap between the
customer accounts of Egghead and Onsale, the merger will enable the
combined company to sell to a greatly expanded customer base and
increase the traffic to a single, combined web site;
+ Increase revenue. The combined company will have the opportunity to
leverage Egghead's higher number of daily visitors with Onsale's
ability to obtain higher revenues per customer, in order to increase
revenue;
+ Strengthen and build a single brand. The merger will enable Egghead
and Onsale to unite under the nationally-recognized Egghead brand,
rather than expend resources on competing brands;
+ Combine complementary management strengths. The two companies will
combine management and staff in the areas of technology, marketing,
merchandising, procurement, distribution and customer service. This
combination will result in a stronger team sooner than if each
company sought to develop independently;
+ Reduce costs. Combining Egghead and Onsale will create the
opportunity to eliminate duplicate expenses throughout both
businesses;
+ Improve our technology. The merger will enable Egghead to use
Onsale's stronger auction technology to merchandise and market
products more flexibly and efficiently;
+ Expand into additional product categories. In addition to computer-
related products, Egghead and Onsale sell consumer electronics and
other consumer and business goods. Egghead believes that the
combined company will be in a stronger position than Egghead alone
to expand into additional product categories;
+ Increase the ability to acquire complementary businesses. Egghead
believes that the online commerce industry may face increasing
consolidation, and the combined company will be in a stronger
position than Egghead alone to acquire complementary businesses; and
+ Increase growth. Egghead's shareholders will have the opportunity to
participate in the growth potential of the combined company after
the merger.
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<PAGE>
In the course of deliberations, the Egghead board reviewed with Egghead's
management and outside advisors a number of factors relevant to the merger,
including:
. historical information concerning Onsale's and Egghead's respective
business, financial performance and condition, operations,
technology, management and competitive position;
. Egghead management's view as to the financial condition, results of
operations and businesses of Onsale and Egghead before and after
giving effect to the merger based on management due diligence and
publicly available earnings estimates;
. current financial market conditions and historical market prices,
volatility and trading information with respect to Onsale common
stock and Egghead common stock;
. the consideration to be received by Egghead shareholders in the
merger and an analysis of the market value of the Onsale common
stock to be issued in exchange for each share of Egghead common
stock in light of comparable merger transactions;
. the belief that the terms of the merger agreement and the stock
option agreements, including the parties' representations,
warranties and covenants, and the conditions to the parties'
respective obligations, are reasonable;
. Egghead management's view as to the prospects of Egghead as an
independent company;
. Egghead management's view as to the potential for other third
parties to enter into strategic relationships with or to combine
with Egghead;
. financial analysis and pro forma and other information with respect
to the companies presented by Hambrecht & Quist in board
presentations, including Hambrecht & Quist's opinion that the
exchange ratio pursuant to the merger agreement is fair to the
Egghead shareholders from a financial point of view;
. the impact of the merger on Egghead's customers and employees; and
. reports from management, legal advisors and financial advisors as to
the results of their due diligence investigation of Onsale.
The Egghead board considered a number of potentially negative factors in its
deliberations concerning the merger, including:
- the risk that because the exchange ratio will not be adjusted for
changes in the market price of either Onsale common stock or Egghead
common stock, the per share value of the consideration to be
received by Egghead shareholders might be less than the price per
share implied by the exchange ratio immediately prior to the
announcement of the merger due to fluctuations in the market value
of Onsale common stock and Egghead common stock;
- the risk that the merger might not be completed;
- the risk that the merger agreement and merger might not be approved
by Egghead's shareholders, which would result in an obligation by
Egghead to make an unsecured loan of up to $16,000,000 to Onsale and
may, under some circumstances, result in the payment of termination
fees, which would significantly decrease Egghead's cash reserves;
- the possibility that the merger might not be accounted for as a
pooling of interests;
- the challenges relating to the integration of the two companies;
- the possibility of management and employee disruption associated
with the potential merger and integrating the operations of the
companies, and the risk that, despite the efforts of the combined
company, key management, marketing, merchandising, technical and
administrative personnel of Egghead might not continue with the
combined company;
- the risk that the benefits sought to be achieved by the merger will
not be realized; and
- other applicable risks including risks relating to Onsale's business
and how they would affect the operations of the combined company.
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<PAGE>
Egghead's board of directors believed that these risks were outweighed by the
potential benefits of the merger.
The discussion of Egghead's reasons for the merger and the information and
factors considered by the Egghead board is not intended to be exhaustive. In
view of the factors considered in connection with its evaluation of the merger,
the Egghead board did not find it practicable, and did not, quantify or
otherwise assign relative weight to the specific factors considered in reaching
its determination.
Recommendation of Egghead's board of directors
After carefully evaluating these factors, both positive and negative, the
board of directors of Egghead has determined that the merger is advisable and
fair to, and in the best interests of, Egghead and its shareholders and
unanimously recommends that Egghead shareholders vote for adoption and approval
of the merger agreement and approval of the merger.
In considering the recommendation of the Egghead board of directors with
respect to the merger, you should be aware that certain directors and officers
of Egghead have certain interests in the merger that are different from, or are
in addition to, the interests of Egghead shareholders generally. Please see
"Interests of executive officers and directors in the merger" on page 57.
Opinion of Onsale's financial advisor
Under an engagement letter dated July 13, 1999, Onsale formally retained
Morgan Stanley to provide it with financial advisory services and a financial
fairness opinion in connection with the merger. The Onsale board of directors
selected Morgan Stanley to act as Onsale's financial advisor based on Morgan
Stanley's qualifications, expertise and reputation and its knowledge of the
business and affairs of Onsale. At the meeting of the Onsale board of directors
on July 13, 1999, Morgan Stanley rendered its oral opinion, subsequently
confirmed in writing as of July 13, 1999, that as of that date and based upon
and subject to the various considerations set forth in the opinion, the
exchange ratio in the merger was fair to Onsale from a financial point of view.
The full text of the written opinion of Morgan Stanley dated July 13, 1999 is
attached as Annex G to this document and describes the assumptions made,
procedures followed, matters considered and limitations on the scope of the
review undertaken by Morgan Stanley in rendering its opinion. We urge the
Onsale stockholders to read the opinion carefully and in its entirety. Morgan
Stanley's opinion is directed to the Onsale board of directors and addresses
only the fairness of the exchange ratio defined in the merger agreement from a
financial point of view as to Onsale as of the date of the opinion. This
opinion does not address any other aspect of the merger and does not constitute
a recommendation to any holder of Onsale common stock as to how to vote at the
Onsale stockholders' meeting. The summary of the opinion of Morgan Stanley in
this document is qualified in its entirety by reference to the full text of the
opinion.
In connection with rendering its opinion, Morgan Stanley, among other things:
. reviewed publicly available financial statements and other
information of Onsale and Egghead;
. reviewed internal financial statements, financial estimates and
other financial and operating data concerning Onsale and Egghead
prepared by the managements of Onsale and Egghead, respectively;
. discussed the past and current operations and financial condition
and the prospects of Onsale, including information relating to
strategic, financial and operational benefits anticipated from the
merger with senior executives of Onsale;
. discussed the past and current operations and financial condition
and the prospects of Egghead, including information relating to
certain strategic, financial and operational benefits anticipated
from the merger with senior executives of Egghead;
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<PAGE>
. reviewed the pro forma impact of the merger on the earnings per
share of Onsale;
. reviewed the reported prices and trading activity for the Onsale
common stock and Egghead common stock;
. compared the financial performance of Onsale and Egghead and the
prices and trading activity of the Onsale common stock and Egghead
common stock with that of certain other publicly-traded companies
and their securities;
. reviewed and discussed with the senior managements of Onsale and
Egghead their strategic rationales for the merger;
. participated in discussions and negotiations among representatives
of Onsale and Egghead and their financial and legal advisors;
. reviewed the draft merger agreement and certain related agreements;
and
. performed other analyses and considered other factors that it deemed
appropriate.
Morgan Stanley assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by it for the purposes of
its opinion. With respect to the internal financial statements and other
financial and operating data, and discussions relating to the strategic,
financial and operational benefits anticipated from the merger provided by
Onsale and Egghead, Morgan Stanley assumed that they have, in each case, been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the prospects of Onsale and Egghead. Morgan Stanley relied
upon the assessment by the managements of Onsale and Egghead of their ability
to retain key employees of Onsale and Egghead. Morgan Stanley also relied upon,
without independent verification, the assessment by the managements of Onsale
and Egghead of:
. the strategic and other benefits expected to result from the merger;
. the timing and risks associated with the integration of Onsale and
Egghead; and
. the validity of, and risks associated with, Onsale's and Egghead's
existing and future technologies, services or business models.
Morgan Stanley did not make any independent valuation or appraisal of the
assets or liabilities or technology of Onsale and Egghead, nor was it furnished
with any such appraisals. In addition, Morgan Stanley assumed that the merger
will be treated as a tax-free reorganization or exchange under the Internal
Revenue Code of 1986 and will be completed in accordance with the terms set
forth in the merger agreement. Morgan Stanley's opinion is necessarily based on
financial, economic, market and other conditions as in effect on, and the
information made available to Morgan Stanley as of, the date of its opinion.
The following is a brief summary of certain of the analyses performed by
Morgan Stanley in connection with its oral opinion and the preparation of its
opinion letter dated July 13, 1999. Some of these summaries of financial
analyses include information presented in tabular format. In order to
understand fully the financial analyses used by Morgan Stanley, the tables must
be read together with the text of each summary. The tables alone do not
constitute a complete description of the financial analyses.
Comparative stock price performance. Morgan Stanley reviewed the recent stock
price performance of Onsale and Egghead and compared such performance with that
of a group of companies which is referred to as the e-commerce index. The e-
commerce index included Beyond.com, CDNow, Cyberian Outpost, Preview Travel,
Priceline.com, UBid and ValueAmerica. Morgan Stanley observed that over the
period from July 8, 1998 to July 8, 1999, the market price of Onsale common
stock decreased 10% compared with a decrease of 23% for Egghead common stock,
an increase of 43% for the Nasdaq National Market and an increase of 26% for
the e-commerce index.
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<PAGE>
Peer group comparison. Morgan Stanley compared financial information of
Onsale and Egghead with publicly available information for several groups of
companies, including the following:
. Internet sector bellweather companies, including Amazon.com, America
Online, eBay and Yahoo!; and
. e-commerce companies, including Beyond.com, CDNow, Cyberian Outpost,
Preview Travel, Priceline.com, Ubid and ValueAmerica.
Based on estimates from securities research analysts, with median values
shown except for Onsale and Egghead and using the July 8, 1999 closing price of
Onsale common stock at $21.88 per share and Egghead common stock at $11.69 per
share, this analysis showed that as of July 8, 1999, the aggregate value to
revenue multiples for calendar years 1999 and 2000 were as follows:
<TABLE>
<CAPTION>
Estimated
Aggregate Value/Revenue
-----------------------
Calendar Year
-----------------------
1999 2000
----------- -----------
<S> <C> <C>
Onsale............................................. 1.0x 0.7x
Egghead............................................ 1.3x 0.8x
Internet Sector Bellweather Companies.............. 64.0x 43.1x
E-Commerce Companies............................... 5.0x 2.2x
</TABLE>
No company used in the peer group comparison analysis is identical to Onsale
or Egghead. In evaluating the peer groups, Morgan Stanley made judgments and
assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond
control of Onsale and Egghead, such as the impact of competition on the
businesses of Onsale and Egghead and the industry generally, industry growth
and the absence of any adverse material change in the financial condition and
prospects of Onsale and Egghead or the industry or in the financial markets in
general. Mathematical analysis, such as determining the average or median, is
not in itself a meaningful method of using peer group data.
Exchange ratio analysis. Morgan Stanley reviewed the ratios of the closing
prices of Egghead common stock divided by the corresponding prices of Onsale
common stock over various periods during the twelve month period ending July 8,
1999. Morgan Stanley examined the premiums represented by the exchange ratio
over the averages of these daily ratios over various periods and the implied
fully diluted equity ownership of Onsale and Egghead:
<TABLE>
<CAPTION>
% Pro Forma Ownership by
Premium/(Discount) to ------------------------
Transaction Exchange Ratio Onsale Egghead
-------------------------- ------------ ------------
<S> <C> <C> <C>
Last Twelve Months...... 10.5% 55.6% 44.4%
Last 120 Days........... 8.2 55.0 45.0
Last 90 Days............ 4.0 54.0 46.0
Last 60 Days............ (2.4) 52.4 47.6
Last 30 Days............ (5.4) 51.6 48.4
Last 20 Days............ (4.3) 51.9 48.1
Last 10 Days............ (1.7) 52.6 47.4
Last 5 Days............. 1.4 53.4 46.6
Market (7/8/99)......... 5.3 54.3 45.7
Offered Price........... 53.0 47.0
</TABLE>
Discounted equity value. Morgan Stanley performed an analysis of the present
value per share of the implied value of Egghead on a standalone basis based on
Egghead's future equity value. Morgan Stanley
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<PAGE>
observed the following, based on a range of revenue growth estimates ranging
from 40.0% to 63.4% for the calendar year 2001 and 15.0% to 25.0% for the
calendar year 2002:
<TABLE>
<CAPTION>
Revenue Discount Fully Diluted
Multiple Range Rates Equity Value
-------------- ------------- ----------------
<S> <C> <C>
0.60x - 1.20x 17.9% - 25.0% $10.72 to $18.72
</TABLE>
Morgan Stanley performed an analysis of the present value per share of the
implied value of Onsale on a stand-alone basis based on Onsale's future equity
value. Morgan Stanley observed the following, based on a range of revenue
growth estimates ranging from 25.0% to 44.6% for the calendar year 2001 and
15.0% to 25.7% for the calendar year 2002:
<TABLE>
<CAPTION>
Revenue Discount Fully Diluted
Multiple Range Rates Equity Value
-------------- ------------- ----------------
<S> <C> <C>
0.60x - 1.20x 19.4% - 25.0% $21.40 to $40.11
</TABLE>
Morgan Stanley performed an analysis of the present value per share of the
implied value of the combined company based on its future trading price. Morgan
Stanley observed the following for the combined company, based on revenue
growth estimates used for each company in its standalone discounted equity
value analysis as described above and illustrative synergies of an additional
10% of revenue:
<TABLE>
<CAPTION>
Revenue Discount Fully Diluted
Multiple Range Rates Equity Value
-------------- ------------- ----------------
<S> <C> <C>
0.70x - 1.30x 15.0% - 20.0% $25.55 to $43.99
</TABLE>
Relative contribution analysis. Morgan Stanley analyzed the pro forma
contribution of Onsale and Egghead to the combined company assuming
consummation of the merger and based on revenue estimates from securities
research analysts, with an adjusted gross margin of 3.5% for Onsale and 5.0%
for Egghead. The analysis showed, among other things, the following:
<TABLE>
<CAPTION>
% Pro Forma Ownership by
------------------------
Onsale Egghead
------------ ------------
<S> <C> <C>
Projected Calendar Year 1999
Revenue........................................ 59.5% 40.5%
Adjusted Gross Profit.......................... 52.9% 47.1%
Projected Calendar Year 2000
Revenue........................................ 57.2% 42.8%
Adjusted Gross Profit.......................... 50.4% 49.6%
Projected Calendar Year 2001
Revenue........................................ 54.9% 45.1%
Adjusted Gross Profit.......................... 48.0% 52.0%
Offered Price.................................... 53.0% 47.0%
</TABLE>
Pro forma merger analysis. Morgan Stanley analyzed the pro forma impact of
the merger on the combined company's projected earnings per share for calendar
year 1999 and 2000. This analysis was based on earnings projections by
securities research analysts for Onsale and Egghead. Morgan Stanley made the
following observations:
. the merger would result in net loss per share dilution for Onsale,
prior to giving effect to any synergies, of $0.31 for calendar year
1999 and $0.43 for calendar year 2000; and
. the merger would result in net loss per share dilution for Onsale,
prior to giving effect to any synergies, of approximately $0.38 for
calendar year 1999 and $0.53 for calendar year 2000, based on an
adjusted gross margin of 3.5% for Onsale and 5.0% for Egghead.
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The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Morgan Stanley considered the results of all of its analyses as
a whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, Morgan Stanley believes that selecting any
portion of its analyses, without considering all analyses, would create an
incomplete view of the process underlying its opinion. In addition, Morgan
Stanley may have given various analyses and factors more or less weight than
other analyses and factors, and may have deemed various assumptions more or
less probable than other assumptions, so that the ranges of valuations
resulting from any particular analysis described above should not be taken to
be Morgan Stanley's view of the actual value of Onsale or Egghead. In
performing its analyses, Morgan Stanley made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Onsale or Egghead. Any
estimates contained in Morgan Stanley's analyses are not necessarily indicative
of future results or actual values, which may be significantly more or less
favorable than those suggested by such estimates.
The analyses performed were prepared solely as part of Morgan Stanley's
analysis of the fairness of the exchange ratio defined in the merger agreement
from a financial point of view to Onsale and were conducted in connection with
the delivery of the Morgan Stanley opinion. The analyses do not purport to be
appraisals or to reflect the prices at which Onsale or Egghead might actually
be sold.
The exchange ratio defined in the merger agreement was determined through
arm's-length negotiations between Onsale and Egghead and was approved by the
Onsale board of directors. Morgan Stanley provided advice to Onsale during
these negotiations. However, Morgan Stanley did not recommend any specific
exchange ratio to Onsale, nor did it state that any specific exchange ratio
constituted the only appropriate exchange ratio for the merger.
In addition, Morgan Stanley's opinion and presentation to the Onsale board of
directors was one of many factors taken into consideration by Onsale's board of
directors in making its decision to approve the merger. Consequently, the
Morgan Stanley analyses as described above should not be viewed as
determinative of the opinion of the Onsale board of directors with respect to
the exchange ratio or of whether the Onsale board of directors would have been
willing to agree to a different exchange ratio.
Morgan Stanley, as part of its investment banking business, is continuously
engaged in the valuation of businesses and securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate, estate and other purposes. In the ordinary course
of Morgan Stanley's trading and brokerage activities, Morgan Stanley or its
affiliates may at any time hold long or short positions and may trade or
otherwise effect transactions, for its own account or for the account of
customers in the equity securities of Onsale and Egghead.
Under the engagement letter, Morgan Stanley provided financial advisory
services and a financial fairness opinion in connection with the merger, and
Onsale agreed to pay Morgan Stanley a fee of aproximately 1% of the aggregate
consideration to be paid in the merger, valued at the date the merger agreement
was executed. In addition, Onsale has also agreed to indemnify Morgan Stanley
and its affiliates, their respective directors, officers, agents and employees
and each person, if any, controlling Morgan Stanley or any of its affiliates
against some liabilities and expenses, including certain liabilities under the
federal securities laws, arising out of Morgan Stanley's engagement.
Opinion of Egghead's financial advisor
Egghead engaged Hambrecht & Quist to act as its exclusive financial advisor
in connection with the proposed transaction and to render an opinion as to the
fairness from a financial point of view to the holders of outstanding shares of
common stock of Egghead of the exchange ratio. Hambrecht & Quist was selected
by the Egghead board of directors based on Hambrecht & Quist's qualifications,
expertise and reputation, as well as
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<PAGE>
Hambrecht & Quist's historic investment banking relationship and familiarity
with Egghead. Hambrecht & Quist rendered its oral opinion (subsequently
confirmed in writing) on July 13, 1999 to the Egghead board that, as of such
date, the exchange ratio is fair from a financial point of view to the holders
of outstanding shares of common stock of Egghead.
The full text of the opinion delivered by Hambrecht & Quist to the Egghead
board dated July 13, 1999, which sets forth the assumptions made, general
procedures followed, matters considered, and limitations on the scope of review
undertaken by Hambrecht & Quist in rendering its opinion, is attached as Annex
H to this document and is incorporated into this document by reference.
Hambrecht & Quist's opinion is directed only to the fairness, from a financial
point of view, of the exchange ratio to the holders of common stock of Egghead
and does not constitute a recommendation to any Egghead shareholder as to how
such shareholder should vote with respect to the proposed transaction. The
summary of Hambrecht & Quist's fairness opinion set forth below is qualified in
its entirety by reference to the full text of such fairness opinion attached to
this document as Annex H. Egghead shareholders are urged to read the opinion
carefully in its entirety.
In reviewing the proposed transaction, and in arriving at its opinion,
Hambrecht & Quist, among other things:
. reviewed the publicly available financial statements of Onsale for
recent years and interim periods to date and other relevant
financial and operating data of Onsale (including its capital
structure) made available to Hambrecht & Quist from published
sources and from the internal records of Onsale;
. reviewed certain internal financial and operating information,
including certain projections, relating to Onsale prepared by the
management of Onsale;
. discussed the business, financial condition and prospects of Onsale
with certain members of senior management;
. reviewed the publicly available financial statements of Egghead for
recent years and interim periods to date and certain other relevant
financial and operating data of Egghead made available to Hambrecht
& Quist from published sources and from the internal records of
Egghead;
. reviewed internal financial and operating information, including
certain projections, relating to Egghead prepared by the senior
management of Egghead;
. discussed the business, financial condition and prospects of Egghead
with certain members of senior management;
. reviewed the recent reported prices and trading activity for the
common stocks of Onsale and Egghead and compared such information
and certain financial information for Onsale and Egghead with
similar information for certain other companies engaged in
businesses Hambrecht & Quist considered comparable;
. reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
. reviewed a draft of the agreement and plan of merger; and
. performed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations
and financial, economic and market data as Hambrecht & Quist deemed
relevant.
Hambrecht & Quist did not independently verify any of the information
concerning Egghead or Onsale in connection with its review of the proposed
transaction and, for purposes of its opinion, Hambrecht & Quist assumed and
relied upon the accuracy and completeness of all such information. In
connection with its opinion, Hambrecht & Quist did not prepare or obtain any
independent valuation or appraisal of any of the assets or liabilities of
Egghead or Onsale, nor did it conduct a physical inspection of the properties
and facilities of Egghead or Onsale. With respect to the financial forecasts
and projections used in its analysis, Hambrecht & Quist assumed that they
reflected the best currently available estimates and judgments of the expected
future
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<PAGE>
financial performance of Onsale and Egghead. For the purposes of its opinion,
Hambrecht & Quist also assumed that neither Egghead nor Onsale was a party to
any pending transactions, including external financings, recapitalizations or
material merger discussions, other than the proposed transaction and those
activities undertaken in the ordinary course of conducting their respective
businesses. For purposes of its opinion, Hambrecht & Quist assumed that the
proposed transaction will qualify as a tax-free reorganization under the
Internal Revenue Code of 1986, as amended, for the shareholders of Egghead and
that the proposed transaction will be accounted for as a pooling of interests.
Hambrecht & Quist's opinion is necessarily based upon market, economic,
financial and other conditions as they existed and can be evaluated as of the
date of the opinion and any subsequent change in such conditions would require
a reevaluation of such opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The summary
of the Hambrecht & Quist analyses set forth below does not purport to be a
complete description of the presentation by Hambrecht & Quist to the Egghead
board. In arriving at its opinion, Hambrecht & Quist did not attribute any
particular weight to any analyses or factors considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, Hambrecht & Quist believes that its analyses and the
summary set forth below must be considered as a whole and that selecting
portions of its analyses, without considering all analyses, or of the following
summary, without considering all factors and analyses, could create an
incomplete view of the processes underlying the analyses set forth in the
Hambrecht & Quist presentation to the Egghead board and its opinion. In
performing its analyses, Hambrecht & Quist made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Egghead and Onsale. The
analyses performed by Hambrecht & Quist (and summarized below) are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses.
Additionally, analyses relating to the values of businesses do not purport to
be appraisals or to reflect the prices at which businesses actually may be
acquired.
In performing its analyses, Hambrecht & Quist used published Wall Street
research estimates for projections of Egghead's and Onsale's calendar year 1999
and 2000 financial performance as well as modifications of such estimates with
the concurrence of the management of Egghead.
The following is a brief summary of certain financial analyses performed by
Hambrecht & Quist in connection with providing its opinion to the Egghead board
on July 13, 1999. The summary of financial analyses includes information
presented in tabular format. You should read those tables together with the
text of each summary.
Contribution Analysis. Hambrecht & Quist analyzed the pro forma contribution
of each of Egghead and Onsale to certain financial statement categories of the
pro forma combined company for calendar 1999 and calendar 2000, assuming no
synergies. Categories compared included revenues, gross profit, operating
income (loss) and net income (loss). Hambrecht & Quist then compared this
contribution analysis to the pro forma ownership percentages that the
stockholders of Egghead and Onsale would have in the combined company after the
merger. Hambrecht & Quist observed that on a fully diluted basis, Onsale
stockholders are expected to own approximately 53% and the Egghead shareholders
are expected to own approximately 47% of the combined company equity following
the merger. The table below sets forth the percentages that Hambrecht & Quist
estimated that each company would contribute to the revenues, gross profit,
operating income (loss) and net income (loss) of the combined company for
calendar 1999 and calendar 2000.
<TABLE>
<CAPTION>
Estimated Estimated Gross Estimated Estimated Net
Revenues Profit Operating Loss Loss
--------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
1999
Onsale................ 65.3% 58.7% 41.8% 43.0%
Egghead............... 34.7% 41.3% 58.2% 57.0%
2000
Onsale................ 63.7% 61.6% 33.9% 33.8%
Egghead............... 36.3% 38.4% 66.1% 66.2%
</TABLE>
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Analysis of Publicly Traded Companies Comparable to Egghead. Using published
Wall Street estimates and Hambrecht & Quist research, Hambrecht & Quist
compared, among other things, certain financial, trading and valuation
statistics, projected revenues for calendar 1999 and calendar 2000 and
projected gross profit for calendar 1999 and calendar 2000 as well as resulting
multiples for Egghead to corresponding measures for publicly traded Internet
companies that Hambrecht & Quist considered comparable to Egghead. The Internet
companies that Hambrecht & Quist considered comparable to Egghead were:
. Beyond.com;
. Cyberian Outpost;
. Onsale;
. Ubid Inc.; and
. Value America.
Applying revenue multiples of Egghead and such comparable companies to
projected calendar 1999 and calendar 2000 revenues of Egghead, Hambrecht &
Quist determined the implied equity value of Egghead to be in the range of
$467.1 million and $582.3 million. Applying gross profit multiples of Egghead
and such comparable companies to projected calendar 1999 and calendar 2000
gross profits of Egghead, Hambrecht & Quist determined the implied equity value
of Egghead to be in the range of $194.8 million and $289.1 million.
Hambrecht & Quist noted that none of the comparable companies were exactly
identical to Egghead and that any analysis of the comparable companies
necessarily involved complex considerations and judgments concerning
differences in financial and operating characteristics and other factors that
would necessarily affect the relative trading values.
Analysis of Selected Transactions. Hambrecht & Quist compared the proposed
transaction with selected mergers and acquisitions. This analysis included
eight transactions involving companies in the Internet retail industry and
seven transactions in the computer software and hardware industry. In examining
these transactions, Hambrecht & Quist analyzed, among other things, the
multiples of offer prices to revenues and gross profits for the last twelve-
month period and the estimated next twelve month period for the acquired
companies. No company or transaction used in the above analyses is identical to
Egghead or the proposed merger. Because the sample of transactions was small
and the range of multiples in such transactions was wide, Hambrecht & Quist did
not determine a range of implied equity value of Egghead based on this
analysis.
Premium Analysis. Hambrecht & Quist compared the implied price of the offer
as of July 12, 1999 to similar premiums for 24 mergers of equals transactions
announced since 1996. Hambrecht & Quist observed that the average (excluding
high and low) premiums paid above the closing share price on the first, fifth
and twentieth trading days prior to announcement in these transactions were
2.0%, 7.0% and 7.7%, respectively. This compared with the proposed merger
premium to Egghead shareholders of 7.7% as of July 12, 1999.
Other Analyses. Hambrecht & Quist conducted such other analyses as it deemed
necessary, including reviewing historical and projected financial, operating
and trading data for Egghead and Onsale and selected Wall Street research
reports on each of the entities, including information pertaining to the
estimated revenues and gross profit for each of the entities and assessing
future acquisition and growth opportunities for each of the companies.
The preparation of a fairness opinion is a complex process and involves
various judgments and determinations as to the most appropriate and relevant
assumptions and financial analyses and the application
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of these methods to the particular circumstances involved. Such an opinion is
therefore not readily susceptible to partial analysis or summary description,
and taking portions of the analyses set out above, without considering the
analysis as a whole, would, in the view of Hambrecht & Quist, create an
incomplete and misleading picture of the processes underlying the analyses
considered in rendering the Hambrecht & Quist opinion. Hambrecht & Quist did
not form an opinion as to whether any individual analysis or factor (positive
or negative), considered in isolation, supported or failed to support the
Hambrecht & Quist opinion. In arriving at its opinion, Hambrecht & Quist
considered the results of its separate analyses and did not attribute
particular weight to any one analysis or factor considered by Hambrecht &
Quist. The analyses performed by Hambrecht & Quist, particularly those based on
estimates and projections, are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as part of the
Hambrecht & Quist analysis of the fairness to Egghead shareholders, from a
financial point of view, of the financial terms of the transaction.
The foregoing description of Hambrecht & Quist's opinion is qualified in its
entirety by reference to the full text of such opinion which is attached as
Annex H to this document.
Fee Arrangements. Hambrecht & Quist, as part of its investment banking
services, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, strategic transactions,
corporate restructurings, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. Hambrecht & Quist has acted as a financial advisor to the
board of directors of Egghead in connection with the proposed merger.
In the past, Hambrecht & Quist has provided investment banking and other
financial advisory services to Egghead and Onsale and has received fees for
rendering these services. Specifically, Hambrecht & Quist served as lead
manager for Egghead's follow-on stock offering in March 1999. In the ordinary
course of business, Hambrecht & Quist acts as a market maker and broker in the
publicly traded securities of Egghead and receives customary compensation in
connection therewith, and also provides research coverage for Egghead. In the
ordinary course of business, Hambrecht & Quist actively trades in the equity
and derivative securities of Egghead for its own account and for the accounts
of its customers and, accordingly, may at any time hold a long or short
position in such securities. Hambrecht & Quist may in the future provide
investment banking or other financial advisory services to Egghead, Onsale or
the combined company.
Pursuant to an engagement letter dated June 30, 1999, Egghead paid Hambrecht
& Quist a retainer fee of $100,000 and agreed to pay Hambrecht & Quist a fee of
$100,000 in connection with the delivery of the fairness opinion rendered on
July 13, 1999. Egghead also agreed to pay Hambrecht & Quist, upon consummation
of the merger, a fee of 0.9% of the value, at closing, of the aggregate
consideration paid in the transaction. Based on the market price of Onsale
common stock on September 20, 1999, 0.9% of the value of the aggregate
consideration to be paid in the transaction would be approximatelty $2.35
million. Egghead also agreed to reimburse Hambrecht & Quist for its reasonable
out-of-pocket expenses and to indemnify Hambrecht & Quist against certain
liabilities, including liabilities under the federal securities laws or
relating to or arising out of Hambrecht & Quist's engagement as financial
advisor.
Interests of executive officers and directors in the merger
When considering the recommendations of Onsale's and Egghead's boards of
directors, you should be aware that the directors and executive officers of
Onsale and Egghead have interests in the merger and related arrangements that
are different from the interests of Onsale stockholders and Egghead
shareholders generally. These include:
. George Orban, the Chief Executive Officer and Chairman of the board
of directors of Egghead, will become the Chairman of the board of
directors of the combined company after the merger;
. Jerry Kaplan, the Chief Executive Officer, President and Chairman of
the board of directors of Onsale, will become the Chief Executive
Officer of the combined company after the merger;
. C. Scott Gibson, Robert Wall and Karen White, who currently serve on
Egghead's board, and Jerry Kaplan, Alan Fisher, Peter Harris and Ken
Orton, who currently serve on Onsale's board,
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will become members of the board of directors of the combined
company. Immediately following the proposed merger, the combined
company's board of directors would consist of the following members,
divided into the following classes:
Class I (to be elected in 2000)
1. Peter L. Harris
2. Robert T. Wall
3. Karen White
Class II (to be elected in 2001)
1. Alan S. Fisher
2. C. Scott Gibson
3. Kenneth J. Orton
Class III (to be elected in 2002)
1. S. Jerrold Kaplan
2. George Orban
3. (vacant);
. Several other executive officers of Egghead and Onsale will become
officers of the combined company after the merger;
. At the effective time of the merger, each outstanding option to
purchase Egghead common stock, including any stock option held by
any executive officer or director of Egghead, will be assumed by
Onsale and will become an option to acquire common stock of the
combined company after the merger, with the number of shares subject
to the option and the option exercise price to be adjusted according
to the 0.565 exchange ratio;
. Several executive officers of Egghead have agreements that provide
for benefits, including severance and other payments and
acceleration of stock option vesting, that may be triggered upon the
closing of the merger or a subsequent termination of employment.
These benefits are described in greater detail below under "--Change
in control arrangements." Egghead is currently negotiating a new
agreement with Mr. Bender pursuant to which he would extend his
employment with Egghead, and a new agreement with Mr. Kalasky
regarding retention;
. Non-employee directors of Egghead have options, the vesting of which
will accelerate in connection with the merger. The number of shares
of Egghead common stock subject to unvested options held by non-
employee directors that will vest in connection with the merger was
132,000 as of September 20, 1999;
. Onsale and Egghead directors and executive officers have customary
rights to indemnification against specified liabilities; and
. Bari Abdul, an officer of Onsale, is the beneficial owner of 3,000
shares of Egghead common stock. George Orban, Chief Executive
Officer of Egghead, is the beneficial owner of 5,000 shares of
Onsale common stock.
Change in control arrangements. Egghead has entered in to employment
agreements with Brian W. Bender, Tommy E. Collins, James F. Kalasky and Norman
F. Hullinger, who are executive officers of Egghead. These agreements provide
for payment of severance benefits in connection with a change of control of
Egghead if the employment of these executives is terminated without cause, or
by the executive for "good reason" (which may include change of title or change
of responsibilities post-merger). These benefits include a payment to the
executive equal to his annual base salary payable within 10 days of
termination. In addition, these agreements entitle these executives to receive
up to a maximum of 6 additional monthly payments equivalent to their current
monthly salary if, 12 months following termination without cause or for "good
reason," they have not commenced alternative employment, and to continue to
receive benefits for up to 18 months following such termination of employment.
Each agreement also provides that the executive's outstanding stock options
will
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become fully vested immediately before a change of control, such as the
proposed merger with Onsale. The number of shares of Egghead common stock
subject to unvested options held by executives that will vest immediately
before the proposed merger was 136,668 shares as of September 20, 1999.
Egghead entered into retention bonus agreements with Jonathan W. Brodeur, Mr.
Collins, Mr. Kalasky, and Mr. Hullinger. Under these agreements, Egghead agreed
to pay each of them a bonus in the amount of his annual salary on January 31,
2000 if he remains employed by Egghead or any successor to Egghead through that
date or is terminated without cause before that date. Under a retention bonus
agreement with Egghead, Mr. Bender is entitled to a bonus in the amount of
0.222 times his annual salary if he remains employed by Egghead through October
31, 1999 or is terminated without cause before that date.
George Orban, Egghead's Chairman and Chief Executive Officer, is currently
negotiating with Egghead the terms of a new employment agreement. The terms of
the proposed agreement include a $300,000 annual base salary, and either (1) a
severance payment equal to his annual salary if Egghead or the combined company
terminates Mr. Orban's employment without "cause" or if Mr. Orban terminates
his employment for "good reason" (which does not include anticipated changes in
job, title or responsibilities in connection with the merger), or (2) a
retention bonus equal to his annual salary if Mr. Orban remains employed by
Egghead or the combined company after Egghead has entered into an agreement
regarding a significant business transaction, such as the proposed merger,
through December 31, 1999.
As a result, these directors and officers could be more likely to vote to
approve the merger agreement and the merger than if they did not hold these
interests.
Closing and effectiveness of the merger
The merger will be completed when all of the conditions to closing the merger
are satisfied or waived, including approval and adoption of the merger
agreement and approval of the merger by the Egghead shareholders and approval
of the proposal to issue shares of Onsale common stock in the merger and to
adopt Onsale's amended and restated certificate of incorporation by the Onsale
stockholders. The merger will become effective upon the filing of articles of
merger with the State of Washington.
Structure of the merger
EO Corporation, a newly-formed and wholly-owned subsidiary of Onsale, will be
merged with and into Egghead. As a result of the merger, the separate corporate
existence of EO will cease and Egghead will survive the merger as a wholly-
owned subsidiary of Onsale. At the effective time of the merger, the corporate
name of Onsale will be changed to "Egghead.com, Inc." and the name of the
subsidiary will be changed.
Conversion of Egghead common stock
When the merger becomes effective, each outstanding share of Egghead common
stock, other than shares held by Egghead and its subsidiaries and shares held
by dissenting Egghead shareholders who have complied with and established right
to payment under Chapter 23B.13 of the Washington Business Corporation Act and
have not withdrawn demand for payment, will be converted into the right to
receive 0.565 shares of fully paid and nonassessable Onsale common stock. The
number of shares of Onsale common stock issuable in the merger will be
proportionately adjusted for any stock split, stock dividend or similar event
with respect to Egghead common stock or Onsale common stock effected between
the date of the merger agreement and the closing of the merger. Onsale will not
issue any fractional shares of Onsale common stock in connection with the
merger. Instead Egghead shareholders will receive cash, without interest,
instead of a fraction of a share of Onsale common stock. This cash amount will
equal this fraction multiplied by the average closing price of one share of
Onsale common stock for the 10 trading days before the effective time of the
merger. For example, if you own 100 shares of Egghead stock, you will receive
56 shares of Onsale common stock and cash for the fractional interest in the
additional 0.5 Onsale shares.
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Exchange of Egghead stock certificates for stock certificates in the combined
company
When the merger is completed, Onsale's exchange agent will mail to Egghead
shareholders a letter of transmittal and instructions for use in surrendering
Egghead stock certificates in exchange for Onsale stock certificates. The
Onsale stock certificates will evidence ownership in the combined company after
the merger. When you deliver your Egghead stock certificates to the exchange
agent along with an executed letter of transmittal and any other required
documents, your Egghead stock certificates will be canceled and you will
receive Onsale stock certificates representing the number of full shares of
Onsale common stock to which you are entitled under the merger agreement.
Egghead shareholders will receive payment in cash, without interest, in lieu of
any fractional shares of Onsale common stock which would have been otherwise
issuable to you in the merger. You should not submit your Egghead stock
certificates for exchange unless and until you receive the transmittal
instructions and a form of letter of transmittal from the exchange agent.
Egghead shareholders are not entitled to receive any dividends or other
distributions on Onsale common stock until the merger is completed and they
have surrendered their Egghead stock certificates in exchange for Onsale stock
certificates. Subject to the effect of applicable laws, promptly following
surrender of Egghead stock certificates and the issuance of the corresponding
Onsale certificates, Egghead shareholders will be paid the amount of dividends
or other distributions, without interest, with a record date after the closing
of the merger which were previously paid with respect to their whole shares of
Onsale common stock. At the appropriate payment date, Egghead shareholders will
also receive the amount of dividends or other distributions, without interest,
with a record date after the closing of the merger and a payment date after
they exchange their Egghead stock certificates for Onsale stock certificates.
Onsale will issue Egghead shareholders an Onsale stock certificate or a check
instead of a fractional share only in a name in which the surrendered Egghead
stock certificate is registered, except that, if you wish to have your
certificate issued in another name, you must present the exchange agent with
all documents required to show and effect the unrecorded transfer of ownership
and show that any applicable stock transfer taxes have been paid.
Material United States federal income tax consequences of the merger
The following general discussion summarizes the material United States
federal income tax consequences of the merger. This discussion is based on the
Internal Revenue Code, the related regulations promulgated, existing
administrative interpretations and court decisions, all of which are subject to
change, possibly with retroactive effect. This discussion assumes that you hold
your shares of Egghead common stock as capital assets within the meaning of
Section 1221 of the Internal Revenue Code. This discussion does not address all
aspects of United States federal income taxation that may be important to you
in light of your particular circumstances or your particular tax status,
including the following:
. shareholders of Egghead who are not citizens or residents of the
United States;
. financial institutions;
. tax-exempt organizations;
. pension funds;
. insurance companies;
. dealers in securities;
. shareholders who acquired their shares of Egghead common stock
through the exercise of options or similar derivative securities or
otherwise as compensation; and
. shareholders who hold their shares of Egghead common stock as part
of a straddle or conversion transaction.
Our obligation to complete the merger is conditioned on the delivery of an
opinion to Onsale from Fenwick & West LLP and to Egghead from Perkins Coie LLP
that the merger will be treated as a
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reorganization for federal income tax purposes. In giving their opinions,
Fenwick & West and Perkins Coie may rely upon customary factual representations
made by Onsale and Egghead.
Fenwick & West has advised Onsale and Perkins Coie has advised Egghead that,
assuming the accuracy of the requested factual representations, the merger will
be treated as a reorganization for federal income tax purposes with the
consequences described below. These opinions will not bind the IRS and will not
preclude the IRS from adopting a position contrary to that expressed in the
opinions, and no assurance can be given that contrary positions will not be
successfully asserted by the IRS or adopted by a court if the issues are
litigated. Neither Onsale nor Egghead intends to obtain a ruling from the IRS
with respect to the tax consequences of the merger.
Tax implications to Egghead shareholders. Based on the conclusion that the
merger will be treated as a reorganization, the material federal income tax
consequences of the merger to the Egghead shareholders will be as follows:
. Except as discussed below with respect to the receipt of cash for
fractional shares or the receipt of cash by dissenting Egghead
shareholders, current shareholders of Egghead will not recognize
gain or loss for United States federal income tax purposes on the
exchange of Egghead common stock for Onsale common stock in the
merger;
. The aggregate tax basis of the Onsale common stock received as a
result of the merger should be the same as the aggregate tax basis
in the Egghead common stock surrendered in the exchange, reduced by
the tax basis of any shares of Egghead common stock for which cash
is received instead of fractional shares of Onsale common stock;
. The holding period of the Onsale common stock received as a result
of the exchange will include the period during which the Egghead
common stock exchanged in the merger was held;
. Egghead shareholders who exercise their rights to dissent from the
merger will recognize gain or loss for United States federal income
tax purposes with respect to the cash they receive for their shares.
Any gain or loss recognized will be a long-term capital gain or loss
if the shares of Egghead common stock have been held for more than
one year at the time the merger is completed and if after taking
into account stock owned by related parties the cash is not treated
as the equivalent of a dividend; and
. Egghead shareholders will recognize gain or loss for United States
federal income tax purposes with respect to the cash they receive
instead of a fractional share interest in Onsale common stock. The
gain or loss will be measured by the difference between the amount
of cash they receive and the portion of the tax basis of their
shares of Egghead common stock allocable to the shares of Egghead
common stock exchanged for the fractional share interest. This gain
or loss will be capital gain or loss and will be a long-term capital
gain or loss if the shares of Egghead common stock have been held
for more than one year at the time the merger is completed.
Tax implications to Onsale and Egghead. Onsale, including its merger
subsidiary, and Egghead should not recognize gain or loss for United States
federal income tax purposes as a result of the merger.
This discussion is only intended to provide you with a general summary, and
it is not intended to be a complete analysis or description of all potential
United States federal income tax consequences or any other consequences of the
merger. In addition, this discussion does not address tax consequences which
may vary with, or are contingent on, your individual circumstances. Moreover,
this discussion does not address any non-income tax or any foreign, state or
local tax consequences of the merger. Accordingly, you are strongly urged to
consult with your tax advisor to determine the particular United States
federal, state, local or foreign income or other tax consequences to you of the
merger.
Accounting treatment of the merger
We intend to account for the merger as a pooling of interests for financial
reporting and accounting purposes, in accordance with generally accepted
accounting principles. After the merger, the results of operations of Egghead
will be included in the consolidated financial statements of Onsale.
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Regulatory filings and approvals required to complete the merger
The merger is subject to the requirements of the Hart-Scott-Rodino Antitrust
Improvements Act, which prevents some transactions from being completed until
required information and materials are furnished to the Antitrust Division of
the Department of Justice and the Federal Trade Commission and the appropriate
waiting periods end or expire. We filed the required information and materials
with the Department of Justice and the Federal Trade Commission and we obtained
early termination of the applicable waiting period on September 7, 1999. The
requirements of Hart-Scott-Rodino will be satisfied if the merger is completed
within one year from the termination of the waiting period.
At any time before or after the closing of the merger, the Antitrust
Division of the Department of Justice, the Federal Trade Commission, as well as
a foreign regulatory agency or government, could challenge the merger and take
action under the antitrust laws. Other persons could take action under the
antitrust laws, including seeking to enjoin the merger. Additionally, at any
time before or after the completion of the merger, notwithstanding that the
applicable waiting period was terminated, any state could take action under the
antitrust laws. A challenge to the merger could be made and if a challenge is
made we may not prevail.
Neither of us is aware of any other material governmental or regulatory
approval required for closing the merger, other than the effectiveness of the
registration statement of which this prospectus/proxy statement is a part and
compliance with applicable corporate law of Washington.
Dissenters' rights
Under Washington law, Egghead shareholders have the right to dissent from the
merger and to receive payment in cash for the fair value of their shares of
Egghead common stock. To preserve their rights, Egghead shareholders who wish
to exercise their statutory dissenters' rights must:
. deliver to Egghead before the shareholders' meeting written notice
of their intent to demand payment for their shares of Egghead common
stock if the merger is effected; and
. not vote their shares in favor of approval of the merger agreement
and merger.
Merely voting against the merger agreement and the merger will not preserve
an Egghead shareholder's dissenters' rights. Chapter 23B.13 of the Washington
Business Corporation Act is reprinted in its entirety in Annex I to this
document. Egghead shareholders should review the section titled "Dissenters'
Rights" beginning on page 103 and Annex I carefully if they wish to exercise
statutory dissenters' rights or preserve their right to dissent. Failure to
comply with the procedures described in Annex I will result in the loss of
dissenters' rights.
If an Egghead shareholder follows the steps required by Chapter 23B.13 to
exercise dissenters' rights, that shareholder's shares of Egghead common stock
which are issued and outstanding immediately prior to the merger will not be
converted into the right to receive shares of Onsale common stock, unless the
shareholder subsequently withdraws demand for payment or fails to establish the
right of such shareholder to be paid the fair value of such shareholder's
shares under, or otherwise loses his or her dissenters' rights under, Chapter
23B.13 of the Washington Business Corporation Act. If an Egghead shareholder
withdraws his or her demand for payment, or otherwise loses his or her
dissenters' rights, under Chapter 23B.13 of the Washington Business Corporation
Act, that shareholder's shares of Egghead common stock will be converted into
the right to receive, as of the effective time of the merger, a whole number of
shares of Onsale common stock and cash in lieu of any fractional interest in a
share of Onsale common stock. See "Dissenters' Rights" beginning on page 103
and Annex I of this document.
Restrictions on sales of shares of Onsale common stock issued in the merger by
affiliates of Egghead and Onsale
The shares of Onsale common stock to be issued in the merger will be
registered under the Securities Act. These shares will be freely transferable
under the Securities Act, except for shares of Onsale common stock
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issued to any person who is an affiliate of either of us. Persons who may be
deemed to be affiliates include individuals or entities that control, are
controlled by, or are under common control of, either of us and may include
some of our officers and directors, as well as our principal stockholders.
Affiliates may not sell their shares of Onsale common stock acquired in the
merger except pursuant to (1) an effective registration statement under the
Securities Act covering the resale of those shares, (2) an exemption under
paragraph (d) of Rule 145 under the Securities Act or (3) any other applicable
exemption under the Securities Act.
Affiliates of Onsale and Egghead must not sell any shares of either company's
stock, except in specified limited amounts, until the day that the combined
company publicly announces financial results covering at least 30 days of
combined operations after the merger.
Listing on the Nasdaq National Market of shares of Onsale common stock to be
issued in the merger
It is a condition to the closing of the merger that the shares of Onsale
common stock to be issued in the merger must be approved for quotation on the
Nasdaq National Market, subject to official notice of issuance.
Delisting and deregistration of Egghead common stock after the merger
If the merger is completed, common stock of the Washington corporation
currently named Egghead.com, Inc. will be delisted from the Nasdaq National
Market and will be deregistered under the Exchange Act.
Operations of the combined company after the merger
Following the merger, the combined company will operate under the name
"Egghead.com, Inc." Auctions and sales of surplus goods will be operated under
the Onsale name. The combined company will be headquartered in Menlo Park,
California, with operations in Menlo Park and in Vancouver, Washington. The
common stock of the combined company will trade on the Nasdaq National Market
under the symbol "EGGS."
The shareholders of Egghead will become stockholders of the combined company,
and their rights as stockholders will be governed by Onsale's amended and
restated certificate of incorporation, Onsale's amended and restated bylaws and
the laws of the State of Delaware. See "Comparison of Rights of Holders of
Egghead Common Stock and Onsale Common Stock" on page 88.
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THE MERGER AGREEMENT
This section of the document describes the merger agreement. While we believe
that the description covers the material terms of the merger agreement, this
summary may not contain all of the information that is important to you. The
merger agreement is attached to this document as Annex A and we urge you to
carefully read this document in its entirety.
Representations and warranties
We each made substantially similar representations and warranties in the
merger agreement regarding aspects of our respective businesses, financial
condition, structure and other facts pertinent to the merger, including
representations and warranties by each company as to:
. its corporate organization, good standing and qualification to do
business;
. its subsidiaries and ownership interests in other entities;
. delivery of current copies of its charter, bylaws and minute book;
. authority to enter into the merger agreement and stock option
agreements;
. required consents, waivers and approvals;
. regulatory approvals required to complete the merger;
. its capitalization;
. the effect of the merger on its outstanding obligations;
. its filings and reports with the Securities and Exchange Commission;
. its financial statements and liabilities;
. regarding Egghead, changes in its business since April 3, 1999, and
regarding Onsale, changes in its business since March 31, 1999;
. its taxes;
. its title to the properties it owns and leases;
. its intellectual property, intellectual property that it uses and
infringement of other intellectual property;
. its compliance with applicable laws;
. permits required to conduct its business and compliance with those
permits;
. litigation to which it is a party;
. its employee benefit plans;
. its hazardous material activities and environmental liabilities;
. its agreements, contracts and commitments;
. payments, if any, required to be made by it to employees and
directors by virtue of the merger;
. its insurance;
. its customers, accounts receivable and suppliers;
. information supplied by it in this document and the related
registration statement filed by Onsale;
. approval by its board;
. the fairness opinion received by it from its financial advisor;
. brokers' and finders' fees that it owes in connection with the
merger;
. the inapplicability of specified laws to the merger;
. identification of its affiliates;
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. the absence of actions that would preclude Onsale from accounting
for the merger as a pooling of interests; and
. the absence of existing discussions with respect to other
acquisition proposals.
The representations and warranties in the merger agreement are complicated
and are not easily summarized. We urge you to read the articles of the merger
agreement entitled "Representations and warranties of the company" and
"Representations and warranties of parent and merger sub" carefully.
Conduct of business before the closing of the merger
Onsale and Egghead each agreed that until the closing of the merger or unless
the other company consents in writing, each of us and our subsidiaries will use
our commercially reasonable efforts consistent with past practices and policies
to:
. preserve intact its present business organization;
. keep available the services of its present executive officers and
employees; and
. preserve its relationships with customers, suppliers, licensors,
licensees, and others with which it has business dealings.
We each also agreed that until the closing of the merger or unless the other
company consents in writing, each of us and our subsidiaries will conduct our
business in compliance with specific restrictions relating to the following:
. waiving restrictions on, accelerating or modifying the terms of or
payment for options granted under its plans;
. transferring or licensing its intellectual property;
. issuing dividends or making other distributions;
. issuing or redeeming securities;
. modifying its charter and bylaws;
. agreeing to merge with or acquire the assets of other entities;
. disposing of assets;
. incurring indebtedness;
. entering into collective bargaining agreements;
. making payments outside the ordinary course of business in excess of
$250,000 in the aggregate;
. entering into, modifying or terminating contracts;
. changing accounting practices;
. taking actions that would prevent Onsale from accounting for the
merger as a pooling of interests; and
. initiating or settling material litigation.
The agreements related to the conduct of our businesses in the merger
agreement are complicated and not easily summarized. We urge you to read the
sections of the merger agreement entitled "Conduct prior to the effective time"
carefully.
No other negotiations
Until the merger is completed or the merger agreement is terminated, we each
have agreed not to take any of the following actions directly or indirectly:
. solicit, initiate, encourage or induce any Acquisition Proposal (as
defined below);
. participate in any discussions or negotiations regarding any
Acquisition Proposal;
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. disclose any non-public information with respect to any Acquisition
Proposal;
. take any other action to facilitate any inquiries or the making of
any proposal that constitutes or may reasonably be expected to lead
to any Acquisition Proposal;
. engage in discussions with any person with respect to any
Acquisition Proposal;
. approve, endorse or recommend any Acquisition Proposal; or
. enter into any letter of intent or similar document or any contract,
agreement or commitment relating to any Acquisition Transaction, as
defined below.
However, if Onsale or Egghead receives an unsolicited, written, bona fide
Acquisition Proposal more than 20 business days prior to that company's
stockholders' meeting that its board reasonably concludes may constitute a
Superior Offer, as defined below, that company may furnish non-public
information regarding it and may enter into discussions with the person or
group who has made the Acquisition Proposal, if:
. that company's board of directors concludes in good faith that this
action is required for that board of directors to meet its fiduciary
obligations to that company's stockholders under applicable law;
. prior to furnishing non-public information to, or entering into any
discussions with, a party making the Acquisition Proposal, the
company gives the other written notice of the Acquisition Proposal,
including the identity of the party making the Acquisition Proposal
and the material terms of the Acquisition Proposal;
. that company gives the other at least three business days' advance
notice of its intent to furnish non-public information to or enter
into discussions with the party making the Acquisition Proposal; and
. that company discloses the non-public information to the other at
the same time that the company furnishes this information to the
party making the Acquisition Proposal.
Each company has agreed to inform the other promptly as to any Acquisition
Proposal, request for non-public information which that company believes would
lead to an Acquisition Proposal or inquiry which that company reasonably should
believe would lead to an Acquisition Proposal, the identity of the party making
the Acquisition Proposal, request or inquiry, and the material terms of the
Acquisition Proposal, request or inquiry. We each also have agreed to keep the
other informed as to the status of the Acquisition Proposal, request or
inquiry.
An Acquisition Proposal is any offer or proposal relating to any Acquisition
Transaction, other than an offer or proposal from Onsale, in the case of
Egghead, or from Egghead, in the case of Onsale.
An Acquisition Transaction with regard to either of us is any transaction
involving any of the following:
. the acquisition or purchase of more than a 15% interest in the total
outstanding voting securities of the company or any of its
subsidiaries;
. any tender offer or exchange offer, that, if completed, would result
in any person or group beneficially owning 15% or more of the total
outstanding voting securities of the company or any of its
subsidiaries;
. any merger, consolidation, business combination or similar
transaction involving the company that, if completed, would result
in the stockholders of the company prior to the transaction owning
less than 85% of the equity interests in the surviving entity after
the transaction;
. any sale, lease outside the ordinary course of business, exchange,
transfer, license outside the ordinary course of business, or
acquisition or disposition other than of inventory in the ordinary
course of business, of more than 50% of the assets of the company;
or
. any liquidation or dissolution of the company.
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A Superior Offer is an unsolicited, bona fide written offer made by a third
party to complete any of the following transactions:
. a merger or consolidation involving the company pursuant to which
the stockholders of the company immediately preceding the
transaction hold less than 40% of the equity interest in the
surviving entity of the transaction; or
. the acquisition by any person or group, including by way of a tender
offer or an exchange offer or a two step transaction involving a
tender offer followed with reasonable promptness by a cash-out
merger involving the company, directly or indirectly, of ownership
of 100% of the then outstanding shares of capital stock of the
company,
on terms that the board of the company determines, in its reasonable good faith
judgment, based on the written advice of its financial advisor, to be more
favorable to the company's stockholders than the terms of the merger. However,
an offer shall not be deemed to be a Superior Offer if any financing required
to complete the transaction contemplated by such offer is not committed and is
not likely in the reasonable judgment of the company's board, based on the
advice of its financial adviser, to be obtained by such third party on a timely
basis.
Either of the Onsale board or Egghead board may, without breaching the merger
agreement, change its recommendation in favor of that company's stockholder
proposal related to the merger if:
. a Superior Offer is made to that company and is not withdrawn;
. the company provides written notice to the other including the
identity of the party making the Superior Offer and specifying the
material terms and conditions of the Superior Offer;
. the other company does not, within five business days after
receiving this written notice, make an offer that
-- the board of the first company determines in its good faith
judgment, based on the written advice of its financial advisor, to
be at least as favorable to the company as the Superior Offer, or
-- if the Superior Offer involves the payment of cash for all of the
company's outstanding stock, represents an equal or greater per
share price;
. the company's board concludes, after consultation with its outside
counsel, that the change of its recommendation is required for the
board to comply with its fiduciary obligations to the company's
stockholders under applicable law; and
. the company has not violated specified provisions in the merger
agreement.
Public disclosure
Each of us will consult with the other and, to the extent practicable, agree
before issuing any press release or making any public statement with respect to
the merger, the merger agreement, or any Acquisition Proposal with respect to
Onsale or Egghead.
Egghead's employee benefit plans
Individuals who are employed by Egghead when the merger is completed will
become employees of the combined company, although the combined company may
terminate the employment of these employees at any time. Onsale and Egghead
will work together to agree upon mutually acceptable employee benefit and
compensation arrangements so as to provide benefits to Egghead employees no
less favorable in the aggregate than those provided to similarly situated
employees of Onsale or that are generally equivalent to the benefits provided
under the Egghead employee plans in existence immediately prior to the
effective time of the merger. Onsale will grant credit to each Egghead employee
for all service with Egghead prior to the merger as if the service had been
with Onsale for eligibility and vesting purposes for all employee benefit plans
or vacation programs and for purposes of satisfying any preexisting condition
exclusion or actively-at-work requirement.
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Egghead will terminate its group severance, separation, retention and salary
continuation plans, programs or arrangements prior to the effective time of the
merger, subject to specified exceptions.
Treatment of Egghead stock options and purchase rights
Upon closing the merger, each outstanding option to purchase Egghead common
stock will be assumed by Onsale and converted, in accordance with its terms,
into an option to purchase the number of shares of Onsale common stock equal to
0.565 times the number of shares of Egghead common stock which could have been
obtained before the merger upon the exercise of each option, rounded to the
nearest whole share. The exercise price will be equal to the exercise price per
share of Egghead common stock subject to the option before conversion divided
by 0.565, rounded up to the nearest whole cent. In general, the other terms of
each option will continue to apply in accordance with their terms, including
any provisions providing for acceleration of vesting.
Upon the closing of the merger, each outstanding purchase right with respect
to Egghead's employee stock purchase plan will be assumed by Onsale and
converted into the right to purchase shares of Onsale common stock. The
purchase price will be equal to the lesser of: (1) 85% of the fair market value
of Egghead's common stock on the offering date, as defined in the Egghead
employee stock purchase plan, divided by the exchange ratio of 0.565; and (2)
85% of the last sale price of Onsale's common stock on the last day of the
offering that was open at the effective time of the merger, rounded up to the
nearest whole cent.
Onsale will file a registration statement on Form S-8 for the shares of
Onsale common stock issuable with respect to options assumed by Onsale and will
maintain the effectiveness of that registration statement for as long as any of
the options remain outstanding.
Conditions to closing the merger
Our respective obligations to complete the merger and the other transactions
contemplated by the merger agreement are subject to the satisfaction or waiver
of each of the following conditions before closing the merger:
. the merger agreement must be approved and adopted and the merger
must be approved by the holders of two-thirds of the outstanding
shares of Egghead stock;
. the proposal to issue shares of Onsale common stock in the merger
and to adopt Onsale's amended and restated certificate of
incorporation must be approved by the holders of a majority of
outstanding shares of Onsale common stock;
. Onsale's registration statement must be effective, no stop order
suspending its effectiveness may be in effect and no proceedings for
suspending its effectiveness may be pending before or threatened by
the Securities and Exchange Commission;
. no governmental entity shall have enacted or issued any law,
regulation or order which has the effect of making the merger
illegal, otherwise prohibiting the closing of the merger
substantially on the terms contemplated by the merger agreement or
restricting Onsale's conduct or operation of the business of Egghead
after the merger in a manner that could reasonably be expected to
have a material adverse effect on the combined company after the
effective time of the merger;
. all applicable waiting periods under applicable antitrust laws must
have expired or been terminated;
. all authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations of waiting periods
imposed by, any governmental entity will have been obtained, been
filed or occurred to the extent that the failure to have obtained,
been filed or occurred would have a material adverse effect on the
applicable company;
. Onsale and Egghead must each receive from their respective tax
counsel an opinion to the effect that the merger will constitute a
tax-free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code;
. the shares of Onsale common stock to be issued in the merger must be
authorized for quotation on Nasdaq National Market, subject to
notice of issuance;
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. Onsale's amended and restated certificate of incorporation must be
on file with the Delaware Secretary of State; and
. Onsale's bylaws must be amended to increase the size of Onsale's
board from five to nine directors, and actions must have been taken
to cause Onsale's board of directors to consist immediately
following the effective time of the merger of four Onsale designees,
four Egghead designees and one mutually selected designee.
Egghead's obligations to complete the merger and the other transactions
contemplated by the merger agreement are subject to the satisfaction or waiver
of each of the following additional conditions before closing the merger:
. Onsale's representations and warranties must be true and correct in
all material respects as of July 13, 1999 and at and as of the date
the merger is to be completed as if made at and as of such time
except
-- to the extent Onsale's representations and warranties address
matters only as of a particular date, they must be true and
correct in all material respects as of that date, and
-- if any of these representations and warranties are not true and
correct but the effect in each case, or in the aggregate, of the
inaccuracies of these representations and breaches of these
warranties, other than those concerning Onsale's capital
structure, obligations with respect to capital stock, board
approval and receipt of the fairness opinion (which must be true
and correct in all material respects), is not and does not have a
material adverse effect on Onsale, then this condition will be
deemed satisfied;
. Onsale must perform or comply in all material respects with all of
its agreements and covenants required by the merger agreement to be
performed or complied with by Onsale at or before closing the
merger;
. no material adverse effect with respect to Onsale, taken as a whole
with its subsidiaries, shall have occurred since July 13, 1999 and
be continuing;
. Onsale must have obtained all consents, waivers and approvals
required in connection with the closing of the merger, except to the
extent that failure to obtain would not reasonably be expected to
result in a material adverse effect to Onsale; and
. Egghead must have received a letter from Arthur Andersen LLP
concurring with Egghead's management's conclusion that no conditions
exist relating to Egghead that preclude Onsale from accounting for
the merger as a pooling of interests, and a copy of Onsale's letter
from PricewaterhouseCoopers LLP concurring with Onsale's
management's conclusion that Onsale may account for the merger as a
pooling of interests.
Onsale's obligations to complete the merger and the other transactions
contemplated by the merger agreement are subject to the satisfaction or waiver
of each of the following additional conditions before closing the merger:
. Egghead's representations and warranties must be true and correct in
all material respects as of July 13, 1999 and as of the date the
merger is to be completed as if made as of such time except
-- to the extent Egghead's representations and warranties address
matters only as of a particular date, they must be true and
correct in all material respects as of that date, and
-- if any of these representations and warranties are not true and
correct but the effect in each case, or in the aggregate, of the
inaccuracies of these representations and breaches of these
warranties, other than those concerning Egghead's capital
structure, obligations with respect to capital stock, board
approval and receipt of the fairness opinion (which must be true
and correct in all material respects), is not and does not have a
material adverse effect on Egghead, then this condition will be
deemed satisfied;
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. Egghead must perform or comply in all material respects with all of
its agreements and covenants required by the merger agreement to be
performed or complied with by Egghead at or before closing the
merger;
. no material adverse effect with respect to Egghead, taken as a whole
with its subsidiaries, shall have occurred since July 13, 1999 and
be continuing;
. Egghead must have obtained all consents, waivers and approvals
required in connection with the closing of the merger, except to the
extent that failure to obtain these consents, waivers and approvals
would not reasonably be expected to result in a material adverse
effect to Egghead;
. Onsale must have received a letter from PricewaterhouseCoopers LLP
concurring with Onsale's management's conclusion that Onsale may
account for the merger as a pooling of interests, and a copy of
Egghead's letter from Arthur Andersen LLP concurring with Egghead's
management's conclusion that no conditions exist relating to Egghead
that preclude Onsale from accounting for the merger as a pooling of
interests; and
. the aggregate number of dissenting shares of Egghead common stock
may not exceed 5% of the aggregate number of shares of Egghead
common stock outstanding immediately prior to the closing.
Termination of the merger agreement
The merger agreement may be terminated at any time prior to closing the
merger, whether before or after approval and adoption of the merger agreement
and the merger by Egghead shareholders or approval of the proposal to adopt
Onsale's amended and restated certificate of incorporation and to issue shares
of Onsale common stock in the merger by Onsale stockholders, except as
otherwise noted below:
. by mutual consent of Onsale and Egghead;
. by either of us, if the merger is not completed by April 13, 2000,
except that the right to terminate the merger agreement under this
provision is not available to any party whose action or failure to
act has been a principal cause of or resulted in the failure of the
merger to occur on or by April 13, 2000, and this action or failure
to act constitutes a breach of the merger agreement;
. by either of us, if there is any order of a court or governmental
authority permanently enjoining, restraining or prohibiting the
merger which is final and nonappealable;
. by either of us, if the proposal to issue Onsale common stock in the
merger and to adopt Onsale's amended and restated certificate of
incorporation fails to receive the affirmative vote of at least a
majority of the shares of Onsale common stock outstanding as of the
record date, except that the right to terminate the merger agreement
under this provision is not available to Onsale if the failure to
obtain Onsale stockholder approval was caused by an action or
failure to act by Onsale which constitutes a material breach of the
merger agreement, or a breach of any voting agreement by any Onsale
stockholder;
. by either of us, if the merger and merger agreement fail to receive
the affirmative vote of at least two-thirds of the shares of Egghead
common stock outstanding as of the record date, except that the
right to terminate the merger agreement under this provision is not
available to Egghead where the failure to obtain Egghead shareholder
approval was caused by an action or failure to act by Egghead which
constitutes a material breach of the merger agreement, or a breach
of any voting agreement by any Egghead shareholder;
. by Onsale, at any time prior to the adoption and approval of the
merger agreement and the merger by the required vote of Egghead
shareholders, if a Trigger Event (as described below) occurs with
respect to Egghead; or by Egghead, at any time prior to the approval
of the proposal to adopt Onsale's amended and restated certificate
of incorporation and to issue stock in the merger by the required
vote of Onsale stockholders, if a Trigger Event occurs with respect
to Onsale; and
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. by either of us, upon a breach of any representation, warranty,
covenant or agreement on the part of the other in the merger
agreement, or if any of the other's representations or warranties
are or become untrue, so that the corresponding condition to closing
the merger would not be met. However, if the breach or inaccuracy is
curable by the other through the exercise of its reasonable efforts,
and the other continues to exercise reasonable efforts, then we may
not terminate the merger agreement if the breach or inaccuracy is
cured prior to April 13, 2000.
A Trigger Event has occurred with respect to a company if:
. that company's board of directors withdraws or amends or modifies in
a manner adverse to the other company its unanimous recommendation
in favor of the approval of the merger-related proposal to be voted
on by its stockholders;
. that company fails to include in this prospectus/proxy statement the
unanimous recommendation of its board of directors in favor of the
approval of the merger-related proposal to be voted on by its
stockholders;
. that company's board of directors fails to reaffirm its unanimous
recommendation in favor of approval of the merger-related proposal
to be voted on by its stockholders within 10 days after the other
company requests in writing that this recommendation be reaffirmed
at any time after the public announcement of an Acquisition Proposal
with respect to the first company;
. that company's board of directors approves or publicly recommends
any Acquisition Proposal regarding that company, or that company
enters into a letter of intent or agreement accepting an Acquisition
Proposal; or
if a tender or exchange offer relating to the securities of that
company is commenced by a person or entity unaffiliated with the
other company, and the company does not send to its security holders
within 10 business days after the tender or exchange offer is first
commenced a statement disclosing that the company recommends
rejection of the tender or exchange offer.
Termination fee
If the merger agreement is terminated under the circumstances outlined below,
then Egghead may be obligated to pay Onsale a termination fee equal to four
percent of the Equity Value of Egghead, or Onsale may be obligated to pay
Egghead a termination fee equal to 4% of the Equity Value of Onsale, in
immediately available funds. A company is obligated to pay this fee if:
. the other terminates the merger agreement at any time prior to
approval of the merger-related proposal by the first company's
stockholders because a Trigger Event with respect to the first
company has occurred;
. either of us terminates the merger agreement because the required
approval of the merger-related proposal by the company's
stockholders was not obtained, and before the merger agreement is
terminated a third party has publicly announced an Acquisition
Proposal with respect to the company and within 12 months after the
merger agreement is terminated an Acquisition with respect to the
company, as defined on page 72, is completed or the company enters
into an agreement providing for an Acquisition of the company; or
. either of us terminates the merger agreement because the merger was
not completed by April 13, 2000, and either
-- before the merger agreement is terminated, a third party publicly
announced an Acquisition Proposal with respect to the company, and
within 12 months after the merger agreement is terminated an
Acquisition with respect to the company is completed or the
company enters into an agreement providing for an Acquisition with
respect to the company, or
-- the failure to complete the merger by April 13, 2000 is
principally due to action or failure to act by the company which
constitutes a breach of the merger agreement, and within 12 months
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after the merger agreement is terminated, an Acquisition with
respect to the company is completed or the company enters into an
agreement providing for an Acquisition with respect to the company.
In either of the latter two cases above, the company who owes the termination
fee must make the payment within two days after an Acquisition of the company
is completed or the company enters into an agreement contemplating the
Acquisition of the company.
Equity Value with respect to a company means the sum of all shares of the
company's common stock outstanding on the date of termination and all shares of
the company's common stock issuable upon conversion of outstanding company
securities, options and warrants convertible into the company's common stock
that are outstanding on the date of termination, multiplied by the average
closing price of that company's common stock on the Nasdaq National Market over
the 5 trading days prior to the date of termination.
An Acquisition is any of the following:
. a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving the
company pursuant to which the company's stockholders immediately
preceding the transaction hold less than 50% of the aggregate equity
interests in the surviving entity of the transaction;
. a sale or other disposition by the company of assets representing in
excess of 50% of the aggregate fair market value of the company's
business immediately prior to the sale; or
. the acquisition by any person or group, including by way of a tender
offer or an exchange offer or issuance by the company, directly or
indirectly, of beneficial ownership or a right to acquire beneficial
ownership of shares representing in excess of 50% of the voting
power of the then outstanding shares of capital stock of the
company.
Termination loan and expenses
Egghead is obligated to make an unsecured loan to Onsale for up to $16
million, with a term of two years and an annual interest rate of 6%, and to
reimburse Onsale for actual out-of-pocket expenses incurred in connection with
the merger agreement and the transactions contemplated by the merger agreement,
including investment banking, legal and accounting fees and expenses, if:
. the merger agreement is terminated by either of us because
-- the merger was not completed by April 13, 2000 and, in the case
of this termination, Egghead had held the Egghead shareholders'
meeting before the merger agreement was terminated but had failed
to obtain the required vote by the Egghead shareholders for
approval of the merger, or
-- Egghead did not obtain the required vote for approval of the
merger by the Egghead shareholders at the Egghead shareholders'
meeting; and
. Egghead had not paid the termination fee described above to Onsale
within two days after the merger agreement was terminated.
If a termination fee becomes payable by Egghead after Egghead has made the
loan, Egghead may satisfy its payment obligation for the termination fee by
reducing the amount due from Onsale under the loan.
Amendment, extension and waiver of the merger agreement
We may amend the merger agreement before closing the merger by execution of a
written instrument signed by each of us, provided that we comply with
applicable state law in amending the agreement. Either of us may extend the
other's time for the performance of any of the obligations or other acts under
the merger agreement, waive any inaccuracies in the other's representations and
warranties and waive compliance by the other with any of the agreements or
conditions contained in the merger agreement.
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RELATED AGREEMENTS
This section of the document describes agreements related to the merger
agreement including the stock option agreements and the voting agreements.
While we believe that these descriptions cover the material terms of these
agreements, these summaries may not contain all of the information that is
important to you. The Egghead stock option agreement is attached as Annex C,
the Onsale stock option agreement is attached as Annex D, the form of Egghead
shareholders' voting agreement is attached as Annex E and the form of Onsale
stockholders' voting agreement is attached as Annex F. We urge you to read each
of these agreements carefully in their entirety.
The stock option agreements
Under the Egghead stock option agreement, Egghead granted Onsale an option to
buy up to a number of shares of Egghead common stock equal to 19.9% of the
outstanding shares of Egghead common stock as of the date of exercise of the
option at an exercise price of $12.06 per share. Based on the number of shares
of Egghead common stock outstanding on September 20, 1999, the option would be
exercisable for approximately 6,126,827 shares of Egghead common stock.
Under the Onsale stock option agreement, Onsale granted Egghead an option to
buy up to a number of shares of Onsale common stock equal to 19.9% of the
outstanding shares of Onsale common stock on the date of exercise of the option
at an exercise price of $22.50 per share. Based on the number of shares of
Onsale common stock outstanding on September 20, 1999, the option would be
exercisable for approximately 3,918,115 shares of Onsale common stock.
Each of us required the other to grant these stock options as a prerequisite
to entering into the merger agreement. The Egghead stock option agreement is
attached to this document as Annex C, and the Onsale stock option agreement is
attached to this document as Annex D. We urge you to read both of these
agreements in their entirety. For purposes of describing these agreements, the
grantor of the option, whether Egghead or Onsale, is referred to in this
section as the grantor, and the option holder, whether Onsale or Egghead, is
referred to as the option holder.
These options are intended to increase the likelihood that the merger will be
completed. Aspects of the stock option agreements may have the effect of
discouraging persons who might now or at any time be interested in acquiring
all or a significant interest in either of us before closing the merger. The
number of shares issuable upon exercise of each option and the exercise price
of each option are subject to adjustment under specified circumstances to
prevent dilution.
Neither option is currently exercisable. The option holder may exercise the
option in whole or in part and from time to time only if one or more of the
following occurs:
. the grantor's board of directors withdraws or adversely amends its
unanimous recommendation, in the case of the Onsale option
agreement, in favor of the proposal to adopt Onsale's amended and
restated certificate of incorporation and to issue shares of Onsale
common stock in the merger, or in the case of the Egghead option
agreement, in favor of adoption and approval of the merger agreement
and approval of the merger;
. the grantor's board of directors fails to reaffirm its unanimous
recommendation within 10 business days of a written request from the
option holder following the public announcement of any offer or
proposal relating to any transaction or series of related
transactions involving
-- any purchase from the grantor or acquisition by any person or
group of more than a 15% interest in the total outstanding voting
securities of the grantor or any of its subsidiaries,
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-- any tender offer or exchange offer that would result in any
person or group beneficially owning 15% or more of the total
outstanding voting securities of the grantor or any of its
subsidiaries,
-- any merger, consolidation, business combination or similar
transaction involving the grantor pursuant to which the grantor's
stockholders immediately preceding the transaction hold less than
85% of the equity interests in the surviving entity,
-- any sale, lease outside the ordinary course of business,
exchange, transfer, license outside the ordinary course of
business or acquisition or disposition outside the ordinary course
of business of more than 50% of the assets of the grantor, or
-- any liquidation or dissolution of the grantor;
. the grantor's board of directors or committee of the board approves
or publicly recommends any offer or proposal relating to any
transaction or series of related transactions of the type described
above;
. the grantor enters into any agreement or commitment accepting any
offer or proposal relating to any transaction or series of related
transactions of the type described above;
. any party unaffiliated with the option holder commences a tender or
exchange offer relating to the grantor's securities and the grantor
does not send a notice to its stockholders in accordance with Rule
14e-2 under the Securities Act within 10 business days after the
tender or exchange offer is published stating that it recommends
rejection of the tender or exchange offer;
. public announcement, prior to the date the merger agreement is
terminated, of any offer or proposal other than by the option holder
relating to any transaction or series of related transactions
involving
-- any purchase from the grantor or acquisition by any person or
group of more than a 10% interest in the total outstanding voting
securities of the grantor or any of its subsidiaries,
-- any tender offer or exchange offer that would result in any
person or group beneficially owning 10% or more of the total
outstanding voting securities of the grantor or any of its
subsidiaries,
-- any merger, consolidation, business combination or similar
transaction involving the grantor,
-- any sale, lease, exchange, transfer, license, acquisition or
disposition of more than 10% of the assets of the grantor, other
than in the ordinary course of business, or
-- any liquidation or dissolution of the grantor,
and the occurrence of one or more of the following on or after the
date of the above announcement
-- in the case of the Onsale option agreement, the required vote of
Onsale's stockholders in favor of the proposal to issue shares of
Onsale common stock in the merger and to adopt Onsale's amended
and restated certificate of incorporation is not obtained at the
Onsale stockholders' meeting, or, in the case of the Egghead
option agreement, the required vote of Egghead's shareholders in
favor of adoption and approval of the merger agreement and
approval of the merger is not obtained at the Egghead
shareholders' meeting,
-- a tender offer or exchange offer for 15% or more of the
outstanding shares of the grantor's common stock is commenced
other than by the option holder or an affiliate of the option
holder, or
-- the grantor fails to call and hold the grantor's stockholders'
meeting by April 13, 2000; or
. upon a proxy solicitation by any person or entity other than the
option holder or its board of directors seeking to alter the
composition of the grantor's board of directors.
The option will terminate upon the earliest of any of the following:
. the effective time of the merger;
74
<PAGE>
. the termination of the merger agreement by mutual written consent
duly authorized by both of our boards, or by either of us if a
governmental entity issued an order permanently prohibiting the
merger and this order is final and nonappealable; or
. 14 months after termination of the merger agreement in other
circumstances;
except that if the option is exercisable but cannot be exercised due to
government order or because the waiting period under the Hart-Scott-Rodino Act
related to the issuance of the shares underlying the option has not expired or
been terminated, or because any other condition to closing has not been
satisfied, then the option will not terminate until the tenth business day
after this impediment to exercise has been removed or, in the case of a
government order, has become final and not appealable.
If the option holder receives proceeds in connection with any sales or other
dispositions of the option or shares purchased by exercising the option, plus
any dividends on these shares, less the exercise price of the option multiplied
by the number of shares purchased, which, together with any termination fee
payable by the grantor in connection with the proposed merger, exceed 5% of the
grantor equity value, then the option holder must promptly remit all proceeds
in excess of this amount in cash to the grantor. The grantor equity value
equals the product of the average closing price of the grantor's common stock
over the five trading days prior to the purchase of shares by exercising the
option and the sum of all shares of the grantor's common stock and all shares
of grantor's common stock issuable on conversion of convertible stock, options
and warrants outstanding on the date before the purchase of option shares.
The stock option agreements grant registration rights to Onsale and Egghead
with respect to the shares of Egghead common stock or Onsale common stock
represented by the respective options. Under each agreement, the grantor and
the option holder agree to indemnify the other against specified liabilities
and expenses, including liabilities under the Securities Act.
The voting agreements
Onsale required Egghead securityholders Brian W. Bender, Jonathan W. Brodeur,
Tommy E. Collins, C. Scott Gibson, Norman F. Hullinger, James F. Kalasky,
George P. Orban, Eric P. Robison, Robert T. Wall, Karen L. White and Melvin A.
Wilmore to enter into voting agreements as an inducement for Onsale to enter
into the merger agreement. These persons collectively held approximately 0.3%
of the outstanding Egghead common stock as of the record date.
In addition, Egghead required Onsale securityholders Bari Abdul, Alan Fisher,
Peter Harris, Peter Jackson, John Labbett, Jerry Kaplan, Merle McIntosh, Razi
Mohiuddin, Ken Orton and Jeff Sheahan to enter into voting agreements as an
inducement for Egghead to enter into the merger agreement. These persons
collectively held approximately 51.7% of the outstanding Onsale common stock as
of the record date. As a result, assuming these persons vote as required by
their voting agreements, the Onsale merger-related proposal will be approved.
Under the voting agreements, these persons agreed:
. in the case of Egghead shareholders, to vote all shares of Egghead
common stock that they beneficially own in favor of the merger, the
execution and delivery by Egghead of the merger agreement and all
actions in furtherance of the merger;
. in the case of Onsale stockholders, to vote all shares of Onsale
common stock that they beneficially own in favor of
-- Onsale's amended and restated certificate of incorporation,
-- the issuance of shares of Onsale common stock in the merger, and
-- to the extent required by law, in favor of the merger agreement,
the merger and all actions in furtherance of the merger;
75
<PAGE>
. to waive, and to vote all shares of common stock that they
beneficially own in favor of the waiver of, any rights of first
refusal, rights of first offer, rights of notice, rights of co-sale,
tag-along rights, information rights, registration rights,
preemptive rights, rights of redemption or repurchase or similar
rights of the shareholder under any agreement, arrangement or
understanding applicable to their shares to the extent that these
rights apply to the merger or any other actions contemplated by the
merger agreement; and
. to waive any appraisal and dissenters' rights that may apply to the
merger.
Concurrently with the execution of the voting agreement, each person also
delivered an irrevocable proxy to the other company and some of its officers
granting them the right to vote the shares covered by the voting agreement in
favor of the matters referenced above.
None of the persons who entered into a voting agreement were paid additional
consideration in connection with the voting agreements. The voting agreements
will terminate upon the earlier to occur of the effective time of the merger or
the valid termination of the merger agreement under Article VII of the merger
agreement.
76
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE DATA
Onsale common stock has been traded on the Nasdaq National Market under the
symbol ONSL since April 1997. Egghead common stock has been traded on the
Nasdaq National Market under the symbol EGGS since June 1988.
The following table sets forth, for the calendar quarters indicated, the high
and low sale prices per share of Onsale common stock and Egghead common stock
as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
Onsale Egghead
Common Stock Common Stock
-------------- ------------
High Low High Low
------- ------ ------ -----
<S> <C> <C> <C> <C>
Year Ended December 31, 1997:
First Quarter..................................... $ -- $ -- $ 7.63 $4.38
Second Quarter.................................... 9.38 4.63 5.19 3.63
Third Quarter..................................... 34.00 8.38 10.13 3.75
Fourth Quarter.................................... 35.25 11.88 11.13 5.75
Year Ended December 31, 1998:
First Quarter..................................... 36.81 14.25 12.75 5.50
Second Quarter.................................... 36.75 21.00 12.25 6.88
Third Quarter..................................... 29.75 13.88 29.13 5.50
Fourth Quarter.................................... 108.00 10.63 40.25 4.31
Year Ending December 31, 1999:
First Quarter..................................... 60.59 31.00 26.63 12.00
Second Quarter.................................... 39.25 15.25 18.88 9.06
Third Quarter (through September 20, 1999)........ 26.25 13.00 12.88 6.50
</TABLE>
The following table sets forth the closing prices per share of Onsale common
stock and Egghead common stock as reported on the Nasdaq National Market on (1)
July 12, 1999, the business day preceding public announcement that Onsale and
Egghead had entered into the merger agreement and (2) September 20, 1999, the
last full trading day for which closing prices were available at the time of
the printing of this document. It also sets forth the equivalent price per
share of Egghead common stock on those dates. The equivalent price per share is
equal to the closing price of a share of Onsale common stock on that date
multiplied by 0.565, the number of shares of Onsale common stock to be issued
in exchange for each share of Egghead common stock.
<TABLE>
<CAPTION>
Equivalent
Onsale Egghead Per
Common Common Share
Stock Stock Price
------ ------- ----------
<S> <C> <C> <C>
July 12, 1999......................................... $22.75 $11.94 $12.85
September 20, 1999.................................... $15.00 $ 7.56 $ 8.47
</TABLE>
Onsale and Egghead believe that Egghead common stock presently trades on the
basis of the value of the Onsale common stock expected to be issued in exchange
for the Egghead common stock in the merger, discounted primarily for the
uncertainties associated with the merger. Apart from the publicly disclosed
information concerning Onsale which is included and incorporated by reference
in this document, Onsale cannot state with certainty what factors account for
changes in the market price of the Onsale common stock.
Egghead shareholders are advised to obtain current market quotations for
Onsale common stock and Egghead common stock. We cannot provide any guarantees
as to the market prices of Onsale common stock or Egghead common stock at any
time before the closing of the merger or as to the market price of the common
stock of the combined company at any time after the merger. Because the
exchange ratio is fixed, the exchange ratio will not be adjusted to compensate
Egghead shareholders for decreases in the market price of Onsale common stock
which could occur before the merger closes. In the event the market price of
Onsale common
77
<PAGE>
stock decreases or increases prior to the completion of the merger, the value
of the common stock of the combined company to be received in the merger in
exchange for Egghead common stock would correspondingly decrease or increase.
Onsale and Egghead have never paid cash dividends on their respective shares
of capital stock. Pursuant to the merger agreement, each of Onsale and Egghead
has agreed not to pay cash dividends before the closing of the merger without
the written consent of the other. If the merger is not completed, Egghead
presently intends that it would retain future earnings, if any, for use in its
business and would not pay any cash dividends in the foreseeable future. Onsale
presently intends to retain future earnings, if any, for use in its business
and has no present intention to pay cash dividends before or after the merger.
78
<PAGE>
UNAUDITED PRO FORMA
CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited condensed combined consolidated pro forma financial
statements give effect to the merger, pursuant to which Egghead will become a
wholly-owned subsidiary of Onsale, to be accounted for as a pooling of
interests. The unaudited pro forma condensed combined consolidated balance
sheet presents the combined financial position of Onsale and Egghead as of June
30, 1999 assuming that the proposed merger had occurred as of June 30, 1999.
Such pro forma information is based upon the historical balance sheet data of
Onsale and Egghead as of that date. The unaudited pro forma condensed
consolidated statements of operations give effect to the proposed merger of
Onsale and Egghead by combining the results of operations of Onsale for each of
the three years in the period ended December 31, 1998 and for the six-month
periods ended June 30, 1999 and 1998 with the results of the continuing
operations of Egghead for each of the three years in the period ended March 31,
1999 and the six-month periods ended June 30, 1999 and 1998, respectively, on a
pooling of interests basis. Egghead uses a 52/53 week fiscal year ending on the
Saturday nearest March 31; for convenience, these fiscal years are referred to
as "March 31." The continuing operations of Egghead for the three-month period
ended March 31, 1999, resulting in net sales and a net loss from continuing
operations of $42.3 million and $12.8 million, respectively, have been included
in the pro forma statements of operations for the year ended December 31, 1998
and for the six-month period ended June 30, 1999. The continuing operations of
Egghead for the three-month period ended March 31, 1998, resulting in net sales
and a net loss from continuing operations of $74.5 million and $39.3 million,
respectively, have been included in the pro forma statements of operations for
the year ended December 31, 1997 and for the six-month period ended June 30,
1998.
The unaudited pro forma condensed combined consolidated financial statements
are based on the estimates and assumptions set forth in the notes to these
financial statements, which are preliminary and have been made solely for
purposes of developing this pro forma information. The unaudited pro forma
condensed combined consolidated financial statements are not necessarily an
indication of the results that would have been achieved had such transactions
been consummated as of the dates indicated or that may be achieved in the
future.
These unaudited pro forma condensed combined consolidated financial
statements should be read in conjunction with the historical financial
statements and related notes of Onsale and Egghead, including those
incorporated into this document by reference.
79
<PAGE>
Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet
As of June 30, 1999
<TABLE>
<CAPTION>
Onsale/Egghead
Historical Proforma
----------------- ------------------------
Onsale Egghead Adjustments Combined
------- -------- ----------- --------
(in thousands)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents........ $19,893 $109,803 $ -- $129,696
Short-term investments........... 16,061 -- 16,061
Accounts receivable, net......... 7,692 2,269 9,961
Merchandise inventory............ 7,271 11,800 19,071
Prepaid expenses and other
current assets.................. 808 712 1,520
------- -------- -------- --------
Total current assets........... 51,725 124,584 -- 176,309
Property and equipment, net........ 4,518 9,791 (9,000) (A) 5,309
Investment in joint venture........ 1,450 -- 1,450
Goodwill, net...................... -- 31,202 (31,202) (A) --
Other assets....................... 387 210 597
------- -------- -------- --------
Total assets................... $58,080 $165,787 $(40,202) $183,665
======= ======== ======== ========
Liabilities and Stockholders'
Equity
Current liabilities:
Accounts payable................. $13,800 $ 18,016 $ -- $ 31,816
Accrued expenses................. 4,734 10,986 14,000 (B) 29,720
Deferred revenue................. 2,366 -- 2,366
Reserves and liabilities related
to restructuring................ -- 5,838 -- 5,838
------- -------- -------- --------
Total current liabilities...... 20,900 34,840 14,000 69,740
Long-term liabilities.............. 2,033 -- 2,033
Stockholders' equity
Common stock..................... 20 308 (291) (C) 37
Additional paid-in capital....... 69,707 250,397 291 (C) 320,395
Accumulated deficit.............. (34,580) (119,758) (14,000) (B)
(40,202) (A) (208,540)
------- -------- -------- --------
Total stockholders' equity..... 35,147 130,947 (54,202) 111,892
------- -------- -------- --------
Total liabilities and
stockholders' equity.......... $58,080 $165,787 $(40,202) $183,665
======= ======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined consolidated
financial statements.
80
<PAGE>
Unaudited Pro Forma Condensed Combined Consolidated
Statement Of Operations
Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
Onsale/Egghead
Historical Pro Forma
------------------ ----------------------
Onsale Egghead Adjustments Combined
-------- -------- ----------- --------
(In thousands, except per share
amounts)
<S> <C> <C> <C> <C>
Revenue:
Merchandise--Online............. $144,096 $ 82,839 $ (674)(D) $226,261
Commission and other ........... 5,082 -- 674 (D) 5,756
-------- -------- ------- --------
Total revenue................. 149,178 82,839 -- 232,017
Cost of revenue................... 140,667 75,713 -- 216,380
-------- -------- ------- --------
Gross profit...................... 8,511 7,126 -- 15,637
-------- -------- ------- --------
Operating expenses:
Sales and marketing............. 18,013 20,535 (1,103)(E) 37,445
General and administrative...... 5,769 9,555 (1,742)(E) 13,582
Engineering..................... 2,808 -- 5,206 (E) 8,014
Depreciation.................... -- 2,361 (2,361)(E) --
Amortization of goodwill........ -- 860 -- 860
-------- -------- ------- --------
Total operating expenses...... 26,590 33,311 -- 59,901
-------- -------- ------- --------
Loss from operations.............. (18,079) (26,185) -- (44,264)
Equity in net loss of joint
venture.......................... (350) -- -- (350)
Interest and other income, net.... 1,066 2,857 -- 3,923
-------- -------- ------- --------
Loss before income taxes.......... (17,363) (23,328) -- (40,691)
Provision for income taxes........ -- -- -- --
-------- -------- ------- --------
Net loss from continuing
operations....................... $(17,363) $(23,328) $ -- $(40,691)
======== ======== ======= ========
Net loss per share:
Basic and diluted............... $ (0.89) $ (0.83) $ (1.15)
======== ======== ========
Weighted average common shares:
Basic and diluted............... 19,552 28,170 35,468
======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined consolidated
financial statements.
81
<PAGE>
Unaudited Pro Forma Condensed Combined Consolidated
Statement Of Operations
Six Months Ended June 30, 1998
<TABLE>
<CAPTION>
Onsale/Egghead
Historical Pro Forma
----------------- ----------------------
Onsale Egghead Adjustments Combined
------- -------- ----------- --------
(In thousands, except per share
amounts)
<S> <C> <C> <C> <C>
Revenue:
Merchandise
Online........................... $89,450 $ 56,107 $ -- $145,557
Retail........................... -- 47,922 (420)(D) 47,502
Commission and other ............. 1,515 -- 420 (D) 1,935
------- -------- ------- --------
Total revenue.................. 90,965 104,029 -- 194,994
Cost of revenue:
Online........................... 80,467 50,389 -- 130,856
Retail........................... -- 50,839 -- 50,839
------- -------- ------- --------
Total cost of revenue.......... 80,467 101,228 -- 181,695
Gross profit:
Online........................... 8,983 5,718 -- 14,701
Retail........................... -- (2,917) (420)(D) (3,337)
Commission and other............. 1,515 -- 420 (D) 1,935
------- -------- ------- --------
Total gross profit............. 10,498 2,801 -- 13,299
------- -------- ------- --------
Operating expenses:
Sales and marketing.............. 11,576 18,712 (3,515)(E) 26,773
General and administrative....... 6,210 8,628 2,109 (E) 16,947
Engineering...................... 2,383 -- 2,863 5,246
Depreciation..................... -- 1,457 (1,457)(E) --
Amortization of goodwill......... -- 851 -- 851
Restructuring and impairment
costs........................... -- 19,500 -- 19,500
------- -------- ------- --------
Total operating expenses....... 20,169 49,148 -- 69,317
------- -------- ------- --------
Loss from operations............... (9,671) (46,347) -- (56,018)
Interest and other income, net..... 1,443 1,458 -- 2,901
------- -------- ------- --------
Loss before income taxes........... (8,228) (44,889) -- (53,117)
Provision for income taxes......... -- -- -- --
------- -------- ------- --------
Net loss from continuing
operations........................ $(8,228) $(44,889) $ -- $(53,117)
======= ======== ======= ========
Net loss from continuing operations
per share:
Basic and diluted................ $ (0.44) $ (1.92) $ (1.66)
======= ======== ========
Weighted average common shares:
Basic and diluted................ 18,753 23,357 31,950
======= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined consolidated
financial statements.
82
<PAGE>
Unaudited Pro Forma Condensed Combined Consolidated
Statement Of Operations
Year ended December 31, 1998
<TABLE>
<CAPTION>
Onsale/Egghead
Historical Pro Forma
------------------ ----------------------
Onsale Egghead Adjustments Combined
-------- -------- ----------- --------
(In thousands, except per share
amounts)
<S> <C> <C> <C> <C>
Revenue:
Merchandise--Online............. $204,124 $148,721 $ (354)(D) $352,491
Commission and other............ 3,627 -- 354 (D) 3,981
-------- -------- ------- --------
Total revenue................. 207,751 148,721 -- 356,472
Cost of revenue................... 185,745 134,341 -- 320,086
-------- -------- ------- --------
Gross profit...................... 22,006 14,380 -- 36,386
-------- -------- ------- --------
Operating expenses:
Sales and marketing............. 23,582 34,722 (2,773)(E) 55,531
General and administrative...... 10,679 16,084 (2,462)(E) 24,301
Engineering..................... 4,957 -- 8,087 (E) 13,044
Depreciation.................... -- 2,852 (2,852)(E) --
Amortization of goodwill........ -- 1,708 -- 1,708
-------- -------- ------- --------
Total operating expenses...... 39,218 55,366 -- 94,584
-------- -------- ------- --------
Loss from operations.............. (17,212) (40,986) -- (58,198)
Equity in net loss of joint
venture.......................... (200) -- -- (200)
Interest and other income, net.... 2,746 6,563 -- 9,309
-------- -------- ------- --------
Loss before income taxes.......... (14,666) (34,423) -- (49,089)
Provision for income taxes........ -- -- -- --
-------- -------- ------- --------
Net loss from continuing
operations....................... $(14,666) $(34,423) $ -- $(49,089)
======== ======== ======= ========
Net loss from continuing
operations per share:
Basic and diluted............... $ (0.77) $ (1.40) $ (1.50)
======== ======== ========
Weighted average common shares:
Basic and diluted............... 18,953 24,569 32,834
======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined consolidated
financial statements.
83
<PAGE>
Unaudited Pro Forma Condensed Combined Consolidated
Statement Of Operations
Year ended December 31, 1997
<TABLE>
<CAPTION>
Onsale/Egghead
Historical Pro Forma
----------------- ----------------------
Onsale Egghead Adjustments Combined
------- -------- ----------- --------
(In thousands, except per share
amounts)
<S> <C> <C> <C> <C>
Revenue:
Online........................... $85,997 $ 59,737 $ -- $145,734
Retail........................... -- 233,342 (1,618)(D) 231,724
Commission and other............. 2,984 -- 1,618 (D) 4,602
------- -------- ------- --------
Total revenue.................. 88,981 293,079 -- 382,060
Cost of revenue:
Online........................... 75,336 52,016 -- 127,352
Retail........................... -- 205,159 -- 205,159
------- -------- ------- --------
Total cost of revenue.......... 75,336 257,175 -- 332,511
Gross profit:
Online........................... 10,661 7,721 -- 18,382
Retail........................... -- 28,183 (1,618)(D) 26,565
Commission and other............. 2,984 -- 1,618 (D) 4,602
------- -------- ------- --------
Total gross profit............. 13,645 35,904 -- 49,549
Operating expenses:
Sales and marketing.............. 9,181 49,219 (3,766)(E) 54,634
General and administrative....... 4,962 18,847 3,072 (E) 26,881
Engineering...................... 2,873 -- 5,494 (E) 8,367
Depreciation..................... -- 4,800 (4,800)(E) --
Amortization of goodwill......... -- 1,009 -- 1,009
Restructuring and impairment
costs........................... -- 19,500 -- 19,500
------- -------- ------- --------
Total operating expenses....... 17,016 93,375 -- 110,391
------- -------- ------- --------
Loss from operations............... (3,371) (57,471) -- (60,842)
Interest and other income, net..... 899 2,940 -- 3,839
------- -------- ------- --------
Loss before income taxes........... (2,472) (54,531) -- (57,003)
Provision for income taxes......... -- -- -- --
------- -------- ------- --------
Net loss from continuing
operations........................ $(2,472) $(54,531) $ -- $(57,003)
======= ======== ======= ========
Net loss from continuing operations
per share:
Basic and diluted................ $ (0.16) $ (2.60) $ (2.07)
======= ======== ========
Weighted average common shares:
Basic and diluted................ 15,742 20,967 27,588
======= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined consolidated
financial statements.
84
<PAGE>
Unaudited Pro Forma Condensed Combined Consolidated Statement Of Operations
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Historical Onsale/Egghead Pro Forma
---------------- ------------------------------
Onsale Egghead Adjustments Combined
------- -------- ------------- ------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenue:
Online.................... $12,573 $ 1,408 $ -- $ 13,981
Retail.................... -- 359,307 (521)(D) 358,786
Commission and other...... 1,696 -- 521 (D) 2,217
------- -------- ----------- ------------
Total revenue........... 14,269 360,715 -- 374,984
Cost of revenue:
Online.................... 11,195 1,159 -- 12,354
Retail.................... -- 303,092 -- 303,092
------- -------- ----------- ------------
Total cost of revenue... 11,195 304,251 -- 315,446
Gross profit:
Online.................... 1,378 249 -- 1,627
Retail.................... -- 56,215 (521)(D) 55,694
Commission and other...... 1,696 -- 521 (D) 2,217
------- -------- ----------- ------------
Total gross profit...... 3,074 56,464 -- 59,538
Operating expenses:
Sales and marketing....... 1,397 57,352 (3,328)(E) 55,421
General and
administrative........... 596 24,065 543 (E) 25,204
Engineering............... 714 -- 10,137 (E) 10,851
Depreciation.............. -- 7,352 (7,352)(E) --
Restructuring and
impairment costs......... -- 15,597 -- 15,597
------- -------- ----------- ------------
Total operating
expenses............... 2,707 104,366 -- 107,073
------- -------- ----------- ------------
Income (loss) from
operations................. 367 (47,902) -- (47,535)
Interest and other income,
net........................ 37 3,729 -- 3,766
------- -------- ----------- ------------
Income (loss) before income
taxes...................... 404 (44,173) -- (43,769)
Provision for income taxes.. 43 4,788 -- 4,831
------- -------- ----------- ------------
Net income (loss) from
continuing operations...... $ 361 $(48,961) $ -- $ (48,600)
======= ======== =========== ============
Net income (loss) from
continuing operations per
share:
Basic and diluted......... $ 0.03 $ (2.78) $ (2.21)
======= ======== ============
Weighted average common
shares:
Basic..................... 12,090 17,581 22,023
======= ======== ============
Diluted................... 13,536 17,581 22,023
======= ======== ============
</TABLE>
See accompanying notes to unaudited pro forma condensed combined consolidated
financial statements.
85
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED CONSOLIDATED FINANCIAL STATEMENTS
Note 1.
The unaudited pro forma condensed combined consolidated financial statements
of Onsale and Egghead give retroactive effect to the proposed merger, pursuant
to which Egghead will become a wholly-owned subsidiary of Onsale, which is
being accounted for as a pooling of interests and, as a result, the unaudited
pro forma condensed combined consolidated balance sheet and statements of
operations are presented as if Onsale and Egghead had been combined for all
periods presented. Egghead uses a 52/53 week fiscal year ending on the Saturday
nearest March 31; for convenience, these fiscal years are referred to as
"March 31." The continuing operations of Egghead for the three-month period
ended March 31, 1999, resulting in net sales and a net loss from continuing
operations of $42.3 million and $12.8 million, respectively, have been included
in the pro forma statements of operations for the year ended December 31, 1998
and for the six-month period ended June 30, 1999. The continuing operations of
Egghead for the three-month period ended March 31, 1998, resulting in net sales
and a net loss from continuing operations of $74.5 million and $39.3 million,
respectively, have been included in the pro forma statements of operations for
the year ended December 31, 1997 and for the six-month period ended June 30,
1998.
The unaudited pro forma condensed combined consolidated financials
statements, including the related notes, should be read in conjunction with the
historical financial statements and related notes of Onsale and of Egghead,
including those incorporated into this document by reference.
Egghead's online net sales consist of the results of Egghead's online
shopping web sites and inbound telephone orders. Egghead's retail net sales
consist of the results of the retail stores and the direct response and
catalog/mail-order divisions. Egghead completed the closure of the retail
stores and the catalog/mail-order divisions on February 28, 1998.
Note 2.
Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Diluted net income
(loss) per share is computed using the weighted average number of common and
dilutive common equivalent shares outstanding during the period. Dilutive
common equivalent shares consist of the incremental common shares issuable upon
exercise of stock options and warrants (using the treasury stock method).
Common equivalent shares are excluded from the computations if their effect is
anti-dilutive. Pro forma net income (loss) per share is computed by adding
Onsale historical weighted average shares outstanding to Egghead historical
weighted average shares outstanding converted to give effect to the exchange
ratio of 0.565 shares of Onsale common stock for each outstanding share of
Egghead common stock.
Note 3.
The following pro forma adjustments have been made to the historical
financial statements of Onsale and Egghead. These adjustments are based upon
preliminary estimates and assumptions made by management for purposes of
preparing the unaudited pro forma condensed combined consolidated financial
statements:
(A) To write off assets representing duplicate facilities including
hardware and software of $9.0 million and goodwill of $31.2 million
associated with these duplicate facilities. Egghead's goodwill was
related to the technology, systems and business processes of the
internet business it had acquired, which will be converted and
migrated to Onsale's systems following closing. The estimated charges
are reflected in the unaudited pro forma condensed combined
consolidated balance sheet data, but are not reflected in the
unaudited pro forma condensed combined consolidated statement of
operations data. This charge is a preliminary estimate and is subject
to change.
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(B) To record the accrual of estimated costs resulting from the proposed
merger of Onsale and Egghead. It is anticipated that the combined
company will incur charges to operations related to the proposed
merger, currently estimated to be $14.0 million, principally in the
quarter in which the proposed merger is completed. These charges
include direct transaction costs including estimated investment
banking and financial advisory fees of approximately $6.4 million and
other estimated merger related expenses totaling $7.6 million,
consisting primarily of professional services, severance costs,
contract termination costs and other merger related expenses. The
estimated charge is reflected in the unaudited pro forma condensed
combined consolidated balance sheet data, but is not reflected in the
unaudited pro forma condensed combined consolidated statement of
operations data. This charge is a preliminary estimate and is subject
to change. The combined company expects to incur approximately $2.3
million of additional severance costs in the 3 months following the
merger as the benefits are earned by the employees; however, these
additional costs have not been included in the pro forma adjustment.
(C) To record the reclassification of common stock to conform to Onsale's
common stock par value of $0.001 per share.
(D) To record the reclassification of Egghead's other revenue to
Commission and Other Revenue consistent with Onsale's historical
reporting.
(E) To record the reclassification of Egghead operating expenses to
conform to Onsale's historical reporting.
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COMPARISON OF RIGHTS OF HOLDERS OF
EGGHEAD COMMON STOCK AND
ONSALE COMMON STOCK
This section of the document describes some of the differences between
Egghead common stock and Onsale common stock. While we believe that the
description covers the material differences between the two, this summary may
not contain all of the information that is important to you, including the
articles/certificates of incorporation and bylaws of each company. You should
read this entire document and the other documents we refer to carefully for a
more complete understanding of the differences between Egghead common stock and
Onsale common stock. You may obtain the information incorporated by reference
into this document without charge by following the instructions in the section
entitled "Where you can find more information" on page 107.
References to Egghead in this section refer to Egghead.com, Inc., the
Washington corporation in which Egghead shareholders currently hold stock.
References to Onsale in this section refer to Onsale, the Delaware corporation,
which will survive the merger and change its name to "Egghead.com Inc."
Currently, the rights of Egghead shareholders are governed by the Washington
Business Corporation Act, or WBCA, the Egghead articles of incorporation and
the Egghead bylaws. After the merger, the rights of these shareholders who
receive common stock of Onsale will be governed by the Delaware General
Corporation Law, or DGCL, Onsale's amended and restated certificate of
incorporation and Onsale's amended and restated bylaws, which will be the
certificate of incorporation and bylaws of the combined company.
The following paragraphs summarize some of the differences between the rights
of Onsale stockholders and Egghead shareholders under the applicable governing
law, certificates or articles of incorporation and bylaws of each company. This
summary reflects the changes to Onsale's certificate of incorporation that will
be incorporated in Onsale's amended and restated certificate of incorporation,
which Onsale's board of directors approved on September 10, 1999, and which
Onsale stockholders must approve before the merger. Onsale's amended and
restated certificate of incorporation will reflect the new corporate name
"Egghead.com, Inc." This summary also reflects changes that are incorporated in
Onsale's amended and restated bylaws, including an increase in the size of
Onsale's board of directors from five to nine directors. Onsale's board of
directors approved Onsale's amended and restated bylaws on September 10, 1999.
Classification of common stock
Neither the common stock of Onsale nor the common stock of Egghead is divided
into separate classes or series.
Votes per share
Onsale. Under the DGCL, a certificate of incorporation may provide for more
or less than 1 vote for any share, on any matter. Under Onsale's certificate of
incorporation, each Onsale stockholder has the right to one vote for each share
of Onsale common stock held by the stockholder.
The DGCL also provides that a certificate of incorporation may allow
cumulative voting for elections of directors of a corporation or elections held
under specified circumstances. Onsale's certificate of incorporation does not
provide for cumulative voting.
Egghead. The WBCA allows for more or less than one vote per share if provided
in a corporation's articles of incorporation. The WBCA also permits cumulative
voting for directors unless otherwise provided in a corporation's articles of
incorporation. Each holder of Egghead common stock is entitled to one vote for
each share held of record, and Egghead's articles of incorporation do not
permit cumulative voting for the election of directors.
Stockholder actions generally
Onsale. Onsale's amended and restated bylaws provide that, except for
elections of directors and as otherwise stated in Onsale's certificate of
incorporation, stockholder actions generally require the affirmative
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vote of a majority of the shares of stock entitled to vote on the matter that
are present in person or represented by proxy at the meeting and are voted for
or against the matter.
Egghead. Under the WBCA, generally, an action is approved by shareholders if
the votes cast in favor of the action exceed the votes cast against the action,
except for action on election of directors and for action on certain
significant business transactions. See "Vote required to approve mergers,
acquisitions and other transactions--Egghead" on page 97.
Special meeting of stockholders
Onsale. Onsale's amended and restated bylaws provide that special meetings of
the stockholders may be called at any time by the chairman of the board, the
chief executive officer, the president, a majority of the members of the board
of directors or upon written request of the holders of not less than 10% of the
total voting power of the outstanding capital stock of Onsale entitled to vote
at the meeting.
Onsale's amended and restated bylaws require that special meetings called by
any person or persons other than by a majority of the members of the board of
directors be held not more than 120 nor fewer than 35 days after a written
request to call a special meeting was delivered to each member of the board of
directors.
Egghead. Under the WBCA, a special meeting of shareholders may be called by a
corporation's board of directors or other persons authorized by the
corporation's articles of incorporation or bylaws, or, unless limited by the
articles of incorporation, on written demand by holders of at least 10% of all
votes entitled to be cast on any issue proposed to be considered at the
proposed special meeting. The Egghead bylaws provide that special meetings of
the shareholders may be called by the board of directors, the president or the
holders of not less than one tenth of all stock entitled to vote at the
meeting.
The Egghead bylaws require that notice of each special meeting of the
shareholders be provided at least ten days and not more than 60 days prior to
such meeting.
Action by written consent in lieu of a stockholders' meeting
Onsale. Onsale's certificate of incorporation provides that stockholder
actions may only be taken at annual or special meetings of stockholders, not by
written consent.
Egghead. Under the WBCA and Egghead's bylaws, Egghead shareholders may take
action by unanimous written consent of the shareholders entitled to vote with
respect to such action.
Voting by written ballot
Onsale. Onsale's amended and restated bylaws provide that voting at meetings
of stockholders need not be by written ballot unless a stockholder or
stockholders holding shares representing at least 1% of the votes entitled to
vote at the meeting, or the stockholder's or stockholders' proxy, makes a
demand for written ballots at the meeting before voting begins. However, an
election of directors shall be by written ballot if any stockholder makes this
demand at the meeting before voting begins.
Egghead. The Egghead bylaws do not contain any provision requiring written
ballots.
Record date for determining stockholders
Onsale. Onsale's amended and restated bylaws provide that the board of
directors may fix a record date which shall not be more than 60 nor less than
10 days before the date of a stockholder meeting, nor more than 60 days prior
to any other action. If the respective board of directors do not fix a record
date in the manner described above, then:
. the record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice
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is given, or, if notice is waived, at the close of business on the
day next preceding the day on which the meeting is held;
. the record date for determining stockholders entitled to express
consent to corporate action in writing and without a meeting, when no
prior action by the board of directors is necessary, shall be the day
on which the first written consent is delivered as specified in
Onsale's bylaws; and
. the record date for determining stockholders for any other purpose
shall be at the close of business on the same day on which the board
of directors adopts the related resolution.
Egghead. The Egghead bylaws provide that the board of directors may fix a
record date which shall not be more than 60 nor less than 10 days before the
date of a shareholders meeting, nor more than 60 days prior to any other
action.
Notice of board nomination and other stockholder business -- annual meetings
Onsale. Onsale's amended and restated bylaws provide that written notice
shall be delivered to each stockholder entitled to vote at a meeting not less
than 10 nor more than 60 days before the date of the meeting. Nominations of
persons for election to the board of directors and the proposal of business to
be considered by the stockholders at the annual meeting may be made:
. pursuant to Onsale's notice of the meeting to each stockholder;
. by or at the direction of the Onsale board of directors; or
. by any stockholder of Onsale at the record date of the meeting who is
entitled to vote at the meeting and who delivers timely notice to the
secretary of Onsale, as specified below.
If made by an Onsale stockholder, the proposal or nomination must be made by
advance written notice given to the secretary of Onsale between 60 and 90 days
prior to the first anniversary of the preceding year's annual meeting of
stockholders. However, if the date of the annual meeting at which the
nomination or business is proposed by a stockholder is more than 30 days before
or more than 60 days after that anniversary, then the notice may be given by
the stockholder no earlier than the 90th day prior to the meeting and not later
than the later of 60 days prior to the meeting or the 10th day following the
first public announcement of the meeting. These notice provisions are subject
to exceptions with respect to electing directors to fill board seats resulting
from increases in the size of the board of directors not publicly announced at
least 70 days prior to the annual meeting. In addition, other specified
information regarding the business proposed for discussion must be included in
the stockholder notice to Onsale.
Egghead. Egghead's bylaws provide that written notice of the annual meeting
of shareholders shall be delivered to each shareholder of record entitled to
vote at such meeting at least 10 days, and not more than 60 days, prior to the
meeting. Nominations of persons for election to the board of directors and the
proposal of business to be transacted by the shareholders at an annual meeting
of shareholders may be made at an annual meeting of shareholders:
. pursuant to Egghead's notice with respect to the meeting;
. by or at the direction of the Egghead board of directors; or
. by any Egghead shareholder of record who was a shareholder of record
at the time of giving of advance notice as described below who was
entitled to vote at the meeting and who complied with notice
procedures specified in the bylaws.
If made by a shareholder, the proposal or nomination must be made by advance
written notice given to Egghead between 50 and 75 days prior to the first
anniversary of the date on which the company first mailed its proxy materials
for the preceding year's annual meeting of shareholders. However, if the date
of the annual meeting at which the nomination or business is proposed by a
shareholder is more than 30 days before or more than 30 days after the
anniversary of the preceding year's meeting, then the notice may be given by
the
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shareholder not later than the later of 90 days prior to the meeting or the
10th day following the first public announcement of the meeting. These notice
provisions are subject to certain exceptions with respect to electing directors
to fill board seats resulting from increases in the size of the board of
directors not publicly announced at least 55 days prior to the annual meeting.
In addition, other specified information regarding the business proposed for
discussion must be included in the shareholder notice to Egghead and in some
cases be provided to shareholders of Egghead.
Notice of board nomination and other stockholder business -- special meetings
Onsale. Onsale's amended and restated bylaws provide that the only business
that can be conducted at a special meeting of Onsale stockholders are the items
of business set forth in Onsale's notice of the special meeting. As with annual
meetings, Onsale's amended and restated bylaws provide that written notice
shall be delivered to each stockholder entitled to vote at a meeting not less
that 10 nor more than 60 days before the date of the meeting.
Onsale's amended and restated bylaws also provide that nominations of
candidates for directors at a special meeting at which directors are to be
elected shall be made (1) by the board of directors or (2) if the board of
directors has determined that directors will be elected at the meeting, by a
stockholder meeting specified qualifications who gives Onsale advance written
notice of the nominations no earlier than 90 days prior to the special meeting
and no later than the later of (A) 60 days before the special meeting, or (B)
the 10th day after the first public announcement of the meeting and of the
nominees proposed by the board of directors to be elected at the meeting.
Egghead. The Egghead bylaws provide that, at special meetings of
shareholders, the only business that can be conducted will be the items of
business set forth in the notice of the special meeting. The bylaws also
provide that nominations of candidates for directors at a special meeting at
which directors are to be elected shall be made (1) by the board of directors
or (2) by a shareholder meeting certain qualifications who gives Egghead
advance written notice of the nominations no later than the later of (A) 90
days before the special meeting, or (B) the 10th day after the first public
announcement of the meeting and of the nominees proposed by the board of
directors to be elected at the meeting.
Number and classes of directors
Onsale. Onsale's amended and restated bylaws fix the number of directors at
nine, with changes in the number of directors permitted exclusively by a
resolution of the board of directors.
Onsale's current certificate of incorporation does not provide for a
classified board. Onsale's amended and restated certificate of incorporation
will provide that Onsale's board of directors be divided into three classes.
The terms of office of the Class I directors will expire at Onsale's 2000
annual meeting of stockholders, the terms of office of the Class II directors
will expire at Onsale's 2001 annual meeting of stockholders and the terms of
office of the Class III directors will expire at Onsale's 2002 annual meeting
of stockholders. Beginning with Onsale's 2000 annual meeting of stockholders,
directors elected to succeed those directors of the class whose terms expire
will be elected for three-year terms.
Egghead. Egghead's bylaws provide that the Egghead board of directors shall
consist of not less than 6 nor more than 12 directors and that the specific
number of directors shall be set by board resolution. The Egghead bylaws
provide that Egghead's directors be divided into three classes -- Class I,
Class II and Class III -- and that these classes be as nearly equal in number
of directors as possible. The Egghead bylaws provide that each director shall
serve for a term ending on the day of the third annual meeting of shareholders
following the annual meeting at which he or she was elected (and until his or
her successor is elected and qualified) or until his or her earlier death,
resignation or removal.
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Election of directors
Onsale. The holders of Onsale common stock elect all members of Onsale's
board of directors; there is no series vote. See also "Board of directors
vacancies" on page 92.
Egghead. The holders of Egghead common stock elect all members of Egghead's
board of directors to be elected at a meeting; there is no series vote.
Removal of directors
Onsale. Onsale's amended and restated bylaws provide, and its amended and
restated certificate of incorporation will also provide, that any director or
the entire board of directors may be removed, with or without cause, by the
holders of a majority of the shares then entitled to vote at an election of
directors.
Egghead. The WBCA provides that a corporation's shareholders at a special
meeting called expressly for that purpose may remove one or more directors with
or without cause unless the articles of incorporation provide that directors
may be removed only for cause. Egghead's articles of incorporation do not
provide specific restrictions on the rights of shareholders to remove
directors. The Egghead bylaws provide that at a meeting of the shareholders
called expressly for that purpose, any director or the entire board of
directors may be removed by the holders of a majority of the shares then
entitled to vote at an election of directors.
Board of directors vacancies
Onsale. Onsale's amended and restated bylaws provide, and its amended and
restated certificate of incorporation will also provide, that any vacancy
occurring in the Onsale board of directors for any cause, and any newly created
directorship resulting from any increase in the authorized number of directors
shall, unless Onsale's board determines that those vacancies shall be filled by
its stockholders or as otherwise provided by law, be filled by the vote of a
majority of the directors then in office, even if less than a quorum, or by a
sole remaining director, and not by the stockholders.
Egghead. The WBCA provides that a vacancy occurring on a board of directors
may be filled by the shareholders, the board of directors and, if the remaining
directors are less than a quorum, by a majority of the remaining directors. The
Egghead bylaws provide that vacancies may be filled by a majority of the
remaining directors even if less than a quorum.
Notice of special meetings of the board of directors
Onsale. Onsale's amended and restated bylaws provide that the chairman of the
board, the president or a majority of the members of the board of directors
then in office may call a special meeting of the board of directors. The
amended and restated bylaws require that notice of the time, date and place of
the meeting be given at least four days before the meeting if the notice is
mailed, or at least 24 hours before the meeting if notice is given by
telephone, hand delivery, telegram, telex, mailgram, facsimile or similar
communication method. Unless otherwise indicated in the notice, any and all
business may be transacted at a special meeting of the board of directors.
Egghead. The Egghead bylaws provide that the President or any director may
call a special meeting of the board of directors. The bylaws require that
notice of the time, date and place of the meeting be given at least two days
before the meeting by telegram, by facsimile, by letter or personally.
Board action
Onsale. Onsale's amended and restated bylaws provide that, except as
otherwise required by the DGCL, actions of the board of directors generally
require the vote of a majority of the directors present at a meeting at which a
quorum is present. A majority of the total number of authorized directors
constitutes a quorum.
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Egghead. The Egghead bylaws provide that the vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the board of directors of Egghead. The Egghead bylaws provide that a majority
of the whole board shall constitute a quorum.
Action by committees
Onsale. Onsale's amended and restated bylaws authorize the Onsale board of
directors to establish committees by resolution setting forth the power and
duties of these committees. A resolution establishing a committee must be
passed by a majority of the board of directors. Each committee may consist of
one or more Onsale directors.
Egghead. The Egghead bylaws provide that the board of directors, by
resolution adopted by a majority of the full board of directors, may establish
one or more committees. The WBCA provides that each committee must have two or
more members.
Amendment of certificate of incorporation
Onsale. Section 242 of the DGCL authorizes a corporation to amend its
certificate of incorporation in any way so long as the certificate as amended
would only contain provisions lawful and proper for insertion in an original
certificate of incorporation. Without limiting the above, a corporation may
amend its certificate of incorporation to:
. change its corporate name;
. change the nature of its business or corporate powers and purposes;
. increase, decrease or reclassify its capital stock;
. cancel or modify the right of stockholders to receive dividends
which have accrued but have not been declared;
. create new classes of stock having rights and preferences either
superior or inferior to the stock of any class then authorized; and
. change the period of its duration.
Section 242 of the DGCL generally requires that, to amend a certificate of
incorporation:
. that corporation's board of directors must approve a resolution
describing the proposed amendment;
. a majority of the outstanding stock entitled to vote on the proposed
amendment must approve the amendment at a special or annual meeting
of that corporation's stockholders; and
. a certificate setting forth the amendment and certifying that it has
been duly adopted must be executed and filed with the Delaware
secretary of state.
Egghead. The WBCA authorizes a corporation's board of directors to make
various changes of an administrative nature to the corporation's articles of
incorporation without shareholder action. These changes include a change to the
corporate name, changes to the number of authorized shares solely to effectuate
a stock split or stock dividend in the corporation's shares and changes to or
elimination of provisions with respect to the par value of the corporation's
stock. The WBCA requires that other amendments to a corporation's articles of
incorporation must be recommended to the shareholders by the board of
directors, unless the board determines that, because of a conflict of interest
or other special circumstances, it should make no recommendation and
communicates the basis for its determination to the shareholders. Under the
WBCA, these other amendments must be approved by each voting group entitled to
vote thereon by a majority of all the votes entitled to be cast by that voting
group, unless a greater proportion is specified in the articles of
incorporation, by the board of directors as a condition to its recommendation,
or by the provisions of the WBCA.
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Amendment of bylaws
Onsale. Onsale's certificate of incorporation provides that the board of
directors has the power to adopt, amend or repeal the bylaws. Onsale's bylaws
provide that stockholders holding a majority of Onsale's outstanding voting
stock may adopt, amend or repeal the bylaws.
Egghead. The Egghead bylaws provide that shareholders holding a majority of
Egghead's outstanding voting stock and the board of directors may each adopt,
amend or repeal the bylaws.
Authorized capital stock
Onsale. Onsale's certificate of incorporation currently authorizes Onsale to
issue up to 32,000,000 shares of capital stock, consisting of two classes:
30,000,000 shares of common stock, $0.001 par value per share, and 2,000,000
shares of preferred stock, $0.001 par value per share. With respect to Onsale's
undesignated preferred stock, the Onsale board is authorized, without
shareholder approval, to designate one or more series of preferred stock and to
determine the number of shares included in any series and the designation,
preferences, limitations and relative rights of the shares of any series. On
September 20, 1999, there were 19,689,024 shares of Onsale common stock and no
shares of Onsale preferred stock issued and outstanding.
Onsale's amended and restated certificate of incorporation will authorize
Onsale to issue up to 100,000,000 shares of capital stock, consisting of
98,000,000 shares of common stock and 2,000,000 shares of preferred stock.
Egghead. Egghead's articles of incorporation authorize Egghead to issue up to
50,000,000 shares of common stock, $.01 par value, and 16,569,848 shares of
preferred stock, $.01 par value, of which 3,413,460 shares are designated
Series A Preferred Stock, 1,656,388 are designated Series B Preferred Stock,
and 1,500,000 shares are designated Series C Preferred Stock. With respect to
Egghead's undesignated preferred stock, the Egghead board is authorized,
without shareholder approval, to designate one or more series of preferred
stock and to determine the number of shares included in any series and the
designation, preferences, limitations and relative rights of the shares of any
series. On September 20, 1999, there were 30,788,079 shares of Egghead common
stock and no shares of Egghead preferred stock issued and outstanding.
Limitation of director liability
Onsale. Onsale's certificate of incorporation provides that, to the fullest
extent permitted by law, a director of Onsale will not be personally liable for
monetary damages for breach of fiduciary duty as a director.
Egghead. The WBCA provides that a corporation's articles of incorporation may
include provisions that eliminate or limit the personal liability of a director
to the corporation or its shareholders for monetary damages for conduct as a
director. However, the provisions may not eliminate or limit the liability of a
director for acts or omissions that involve intentional misconduct by the
director or a knowing violation of law by the director, unlawful distributions,
or any transaction from which the director will personally receive a benefit in
money, property or services to which the director is not legally entitled.
Egghead's articles of incorporation authorize Egghead to limit or eliminate the
liability of directors to the fullest extent permitted by the WBCA.
Indemnification
Onsale. Onsale's certificate of incorporation and amended and restated bylaws
provide that its directors and officers shall be indemnified to the fullest
extent authorized by the DGCL. Onsale's amended and restated bylaws provide
that this indemnification shall apply to all expenses, liabilities and losses
reasonably incurred by such person in connection with any action, proceeding or
suit brought against that person by reason of the fact that he or she is or was
a director or officer of Onsale or is or was serving at the request of Onsale
as a director or officer of another enterprise. Onsale's amended and restated
bylaws require Onsale to pay all expenses incurred by a director or officer in
defending any proceeding described above as these expenses are incurred in
advance of the final disposition of the proceeding. However, Onsale's amended
and restated bylaws do not require Onsale to advance any expenses to a person
against whom Onsale directly brings a claim alleging that person has breached
his or her duty of loyalty to Onsale, committed an act or omission not in good
faith or that involves intentional misconduct or a knowing violation of law, or
derived an improper benefit from a transaction.
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Section 145 of the DGCL generally provides for broad indemnification of a
director or officer if that person acted in good faith and in a manner the
person reasonably believed to be in the best interests of the corporation. You
should refer to Section 145 of the DGCL for further detail.
Onsale's amended and restated bylaws also authorize the Onsale board of
directors to authorize Onsale to enter into indemnification contracts with its
directors, officers and employees, or anyone serving in such capacity with
another enterprise at Onsale's request, with rights that may be broader than
those described above with regard to Onsale's amended and restated bylaws.
Egghead. Under the WBCA, if authorized by the articles of incorporation or a
bylaw adopted or ratified by the shareholders or by a resolution adopted or
ratified by the shareholders, a corporation has the power to indemnify a
director or officer made a party to a proceeding, or advance or reimburse
expenses incurred in a proceeding under any circumstances, except that no
indemnification is allowed on account of:
. acts or omissions of a director or officer finally adjudged to be an
intentional misconduct or a knowing violation of the law;
. conduct of a director or officer finally adjudged to be an unlawful
distribution; and
. any transaction with respect to which it was finally adjudged that
the director or officer personally received a benefit in money,
property or services to which the director or officer was not
legally entitled.
Egghead's bylaws provide a right to indemnification to directors and officers
of Egghead to the fullest extent permitted under the WBCA. Advancement of
expenses may be made to a director upon an undertaking by the director to repay
the expenses if it is later determined that the director was not entitled to
indemnification. The bylaws provide that the right to indemnification is a
contract right. The bylaws provide that Egghead may maintain insurance to
protect any director or officer against any loss, liability or expense whether
or not Egghead would have the power to indemnify such person against such loss,
liability or expense under the WBCA. Egghead's bylaws also authorize Egghead to
enter into contracts with any director or officer in furtherance of the
provisions of the bylaws regarding indemnification.
Unless limited by the corporation's articles of incorporation, Washington law
requires indemnification if the director or officer is wholly successful on the
merits of the action or otherwise. Any indemnification of a director in a
derivative action must be reported to the shareholders in writing with or
before notice of the next shareholders meeting. Egghead's articles of
incorporation do not limit indemnification if the director or officer is wholly
successful on the merits of the action or otherwise.
Interested directors
Onsale. Onsale's amended and restated bylaws provide that a transaction
between Onsale and an interested director will not be void or voidable solely
for this reason if:
. the material facts as to the interested director's relationship or
interest to the transaction are disclosed to or known by the
directors, and a majority of the disinterested directors present at
the meeting vote in good faith in favor of the transaction;
. the material facts as to the interested director's relationship or
interest to the transaction are disclosed to or known by the
stockholders, and the stockholders vote in good faith in favor of
the transaction; or
. the transaction is fair to Onsale as of the time it is authorized,
approved or ratified by the board of directors, a committee of the
board or the stockholders.
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Egghead. The WBCA generally provides that a transaction by a corporation in
which a director has a conflicting interest may not be enjoined, set aside or
result in damages or other sanctions in a shareholder's proceeding or
derivative proceeding if:
. a majority of the disinterested directors on the board voted for the
transaction after disclosure to them of the director's conflicting
interest and related material facts to the extent this information
was not known to the disinterested directors;
. a majority of votes entitled to be cast (other than votes relating
to shares beneficially owned, or the voting of which is controlled,
by the director with the conflicting interest or a related person or
entity of that director) were cast in favor of the transaction after
notice to the shareholders describing the director's conflicting
interest transaction and disclosure of the director's conflicting
interest and related material facts to the extent this information
was not known to the shareholders; or
. the transaction is established to have been fair to Egghead.
Dividends
Onsale. According to Section 154 of the DGCL, Onsale stockholders are
entitled to receive dividends, subject to preferences of any outstanding
preferred stock, out of assets legally available for dividend distribution at
such times and in such amounts as the board of directors may from time to time
determine.
Egghead. Under the WBCA, a corporation may make a distribution in cash or in
property to its shareholders upon the authorization of its board of directors
and subject to its articles of incorporation unless, after giving effect to
that distribution, (1) the corporation would be unable to pay its debts as they
become due in the usual course of business or (2) the corporation's total
assets would be less than the sum of its total liabilities plus the amount that
would be needed, if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights of shareholders whose
preferential rights are superior to those receiving the distribution. The
Egghead bylaws permit the board of directors to authorize distributions,
subject to the limitations under Washington law.
Liquidation
Onsale. In the event of a liquidation, dissolution or winding up of Onsale,
after payment of any amounts owed to creditors, subject to preferences of any
outstanding preferred stock, the remaining assets of Onsale will be divided
equally, on a share for share basis, to the holders of the common stock of
Onsale.
Egghead. In the event of a liquidation, dissolution or winding up of Egghead,
after payment of any amounts owed to creditors, subject to preferences of any
outstanding preferred stock, the remaining assets of Egghead will be divided
equally, on a share for share basis, to the holders of the common stock of
Egghead.
Corporate law relating to acquisitions and business combinations
Onsale. Because Onsale's certificate of incorporation and bylaws do not
contain a provision expressly electing for Onsale to not be governed by Section
203 of the DGCL, Onsale is subject to the Delaware takeover statute. However,
in connection with the merger, the board of directors of Onsale will take all
necessary action so that the restrictions contained in Section 203 of the DGCL
applicable to a "business combination" will not apply to Onsale's entering into
the merger agreement or consummating the merger and other transactions
contemplated by the merger agreement.
Egghead. Chapter 23B.19 of the WBCA, which applies to Washington corporations
which have a class of voting stock registered with the SEC under the Exchange
Act, prohibits a "target corporation," with certain exceptions, from engaging
in certain "significant business transactions" with an acquirer which
beneficially owns 10% or more of the voting securities of the target
corporation for a period of five years after the
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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 acquisition. These prohibited transactions include, among other
things, a merger, share exchange or consolidation with, disposition of assets
to, or issuance or redemption of stock to or from, the acquirer, termination of
5% or more of the employees of the target corporation employed in Washington as
a result of the acquirer's acquisition of 10% or more of the shares, or
allowing the acquirer to receive any disproportionate benefit as a shareholder.
After the five-year period, a "significant business transaction" may take place
if it complies with certain "fair price" provisions of the statute. A public
corporation may not "opt out" of this statute, and Egghead is subject to it.
The merger with Onsale will not be subject to this statute, however, because
the Egghead board has approved the merger agreement.
Vote required to approve mergers, acquisitions and other transactions
Onsale. Section 251 of the DGCL generally provides that an agreement of
merger or consolidation requires the affirmative vote of a majority of the
board of directors present at the board meeting and a majority of the
outstanding shares of stock entitled to vote on the merger. This section also
defines several exceptions where stockholder approval is not required. For
example, the approval of the stockholders of the surviving corporation of a
merger or consolidation is not required if the shares of common stock issued
and issuable upon securities issued in the merger by the surviving corporation
do not exceed 20% of the shares of common stock of that corporation outstanding
immediately before the merger becomes effective.
Similarly, Section 271 of the DGCL generally provides that a corporation may
dispose of all or substantially all of its assets with the vote of a majority
of the board of directors present at the board meeting and a majority of the
outstanding shares of stock entitled to vote on the transaction.
Egghead. The WBCA generally provides that a merger or share exchange, or sale
of substantially all of a corporation's assets other than in the regular course
of business, must be approved by the board of directors and by two-thirds of
all votes entitled to be cast by each voting group entitled to vote as a
separate group, unless another percentage, but not less than a majority of all
votes entitled to be cast, is specified in the articles of incorporation.
Egghead's articles of incorporation do not specify a percentage. The WBCA also
specifies some limited exceptions where shareholder approval of a merger is not
required, such as a merger where, among other things, each shareholder of the
surviving corporation of the merger whose shares were outstanding immediately
before the merger will hold the same number of shares, with identical rights
and preferences, immediately after the merger.
Appraisal and dissenters' rights
Onsale. Section 262 of the DGCL provides that a stockholder of a corporation
involved in a merger or consolidation effected under specified sections of the
DGCL may be entitled to an appraisal by the Court of Chancery of the fair value
of the stockholder's shares if the requirements for eligibility described in
this section are satisfied. Generally, to be eligible, a stockholder must:
. hold the shares on the date of the demand for appraisal rights;
. continue to hold the shares through the effective date of the merger
or consolidation; and
. neither vote in favor of nor consent in writing to the merger or
consolidation.
No appraisal rights are available for:
. shares of stock of the surviving corporation if approval of the
stockholders of the surviving corporation was not required by the
DGCL; or
. shares of stock that, as of the record date for the stockholder vote
on the merger-related proposals, were either
-- listed on a national securities exchange,
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-- designated as a national market system security on an interdealer
quotation system by the National Association of Securities
Dealers, Inc., or
-- held of record by more than 2,000 holders;
unless the agreement of merger or consolidation provides that the stockholder
will receive consideration other than cash, stock of the surviving corporation,
stock of another corporation which meets at least one of the three criteria
listed above, or any combination of these three forms of consideration.
Section 262 of the DGCL also describes further requirements for eligibility
and other circumstances where appraisal rights are not available, as well as
several procedural requirements that a stockholder must follow in order to
obtain appraisal rights. Onsale stockholders will not be eligible for appraisal
rights in the merger.
Egghead. Under the WBCA, a shareholder of a Washington corporation may
exercise dissenters' rights in connection with:
. a plan of merger providing for a shareholder vote;
. a plan of exchange involving the acquisition of the corporation's shares
providing for a shareholder vote;
. a sale or exchange of all, or substantially all, the property of the
corporation other than in the usual and regular course of business, if a
shareholder is entitled to vote on the sale or exchange;
. a reverse stock split that results in the shareholder owning a
fractional share if that fractional share is to be acquired for cash;
and
. any other corporate action taken by shareholder vote for which the
articles of incorporation, by-laws or resolution of the board of
directors provide for dissenters' rights.
Accordingly, Egghead shareholders have the right to dissent from the merger
and receive payment of the fair value of their shares of Egghead common stock.
In order to exercise dissenters' rights, a shareholder must comply with the
procedures set forth in Chapter 23B.13 of the WBCA which is set forth in Annex
I of this document. See "Dissenters' Rights" on page 103.
Stockholder rights plan
Neither Onsale nor Egghead has adopted a stockholder rights plan.
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SHARE OWNERSHIP BY
PRINCIPAL STOCKHOLDERS, MANAGEMENT
AND DIRECTORS OF ONSALE
The following table sets forth information concerning the beneficial
ownership of common stock of Onsale as of August 31, 1999 for:
. each person or entity who is known by Onsale to own beneficially
more than 5% of the outstanding shares of Onsale's common stock;
. Onsale's Chief Executive Officer and each of Onsale's four other
most highly compensated executive officers during 1998;
. each of Onsale's current directors; and
. all directors and executive officers of Onsale as a group.
Unless otherwise noted, the address of each named beneficial owner is that of
Onsale.
The pre-merger percentage ownership is based on 19,687,154 shares of Onsale
common stock outstanding as of August 31, 1999. The post-merger percentage
ownership is based on 37,080,872 shares outstanding after the merger, which is
an estimate derived by applying the 0.565 exchange ratio to the 30,785,343
shares of Egghead common stock outstanding as of August 31, 1999. All shares
subject to options exercisable within 60 days after August 31, 1999 are deemed
to be beneficially owned by the person or entity holding such options and to be
outstanding solely for calculating such person's or entity's percentage
ownership. Unless otherwise indicated below, the persons and entities named in
the table have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable. This
table includes percentage ownership data reflecting ownership both before and
after consummation of the merger with Egghead.
The stockholders of Onsale identified below have entered into voting
agreements with Egghead in which they agreed to vote their Onsale shares in
favor of the merger, and granted an irrevocable proxy to Egghead and certain
officers of Egghead with respect to this vote.
<TABLE>
<CAPTION>
Percentage of Percentage
common stock of common stock
Number of shares owned before owned after
beneficially owned(1) the merger the merger
--------------------- ------------- ---------------
<S> <C> <C> <C>
5% Stockholder
Egghead.com, Inc.(2)...... 14,104,340 71.6% --
Razi Mohiuddin(3)+........ 1,816,315 9.2 4.9%
Executive Officers
S. Jerrold Kaplan(4)+..... 5,048,960 25.6 13.6
Alan S. Fisher(5)+........ 3,318,185 16.9 8.9
John E. Labbett(6)+....... 60,187 * *
Merle W. McIntosh(7)+..... 28,917 * *
Directors
Peter L. Harris(8)+....... 16,001 * *
Kenneth J. Orton(9)+...... 14,836 * *
Peter H. Jackson(10)+..... 3,782 * *
All executive officers and
directors as a group(11)
(10 persons)............. 8,562,816 43.5% 23.1%
</TABLE>
- --------
*Less than 1%
+This person has entered into a voting agreement with Egghead and granted an
irrevocable proxy to Egghead and to certain Egghead officers with respect to
these shares.
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(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where
applicable. Shares of our common stock subject to options that are
currently exercisable or exercisable within 60 days of August 31, 1999 are
deemed to be outstanding and to be beneficially owned by the person
holding such options for the purpose of computing the percentage ownership
of such person but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person.
(2) Represents 3,917,743 shares subject to an option held by Egghead and
10,186,597 shares subject to voting agreements and irrevocable proxies,
each as described below and in further detail on pages 73-76. Pursuant to
a stock option agreement dated July 13, 1999, Egghead holds an option to
acquire up to a number of shares of Onsale common stock equal to 19.9% of
the outstanding shares of Onsale common stock, which, based on the shares
outstanding as of August 31, 1999, equals 3,917,743 shares. This option is
not currently exercisable, and will only become exercisable if events
specified in the agreement occur. Also, Onsale stockholders collectively
holding 10,186,597 shares of Onsale common stock as of August 31, 1999
agreed with Egghead to vote in favor of the merger-related proposal and
granted irrevocable proxies to Egghead and to certain officers of Egghead
with respect to this vote. This number does not include an aggregate of
192,534 shares subject to options exercisable within 60 days of August 31,
1999 which, upon exercise, would be subject to the voting agreements and
proxies. Egghead expressly disclaims beneficial ownership of all
14,104,340 shares of Onsale common stock. The address of Egghead is 521 SE
Chkalov Drive, Vancouver, Washington 98683.
(3) Represents 1,801,315 shares held of record by Mr. Mohiuddin and 15,000
shares held of record by the Momin Foundation. This amount excludes
150,000 shares held of record by the Mohiuddin Children's Trust, Ali
Ansari & Tanveer Fatima, Joint Trustees. Mr. Mohiuddin disclaims
beneficial ownership of the shares held by the trust. The address of Mr.
Mohiuddin is c/o Software Partners, Inc., 1953 Landings Drive, Mountain
View, California 94043.
(4) Represents 5,048,960 shares held of record by Mr. Kaplan, and excludes
shares held of record by Mr. Kaplan's wife, shares held of record by Amy
Kaplan Eckman, trustee of the Lily Layne Kaplan Irrevocable Trust, and
shares held of record by the Kaplan Family Trust. Mr. Kaplan disclaims
beneficial ownership of the shares held by his wife and shares held by the
trusts. Mr. Kaplan is Onsale's President, Chief Executive Officer and
Chairman of the board of directors. The address of Mr. Kaplan is c/o
Onsale, Inc., at 1350 Willow Road, Suite 100, Menlo Park, California
94025.
(5) Represents 3,318,185 shares held of record by Mr. Fisher, and excludes
25,000 shares held of record by the Kelly Elizabeth Fisher Irrevocable
Trust. Mr. Fisher disclaims beneficial ownership of the shares held by the
trust. Mr. Fisher is Onsale's Chief Technical Officer, Vice President of
Development and Operations and a director. The address of Mr. Fisher is
c/o Onsale, Inc., 1350 Willow Road, Suite 100, Menlo Park, California
94025.
(6) Includes 58,750 shares subject to options exercisable within 60 days of
August 31, 1999. Mr. Labbett is Onsale's Senior Vice President and Chief
Financial Officer.
(7) Represents 28,917 shares subject to options exercisable within 60 days of
August 31, 1999. Mr. McIntosh is Onsale's Senior Vice President of
Merchandise Acquisition.
(8) Represents 16,001 shares subject to an option exercisable within 60 days
of August 31, 1999. Mr. Harris is a director of Onsale.
(9) Includes 13,836 shares subject to options exercisable within 60 days of
August 31, 1999. Mr. Orton is a director of Onsale.
(10) Represents 3,782 shares subject to options exercisable within 60 days of
August 31, 1999. Mr. Jackson is a director of Onsale.
(11) Includes 192,534 shares issuable upon exercise of options exercisable
within 60 days of August 31, 1999.
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SHARE OWNERSHIP BY
PRINCIPAL SHAREHOLDERS, MANAGEMENT
AND DIRECTORS OF EGGHEAD
The following table sets forth information concerning the beneficial
ownership of common stock of Egghead as of August 31, 1999 for the following:
. each person or entity who is known by Egghead to own beneficially
more than 5% of the outstanding shares of Egghead's common stock;
. the Chief Executive Officer and the four other most highly
compensated officers of Egghead during the fiscal year ended April
3, 1999;
. each of Egghead's current directors; and
. all directors and executive officers of Egghead as a group.
The pre-merger percentage ownership is based on 30,785,343 shares of Egghead
common stock outstanding as of August 31, 1999. The post-merger percentage
ownership includes 17,393,718 shares of common stock of the combined company
that would be issued to Egghead shareholders based on 30,785,343 shares of
Egghead common stock outstanding as of August 31, 1999. All shares subject to
options and warrants exercisable within 60 days after August 31, 1999 are
deemed to be beneficially owned by the person or entity holding that option or
warrant and to be outstanding solely for calculating that person's or entity's
percentage ownership. Unless otherwise indicated below, the persons and
entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable. This table includes percentage ownership data reflecting
ownership both before and after consummation of the merger with Onsale.
The shareholders of Egghead identified below (other than Onsale) have entered
into voting agreements with Onsale agreeing to vote their Egghead shares in
favor of the merger, and granted Onsale and certain officers of Onsale an
irrevocable proxy with respect to this vote.
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<TABLE>
<CAPTION>
Shares of Shares of
Egghead.com, Inc. Onsale, Inc.
Common Stock Common Stock
(Pre-Merger) (Post-Merger)
------------------------ ------------------------
Number of Number of
shares Percent of shares to be Percent of
beneficially shares beneficially shares
owned outstanding owned(1) outstanding
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
5% Shareholders
Onsale, Inc.(2).............. 6,219,184 20.2% -- --
Executive Officers
Brian W. Bender(3)........... 90,417 * 40,491 *
Tommy E. Collins(4).......... 136,225 * 64,607 *
Norman F. Hullinger(5)....... 90,416 * 40,491 *
James F. Kalasky(6).......... 76,666 * 29,191 *
George P. Orban(7)........... 1,076,294 3.4% 608,105 1.6%
Directors *
Jonathan W. Brodeur(8)....... 84,722 * 37,273 *
C. Scott Gibson(9)........... 36,450 * 20,594 *
Eric P. Robison(10).......... 29,750 * 16,808 *
Robert T. Wall(11)........... 46,000 * 25,990 *
Karen White(12).............. 36,000 * 20,340 *
Melvin A. Wilmore(13)........ 37,250 * 21,046 *
Directors and executive
officers as a group
(11 persons)(14)............ 1,740,190 5.4% 924,936 2.4%
</TABLE>
- --------
*Less than one percent.
(1) Represents shares and options exercisable currently or within 60 days of
August 31, 1999, gives effect to the exchange ratio of 0.565 shares of
Onsale common stock for each outstanding share of Egghead common stock and
excludes options to acquire 103,123 shares of Egghead common stock,
granted to Messrs. Bender, Brodeur, Collins, Hullinger and Kalasky, which
will be rescinded immediately before the merger.
(2) Represents 6,126,283 shares subject to an option held by Onsale and 92,901
shares subject to voting agreements and irrevocable proxies, each as
described below and in further detail on pages 73-76. Pursuant to a stock
option agreement dated July 13, 1999, Onsale holds an option to acquire up
to a number of shares of Egghead common stock equal to 19.9% of the
outstanding shares of Egghead common stock, which, based on the shares
outstanding as of August 31, 1999, equals 6,126,283 shares. This option is
not currently exercisable, and will only become exercisable if events
specified in the agreement occur. Also, Egghead shareholders collectively
holding 92,901 shares of Egghead common stock as of August 31, 1999 agreed
with Onsale to vote in favor of the merger-related proposal and granted
irrevocable proxies to Onsale and to certain officers of Onsale with
respect to this vote. This number does not include an aggregate of
1,647,289 shares subject to options exercisable within 60 days of August
31, 1999 which, upon exercise, would be subject to the voting agreements
and proxies. Onsale expressly disclaims beneficial ownership of all
6,219,184 shares of Egghead common stock. The address of Onsale is 1350
Willow Road, Suite 100, Menlo Park, California 94025.
(3) Represents shares subject to options that are exercisable currently or
within 60 days of August 31, 1999.
(4) Represents 12,684 shares held directly by Mr. Collins and 123,541 shares
subject to options that are exercisable currently or within 60 days of
August 31, 1999.
(5) Represents shares subject to options that are exercisable currently or
within 60 days of August 31, 1999.
(6) Represents shares subject to options that are exercisable currently or
within 60 days of August 31, 1999.
(7) Represents 38,794 shares held by Orban Partners, a general partnership of
which Mr. Orban is Managing Partner, and 1,037,500 shares subject to
options that are exercisable currently or within 60 days of August 31,
1999. Mr. Orban is a director of Egghead in addition to being an executive
officer of Egghead.
(8) Represents 27,615 shares held directly by Mr. Brodeur, 3,358 shares held
in trusts for the benefit of Mr. Brodeur's children, and 53,749 shares
subject to options that are exercisable currently or within 60 days of
August 31, 1999. Mr. Brodeur disclaims beneficial ownership of the 3,358
shares held in such trusts.
(9) Represents 450 shares held directly by Mr. Gibson, and 36,000 shares
subject to options the vesting of which will accelerate 20 days before the
effective date of the merger.
(10) Represents shares subject to options that are exercisable currently or
within 60 days of August 31, 1999, including 12,000 shares subject to
options the vesting of which will accelerate 20 days before the effective
date of the merger.
(11) Represents 10,000 shares held directly by Mr. Wall, and 36,000 shares
subject to options the vesting of which will accelerate 20 days before the
effective date of the merger.
(12) Represents 36,000 shares subject to options the vesting of which will
accelerate 20 days before the effective date of the merger.
(13) Represents shares subject to options that are exercisable currently or
within 60 days of August 31, 1999, including 12,000 shares subject to
options the vesting of which will accelerate 20 days before the effective
date of the merger.
(14) Includes 1,647,289 shares subject to options held by such directors and
executive officers that are exercisable currently or within 60 days of
August 31, 1999, of which the vesting of options to purchase 132,000
shares will accelerate 20 days before the effective date of the merger.
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RELATED PARTY TRANSACTIONS
This section describes some agreements and arrangements between Onsale or
Egghead and their directors or executive officers. This is not an exhaustive
list. Descriptions of additional agreements and arrangements are incorporated
into this document by reference to Onsale's annual report on Form 10-K for the
year ended December 31, 1998 and subsequent quarterly and current reports, and
Egghead's annual report on Form 10-K for the fiscal year ended April 3, 1999,
as amended, and subsequent quarterly and current reports.
John E. Labbett's offer letter of June 1998, amended as of March 1999,
provides for an initial annual salary of $200,000 commencing on June 17, 1998.
The letter also provides for reimbursement of up to $2,000 per month of
temporary housing and transportation expenses for up to one year. At the
commencement of his employment, Mr. Labbett also received an option to purchase
200,000 shares of common stock with an exercise price of $22.13 per share. The
option vested as to 25,000 shares on December 17, 1998 and vested and will vest
as to 4,166 shares each subsequent month. If Mr. Labbett is terminated without
cause, he will receive either three or six months severance pay depending on
when the termination occurs. If Mr. Labbett is terminated without formal cause
following a change of control transaction, he will, at his election, either
receive six or twelve months severance pay depending on when the termination
occurs or Onsale will use its best efforts to secure an employment agreement
between the successor corporation and Mr. Labbett for a minimum period of 12
months. Mr. Labbett's employment is at will and can therefore be terminated at
any time, with or without formal cause.
William A. Skinner's offer letter of August 1999 provides for an annual
salary of $125,000. At the commencement of his employment, Mr. Skinner also
received an option to purchase 25,000 shares of Onsale common stock with an
exercise price of $17.66 per share. The option will vest as to 3,125 shares on
January 21, 2000 and as to 521 shares each subsequent month. Mr. Skinner's
employment is at will and therefore may be terminated at any time, with or
without formal cause.
In addition, George Orban is currently negotiating an employment agreement
with Egghead. Egghead is also currently negotiating a new agreement with Brian
Bender to extend his employment and a new agreement with James Kalasky
regarding retention. See "The Merger--Interests of executive officers and
directors" on page 57.
DISSENTERS' RIGHTS
Under Washington law, Egghead shareholders have the right to dissent from the
merger and receive payment in cash for the fair value of their shares of
Egghead common stock in lieu of Onsale common stock. To preserve their rights,
Egghead shareholders who wish to exercise their statutory dissenters' rights
must:
. deliver to Egghead before the shareholders' meeting written notice
of their intent to demand payment for the fair value of their shares
of Egghead common stock if the merger is effected; and
. not vote their shares in favor of adoption and approval of the
merger agreement and approval of the merger.
Merely voting against the merger agreement and the merger will not preserve
your dissenters' rights. Chapter 23B.13 of the Washington Business Corporation
Act is reprinted in its entirety in Annex I to this document. The following
discussion is a summary of the material terms of the law relating to
dissenters' rights and is qualified in its entirety by reference to Annex I.
Egghead shareholders should review this discussion and Annex I carefully if
they wish to exercise statutory dissenters' rights or preserve their right to
dissent. Failure to comply with the procedures described in this discussion and
in the statute will result in the loss of dissenters' rights.
An Egghead shareholder who wishes to exercise dissenters' rights generally
must dissent with respect to all of the shares he or she owns or over which he
or she has power to direct the vote. However, if a record
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shareholder is a nominee for several beneficial shareholders, some of whom wish
to dissent and some of whom do not, then the record shareholder may dissent
with respect to all the shares beneficially owned by any one person by
notifying Egghead in writing of the name and address of each person on whose
behalf the record shareholder asserts dissenters' rights. A beneficial
shareholder may assert dissenters' rights directly by submitting to Egghead the
record shareholder's written consent to the dissent and by dissenting with
respect to all the shares of which the shareholder is the beneficial
shareholder or over which the shareholder has power to direct the vote.
A shareholder who does not deliver to Egghead prior to the vote being taken
at the Egghead shareholders' meeting a written notice of the shareholder's
intent to demand payment for the fair value of the shares will lose the ability
to exercise dissenters' rights. Notice must be sent to Egghead, 521 SE Chkalov
Drive, Vancouver, Washington 98683, Attention: Chief Executive Officer. In
addition, a shareholder electing to exercise dissenters' rights must not vote
in favor of adoption and approval of the merger agreement and approval of the
merger.
If the merger closes, Egghead will, within 10 days after the effective time,
deliver a written notice to all shareholders who properly exercised their
dissenters' rights. This notice will, among other things:
. state where the payment demand must be sent and where and when
certificates must be deposited;
. supply a form for demanding payment, which requires shareholders to
certify that they acquired beneficial ownership of the shares before
the date on which the merger was first announced;
. set a date by which Egghead must receive the payment demand, which
date must be between 30 and 60 days after Egghead delivers the
notice to dissenting shareholders; and
. include another copy of Chapter 23B.13 of the WBCA.
A shareholder wishing to exercise dissenters' rights must file the payment
demand, certify as to whether beneficial ownership of the shares was acquired
before the merger was announced, and deliver share certificates, in the manner
and by the time set forth in the notice. Failure to do so will cause the loss
of dissenters' rights.
Within 30 days after the later of the effective time of the merger and the
date the payment demand is received by Egghead, Egghead will pay each dissenter
with properly perfected dissenters' rights Egghead's estimate of the fair value
of the shareholder's shares, plus accrued interest from the effective time.
Egghead is required to provide, along with this payment:
. financial information relating to Egghead, including a balance
sheet, income statement and statement of changes in shareholders'
equity for or as of a fiscal year ending not more than 16 months
before the date of payment and its latest available interim
financial statements, if any;
. an explanation of how Egghead estimated the fair value of the
shares;
. an explanation of how the accrued interest was calculated, a
statement of a dissenter's right to demand further payment if he or
she is dissatisfied with the tendered payment; and
. another copy of Chapter 23B.13 of the Washington Business
Corporation Act.
With respect to any dissenter who did not beneficially own Egghead shares
prior to the first public announcement of the merger, Egghead may send an offer
to make payment to the dissenter, conditioned upon the dissenter's agreement to
accept the payment in full satisfaction of the dissenter's demands.
A dissenter dissatisfied with Egghead's estimate of the fair value may,
within 30 days of payment or offer for payment by Egghead, notify Egghead in
writing of the shareholder's estimate of the fair value of his or her shares
and the amount of interest due, and demand payment of his or her estimate of
the fair value of his or her shares. If Egghead does not accept the dissenter's
estimate and the parties do not otherwise settle on a fair value, Washington
law requires that, within 60 days of the dissenter's demand for further
payment, Egghead start a proceeding in King County Superior Court, and petition
the court to determine the fair value of the
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shares and accrued interest, naming all the Egghead dissenting shareholders
whose demands remain unsettled as parties to the proceeding. The court may
appoint one or more persons as appraisers to receive evidence and recommend the
fair value of the Egghead shares. The dissenters will be entitled to the same
discovery rights as parties in the other civil actions. Each dissenter made a
party to the proceeding will be entitled to judgment for the amount, if any, by
which the court finds that the fair value of his or her shares, plus accrued
interest, exceeds the amount, if any, previously paid to the dissenter by
Egghead. If Egghead fails to institute a court action within the specified time
period, it must pay the amount specified in the dissenter's demand.
Court costs and appraiser's fees will be assessed against Egghead, except
that the court may assess these costs against some or all of the dissenters to
the extent that it finds the dissenters acted arbitrarily, vexatiously or not
in good faith in demanding payment.
A shareholder entitled to dissent and obtain payment for his or her shares of
Egghead common stock under Washington law may not challenge the merger unless
Egghead fails to comply with the procedural requirements imposed by Washington
law, the Egghead articles of incorporation or the Egghead bylaws or is
fraudulent with respect to the Egghead shareholder.
A shareholder's right to dissent will terminate if:
. the merger is terminated;
. a court with proper jurisdiction enjoins or sets aside the merger;
or;
. the shareholder withdraws demand for payment with the written
consent of Egghead.
Egghead shareholders who dissent from the merger will generally recognize
taxable gain or loss for federal income tax purposes. See "The Merger--Material
United States federal income tax consequences of the merger" on page 60.
In view of the complexity of Chapter 23B.13 of the WBCA, Egghead shareholders
who may wish to dissent from the merger and pursue dissenters' rights should
consult their legal advisors.
LEGAL OPINION
Fenwick & West LLP, Palo Alto, California, will provide a legal opinion as to
the legality of the shares of Onsale common stock offered under this document.
EXPERTS
The financial statements of Onsale, Inc. as of December 31, 1998 and 1997 and
for each of the three years in the period ended December 31, 1998, incorporated
in this document by reference to the Annual Report on Form 10-K of Onsale, Inc.
for the year ended December 31, 1998, have been so incorporated in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of this firm as experts in auditing and accounting.
The consolidated financial statements of Egghead as of April 3, 1999 and
March 28, 1998 and for each of the three fiscal years in the period ended April
3, 1999 included in Egghead's annual report on Form 10-K, as amended, for the
year ended April 3, 1999 and incorporated by reference in this prospectus/proxy
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
105
<PAGE>
STOCKHOLDER PROPOSALS
Under Rule 14a-8 of the Exchange Act, an Onsale stockholder may present one
proposal for inclusion in Onsale's proxy statement and for consideration at a
special meeting of the Onsale stockholders if the stockholder is eligible under
Rule 14a-8 and if that stockholder complies with the procedural requirements of
Rule 14a-8. Generally, to be eligible, a stockholder must have held at least
$2,000 in market value of Onsale common stock for at least one year before the
date the stockholder submits the proposal and must establish proof of ownership
of these securities. The proposal must clearly state the proposed course of
action the stockholder believes Onsale should adopt, but may not exceed 500
words in length. The proposal must be submitted to Onsale a reasonable time
before Onsale begins to print and mail its proxy materials.
Under Rule 14a-8 of the Exchange Act, an Egghead shareholder may present one
proposal for inclusion in Egghead's proxy statement and for consideration at a
special meeting of the Egghead shareholders if the shareholder is eligible
under Rule 14a-8 and if that shareholder complies with the procedural
requirements of Rule 14a-8. Generally, to be eligible, a shareholder must have
held at least $2,000 in market value of Egghead common stock for at least one
year before the date the shareholder submits the proposal and must establish
proof of ownership of these securities. The proposal must clearly state the
proposed course of action the shareholder believes Egghead should adopt, but
may not exceed 500 words in length. The proposal must be submitted to Egghead a
reasonable time before Egghead begins to print and mail its proxy materials.
The preceding paragraphs merely summarize portions of Rule 14a-8. If you are
considering submitting a stockholder proposal at the Onsale stockholders'
meeting or a shareholder proposal at the Egghead shareholders' meeting, you
should refer to Rule 14a-8.
DOCUMENTS INCORPORATED BY REFERENCE IN THIS DOCUMENT
This document incorporates documents by reference which are not presented in
or delivered with it.
All documents filed by Onsale under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, after the date of this prospectus/proxy
statement and before the date of the Onsale stockholders' meeting, are
incorporated into this document by reference and will constitute a part of this
document from the date of filing of those documents.
All documents filed by Egghead under Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act, after the date of this prospectus/proxy statement and before the
date of the Egghead shareholders' meeting, are incorporated into this document
by reference and will constitute a part of this document from the date of
filing of those documents.
You should rely only on the information contained in this document or that we
have referred you to. We have not authorized anyone to provide you with
information that is different.
The following documents, which have been filed by Onsale with the Commission,
are incorporated into this document by reference:
. Onsale's annual report on Form 10-K for the year ended December 31,
1998, filed with the Commission on March 31, 1999;
. Onsale's registration statement on Form 8-A, SEC file number 000-
21945 filed with the Commission on March 11, 1997, which describes
Onsale's common stock; and
. all other reports filed under Section 13(a) or 15(d) of the Exchange
Act since December 31, 1998, including (1) Onsale's quarterly report
on Form 10-Q for the quarter ended March 31, 1999, (2) Onsale's
current report on Form 8-K filed with the Commission on July 23,
1999, and (3) Onsale's quarterly report on Form 10-Q for the quarter
ended June 30, 1999.
106
<PAGE>
The following documents, which were filed by Egghead with the Commission, are
incorporated into this document by reference:
. Egghead's annual report on Form 10-K for the fiscal year ended April
3, 1999 filed with the Commission on July 2, 1999, as amended on
July 30, 1999;
. Egghead's registration statement on Form 8-A, SEC file number 000-
16930 filed with the Commission on May 13, 1988, as amended on March
11, 1999; and
. all reports filed under Section 13(a) or 15(d) of the Exchange Act
since April 3, 1999, including (1) Egghead's current report on Form
8-K filed with the Commission on July 23, 1999, and (2) Egghead's
quarterly report on Form 10-Q for the quarter ended July 3, 1999.
To the extent that any statement in this document is inconsistent with any
statement that is incorporated by reference, the statement in this document
will control. The incorporated statement will not be deemed, except as modified
or superseded, to constitute a part of this document or the registration
statement of which this document is a part.
WHERE YOU CAN FIND MORE INFORMATION
The documents incorporated into this document by reference are available from
us upon request. We will provide to you without charge, upon your written or
oral request, a copy of all of the information that is incorporated in this
document by reference, except for exhibits unless the exhibits are specifically
incorporated into this document by reference. You should make any request for
documents by October 15, 1999 to ensure timely delivery of the documents.
Reports, proxy statements and other
information regarding Onsale or
Egghead may be inspected at:
The National Association of Securities Dealers
1735 K Street, N.W.
Washington, D.C. 20006
Requests for documents relating to
Onsale should be directed to:
Onsale, Inc.
1350 Willow Road, Suite 100
Menlo Park, California 94025
(650) 470-2780
Requests for documents relating to
Egghead should be directed to:
Egghead.com, Inc.
521 SE Chkalov Drive
Vancouver, Washington 98683
(360) 816-7727
107
<PAGE>
Onsale and Egghead each file reports, proxy statements and other information
with the Commission. Copies of our reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission:
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by calling the Commission at 1-800-SEC-0330. The
Commission maintains a web site that contains reports, proxy statements and
other information regarding each of us. The address of this web site is
http://www.sec.gov.
Onsale has filed a registration statement under the Securities Act with the
Commission with respect to Onsale's common stock to be issued to Egghead
shareholders in the merger. This document constitutes the prospectus of Onsale
filed as part of the registration statement. This document does not contain all
of the information set forth in the registration statement because some parts
of the registration statement are omitted as permitted by the rules and
regulations of the Commission. You may inspect and copy the registration
statement at any of the addresses listed above.
Egghead shareholders with questions about the merger should call Egghead's
investor relations group at (360) 816-7727. Onsale stockholders with questions
about the merger should call Onsale investor relations (650) 470-2780.
If you are an Egghead shareholder and have any
question about the procedures for voting your
shares, please call MacKenzie Partners at
1-800-322-2885.
This document does not constitute an offer to sell, or a solicitation of an
offer to purchase, the Onsale common stock or the solicitation of a proxy, in
any jurisdiction to or from any person to whom or from whom it is unlawful to
make the offer, solicitation of an offer or proxy solicitation in that
jurisdiction. Neither the delivery of this document nor any distribution of
securities means, under any circumstances, that there has been no change in the
information set forth or incorporated in this document by reference or in our
affairs since the date of this document. The information contained in this
document with respect to Egghead and its subsidiaries was provided by Egghead
and the information contained in this document with respect to Onsale and its
subsidiaries was provided by Onsale.
108
<PAGE>
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This document and the documents incorporated in this document by reference
contain forward-looking statements within the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 with respect to our financial
condition, results of operations and business, and on the expected impact of
the merger on Onsale's financial performance. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions identify forward-looking statements. These forward-looking
statements are not guarantees of future performance and are subject to certain
risks and uncertainties that could cause actual results to differ materially
from the results contemplated by the forward-looking statements. These risks
and uncertainties include:
Risks associated with the merger include:
. the possibility that the value of the Onsale common stock to be
issued to Egghead shareholders in the merger will increase or
decrease prior to closing the merger;
. the technical, operational and personnel-related challenges in
integrating Egghead and Onsale;
. the possibility that the anticipated benefits from the merger,
including increased web site traffic and the expected sales-to-
visitors ratio for the combined company, will not be fully realized;
. the possible loss of key employees as a result of the merger;
. the possibility that the merger might not be accounted for as a
pooling of interests;
. other risks and uncertainties, including the possibility that
intense competition will not allow the combined company to increase
margins, the impact of competitive services, products and prices on
the combined company's market share and the risk of increased
government regulation; and
. other risks described in the section entitled "Risk Factors"; and
. other risk factors as may be detailed from time to time in Onsale's
and Egghead's public announcements and filings with the Commission.
In evaluating the merger, you should carefully consider the discussion of
these and other factors in the section entitled "Risk Factors" beginning on
page 18.
109
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
ONSALE, INC.
EO CORPORATION
AND
EGGHEAD.COM, INC.
JULY 13, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Article I The Merger...................................................... A-2
1.1 The Merger....................................................... A-2
1.2 Timing of the Merger............................................. A-2
1.3 Effect of the Merger............................................. A-2
1.4 Effect on Capital Stock.......................................... A-2
1.5 Surrender of Certificates........................................ A-4
1.6 Directors of Parent.............................................. A-6
1.7 Corporate Name of Parent......................................... A-6
1.8 Tax and Accounting Consequences.................................. A-6
1.9 Taking of Necessary Action; Further Action....................... A-7
Article II Representations and Warranties of Company...................... A-8
2.1 Organization and Good Standing................................... A-8
2.2 Subsidiaries and Other Interests................................. A-8
2.3 Certificate of Incorporation and Bylaws.......................... A-8
2.4 Authority........................................................ A-8
2.5 Company Capital Structure........................................ A-9
2.6 Obligations With Respect to Capital Stock........................ A-10
2.7 SEC Filings; Company Financial Statements........................ A-11
2.8 Absence of Certain Changes or Events............................. A-12
2.9 Taxes............................................................ A-12
2.10 Title to Properties; Absence of Liens and Encumbrances........... A-13
2.11 Intellectual Property............................................ A-14
2.12 Compliance with Laws; Permits; Restrictions...................... A-16
2.13 Litigation....................................................... A-17
2.14 Employee Benefit Plans........................................... A-17
2.15 Environmental Matters............................................ A-20
2.16 Agreements, Contracts and Commitments............................ A-21
2.17 Change of Control Payments....................................... A-22
2.18 Insurance........................................................ A-22
2.19 Customers and Suppliers.......................................... A-22
2.20 Disclosure....................................................... A-22
2.21 Board Approval................................................... A-23
2.22 Fairness Opinion................................................. A-23
2.23 Brokers' and Finders' Fees....................................... A-23
2.24 Merger Statutes.................................................. A-23
2.25 Affiliates....................................................... A-23
2.26 Pooling of Interests............................................. A-23
2.27 No Existing Discussions.......................................... A-23
Article III Representations and Warranties of Parent and Merger Sub....... A-24
3.1 Organization and Good Standing................................... A-24
3.2 Subsidiaries and Other Interests................................. A-24
3.3 Certificate of Incorporation and Bylaws.......................... A-24
3.4 Authority........................................................ A-24
3.5 Parent and Merger Sub Capital Structure.......................... A-25
3.6 Obligations With Respect to Capital Stock........................ A-26
3.7 SEC Filings; Parent Financial Statements......................... A-27
3.8 Absence of Certain Changes or Events............................. A-28
3.9 Taxes............................................................ A-28
3.10 Title to Properties; Absence of Liens and Encumbrances........... A-29
3.11 Intellectual Property............................................ A-30
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
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<C> <S> <C>
3.12 Compliance with Laws; Permits; Restrictions.................... A-32
3.13 Litigation..................................................... A-32
3.14 Employee Benefit Plans......................................... A-32
3.15 Environmental Matters.......................................... A-35
3.16 Agreements, Contracts and Commitments.......................... A-36
3.17 Change of Control Payments..................................... A-37
3.18 Insurance...................................................... A-37
3.19 Customers and Suppliers........................................ A-37
3.20 Disclosure..................................................... A-37
3.21 Board Approval................................................. A-37
3.22 Fairness Opinion............................................... A-38
3.23 Brokers' and Finders' Fees..................................... A-38
3.24 DGCL Section 203 Not Applicable................................ A-38
3.25 Affiliates..................................................... A-38
3.26 Pooling of Interests........................................... A-38
3.27 No Existing Discussions........................................ A-38
Article IV Conduct Prior to the Effective Time.......................... A-39
4.1 Conduct of Business............................................ A-39
4.2 Cooperation.................................................... A-42
Article V Additional Agreements......................................... A-43
5.1 Proxy Statement/Prospectus; Registration Statement; Antitrust
and Other Filings............................................. A-43
5.2 Meeting of Company Shareholders................................ A-43
5.3 Meeting of Parent Stockholders................................. A-45
5.4 Confidentiality; Access to Information......................... A-47
5.5 No Solicitation................................................ A-47
5.6 Public Disclosure.............................................. A-50
5.7 Reasonable Efforts; Notification............................... A-50
5.8 Third Party Consents........................................... A-51
5.9 Stock Options, Warrants, ESPP and Employee Benefits............ A-51
5.10 Form S-8....................................................... A-52
5.11 Nasdaq Quotation............................................... A-52
5.12 Indemnification; Insurance..................................... A-52
5.13 Affiliate Agreements........................................... A-53
5.14 Letter of Company's Accountants................................ A-53
5.15 Letter of Parent's Accountants................................. A-53
5.16 Takeover Statutes.............................................. A-53
5.17 Certain Employee Benefits...................................... A-53
5.18 Stockholder Litigation......................................... A-54
5.19 Pooling Accounting............................................. A-54
Article VI Conditions to the Merger..................................... A-55
6.1 Conditions to Obligations of Each Party to Effect the Merger... A-55
6.2 Additional Conditions to Obligations of Company................ A-56
6.3 Additional Conditions to the Obligations of Parent and Merger
Sub........................................................... A-57
Article VII Termination, Amendment and Waiver........................... A-58
7.1 Termination.................................................... A-58
7.2 Notice of Termination Effect of Termination.................... A-60
7.3 Fees and Expenses.............................................. A-60
7.4 Loan Upon Termination.......................................... A-62
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
7.5 Amendment........................................................ A-62
7.6 Extension; Waiver................................................ A-62
Article VIII General Provisions........................................... A-63
8.1 Non-Survival of Representations and Warranties................... A-63
8.2 Notices.......................................................... A-63
8.3 Interpretation; Certain Defined Terms............................ A-63
8.4 Counterparts..................................................... A-64
8.5 Entire Agreement; Third Party Beneficiaries...................... A-64
8.6 Severability..................................................... A-65
8.7 Other Remedies; Specific Performance............................. A-65
8.8 Governing Law.................................................... A-65
8.9 Rules of Construction............................................ A-65
8.10 Assignment....................................................... A-65
8.11 Disclosure Letter................................................ A-65
8.12 WAIVER OF JURY TRIAL............................................. A-65
</TABLE>
iii
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<C> <S>
Exhibit A Form of Company Option Agreement
Exhibit B Form of Parent Option Agreement
Exhibit C Form of Company Voting Agreement
Exhibit D Form of Parent Voting Agreement
Exhibit E Parent Officers
Exhibit F Form of Company Affiliate Agreement
Exhibit G Form of Parent Affiliate Agreement
Exhibit H Form of Unsecured Promissory Note
Parent Disclosure Letter
Company Disclosure Letter
</TABLE>
Onsale agrees to furnish supplementally a copy of any omitted schedule to the
Securities and Exchange Commission upon request.
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made and entered into
as of July 13, 1999, among Onsale, a Delaware corporation ("Parent"), EO
Corporation, a Washington corporation and a wholly-owned subsidiary of Parent
("Merger Sub"), and Egghead.com, Inc., a Washington corporation ("Company").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement and in
accordance with the Washington Law, Parent and Company intend to enter into a
business combination transaction.
B. The Merger (as defined in Section 1.1) is intended to be treated as a tax-
free reorganization pursuant to the provisions of Section 368(a)(1)(A) of the
Code by way of Section 368(a)(2)(E). The Merger is intended to be treated as a
"pooling of interests" for accounting and financial reporting purposes.
C. The Board of Directors of Company: (i) has determined that the Merger (as
defined in Section 1.1) is advisable and fair to, and in the best interests of,
Company and its shareholders, (ii) has approved this Agreement, the Merger and
the other transactions contemplated by this Agreement and (iii) has determined
to recommend that the shareholders of Company adopt and approve this Agreement
and approve the Merger.
D. Concurrently with the execution of this Agreement, and as a condition and
inducement to Parent's willingness to enter into this Agreement, Company shall
execute and deliver a Company Option Agreement in favor of Parent in
substantially the form attached hereto as Exhibit A (the "Company Option
Agreement"). The Board of Directors of Company has approved the Company Option
Agreement.
E. Concurrently with the execution of this Agreement, and as a condition and
inducement to Company's willingness to enter into this Agreement, Parent shall
execute and deliver a Parent Option Agreement in favor of Company in
substantially the form attached hereto as Exhibit B (the "Parent Option
Agreement"). The Board of Directors of Parent has approved the Parent Option
Agreement.
F. The Board of Directors of Parent: (i) has determined that the Merger (as
defined in Section 1.1) is advisable and fair to, and in the best interests of,
Parent and its stockholders, (ii) has approved this Agreement, the Merger and
the other transactions contemplated by this Agreement and has approved an
amendment to Parent's Certificate of Incorporation to change the name of Parent
to "Egghead.com, Inc.," effective at the Effective Time, and to increase the
authorized number of shares of Parent Common Stock so as to permit the
transactions contemplated by this Agreement, subject to and upon consummation
of the Merger, and (iii) has determined to recommend that the stockholders of
Parent approve the issuance of the shares of Parent Common Stock pursuant to
the Merger and approve an amendment to Parent's Certificate of Incorporation to
change the name of Parent to "Egghead.com, Inc.," effective at the Effective
Time, and to increase the authorized number of shares of Parent Common Stock so
as to permit the transactions contemplated by this Agreement, subject to and
upon consummation of the Merger,
G. Concurrently with the execution of this Agreement, and as a condition and
inducement to Parent's willingness to enter into this Agreement, the executive
officers and directors of Company are entering into voting agreements in
substantially the form attached hereto as Exhibit C (the "Company Voting
Agreements").
H. Concurrently with the execution of this Agreement, and as a condition and
inducement to Company's willingness to enter into this Agreement, the
directors, certain executive officers, and certain stockholders of Parent are
entering into voting agreements in substantially the form attached hereto as
Exhibit D (the "Parent Voting Agreements").
A-1
<PAGE>
In consideration of the foregoing and the representations, warranties,
covenants and agreements set forth in this Agreement, the parties agree as
follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time and subject to and upon the terms and
conditions of this Agreement and the applicable provisions of Washington Law,
Merger Sub shall be merged with and into Company (the "Merger"), the separate
corporate existence of Merger Sub shall cease and Company shall continue as the
surviving corporation. Company as the surviving corporation after the Merger is
hereinafter sometimes referred to as the "Surviving Corporation."
1.2 Timing of the Merger.
(a) Effective Time. Subject to the provisions of this Agreement, the
parties hereto shall cause the Merger to be consummated by filing articles
of merger, in such form as is required by the relevant provisions of
Washington Law, with the Secretary of State of the State of Washington in
accordance with the relevant provisions of Washington Law (the "Articles of
Merger") (the time of such filing (or such later time as may be agreed in
writing by Company and Parent and specified in the Articles of Merger)
being the "Effective Time") as soon as practicable on or after the Closing
(as herein defined).
(b) Closing. The closing of the Merger (the "Closing") shall take place
at the offices of Fenwick & West LLP, Two Palo Alto Square, Palo Alto,
California, as soon as practicable (but not more than two business days)
after the satisfaction or waiver of each of the conditions set forth in
Article VI, or at such other time, date and location as the parties hereto
agree in writing (the "Closing Date").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of
Washington Law. Without limiting the generality of the foregoing, at the
Effective Time all title to real estate and other property owned by Company and
Merger Sub shall vest in the Surviving Corporation, and all liabilities of
Company and Merger Sub shall become the liabilities of the Surviving
Corporation.
(a) Articles of Incorporation. At the Effective Time, the Articles of
Incorporation of the Company, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation.
(b) Bylaws. At the Effective Time, the Bylaws of the Company, as in
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended.
(c) Directors and Officers of Surviving Corporation. The initial
directors of the Surviving Corporation shall be the directors of Merger Sub
immediately prior to the Effective Time, until their respective successors
are duly elected or appointed and qualified. The initial officers of the
Surviving Corporation shall be the officers of Merger Sub immediately prior
to the Effective Time, until their respective successors are duly
appointed.
1.4 Effect on Capital Stock. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any
action on the part of Parent, Merger Sub, Company or the holders of any of the
following securities:
(a) Conversion of Company Common Stock. Each share of common stock, par
value $.01 per share, of Company ("Company Common Stock") issued and
outstanding immediately prior to the Effective Time, other than any shares
of Company Common Stock to be canceled pursuant to Section 1.4(d), will be
automatically converted (subject to Sections 1.4(c) and 1.4(f)) into the
right to receive .565 (the "Exchange Ratio") of a share of common stock,
par value $.001 per share, of Parent ("Parent Common
A-2
<PAGE>
Stock") upon surrender of the certificate representing such share of
Company Common Stock in the manner provided in Section 1.5 (and in the case
of a lost, stolen or destroyed certificate, upon delivery of an affidavit
(and bond, if required), in the manner provided in Section 1.5(f)).
(b) Stock Options; Employee Stock Purchase Plans. At the Effective Time,
all options to purchase Company Common Stock then outstanding under
Company's 1997 Nonofficer Employee Stock Option Plan, Company's Amended and
Restated 1993 Stock Incentive Compensation Plan, the Company's 1986
Combined Incentive and Non-Qualified Stock Option Plan the Surplus
Software, Inc., 1996 Stock Option Plan and the Company's Restated
Nonemployee Director Stock Option Plan (collectively, the "Company Stock
Option Plans") shall be assumed by Parent in accordance with Section 5.9 of
this Agreement. Rights outstanding under Company's 1989 Employee Stock
Purchase Plan (the "ESPP") shall be treated as set forth in Section 5.9 of
this Agreement.
(c) Fractional Shares. No fraction of a share of Parent Common Stock will
be issued by virtue of the Merger, but in lieu thereof each holder of
shares of Company Common Stock who would otherwise be entitled to a
fraction of a share of Parent Common Stock (after aggregating all
fractional shares of Parent Common Stock that otherwise would be received
by such holder) shall receive, upon surrender of such holder's
Certificate(s)(as defined in Section 1.5(c)) from Parent an amount of cash
(rounded to the nearest whole cent) equal to the product of (i) such
fraction, multiplied by (ii) the average closing sale price of one share of
Parent Common Stock for the ten most recent days that Parent Common Stock
has traded ending with and including the trading day immediately prior to
the Effective Time, as reported on the Nasdaq Stock Market.
(d) Cancellation of Company-Owned and Parent-Owned Stock and Preferred
Stock. Each share of Company Common Stock held by Company or owned by
Merger Sub, Parent or any direct or indirect wholly-owned subsidiary of
Company or of Parent immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof. Any shares of
Preferred Stock of Company outstanding at the Effective Time shall be
canceled and extinguished without any conversion thereof.
(e) Capital Stock of Merger Sub. Each share of Common Stock, par value
$0.01 per share, of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into one validly issued, fully paid
and nonassessable share of Common Stock, $0.01 par value per share, of the
Surviving Corporation. Each certificate evidencing ownership of shares of
the Common Stock of Merger Sub shall evidence ownership of such shares of
capital stock of the Surviving Corporation.
(f) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted
to reflect appropriately the effect of any stock split, reverse stock
split, stock dividend (including any dividend or distribution of securities
convertible into Parent Common Stock or Company Common Stock),
reorganization, recapitalization, reclassification or other like change
with respect to Parent Common Stock or Company Common Stock occurring on or
after the date hereof and prior to the Effective Time.
(g) Restricted Stock. If any shares of the Company Common Stock that are
outstanding immediately prior to the Effective Time are unvested or are
subject to a repurchase option, risk of forfeiture or other condition
providing that such shares ("Company Restricted Stock") may be forfeited or
repurchased by Company upon any termination of the shareholders'
employment, directorship, consulting or other relationship with Company
(and/or any affiliate of Company) under the terms of any restricted stock
purchase agreement or other agreement with Company that does not by its
terms provide that such repurchase option, risk of forfeiture or other
condition lapses upon consummation of the Merger, then the shares of Parent
Common Stock issued upon the conversion of such shares of Company Common
Stock in the Merger will continue to be unvested and subject to the same
repurchase options, risks of forfeiture or other conditions following the
Effective Time, and the certificates representing such shares of Parent
Stock may accordingly be marked with appropriate legends noting such
repurchase options, risks of forfeiture or other conditions. Company shall
take all actions that may be necessary to ensure that, from and after the
Effective Time, Parent is entitled to exercise any such repurchase option
or other right set forth in any such restricted stock purchase agreement or
other agreement. A listing of the holders of Company
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Restricted Stock, together with the number of shares of Company Restricted
Stock held by each, is set forth on Part 1.4(g) of the Company Disclosure
Letter.
(h) Dissenters' Rights of Company Shareholders.
(i) Any shares of Company Common Stock held by a holder who dissents
from the Merger in the manner provided under Washington Law and becomes
entitled to obtain payment for the fair value of such shares of Common
Stock pursuant to the applicable provisions of the Washington Law,
shall herein be called "Dissenting Shares". Any Dissenting Shares shall
not, after the Effective Time, be entitled to vote for any purpose or
receive any dividends or other distributions and shall not be converted
into the Parent Common Stock pursuant to Section 1.4(a); provided,
however, that Section 1.4(a) shall apply to shares of Company Common
Stock held by a dissenting shareholder who subsequently withdraws his
or her demand for payment in the manner provided under Washington Law,
fails to comply fully with the requirements of applicable provisions of
the Washington Law, or otherwise fails to establish the right of such
shareholder to be paid the fair value of such shareholder's shares
under Washington Law, in which event such shares shall be deemed to be
converted into Parent Common Stock under Section 1.4(a). Shares of
Company Common Stock acquired by the Surviving Corporation pursuant to
such provisions of the Washington Law shall be canceled.
(ii) Company shall give Merger Sub prompt notice upon receipt of any
written objection to the Merger and demand for payment of the fair
value of shares. Company agrees that prior to the Effective Time it
will not, except with the prior written consent of Merger Sub,
voluntarily make any payment with respect to, or settle or offer to
settle, any such demand for payment of the fair value of shares, and
then, only to the extent so agreed to by Merger Sub in such writing.
1.5 Surrender of Certificates.
(a) Exchange Agent. Parent shall select a bank or trust company
reasonably acceptable to Company to act as the exchange agent (the
"Exchange Agent") in the Merger.
(b) Provision of Common Stock. Promptly after the Effective Time, Parent
shall make available to the Exchange Agent for exchange in accordance with
this Article I, the shares of Parent Common Stock issuable pursuant to
Section 1.4 in exchange for outstanding shares of Company Common Stock, and
cash in an amount sufficient for payment in lieu of fractional shares
pursuant to Section 1.4(c) and any dividends or distributions to which
holders of shares of Company Common Stock may be entitled pursuant to
Section 1.5(d) (such shares of Parent Common Stock and cash being referred
to herein as the "Exchange Fund").
(c) Exchange Procedures. Promptly after the Effective Time, Parent shall
cause the Exchange Agent to mail to each holder of record (as of the
Effective Time) of a certificate or certificates ("Certificates"), which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock whose shares were converted into the right to receive
shares of Parent Common Stock pursuant to Section 1.4, (i) a letter of
transmittal in customary form (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Exchange Agent and shall contain
such other provisions as Parent may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Stock, cash
in lieu of any fractional shares pursuant to Section 1.4(c) and any
dividends or other distributions pursuant to Section 1.5(d). Upon surrender
of Certificates for cancellation to the Exchange Agent or to such other
agent or agents as may be appointed by Parent, together with such letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holders of such Certificates shall be entitled to
receive in exchange therefor, and the Exchange Agent shall deliver to the
holders, certificates representing the number of whole shares of Parent
Common Stock into which their shares of Company Common Stock were converted
at the Effective Time, payment in lieu of fractional shares which such
holders have the right to receive pursuant
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to Section 1.4(c) and any dividends or distributions payable pursuant to
Section 1.5(d), and the Certificates so surrendered shall forthwith be
canceled. Until so surrendered, outstanding Certificates will be deemed
from and after the Effective Time, for all corporate purposes, to evidence
only the ownership of the number of full shares of Parent Common Stock into
which such shares of Company Common Stock shall have been so converted and
the right to receive an amount in cash in lieu of the issuance of any
fractional shares in accordance with Section 1.4(c) and any dividends or
distributions payable pursuant to Section 1.5(d). No interest shall be paid
or will accrue on any cash payable to holders of Certificates pursuant to
the provisions of this Article I.
(d) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the date of this Agreement with
respect to Parent Common Stock with a record date after the Effective Time
will be paid to the holders of any unsurrendered Certificates with respect
to the shares of Parent Common Stock represented thereby until the holders
of record of such Certificates shall surrender such Certificates. Subject
to applicable law, following surrender of any such Certificates, the
Exchange Agent shall deliver to the record holders thereof, without
interest, certificates representing whole shares of Parent Common Stock
issued in exchange therefor along with payment in lieu of fractional shares
pursuant to Section 1.4(c) hereof and the amount of any such dividends or
other distributions with a record date after the Effective Time payable
with respect to such whole shares of Parent Common Stock.
(e) Transfers of Ownership. If certificates representing shares of Parent
Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will
be properly endorsed and otherwise in proper form for transfer and that the
persons requesting such exchange will have paid to Parent or any agent
designated by it any transfer or other taxes required by reason of the
issuance of certificates representing shares of Parent Common Stock in any
name other than that of the registered holder of the Certificates
surrendered, or established to the satisfaction of Parent or any agent
designated by it that such tax has been paid or is not payable.
(f) Lost, Stolen or Destroyed Certificates. In the event that any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Certificates,
upon the making of an affidavit of that fact by the holder thereof,
certificates representing the shares of Parent Common Stock into which the
shares of Company Common Stock represented by such Certificates were
converted pursuant to Section 1.4, cash for fractional shares, if any, as
may be required pursuant to Section 1.4(c) and any dividends or
distributions payable pursuant to Section 1.5(d); provided, however, that
Parent may, in its discretion and as a condition precedent to the issuance
of such certificates representing shares of Parent Common Stock, cash and
other distributions, require the owner of such lost, stolen or destroyed
Certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against Parent, the Surviving
Corporation or the Exchange Agent with respect to the Certificates alleged
to have been lost, stolen or destroyed.
(g) No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock issued in accordance with the terms hereof (including
any cash paid in respect thereof pursuant to Sections 1.4(c) and 1.5(d))
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Company Common Stock, and there shall be no
further registration of transfers on the records of the Surviving
Corporation of shares of Company Common Stock which were outstanding
immediately prior to the Effective Time. If after the Effective Time
Certificates are presented to the Surviving Corporation for any reason,
except as otherwise provided by law, they shall be canceled and exchanged
as provided in this Article I, subject to Section 1.5(h).
(h) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the stockholders of Company for 180 days after the
Effective Time shall be delivered to Parent, upon demand, and any
shareholders of Company who have not previously complied with Section
1.4(c) shall thereafter look only to Parent for payment of their claim for
Parent Common Stock, any cash in lieu of fractional shares of Parent Common
Stock and any dividends or distributions with respect to Parent Common
Stock. Notwithstanding anything herein to the contrary, except to the
extent waived by Parent,
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any Certificate that is not properly submitted to the Exchange Agent (or
Parent as provided in the preceding sequence) for exchange and cancellation
within four years after the Effective Time (or immediately prior to such
earlier date on which any shares of Parent Common Stock that was to be
delivered to the holder of such Certificate, any dividends or distributions
payable to the holder of such Certificate or any cash payable to the holder
of such Certificate pursuant to this Article I, would otherwise escheat to
or become the property of any Governmental Entity), shall no longer
evidence ownership of or any right to receive shares of Parent Common
Stock, all rights of the holder of such Certificate, with respect to the
shares previously evidenced by such Certificate, shall cease.
(i) No Liability. Notwithstanding anything to the contrary in this
Section 1.5, neither the Exchange Agent, Parent, the Surviving Corporation
nor any party hereto shall be liable to a holder of shares of Parent Common
Stock or Company Common Stock for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
1.6 Directors of Parent.
(a) Parent shall take all actions necessary to cause the directors
comprising the full Board of Directors of Parent at (or immediately after)
the Effective Time (the "Parent Board") to be comprised of nine directors.
Initially, four (4) of such directors shall be designated by Parent (the
"Parent Designees"), four (4) of such directors shall be designated by
Company (the "Company Designees") and one (1) of such directors shall be
designated jointly by Parent and Company ("Joint Designee"). One of the
Company Designees shall be George Orban, who shall be Chairman of the Board
of Directors immediately after the Effective Time, unless he shall decline
or be unable to so serve. Parent and Company hereby agree that they shall
use all commercially reasonable efforts, and proceed in good faith, to
agree on the identity of the Joint Designee. If, prior to the Effective
Time, any of the Parent Designees or Company Designees or the Joint
Designee shall decline or be unable to serve as a Parent Designee or an
Company Designee or the Joint Designee, as the case may be, Parent (in the
case of a Parent Designee) or Company (in the case of a Company Designee)
or Parent and Company (in the case of the Joint Designee) shall designate
another person to serve in such person's stead as Parent Designee, Company
Designee or Joint Designee, as the case may be, which person shall be
reasonably acceptable to the other party. If, prior to the Effective Time,
Parent and Company are not able to agree on the identity of the Joint
Designee, then such position shall be vacant at the Effective Time and
shall be filled thereafter in accordance with Parent's Bylaws and
Certificate of Incorporation. If so agreed by Parent Company, the Parent
Board may be classified, if in which case, the Board members of each class
will be mutually agreed by Parent and Company. In the absence of any such
agreement, the Parent Board shall not be classified.
(b) The foregoing directors of Parent shall hold their positions until
their resignation or removal or the election or appointment of their
successors in the manner provided by Parent's charter documents and
applicable law.
(c) Parent shall use all commercially reasonable efforts to cause each
Parent Designee, Company Designee and the Joint Designee to be included in
the slate of nominees recommended by Parent's Board of Directors to the
stockholders of Parent at the next annual meeting of Parent's stockholders,
subject to the right of each member of Parent's Board of Directors to act
in such manner as he or she in good faith deems consistent with his or her
fiduciary duties and subject to the right of each Parent Designee, each
Company Designee and the Joint Designee to decline such nomination.
1.7 Corporate Name of Parent. Parent shall take all actions necessary to
change its corporate name to Egghead.com, Inc., effective at the Effective
Time.
1.8 Tax and Accounting Consequences.
(a) It is intended by the parties hereto that the Merger shall constitute
a reorganization within the meaning of Section 368 of the Code. The parties
hereto adopt this Agreement as a "plan of reorganization" within the
meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Income
Tax Regulations.
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(b) Neither Parent nor Merger Sub nor the Surviving Corporation will
report the Merger or take any other action for tax purposes inconsistent
with treatment of the Merger as a reorganization within the meaning of
Section 368 of the Code, to the full extent permitted by the Code.
(c) It is intended by the parties hereto that the Merger shall qualify
for accounting treatment as a pooling of interests.
1.9 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Company and Merger Sub, the officers and directors of Parent,
Company and Merger Sub will take all such lawful and necessary or desirable
action. Parent shall cause Merger Sub to perform all of its obligations
relating to this Agreement and the transactions contemplated hereby.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
As of the date of this Agreement and as of the Closing Date, Company
represents and warrants to Parent and Merger Sub, subject to the exceptions
specifically disclosed in writing in the disclosure letter and referencing a
specific representation delivered by Company to Parent dated as of the date
hereof and certified by a duly authorized officer of Company (the "Company
Disclosure Letter"), as follows:
2.1 Organization and Good Standing. Company and each of its subsidiaries (a)
is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is organized; (b) has the corporate or
other power and authority to own, lease and operate its assets and property and
to carry on its business as now being conducted; and (c) except as would not be
material to Company, is duly qualified or licensed to do business in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary.
2.2 Subsidiaries and Other Interests. Other than the corporations identified
in Part 2.2 of the Company Disclosure Letter, neither Company nor any of the
other corporations identified in Part 2.2 of the Company Disclosure Letter owns
any capital stock of, or any equity interest of any nature in, any corporation,
partnership, joint venture arrangement or other business entity, except for
passive investments in equity interests of public companies as part of the cash
management program of Company. Neither Company nor any of its subsidiaries has
agreed or is obligated to make, or is bound by any written, oral or other
agreement, contract, subcontract, lease, binding understanding, instrument,
note, option, warranty, purchase order, license, sublicense, insurance policy,
benefit plan or legally binding commitment or undertaking of any nature, as in
effect as of the date hereof or as may hereinafter be in effect under which it
may become obligated to make any future investment in or capital contribution
to any other entity. Neither Company, nor any of its subsidiaries, has, at any
time, been a general partner of any general partnership, limited partnership or
other entity. Part 2.2 of the Company Disclosure Letter indicates the
jurisdiction of organization of each entity listed therein and Company's direct
or indirect equity interest therein.
2.3 Articles of Incorporation and Bylaws. Company has delivered or made
available to Parent a true and correct copy of: (a) the Articles of
Incorporation and Bylaws of Company and similar governing instruments of each
of its subsidiaries, each as amended to date and as in full force in effect;
and (b) Company's minute book containing all records of all proceedings,
consents, actions and meetings during the past three years of the Company
shareholders, Board of Directors and any committees of the Board of Directors.
Neither Company nor any of its subsidiaries is in violation of any of the
provisions of its Articles of Incorporation or Bylaws or equivalent governing
instruments.
2.4 Authority.
(a) Company has all requisite corporate power and authority to enter into
this Agreement and the Company Option Agreement and to consummate the
transactions contemplated hereby and thereby, subject to approval by the
shareholders of the Company. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on the part of
Company, subject only to the approval and adoption of this Agreement and
the approval of the Merger by Company's shareholders and the filing of the
Articles of Merger pursuant to Washington Law. A vote of the holders of
outstanding shares of the Company Common Stock representing two-thirds of
all votes entitled to be cast on the matter, is sufficient for Company's
shareholders to approve and adopt this Agreement and approve the Merger.
This Agreement and the Company Option Agreement have each been duly
executed and delivered by Company and, assuming the due execution and
delivery by Parent and Merger Sub, each constitutes the valid and binding
obligation of Company, enforceable against Company in accordance with its
terms, except as enforceability may be limited by bankruptcy and other
similar laws affecting the rights of creditors generally and general
principles of equity. The execution and delivery of this Agreement and the
Company
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Option Agreement by Company does not, and the performance of this Agreement
and the Company Option Agreement by Company will not, (i) conflict with or
violate the Articles of Incorporation or Bylaws of Company or the
equivalent organizational documents of any of its subsidiaries, (ii)
subject to obtaining the approval and adoption of this Agreement and the
approval of the Merger by Company's shareholders as contemplated in Section
5.2 and compliance with the requirements set forth in Section 2.4(b) below,
conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to Company or any of its subsidiaries or by which Company
or any of its subsidiaries or any of their respective properties is bound
or affected, or (iii) result in any material breach of or constitute a
material default (or an event that with notice or lapse of time or both
would become a material default) under, or impair Company's rights or alter
the rights or obligations of any third party under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a material lien or Encumbrance on any of the
material properties or assets of Company or any of its subsidiaries
pursuant to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise, concession, or other instrument or
obligation, in each case that is material to Company, to which Company or
any of its subsidiaries is a party or by which Company or any of its
subsidiaries or its or any of their respective assets are bound or
affected. Part 2.4 of the Company Disclosure Letter list all consents,
waivers and approvals under any of Company's or any of its subsidiaries'
agreements, contracts, licenses or leases required to be obtained in
connection with the consummation of the transactions contemplated hereby,
which, if individually or in the aggregate not obtained, would result in a
material loss of benefits to Company, Parent or the Surviving Corporation
as a result of the Merger.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required to be
obtained or made by Company in connection with the execution and delivery
of this Agreement or the consummation of the Merger, except for (i) the
filing of the Articles of Merger with the Secretary of State of the State
of Washington and appropriate documents with the relevant authorities of
other states in which Company is qualified to do business, (ii) the filing
of the Proxy Statement/Prospectus (as defined in Section 2.19) with the SEC
in accordance with the Exchange Act and the effectiveness of the
Registration Statement (as defined in Section 2.20), (iii) such consents,
approvals, orders, authorizations, registrations, declarations and filings
as may be required under applicable federal, foreign and state securities
(or related) laws and the HSR Act, and the securities or antitrust laws of
any foreign country, and (iv) such other consents, authorizations, filings,
approvals and registrations which if not obtained or made would not be
material to Company or Parent or have a material adverse effect on the
ability of the parties hereto to consummate the Merger.
2.5 Company Capital Structure.
(a) Stock. The authorized capital stock of Company consists of (i)
50,000,000 shares of Company Common Stock, par value $.01 per share, of
which there were 30,772,457 shares issued and outstanding as of July 13,
1999, and (ii) 16,569,848 shares of Preferred Stock, par value $.01 per
share, of which no shares are issued or outstanding. All outstanding shares
of Company Common Stock are duly authorized, validly issued, fully paid and
nonassessable and are not subject to preemptive rights created by statute,
the Articles of Incorporation or Bylaws of Company or any agreement or
document to which Company is a party or by which it is bound. As of the
date of this Agreement, there are no shares of Company Common Stock held in
treasury by Company. From and after the Effective Time, the shares of
Parent Common Stock issued in exchange for any shares of Company Restricted
Stock will, without any further act of Parent, Company or any other person,
become subject to the restrictions, conditions and other provisions of such
Company Restricted Stock, and Parent will automatically succeed to and
become entitled to exercise Company's rights and remedies under such
Company Restricted Stock.
(b) Options and Warrants. As of July 13, 1999, Company had reserved an
aggregate of 4,341,358 shares of Company Common Stock for issuance pursuant
to the Company Stock Option Plans (including shares subject to outstanding
options). Stock options granted under the Company Stock Option Plans are
collectively referred to in this Agreement as "Company Options." As of July
13, 1999, there were Company Options outstanding to purchase an aggregate
of 3,440,237 shares of Company Common
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Stock pursuant to the Company Stock Option Plans. As of July 13, 1999,
there were no warrants outstanding to purchase any shares of Company Common
Stock. As of July 13, 1999, there were available an aggregate of 270,692
shares of Company Common Stock for issuance pursuant to Company's ESPP. All
shares of Company Common Stock subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant
to which they are issuable, will be duly authorized, validly issued, fully
paid and nonassessable. Part 2.5 of the Company Disclosure Letter lists for
each person who held Company Options as of July 13, 1999: (i) the name of
the holder of such option; (ii) the exercise price of such option; (iii)
the number of shares as to which such option had vested at such date; (iv)
the vesting schedule for such option; and (v) whether the exercisability of
such option will be accelerated in any way by the transactions contemplated
by this Agreement and the extent of acceleration, if any.
(c) Compliance with Legal Requirements. All outstanding shares of Company
Common Stock, all outstanding Company Options, and all outstanding shares
of capital stock of each subsidiary of Company have been issued and granted
in compliance with (i) all applicable securities laws and, to the knowledge
of Company, all other applicable Legal Requirements and (ii) all material
requirements set forth in applicable agreements or instruments.
(d) Vesting Acceleration. Except as set forth in Part 2.5(d) of the
Company Disclosure Letter, there are no commitments or agreements of any
character to which Company is bound obligating Company to accelerate the
vesting of any Company Options as a result of the Merger.
(e) Option Records. Company has made available to Parent accurate,
current and complete copies of the Company Option Plans and any other stock
option plans pursuant to which Company has granted stock options that are
currently outstanding, the form of all stock option agreements evidencing
such options and the applicable vesting schedule for each such option.
2.6 Obligations With Respect to Capital Stock.
(a) Except as set forth in Part 2.6 of the Company Disclosure Letter,
there are no equity securities, partnership interests or similar ownership
interests of any class of Company equity security, or any securities
exchangeable or convertible into or exercisable for such equity securities,
partnership interests or similar ownership interests, issued, reserved for
issuance or outstanding.
(b) Except for securities Company owns free and clear of all claims and
Encumbrances, directly or indirectly through one or more subsidiaries, and
except for shares of capital stock or other similar ownership interests of
certain subsidiaries of Company that are owned by certain nominee equity
holders as required by the applicable law of the jurisdiction of
organization of such subsidiaries, as of the date of this Agreement, there
are no equity securities, partnership interests or similar ownership
interests of any class of equity security of any subsidiary of Company, or
any security exchangeable or convertible into or exercisable for such
equity securities, partnership interests or similar ownership interests,
issued, reserved for issuance or outstanding.
(c) Except as set forth in Part 2.5 or Part 2.6 of the Company Disclosure
Letter, there are no subscriptions, options, warrants, equity securities,
partnership interests or similar ownership interests, calls, rights
(including preemptive rights), commitments or agreements of any character
to which Company or any of its subsidiaries is a party or by which it is
bound obligating Company or any of its subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, or repurchase, redeem or
otherwise acquire, or cause the repurchase, redemption or acquisition of,
any shares of capital stock, partnership interests or similar ownership
interests of Company or any of its subsidiaries or obligating Company or
any of its subsidiaries to grant, extend, accelerate the vesting of or
enter into any such subscription, option, warrant, equity security, call,
right, commitment or agreement.
(d) Except as contemplated by this Agreement, there are no registration
rights and there is no voting trust, proxy, rights plan, antitakeover plan
or other agreement or understanding to which Company is a party or by which
it is bound with respect to any equity security of any class of Company or
with respect to any equity security, partnership interest or similar
ownership interest of any class of any of its subsidiaries.
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2.7 SEC Filings; Company Financial Statements.
(a) SEC Filings Generally. Company has filed all forms, reports and
documents required to be filed by Company with the SEC since January 1,
1997 and has made available to Parent such forms, reports and documents in
the form filed with the SEC. All such required forms, reports and documents
(including those that Company may file subsequent to the date hereof) are
referred to herein as the "Company SEC Reports." As of their respective
dates, the Company SEC Reports (i) were prepared in accordance with the
requirements of the Securities Act or the Exchange Act, as the case may be,
and the rules and regulations of the SEC thereunder applicable to such
Company SEC Reports and (ii) did not at the time they were filed contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Taken as a whole, the Company SEC Reports do not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except to the extent corrected prior to the date of this
Agreement by a subsequently filed Company SEC Report. None of Company's
subsidiaries is required to file any forms, reports or other documents with
the SEC. All material agreements filed by Company as exhibits to Company
SEC Reports were executed by all parties thereto and such agreements as
displayed on the World Wide Web via the EDGAR Service conform to the
agreements as so executed.
(b) Publicly Reported Financial Statements. Each of the consolidated
financial statements (including, in each case, any related notes thereto)
contained in the Company SEC Reports (the "Company Financials"), including
each Company SEC Reports filed after the date hereof until the Closing,
(i) complied as to form in all material respects with the published rules
and regulations of the SEC with respect thereto, (ii) was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case
of unaudited interim financial statements, as may be permitted by the SEC
on Form 10-Q, 8-K or any successor form under the Exchange Act) and (iii)
fairly presented the consolidated financial position of Company and its
subsidiaries as at the respective dates thereof and the consolidated
results of Company's operations and cash flows for the periods indicated,
except that the unaudited interim financial statements may not contain
footnotes and were or are subject to normal and recurring year-end
adjustments. The balance sheet of Company contained in Company SEC Reports
as of April 3, 1999 is hereinafter referred to as the "Company Balance
Sheet." Since the date of the Company Balance Sheet neither Company nor any
of its subsidiaries has any liabilities required under GAAP to be set forth
on a balance sheet (absolute, accrued, contingent or otherwise) which are,
individually or in the aggregate, material to the business, results of
operations or financial condition of Company and its subsidiaries taken as
a whole, except for liabilities incurred since the date of the Company
Balance Sheet in the ordinary course of business consistent with past
practices and liabilities incurred in connection with this Agreement.
Without limiting the foregoing, Company's revenue recognition practices are
in full conformance with all requirements of GAAP and all promulgations
with respect to revenue recognition (including applicable documentation
requirements) and there exists no fact (such as any side letters or oral
understandings with customers regarding product return rights) that has not
been disclosed to Company's auditors, which, if so disclosed, would cause
such auditors to recommend or require that Company restate its financial
statements to so conform. The reserves on the Company's financial
statements for obsolete inventory and warranty returns conform to GAAP and,
in the judgment of Company management, are adequate.
(c) Interim Financial Statements. Company has delivered to Parent copies
of Company's unaudited consolidated balance sheet as of May 29, 1999 and
income statement and statement of cash flows for the two months ended May
29, 1999. Such financial statements: (i) are in accordance with the books
and records of Company; (ii) fairly present in all material respects
Company's financial condition at the date therein indicated and the results
of operations for the period therein indicated and the results of
operations for the period therein specified; and (iii) have been prepared
in accordance with GAAP applied on a consistent basis (except for the
absence of any footnotes required by GAAP).
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(d) Amendments. Company has heretofore furnished to Parent a complete and
correct copy of any amendments or modifications, which have not yet been
filed with the SEC but which are required to be filed, to agreements,
documents or other instruments which previously had been filed by Company
with the SEC pursuant to the Securities Act or the Exchange Act.
2.8 Absence of Certain Changes or Events. Since the date of the Company
Balance Sheet there has not been:
(a) any Material Adverse Effect with respect to Company;
(b) any declaration, setting aside or payment of any dividend on, or
other distribution (whether in cash, stock or property) in respect of, any
of Company's or any of its subsidiaries' capital stock, or any purchase,
redemption or other acquisition by Company of any of Company's capital
stock or any other securities of Company or its subsidiaries or any
options, warrants, calls or rights to acquire any such shares or other
securities except for repurchases from employees following their
termination pursuant to the terms of their pre-existing stock option or
purchase agreements;
(c) any split, combination or reclassification of any of Company's or any
of its subsidiaries' capital stock;
(d) any granting by Company or any of its subsidiaries of any increase in
compensation or fringe benefits to any of their officers or employees
(except for increases in compensation to employees that are not officers or
directors, in the ordinary course of business consistent with prior
practice), or any payment by Company or any of its subsidiaries of any
bonus to any of their officers or employees (except for payments made to
non-officer employees in the ordinary course of business consistent with
past practices), or any granting by Company or any of its subsidiaries of
any increase in severance or termination pay or any entry by Company or any
of its subsidiaries into, or material modification or amendment of, any
currently effective employment, severance, termination or indemnification
agreement or any agreement the benefits of which are contingent or the
terms of which are materially altered upon the occurrence of a transaction
involving Company of the nature contemplated hereby;
(e) any material change or alteration in the policy of Company relating
to the granting of stock options to its employees and consultants;
(f) any material change by Company in its accounting methods, principles
or practices, except as required by concurrent changes in GAAP; or
(g) any revaluation by Company of any of its assets, including, without
limitation, writing off notes or accounts receivable other than in the
ordinary course of business.
2.9 Taxes.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax" or
"Taxes" refers to (i) any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and
liabilities relating to taxes, including taxes based upon or measured by
gross receipts, income, profits, sales, use and occupation, and value
added, ad valorem, transfer, franchise, withholding, payroll, recapture,
employment, excise and property taxes, together with all interest,
penalties and additions imposed with respect to such amounts and (ii) any
liability for payment of any amounts of the type described in clause (i) as
a result of being a member of an affiliated consolidated, combined or
unitary group.
(b) Tax Returns and Audits. In each case except as set forth in Part 2.9
of the Company Disclosure Letter:
(i) Company and each of its subsidiaries have timely filed all
federal, state, local and foreign returns, estimates, information
statements and reports ("Returns") relating to Taxes required to be
filed by or on behalf of Company and each of its subsidiaries with any
Tax authority, such Returns are true, correct and complete in all
material respects, and Company and each of its subsidiaries have paid
all Taxes shown to be due on such Returns;
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(ii) Company and each of its subsidiaries have withheld with respect
to its employees all federal and state income taxes, Taxes pursuant to
the Federal Insurance Contribution Act ("FICA"), Taxes pursuant to the
Federal Unemployment Tax Act ("FUTA") and other Taxes required to be
withheld;
(iii) Neither Company nor any of its subsidiaries has been delinquent
in the payment of any Tax nor is there any Tax deficiency outstanding,
proposed or assessed against Company or any of its subsidiaries, nor
has Company or any of its subsidiaries executed any unexpired waiver of
any statute of limitations on or extending the period for the
assessment or collection of any Tax;
(iv) No audit or other examination of any Return of Company or any of
its subsidiaries by any Tax authority is presently in progress, nor has
Company or any of its subsidiaries been notified of any request for
such an audit or other examination;
(v) No adjustment relating to any Returns filed by Company or any of
its subsidiaries has been proposed in writing formally or informally by
any Tax authority to Company or any of its subsidiaries or any
representative thereof;
(vi) Neither Company nor any of its subsidiaries has any liability
for unpaid Taxes which has not been accrued for or reserved on the
Company Balance Sheet, whether asserted or unasserted, contingent or
otherwise, which is material to Company, other than any liability for
unpaid Taxes that may have accrued since the date of the Company
Balance Sheet in connection with the operation of the business of
Company and its subsidiaries in the ordinary course;
(vii) There is no contract, agreement, plan or arrangement to which
Company is a party, including but not limited to the provisions of this
Agreement and the agreements entered into in connection with this
Agreement, covering any employee or former employee of Company or any
of its subsidiaries that, individually or collectively, would give rise
to the payment of any amount that would not be deductible pursuant to
Sections 280G, 404 or 162(m) of the Code; there is no contract,
agreement, plan or arrangement to which Company is a party or by which
it is bound to compensate any individual for excise taxes paid pursuant
to Section 4999 of the Code;
(viii) Neither Company nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection
(f) asset (as defined in Section 341(f)(4) of the Code) owned by
Company;
(ix) Neither Company nor any of its subsidiaries is party to or has
any obligation under any tax-sharing, tax indemnity or tax allocation
agreement or arrangement among members of an affiliated group other
than the affiliated group that includes the Company on the date
immediately preceding the Closing Date;
(x) Except as may be required as a result of the Merger, Company and
its subsidiaries have not been and will not be required to include any
adjustment in Taxable income for any Tax period (or portion thereof)
pursuant to Section 481 or Section 263A of the Code or any comparable
provision under state or foreign Tax laws as a result of transactions,
events or accounting methods employed prior to the Closing;
(xi) Company has made available to Parent or its legal or accounting
representatives copies of all foreign, federal and state income tax and
all state sales and use tax Returns for Company and each of its
subsidiaries filed for all open periods; and
(xii) There are no liens, pledges, charges, claims, restrictions on
transfer, mortgages, security interests or other Encumbrances of any
sort (collectively, "Liens") on the assets of Company or any subsidiary
relating to or attributable to Taxes, other than Liens for Taxes not
yet due and payable.
2.10 Title to Properties; Absence of Liens and Encumbrances.
(a) Company owns no real property interests except as set forth in Part
2.10 of the Company Disclosure Letter. Part 2.10 of the Company Disclosure
Letter list all real property leases to which
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Company is a party and each amendment thereto that is in effect as of the
date of this Agreement. All such current leases are in full force and
effect, are valid and effective in accordance with their respective terms,
and there is not, under any of such leases, any existing default or event
of default (or event which with notice or lapse of time, or both, would
constitute a default) that would give rise to a claim against Company in an
amount greater than $50,000. Other than the leaseholds created under the
real property leases identified in Part 2.10 of the Company Disclosure
Letter, Company and its subsidiaries own no interest in real property.
(b) Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in
its business, free and clear of any Liens, except as reflected in the
Company Financials and except for liens for taxes not yet due and payable
and such Liens or other imperfections of title and Encumbrances, if any,
which are not material in character, amount or extent, and which do not
materially detract from the value, or materially interfere with the present
use, of the property subject thereto or affected thereby.
2.11 Intellectual Property. For the purposes of this Agreement, the following
terms have the following definitions:
"Intellectual Property" shall mean any or all of the following and
all rights in, arising out of; or associated therewith: (i) all United
States, international and foreign patents and applications therefor and
all reissues, divisions, renewals, extensions, provisionals,
continuations and continuations-in-part thereof; (ii) all inventions
(whether patentable or not), invention disclosures, improvements, trade
secrets, proprietary information, know how, technology, technical data
and customer lists, and all documentation relating to any of the
foregoing; (iii) all copyrights, copyrights registrations and
applications therefor, and all other rights corresponding thereto
throughout the world; (iv) all industrial designs and any registrations
and applications therefor throughout the world; (v) all trade names,
Internet or World Wide Web URLs, Internet domain names, logos, common
law trademarks and service marks, trademark and service mark
registrations and applications therefor throughout the world; (vi) all
databases and data collections and all rights therein throughout the
world; (vii) all moral and economic rights of authors and inventors,
however denominated, throughout the world, and (viii) any similar or
equivalent rights to any of the foregoing anywhere in the world.
"Company Intellectual Property" shall mean any Intellectual Property
that is owned by, or exclusively licensed to, Company or one of its
subsidiaries.
"Registered Intellectual Property" means all United States,
international and foreign: (i) patents and patent applications
(including provisional applications); (ii) registered trademarks,
applications to register trademarks, intent-to-use applications, or
other registrations or applications related to trademarks;
(iii) registered copyrights and applications for copyright
registration; and (iv) any other Intellectual Property that is the
subject of an application, certificate, filing, registration or other
document issued, filed with, or recorded by any state, government or
other public legal authority.
"Company Registered Intellectual Property" means all of the
Registered Intellectual Property owned by, or filed in the name of,
Company or one of its subsidiaries.
(a) Good Title Generally. Company or one of its subsidiaries owns and has
good and exclusive title to, or has license (sufficient for the conduct of
its business as currently conducted and as proposed to be conducted) to,
each material item of Company Intellectual Property free and clear of any
lien or Encumbrance (excluding licenses and related restrictions and
restrictions imposed by law); and Company or one of its subsidiaries is the
exclusive owner of all trademarks and trade names used in connection with
the operation or conduct of the business of Company and its subsidiaries,
including the sale of any Company-owned products or the provision of any
services by Company and its subsidiaries. Company or one of its
subsidiaries owns exclusively, and has good title to, all copyrighted works
that are Company-owned products (excluding services provided), or which
Company otherwise expressly purports to own.
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There are no royalties, honoraria, fees or other payments payable by
Company to any person or entity by reason of the ownership, use, license,
sale or disposition of the Company Intellectual Property.
(b) Patent, Copyright, Trademark. Part 2.11(b) of the Company Disclosure
Letter sets forth all patents, patent applications, copyright
registrations, copyright applications, trademark registrations and
trademark applications pertaining to the Company Intellectual Property.
Each material item of Company Registered Intellectual Property is valid and
subsisting, all necessary registration, maintenance and renewal fees
currently due in connection with such Company Registered Intellectual
Property have been made and all necessary documents, recordations and
certificates in connection with such Registered Intellectual Property have
been filed with the relevant patent, copyright, trademark or other
authorities in the United States or foreign jurisdictions, as the case may
be, for the purposes of maintaining such Registered Intellectual Property.
(c) Trade Secrets. Company and its subsidiaries have taken reasonable
steps to protect Company's and its subsidiaries' rights in Company's and
such subsidiaries' confidential information and trade secrets that they
wish to protect or any trade secrets or confidential information of third
parties provided to Company or such subsidiaries, and, without limiting the
foregoing, Company and its subsidiaries have and enforce a policy requiring
each employee and contractor to execute a proprietary information/
confidentiality agreement substantially in the form provided to Parent and,
to the knowledge of Company, all current and former employees and
contractors of Company and its subsidiaries have executed such an
agreement.
(d) Domain Names and URLs. Part 2.11(d) of the Company Disclosure Letter
sets forth a list of all Internet domain names and all Internet and World
Wide Web URLs owned and used by Company in its business. Company and its
subsidiaries have, and after the Effective Time the Surviving Corporation
will have, a valid registration and all material rights (free of any
material restriction) in and to all domain names and URLs used by them in
their respective businesses including, without limitation, all rights
necessary to continue to conduct Company's business as it is currently
conducted under such names.
(e) Third Party IP. To the extent that any work, material or invention
has been developed or created by a third party for Company or any of its
subsidiaries, Company or its subsidiaries, as the case may be, has a
written agreement with such third party under all of its Intellectual
Property with respect thereto and Company or its subsidiary thereby either
(i) has obtained ownership of and is the exclusive owner of such work,
material, or invention, or (ii) has obtained a license (sufficient for the
conduct of its business as currently conducted and as proposed to be
conducted) under all such third party's Intellectual Property in such work,
material or invention by operation of law or by valid assignment, to the
fullest extent it is legally possible to do so.
(f) Transfers of IP. Part 2.11(f) of the Company Disclosure Letter lists
all material contracts, licenses and agreements to which Company is a party
(i) with respect to Company Intellectual Property licensed or transferred
to any third party (other than end-user licenses in the ordinary course);
or (ii) pursuant to which a third party has licensed or transferred any
material Intellectual Property to Company. Neither Company nor any of its
subsidiaries has transferred ownership of, or granted any exclusive license
with respect to, any Intellectual Property that is or was material Company
Intellectual Property, to any third party.
(g) No Infringement of Company IP. To the knowledge of Company, no
Company Intellectual Property or product or service of Company is subject
to any proceeding or outstanding decree, order, judgment, agreement, or
stipulation restricting in any manner the use, transfer, or licensing
thereof by Company, or which may affect the validity, use or enforceability
of such Company Intellectual Property. To the knowledge of Company, no
person has or is infringing or misappropriating any Company Intellectual
Property.
(h) Company Infringement of Third Party IP. To the knowledge of Company,
the operation of the business of Company as such business currently is
conducted, including Company's design, development,
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marketing and sale of the products or services of Company (including with
respect to products currently under development) has not, does not and will
not infringe or misappropriate the Intellectual Property of any third party
or, to its knowledge, constitute unfair competition or trade practices
under the laws of any jurisdiction. Company has not received notice from
any third party that the operation of the business of Company or any act,
product or service of Company, infringes or misappropriates the
Intellectual Property of any third party or constitutes unfair competition
or trade practices under the laws of any jurisdiction.
(i) Effect of Merger. Company has entered into or acquired all contracts,
licenses, and agreements reasonably required to conduct Company's business
as it is conducted as of the Closing Date. All material contracts, licenses
and agreements relating to the Company Intellectual Property to which
Company or any subsidiary is party or by which Company or any subsidiary is
bound are in full force and effect. The consummation of the transactions
contemplated by this Agreement will neither violate nor result in the
breach, modification, cancellation, termination, or suspension of such
contracts, licenses and agreements. Company and each of its subsidiaries
are in material compliance with, and have not materially breached any term
of any of such contracts, licenses and agreements and, to the knowledge of
Company and its subsidiaries, all other parties to such contracts, licenses
and agreements are in compliance in all material respects with, and have
not materially breached any term of, such contracts, licenses and
agreements. Following the Closing Date, the Surviving Corporation will be
permitted to exercise all of Company's rights under such contracts,
licenses and agreements to the same extent Company would have been able to
had the transactions contemplated by this Agreement not occurred and
without the payment of any additional amounts or consideration other than
ongoing fees, royalties or payments which Company would otherwise be
required to pay.
(j) Year 2000. Company has taken reasonable steps to ensure that its
systems and technology will record, store, process, calculate and present
calendar dates falling on and after (and if applicable, spans of time
including) January 1, 2000, and will calculate any information dependent on
or relating to such dates in the same manner, and with the same
functionality, data integrity and performance, as the systems and
technology record, store, process, calculate and present calendar dates on
or before December 31, 1999, or calculate any information dependent on or
relating to such dates (collectively, "Year 2000 Compliant"). Company has
taken reasonable steps to ensure that its systems, services and technology
will lose no functionality with respect to the introduction of records
containing dates falling on or after January 1, 2000. Except as set forth
on Part 2.11(j) of the Company Disclosure Letter, all of Company's and its
subsidiaries' internal computer and technology systems and services which
are critical to the operation of its business are Year 2000 Compliant.
Except as set forth on Part 2.11(j) of the Company Disclosure Letter, the
Company Intellectual Property owned by the Company or any subsidiary is
Year 2000 Compliant. Company has no knowledge that any Company Intellectual
Property licensed by Company or any subsidiary is not Year 2000 Compliant.
Neither the Company Intellectual Property owned by the Company or any
subsidiary nor any service of Company or any subsidiary contains any
significant defect in connection with processing data containing dates in
leap years or in the year 2000 or any preceding or following years.
2.12 Compliance with Laws; Permits; Restrictions.
(a) Neither Company nor any of its subsidiaries is, in any material
respect, in conflict with, or in default or in violation of (i) any law,
rule, regulation, order, judgment or decree applicable to Company or any of
its subsidiaries or by which Company or any of its subsidiaries or any of
their respective properties is bound or affected, or (ii) any material
note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Company or any
of its subsidiaries is a party or by which Company or any of its
subsidiaries or its or any of their respective properties is bound or
affected, except for conflicts, violations and defaults that (individually
or in the aggregate) would not cause Company to lose any material benefit
or incur any material liability. No investigation or review by any
Governmental Entity is pending or, to Company's knowledge, has been
threatened in a writing delivered to Company against Company or any of its
subsidiaries, nor, to Company's knowledge, has any
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Governmental Entity indicated an intention to conduct an investigation of
Company or any of its subsidiaries. There is no material agreement,
judgment, injunction, order or decree binding upon Company or any of its
subsidiaries which has or could reasonably be expected to have the effect
of prohibiting or materially impairing any business practice of Company or
any of its subsidiaries, any acquisition of material property by Company or
any of its subsidiaries or the conduct of business by Company as currently
conducted.
(b) Company and its subsidiaries hold, to the extent legally required,
all permits, licenses, variances, exemptions, orders and approvals from
governmental authorities that are material to and required for the
operation of the business of Company as currently conducted (collectively,
the "Company Permits"). Company and its subsidiaries are in compliance in
all material respects with the terms of the Company Permits.
2.13 Litigation. There are no claims, suits, actions or proceedings pending
or, to the knowledge of Company, threatened against, relating to or affecting
Company or any of its subsidiaries, before any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator that seeks
to restrain or enjoin the consummation of the transactions contemplated by this
Agreement or which could reasonably be expected, either singularly or in the
aggregate with all such claims, actions or proceedings, to be material to
Company or to the Surviving Corporation following the Merger or have a material
adverse effect on the ability of the parties hereto to consummate the Merger.
No Governmental Entity has at any time challenged or questioned in a writing
delivered to Company the legal right of Company to design, offer or sell any of
its products or services in the present manner or style thereof. As of the date
hereof, to the knowledge of Company, no event has occurred, and no claim,
dispute or other condition or circumstance exists, that will, or that would
reasonably be expected to, cause or provide a bona fide basis for a director or
executive officer of Company to seek indemnification from Company.
2.14 Employee Benefit Plans.
(a) Definitions. With the exception of the definitions of "Affiliate,"
"Employee" and "Employee Agreement" set forth in Section 2.14(a)(i), (v)
and (vi) below (which definition shall apply only to this Section 2.14),
for purposes of this Agreement, the following terms shall have the meanings
set forth below:
(i) "Affiliate" shall mean any other person or entity under common
control with Company within the meaning of Section 414(b), (c), (m) or
(o) of the Code and the regulations issued thereunder;
(ii) "Company Employee Plan" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether written or unwritten, funded or
unfunded, including without limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of ERISA which is or has been
maintained, contributed to, or required to be contributed to, by
Company or any Affiliate for the benefit of any Employee;
(iii) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(iv) "DOL" shall mean the Department of Labor;
(v) "Employee" shall mean any current, former, or retired employee,
officer, or director of Company or any Affiliate;
(vi) "Employee Agreement" shall mean each management, employment,
severance, consulting, relocation, repatriation, expatriation, visas,
work permit or similar agreement or contract between Company or any
Affiliate and any Employee or consultant;
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(vii) "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave Act of 1993, as
amended;
(ix) "International Employee Plan" shall mean each Company Employee
Plan that has been adopted or maintained by Company, whether informally
or formally, for the benefit of Employees outside the United States;
(x) "IRS" shall mean the Internal Revenue Service;
(xi) "Multiemployer Plan" shall mean any "Pension Plan" (as defined
below) which is a "multiemployer plan," as defined in Section 3(37) of
ERISA;
(xii) "PBGC" shall mean the Pension Benefit Guaranty Corporation; and
(xiii) "Pension Plan" shall mean each Company Employee Plan which is
an "employee pension benefit plan," within the meaning of Section 3(2)
of ERISA.
(b) List of Plans and Agreements. Part 2.14 of the Company Disclosure
Letter contains an accurate and complete list of each Company Employee Plan
and each Employee Agreement. Company does not have any plan or commitment
to establish any new Company Employee Plan, to modify any Company Employee
Plan or Employee Agreement (except to the extent required by law or to
conform any such Company Employee Plan or Employee Agreement to the
requirements of any applicable law, in each case as previously disclosed to
Parent in writing, or as required by this Agreement), or to enter into any
Company Employee Plan or Employee Agreement, nor does it have any intention
or commitment to do any of the foregoing.
(c) Documents. Except as set forth in Part 2.14 of the Company Disclosure
Letter, Company has provided to Parent: (i) correct and complete copies of
each Company Employee Plan and each Employee Agreement including all
amendments thereto and written interpretations thereof; (ii) the most
recent annual actuarial valuations, if any, prepared for each Company
Employee Plan; (iii) the three (3) most recent annual reports (Form Series
5500 and all schedules and financial statements attached thereto), if any,
required under ERISA or the Code in connection with each Company Employee
Plan or related trust; (iv) if the Company Employee Plan is funded, the
most recent annual and periodic accounting of Company Employee Plan assets;
(v) the most recent summary plan description together with the summary of
material modifications thereto, if any, required under ERISA with respect
to each Company Employee Plan; (vi) all IRS determination, opinion,
notification and advisory letters, and rulings relating to Company Employee
Plans; (vii) all material written agreements and contracts relating to each
Company Employee Plan, including, but not limited to, administrative
service agreements, group annuity contracts and group insurance contracts;
(viii) all written communications material to any Employee or Employees
relating to any Company Employee Plan and any proposed Company Employee
Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of
payments or vesting schedules or other events which would result in any
material liability to Company; (ix) all COBRA forms and related notices
currently in use; and (x) all registration statements and prospectuses
prepared in connection with each Company Employee Plan.
(d) Employee Plan Compliance. Except as set forth in Part 2.14 of the
Company Disclosure Letter, (i) Company has performed in all material
respects all obligations required to be performed by it under, is not in
default or violation of; and has no knowledge of any default or violation
by any other party to each Company Employee Plan, and each Company Employee
Plan has been established and maintained in all material respects in
accordance with its terms and in compliance with all applicable laws,
statutes, orders, rules and regulations, including but not limited to ERISA
or the Code; (ii) each Company Employee Plan intended to qualify under
Section 401(a) of the Code and each trust intended to qualify under
Section 501(a) of the Code has either received a favorable determination
letter from the IRS with respect to each such Plan as to its qualified
status under the Code or has remaining a period of time under applicable
Treasury regulations or IRS pronouncements in which to apply for such a
determination letter
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and make any amendments necessary to obtain a favorable determination and
no event has occurred which would adversely affect the status of such
determination letter or the qualified status of such Plan; (iii) no
"prohibited transaction," within the meaning of Section 4975 of the Code or
Sections 406 and 407 of ERISA, and not otherwise exempt under Section 408
of ERISA, has occurred with respect to any Company Employee Plan; (iv)
there are no actions, suits or claims pending, or, to the knowledge of
Company, threatened or reasonably anticipated (other than routine claims
for benefits) against any Company Employee Plan or against the assets of
any Company Employee Plan; (v) each Company Employee Plan can be amended,
terminated or otherwise discontinued after the Effective Time in accordance
with its terms, without liability to Parent, Company or any of its
Affiliates (other than ordinary administration expenses typically incurred
in a termination event); (vi) there are no audits, inquiries or proceedings
pending or, to the knowledge of Company, threatened by the IRS or DOL with
respect to any Company Employee Plan; and (vii) neither Company nor any
Affiliate is subject to any penalty or tax with respect to any Company
Employee Plan under Section 402(i) of ERISA or Sections 4975 through 4980
of the Code.
(e) Pension Plans. Company does not now, nor has it ever, maintained,
established, sponsored, participated in, or contributed to, any Pension
Plan which is subject to Title IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has Company contributed to or been
requested to contribute to any Multiemployer Plan.
(g) No Post-Employment Obligations. No Company Employee Plan provides, or
has any liability to provide, retiree life insurance, retiree health or
other retiree employee welfare benefits to any person for any reason,
except as may be required by COBRA or other applicable statute, and Company
has never represented, promised or contracted (whether in oral or written
form) to any Employee (either individually or to Employees as a group) or
any other person that such Employee(s) or other person would be provided
with retiree life insurance, retiree health or other retiree employee
welfare benefit, except to the extent required by statute.
(h) COBRA; FMLA. Neither Company nor, to Company's knowledge, any
Affiliate has, prior to the Effective Time, and in any material respect,
violated any of the health care continuation requirements of COBRA, any
material requirements of FMLA or any material provisions of any similar
provisions of state law applicable to its Employees.
(i) All contributions due from the Company and any Affiliate with respect
to any of the Company Employee Plans have been made or accrued on the
Company Balance Sheet or arose after the date of the Company Balance Sheet
in the ordinary course of business consistent with past practices.
(j) Effect of Transaction.
(i) The execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event
under any Company Employee Plan or Employee Agreement, or a related
trust or loan, that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness,
vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(ii) No payment or benefit which will or may be made by Company or
its Affiliates with respect to any Employee as a result of the
transactions contemplated by this Agreement will be characterized as an
"excess parachute payment," within the meaning of Section 280G(b)(1) of
the Code.
(k) Employment Matters. Company and each of its subsidiaries: (i) is in
compliance in all material respects with all applicable foreign, federal,
state and local laws, rules and regulations respecting employment,
employment practices, terms and conditions of employment and wages and
hours, in each case, with respect to Employees; (ii) has withheld all
amounts required by law or by agreement to be
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withheld from the wages, salaries and other payments to Employees; (iii)
has properly classified independent contractors for purposes of federal and
applicable state tax laws, laws applicable to employee benefits and other
applicable laws; (iv) is not liable for any arrears of wages or any taxes
or any penalty for failure to comply with any of the foregoing; and (v) is
not liable for any material payment to any trust or other fund or to any
governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees (other than routine payments to be made in the normal course of
business and consistent with past practice). There are no pending, or, to
Company's knowledge, threatened or reasonably anticipated claims or actions
against Company under any worker's compensation policy or long-term
disability policy. To Company's knowledge, no Employee of Company has
violated any employment contract, nondisclosure agreement or noncompetition
agreement by which such Employee is bound due to such Employee being
employed by Company or disclosing to Company or using trade secrets or
proprietary information of any other person or entity.
(l) Labor. No work stoppage or labor strike against Company is pending,
threatened or reasonably anticipated. Company does not know of any
activities or proceedings of any labor union to organize any Employees.
There are no actions, suits, claims, labor disputes or grievances pending,
or, to the knowledge of Company, threatened or reasonably anticipated
relating to any labor, safety or discrimination matters involving any
Employee, including, without limitation, charges of unfair labor practices
or discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in any material liability to
Company. Neither Company nor any of its subsidiaries has engaged in any
unfair labor practices within the meaning of the National Labor Relations
Act. Company is not presently, nor has it been in the past, a party to, or
bound by, any collective bargaining agreement or union contract with
respect to Employees and no collective bargaining agreement is being
negotiated by Company. All Company employees are legally permitted to be
employed by Company in the United States of America.
2.15 Environmental Matters.
(a) Hazardous Material. Except as would not result in material liability
to Company, no underground storage tanks and no amount of any substance
that has been designated by any Governmental Entity or by applicable
federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without
limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all substances
listed as hazardous substances pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, or defined
as a hazardous waste pursuant to the United States Resource Conservation
and Recovery Act of 1976, as amended, and the regulations promulgated
pursuant to said laws, but excluding office and janitorial supplies, (a
"Hazardous Material") are present, as a result of the actions of Company or
any of its subsidiaries or any affiliate of Company, or, to Company's
knowledge, as a result of any actions of any third party or otherwise, in,
on or under any property, including the land and the improvements, ground
water and surface water thereof that Company or any of its subsidiaries has
at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. Except as would not result in a
material liability to Company (in any individual case or in the aggregate)
(i) neither Company nor any of its subsidiaries has transported, stored,
used, manufactured, disposed of released or exposed its employees or others
to Hazardous Materials in violation of any law in effect on or before the
Closing Date, and (ii) neither Company nor any of its subsidiaries has
disposed of; transported, sold, used, released, exposed its employees or
others to or manufactured any product containing a Hazardous Material
(collectively "Hazardous Materials Activities") in violation of any rule,
regulation, treaty or statute promulgated by any Governmental Entity in
effect prior to or as of the date hereof to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activity.
(c) Permits. Company and its subsidiaries currently hold all
environmental approvals, permits, licenses, clearances and consents (the
"Company Environmental Permits") material to and necessary for
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the conduct of Company's and its subsidiaries' Hazardous Material
Activities and other businesses of Company and its subsidiaries as such
activities and businesses are currently being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ or injunction is pending, and to
Company's knowledge, no action, proceeding, revocation proceeding,
amendment procedure, writ or injunction has been threatened by any
Governmental Entity against Company or any of its subsidiaries in a writing
delivered to Company concerning any Company Environmental Permit, Hazardous
Material or any Hazardous Materials Activity of Company or any of its
subsidiaries. Company is not aware of any fact or circumstance which could
involve Company or any of its subsidiaries in any environmental litigation
or impose upon Company any material environmental liability.
2.16 Agreements, Contracts and Commitments. Except as otherwise set forth in
Part 2.16 of the Company Disclosure Letter, neither Company nor any of its
subsidiaries is a party to or is bound by:
(a) any employment agreement, contract or commitment with any employee or
member of Company's Board of Directors, other than those that are
terminable by Company or any of its subsidiaries on no more than thirty
days notice without liability or financial obligation, except to the extent
general principles of wrongful termination law may limit Company's or any
of its subsidiaries' ability to terminate employees at will, or any
consulting agreement;
(b) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
(c) any agreement of indemnification, any guaranty or any instrument
evidencing indebtedness for borrowed money by way of direct loan, sale of
debt securities, purchase money obligation, conditional sale, or otherwise;
(d) any agreement, obligation or commitment containing covenants
purporting to limit or which effectively limit Company's or any of its
subsidiaries' freedom to compete in any line of business or in any
geographic area or which would so limit Company or Surviving Corporation or
any of its subsidiaries or any employees of any thereof after the Effective
Time or granting any exclusive distribution or other exclusive rights;
(e) any agreement, contract or commitment currently in force relating to
the disposition or acquisition by Company or any of its subsidiaries after
the date of this Agreement of a material amount of assets not in the
ordinary course of business or pursuant to which Company has any material
ownership interest in any corporation, partnership, joint venture or other
business enterprise other than Company's subsidiaries;
(f) any licensing, distribution, sponsorship, advertising, merchant
program or other similar agreement to which Company or one of its
subsidiaries is a party which (i) may not be canceled by Company or its
subsidiaries, as the case may be, without penalty upon notice of 30 days or
less, and (ii) which provides for payments by or to Company or its
subsidiaries in an amount in excess of $100,000 over the term of the
agreement or which is (or could reasonably be expected to become) material
to Company;
(g) any agreement, contract or commitment currently in force to provide
source code to any third party for any product or technology; or
(h) any other agreement, contract or commitment currently in effect that
is material to Company's business as presently conducted and proposed to be
conducted.
Neither Company nor any of its subsidiaries, nor to Company's knowledge any
other party to a Company Contract (as defined below), is in breach, violation
or default under, and neither Company nor any of its subsidiaries has received
written notice that it has breached, violated or defaulted under, any of the
material
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terms or conditions of any of the agreements, contracts or commitments to which
Company or any of its subsidiaries is a party or by which it is bound that are
required to be disclosed in the Company Disclosure Letter pursuant to clauses
(a) through (h) above or pursuant to Section 2.11 hereof or are required to be
filed with any Company SEC Report (any such agreement, contract or commitment,
a "Company Contract") in such a manner as would permit any other party to
cancel or terminate any such Company Contract, or would permit any other party
to seek material damages or other remedies (for any or all of such breaches,
violations or defaults, in the aggregate).
The agreements set forth in Part 2.16(i) of the Company Disclosure Letter
have, to Company's knowledge, been executed by each party thereto in the form
provided to Parent.
2.17 Change of Control Payments. Part 2.17 of the Company Disclosure Letter
set forth each plan or agreement pursuant to which any amounts may become
payable (whether currently or in the future) to current or former officers and
directors of Company as a result of or in connection with the Merger.
2.18 Insurance. Company and each of its subsidiaries have policies of
insurance and bonds of the type and in amounts customarily carried by persons
conducting business or owing assets similar to those of Company and its
subsidiaries. There is no material claim pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies have been paid and Company and its subsidiaries are otherwise in
compliance in all material respects with the terms of such policies and bonds.
To the knowledge of Company, there has been no threatened termination of, or
material premium increase with respect to, any of such policies.
2.19 Customers and Suppliers.
(a) Customers. Neither Company nor any of its subsidiaries has received
any notice or other communication (in writing or otherwise), or received
any other information, indicating that customers representing a material
portion of Company's and its subsidiaries' revenues may cease dealing with
Company or its subsidiaries or may otherwise reduce the volume of business
transacted by such person or entity with Company and its subsidiaries below
historical levels.
(b) Accounts Receivable. Part 2.19 of the Company Disclosure Letter
provides an accurate and complete breakdown and aging of the accounts
receivable and notes receivable of each customer of Company and its
subsidiaries and a list of all other receivables of Company and its
subsidiaries as of July 3, 1999, categorized by period of aging (30, 60, 90
or 120 more days).
(c) Suppliers. As of the date of this Agreement, no material supplier of
Company has indicated that it will stop or materially decrease the rate of
supplying materials, products or services to Company.
2.20 Disclosure. The information supplied by Company for inclusion in the
Form S-4 (or any similar successor form thereto) Registration Statement to be
filed by Parent with the SEC in connection with the issuance of Parent Common
Stock in the Merger (the "Registration Statement") shall not at the time the
Registration Statement is filed with the SEC and at the time it becomes
effective under the Securities Act contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The information
supplied by Company for inclusion in the proxy statement/prospectus to be sent
to the shareholders of Company in connection with the meeting of Company's
shareholders to consider the approval and adoption of this Agreement and the
approval of the Merger (the "Company Shareholders' Meeting") and the meeting of
Parent's stockholders to consider the approval of the issuance of the shares of
Parent Common Stock pursuant to the Merger and an amendment to Parent's
Certificate of Incorporation to change the name of Parent to "Egghead.com,
Inc.," effective at the Effective Time, and to increase the authorized number
of shares of Parent Common Stock so as to permit the transactions contemplated
hereby, subject to and upon consummation of the Merger (such proxy
statement/prospectus as amended or
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supplemented is referred to herein as the "Proxy Statement/Prospectus") shall
not, on the date the Proxy Statement/Prospectus is mailed to Company's
shareholders, at the time of the Company Shareholders' Meeting or as of the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not false or misleading; or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Company Shareholders' Meeting which has become
false or misleading. The Proxy Statement/Prospectus will comply as to form in
all material respects with the provisions of the Securities Act, the Exchange
Act and the rules and regulations thereunder. If at any time prior to the
Effective Time any event relating to Company or any of its affiliates, officers
or directors should be discovered by Company which is required to be set forth
in an amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, Company shall promptly inform Parent. Notwithstanding the
foregoing, Company makes no representation or warranty with respect to any
information supplied by Parent or Merger Sub which is contained in any of the
foregoing documents.
2.21 Board Approval. The Board of Directors of Company has, as of the date of
this Agreement, determined (i) that the Merger is advisable and fair to, and in
the best interests of Company and its shareholders, and (ii) to recommend that
the shareholders of Company approve and adopt this Agreement and approve the
Merger.
2.22 Fairness Opinion. Company's Board of Directors has received a written
opinion from its financial advisor, Hambrecht & Quist LLC, dated as of the date
hereof, to the effect that the consideration to be received by Company's
shareholders in connection with the Merger is fair to Company's shareholders
from a financial point of view, and has delivered to Parent a copy of such
opinion.
2.23 Brokers' and Finders' Fees. Except for fees payable to Hambrecht & Quist
LLC, pursuant to an engagement letter dated June 30, 1999, a copy of which has
been provided to Parent, Company has not incurred, nor will it incur, directly
or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
2.24 Merger Statutes. Except for Chapter 23B.11 of the Washington Business
Corporation Act, no Washington statute or regulation restricting or governing
mergers or business combinations applies to the Merger, this Agreement, or any
of the transactions contemplated by this Agreement.
2.25 Affiliates. Part 2.25 of the Company Disclosure Letter is a complete
list of those persons who may be deemed to be, in Company's reasonable
judgment, affiliates of Company within the meaning of Rule 145 promulgated
under the Securities Act (each, a "Company Affiliate"). Except as set forth in
the Company SEC Reports, since the date of Company's last proxy statement filed
with the SEC, no event has occurred as of the date of this Agreement that would
be required to be reported by Company pursuant to Item 404 of Regulation S-K
promulgated by the SEC.
2.26 Pooling of Interests. To the knowledge of Company, based on consultation
with its independent accountants, neither Company nor any of its directors,
officers, affiliates or shareholders has taken or agreed to take any action
which would preclude Parent's ability to account for the Merger as a pooling of
interests.
2.27 No Existing Discussions. As of the date hereof, Company is not engaged,
directly or indirectly, in any discussion or negotiations with any other party
with respect to any Company Acquisition Proposal (as defined in Section
5.5(a)).
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
As of the date of this Agreement and as of the Closing Date, Parent and
Merger Sub represent and warrant to Company, subject to the exceptions
specifically disclosed in writing in the disclosure letter and referencing a
specific representation delivered by Parent to Company dated as of the date
hereof and certified by a duly authorized officer of Parent (the "Parent
Disclosure Letter"), as follows:
3.1 Organization and Good Standing. Parent and each of its subsidiaries
(including Merger Sub) (i) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction in which it is
organized; (ii) has the corporate or other power and authority to own, lease
and operate its assets and property and to carry on its business as now being
conducted; and (iii) except as would not be material to Parent, is duly
qualified or licensed to do business in each jurisdiction where the character
of the properties owned, leased or operated by it or the nature of its
activities makes such qualification or licensing necessary.
3.2 Subsidiaries and Other Interests. Other than the corporations identified
in Part 3.2 of the Parent Disclosure Letter, neither Parent nor any of the
other corporations identified in Part 3.2 of the Parent Disclosure Letter owns
any capital stock of, or any equity interest of any nature in, any corporation,
partnership, joint venture arrangement or other business entity, except for
passive investments in equity interests of public companies as part of the cash
management program of Parent. Neither Parent nor any of its subsidiaries has
agreed or is obligated to make, or is bound by any written, oral or other
agreement, contract, subcontract, lease, binding understanding, instrument,
note, option, warranty, purchase order, license, sublicense, insurance policy,
benefit plan or legally binding commitment or undertaking of any nature, as in
effect as of the date hereof or as may hereinafter be in effect under which it
may become obligated to make any future investment in or capital contribution
to any other entity. Neither Parent, nor any of its subsidiaries, has, at any
time, been a general partner of any general partnership, limited partnership or
other entity. Part 3.2 of the Parent Disclosure Letter indicates the
jurisdiction of organization of each entity listed therein and Parent's direct
or indirect equity interest therein.
3.3 Certificate of Incorporation and Bylaws. Parent has delivered or made
available to Company a true and correct copy of: (a) the Certificate of
Incorporation and Bylaws of Parent and similar governing instruments of each of
its subsidiaries, each as amended to date and as in full force in effect; and
(b) Parent's minute book containing all records of all proceedings, consents,
actions and meetings during the past three years of the Parent stockholders,
Board of Directors and any committees of the Board of Directors. Parent's
Certificate of Incorporation and Bylaws delivered and each such instrument is
in full force and effect. Neither Parent nor any of its subsidiaries is in
violation of any of the provisions of its Certificate of Incorporation or
Bylaws or equivalent governing instruments.
3.4 Authority.
(a) Parent has all requisite corporate power and authority to enter into
this Agreement and the Parent Option Agreement and to consummate the
transactions contemplated hereby and thereby, subject to the approval by
the stockholders of Parent of the issuance of the shares of Parent Common
Stock pursuant to the Merger and an amendment to Parent's Certificate of
Incorporation to change the name of Parent to "Egghead.com, Inc.,"
effective immediately following the Effective Time, and to increase the
authorized number of shares of Parent Common Stock so as to permit the
transactions contemplated hereby. Merger Sub has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the
part of Parent and Merger Sub, subject only to the filing of the Articles
of Merger pursuant to Washington Law. A vote of holders of a majority of
the outstanding shares of the Parent Common Stock is sufficient for
Parent's stockholders to approve an amendment to Parent's Certificate of
Incorporation to change the name of Parent to "Egghead.com, Inc.,"
effective at the Effective Time and to
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increase the authorized number of shares of Parent Common Stock so as
consent to approve the Merger and the adoption of this Agreement by Merger
Sub, which consent Parent and Merger Sub represent and warrant constitutes
the requisite approval of the Merger and this Agreement by Merger Sub. This
Agreement and the Parent Option Agreement have each been duly executed and
delivered by Parent and this Agreement has been duly executed and delivered
by Merger Sub and, assuming the due authorization, execution and delivery
by Company, each constitutes the valid and binding obligations of Parent
and, in the case of this Agreement, Merger Sub, respectively, enforceable
against Parent and Merger Sub in accordance with their terms, except as
enforceability may be limited by bankruptcy and other similar laws
affecting the rights of creditors generally and general principles of
equity. The execution and delivery of this Agreement and the Parent Option
Agreement by Parent and the execution and delivery of this Agreement by
Merger Sub do not, and the performance of this Agreement and the Parent
Option Agreement by Parent and the performance of this Agreement by Merger
Sub will not, (i) conflict with or violate the Certificate of Incorporation
or Bylaws of Parent or Merger Sub, (ii) subject to compliance with the
requirements set forth in Section 3.4(b) below, conflict with or violate
any law, rule, regulation, order, judgment or decree applicable to Parent
or Merger Sub or by which any of their respective properties is bound or
affected, or (iii) result in any material breach of or constitute a
material default (or an event that with notice or lapse of time or both
would become a material default) under, or impair Parent's rights or alter
the rights or obligations of any third party under, or give to others any
rights of termination, amendment, acceleration or cancellation of; or
result in the creation of a material lien or Encumbrance on any of the
material properties or assets of Parent or Merger Sub pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation, in each case that is
material to Parent, to which Parent or Merger Sub is a party or by which
Parent or Merger Sub or any of their respective properties are bound or
affected. Part 3.4 of the Parent Disclosure Letter list all consents,
waivers and approvals under any of Parent's or any of its subsidiaries'
agreements, contracts, licenses or leases required to be obtained in
connection with the consummation of the transactions contemplated hereby,
which, if individually or in the aggregate not obtained, would result in a
material loss of benefits to Parent or the Surviving Corporation as a
result of the Merger.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required to be
obtained or made by Parent or Merger Sub in connection with the execution
and delivery of this Agreement or the consummation of the Merger, except
for (i) the filing of the Articles of Merger with the Secretary of State of
the State of Washington, (ii) the filing of the Registration Statement and
the Proxy Statement/Prospectus with the SEC in accordance with the
Securities Act and the Exchange Act, and the effectiveness of the
Registration Statement, (iii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required
under applicable federal, foreign and state securities (or related) laws
and the HSR Act and the securities or antitrust laws of any foreign
country, and (iv) such other consents, authorizations, filings, approvals
and registrations which if not obtained or made would not be material to
Parent or Company or have a material adverse effect on the ability of the
parties hereto to consummate the Merger.
3.5 Parent and Merger Sub Capital Structure.
(a) Stock. The authorized capital stock of Parent consists of (i) thirty
million (30,000,000) shares of Parent Common Stock, par value $.001 per
share, of which there were 19,603,467 shares issued and outstanding as of
July 13, 1999, and (ii) two million (2,000,000) shares of Preferred Stock,
par value $.001 per share, of which no shares are issued or outstanding.
All outstanding shares of Parent Common Stock are duly authorized, validly
issued, fully paid and nonassessable and are not subject to preemptive
rights created by statute, the Certificate of Incorporation or Bylaws of
Parent or any agreement or document to which Parent is a party or by which
it is bound. As of the date of this Agreement, there are no shares of
Parent Common Stock held in treasury by Parent.
(b) Options and Warrants. As of July 13, 1999, Parent had reserved an
aggregate of 5,691,610 shares of Parent Common Stock for issuance pursuant
to Parent's 1995 Equity Incentive Plan (including
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shares subject to outstanding options) and 589,723 shares of Parent Common
Stock for issuance pursuant to Parent's 1996 Employee Stock Purchase Plan.
As of July 13, 1999, there were options outstanding to purchase an
aggregate of 2,959,388 shares of Parent Common Stock pursuant to Parent's
1995 Equity Incentive Plan ("Parent Options") and purchase rights
outstanding to purchase no more than an aggregate of 144,696 shares of
Parent Common Stock pursuant to Parent's 1996 Employee Stock Purchase Plan.
As of July 13, 1999, there were no warrants outstanding to purchase shares
of Parent Common Stock. All shares of Parent Common Stock subject to
issuance as aforesaid, upon issuance on the terms and conditions specified
in the instruments pursuant to which they are issuable, would be duly
authorized, validly issued, fully paid and nonassessable. Part 3.5 of the
Parent Disclosure Letter list for each person who held Parent Options as of
July 13, 1999: (i) the name of the holder of such option; (ii) the exercise
price of such option; (iii) the number of shares as to which such option
had vested at such date; (iv) the vesting schedule for such option; and (v)
whether the exercisability of such option will be accelerated in any way by
the transactions contemplated by this Agreement and the extent of
acceleration, if any.
(c) Merger Sub. The authorized capital stock of Merger Sub consists of
1,000 shares of common stock, $0.01 par value, all of which, as of the date
hereof, are issued and outstanding and are held by Parent. All of the
outstanding shares of Merger Sub's common stock have been duly authorized
and validly issued, and are fully paid and nonassessable. Merger Sub was
formed for the purpose of consummating the Merger and has no material
assets or liabilities except as necessary for such purpose.
(d) Due Issuance. The Parent Common Stock to be issued in the Merger,
when issued in accordance with the provisions of this Agreement, will be
validly issued, fully paid and nonassessable.
(e) Legal Compliance. All outstanding shares of Parent Common Stock, all
outstanding Parent Options, and all outstanding shares of capital stock of
each subsidiary of Parent have been issued and granted in compliance with
(i) all applicable securities laws and, to the knowledge of Parent, all
other applicable Legal Requirements and (ii) all material requirements set
forth in applicable agreements or instruments.
(f) Vesting Acceleration. There are no commitments or agreements of any
character to which Parent is bound obligating Parent to accelerate the
vesting of any Parent Options as a result of the Merger.
(g) Option Records. Parent has made available to Company accurate,
current and complete copies of the Parent Option Plans and any other stock
option plans pursuant to which Parent has granted stock options that are
currently outstanding, the form of all stock option agreements evidencing
such options and the applicable vesting schedule for each such option.
3.6 Obligations With Respect to Capital Stock.
(a) Except as set forth in Part 3.6 of the Parent Disclosure Letter,
there are no equity securities, partnership interests or similar ownership
interests of any class of Parent equity security, or any securities
exchangeable or convertible into or exercisable for such equity securities,
partnership interests or similar ownership interests, issued, reserved for
issuance or outstanding.
(b) Except for securities Parent owns free and clear of all claims and
Encumbrances, directly or indirectly through one or more subsidiaries, and
except for shares of capital stock or other similar ownership interests of
certain subsidiaries of Parent that are owned by certain nominee equity
holders as required by the applicable law of the jurisdiction of
organization of such subsidiaries, as of the date of this Agreement, there
are no equity securities, partnership interests or similar ownership
interests of any class of equity security of any subsidiary of Parent, or
any security exchangeable or convertible into or exercisable for such
equity securities, partnership interests or similar ownership interests,
issued, reserved for issuance or outstanding.
(c) Except as set forth in Part 3.5 or Part 3.6 of the Parent Disclosure
Letter, there are no subscriptions, options, warrants, equity securities,
partnership interests or similar ownership interests, calls, rights
(including preemptive rights), commitments or agreements of any character
to which Parent or any
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of its subsidiaries is a party or by which it is bound obligating Parent or
any of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, or repurchase, redeem or otherwise acquire, or cause the
repurchase, redemption or acquisition of, any shares of capital stock,
partnership interests or similar ownership interests of Parent or any of
its subsidiaries or obligating Parent or any of its subsidiaries to grant,
extend, accelerate the vesting of or enter into any such subscription,
option, warrant, equity security, call, right, commitment or agreement.
(d) Except as contemplated by this Agreement, there are no registration
rights and there is no voting trust, proxy, rights plan, antitakeover plan
or other agreement or understanding to which Parent is a party or by which
it is bound with respect to any equity security of any class of Parent or
with respect to any equity security, partnership interest or similar
ownership interest of any class of any of its subsidiaries. Stockholders of
Parent will not be entitled to dissenters' or appraisal rights under
applicable state law in connection with the Merger.
3.7 SEC Filings; Parent Financial Statements.
(a) SEC Filings Generally. Parent has filed all forms, reports and
documents required to be filed by Parent with the SEC since January 1,
1997, and has made available to Company such forms, reports and documents
in the form filed with the SEC. All such required forms, reports and
documents (including those that Parent may file subsequent to the date
hereof) are referred to herein as the "Parent SEC Reports." As of their
respective dates, the Parent SEC Reports (i) were prepared in accordance
with the requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations of the SEC thereunder applicable
to such Parent SEC Reports, and (ii) did not at the time they were filed
(or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading, except to
the extent corrected prior to the date of this Agreement by a subsequently
filed Parent SEC Report. Taken as a whole, the Parent SEC Reports do not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except to the extent corrected prior to the date of
this Agreement by a subsequently filed Parent SEC Report. None of Parent's
subsidiaries is required to file any forms, reports or other documents with
the SEC. All material agreements filed by Parent as exhibits to the Parent
SEC Reports were executed by all parties thereto and such agreements as
displayed on the World Wide Web via the EDGAR Service conform to the
agreements as so executed.
(b) Publicly Reported Financial Statements. Each of the consolidated
financial statements (including, in each case, any related notes thereto)
contained in the Parent SEC Reports (the "Parent Financials"), including
any Parent SEC Reports filed after the date hereof until the Closing, (i)
complied as to form in all material respects with the published rules and
regulations of the SEC with respect thereto, (ii) was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case
of unaudited interim financial statements, as may be permitted by the SEC
on Form 10-Q, 8-K or any successor form under the Exchange Act) and (iii)
fairly presented the consolidated financial position of Parent and its
subsidiaries as at the respective dates thereof and the consolidated
results of Parent's operations and cash flows for the periods indicated,
except that the unaudited interim financial statements may not contain
footnotes and were or are subject to normal and recurring year-end
adjustments. The balance sheet of Parent contained in Parent SEC Reports as
of March 31, 1999 is hereinafter referred to as the "Parent Balance Sheet."
Except as disclosed in the Parent Financials, since the date of the Parent
Balance Sheet neither Parent nor any of its subsidiaries has any
liabilities required under GAAP to be set forth on a balance sheet
(absolute, accrued, contingent or otherwise) which are, individually or in
the aggregate, material to the business, results of operations or financial
condition of Parent and its subsidiaries taken as a whole, except for
liabilities incurred since the date of the Parent Balance Sheet in the
ordinary course of business consistent with past practices and
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liabilities incurred in connection with this Agreement. Without limiting
the foregoing, the Parent's revenue recognition practices are in full
conformance with all requirements of GAAP and all promulgations with
respect to revenue recognition (including applicable documentation
requirements) and there exists no fact (such as any side letters or oral
understandings with customers regarding product return rights) that has not
been disclosed to Parent's auditors, which if so disclosed, would cause
such auditors to recommend or require that the Parent restate its financial
statements to so conform. The reserves on the Parent's financial statements
for obsolete inventory and warranty returns conform to GAAP and, in the
judgment of Company management, are adequate.
(c) Interim Financial Statements. Parent has delivered to Company copies
of Parent's unaudited consolidated balance sheet as of May 31, 1999 and
income statement and statement of cash flows for the five months ended May
31, 1999. Such financial statements: (i) are in accordance with the books
and records of Parent; (ii) fairly present in all material respects
Parent's financial condition at the date therein indicated and the results
of operations for the period therein indicated and the results of
operations for the period therein specified; and (iii) have been prepared
in accordance with GAAP applied on a consistent basis (except for the
absence of any footnotes required by GAAP).
(d) Amendments. Parent has heretofore furnished to Company a complete and
correct copy of any amendments or modifications, which have not yet been
filed with the SEC but which are required to be filed, to agreements,
documents or other instruments which previously had been filed by Parent
with the SEC pursuant to the Securities Act or the Exchange Act.
3.8 Absence of Certain Changes or Events. Since the date of the Parent
Balance Sheet there has not been: (a) any Material Adverse Effect with respect
to Parent, (b) any declaration, setting aside or payment of any dividend on, or
other distribution (whether in cash, stock or property) in respect of, any of
Parent's or any of its subsidiaries' capital stock, or any purchase, redemption
or other acquisition by Parent of any of Parent's capital stock or any other
securities of Parent or its subsidiaries or any options, warrants, calls or
rights to acquire any such shares or other securities except for repurchases
from employees following their termination pursuant to the terms of their pre-
existing stock option or purchase agreements, (c) any granting by Parent or any
of its subsidiaries of any increase in compensation or fringe benefits to any
of their officers or employees (except for increases in compensation to
employees (such increases not to exceed 15% in the case of officers) in the
ordinary course of business consistent with prior practice), or any payment by
Parent or any of its subsidiaries of any bonus to any of their officers or
employees (other than in the ordinary course of business consistent with past
practices), or any granting by Parent or any of its subsidiaries of any
increase in severance or termination pay or any entry by Parent or any of its
subsidiaries into, or material modification or amendment of, any currently
effective employment, severance, termination or indemnification agreement or
any agreement the benefits of which are contingent or the terms of which are
materially altered upon the occurrence of a transaction involving Parent of the
nature contemplated hereby; (d) any material change or alteration in the policy
of Parent relating to the granting of stock options to its employees and
consultants; (e) any split, combination or reclassification of any of Parent's
or any of its subsidiaries' capital stock, (f) any material change by Parent in
its accounting methods, principles or practices, except as required by
concurrent changes in GAAP, or (g) any revaluation by Parent of any of its
assets, including, without limitation, writing off notes or accounts receivable
other than in the ordinary course of business.
3.9 Taxes. In each case except as set forth in Part 3.9 of the Parent
Disclosure Letter:
(a) Parent and each of its subsidiaries have timely filed all federal,
state, local and foreign Returns relating to Taxes required to be filed by
or on behalf of Parent and each of its subsidiaries with any Tax authority,
such Returns are true, correct and complete in all material respects, and
Parent and each of its subsidiaries have paid all Taxes shown to be due on
such Returns;
(b) Parent and each of its subsidiaries have withheld with respect to its
employees all federal and state income taxes, Taxes pursuant to FICA, Taxes
pursuant to FUTA and other Taxes required to be withheld;
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(c) Neither Parent nor any of its subsidiaries has been delinquent in the
payment of any Tax nor is there any Tax deficiency outstanding, proposed or
assessed against Parent or any of its subsidiaries, nor has Parent or any
of its subsidiaries executed any unexpired waiver of any statute of
limitations on or extending the period for the assessment or collection of
any Tax;
(d) No audit or other examination of any Return of Parent or any of its
subsidiaries by any Tax authority is presently in progress, nor has Parent
or any of its subsidiaries been notified of any request for such an audit
or other examination;
(e) No adjustment relating to any Returns filed by Parent or any of its
subsidiaries has been proposed in writing formally or informally by any Tax
authority to Parent or any of its subsidiaries or any representative
thereof;
(f) Neither Parent nor any of its subsidiaries has any liability for
unpaid Taxes which has not been accrued for or reserved on the Parent
Balance Sheet, whether asserted or unasserted, contingent or otherwise,
which is material to Parent, other than any liability for unpaid Taxes that
may have accrued since the date of the Parent Balance Sheet in connection
with the operation of the business of Parent and its subsidiaries in the
ordinary course;
(g) There is no contract, agreement, plan or arrangement to which Parent
is a party, including but not limited to the provisions of this Agreement
and the agreements entered into in connection with this Agreement, covering
any employee or former employee of Parent or any of its subsidiaries that,
individually or collectively, would give rise to the payment of any amount
that would not be deductible pursuant to Sections 280G, 404 or 162(m) of
the Code; there is no contract, agreement, plan or arrangement to which
Parent is a party or by which it is bound to compensate any individual for
excise taxes paid pursuant to Section 4999 of the Code;
(h) Neither Parent nor any of its subsidiaries has filed any consent
agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as defined in Section 341(f)(4) of the Code) owned by Parent;
(i) Neither Parent nor any of its subsidiaries is party to or has any
obligation under any tax-sharing, tax indemnity or tax allocation agreement
or arrangement among members of an affiliated group other than the
affiliated group that includes Parent on the date immediately preceding the
Closing Date;
(j) Except as may be required as a result of the Merger, Parent and its
subsidiaries have not been and will not be required to include any
adjustment in Taxable income for any Tax period (or portion thereof)
pursuant to Section 481 or Section 263A of the Code or any comparable
provision under state or foreign Tax laws as a result of transactions,
events or accounting methods employed prior to the Closing;
(k) Parent has made available to Company or its legal or accounting
representatives copies of all foreign, federal and state income tax and all
state sales and use tax Returns for Parent and each of its subsidiaries
filed for all open periods; and
(l) There are no Liens on the assets of Parent or any subsidiary relating
to or attributable to Taxes, other than Liens for Taxes not yet due and
payable.
3.10 Title to Properties; Absence of Liens and Encumbrances.
(a) All real property leases to which Parent is a party and each
amendment thereto that is in effect as of the date of this Agreement are in
full force and effect, are valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time,
or both, would constitute a default) that would give rise to a claim
against Parent in an amount greater than $50,000.
(b) Parent has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in
its business, free and clear of any Liens, except as reflected in the
Parent Financials and except for liens for
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taxes not yet due and payable and such Liens or other imperfections of
title and Encumbrances, if any, which are not material in character, amount
or extent, and which do not materially detract from the value, or
materially interfere with the present use, of the property subject thereto
or affected thereby.
3.11 Intellectual Property. For the purposes of this Agreement, the following
terms have the following definitions:
"Parent Intellectual Property" shall mean any Intellectual Property that
is owned by, or exclusively licensed to, Parent or one of its subsidiaries.
"Parent Registered Intellectual Property" means all of the Registered
Intellectual Property owned by, or filed in the name of, Parent or one of
its subsidiaries.
(a) Good Title Generally. Parent or one of its subsidiaries owns and has
good and exclusive title to, or has license (sufficient for the conduct of
its business as currently conducted and as proposed to be conducted) to,
each material item of Parent Intellectual Property free and clear of any
lien or Encumbrance (excluding licenses and related restrictions and
restrictions imposed by law); and Parent or one of its subsidiaries is the
exclusive owner of all trademarks and trade names used in connection with
the operation or conduct of the business of Parent and its subsidiaries,
including the sale of any Parent-owned products or the provision of any
services by Parent and its subsidiaries. Parent or one of its subsidiaries
owns exclusively, and has good title to, all copyrighted works that are
Parent-owned products (excluding services provided), or which Parent
otherwise expressly purports to own. There are no royalties, honoraria,
fees or other payments payable by Parent to any person or entity by reason
of the ownership, use, license, sale or disposition of the Parent
Intellectual Property.
(b) Patent, Copyright, Trademark. Each material item of Parent Registered
Intellectual Property is valid and subsisting, all necessary registration,
maintenance and renewal fees currently due in connection with such Parent
Registered Intellectual Property have been made and all necessary
documents, recordations and certificates in connection with such Registered
Intellectual Property have been filed with the relevant patent, copyright,
trademark or other authorities in the United States or foreign
jurisdictions, as the case may be, for the purposes of maintaining such
Registered Intellectual Property.
(c) Trade Secrets. Parent and its subsidiaries have taken reasonable
steps to protect Parent's and its subsidiaries' rights in Parent's and such
subsidiaries' confidential information and trade secrets that they wish to
protect or any trade secrets or confidential information of third parties
provided to Parent or such subsidiaries, and, without limiting the
foregoing, Parent and its subsidiaries have and enforce a policy requiring
each employee and contractor to execute a proprietary
information/confidentiality agreement substantially in the form provided to
Parent, to the knowledge of Parent, and except as disclosed in Part 3.8(c)
of the Parent Disclosure Letter, all current and former employees and
contractors of Parent and its subsidiaries have executed such an agreement.
(d) Domain Names and URLs. Part 3.11(d) of the Parent Disclosure Letter
sets forth a list of all Internet domain names and all Internet and World
Wide Web URLs owned and used by Parent in its business. Parent and its
subsidiaries have, and after the Effective Time will have, a valid
registration and all material rights (free of any material restriction) in
and to all domain names and URLs used by them in their respective
businesses including, without limitation, all rights necessary to continue
to conduct Parent's business as it is currently conducted under such names.
(e) Third Party IP. To the extent that any work, material or invention
has been developed or created by a third party for Parent or any of its
subsidiaries, Parent or its subsidiaries, as the case may be, has a written
agreement with such third party under all of its Intellectual Property with
respect thereto and Parent or its subsidiary thereby either (i) has
obtained ownership of and is the exclusive owner of such work, material, or
invention, or (ii) has obtained a license (sufficient for the conduct of
its business as currently conducted and as proposed to be conducted) under
all such third party's Intellectual Property in such work, material or
invention by operation of law or by valid assignment, to the fullest extent
it is legally possible to do so.
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(f) Transfers of IP. Part 3.11(f) of the Parent Disclosure Letter lists
all material contracts, licenses and agreements to which Parent is a party
(i) with respect to Parent Intellectual Property licensed or transferred to
any third party (other than end-user licenses in the ordinary course); or
(ii) pursuant to which a third party has licensed or transferred any
material Intellectual Property to Parent. Neither Parent nor any of its
subsidiaries has transferred ownership of, or granted any exclusive license
with respect to, any Intellectual Property that is or was material Parent
Intellectual Property, to any third party.
(g) No Infringement of Parent IP. To the knowledge of Parent, no Parent
Intellectual Property or product or service of Parent is subject to any
proceeding or outstanding decree, order, judgment, agreement, or
stipulation restricting in any manner the use, transfer, or licensing
thereof by Parent, or which may affect the validity, use or enforceability
of such Parent Intellectual Property. To the knowledge of Parent, no person
has infringed or misappropriated or is infringing or misappropriating any
Parent Intellectual Property.
(h) Parent Infringement of Third Party IP. To the knowledge of Parent,
the operation of the business of Parent as such business currently is
conducted, including Parent's design, development, marketing and sale of
the products or services of Parent (including with respect to products
currently under development) has not, does not and will not infringe or
misappropriate the Intellectual Property of any third party or, to its
knowledge, constitute unfair competition or trade practices under the laws
of any jurisdiction. Parent has not received notice from any third party
that the operation of the business of Parent or any act, product or service
of Parent, infringes or misappropriates the Intellectual Property of any
third party or constitutes unfair competition or trade practices under the
laws of any jurisdiction.
(i) Effect of Merger. Parent has entered into or acquired all contracts,
licenses, and agreements reasonably required to conduct Parent's business
as it is conducted as of the Closing Date. All material contracts, licenses
and agreements relating to the Parent Intellectual Property to which Parent
or any subsidiary is party or by which Parent or any subsidiary is bound
are in full force and effect. The consummation of the transactions
contemplated by this Agreement will neither violate nor result in the
breach, modification, cancellation, termination, or suspension of such
contracts, licenses and agreements. Parent and each of its subsidiaries are
in material compliance with, and have not materially breached any term of
any of such contracts, licenses and agreements and, to the knowledge of
Parent and its subsidiaries, all other parties to such contracts, licenses
and agreements are in compliance in all material respects with, and have
not materially breached any term of, such contracts, licenses and
agreements. Following the Closing Date, Parent will be permitted to
exercise all of Parent's rights under such contracts, licenses and
agreements to the same extent Parent would have been able to had the
transactions contemplated by this Agreement not occurred and without the
payment of any additional amounts or consideration other than ongoing fees,
royalties or payments which Parent would otherwise be required to pay.
(j) Year 2000. Parent has taken reasonable steps to ensure that its
systems and technology will record, store, process, calculate and present
calendar dates falling on and after (and if applicable, spans of time
including) January 1, 2000, and will calculate any information dependent on
or relating to such dates in the same manner, and with the same
functionality, data integrity and performance, as the systems and
technology record, store, process, calculate and present calendar dates on
or before December 31, 1999, or calculate any information dependent on or
relating to such dates (collectively, "Year 2000 Compliant"). Parent has
taken reasonable steps to ensure that its systems, services and technology
will lose no functionality with respect to the introduction of records
containing dates falling on or after January 1, 2000. Except as set forth
on Part 3.11(j) of the Parent Disclosure Letter, all of Parent's and its
subsidiaries' internal computer and technology, systems and services which
are critical to the operation of its business are Year 2000 Compliant.
Parent has no knowledge that any Parent Intellectual Property licensed by
Parent or any subsidiary is not Year 2000 Compliant. Except as set forth on
Part 3.11(j) of the Parent Disclosure Letter, all of the Parent
Intellectual Property owned by Parent or any subsidiary is Year 2000
Compliant. Neither the Parent Intellectual Property owned by Parent, nor to
Parent's knowledge the Parent Intellectual Property licensed by Parent or
any subsidiary, nor any service of Parent or any subsidiary contains any
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significant defect in connection with processing data containing dates in
leap years or in the year 2000 or any preceding or following years.
3.12 Compliance with Laws; Permits; Restrictions.
(a) Neither Parent nor any of its subsidiaries is, in any material
respect, in conflict with, or in default or in violation of (i) any law,
rule, regulation, order, judgment or decree applicable to Parent or any of
its subsidiaries or by which Parent or any of its subsidiaries or any of
their respective properties is bound or affected, or (ii) any material
note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Parent or any
of its subsidiaries is a party or by which Parent or any of its
subsidiaries or its or any of their respective properties is bound or
affected, except for conflicts, violations and defaults that (individually
or in the aggregate) would not cause Parent to lose any material benefit or
incur any material liability. No investigation or review by any
Governmental Entity is pending or, to Parent's knowledge, has been
threatened in a writing delivered to Parent against Parent or any of its
subsidiaries, nor, to Parent's knowledge, has any Governmental Entity
indicated an intention to conduct an investigation of Parent or any of its
subsidiaries. There is no material agreement, judgment, injunction, order
or decree binding upon Parent or any of its subsidiaries which has or could
reasonably be expected to have the effect of prohibiting or materially
impairing any business practice of Parent or any of its subsidiaries, any
acquisition of material property by Parent or any of its subsidiaries or
the conduct of business by Parent as currently conducted.
(b) Parent and its subsidiaries hold, to the extent legally required, all
permits, licenses, variances, exemptions, orders and approvals from
governmental authorities that are material to and required for the
operation of the business of Parent as currently conducted (collectively,
the "Parent Permits"). Parent and its subsidiaries are in compliance in all
material respects with the terms of the Parent Permits.
3.13 Litigation. There are no claims, suits, actions or proceedings pending
or, to the knowledge of Parent, threatened against, relating to or affecting
Parent or any of its subsidiaries, before any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator that seeks
to restrain or enjoin the consummation of the transactions contemplated by this
Agreement or which could reasonably be expected, either singularly or in the
aggregate with all such claims, actions or proceedings, to be material to
Parent or have a material adverse effect on the ability of the parties hereto
to consummate the Merger. No Governmental Entity has at any time challenged or
questioned in a writing delivered to Parent the legal right of Parent to
design, offer or sell any of its products or services in the present manner or
style thereof. As of the date hereof, to the knowledge of Parent, no event has
occurred, and no claim, dispute or other condition or circumstance exists, that
will, or that would reasonably be expected to, cause or provide a bona fide
basis for a director or executive officer of Parent to seek indemnification
from Parent.
3.14 Employee Benefit Plans.
(a) Definitions. With the exception of the definition of "Parent
Affiliate" set forth in Section 3.14(a)(i) below (which definition shall
apply only to this Section 3.14), for purposes of this Agreement, the
following terms shall have the meanings set forth below:
(i) "Parent Affiliate" shall mean any other person or entity under
common control with Parent within the meaning of Section 414(b), (c),
(m) or (o) of the Code and the regulations issued thereunder;
(ii) "Parent Employee Plan" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether written or unwritten, funded or
unfunded, including without limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of ERISA which is or has been
maintained, contributed to, or required to be contributed to, by Parent
or any Parent Affiliate for the benefit of any Employee;
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(iii) "Employee" for purposes of this Section 3.14 only shall mean
any current, former, or retired employee, officer, or director of
Parent or any Parent Affiliate;
(iv) "Parent Employee Agreement" shall mean each management,
employment, severance, consulting, relocation, repatriation,
expatriation, visas, work permit or similar agreement or contract
between Parent or any Affiliate and any Employee or consultant;
(v) International Parent Employee Plan" shall mean each Parent
Employee Plan that has been adopted or maintained by Parent, whether
informally or formally, for the benefit of Employees outside the United
States;
(vi) "Parent Multiemployer Plan" shall mean any "Parent Pension Plan"
(as defined below) which is a "multiemployer plan," as defined in
Section 3(37) of ERISA;
(vii) "Parent Pension Plan" shall mean each Parent Employee Plan
which is an "employee pension benefit plan," within the meaning of
Section 3(2) of ERISA.
(b) List of Plans and Agreements. Part 3.14 of the Parent Disclosure
Letter contains an accurate and complete list of each Parent Employee Plan
and each Parent Employee Agreement. Parent does not have any plan or
commitment to establish any new Parent Employee Plan, to modify any Parent
Employee Plan or Parent Employee Agreement (except to the extent required
by law or to conform any such Parent Employee Plan or Parent Employee
Agreement to the requirements of any applicable law, in each case as
previously disclosed to Parent in writing, or as required by this
Agreement), or to enter into any Parent Employee Plan or Parent Employee
Agreement, nor does it have any intention or commitment to do any of the
foregoing.
(c) Documents. Parent has provided to Company: (i) correct and complete
copies of each Parent Employee Plan and each Parent Employee Agreement
including all amendments thereto and written interpretations thereof; (ii)
the most recent annual actuarial valuations, if any, prepared for each
Parent Employee Plan; (iii) the three (3) most recent annual reports (Form
Series 5500 and all schedules and financial statements attached thereto),
if any, required under ERISA or the Code in connection with each Parent
Employee Plan or related trust; (iv) if the Parent Employee Plan is funded,
the most recent annual and periodic accounting of Parent Employee Plan
assets; (v) the most recent summary plan description together with the
summary of material modifications thereto, if any, required under ERISA
with respect to each Parent Employee Plan; (vi) all IRS determination,
opinion, notification and advisory letters, and rulings relating to Parent
Employee Plans; (vii) all material written agreements and contracts
relating to each Parent Employee Plan, including, but not limited to,
administrative service agreements, group annuity contracts and group
insurance contracts; (viii) all communications material to any Employee or
Employees relating to any Parent Employee Plan and any proposed Parent
Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of
payments or vesting schedules or other events which would result in any
material liability to Parent; (ix) all COBRA forms and related notices
currently in use; and (x) all registration statements and prospectuses
prepared in connection with each Parent Employee Plan.
(d) Employee Plan Compliance. (i) Parent has performed in all material
respects all obligations required to be performed by it under, is not in
default or violation of, and has no knowledge of any default or violation
by any other party to, each Parent Employee Plan, and each Parent Employee
Plan has been established and maintained in all material respects in
accordance with its terms and in compliance with all applicable laws,
statutes, orders, rules and regulations, including but not limited to ERISA
or the Code; (ii) each Parent Employee Plan intended to qualify under
Section 401(a) of the Code and each trust intended to qualify under Section
501(a) of the Code has either received a favorable determination letter
from the IRS with respect to each such plan as to its qualified status
under the Code or has remaining a period of time under applicable Treasury
regulations or IRS pronouncements in which to apply for such a
determination letter and make any amendments necessary to obtain a
favorable determination and no event has occurred which would adversely
affect the status of such determination letter or the qualified status of
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such plan; (iii) no "prohibited transaction," within the meaning of Section
4975 of the Code or Sections 406 and 407 of ERISA, and not otherwise exempt
under Section 408 of ERISA, has occurred with respect to any Parent
Employee Plan; (iv) there are no actions, suits or claims pending, or, to
the knowledge of Parent, threatened or reasonably anticipated (other than
routine claims for benefits) against any Parent Employee Plan or against
the assets of any Parent Employee Plan; (v) each Parent Employee Plan can
be amended, terminated or otherwise discontinued after the Effective Time
in accordance with its terms, without liability to Parent, Parent or any of
its Parent Affiliates (other than ordinary administration expenses
typically incurred in a termination event); (vi) there are no audits,
inquiries or proceedings pending or, to the knowledge of Parent, threatened
by the IRS or DOL with respect to any Parent Employee Plan; and (vii)
neither Parent nor any Parent Affiliate is subject to any penalty or tax
with respect to any Parent Employee Plan under Section 402(i) of ERISA or
Sections 4975 through 4980 of the Code.
(e) Pension Plans. Parent does not now, nor has it ever, maintained,
established, sponsored, participated in, or contributed to, any Parent
Pension Plan which is subject to Title IV of ERISA or Section 412 of the
Code.
(f) Multiemployer Plans. At no time has Parent contributed to or been
requested to contribute to any Parent Multiemployer Plan.
(g) No Post-Employment Obligations. No Parent Employee Plan provides, or
has any liability to provide, retiree life insurance, retiree health or
other retiree employee welfare benefits to any person for any reason,
except as may be required by COBRA or other applicable statute, and Parent
has never represented, promised or contracted (whether in oral or written
form) to any Employee (either individually or to Employees as a group) or
any other person that such Employee(s) or other person would be provided
with retiree life insurance, retiree health or other retiree employee
welfare benefit, except to the extent required by statute.
(h) COBRA; FMLA. Neither Parent nor, to Parent's knowledge, any Parent
Affiliate has, prior to the Effective Time, and in any material respect,
violated any of the health care continuation requirements of COBRA, any
material requirements of FMLA or any similar material provisions of state
law applicable to its Employees.
(i) All contributions due from the Parent and any Affiliate with respect
to any of the Parent Employee Plans have been made or accrued on the Parent
Balance Sheet or arose after the date of the Parent Balance Sheet in the
ordinary course of business consistent with past practices.
(j) Effect of Transaction.
(i) The execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event
under any Parent Employee Plan, Parent Employee Agreement, or related
trust or loan, that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness,
vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(ii) No payment or benefit which will or may be made by Parent or its
Affiliates with respect to any Employee as a result of the transactions
contemplated by this Agreement will be characterized as an "excess
parachute payment," within the meaning of Section 280G(b)(1) of the
Code.
(k) Employment Matters. Parent and each of its subsidiaries: (i) is in
compliance in all material respects with all applicable foreign, federal,
state and local laws, rules and regulations respecting employment,
employment practices, terms and conditions of employment and wages and
hours, in each case, with respect to Employees; (ii) has withheld all
amounts required by law or by agreement to be withheld from the wages,
salaries and other payments to Employees; (iii) has properly classified
independent contractors for purposes of federal and applicable state tax
laws, laws applicable to employee
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benefits and other applicable laws; (iv) is not liable for any arrears of
wages or any taxes or any penalty for failure to comply with any of the
foregoing; and (v) is not liable for any material payment to any trust or
other fund or to any governmental or administrative authority, with respect
to unemployment compensation benefits, social security or other benefits or
obligations for Employees (other than routine payments to be made in the
normal course of business and consistent with past practice). There are no
pending, or, to Parent's knowledge, threatened or reasonably anticipated
claims or actions against Parent under any worker's compensation policy or
long-term disability policy. To Parent's knowledge, no Employee of Parent
has violated any employment contract, nondisclosure agreement or
noncompetition agreement by which such Employee is bound due to such
Employee being employed by Parent or disclosing to Parent or using trade
secrets or proprietary information of any other person or entity.
(l) Labor. No work stoppage or labor strike against Parent is pending,
threatened or reasonably anticipated. Parent does not know of any
activities or proceedings of any labor union to organize any Employees.
There are no actions, suits, claims, labor disputes or grievances pending,
or, to the knowledge of Parent, threatened or reasonably anticipated
relating to any labor, safety or discrimination matters involving any
Employee, including, without limitation, charges of unfair labor practices
or discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in any material liability to
Parent. Neither Parent nor any of its subsidiaries has engaged in any
unfair labor practices within the meaning of the National Labor Relations
Act. Parent is not presently, nor has it been in the past, a party to, or
bound by, any collective bargaining agreement or union contract with
respect to Employees and no collective bargaining agreement is being
negotiated by Parent. All Parent employees are legally permitted to be
employed by Parent in the United States of America.
3.15 Environmental Matters.
(a) Hazardous Material. Except as would not result in material liability
to Parent, no underground storage tanks and no amount of any substance that
has been designated by any Governmental Entity or by applicable federal,
state or local law to be radioactive, toxic, hazardous or otherwise a
danger to health or the environment, including, without limitation, PCBs,
asbestos, petroleum, urea-formaldehyde and all substances listed as
hazardous substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a
hazardous waste pursuant to the United States Resource Conservation and
Recovery Act of 1976, as amended, and the regulations promulgated pursuant
to said laws, but excluding office and janitorial supplies, (a "Hazardous
Material") are present, as a result of the actions of Parent or any of its
subsidiaries or any affiliate of Parent, or, to Parent's knowledge, as a
result of any actions of any third party or otherwise, in, on or under any
property, including the land and the improvements, ground water and surface
water thereof that Parent or any of its subsidiaries has at any time owned,
operated, occupied or leased.
(b) Hazardous Materials Activities. Except as would not result in a
material liability to Parent (in any individual case or in the aggregate)
(i) neither Parent nor any of its subsidiaries has transported, stored,
used, manufactured, disposed of released or exposed its employees or others
to Hazardous Materials in violation of any law in effect on or before the
Closing Date, and (ii) neither Parent nor any of its subsidiaries has
disposed of; transported, sold, used, released, exposed its employees or
others to or manufactured any product containing a Hazardous Material
(collectively "Hazardous Materials Activities") in violation of any rule,
regulation, treaty or statute promulgated by any Governmental Entity in
effect prior to or as of the date hereof to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activity.
(c) Permits. Parent and its subsidiaries currently hold all environmental
approvals, permits, licenses, clearances and consents (the "Parent
Environmental Permits") material to and necessary for the conduct of
Parent's and its subsidiaries' Hazardous Material Activities and other
businesses of Parent and its subsidiaries as such activities and businesses
are currently being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ or injunction is pending, and to
Parent's knowledge, no action, proceeding, revocation proceeding,
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amendment procedure, writ or injunction has been threatened by any
Governmental Entity against Parent or any of its subsidiaries in a writing
delivered to Parent concerning any Parent Environmental Permit, Hazardous
Material or any Hazardous Materials Activity of Parent or any of its
subsidiaries. Parent is not aware of any fact or circumstance which could
involve Parent or any of its subsidiaries in any environmental litigation
or impose upon Parent any material environmental liability.
3.16 Agreements, Contracts and Commitments. Except as otherwise set forth in
Part 3.16 of the Parent Disclosure Letter, neither Parent nor any of its
subsidiaries is a party to or is bound by:
(a) any employment agreement, contract or commitment with any employee or
member of Parent's Board of Directors, other than those that are terminable
by Parent or any of its subsidiaries on no more than thirty days notice
without liability or financial obligation, except to the extent general
principles of wrongful termination law may limit Parent's or any of its
subsidiaries' ability to terminate employees at will, or any consulting
agreement;
(b) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
(c) any agreement of indemnification, any guaranty or any instrument
evidencing indebtedness for borrowed money by way of direct loan, sale of
debt securities, purchase money obligation, conditional sale, or otherwise;
(d) any agreement, obligation or commitment containing covenants
purporting to limit or which effectively limit Parent's or any of its
subsidiaries' freedom to compete in any line of business or in any
geographic area or which would so limit Parent or Surviving Corporation or
any of its subsidiaries or any of their respective employees after the
Effective Time or granting any exclusive distribution or other exclusive
rights;
(e) any agreement, contract or commitment currently in force relating to
the disposition or acquisition by Parent or any of its subsidiaries after
the date of this Agreement of a material amount of assets not in the
ordinary course of business or pursuant to which Parent has any material
ownership interest in any corporation, partnership, joint venture or other
business enterprise other than Parent's subsidiaries;
(f) any licensing, distribution, sponsorship, advertising, merchant
program or other similar agreement to which Parent or one of its
subsidiaries is a party which (i) may not be canceled by Parent or its
subsidiaries, as the case may be, without penalty upon notice of 30 days or
less, and (ii) which provides for payments by or to Parent or its
subsidiaries in an amount in excess of $100,000 over the term of the
agreement or which is (or could reasonably be expected to become) material
to Parent;
(g) any agreement, contract or commitment currently in force to provide
source code to any third party for any product or technology; or
(h) any other agreement, contract or commitment currently in effect that
is material to Parent's business as presently conducted and proposed to be
conducted.
Neither Parent nor any of its subsidiaries, nor to Parent's knowledge any
other party to a Parent Contract (as defined below), is in breach, violation or
default under, and neither Parent nor any of its subsidiaries has received
written notice that it has breached, violated or defaulted under, any of the
material terms or conditions of any of the agreements, contracts or commitments
to which Parent or any of its subsidiaries is a party or by which it is bound
that are required to be disclosed in the Parent Disclosure Letter pursuant to
clauses (a) through (h) above or pursuant to Section 3.11 hereof or are
required to be filed with any Parent SEC Report (any such agreement, contract
or commitment, a "Parent Contract") in such a manner as would permit any other
party to cancel or terminate any such Parent Contract, or would permit any
other party to seek material damages or other remedies (for any or all of such
breaches, violations or defaults, in the aggregate).
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The agreements listed on Part 3.16(i) of the Parent Disclosure Letter have,
to Parent's knowledge, been executed by each party thereto in the form provided
to Company.
3.17 Change of Control Payments. Part 3.17 of the Parent Disclosure Letter
set forth each plan or agreement pursuant to which any amounts may become
payable (whether currently or in the future) to current or former officers and
directors of Parent as a result of or in connection with the Merger.
3.18 Insurance. Parent and each of its subsidiaries have policies of
insurance and bonds of the type and in amounts customarily carried by persons
conducting business or owning assets similar to those of Parent and its
subsidiaries. There is no material claim pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies have been paid and Parent and its subsidiaries are otherwise in
compliance in all material respects with the terms of such policies and bonds.
To the knowledge of Parent, there has been no threatened termination of, or
material premium increase with respect to, any of such policies.
3.19 Customers and Suppliers.
(a) Customers. Neither Parent nor any of its subsidiaries has received
any notice or other communication (in writing or otherwise), or received
any other information, indicating that customers representing a material
portion of Parent's and its subsidiaries' revenues may cease dealing with
Parent or its subsidiaries or may otherwise reduce the volume of business
transacted by such person or entity with Parent and its subsidiaries below
historical levels.
(b) Accounts Receivable. Part 3.19 of the Parent Disclosure Letter
provides an accurate and complete breakdown and aging of the accounts
receivable and notes receivable of each customer of Parent and its
subsidiaries and a list of all other receivables of Parent and its
subsidiaries as of May 31, 1999, categorized by period of aging (30, 60, 90
or 120 more days).
(c) Suppliers. As of the date of this Agreement, no material supplier of
Parent has indicated that it will stop or materially decrease the rate of
supplying materials, products or services to Parent.
3.20 Disclosure. The information supplied by Parent for inclusion in the
Registration Statement shall not at the time the Registration Statement is
filed with the SEC and at the time it becomes effective under the Securities
Act contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading. The information supplied by Parent for inclusion in the Proxy
Statement/Prospectus shall not, on the date the Proxy Statement/Prospectus is
mailed to Company's shareholders or Parent's stockholders, at the time of the
Company Shareholders' Meeting or the Parent Stockholders' Meeting or as of the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not false or misleading, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Company Shareholders' Meeting or the Parent
Stockholders' Meeting which has become false or misleading. The Registration
Statement will comply as to form in all material respects with the provisions
of the Securities Act and the rules and regulations thereunder. If at any time
prior to the Effective Time, any event relating to Parent or any of its
affiliates, officers or directors should be discovered by Parent which is
required to be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement/Prospectus, Parent shall promptly inform
Company. Notwithstanding the foregoing, Parent makes no representation or
warranty with respect to any information supplied by Company which is contained
in any of the foregoing documents.
3.21 Board Approval. The Board of Directors of Parent has, as of the date of
this Agreement, determined (i) that the Merger is advisable and fair to, and in
the best interests of Parent, its stockholders and Merger Sub, and (ii) to
recommend that the stockholders of Parent approve the issuance of the shares of
Parent Common Stock pursuant to the Merger and an amendment to Parent's
Certificate of Incorporation to change the
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name of Parent to "Egghead.com, Inc.," effective immediately following the
Effective Time, and to increase the authorized number of shares of Parent
Common Stock so as to permit the transactions contemplated hereby and adopt
this Agreement.
3.22 Fairness Opinion. Parent's Board of Directors has received a written
opinion from its financial advisor, Morgan Stanley & Co., Incorporated, in form
and substance reasonably satisfactory to Company and dated as of the date
hereof, to the effect that the consideration to be paid by Parent in connection
with the Merger is fair to Parent from a financial point of view, and has
delivered to Company a copy of such opinion.
3.23 Brokers' and Finders' Fees. Except for fees payable to Morgan Stanley &
Co. Incorporated pursuant to that letter dated July 13, 1999, a copy of which
has been delivered to Company, Parent has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
3.24 DGCL Section 203 Not Applicable. The Board of Directors of Parent has
taken all actions on its part required so that (a) the restrictions contained
in Section 203 of the Delaware General Corporation Law applicable to a
"business combination" (as defined in such Section 203) will not apply to the
Parent's execution, delivery or performance of this Agreement or to the
consummation of the Merger or the other transactions contemplated by this
Agreement.
3.25 Affiliates. Part 3.25 of the Parent Disclosure Letter is a complete
list of those persons who may be deemed to be, in Parent's reasonable judgment,
affiliates of Parent within the meaning of Rule 145 promulgated under the
Securities Act (each a "Parent Affiliate"). Except as set forth in the Parent
SEC Reports, since the date of Parent's last proxy statement filed with the
SEC, no event has occurred as of the date of this Agreement that would be
required to be reported by Parent pursuant to Item 404 of Regulation S-K
promulgated by the SEC.
3.26 Pooling of Interests. To the knowledge of Parent, based on consultation
with its independent accountants, neither Parent nor any of its directors,
officers, affiliates or stockholders has taken or agreed to take any action
which would preclude Parent's ability to account for the Merger as a pooling of
interests.
3.27 No Existing Discussions. As of the date hereof, Parent is not engaged,
directly or indirectly, in any discussion or negotiations with any other party
with respect to any Parent Acquisition Proposal (as defined in Section 5.5(b)).
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ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business. During the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement pursuant
to its terms or the Effective Time, Parent and Company each agrees as to itself
and its respective subsidiaries, to carry on its (and its subsidiaries')
business in the usual, regular and ordinary course, in substantially the same
manner as heretofore conducted and in compliance in all material respects with
all applicable laws and regulations, pay its debts and taxes when due subject
to good faith disputes over such debts or taxes, pay or perform its and its
subsidiaries' other obligations when due, and use all commercially reasonable
efforts (and in any event no less than would be consistent with its past
practices), to (i) preserve intact its (and its subsidiaries') present business
organization, (ii) keep available the services of its present officers and
employees and (iii) preserve its relationships with customers, suppliers,
licensors, licensees, and others with which it has business dealings. In
addition, Company will promptly notify Parent, and Parent will promptly notify
Company, of any material event involving its respective business or operations.
In addition, except as permitted by the terms of this Agreement, and except
as provided in Part 4.1 of the Company Disclosure Letter, without the prior
written consent of Parent (which shall not be unreasonably delayed or
withheld), during the period from the date of this Agreement and continuing
until the earlier of the termination of this Agreement pursuant to its terms or
the Effective Time, Company shall not do any of the following and shall not
permit its subsidiaries to do any of the following:
(a) Waive any stock repurchase rights, accelerate or reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of
such plans except as required by the terms of such plans or any related
agreements or employment agreements in effect as of the date of this
Agreement if such terms are disclosed in the Company Disclosure Letter;
(b) Transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to the Company
Intellectual Property, other than non-exclusive licenses in the ordinary
course of business consistent with past practice;
(c) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for, any capital stock;
(d) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of its capital stock, except repurchases of unvested shares at cost
in connection with the termination of the employment relationship with any
employee pursuant to stock option or purchase agreements in effect on the
date hereof;
(e) Issue, deliver, sell, authorize, pledge or otherwise encumber any
shares of capital stock or any securities convertible into shares of
capital stock, or subscriptions, rights, warrants or options to acquire any
shares of capital stock or any securities convertible into shares of
capital stock, or enter into other agreements or commitments of any
character obligating it to issue any such shares or convertible securities,
other than (i) the issuance, delivery and/or sale of shares of Company
Common Stock or Parent Common Stock pursuant to the exercise of stock
options therefor outstanding on the date of this Agreement, (ii) the
issuance, delivery and/or sale of shares of Company Common Stock issuable
to participants in the ESPP consistent with the terms thereof or (iii) the
grant of stock options to employees, officers or directors pursuant to the
Company Stock Option Plans, having an exercise price equal to (or greater
than) the fair market value of Company's Common Stock on the date of grant.
(f) Cause, permit or propose any amendments to its Articles of
Incorporation, Bylaws or other charter documents (or similar governing
instruments of any of its subsidiaries);
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(g) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof; or
otherwise acquire or agree to acquire any assets (other than inventory and
other items in the ordinary course of business), except for any such
acquisitions involving aggregate consideration (including assumed
indebtedness) of not more than $250,000, or enter into any material joint
ventures, strategic partnerships or alliances;
(h) Sell, lease, license, encumber or otherwise dispose of any material
properties or assets, except real property and buildings owned by Company
that are located in Kalispell, Montana;
(i) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
Company, enter into any "keep well" or other agreement to maintain any
financial statement condition or enter into any arrangement having the
economic effect of any of the foregoing other than (i) in connection with
the financing of ordinary course trade payables consistent with past
practice or (ii) pursuant to existing credit facilities in the ordinary
course of business;
(j) enter into any collective bargaining agreement;
(k) Make any payments outside of the ordinary course of business in
excess of $250,000 in the aggregate, other than pursuant to that certain
letter agreement dated June 30, 1999 between Parent and Hambrecht & Quist
LLC.
(l) Enter into, amend, modify or (in the case of clauses (i) and (ii))
terminate any licensing, distribution, sponsorship, advertising, merchant
program, lease or other contracts, agreements or obligations (other than
employment agreements with Company's executive officers), in each case
which (i) does not terminate by its terms within 180 days or less, and may
not be canceled without penalty by Company upon notice of 180 days or less,
(ii) provides for payments by or to Company or its subsidiaries in an
amount in excess of $250,000 over the shorter of (a) the term of the
agreement or (b) the period of time ending on the earliest date on which
the agreement may be terminated by Company without penalty or (iii) is (or
could reasonably be expected to become) materially burdensome to Company or
which impose material restrictions on its ability to conduct its business;
(m) Materially revalue any of its assets or, except as required by GAAP,
make any change in accounting methods, principles or practices;
(n) Take any action that prevent Parent from being able to account for
the Merger as a pooling of interests whether or not otherwise permitted by
the provisions of this Article IV (provided that if, prior to the taking of
such actions, representatives of the independent auditors of both Parent
and Company have stated that a proposed action would not prevent Parent
from being able to account for the Merger as a pooling of interests, such
action shall not be deemed to breach this clause (n),
(o) Initiate, compromise or settle any material litigation or arbitration
proceeding (other than as a result of a breach of this Agreement by
Parent), except that Company may compromise or settle litigation or
arbitration if the terms of such settlement do not require payment by
Company and its subsidiaries of in excess of $2.0 million and do not impose
any other material obligations on Company and its subsidiaries;
(p) Engage in any action with the intent to directly or indirectly
adversely impact any of the transactions contemplated by this Agreement; or
Agree in writing or otherwise to take any of the actions described in
Section 4.1 (a) through (p) above.
In addition, except as permitted by the terms of this Agreement, and except
as provided in Part 4.1 of the Parent Disclosure Letter, without the prior
written consent of Company (which shall not be unreasonably delayed or
withheld), during the period from the date of this Agreement and continuing
until the earlier of the
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termination of this Agreement pursuant to its terms or the Effective Time,
Parent shall not do any of the following and shall not permit its subsidiaries
to do any of the following:
(a) Waive any stock repurchase rights, accelerate or reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of
such plans except as required by the terms of such plans or any related
agreements or employment agreements in effect as of the date of this
Agreement if such terms are disclosed in the Parent Disclosure Letter;
(b) Transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to the Parent
Intellectual Property, other than non-exclusive licenses in the ordinary
course of business consistent with past practice;
(c) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for, any capital stock;
(d) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of its capital stock, except repurchases of unvested shares at cost
in connection with the termination of the employment relationship with any
employee pursuant to stock option or purchase agreements in effect on the
date hereof;
(e) Issue, deliver, sell, authorize, pledge or otherwise encumber any
shares of capital stock or any securities convertible into shares of
capital stock, or subscriptions, rights, warrants or options to acquire any
shares of capital stock or any securities convertible into shares of
capital stock, or enter into other agreements or commitments of any
character obligating it to issue any such shares or convertible securities,
other than (i) the issuance, delivery and/or sale of (i) shares of Parent
Common Stock pursuant to the exercise of stock options therefor outstanding
on the date of this Agreement, (ii) the issuance, delivery and/or sale of
shares of Parent Common Stock issuable to participants in the Parent's
employee stock purchase plan consistent with the terms thereof, or (iii)
the grant of stock options to employees or directors pursuant to the Parent
Stock Option Plans, having an exercise price equal to (or greater than) the
fair market value of Parent Common Stock on the date of grant.
(f) Cause, permit or propose any amendments to its Certificate of
Incorporation, Bylaws or other charter documents (or similar governing
instruments of any of its subsidiaries) except as contemplated by this
Agreement;
(g) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof; or
otherwise acquire or agree to acquire any assets (other than inventory and
other items in the ordinary course of business), except for any such
acquisitions involving aggregate consideration (including assumed
indebtedness) of not more than $250,000, or enter into any material joint
ventures, strategic partnerships or alliances;
(h) Sell, lease, license, encumber or otherwise dispose of any material
properties or assets;
(i) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
Parent, enter into any "keep well" or other agreement to maintain any
financial statement condition or enter into any arrangement having the
economic effect of any of the foregoing other than (i) in connection with
the financing of ordinary course trade payables consistent with past
practice or (ii) pursuant to existing credit facilities in the ordinary
course of business;
(j) enter into any collective bargaining agreement;
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(k) Make any payments outside of the ordinary course of business in
excess of $250,000 in the aggregate other than pursuant to that certain
letter agreement dated July 13, 1999 between Parent and Morgan Stanley &
Co. Incorporated.
(l) Enter into, amend, modify or, in the case of clauses (i) and (ii),
terminate any licensing, distribution, sponsorship, advertising, merchant
program, lease or other contracts, agreements, or obligations (other than
employment agreements with Company's executive officers), in each case
which (i) does not terminate by its terms within 180 days or less, and may
not be canceled without penalty by Parent upon notice of 180 days or less,
(ii) provides for payments by or to Parent or its subsidiaries in an amount
in excess of $250,000 over the shorter of (a) the term of the agreement,
the period of time ending on the earliest date on which the agreement may
be terminated by Parent without penalty or (iii) is (or could reasonably be
expected to become) materially burdensome to Parent or which imposes
material restrictions on its ability to conduct its business;
(m) Materially revalue any of its assets or, except as required by GAAP,
make any change in accounting methods, principles or practices;
(n) Take any action that prevent Parent from being able to account for
the Merger as a pooling of interests whether or not otherwise permitted by
the provisions of this Article IV (provided that if, prior to the taking of
such actions, representatives of the independent auditors of both Parent
and Company have stated that a proposed action would not prevent Parent
from being able to account for the Merger as a pooling of interests, such
action shall not be deemed to breach this clause (n),
(o) Initiate, compromise or settle any material litigation or arbitration
proceeding (other than as a result of a breach of this Agreement by
Company), and except that Parent may compromise or settle litigation or
arbitration if the terms of such settlement do not require payment by
Parent and its subsidiaries of in excess of $2.0 million and do not impose
any other material obligations on Parent and its subsidiaries;
(p) Engage in any action with the intent to directly or indirectly
adversely impact any of the transactions contemplated by this Agreement; or
(q) Agree in writing or otherwise to take any of the actions described in
Section 4.1 (a) through (p) immediately above.
4.2 Cooperation. Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Parent and Company shall confer on a
regular and frequent basis with one or more representatives of the other party
to report on the general status of ongoing operations and shall promptly
provide the other party or its counsel with copies of all filings made by such
party with any Governmental Entity in connection with this Agreement, the
Merger and the transactions contemplated hereby and thereby.
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ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement; Antitrust and Other
Filings.
(a) As promptly as practicable after the execution of this Agreement,
Company and Parent will prepare and file with the SEC the Proxy
Statement/Prospectus, and Parent will prepare and file with the SEC the
Registration Statement in which the Proxy Statement/Prospectus will be
included as a prospectus. Each of Company and Parent will respond to any
comments of the SEC, will use all commercially reasonable efforts to have
the Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing provided, however, that Parent
shall have no obligation to agree to account for the Merger as a "purchase"
in order to cause the Registration Statement to become effective. Each of
Company and Parent will cause the Proxy Statement/Prospectus to be mailed
to its respective shareholders and stockholders at the earliest practicable
time after the Registration Statement is declared effective by the SEC.
(b) As promptly as practicable after the date of this Agreement, each of
Company and Parent will prepare and file (i) with the United States Federal
Trade Commission and the Antitrust Division of the United States Department
of Justice Notification and Report Forms relating to the transactions
contemplated herein as required by the HSR Act, as well as comparable pre-
merger notification forms required by the merger notification or control
laws and regulations of any applicable jurisdiction, as agreed to by the
parties (the "Antitrust Filings") and (ii) any other filings required to be
filed by it under the Exchange Act, the Securities Act or any other
Federal, state or foreign laws relating to the Merger and the transactions
contemplated by this Agreement (the "Other Filings").
(c) Company and Parent each shall promptly supply the other with any
information which may be required in order to effectuate any filings
pursuant to this Section 5.1. Each of Company and Parent will notify the
other promptly upon the receipt of any comments from the SEC or its staff
or any other government officials in connection with any filing made
pursuant hereto and of any request by the SEC or its staff or any other
government officials for amendments or supplements to the Registration
Statement, the Proxy Statement/Prospectus or any Antitrust Filings or Other
Filings or for additional information and will supply the other with copies
of all correspondence between such party or any of its representatives, on
the one hand, and the SEC, or its staff or any other government officials,
on the other hand, with respect to the Registration Statement, the Proxy
Statement/Prospectus, the Merger or any Antitrust Filing or Other Filing.
Each of Company and Parent will cause all documents that it is responsible
for filing with the SEC or other regulatory authorities under this Section
5.1 to comply in all material respects with all applicable requirements of
law and the rules and regulations promulgated thereunder.
(d) Whenever any event occurs which is required to be set forth in an
amendment or supplement to the Proxy Statement/Prospectus, the Registration
Statement or any Antitrust Filing or Other Filing, Company or Parent, as
the case may be, will promptly inform the other of such occurrence and
cooperate in filing with the SEC or its staff or any other government
officials, and/or mailing to shareholders of Company and/or stockholders of
Parent, such amendment or supplement.
5.2 Meeting of Company Shareholders.
(a) Promptly after the date hereof, Company will take all action
necessary in accordance with the Washington Law and its Articles of
Incorporation and Bylaws to convene the Company Shareholders' Meeting to be
held as promptly as practicable, and in any event (to the extent
permissible under applicable law) within 45 days after the declaration of
effectiveness of the Registration Statement, for the purpose of voting upon
approval and adoption of this Agreement and approval of the Merger. Subject
to Section 5.2(c) hereof, Company will use all reasonable efforts to
solicit from its shareholders proxies in favor of the adoption and approval
of this Agreement and the approval of the Merger and will take all other
action necessary or advisable to secure the vote or consent of its
shareholders required by the rules of Nasdaq or
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Washington Law to obtain such approvals. Notwithstanding anything to the
contrary contained in this Agreement, Company may adjourn or postpone the
Company Shareholders' Meeting to the extent necessary to ensure that any
necessary supplement or amendment to the Proxy Statement/Prospectus is
provided to Company's shareholders in advance of a vote on the Merger and
this Agreement or, if as of the time for which Company Shareholders'
Meeting is originally scheduled (as set forth in the Proxy
Statement/Prospectus) there are insufficient shares of Company Common Stock
represented (either in person or by proxy) to constitute a quorum necessary
to conduct the business of the Company Shareholders' Meeting. Company shall
ensure that the Company Shareholders' Meeting is called, noticed, convened,
held and conducted, and subject to Section 5.2(c) that all proxies
solicited by Company in connection with the Company Shareholders' Meeting
are solicited, in compliance with the Washington Law, its Articles of
Incorporation and Bylaws, the rules of Nasdaq and all other applicable
legal requirements. Company's obligation to call, give notice of, convene
and hold the Company Shareholders' Meeting in accordance with this Section
5.2(a) shall not be limited to or otherwise affected by the commencement,
disclosure, announcement or submission to Company of any Company
Acquisition Proposal (as defined in Section 5.5), or by any withdrawal,
amendment or modification of the recommendation of the Board of Directors
of Company with respect to this Agreement or the Merger.
(b) Subject to Section 5.2(c): (i) the Board of Directors of Company
shall unanimously recommend that Company's shareholders vote in favor of
and adopt and approve this Agreement and approve the Merger at the Company
Shareholders' Meeting; (ii) the Proxy Statement/Prospectus shall include a
statement to the effect that the Board of Directors of Company has
unanimously recommended that Company's shareholders vote in favor of and
adopt and approve this Agreement and the Merger at the Company
Shareholders' Meeting; and (iii) neither the Board of Directors of Company
nor any committee thereof shall withdraw, amend or modify, or propose or
resolve to withdraw, amend or modify in a manner adverse to Parent, the
unanimous recommendation of the Board of Directors of Company that
Company's shareholders vote in favor of and adopt and approve this
Agreement and the Merger. For purposes of this Agreement, said
recommendation of the Board of Directors shall be deemed to have been
modified in a manner adverse to Parent if said recommendation shall no
longer be unanimous, provided that, for all purposes of this Agreement, an
action by any Board of Directors or committee thereof shall be unanimous if
each member of such Board of Directors or committee has approved such
action other than (i) any such member who has appropriately abstained from
voting on such matter because of an actual or potential conflict of
interest and (ii) any such member who is unable to vote in connection with
such action as a result of death or disability.
(c) Nothing in this Agreement shall prevent the Board of Directors of
Company from withholding, withdrawing, amending or modifying its unanimous
recommendation in favor of the Merger or this Agreement, or both, if (i) a
Company Superior Offer (as defined below) is made to Company and is not
withdrawn, (ii) Company shall have provided written notice to Parent (a
"Notice of Company Superior Offer") advising Parent that Company has
received a Company Superior Offer, specifying all of the material terms and
conditions of such Company Superior Offer and identifying the person or
entity making such Company Superior Offer, (iii) Parent shall not have,
within five business days of Parent's receipt of the Notice of Company
Superior Offer, made an offer (a) that the Company Board by a majority vote
determines in its good faith judgment (based on the written advice of its
financial adviser) to be at least as favorable to Company's shareholders as
such Company Superior Offer (it being agreed that the Board of Directors of
Company shall convene a meeting to consider any such offer by Parent
promptly following the receipt thereof), or (b) that, in the case of a
Superior Proposal that involves the payment of cash for all of the
outstanding Company Common Stock, represents an equal or greater per share
price, (iv) the Board of Directors of Company concludes in good faith,
after consultation with its outside counsel, that, in light of such Company
Superior Offer, the withholding, withdrawal, amendment or modification of
such recommendation is required in order for the Board of Directors of
Company to comply with its fiduciary obligations to Company's shareholders
under applicable law, and (v) Company shall not have violated any of the
restrictions set forth in Section 5.5 or this Section 5.2. Company shall
provide Parent with at least three business days prior notice (or such
lesser prior notice as provided to the members of Company's
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Board of Directors but in no event less than twenty-four hours) of any
meeting of Company's Board of Directors at which Company's Board of
Directors is reasonably expected to consider any Company Acquisition
Proposal to determine whether such Company Acquisition Proposal is a
Company Superior Offer. Subject to applicable laws, nothing contained in
this Section 5.2 shall limit Company's obligation to hold and convene the
Company Shareholders' Meeting (regardless of whether the unanimous
recommendation of the Board of Directors of Company shall have been
withdrawn, amended or modified).
For purposes of this Agreement "Company Superior Offer" shall mean an
unsolicited, bona fide written offer made by a third party to consummate any
of the following transactions: (i) a merger or consolidation involving
Company pursuant to which the shareholders of Company immediately preceding
such transaction will hold less than 40% of the equity interest in the
surviving or resulting entity of such transaction or (ii) the acquisition by
any person or group (including by way of a tender offer or an exchange offer
or a two step transaction involving a tender offer followed with reasonable
promptness by a cash-out merger involving Company), directly or indirectly,
of ownership of 100% of the then outstanding shares of capital stock of
Company, on terms that the Board of Directors of Company determines, in its
reasonable good faith judgment (based on the written advice of its financial
adviser) to be more favorable to the Company shareholders than the terms of
the Merger; provided, however, that any such offer shall not be deemed to be
a "Company Superior Offer" if any financing required to consummate the
transaction contemplated by such offer is not committed and is not likely in
the reasonable judgment of Company's Board of Directors (based on the advice
of its financial adviser) to be obtained by such third party on a timely
basis.
(d) Nothing contained in this Agreement shall prohibit Company or its
Board of Directors from taking and disclosing to its shareholders a
position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the
Exchange Act if, in the good faith judgment of the Board of Directors of
Company, after consultation with outside counsel, failure so to disclose
would be inconsistent with its obligations under applicable law.
5.3 Meeting of Parent Stockholders.
(a) Promptly after the date hereof, Parent will take all action necessary
in accordance with the Delaware Law and its Certificate of Incorporation
and Bylaws to convene a meeting of Parent's stockholders to consider the
issuance of the shares of Parent Common Stock pursuant to the Merger and an
amendment to Parent's Certificate of Incorporation to change the name of
Parent to "Egghead.com, Inc.," effective at the Effective Time, and to
increase the authorized number of shares of Parent Common Stock so as to
permit the transactions contemplated hereby, subject to and upon
consummation of the Merger (the "Parent Stockholders Meeting") to be held
as promptly as practicable, and in any event (to the extent permissible
under applicable law) within 45 days after the declaration of effectiveness
of the Registration Statement. Parent will use all commercially reasonable
efforts to solicit from its stockholders proxies in favor of the issuance
of the shares of Parent Common Stock pursuant to the Merger and an
amendment to Parent's Certificate of Incorporation to change the name of
Parent to "Egghead.com, Inc.," effective at the Effective Time, and to
increase the authorized number of shares of Parent Common Stock so as to
permit the transactions contemplated hereby, subject to and upon
consummation of the Merger, and will take all other action necessary or
advisable to secure the vote or consent of its stockholders required by the
rules of Nasdaq or Delaware Law to obtain such approvals. Notwithstanding
anything to the contrary contained in this Agreement, Parent may adjourn to
postpone the Parent Stockholders Meeting to the extent necessary to ensure
that any necessary supplement or amendment to the Proxy
Statement/Prospectus is provided to Parent's stockholders in advance of a
vote on the issuance of the shares of Parent Common Stock pursuant to the
Merger or a vote on the approval of an amendment to Parent's Certificate of
Incorporation to change the name of Parent to "Egghead.com, Inc.,"
effective at the Effective Time, and to increase the authorized number of
shares of Parent Common Stock so as to permit the transactions contemplated
hereby, subject to and upon consummation of the Merger, or, if as of the
time for which the Parent Stockholders Meeting is originally scheduled (as
set forth in the Proxy Statement/Prospectus) there are insufficient shares
of Parent Common Stock represented (either in person
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or by proxy) to constitute a quorum necessary to conduct the business of
the Parent Stockholders Meeting. Parent shall ensure that the Parent
Stockholders Meeting is called, noticed, convened, held and conducted, that
all proxies solicited by Parent in connection with the Parent Stockholders
Meeting are solicited in compliance with the Delaware Law, its Certificate
of Incorporation and Bylaws, the rules of Nasdaq and all other applicable
legal requirements. Parent's obligation to call, give notice of, convene
and hold the Parent Stockholders' Meeting in accordance with this Section
5.3(a) shall not be limited to or otherwise affected by the commencement,
disclosure, announcement or submission to Parent of any Parent Acquisition
Proposal (as defined in Section 5.5), or by any withdrawal, amendment or
modification of the recommendation of the Board of Directors of Parent with
respect to this Agreement or the Merger.
(b) Subject to Section 5.3(c): (i) the Board of Directors of Parent shall
unanimously recommend that Parent's stockholders vote in favor of the
issuance of the shares of Parent Common Stock pursuant to the Merger and an
amendment to Parent's Certificate of Incorporation to change the name of
Parent to "Egghead.com, Inc.," effective immediately following the
Effective Time, and to increase the authorized number of shares of Parent
Common Stock so as to permit the transactions contemplated hereby, subject
to and upon consummation of the Merger, (ii) the Proxy Statement/Prospectus
shall include a statement to the effect that the Board of Directors of
Parent has unanimously recommended that Parent's stockholders vote in favor
of such matters at the Parent Stockholders' Meeting, and (iii) neither the
Board of Directors of Parent nor any committee thereof shall withdraw,
amend or modify, or propose to resolve to withdraw, amend or modify in a
manner adverse to Company, the unanimous recommendation of the Board of
Directors of Parent that Parent's stockholders vote in favor of such
matters. For purposes of this Agreement, said recommendation of the Board
of Directors shall be deemed to have been modified in a manner adverse to
Company if said recommendation shall no longer be unanimous, provided that,
for all purposes of this Agreement, an action by any Board of Directors or
committee thereof shall be unanimous if each member of such Board of
Directors or committee has approved such action other than (i) any such
member who has appropriately abstained from voting on such matter because
of an actual or potential conflict of interest and (ii) any such member who
is unable to vote in connection with such action as a result of death or
disability.
(c) Nothing in this Agreement shall prevent the Board of Directors of
Parent from withholding, withdrawing, amending or modifying its unanimous
recommendations in favor of the issuance of the shares of Parent Common
Stock pursuant to the Merger or of an amendment to Parent's Certificate of
Incorporation to change the name of Parent to "Egghead.com, Inc.,"
effective at the Effective Time, and to increase the authorized number of
shares of Parent Common Stock so as to permit the transactions contemplated
hereby, or both, subject to and upon consummation of the Merger, if (i) a
Parent Superior Offer (as defined below) is made to Parent and is not
withdrawn, (ii) Parent shall have provided written notice to Company (a
"Notice of Parent Superior Offer") advising Company that Parent has
received a Parent Superior Offer, specifying all of the material terms and
conditions of such Parent Superior Offer and identifying the person or
entity making such Parent Superior Offer, (iii) Company shall not have,
within five business days of Company's receipt of the Notice of Parent
Superior Offer, made an offer (a) that the Board of Directors of Parent by
a majority vote determines in its good faith judgment (based on the written
advice of its financial adviser) to be at least as favorable to Parent's
stockholders as such a Company Superior Offer (it being agreed that the
Board of Directors of Parent shall convene a meeting to consider any such
offer by Company promptly following the receipt thereof) or (b) that in the
case of Superior Proposal that involves the payment of cash for all of the
outstanding Parent Common Stock, represents an equal or greater per share
price, (iv) the Board of Directors of Parent concludes in good faith, after
consultation with its outside counsel, that, in light of such Parent
Superior Offer, the withholding, withdrawal, amendment or modification of
such recommendation is required in order for the Board of Directors of
Parent to comply with its fiduciary obligations to Parent's stockholders
under applicable law, and (v) Parent shall not have violated any of the
restrictions set forth in Section 5.4, Section 5.5 or this Section 5.3.
Parent shall provide Company with at least three business days prior notice
(or such lesser prior notice as provided to the members of Parent's Board
of Directors but in no event less than twenty-four hours) of any meeting of
Parent's Board of Directors at which Parent's Board of
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Directors is reasonably expected to consider any Parent Acquisition
Proposal (as defined in Section 5.5) to determine whether such Parent
Acquisition Proposal is a Parent Superior Offer. Subject to applicable
laws, nothing contained in this Section 5.3 shall limit Parent's obligation
to hold and convene the Parent Stockholders' Meeting (regardless of whether
the unanimous recommendation of the Board of Directors of Parent shall have
been withdrawn, amended or modified).
For purposes of this Agreement "Parent Superior Offer" shall mean an
unsolicited, bona fide written offer made by a third party to consummate any
of the following transactions: (i) a merger or consolidation involving
Parent pursuant to which the stockholders of Parent immediately preceding
such transaction will hold less than 40% of the equity interest in the
surviving or resulting entity of such transaction or (ii) the acquisition by
any person or group (including by way of a tender offer or an exchange offer
or a two step transaction involving a tender offer followed with reasonable
promptness by a cash-out merger involving Parent), directly or indirectly,
of ownership of 100% of the then outstanding shares of capital stock of
Parent, on terms that the Board of Directors of Parent determines, in its
reasonable good faith judgment (based on the written advice of its financial
adviser) to be more favorable to the Parent stockholders than the Merger;
provided, however, that any such offer shall not be deemed to be a "Parent
Superior Offer" if any financing required to consummate the transaction
contemplated by such offer is not committed and is not likely in the
reasonable judgment of Parent's Board of Directors (based on the advice of
its financial adviser) to be obtained by such third party on a timely basis;
(d) Nothing contained in this Agreement shall prohibit Parent or its
Board of Directors from taking and disclosing to its stockholders a
position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the
Exchange Act if, in the good faith judgment of the Board of Directors of
Company, after consultation with outside counsel, failure so to disclose
would be inconsistent with its obligations under applicable law.
5.4 Confidentiality; Access to Information.
(a) Confidentiality Agreement. The parties acknowledge that Company and
Parent have previously executed a Mutual Confidentiality Agreement, dated
as of April 2, 1999 (the "Confidentiality Agreement"), which
Confidentiality Agreement will continue in full force and effect in
accordance with its terms.
(b) Access to Information. Company and Parent will each afford to the
other and its accountants, counsel and other representatives reasonable
access during normal business hours to its properties, books, records and
personnel during the period prior to the Effective Time to obtain all
information concerning its business, including the status of its product
development efforts, properties, results of operations and personnel, as
such other party may reasonably request and, during such period, each of
Parent and Company shall (and shall cause each of their respective
subsidiaries to) furnish promptly to the other a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of federal securities laws.
Unless otherwise required by law, the parties will hold any such
information which is non-public in confidence in accordance with the
Confidentiality Agreement. No information or knowledge obtained in any
investigation pursuant to this Section 5.4 will affect or be deemed to
modify any representation or warranty contained herein or the conditions to
the obligations of the parties to consummate the Merger.
5.5 No Solicitation.
(a) No Solicitation by Company. From and after the date of this Agreement
until the Effective Time or termination of this Agreement pursuant to
Article VII, Company and its subsidiaries will not, nor will they authorize
or permit any of their respective officers, directors, affiliates or
employees or any investment banker, attorney or other advisor or
representative retained by any of them to, directly or indirectly, (i)
solicit, initiate, encourage (including by way of furnishing information)
or induce the making, submission or announcement of any Company Acquisition
Proposal, (ii) participate in any discussions or negotiations regarding, or
furnish to any person any non-public information with respect to,
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or take any other action to facilitate any inquiries or the making of any
proposal that constitutes or may reasonably be expected to lead to, any
Company Acquisition Proposal, (iii) engage in discussions with any person
with respect to any Company Acquisition Proposal, except as to the
existence of these provisions, (iv) approve, endorse or recommend any
Company Acquisition Proposal or (v) enter into any letter of intent or
similar document or any contract, agreement or commitment contemplating or
otherwise relating to any Company Acquisition Transaction (as defined
below); provided, however, that prior to the approval of this Agreement and
the Merger at the Company Shareholders' Meeting, this Section 5.5(a) shall
not prohibit Company from furnishing nonpublic information regarding
Company and its subsidiaries to, or entering into discussions with, any
person or group who has submitted to Company prior to the date twenty
business days before the publicly announced date of the Company
Shareholders' Meeting (and not withdrawn) an unsolicited, written, bona
fide Company Acquisition Proposal that the Board of Directors of Company
reasonably concludes (based on the written advice of its financial adviser)
may constitute a Company Superior Offer if (1) neither Company nor any
representative of Company and its subsidiaries shall have violated any of
the restrictions set forth in this Section 5.5(a), (2) prior to the date
20 business days before the publicly announced date of the Company
Shareholders' Meeting, the Board of Directors of Company concludes in good
faith, after consultation with its outside legal counsel, that such action
is required in order for the Board of Directors of Company to comply with
its fiduciary obligations to Company's shareholders under applicable law,
(3) prior to furnishing any such nonpublic information to, or entering into
any such discussions with, such person or group, Company gives Parent
written notice of the identity of such person or group and all of the
material terms and conditions of such Company Acquisition Proposal and of
Company's intention to furnish nonpublic information to, or enter into
discussions with, such person or group, and Company receives from such
person or group an executed confidentiality agreement containing terms at
least as restrictive with regard to Company's confidential information as
the Confidentiality Agreement, (4) Company gives Parent at least three
business days advance notice of its intent to furnish such nonpublic
information or enter into such discussions, and (5) contemporaneously with
furnishing any such nonpublic information to such person or group, Company
furnishes such nonpublic information to Parent (to the extent such
nonpublic information has not been previously furnished by Company to
Parent). Company and its subsidiaries will immediately cease any and all
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any Company Acquisition Proposal. Without
limiting the foregoing, it is understood that any violation of the
restrictions set forth in the preceding two sentences by any officer,
director or employee of Company or any of its subsidiaries or any
investment banker, attorney or other advisor or representative of Company
or any of its subsidiaries shall be deemed to be a breach of this
Section 5.5(a) by Company.
For purposes of this Agreement, "Company Acquisition Proposal" shall mean any
offer or proposal (other than an offer or proposal by Parent) relating to
any Company Acquisition Transaction. For the purposes of this Agreement,
"Company Acquisition Transaction" shall mean any transaction or series of
related transactions other than the transactions contemplated by this
Agreement involving: (A) any acquisition or purchase from Company by any
person or "group" (as defined under Section 13(d) of the Exchange Act and
the rules and regulations thereunder) of more than a 15% interest in the
total outstanding voting securities of Company or any of its subsidiaries or
any tender offer or exchange offer that if consummated would result in any
person or "group" (as defined under Section 13(d) of the Exchange Act and
the rules and regulations thereunder) beneficially owning 15% or more of the
total outstanding voting securities of Company or any of its subsidiaries or
any merger, consolidation, business combination or similar transaction
involving Company pursuant to which the stockholders of Company immediately
preceding such transaction hold less than 85% of the equity interests in the
surviving or resulting entity of such transaction; (B) any sale, lease
(other than in the ordinary course of business), exchange, transfer, license
(other than in the ordinary course of business), acquisition or disposition
(other than of inventory in the ordinary course of business) of more than
50% of the assets of Company; or (C) any liquidation or dissolution of
Company.
In addition to the obligations of Company set forth in the preceding paragraphs
of this Section 5.4(a), Company as promptly as practicable shall advise
Parent orally and in writing of any request for non-public
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information which Company reasonably believes would lead to a Company
Acquisition Proposal or of any Company Acquisition Proposal, or any inquiry
with respect to or which Company reasonably should believe would lead to
any Company Acquisition Proposal, the material terms and conditions of such
request, Company Acquisition Proposal or inquiry, and the identity of the
person or group making any such request, Company Acquisition Proposal or
inquiry. Company will keep Parent informed as promptly as practicable in
all material respects of the status and details (including material
amendments or proposed amendments) of any such request, Company Acquisition
Proposal or inquiry.
(b) No Solicitation by Parent. From and after the date of this Agreement
until the Effective Time or termination of this Agreement pursuant to
Article VII, Parent and its subsidiaries will not, nor will they authorize
or permit any of their respective officers, directors, affiliates or
employees or any investment banker, attorney or other advisor or
representative retained by any of them to, directly or indirectly, (i)
solicit, initiate, encourage (including by way of furnishing information)
or induce the making, submission or announcement of any Parent Acquisition
Proposal, (ii) participate in any discussions or negotiations regarding, or
furnish to any person any non-public information with respect to, or take
any other action to facilitate any inquiries or the making of any proposal
that constitutes or may reasonably be expected to lead to, any Parent
Acquisition Proposal, (iii) engage in discussions with any person with
respect to any Parent Acquisition Proposal, except as to the existence of
these provisions, (iv) approve, endorse or recommend any Parent Acquisition
Proposal or (v) enter into any letter of intent or similar document or any
contract, agreement or commitment contemplating or otherwise relating to
any Parent Acquisition Transaction (as defined below); provided, however,
that prior to the approval of this Agreement and the Merger at the Parent
Stockholders' Meeting, this Section 5.5(b) shall not prohibit Parent from
furnishing nonpublic information regarding Parent and its subsidiaries to,
or entering into discussions with, any person or group who has submitted to
Parent prior to the date twenty business days before the publicly announced
date of the Parent Stockholder Meeting (and not withdrawn) an unsolicited,
written, bona fide Parent Acquisition Proposal that the Board of Directors
of Parent reasonably concludes (based on the written advice of its
financial adviser) may constitute a Parent Superior Offer if (1) neither
Parent nor any representative of Parent and its subsidiaries shall have
violated any of the restrictions set forth in this Section 5.5(b), (2)
prior to the date 20 business days before the publicly announced date of
the Parent Stockholder Meeting, the Board of Directors of Parent concludes
in good faith, after consultation with its outside legal counsel, that such
action is required in order for the Board of Directors of Parent to comply
with its fiduciary obligations to Parent's stockholders under applicable
law, (3) prior to furnishing any such nonpublic information to, or entering
into any such discussions with, such person or group, Parent gives Company
written notice of the identity of such person or group and all of the
material terms and conditions of such Parent Acquisition Proposal and of
Parent's intention to furnish nonpublic information to, or enter into
discussions with, such person or group, and Parent receives from such
person or group an executed confidentiality agreement containing terms at
least as restrictive with regard to Parent's confidential information as
the Confidentiality Agreement, (4) Parent gives Company at least three
business days advance notice of its intent to furnish such nonpublic
information or enter into such discussions, and (5) contemporaneously with
furnishing any such nonpublic information to such person or group, Parent
furnishes such nonpublic information to Company (to the extent such
nonpublic information has not been previously furnished by Parent to
Company). Parent and its subsidiaries will immediately cease any and all
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any Parent Acquisition Proposal. Without
limiting the foregoing, it is understood that any violation of the
restrictions set forth in the preceding two sentences by any officer,
director or employee of Parent or any of its subsidiaries or any investment
banker, attorney or other advisor or representative of Parent or any of its
subsidiaries shall be deemed to be a breach of this Section 5.5(b) by
Parent.
For purposes of this Agreement, "Parent Acquisition Proposal" shall mean any
offer or proposal (other than an offer or proposal by Company) relating to
any Parent Acquisition Transaction. For the purposes of this Agreement,
"Parent Acquisition Transaction" shall mean any transaction or series of
related transactions other than the transactions contemplated by this
Agreement involving: (A) any acquisition or purchase from Parent by any
person or "group" (as defined under Section 13(d) of the
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Exchange Act and the rules and regulations thereunder) of more than a 15%
interest in the total outstanding voting securities of Parent or any of its
subsidiaries or any tender offer or exchange offer that if consummated would
result in any person or "group" (as defined under Section 13(d) of the
Exchange Act and the rules and regulations thereunder) beneficially owning
15% or more of the total outstanding voting securities of Parent or any of
its subsidiaries or any merger, consolidation, business combination or
similar transaction involving Parent pursuant to which the stockholders of
Parent immediately preceding such transaction hold less than 85% of the
equity interests in the surviving or resulting entity of such transaction;
(B) any sale, lease (other than in the ordinary course of business),
exchange, transfer, license (other than in the ordinary course of business),
acquisition or disposition (other than of inventory in the ordinary course
of business) of more than 50% of the assets of Parent; or (C) any
liquidation or dissolution of Parent.
In addition to the obligations of Parent set forth in the preceding paragraphs
of this Section 5.4(b), Parent as promptly as practicable shall advise
Company orally and in writing of any request for non-public information
which Parent reasonably believes would lead to a Parent Acquisition Proposal
or of any Parent Acquisition Proposal, or any inquiry with respect to or
which Parent reasonably should believe would lead to any Parent Acquisition
Proposal, the material terms and conditions of such request, Parent
Acquisition Proposal or inquiry, and the identity of the person or group
making any such request, Parent Acquisition Proposal or inquiry. Parent will
keep Company informed as promptly as practicable in all material respects of
the status and details (including material amendments or proposed
amendments) of any such request, Parent Acquisition Proposal or inquiry.
5.6 Public Disclosure. Parent and Company will consult with each other, and
to the extent practicable, agree, before issuing any press release or otherwise
making any public statement with respect to the Merger, this Agreement or any
Company Acquisition Proposal or Parent Acquisition Proposal and will not issue
any such press release or make any such public statement prior to such
consultation, except as may be required by law where such consultation is not
reasonably possible before such public statement is required to be made. The
parties have agreed to the text of the joint press release announcing the
signing of this Agreement.
5.7 Reasonable Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use all reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done,
and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the
most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including using reasonable efforts to
accomplish the following:
(i) the taking of all reasonable acts necessary to cause the
conditions precedent set forth in Article VI to be satisfied,
(ii) the obtaining of all necessary actions or nonactions, waivers,
consents, approvals, orders and authorizations from Governmental
Entities and the making of all necessary registrations, declarations
and filings (including registrations, declarations and filings with
Governmental Entities, if any) and the taking of all reasonable steps
as may be necessary to avoid any suit, claim, action, investigation or
proceeding by any Governmental Entity,
(iii) the obtaining of all necessary consents, approvals or waivers
from third parties,
(iv) the defending of any suits, claims, actions, investigations or
proceedings, whether judicial or administrative, challenging this
Agreement or the consummation of the transactions contemplated hereby,
including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed
and
(v) the execution or delivery of any additional instruments necessary
to consummate the transactions contemplated by, and to fully carry out
the purposes of, this Agreement.
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Notwithstanding anything in this Agreement to the contrary, neither Parent
nor any of its affiliates shall be under any obligation to make proposals,
execute or carry out agreements or submit to orders providing for the sale
or other disposition or holding separate (through the establishment of a
trust or otherwise) of any material and significant assets or material and
significant categories of assets of Parent, any of its affiliates or
Company or the holding separate of the shares of Company Common Stock or
imposing or seeking to impose any material limitation on the ability of
Parent or any of its subsidiaries or affiliates to conduct their business
or own such assets or to acquire, hold or exercise full rights of ownership
of the shares of Company Common Stock.
(b) Each of Company and Parent will give prompt notice to the other of
(i) any notice or other communication from any person alleging that the
consent of such person is or may be required in connection with the Merger,
(ii) any notice or other communication from any Governmental Entity in
connection with the Merger, or (iii) any litigation relating to, involving
or otherwise affecting Company, Parent or their respective subsidiaries
that relates to the consummation of the Merger. Company shall give prompt
notice to Parent of any representation or warranty made by it contained in
this Agreement becoming untrue or inaccurate, or any failure of Company to
comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement, in
each case, such that the conditions set forth in Section 6.3(a) or 6.3(b)
would not be satisfied, provided, however, that no such notification shall
affect the representations, warranties, covenants or agreements of the
parties or the conditions to the obligations of the parties under this
Agreement. Parent shall give prompt notice to Company of any representation
or warranty made by it or Merger Sub contained in this Agreement becoming
untrue or inaccurate, or any failure of Parent or Merger Sub to comply with
or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement, in each case,
such that the conditions set forth in Section 6.2(a) or 6.2(b) would not be
satisfied, provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
5.8 Third Party Consents. As soon as practicable following the date hereof,
Parent and Company will each use all reasonable efforts to obtain any consents,
waivers and approvals under any of its or its subsidiaries' respective
agreements, contracts, licenses or leases required to be obtained in connection
with the consummation of the transactions contemplated hereby.
5.9 Stock Options, Warrants, ESPP and Employee Benefits.
(a) At the Effective Time, each then outstanding Company Option whether
or not exercisable at the Effective Time and regardless of the respective
exercise prices thereof, will be assumed by Parent. Each Company Option so
assumed by Parent under this Agreement will continue to have, and be
subject to, the same terms and conditions set forth in the applicable
Company Stock Option Plan (and any applicable stock option agreement for
such Company Option and any applicable agreement accelerating the vesting
of such Company Option disclosed in the Company Disclosure Letter)
immediately prior to the Effective Time (including, without limitation, any
repurchase rights or vesting provisions), except that (i) each Company
Option will be exercisable (or will become exercisable in accordance with
its terms) for that number of whole shares of Parent Common Stock equal to
the product of the number of shares of Company Common Stock that were
issuable upon exercise of such Company Option immediately prior to the
Effective Time multiplied by the Exchange Ratio, rounded down to the
nearest whole number of shares of Parent Common Stock and (ii) the per
share exercise price for the shares of Parent Common Stock issuable upon
exercise of such assumed Company Option will be equal to the quotient
determined by dividing the exercise price per share of Company Common Stock
at which such Company Option was exercisable immediately prior to the
Effective Time by the Exchange Ratio, rounded up to the nearest whole cent.
Each assumed Company Option shall be vested immediately following the
Effective Time as to the same percentage of the total number of shares
subject thereto as it was vested as of immediately prior to the Effective
Time. As soon as reasonably practicable, but in no event more than 20 days
after the
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Effective Time, Parent will issue to each person who holds an assumed
Company Option a document evidencing the assumption of such Company Option
by Parent. Continuous employment with Company or its subsidiaries shall be
credited to the optionee for purposes of determining the vesting of all
Company Options after the Effective Time.
(b) It is intended that Company Options assumed by Parent shall qualify
following the Effective Time as incentive stock options as defined in
Section 422 of the Code to the extent such Company Options qualified as
incentive stock options immediately prior to the Effective Time and the
provisions of this Section 5.9 shall be applied consistent with such
intent.
(c) At the Effective Time, each outstanding purchase right with respect
to the then open offering under the Company's ESPP (each an "Assumed
Purchase Right") shall be assumed by Parent. Each Assumed Purchase Right
shall continue to have, and be subject to, the terms and conditions set
forth in the Company's ESPP and the documents governing the Assumed
Purchase Right, except that the purchase price of the shares of Parent's
Common Stock under the Assumed Purchase Right shall be the lesser of (i)
the quotient determined by the dividing 85% of the fair market value of the
Company's Common Stock on the Offering Date (as defined in the Company's
ESPP) by the Exchange Ratio and (ii) 85% of the last sale price of the
Parent's Common Stock on Nasdaq on the last day of the offering that was
open at the Effective Time (with the number of shares rounded down to the
nearest whole share and the Purchase Price rounded up to the nearest whole
cent). The Assumed Purchase Rights shall be exercisable only for Parent
Common Stock. The Company's ESPP shall terminate immediately following the
purchase of shares under the Assumed Purchase Rights.
(d) From and after the Effective Time, employees of the Company may
participate in Parent's Employee Stock Purchase Plan, subject to the terms
and conditions of such plan.
5.10 Form S-8. Parent agrees to file a registration statement on Form S-8 for
the shares of Parent Common Stock issuable with respect to assumed Company
Options as soon as is reasonably practicable after the Effective Time and shall
maintain the effectiveness of such registration statement thereafter for so
long as any of such options or other rights remain outstanding.
5.11 Nasdaq Quotation. Parent agrees to authorize for quotation on the Nasdaq
Stock Market the shares of Parent Common Stock issuable, and those required to
be reserved for issuance, in connection with the Merger, upon official notice
of issuance.
5.12 Indemnification; Insurance.
(a) Indemnification. From and after the Effective Time, Parent will, and
will cause the Surviving Corporation to, fulfill and honor in all respects
the obligations of Company pursuant to any indemnification agreements
between Company and its directors and officers as of the Effective Time
(the "Indemnified Parties") and any indemnification provisions under
Company's Articles of Incorporation or Bylaws as in effect on the date
hereof. The Articles of Incorporation and Bylaws of the Surviving
Corporation will contain provisions with respect to exculpation and
indemnification that are at least as favorable to the Indemnified Parties
as those contained in the Articles of Incorporation and Bylaws of Company
as in effect on the date hereof, which provisions will not be amended,
repealed or otherwise modified for a period of six years from the Effective
Time in any manner that would adversely affect the rights thereunder of
individuals who, immediately prior to the Effective Time, were directors,
officers, employees or agents of Company, unless such modification is
required by law.
(b) Insurance. For a period of six years after the Effective Time, Parent
will cause the Surviving Corporation to use all reasonable efforts to
maintain in effect, if available, directors' and officers' liability
insurance covering those persons who are currently covered by Company's
directors' and officers' liability insurance policy on terms comparable to
those applicable to the current directors and officers of Company;
provided, however, that in no event will Parent or the Surviving
Corporation be required to expend in
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excess of 150% of the annual premium currently paid by Company for such
coverage (or such coverage as is available for such 150% of such annual
premium).
(c) Survival and Beneficiaries. This Section 5.12 shall survive the
consummation of the Merger, is intended to benefit Company, the Surviving
Corporation and each Indemnified Party, shall be binding on all successors
and assigns of the Surviving Corporation and Parent, and shall be
enforceable by the Indemnified Parties.
5.13 Affiliate Agreements. Company will use all commercially reasonable
efforts to deliver or cause to be delivered to Parent, as promptly as
practicable on or following the date hereof, from each Company Affiliate an
executed affiliate agreement in substantially the form attached hereto as
Exhibit D (the "Company Affiliate Agreement"), each of which will be in full
force and effect as of the Effective Time. Parent will use all commercially
reasonable efforts to deliver or cause to be delivered, as promptly as
practicable following the date hereof, from each Parent Affiliate an executed
affiliate agreement in substantially the form attached hereto as Exhibit E (the
"Parent Affiliate Agreement"), each of which will be in full force and effect
as of the Effective Time. Parent will be entitled to place appropriate legends
on the certificates evidencing any Parent Common Stock to be received by a
Company Affiliate or Parent Affiliate pursuant to the terms of this Agreement,
and to issue appropriate stop transfer instructions to the transfer agent for
the Parent Common Stock, consistent with the terms of the Company Affiliate
Agreement or Parent Affiliate Agreement.
5.14 Letter of Company's Accountants. Company shall use all commercially
reasonable efforts to cause to be delivered to Parent a letter of Arthur
Anderson LLP, dated no more than two business days before the date on which the
Registration Statement becomes effective (and reasonably satisfactory in form
and substance to Parent), that is customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement.
5.15 Letter of Parents' Accountants. Parent shall use all commercially
reasonable efforts to cause to be delivered to Company a letter of
PricewaterhouseCoopers LLP, dated no more than two business days before the
date on which the Registration Statement becomes effective (and reasonably
satisfactory in form and substance to Company), that is customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement.
5.16 Takeover Statutes. If any takeover statute is or may become applicable
to the Merger or the other transactions contemplated by this Agreement, each of
Parent and Company and their respective Boards of Directors shall grant such
approvals and take such lawful actions as are necessary to ensure that such
transactions may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise act to eliminate or minimize the
effects of such statute and any regulations promulgated thereunder on such
transactions.
5.17 Certain Employee Benefits. As soon as practicable after the execution of
this Agreement, Company and Parent shall confer and work together in good faith
to agree upon mutually acceptable employee benefit and compensation
arrangements in accordance with this Section 5.17 (and terminate certain
Company Employee Plans as defined in Section 2.14(a)(ii) immediately prior to
the Effective Time if appropriate). For a period of at least one year following
the Effective Time, Parent shall provide (or cause to be provided) benefits to
any person who was employed by Company or its subsidiaries immediately prior to
the Effective Time and subsequently employed by Parent or its subsidiaries
("Company Employees") that are either no less favorable in the aggregate to the
benefits provided to similarly-situated employees of Parent or are generally
equivalent to the benefits provided under the Company Employee Plans in
existence immediately prior to the Effective Time. After the Effective Time,
Parent shall grant (or cause to be granted) to each Company Employee credit for
all service with the Company prior to the Effective Time to the same extent as
if such service had been service with Parent for (i) all eligibility and
vesting purposes under all employee benefit plans, policies, programs and
arrangements of Parent and any of its subsidiaries that cover a Company
Employee, (ii) vacation accrual purposes after the Effective Time, and (iii)
purposes of satisfying any preexisting condition exclusion or
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actively-at-work requirement that would otherwise apply to such Company
Employee under any medical, dental or other welfare benefit plans, policies,
programs and arrangements of Parent and any of its subsidiaries that employ a
Company Employee, to the extent that this clause (iii) does not violate the
applicable plan, policy, program or arrangement. In addition, Company agrees
that it and its subsidiaries shall terminate any and all group severance,
separation, retention and salary continuation plans, programs or arrangements
(other than contractual agreements disclosed on the Company Disclosure Letter)
prior to the Effective Time.
5.18 Stockholder Litigation. Each of Company and Parent shall give the other
the reasonable opportunity to participate in the defense of any stockholder
litigation against Company or Parent, as applicable, and its directors relating
to the transactions contemplated by this Agreement and the Option Agreements.
5.19 Pooling Accounting. Each of Parent and Company shall use all reasonable
efforts to cause the Merger to be accounted for as a pooling of interests.
Parent will use its reasonable efforts to have each person who is a Parent
Affiliate not to take any action that would prevent Parent from accounting for
the Merger as a pooling of interests. Company will use all reasonable efforts
to have each person who is a Company Affiliate not to take any action that
would prevent Parent from accounting for the Merger as a pooling of interests.
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ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) Company Shareholder Approval. This Agreement shall have been approved
and adopted, and the Merger shall have been approved by a vote of holders
of outstanding shares of Common Stock of the Company representing two-
thirds of all votes entitled to be cast on the matter.
(b) Parent Stockholder Approval.
(i) The issuance of the shares of Parent Common Stock pursuant to the
Merger shall have been duly approved by the requisite vote of the
stockholders of Parent under applicable Nasdaq rules and Parent's
Bylaws.
(ii) An amendment to Parent's Certificate of Incorporation to change
the name of Parent to "Egghead.com, Inc.," effective at the Effective
Time, and increase the authorized number of shares of Parent Common
Stock so as to permit the transactions permitted hereby, subject to and
upon consummation of the Merger, shall have been duly approved by the
affirmative vote of the holders of a majority of the outstanding shares
of Parent Common Stock.
(c) Registration Statement Effective; Proxy Statement. The SEC shall have
declared the Registration Statement effective. No stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose, and no similar proceeding
in respect of the Proxy Statement/Prospectus, shall have been initiated or
threatened in writing by the SEC.
(d) No Order; HSR Act. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive
order, decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which has the effect of making the Merger
illegal or otherwise prohibiting consummation of the Merger or otherwise
limiting or restricting Parent's conduct or operation of the business of
Company and its subsidiaries following the Merger in a manner that could
reasonably be expected to have a Material Adverse Effect on Parent combined
with the Surviving Corporation after the Effective Time. All waiting
periods, if any, under the HSR Act relating to the transactions
contemplated hereby will have expired or terminated early and all material
foreign antitrust approvals required to be obtained prior to the Merger in
connection with the transactions contemplated hereby shall have been
obtained.
(e) Approvals. Other than the filing provided for by Section 1.2(a), all
authorizations, consents, orders or approvals of, or declarations or
filings with, or expirations of waiting periods imposed by, any
Governmental Entity the failure of which to file, obtain or occur is
reasonably likely to have a Company Material Adverse Effect or Parent
Material Adverse Effect shall have been filed, been obtained or occurred.
(f) Tax Opinions. Parent and Company shall each have received written
opinions from their respective tax counsel (Fenwick & West LLP and Perkins
Coie LLP, respectively), in form and substance reasonably satisfactory to
them, to the effect that the Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code and such opinions shall not have
been withdrawn. The parties to this Agreement agree to make such reasonable
representations as requested by such counsel for the purpose of rendering
such opinions.
(g) Nasdaq Listing. The shares of Parent Common Stock to be issued in the
Merger shall have been approved for quotation on the Nasdaq Stock Market
subject to notice of issuance.
(h) Amendment of Parent's Certificate of Incorporation. An amendment to
Parent's Articles of Incorporation to change the name of Parent to
"Egghead.com, Inc.," effective at the Effective Time, and
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to increase the authorized number of shares of Parent Common Stock so as to
permit the transactions contemplated hereby, shall have been duly filed
with the Delaware Secretary of State.
(i) Amendment of Parent's Bylaws; Parent Board of Directors. Parent's
bylaws shall have been duly amended to increase the size of Parent's Board
of Directors from five (5) to nine (9) directors, and such action as may be
required under Parent's Certificate of Incorporation and Bylaws, and
Delaware Law, shall have been taken to cause Parent's Board of Directors to
consist of the Parent Designees, the Company Designees and the Joint
Designee (unless the Joint Designee shall not have been designated),
immediately following the Effective Time.
6.2 Additional Conditions to Obligations of Company. The obligation of
Company to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by Company:
(a) Representations and Warranties. Each representation and warranty of
Parent and Merger Sub contained in this Agreement (i) shall have been true
and correct in all material respects as of the date of this Agreement and
(ii) shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as if made on the Closing Date,
except (A) in each case, or in the aggregate, as does not constitute a
Parent Material Adverse Effect at the Closing Date; provided, however, such
Material Adverse Effect qualification shall be inapplicable with respect to
the representations and warranties contained in Sections 3.5(a), (b) and
(d), 3.6 (a), (b) and (c), 3.21 and 3.22 (which representations shall be
true and correct at the applicable times in all material respects), and (B)
for those representations and warranties which address matters only as of a
particular date (which representations shall have been true and correct in
all material respects as of such particular date) (it being understood
that, for purposes of determining the accuracy of such representations and
warranties, any update of or modification to the Parent Disclosure Letter
made or purported to have been made after the execution of this Agreement
shall be disregarded). Company shall have received a certificate with
respect to the foregoing signed on behalf of Parent by an authorized
officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have performed
or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or
prior to the Closing Date, and Company shall have received a certificate to
such effect signed on behalf of Parent by the Chief Executive Officer and
Chief Financial Officer of Parent.
(c) Material Adverse Effect. No Parent Material Adverse Effect shall have
occurred since the date of this Agreement and be continuing.
(d) Consents. Parent shall have obtained all consents, waivers and
approvals required in connection with the consummation of the transactions
contemplated hereby in connection with the agreements, contracts, licenses
or leases set forth on Part 3.4 of the Parent Disclosure Letter except for
any consent, waiver or approval which the failure to obtain would not
reasonably be expected to result in a Parent Material Adverse Effect.
(e) Opinion of Accountants.
(i) Parent shall have received from PricewaterhouseCoopers LLP,
independent auditors for Parent, a letter dated the Closing Date (which
may contain customary qualifications and assumptions), to the effect
that PricewaterhouseCoopers LLP concurs with Parent's management
conclusion that Parent may account for the Merger as a pooling of
interests under Accounting Principles Board Opinion No. 16, and Company
shall have received a copy of such letter.
(ii) Company shall have received from Arthur Andersen LLP,
independent public accountants for Company, a letter dated the Closing
Date (which may contain customary qualifications and assumptions), to
the effect that Arthur Andersen LLP concurs with Company's management
conclusion that no conditions exist related to Company that would
preclude Parent from accounting for the Merger as a pooling of
interests under Accounting Principles Board Opinion No. 16.
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6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Parent:
(a) Representations and Warranties. Each representation and warranty of
Company contained in this Agreement (i) shall have been true and correct in
all material respects as of the date of this Agreement and (ii) shall be
true and correct in all material respects on and as of the Closing Date
with the same force and effect as if made on and as of the Closing Date;
except (A) in each case, or in the aggregate, as does not constitute a
Company Material Adverse Effect at the Closing Date; provided, however,
such Material Adverse Effect qualification shall be inapplicable with
respect to the representations and warranties contained in Sections 2.5(a)
and (b), 2.6 (a), (b) and (c), 2.21 and 2.22 (which representations shall
be true and correct at the applicable times in all material respects), and
(B) for those representations and warranties which address matters only as
of a particular date(which representations shall have been true and correct
in all material respects as of such particular date) (it being understood
that, for purposes of determining the accuracy of such representations and
warranties, any update of or modification to the Company Disclosure Letter
made or purported to have been made after the execution of this Agreement
shall be disregarded). Parent shall have received a certificate with
respect to the foregoing signed on behalf of Company by an authorized
officer of Company.
(b) Agreements and Covenants. Company shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date, and Parent shall have received a certificate to such effect signed on
behalf of Company by the Chief Executive Officer and the Chief Financial
Officer of Company.
(c) Material Adverse Effect. No Company Material Adverse Effect shall
have occurred since the date of this Agreement and be continuing.
(d) Consents. Company shall have obtained all consents, waivers and
approvals required in connection with the consummation of the transactions
contemplated hereby in connection with the agreements, contracts, licenses
or leases set forth on Part 2.4 of the Company Disclosure Letter except for
any consent, waiver or approval which the failure to obtain would not
reasonably be expected to result in a Company Material Adverse Effect.
(e) Opinion of Accountants.
(i) Parent shall have received from PricewaterhouseCoopers LLP,
independent auditors for Parent, a letter dated the Closing Date (which
may contain customary qualifications and assumptions), to the effect
that PricewaterhouseCoopers LLP concurs with Parent's management
conclusion that Parent may account for the Merger as a pooling of
interests under Accounting Principles Board Opinion No. 16.
(ii) Company shall have received from Arthur Andersen LLP,
independent public accountants for Company, a letter dated the Closing
Date (which may contain customary qualifications and assumptions), to
the effect that Arthur Andersen LLP concurs with Company's management
conclusion that no conditions exist related to Company that would
preclude Parent from accounting for the Merger as a pooling of
interests under Accounting Principles Board Opinion No. 16, and Parent
shall have received a copy of such letter.
(f) Dissenting Shares. The aggregate number of Dissenting Shares shall
not exceed five percent (5%) of the aggregate number of shares of Company
Common Stock outstanding immediately prior to Closing.
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after the requisite approvals of the
shareholders of Company or stockholders of Parent:
(a) by mutual written consent duly authorized by the Boards of Directors
of Parent and Company;
(b) by either Company or Parent if the Merger shall not have been
consummated by the date that is nine (9) months after the date of this
Agreement (the "Outside Date"), for any reason; provided, however, that the
right to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose action or failure to act has been a principal
cause of or resulted in the failure of the Merger to occur on or before
such date and such action or failure to act constitutes a breach of this
Agreement;
(c) by either Company or Parent if a Governmental Entity shall have
issued an order, decree or ruling or taken any other action, in any case
having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which order, decree, ruling or other action is
final and nonappealable;
(d) by either Company or Parent if the required approval of the Merger by
the shareholders of Company contemplated by this Agreement shall not have
been obtained by reason of the failure to obtain the required vote at a
meeting of the Company shareholders duly convened therefore or at any
adjournment thereof; provided, however, that the right to terminate this
Agreement under this Section 7.1(d) shall not be available to the Company
where the failure to obtain the Company shareholder approval shall have
been caused by (i) the action or failure to act of the Company and such
action or failure to act constitutes a material breach by the Company of
this Agreement or (ii) a breach of any Company Voting Agreements by any
party thereto other than Parent;
(e) by either Company or Parent if the required approval of the
stockholders of Parent contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a meeting
of the Parent stockholders duly convened therefore or at any adjournment
thereof; provided, however, that the right to terminate this Agreement
under this Section 7.1(e) shall not be available to Parent where the
failure to obtain the Parent stockholder approval shall have been caused by
(i) the action or failure to act of the Parent and such action or failure
to act constitutes a material breach by Parent of this Agreement or (ii) a
breach of any Parent Voting Agreement by any party thereto other than
Company;
(f) by Parent (at any time prior to the adoption and approval of this
Agreement and the Merger by the required vote of the shareholders of
Company) if a Company Triggering Event (as defined below) shall have
occurred.
(g) by Company (at any time prior to the required approval of the
stockholders of Parent contemplated by this Agreement) if a Parent
Triggering Event (as defined below) shall have occurred.
(h) by Company, upon a breach of any representation, warranty, covenant
or agreement on the part of Parent or Merger Sub set forth in this
Agreement, or if any representation or warranty of Parent or Merger Sub
shall have become untrue, in either case such that the conditions set forth
in Section 6.2(a) or Section 6.2(b) would not be satisfied as of the time
of such breach or as of the time such representation or warranty shall have
become untrue, provided that if such inaccuracy in Parent's or Merger Sub's
representations and warranties or breach by Parent or Merger Sub is curable
by Parent or Merger Sub through the exercise of its reasonable efforts,
then Company may not terminate this Agreement under this Section 7.1(h)
prior to the Outside Date, provided Parent or Merger Sub continues to
exercise all reasonable efforts to cure its breach (it being understood
that Company may not terminate this Agreement pursuant to this paragraph
(h) if such breach by Parent or Merger Sub is cured prior to the Outside
Date; or
(i) by Parent, upon a breach of any representation, warranty, covenant or
agreement on the part of Company set forth in this Agreement, or if any
representation or warranty of Company shall have become
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untrue, in either case such that the conditions set forth in Section 6.3(a)
or Section 6.3(b) would not be satisfied as of the time of such breach or
as of the time such representation or warranty shall have become untrue,
provided that if such inaccuracy in Company's representations and
warranties or breach by Company is curable by Company through the exercise
of its reasonable efforts, then Parent may not terminate this Agreement
under this Section 7.1(i) prior to the Outside Date, provided Company
continues to exercise all reasonable efforts to cure such breach (it being
understood that Parent may not terminate this Agreement pursuant to this
paragraph (i) if such breach by Company is cured prior to the Outside Date.
For the purposes of this Agreement, a "Company Triggering Event" shall be
deemed to have occurred if: (i) the Board of Directors of Company or any
committee thereof shall for any reason have withdrawn or shall have amended
or modified in a manner adverse to Parent its unanimous recommendation in
favor of the adoption and approval of the Agreement or the approval of the
Merger; (ii) Company shall have failed to include in the Proxy
Statement/Prospectus the unanimous recommendation of the Board of Directors
of Company in favor of the adoption and approval of the Agreement and the
approval of the Merger; (iii) Board of Directors of Company fails to
reaffirm its unanimous recommendation in favor of the adoption and approval
of the Agreement and the approval of the Merger within 10 business days
after Parent requests in writing that such recommendation be reaffirmed at
any time following the public announcement of a Company Acquisition
Proposal; (iv) the Board of Directors of Company or any committee thereof
shall have approved or publicly recommended any Company Acquisition
Proposal; (v) Company shall have entered into any letter of intent of
similar document or any agreement, contract or commitment accepting any
Company Acquisition Proposal; or (vi) a tender or exchange offer relating to
securities of Company shall have been commenced by a person or entity
unaffiliated with Parent and Company shall not have sent to its
securityholders pursuant to Rule 14e-2 promulgated under the Securities Act,
within 10 business days after such tender or exchange offer is first
published sent or given, a statement disclosing that Company recommends
rejection of such tender or exchange offer; and a "Parent Triggering Event"
shall be deemed to have occurred if: (i) the Board of Directors of Parent or
any committee thereof shall for any reason have withdrawn or shall have
amended or modified in a manner adverse to Company its unanimous
recommendation in favor of the issuance of the shares of Parent Common Stock
pursuant to the Merger and the amendment of Parent's Certificate of
Incorporation to change the name of Parent to "Egghead.com, Inc.," effective
at the Effective Time, and to increase the authorized number of shares of
Parent Common Stock so as to permit the transactions contemplated by the
Agreement, and (ii) Parent shall have failed to include in the Proxy
Statement/Prospectus the unanimous recommendation of the Board of Directors
of Parent in favor of the issuance of the shares of Parent Common Stock
pursuant to the Merger and the amendment of Parent's Certificate of
Incorporation to change the name of Parent to "Egghead.com, Inc.," effective
at the Effective Time, and to increase the authorized number of shares of
Parent Common Stock so as to permit the transactions contemplated by the
Agreement, and the adoption and approval of the Agreement and the approval
of the Merger; (iii) Board of Directors of Parent fails to reaffirm its
unanimous recommendation in favor of the issuance of the shares of Parent
Common Stock pursuant to the Merger and the amendment of Parent's
Certificate of Incorporation to change the name of Parent to "Egghead.com,
Inc.," effective at the Effective Time, and to increase the authorized
number of shares of Parent Common Stock so as to permit the transactions
contemplated by the Agreement, and the adoption and approval of the
Agreement and the approval of the Merger, within 10 business days after
Company requests in writing that such recommendation be reaffirmed at any
time following the public announcement of a Parent Acquisition Proposal;
(iv) the Board of Directors of Parent or any committee thereof shall have
approved or publicly recommended any Parent Acquisition Proposal; (v) Parent
shall have entered into any letter of intent of similar document or any
agreement, contract or commitment accepting any Parent Acquisition Proposal;
or (vi) a tender or exchange offer relating to securities of Parent shall
have been commenced by a person or entity unaffiliated with Company and
Parent shall not have sent to its securityholders pursuant to Rule 14e-2
promulgated under the Securities Act, within 10 business days after such
tender or exchange offer is first published sent or given, a statement
disclosing that Parent recommends rejection of such tender or exchange
offer.
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<PAGE>
7.2 Notice of Termination Effect of Termination. Any termination of this
Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties
hereto. In the event of the termination of this Agreement as provided in
Section 7.1, this Agreement shall be of no further force or effect, except (i)
as set forth in Section 5.4(a), this Section 7.2, Section 7.3 and Article 8,
each of which shall survive the termination of this Agreement, and (ii) that
nothing herein shall relieve any party from liability for any willful breach of
this Agreement. No termination of this Agreement shall affect the obligations
of the parties contained in the Confidentiality Agreement, all of which
obligations shall survive termination of this Agreement in accordance with
their terms.
7.3 Fees and Expenses.
(a) General. Except as set forth in this Section 7.3, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses
whether or not the Merger is consummated; provided, however, that Parent
and Company shall share equally all fees and expenses, other than
attorneys' and accountants fees and expenses, incurred in relation to the
printing and filing (with the SEC) of the Proxy Statement/Prospectus
(including any preliminary materials related thereto) and the Registration
Statement (including financial statements and exhibits) and any amendments
or supplements thereto.
(b) Parent Termination Fees. In the event that this Agreement is
terminated by Company or Parent, as applicable, pursuant to Sections
7.1(b), (e) or (g), Parent shall promptly, but in no event later than two
days after the date of such termination, pay Company a fee equal to four
percent (4.0%) of the value of the Parent Equity Value, in immediately
available funds (the "Parent Termination Fee"); provided, that in the case
of termination under Section 7.1(b) or (e), (i) such payment shall be made
only if (A) following the date hereof and prior to the termination of this
Agreement, a third party has publicly announced a Parent Acquisition
Proposal and within 12 months following the termination of this Agreement a
Parent Acquisition (as defined below) is consummated or Parent enters into
an agreement providing for a Parent Acquisition or (B) in the case of
termination under Section 7.1(b) only, (1) the failure to consummate the
Merger by the Outside Date is principally due to action or failure to act
by Parent and such action or failure to act constitutes a breach of this
Agreement, and (2) within 12 months following the termination of this
Agreement, a Parent Acquisition is consummated or Parent enters into an
agreement providing for a Parent Acquisition, and (ii) such payment shall
be made promptly, but in no event later than two days after the
consummation of such Parent Acquisition or the entry by the Parent into
such agreement. Parent acknowledges that the agreements contained in this
Section 7.3(b) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, Company would not enter
into this Agreement; accordingly, if Parent fails to pay in a timely manner
the amounts due pursuant to this Section 7.3(b), and, in order to obtain
such payment, Company makes a claim that results in a judgment against
Parent for the amounts set forth in this Section 7.3(b), Parent shall pay
to Company its reasonable costs and expenses (including reasonable
attorneys' fees and expenses) in connection with such suit, together with
interest on the amounts set forth in this Section 7.3(b) at the prime rate
of The Chase Manhattan Bank in effect on the date such payment was required
to be made. Payment of the fees described in this Section 7.3(b) shall not
be in lieu of damages incurred in the event of breach of this Agreement.
For the purposes of this Agreement "Parent Acquisition" shall mean any of
the following transactions (other than the transactions contemplated by
this Agreement); (i) a merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
Parent pursuant to which the stockholders of Parent immediately preceding
such transaction hold less than 50% of the aggregate equity interests in
the surviving or resulting entity of such transaction, (ii) a sale or other
disposition by Parent of assets representing in excess of 50% of the
aggregate fair market value of Parent's business immediately prior to such
sale or (iii) the acquisition by any person or group (including by way of a
tender offer or an exchange offer or issuance by Parent), directly or
indirectly, of beneficial ownership or a right to acquire beneficial
ownership of shares representing in excess of 50% of the voting power of
the then outstanding shares of capital stock of Parent.
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For the purposes of this Agreement, "Parent Equity Value" means the
product of the average closing price of Parent Common Stock on the Nasdaq
National Market over the five (5) trading days prior to the date of
termination pursuant to Sections 7.1(b), (e) or (g), and the sum of: (A)
all shares of Parent Common Stock that are outstanding as of the date of
termination; (B) all shares of Parent Common Stock issuable upon conversion
of all shares of capital stock that is convertible into shares of Parent
Common Stock; and (C) all shares of Parent Common Stock issuable upon
conversion of all options and warrants to acquire Parent Common Stock that
are outstanding as of the date of termination.
(c) Company Termination Fee. In the event that this Agreement is
terminated by Parent or Company, as applicable, pursuant to Sections
7.1(b), (d) or (f), and subject to Section 7.4, Company shall promptly, but
in no event later than two days after the date of such termination, pay
Parent a fee equal to four percent (4.0%) of the value of the Company
Equity Value, in immediately available funds (the "Company Termination
Fee"); provided, that in the case of termination under Section 7.1(b) or
7.1(d), (i) such payment shall be made only if (A) following the date
hereof and prior to the termination of this Agreement, a third party has
publicly announced a Company Acquisition Proposal and within 12 months
following the termination of this Agreement a Company Acquisition (as
defined below) is consummated or Company enters into an agreement providing
for a Company Acquisition or (B) in the case of termination under Section
7.1(b) only, (1) the failure to consummate the Merger by the Outside Date
is principally due to action or failure to act by Company and such action
or failure to act constitutes a breach of this Agreement, and (2) within 12
months following the termination of this Agreement, a Company Acquisition
is consummated or Company enters into an agreement providing for a Company
Acquisition, and (ii) such payment shall be made promptly, but in no event
later than two days after the consummation of such Company Acquisition or
the entry by the Company into such agreement. Company acknowledges that the
agreements contained in this Section 7.3(c) are an integral part of the
transactions contemplated by this Agreement, and that, without these
agreements, Parent would not enter into this Agreement; accordingly, if
Company fails to pay in a timely manner the amounts due pursuant to this
Section 7.3(c), and, in order to obtain such payment, Parent makes a claim
that results in a judgment against Company for the amounts set forth in
this Section 7.3(c), Company shall pay to Parent its reasonable costs and
expenses (including reasonable attorneys' fees and expenses) in connection
with such suit, together with interest on the amounts set forth in this
Section 7.3(c) at the prime rate of The Chase Manhattan Bank in effect on
the date such payment was required to be made. Payment of the fees
described in this Section 7.3(c) shall not be in lieu of damages incurred
in the event of breach of this Agreement. For the purposes of this
Agreement "Company Acquisition" shall mean any of the following
transactions (other than the transactions contemplated by this Agreement);
(i) a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Company pursuant
to which the shareholders of Company immediately preceding such transaction
hold less than 50% of the aggregate equity interests in the surviving or
resulting entity of such transaction, (ii) a sale or other disposition by
Company of assets representing in excess of 50% of the aggregate fair
market value of Company's business immediately prior to such sale or (iii)
the acquisition by any person or group (including by way of a tender offer
or an exchange offer or issuance by Company), directly or indirectly, of
beneficial ownership or a right to acquire beneficial ownership of shares
representing in excess of 50% of the voting power of the then outstanding
shares of capital stock of Company.
For the purposes of this Agreement, "Company Equity Value" means the
product of the average closing price of Company Common Stock on the Nasdaq
National Market over the five (5) trading days prior to the date of
termination pursuant to Sections 7.1(b), (d), or (f), and the sum of: (A)
all shares of Company Common Stock that are outstanding as of the date of
termination; (B) all shares of Company Common Stock issuable upon
conversion of all shares of capital stock that is convertible into shares
of Company Common Stock; and (C) all shares of Company Common Stock
issuable upon conversion of all options and warrants to acquire Company
Common Stock that are outstanding as of the date of termination.
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<PAGE>
7.4 Loan Upon Termination. If (a) this Agreement shall have been terminated
by Company or Parent pursuant to Section 7.1(b) or (d) and, in the case of
termination pursuant to Section 7.1(b), Company shall have held the Company
Stockholders' Meeting and the required approval of the Merger by the
shareholders of Company contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote, and (b) no
Company Termination Fee shall have been paid by Company pursuant to Section 7.3
within two days after such termination, then (x) Company shall promptly upon
demand reimburse Parent for all of its actual out-of-pocket expenses incurred
in connection with this Agreement and the transactions contemplated hereby,
including investment banking, legal and accounting fees and expenses, and (y)
Company shall make an unsecured loan to Parent in such amount, not to exceed
$16.0 million, as may be requested by Parent. The amount of such loan shall be
advanced to Parent in a single installment in immediately available funds to
such account as may be designated by Parent not later than the date five days
after such termination. Concurrently with the making of such loan, Parent shall
execute and deliver to Company an Unsecured Promissory Note in the form
attached hereto as Exhibit H (the "Note"), duly executed by Parent. Such loan
shall be subject to such terms and conditions as are set forth in the Note. In
the event that after Company makes such a loan, a Company Termination Fee shall
become payable pursuant to Section 7.3, then Company may elect to reduce the
amount of principal and interest then outstanding under the Note by the amount
of such Company Termination Fee, in which case (1) such Company Termination Fee
shall be deemed to have been paid in cash by Company to Parent to the extent of
such reduction, (2) such Company Termination Fee shall only be payable by
Company to Parent in cash if and to the extent that the amount of such Company
Termination Fee exceeded the outstanding principal amount of, and accrued
interest on, the Note immediately prior to such election, and (3) the Note
shall only be deemed to remain outstanding if and to the extent that the
outstanding principal amount of, and accrued interest on, the Note immediately
prior to such election exceeded the amount of such Company Termination Fee.
7.5 Amendment. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of Parent and Company.
7.6 Extension; Waiver. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. Delay in exercising any right under
this Agreement shall not constitute a waiver of such right.
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<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations and Warranties. The representations and
warranties of Company, Parent and Merger Sub contained in this Agreement shall
terminate at the Effective Time, and only the covenants that by their terms
survive the Effective Time shall survive the Effective Time. The obligations of
Parent and Company pursuant to Sections 5.4(a), 7.3 and 7.4, and this Article
VIII, shall survive the termination of this Agreement.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at
the following addresses or telecopy numbers (or at such other address or
telecopy numbers for a party as shall be specified by like notice):
<TABLE>
<S> <C>
If to Parent or Merger Sub, to: If to Company, to:
Onsale, Inc. Egghead.com, Inc.
1350 Willow Road 521 SE Chkalov Drive
Menlo Park, CA, 94025 Vancouver, WA, 98683
Attention: Chief Executive Officer Attention: Chief Executive Officer
Telecopy No.: (650) 324-3190 Telecopy No.:
with a copy to: with a copy to:
Fenwick & West LLP Perkins Coie LLP
Two Palo Alto Square 1201 Third Avenue, 40th Floor
Palo Alto, California 94306 Seattle, WA 91010-3099
Attention: David K. Michaels Attention: David F. McShea
Facsimile Number: (650) 494-1417 Facsimile Number: (206) 583-8500
</TABLE>
8.3 Interpretation; Certain Defined Terms. When a reference is made in this
Agreement to Exhibits, such reference shall be to an Exhibit to this Agreement
unless otherwise indicated. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. When reference is made herein to "the
business of" an entity, such reference shall be deemed to include the business
of all direct and indirect subsidiaries of such entity. Reference to the
subsidiaries of an entity shall be deemed to include all direct and indirect
subsidiaries of such entity. For the purposes of this Agreement, the following
definitions apply:
(a) "Code" means the Internal Revenue Code of 1986, as amended;
(b) "Delaware Law" means the General Corporation Law of the State of
Delaware;
(c) "Encumbrances" means any lien, pledge, hypothecation, charge,
mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction
on the voting of any security, any restriction on the transfer of any
security or other asset, any restriction on the receipt of any income
derived from any asset, any restriction on the use of any asset and any
restriction on the possession, exercise or transfer of any other attribute
of ownership of any asset);
(d) "Exchange Act" means the Securities Exchange Act of 1934, as amended;
(e) "GAAP" means United States generally accepted accounting principles;
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(f) "Governmental Entity" means any court, administrative agency or
commission or other governmental authority or instrumentality, foreign or
domestic;
(g) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended;
(h) "knowledge" means with respect to a party hereto, with respect to any
matter in question, that any of the officers of such party has actual
knowledge of such matter, after reasonable inquiry of such matter;
(i) "Legal Requirements" means any federal, state, local, municipal,
foreign or other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Entity (as
defined above);
(j) "Material Adverse Effect" when used in connection with an entity
means any change, event, violation, inaccuracy, circumstance or effect that
is or is reasonably likely to be materially adverse to the business, assets
(including intangible assets), capitalization, financial condition or
results of operations of such entity taken as a whole with its
subsidiaries, except to the extent that Company (in the case of a Company
Material Adverse Effect) or Parent (in the case of a Parent Material
Adverse Effect) shall establish, by clear and convincing evidence, that
such change, event, violation, inaccuracy, circumstance or effect directly
and primarily results from (i) the conditions or changes affecting the
industry generally in which such entity operates (provided that such
changes do not affect such entity in a disproportionate manner) or (ii)
changes in trading prices for such entity's capital stock; "Company
Material Adverse Effect" means a Material Adverse Effect with respect to
Company and its subsidiaries, and "Parent Material Adverse Effect" means
Material Adverse Effect with respect to Parent and its Subsidiaries.
(k) "person" shall mean any individual, corporation (including any non-
profit corporation), general partnership, limited partnership, limited
liability partnership, joint venture, estate, trust, company (including any
limited liability company or joint stock company), firm or other
enterprise, association, organization, entity or Governmental Entity;
(l) "SEC" means the United States Securities and Exchange Commission;
(m) "Securities Act" means the Securities Act of 1933, as amended;
(n) "subsidiary" of a specified entity will be any corporation,
partnership, limited liability company, joint venture or other legal entity
of which the specified entity (either alone or through or together with any
other subsidiary) owns, directly or indirectly, 50% or more of the stock or
other equity or partnership interests the holders of which are generally
entitled to vote for the election of the Board of Directors or other
governing body of such corporation or other legal entity; and
(o) "Washington Law" means the Washington Business Corporation Act.
8.4 Counterparts. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other party, it being understood that all parties need not
sign the same counterpart.
8.5 Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Disclosure Letter
and the Parent Disclosure Letter (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, it being understood that the
Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder,
except as specifically provided in Section 5.12.
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8.6 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
8.7 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington, regardless of the laws
that might otherwise govern under applicable principles of conflicts of law
thereof.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule
of construction providing that ambiguities in an agreement or other document
will be construed against the party drafting such agreement or document.
8.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the preceding sentence, this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Any purported assignment in
violation of this Section shall be void.
8.11 Disclosure Letter. Notwithstanding anything in the Company Disclosure
Letter or the Parent Disclosure Letter to the contrary, nothing in the Company
Disclosure Letter or the Parent Disclosure Letter shall be deemed adequate to
disclose an exception to a representation or warranty made herein unless the
disclosure identifies the exception with particularity and describes the
relevant facts in reasonable detail; provided, that a particular matter need
only be disclosed once in such manner so long as it is cross-referenced
wherever else applicable in the Company Disclosure Letter or the Parent
Disclosure Letter, as the case may be, in a manner sufficiently clear to
identify to which representation or warranty an exception is being made or
unless it is apparent from the express disclosure made on the Company
Disclosure Letter or Parent Disclosure Letter, as applicable, that an exception
is being made to such representation or warranty.
8.12 WAIVER OF JURY TRIAL. EACH OF PARENT, COMPANY AND MERGER SUB HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, COMPANY OR MERGER SUB IN
THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
ONSALE, INC.
Signature: /s/ S. Jerrold Kaplan
Printed Name: S. Jerrold Kaplan
Title: Chief Executive Officer and
President
EO CORPORATION
Signature: /s/ S. Jerrold Kaplan
Printed Name: S. Jerrold Kaplan
Title: Chief Executive Officer and
President
EGGHEAD.COM, INC.
Signature: /s/ George P. Orban
Printed Name: George P. Orban
Title: Chief Executive Officer
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<PAGE>
ANNEX B
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EGGHEAD.COM, INC.
(Originally incorporated on December 12, 1996
under the name ONSALE, Inc.)
ARTICLE I
The name of the corporation is Egghead.com, Inc.
ARTICLE II
The registered office of the corporation in the State of Delaware is located
at 15 East North Street, City of Dover, 19901, County of Kent. The name of its
registered agent at that address is Incorporating Services, Ltd.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity for
which a corporation may be organized under the General Corporation Law of the
State of Delaware (the "General Corporation Law").
ARTICLE IV
The total number of shares of all classes of stock which the corporation has
authority to issue is One Hundred Million (100,000,000) shares, consisting of
two classes: Ninety-Eight Million (98,000,000) shares of Common Stock, $0.001
par value per share, and Two Million (2,000,000) shares of Preferred Stock,
$0.001 par value per share.
The Board of Directors is authorized, subject to any limitations prescribed
by the law of the State of Delaware, to provide for the issuance of the shares
of Preferred Stock in one or more series, and, by filing a certificate of
designation pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, to fix the designation, powers, preferences and rights of the shares of
each such series and any qualifications, limitations or restrictions thereof,
and to increase or decrease the number of shares of any such series (but not
below the number of shares of such series then outstanding). The number of
authorized shares of Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative vote of
the holders of a majority of the stock of the corporation entitled to vote,
unless a vote of any other holders is required pursuant to a certificate or
certificates establishing a series of Preferred Stock.
Except as expressly provided in any certificate of designation designating
any series of Preferred Stock pursuant to the foregoing provisions of this
Article IV, any new series of Preferred Stock may be designated, fixed and
determined as provided herein by the Board of Directors without approval of the
holders of Common Stock or the holders of Preferred Stock, or any series
thereof, and any such new series may have powers, preferences and rights,
including, without limitation, voting rights, dividend rights, liquidation
rights, redemption rights and conversion rights, senior to, junior to or pari
passu with the rights of the Common Stock, the Preferred Stock, or any future
class or series of Preferred Stock or Common Stock.
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<PAGE>
ARTICLE V
The Board of Directors of the corporation shall have the power to adopt,
amend or repeal the Bylaws of the corporation.
ARTICLE VI
For the management of the business and for the conduct of the affairs of the
corporation, and in further definition, limitation and regulation of the powers
of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
(A) The conduct of the affairs of the corporation shall be managed under
the direction of the Board of Directors. The number of directors shall be
fixed from time to time exclusively by resolution of the Board of
Directors.
(B) Notwithstanding the foregoing provision of this Article VI, each
director shall hold office until such director's successor is elected and
qualified, or until such director's earlier death, resignation or removal.
No decrease in the authorized number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
(C) Subject to the rights of the holders of any series of Preferred
Stock, any vacancy occurring in the Board of Directors for any cause, and
any newly created directorship resulting from any increase in the
authorized number of directors, shall, unless (i) the Board of Directors
determines by resolution that any such vacancies or newly created
directorships shall be filled by the stockholders, or (ii) as otherwise
provided by law, be filled only by the affirmative vote of a majority of
the directors then in office, although less than a quorum, or by a sole
remaining director, and not by the stockholders. Any director elected in
accordance with the preceding sentence shall hold office for the remainder
of the full term of the director for which the vacancy was created or
occurred.
(D) Subject to the rights of the holders of any series of Preferred
Stock, any director or the entire Board of Directors may be removed, with
or without cause, by the holders of at least a majority of the shares then
entitled to vote at an election of directors.
(E) Subject to the rights of the holders of any series of Preferred Stock
to elect additional directors under specified circumstances, the directors
shall be divided, with respect to the time for which they severally hold
office, 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 of Directors, with the
number of directors in each class to be divided as equally as reasonably
possible. The term of office of the Class I directors shall expire at the
corporation's 2000 annual meeting of stockholders, the term of office of
the Class II directors shall expire at the corporation's 2001 annual
meeting of stockholders and the term of office of the Class III directors
shall expire at the corporation's 2002 annual meeting of stockholders. At
each annual meeting of stockholders commencing with the 2000 annual meeting
of stockholders, directors elected to succeed those directors of the class
whose terms then expire shall be elected for a term of office to expire at
the third succeeding annual meeting of stockholders after their election.
(F) Election of directors need not be by written ballot unless the Bylaws
of the corporation shall so provide.
(G) No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance
with the Bylaws of the corporation, and no action shall be taken by the
stockholders by written consent.
(H) Advance notice of stockholder nominations for the election of
directors of the corporation and of business to be brought by stockholders
before any meeting of stockholders of the corporation shall be given in the
manner provided in the Bylaws of the corporation. Business transacted at
special meetings of stockholders shall be confined to the purpose or
purposes stated in the notice of meeting.
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The affirmative vote of the holders of at least sixty-six and two-thirds
percent (66 2/3%) of the corporation's outstanding voting stock then entitled
to vote at an election of directors, voting together as a single class, shall
be required to alter, change, amend, repeal or adopt any provision inconsistent
with this Article VI.
ARTICLE VII
To the fullest extent permitted by law, no director of the corporation shall
be personally liable for monetary damages for breach of fiduciary duty as a
director. Without limiting the effect of the preceding sentence, if the
Delaware General Corporation Law is hereafter amended to authorize the further
elimination or limitation of liability of a director, then the liability of a
director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Neither any amendment, repeal or modification of this Article VII, nor the
adoption of any provision of this Certificate of Incorporation inconsistent
with this Articles VII, shall eliminate, reduce or otherwise adversely affect
any right or protection of a director of the corporation under this Article VII
that existed at or prior to the time of such amendment, repeal or modification.
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<PAGE>
ANNEX C
COMPANY STOCK OPTION AGREEMENT
This Stock Option Agreement (the "Agreement") is made and entered into as of
July 13, 1999, between Egghead.com, Inc., a Washington corporation ("Company"),
and Onsale, Inc., a Delaware corporation ("Parent"). Capitalized terms used in
this Agreement but not defined herein shall have the meanings ascribed to such
terms in the Merger Agreement (as defined below).
RECITALS
A. Concurrently with the execution and delivery of this Agreement, Company,
Parent and EO Corporation., a Washington corporation and a wholly owned
subsidiary of Parent ("Merger Sub"), are entering into an Agreement and Plan of
Merger (the "Merger Agreement"), that provides, among other things, upon the
terms and subject to the conditions thereof, for Company and Parent to enter
into a business combination transaction (the "Merger").
B. As a condition to Parent's willingness to enter into the Merger Agreement,
Parent has required that the Company agree, and the Company has so agreed, to
grant to Parent an option to acquire shares of Company Common Stock ("Company
Shares"), upon the terms and subject to the conditions set forth herein.
In consideration of the foregoing and of the mutual covenants and agreements
set forth herein and in the Merger Agreement and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties agree as follows:
1. Grant of Option. Company hereby grants to Parent an irrevocable option
(the "Option"), exercisable following the occurrence of an Exercise Event (as
defined in Section 2(a)), to acquire up to a number of Company Shares equal to
19.9% of the shares of Company Common Stock issued and outstanding as of the
date, if any, upon which an Exercise Notice (as defined in Section 2(b) below)
shall have been delivered (the "Option Shares"), in the manner set forth below
by paying cash at a price of $12.06 per share (the "Exercise Price").
2. Exercise of Option; Maximum Proceeds
(a) For all purposes of this Agreement, an "Exercise Event" shall mean
any of (ii) the occurrence of a Company Triggering Event (as such term is
defined in the Merger Agreement), (ii) a public announcement of an Option
Acquisition Proposal (as defined below) shall have been made prior to the
date the Merger Agreement is terminated pursuant to the terms thereof (the
"Merger Termination Date") and the occurrence of one or more of the
following on or after the date of the announcement of such Option
Acquisition Proposal: (1) the requisite vote of the shareholders of Company
in favor of the Merger Agreement and the Merger shall not have been
obtained at the Company Shareholders' Meeting (as such term is defined in
the Merger Agreement); (2) a tender offer or exchange offer for 15% or more
of the outstanding shares of Company Common Stock shall have been commenced
(other than by Parent or an affiliate of Parent); or (3) for any reason
Company shall have failed to call and hold the Company Shareholders'
Meeting by the Outside Date (as defined in the Merger Agreement), or (iii)
the commencement of a solicitation within the meaning of Rule 14a-1(l) by
any person or entity other than Parent or its Board of Directors (or any
person or entity acting on behalf of Parent or its Board of Directors)
seeking to alter the composition of Company's Board of Directors. For
purposes of this Agreement, "Option Acquisition Proposal" shall mean any
offer or proposal (other than an offer or proposal by Parent) relating to
any transaction or series of related transactions involving: (A) any
purchase from the Company or acquisition by any person or "group" (as
defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) of more than a 10% interest in the total
outstanding voting securities of the Company or any of its subsidiaries or
any tender offer or exchange offer that if consummated would result in any
person or "group" (as defined under Section 13(d) of the Exchange Act and
the rules and regulations thereunder) beneficially owning 10% or more of
the total
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outstanding voting securities of the Company or any of its subsidiaries or
any merger, consolidation, business combination or similar transaction
involving the Company; (B) any sale, lease, exchange, transfer, license,
acquisition or disposition of more than 10% of the assets of the Company
(other than in the ordinary course of business); or (C) any liquidation or
dissolution of the Company.
(b) Parent may deliver to the Company a written notice (an "Exercise
Notice") specifying that it wishes to exercise and close a purchase of
Option Shares at any time following the occurrence of an Exercise Event and
specifying the total number of Option Shares it wishes to acquire. Unless
such Exercise Notice is withdrawn by Parent, the closing of a purchase of
Option Shares (a "Closing") specified in such Exercise Notice shall take
place at the principal offices of Company upon such date prior to the
termination of the Option as may be designated by Parent in writing.
(c) The Option shall terminate upon the earliest to occur of (i) the
Effective Time (as such term is defined in the Merger Agreement), (ii)
termination of the Merger Agreement pursuant to either Section 7.1(a) or
7.1(c) thereof, or (iii) 14 months following the termination of the Merger
Agreement under any other circumstances; provided, however, that if the
Option is exercisable but cannot be exercised by reason of any applicable
government order or because the waiting period related to the issuance of
the Option Shares under the HSR Act shall not have expired or been
terminated, or because any other condition to closing has not been
satisfied, then the Option shall not terminate until the tenth business day
after such impediment to exercise shall have been removed or shall have
become final and not subject to appeal.
(d) If Parent receives proceeds in connection with any sales or other
dispositions of Option Shares (including by selling Option Shares to
Company pursuant to Section 6(a) hereof) or the Option, plus any dividends
(or equivalent distributions under Section 7(a) hereof) received by Parent
declared on Option Shares, less the Exercise Price multiplied by the number
of Company Shares purchased by Parent pursuant to the Option, which, taken
together with any Company Termination Fee payable pursuant to
Section 7.3(c) of the Merger Agreement, exceeds 5% of the Company Equity
Value (determined as of the close of business on the date immediately
preceding the Closing), then all proceeds to Parent in excess of such sum
shall be promptly remitted in cash by Parent to Company. For the purposes
of this Agreement, "Company Equity Value" means the product of the average
closing price of Company Common Stock on the Nasdaq National Market over
the five (5) trading days prior to the Closing, and the sum of: (A) all
shares of Company Common Stock that are outstanding as of the close of
business on the date immediately preceding the Closing; (B) all shares of
Company Common Stock then issuable upon conversion of all shares of capital
stock that is convertible into shares of Company Common Stock; and (C) all
shares of Company Common Stock issuable upon conversion of all options and
warrants to acquire Company Common Stock that are then outstanding.
3. Conditions to Closing. The obligation of Company to issue Option Shares to
Parent hereunder is subject to the conditions that (a) any waiting period under
the HSR Act applicable to the issuance of the Option Shares hereunder shall
have expired or been terminated; (b) all material consents, approvals, orders
or authorizations of, or registrations, declarations or filings with, any
Governmental Entity, if any, required in connection with the issuance of the
Option Shares hereunder shall have been obtained or made, as the case may be;
and (c) no preliminary or permanent injunction or other order by any court of
competent jurisdiction prohibiting or otherwise restraining such issuance shall
be in effect. It is understood and agreed that at any time during which Parent
shall be entitled to deliver to Company an Exercise Notice, the parties will
use their respective reasonable efforts to satisfy all conditions to Closing,
so that a Closing may take place as promptly as practicable.
4. Closing. At any Closing, Company shall deliver to Parent a single
certificate in definitive form representing the number of Company Shares
designated by Parent in its Exercise Notice consistent with this Agreement,
such certificate to be registered in the name of Parent and to bear the legend
set forth in Section 8 hereof, against delivery of payment by Parent to the
Company of the aggregate purchase price for the Company Shares so designated
and being purchased by delivery of a certified check, bank check or wire
transfer of immediately available funds.
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5. Representations and Warranties of the Company. Company represents and
warrants to Parent that (a) Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Washington and has
the corporate power and authority to enter into this Agreement and to carry out
its obligations hereunder; (b) the execution and delivery of this Agreement by
Company and consummation by Company of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Company and no other corporate proceedings on the part of Company are necessary
to authorize this Agreement or any of the transactions contemplated hereby; (c)
this Agreement has been duly executed and delivered by Company and constitutes
a legal, valid and binding obligation of Company and, assuming this Agreement
constitutes a legal, valid and binding obligation of Parent, is enforceable
against Company in accordance with its terms, except as enforceability may be
limited by bankruptcy and other similar laws affecting the rights of creditors
generally and general principles of equity; (d) except for any filings,
authorizations, approvals or orders required under the HSR Act and any required
filings of under state securities, or "blue sky" laws, Company has taken all
necessary corporate and other action to authorize and reserve for issuance and
to permit it to issue upon exercise of the Option, and at all times from the
date hereof until the termination of the Option will have reserved for
issuance, a sufficient number of unissued Company Shares for Parent to exercise
the Option in full and will take all necessary corporate or other action to
authorize and reserve for issuance all additional Company Shares or other
securities which may be issuable pursuant to Section 7(a) upon exercise of the
Option, all of which, upon their issuance and delivery in accordance with the
terms of this Agreement and payment therefor by Parent, will be validly issued,
fully paid and nonassessable; (e) upon delivery of the Company Shares and any
other securities to Parent upon exercise of the Option, Parent will acquire
such Company Shares or other securities free and clear of all material claims,
liens, charges, encumbrances and security interests of any kind or nature
whatsoever, excluding those imposed by Parent; (f) the execution and delivery
of this Agreement by Company do not, and the performance of this Agreement by
the Company will not, (i) violate the Articles of Incorporation or Bylaws of
the Company, (ii) conflict with or violate any order applicable to the Company
or any of its subsidiaries or by which they or any of their material property
is bound or affected or (iii) result in any breach of or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give rise to any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a material lien or encumbrance on
any material property or assets of Company or any of its subsidiaries pursuant
to, any material contract or agreement to which Company or any of its
subsidiaries is a party or by which Company or any of its subsidiaries or any
of their material property is bound or affected; and (g) the execution and
delivery of this Agreement by Company does not, and the performance of this
Agreement by Company will not, require any consent, approval, authorization or
permit of, or filing with, or notification to, any Governmental Entity, except
pursuant to the HSR Act.
6. Registration Rights
(a) Following the termination of the Merger Agreement, Parent (sometimes
referred to herein as the "Holder") may by written notice (a "Registration
Notice") to Company (the "Registrant") request the Registrant to register
under the Securities Act all or any part of the shares acquired by the
Holder pursuant to this Agreement (such shares requested to be registered
the "Registrable Securities") in order to permit the sale or other
disposition of such shares pursuant to a bona fide firm commitment
underwritten public offering in which the Holder and the underwriters shall
effect as wide a distribution of such Registrable Securities as is
reasonably practicable (a "Permitted Offering"); provided, however, that
any such Registration Notice must relate to a number of shares equal to at
least 2% of the outstanding shares of Common Stock of the Registrant on a
fully diluted basis and that any rights to require registration hereunder
shall terminate with respect to any shares that may be sold pursuant to
Rule 144(k) under the Securities Act or at such time as all of the
Registrable Securities may be sold in any three month period pursuant to
Rule 144 under the Securities Act. The Registration Notice shall include a
certificate executed by the Holder and its proposed managing underwriter,
which underwriter shall be an investment banking firm of internationally
recognized standing reasonably acceptable to Company (the "Manager"),
stating that (i) the Holder and the Manager have a good faith intention to
commence a Permitted Offering and (ii) the Manager in good faith believes
that, based on the then prevailing market conditions, it will be able
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to sell the Registrable Securities at a per share price equal to at least
80% of the per share average of the closing sale prices of the Registrant's
Common Stock on the Nasdaq National Market for the twenty trading days
immediately preceding the date of the Registration Notice. The Registrant
shall thereupon have the option exercisable by written notice delivered to
the Holder within five business days after the receipt of the Registration
Notice, irrevocably to agree to purchase all (but not less than all) of the
Registrable Securities for cash at a price (the "Option Price") equal to
the product of (i) the number of Registrable Securities so purchased and
(ii) the per share average of the closing sale prices of the Registrant's
Common Stock on the Nasdaq National Market for the 20 trading days
immediately preceding the date of the Registration Notice. Any such
purchase of Registrable Securities by the Registrant hereunder shall take
place at a closing to be held at the principal executive offices of the
Registrant or its counsel at any reasonable date and time designated by the
Registrant in such notice within 10 business days after delivery of such
notice. The payment for the shares to be purchased shall be made by
delivery at the time of such closing of the Option Price in immediately
available funds.
(b) If the Registrant does not elect to exercise its option to purchase
pursuant to Section 6(a) with respect to all Registrable Securities, the
Registrant shall use all reasonable efforts to effect, as promptly as
practicable, the registration under the Securities Act of the Registrable
Securities requested to be registered in the Registration Notice; provided,
however, that (i) the Holder shall not be entitled to more than an
aggregate of two effective registration statements hereunder, and provided
further, that if the Registrant withdraws a filed registration statement at
the request of the Holder (other than as the result of a material change in
the Registrant's business or the Holder's learning of new material
information concerning the Registrant), then such filing shall be deemed to
have been an effective registration for purposes of this clause (i), (ii)
the Registrant will not be required to file any such registration statement
during any period of time (not to exceed 45 days after a Registration
Notice in the case of clause (A) below or 90 days after a Registration
Notice in the case of clauses (B) and (C) below) when (A) the Registrant is
in possession of material non-public information which it reasonably
believes would be detrimental to be disclosed at such time and such
information would have to be disclosed if a registration statement were
filed at that time; (B) the Registrant is required under the Securities Act
to include audited financial statements for any period in such registration
statement and such financial statements are not yet available for inclusion
in such registration statement; or (C) the Registrant determines, in its
reasonable judgment, that such registration would interfere with any
financing, acquisition or other material transaction involving the
Registrant and (iii) the Registrant will not be required to maintain the
effectiveness of any such registration statement for a period greater than
90 days. If consummation of the sale of any Registrable Securities pursuant
to a registration hereunder does not occur within 180 days after the filing
with the SEC of the initial registration statement therefor, the provisions
of this Section 6 shall again be applicable to any proposed registration.
The Registrant shall use all reasonable efforts to cause any Registrable
Securities registered pursuant to this Section 6 to be qualified for sale
under the securities or blue sky laws of such jurisdictions as the Holder
may reasonably request and shall continue such registration or
qualification in effect in such jurisdictions until the Holder has sold or
otherwise disposed of all of the securities subject to the registration
statement; provided, however, that the Registrant shall not be required to
qualify to do business in, or consent to general service of process in, any
jurisdiction by reason of this provision.
(c) The registration rights set forth in this Section 6 are subject to
the condition that the Holder shall provide the Registrant with such
information with respect to the Holder's Registrable Securities, the plan
for distribution thereof, and such other information with respect to the
Holder as, in the reasonable judgment of counsel for the Registrant, is
necessary to enable the Registrant to include in a registration statement
all material facts required to be disclosed with respect to a registration
thereunder, including the identity of the Holder and the Holder's plan of
distribution.
(d) A registration effected under this Section 6 shall be effected at the
Registrant's expense, except for underwriting discounts and commissions and
the fees and expenses of counsel to the Holder, and the Registrant shall
use all reasonable efforts to provide to the underwriters such
documentation (including certificates, opinions of counsel and "comfort"
letters from auditors) as are customary in connection with
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underwritten public offerings and as such underwriters may reasonably
require. In connection with any registration, the Holder and the Registrant
agree to enter into an underwriting agreement reasonably acceptable to each
such party, in form and substance customary for transactions of this type
with the underwriters participating in such offering.
(e) Indemnification
(i) The Registrant will indemnify the Holder, each of its directors
and officers and each person who controls the Holder within the meaning
of Section 15 of the Securities Act, and each underwriter of the
Registrant's securities, with respect to any registration,
qualification or compliance which has been effected pursuant to this
Agreement, against all expenses, claims, losses, damages or liabilities
(or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus, offering circular or other document, or any amendment or
supplement thereto, incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation by the Registrant of
any rule or regulation promulgated under the Securities Act applicable
to the Registrant in connection with any such registration,
qualification or compliance, and the Registrant will reimburse the
Holder and, each of its directors and officers and each person who
controls the Holder within the meaning of Section 15 of the Securities
Act, and each underwriter for any legal and any other expenses
reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action, provided
that the Registrant will not be liable in any such case to the extent
that any such claim, loss, damage, liability or expense arises out of
or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with
written information furnished to the Registrant by the Holder or
director or officer or controlling person or underwriter seeking
indemnification, provided, however, that the indemnity agreement
contained in this subsection 6(e)(i) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Registrant, which
consent shall not be unreasonably withheld.
(ii) The Holder will indemnify the Registrant, each of its directors
and officers and each underwriter of the Registrant's securities
covered by such registration statement and each person who controls the
Registrant within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement
of any litigation, commenced or threatened, arising out of or based on
any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any
violation by the Holder of any rule or regulation promulgated under the
Securities Act applicable to the Holder in connection with any such
registration, qualification or compliance, and will reimburse the
Registrant, such directors, officers or control persons or underwriters
for any legal or any other expenses reasonably incurred in connection
with investigating, preparing or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to
the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Registrant by the
Holder expressly for use therein, provided that in no event shall any
indemnity under this Section 6(e) exceed the gross proceeds of the
offering received by the Holder and provided further that the indemnity
agreement contained in this subsection 6(e)(ii) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the
Holder, which consent shall not be unreasonably withheld.
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(iii) Each party entitled to indemnification under this Section 6(e)
(the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or litigation, shall be approved by
the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at
such party's expense; provided, however, that the Indemnifying Party
shall pay such expense if representation of the Indemnified Party by
counsel retained by the Indemnifying Party would be inappropriate due
to actual or potential differing interests between the Indemnified
Party and any other party represented by such counsel in such
proceeding, and provided further that the failure of any Indemnified
Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 6(e) unless
the failure to give such notice is materially prejudicial to an
Indemnifying Party's ability to defend such action. No Indemnifying
Party, in the defense of any such claim or litigation shall, except
with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to
such Indemnified Party of a release from all liability in respect to
such claim or litigation. No Indemnifying Party shall be required to
indemnify any Indemnified Party with respect to any settlement entered
into without such Indemnifying Party's prior consent (which shall not
be unreasonably withheld).
7. Adjustment Upon Changes in Capitalization; Rights Plans
(a) In the event of any change in the Company Shares by reason of stock
dividends, stock splits, reverse stock splits, mergers (other than the
Merger), recapitalizations, combinations, exchanges of shares and the like,
the type and number of shares or securities subject to the Option and the
Exercise Price shall be adjusted appropriately, and proper provision shall
be made in the agreements governing such transaction so that Parent shall
receive, upon exercise of the Option, the number and class of shares or
other securities or property that Parent would have received in respect of
the Company Shares if the Option had been exercised immediately prior to
such event or the record date therefor, as applicable.
(b) Prior to such time as the Option is terminated, and at any time after
the Option is exercised (in whole or in part, if at all), the Company shall
not (i) adopt (or permit the adoption of) a shareholders rights plan that
contains provisions for the distribution or exercise of rights thereunder
as a result of Parent or any affiliate or transferee being the beneficial
owner of shares of the Company by virtue of the Option being exercisable or
having been exercised (or as a result of beneficially owning shares
issuable in respect of any Option Shares), or (ii) take any other action
which would prevent or disable Parent from exercising its rights under this
Agreement or enjoying the full rights and privileges possessed by other
holders of Company Common Stock generally.
8. Restrictive Legends. Each certificate representing Option Shares issued to
Parent hereunder (other than certificates representing shares sold in a
registered public offering pursuant to Section 6) shall include a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE COMPANY STOCK OPTION AGREEMENT DATED AS OF
JULY 13, 1999, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER.
9. Listing and HSR Filing. The Company, upon the request of Parent, shall
promptly file an application to list the Company Shares to be acquired upon
exercise of the Option for quotation on the Nasdaq National Market and shall
use its reasonable efforts to obtain approval of such listing as soon as
practicable. Promptly
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after the date hereof, each of the parties hereto shall promptly file with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice all required premerger notification and report forms and
other documents and exhibits required to be filed under the HSR Act to permit
the acquisition of the Company Shares subject to the Option at the earliest
possible date.
10. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. Nothing contained in this Agreement, express or implied, is intended
to confer upon any person other than the parties hereto and their respective
successors and permitted assigns any rights or remedies of any nature
whatsoever by reason of this Agreement.
11. Specific Performance. The parties recognize and agree that if for any
reason any of the provisions of this Agreement are not performed in accordance
with their specific terms or are otherwise breached, immediate and irreparable
harm or injury would be caused for which money damages would not be an adequate
remedy. Accordingly, each party agrees that in addition to other remedies the
other party shall be entitled to an injunction restraining any violation or
threatened violation of the provisions of this Agreement. In the event that any
action shall be brought in equity to enforce the provisions of the Agreement,
neither party will allege, and each party hereby waives the defense, that there
is an adequate remedy at law.
12. Entire Agreement. This Agreement and the Merger Agreement (including the
appendices and exhibits thereto) constitute the entire agreement between the
parties with respect to the subject matter hereof and supersede all other prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof.
13. Further Assurances. Each party will execute and deliver all such further
documents and instruments and take all such further action as may be necessary
in order to consummate the transactions contemplated hereby.
14. Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
15. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at
the following addresses or telecopy numbers (or at such other address or
telecopy numbers for a party as shall be specified by like notice):
<TABLE>
<S> <C>
If to Parent or Merger Sub, to: If to Company, to:
Onsale, Inc. Egghead.com, Inc.
1350 Willow Road 521 S.E. Chkalov Drive
Menlo Park, CA 94025 Vancouver, WA 98683
Attention: Chief Executive Officer Attention: Chief Executive Officer
Telecopy No.: (650) 470-6990 Telecopy No.: (360) 816-7309
with a copy to: with a copy to:
Fenwick & West LLP Perkins Coie LLP
Two Palo Alto Square 1201 Third Avenue
Palo Alto, California 94306 Seattle, WA 98103
Attention: Gordon K. Davidson Attention: David McShea
David K. Michaels Ed Belsheim
Telecopy No.: (650) 494-1417 Telecopy No.: (206) 583-8500
</TABLE>
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16. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington, regardless of the laws
that might otherwise govern under applicable principles of conflicts of law
thereof.
17. Counterparts. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other party, it being understood that all parties need not
sign the same counterpart.
18. Expenses. Except as otherwise expressly provided herein or in the Merger
Agreement, all costs and expenses incurred in connection with the transactions
contemplated by this Agreement shall be paid by the party incurring such
expenses.
19. Amendments; Waiver. This Agreement may be amended by the parties hereto
and the terms and conditions hereof may be waived only by an instrument in
writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
20. Assignment. Neither Company nor Parent may sell, transfer, assign or
otherwise dispose of (by operation of law or otherwise) any of its rights or
obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other. Any purported
assignment in violation of this Section shall be void. The rights and
obligations hereunder shall inure to the benefit of and be binding upon any
successor of a party hereto.
21. WAIVER OF JURY TRIAL. EACH OF PARENT AND COMPANY HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE ACTIONS OF PARENT OR COMPANY IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
In Witness Whereof, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
Egghead.com, Inc.
/s/ George P. Orban
By: _________________________________
Name: George P. Orban
Title: Chief Executive Officer
Onsale, Inc.
/s/ S. Jerrold Kaplan
By: _________________________________
Name: S. Jerrold Kaplan
Title: Chief Executive Officer and
President
[Stock Option Agreement]
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ANNEX D
PARENT STOCK OPTION AGREEMENT
This Stock Option Agreement (the "Agreement") is made and entered into as of
July 13, 1999, between Egghead.com, Inc., a Washington corporation ("Company"),
and Onsale, Inc., a Washington corporation ("Parent"). Capitalized terms used
in this Agreement but not defined herein shall have the meanings ascribed to
such terms in the Merger Agreement (as defined below).
RECITALS
A. Concurrently with the execution and delivery of this Agreement, Parent,
Company and EO Corporation, a Washington corporation and a wholly owned
subsidiary of Parent ("Merger Sub"), are entering into an Agreement and Plan of
Merger (the "Merger Agreement"), that provides, among other things, upon the
terms and subject to the conditions thereof, for Parent and Company to enter
into a business combination transaction (the "Merger").
B. As a condition to Company's willingness to enter into the Merger
Agreement, Company has required that Parent agree, and Parent has so agreed, to
grant to Company an option to acquire shares of Parent Common Stock ("Parent
Shares"), upon the terms and subject to the conditions set forth herein.
In consideration of the foregoing and of the mutual covenants and agreements
set forth herein and in the Merger Agreement and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties agree as follows:
1. Grant of Option. Parent hereby grants to Company an irrevocable option
(the "Option"), exercisable following the occurrence of an Exercise Event (as
defined in Section 2(a)), to acquire up to a number of Parent Shares equal to
19.9% of the shares of Parent Common Stock issued and outstanding as of the
date, if any, upon which an Exercise Notice (as defined in Section 2(b) below)
shall have been delivered (the "Option Shares"), in the manner set forth below
by paying cash at a price of $22.50 per share (the "Exercise Price").
2. Exercise of Option: Maximum Proceeds
(a) For all purposes of this Agreement, an "Exercise Event" shall mean
any of (i) the occurrence of a Parent Triggering Event (as such term is
defined in the Merger Agreement), (ii) a public announcement of an Option
Acquisition Proposal (as defined below) shall have been made prior to the
date the Merger Agreement is terminated pursuant to the terms thereof (the
"Merger Termination Date") and the occurrence of one or more of the
following on or after the date of the announcement of such Option
Acquisition Proposal: (1) the requisite vote of the stockholders of Parent
in favor of the issuance of shares of Parent Common Stock pursuant to the
Merger and the amendment of Parent's Certificate of Incorporation to change
the name of Parent to "Egghead.com, Inc.," effective at the Effective Time,
and to increase the authorized number of shares of Parent Common Stock so
as to permit the transactions contemplated by the Merger Agreement, shall
not have been obtained at the Parent Stockholders' Meeting (as such term is
defined in the Merger Agreement); (2) a tender offer or exchange offer for
15% or more of the outstanding shares of Parent Common Stock shall have
been commenced (other than by Company or an affiliate of Company); or (3)
for any reason Parent shall have failed to call and hold the Parent
Stockholders' Meeting by the Outside Date (as defined in the Merger
Agreement), or (iii) the commencement of a solicitation within the meaning
of Rule 14a-1(l) by any person or entity other than Company or its Board of
Directors (or any person or entity acting on behalf of Company or its Board
of Directors) seeking to alter the composition of Parent's Board of
Directors. For purposes of this Agreement, "Option Acquisition Proposal"
shall mean any offer or proposal (other than an offer or proposal by
Company) relating to any transaction or series of related transactions
involving: (A) any purchase from Parent or acquisition by any person or
"group" (as defined under Section 13(d) of the Exchange Act and the rules
and regulations thereunder) of more than a 10% interest in the total
outstanding voting securities of Parent or any of its subsidiaries or any
tender offer or exchange offer that if consummated would result
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in any person or "group" (as defined under Section 13(d) of the Exchange
Act and the rules and regulations thereunder) beneficially owning 10% or
more of the total outstanding voting securities of Parent or any of its
subsidiaries or any merger, consolidation, business combination or similar
transaction involving Parent; (B) any sale, lease, exchange, transfer,
license, acquisition or disposition of more than 10% of the assets of
Parent (other than in the ordinary course of business); or (C) any
liquidation or dissolution of Parent.
(b) Company may deliver to Parent a written notice (an "Exercise Notice")
specifying that it wishes to exercise and close a purchase of Option Shares
at any time following the occurrence of an Exercise Event and specifying
the total number of Option Shares it wishes to acquire. Unless such
Exercise Notice is withdrawn by Company, the closing of a purchase of
Option Shares (a "Closing") specified in such Exercise Notice shall take
place at the principal offices of Parent upon such date prior to the
termination of the Option as may be designated by Company in writing.
(c) The Option shall terminate upon the earliest to occur of (i) the
Effective Time (as such term is defined in the Merger Agreement), (ii)
termination of the Merger Agreement pursuant to either Section 7.1(a) or
7.1(c) thereof, or (iii) 14 months following the termination of the Merger
Agreement under any other circumstances; provided, however, that if the
Option is exercisable but cannot be exercised by reason of any applicable
government order or because the waiting period related to the issuance of
the Option Shares under the HSR Act shall not have expired or been
terminated, or because any other condition to closing has not been
satisfied, then the Option shall not terminate until the tenth business day
after such impediment to exercise shall have been removed or shall have
become final and not subject to appeal.
(d) If Company receives proceeds in connection with any sales or other
dispositions of Option Shares (including by selling Option Shares to Parent
pursuant to Section 6(a) hereof) or the Option, plus any dividends (or
equivalent distributions under Section 7(a) hereof) received by Company
declared on Option Shares, less the Exercise Price multiplied by the number
of Parent Shares purchased by Company pursuant to the Option, which, taken
together with any Parent Termination Fee payable pursuant to Section 7.3(b)
of the Merger Agreement, exceeds 5% of the Parent Equity Value (determined
as of the close of business on the date immediately preceding the Closing),
then all proceeds to Company in excess of such sum shall be promptly
remitted in cash by Company to Parent. For the purposes of this Agreement,
"Parent Equity Value" means the product of the average closing price of
Parent Common Stock on the Nasdaq National Market over the five (5) trading
days prior to the Closing, and the sum of: (A) all shares of Parent Common
Stock that are outstanding as of the close of business on the date
immediately preceding the Closing; (B) all shares of Parent Common Stock
then issuable upon conversion of all shares of capital stock that is
convertible into shares of Parent Common Stock; and (C) all shares of
Parent Common Stock issuable upon conversion of all options and warrants to
acquire Parent Common Stock that are then outstanding.
3. Conditions to Closing. The obligation of Parent to issue Option Shares to
Company hereunder is subject to the conditions that (a) any waiting period
under the HSR Act applicable to the issuance of the Option Shares hereunder
shall have expired or been terminated; (b) all material consents, approvals,
orders or authorizations of, or registrations, declarations or filings with,
any Governmental Entity, if any, required in connection with the issuance of
the Option Shares hereunder shall have been obtained or made, as the case may
be; and (c) no preliminary or permanent injunction or other order by any court
of competent jurisdiction prohibiting or otherwise restraining such issuance
shall be in effect. It is understood and agreed that at any time during which
Company shall be entitled to deliver to Parent an Exercise Notice, the parties
will use their respective reasonable efforts to satisfy all conditions to
Closing, so that a Closing may take place as promptly as practicable.
4. Closing. At any Closing, Parent shall deliver to Company a single
certificate in definitive form representing the number of Parent Shares
designated by Company in its Exercise Notice consistent with this Agreement,
such certificate to be registered in the name of Company and to bear the legend
set forth in Section 8 hereof, against delivery of payment by Company to Parent
of the aggregate purchase price for Parent
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Shares so designated and being purchased by delivery of a certified check, bank
check or wire transfer of immediately available funds.
5. Representations and Warranties of Parent. Parent represents and warrants
to Company that (a) Parent is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has the
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder; (b) the execution and delivery of this Agreement by
Parent and consummation by Parent of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Parent
and no other corporate proceedings on the part of Parent are necessary to
authorize this Agreement or any of the transactions contemplated hereby; (c)
this Agreement has been duly executed and delivered by Parent and constitutes a
legal, valid and binding obligation of Parent and, assuming this Agreement
constitutes a legal, valid and binding obligation of Company, is enforceable
against Parent in accordance with its terms, except as enforceability may be
limited by bankruptcy and other similar laws affecting the rights of creditors
generally and general principles of equity; (d) except for any filings,
authorizations, approvals or orders required under the HSR Act and any required
filings under state securities, or "blue sky" laws, Parent has taken all
necessary corporate and other action to authorize and reserve for issuance and
to permit it to issue upon exercise of the Option, and at all times from the
date hereof until the termination of the Option will have reserved for
issuance, a sufficient number of unissued Parent Shares for Company to exercise
the Option in full and will take all necessary corporate or other action to
authorize and reserve for issuance all additional Parent Shares or other
securities which may be issuable pursuant to Section 7(a) upon exercise of the
Option, all of which, upon their issuance and delivery in accordance with the
terms of this Agreement and payment therefor by Company, will be validly
issued, fully paid and nonassessable; (e) upon delivery of Parent Shares and
any other securities to Company upon exercise of the Option, Company will
acquire such Parent Shares or other securities free and clear of all material
claims, liens, charges, encumbrances and security interests of any kind or
nature whatsoever, excluding those imposed by Company; (f) the execution and
delivery of this Agreement by Parent do not, and the performance of this
Agreement by Parent will not, (i) violate the Certificate of Incorporation or
Bylaws of Parent, (ii) conflict with or violate any order applicable to Parent
or any of its subsidiaries or by which they or any of their material property
is bound or affected or (iii) result in any breach of or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give rise to any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a material lien or encumbrance on
any material property or assets of Parent or any of its subsidiaries pursuant
to, any material contract or agreement to which Parent or any of its
subsidiaries is a party or by which Parent or any of its subsidiaries or any of
their material property is bound or affected; and (g) the execution and
delivery of this Agreement by Parent does not, and the performance of this
Agreement by Parent will not, require any consent, approval, authorization or
permit of, or filing with, or notification to, any Governmental Entity, except
pursuant to the HSR Act.
6. Registration Rights
(a) Following the termination of the Merger Agreement, Company (sometimes
referred to herein as the "Holder") may by written notice (a "Registration
Notice") to Parent (the "Registrant") request the Registrant to register
under the Securities Act all or any part of the shares acquired by the
Holder pursuant to this Agreement (such shares requested to be registered
the "Registrable Securities") in order to permit the sale or other
disposition of such shares pursuant to a bona fide firm commitment
underwritten public offering in which the Holder and the underwriters shall
effect as wide a distribution of such Registrable Securities as is
reasonably practicable (a "Permitted Offering"); provided, however, that
any such Registration Notice must relate to a number of shares equal to at
least 2% of the outstanding shares of Common Stock of the Registrant on a
fully diluted basis and that any rights to require registration hereunder
shall terminate with respect to any shares that may be sold pursuant to
Rule 144(k) under the Securities Act or at such time as all of the
Registrable Securities may be sold in any three month period pursuant to
Rule 144 under the Securities Act. The Registration Notice shall include a
certificate executed by the Holder and its proposed managing underwriter,
which underwriter shall be an investment banking
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firm of internationally recognized standing reasonably acceptable to Parent
(the "Manager"), stating that (i) the Holder and the Manager have a good
faith intention to commence a Permitted Offering and (ii) the Manager in
good faith believes that, based on the then prevailing market conditions,
it will be able to sell the Registrable Securities at a per share price
equal to at least 80% of the per share average of the closing sale prices
of the Registrant's Common Stock on the Nasdaq National Market for the
twenty trading days immediately preceding the date of the Registration
Notice. The Registrant shall thereupon have the option exercisable by
written notice delivered to the Holder within five business days after the
receipt of the Registration Notice, irrevocably to agree to purchase all
(but not less than all) of the Registrable Securities for cash at a price
(the "Option Price") equal to the product of (i) the number of Registrable
Securities so purchased and (ii) the per share average of the closing sale
prices of the Registrant's Common Stock on the Nasdaq National Market for
the 20 trading days immediately preceding the date of the Registration
Notice. Any such purchase of Registrable Securities by the Registrant
hereunder shall take place at a closing to be held at the principal
executive offices of the Registrant or its counsel at any reasonable date
and time designated by the Registrant in such notice within 10 business
days after delivery of such notice. The payment for the shares to be
purchased shall be made by delivery at the time of such closing of the
Option Price in immediately available funds.
(b) If the Registrant does not elect to exercise its option to purchase
pursuant to Section 6(a) with respect to all Registrable Securities, the
Registrant shall use all reasonable efforts to effect, as promptly as
practicable, the registration under the Securities Act of the Registrable
Securities requested to be registered in the Registration Notice; provided,
however, that (i) the Holder shall not be entitled to more than an
aggregate of two effective registration statements hereunder, and provided
further, that if the Registrant withdraws a filed registration statement at
the request of the Holder (other than as the result of a material change in
the Registrant's business or the Holder's learning of new material
information concerning the Registrant), then such filing shall be deemed to
have been an effective registration for purposes of this clause (i), (ii)
the Registrant will not be required to file any such registration statement
during any period of time (not to exceed 45 days after a Registration
Notice in the case of clause (A) below or 90 days after a Registration
Notice in the case of clauses (B) and (C) below) when (A) the Registrant is
in possession of material non-public information which it reasonably
believes would be detrimental to be disclosed at such time and such
information would have to be disclosed if a registration statement were
filed at that time; (B) the Registrant is required under the Securities Act
to include audited financial statements for any period in such registration
statement and such financial statements are not yet available for inclusion
in such registration statement; or (C) the Registrant determines, in its
reasonable judgment, that such registration would interfere with any
financing, acquisition or other material transaction involving the
Registrant and (iii) the Registrant will not be required to maintain the
effectiveness of any such registration statement for a period greater than
90 days. If consummation of the sale of any Registrable Securities pursuant
to a registration hereunder does not occur within 180 days after the filing
with the SEC of the initial registration statement therefor, the provisions
of this Section 6 shall again be applicable to any proposed registration.
The Registrant shall use all reasonable efforts to cause any Registrable
Securities registered pursuant to this Section 6 to be qualified for sale
under the securities or blue sky laws of such jurisdictions as the Holder
may reasonably request and shall continue such registration or
qualification in effect in such jurisdictions until the Holder has sold or
otherwise disposed of all of the securities subject to the registration
statement; provided, however, that the Registrant shall not be required to
qualify to do business in, or consent to general service of process in, any
jurisdiction by reason of this provision.
(c) The registration rights set forth in this Section 6 are subject to
the condition that the Holder shall provide the Registrant with such
information with respect to the Holder's Registrable Securities, the plan
for distribution thereof, and such other information with respect to the
Holder as, in the reasonable judgment of counsel for the Registrant, is
necessary to enable the Registrant to include in a registration statement
all material facts required to be disclosed with respect to a registration
thereunder, including the identity of the Holder and the Holder's plan of
distribution.
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(d) A registration effected under this Section 6 shall be effected at the
Registrant's expense, except for underwriting discounts and commissions and
the fees and expenses of counsel to the Holder, and the Registrant shall
use all reasonable efforts to provide to the underwriters such
documentation (including certificates, opinions of counsel and "comfort"
letters from auditors) as are customary in connection with underwritten
public offerings and as such underwriters may reasonably require. In
connection with any registration, the Holder and the Registrant agree to
enter into an underwriting agreement reasonably acceptable to each such
party, in form and substance customary for transactions of this type with
the underwriters participating in such offering.
(e) Indemnification
(i) The Registrant will indemnify the Holder, each of its directors and
officers and each person who controls the Holder within the meaning of
Section 15 of the Securities Act, and each underwriter of the
Registrant's securities, with respect to any registration, qualification
or compliance which has been effected pursuant to this Agreement, against
all expenses, claims, losses, damages or liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement
of any litigation, commenced or threatened, arising out of or based on
any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or
other document, or any amendment or supplement thereto, incident to any
such registration, qualification or compliance, or based on any omission
(or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading, or any
violation by the Registrant of any rule or regulation promulgated under
the Securities Act applicable to the Registrant in connection with any
such registration, qualification or compliance, and the Registrant will
reimburse the Holder and, each of its directors and officers and each
person who controls the Holder within the meaning of Section 15 of the
Securities Act, and each underwriter for any legal and any other expenses
reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action, provided
that the Registrant will not be liable in any such case to the extent
that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission or alleged untrue statement
or omission, made in reliance upon and in conformity with written
information furnished to the Registrant by the Holder or director or
officer or controlling person or underwriter seeking indemnification,
provided, however, that the indemnity agreement contained in this
subsection 6(e)(i) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Registrant, which consent shall not
be unreasonably withheld.
(ii) The Holder will indemnify the Registrant, each of its directors
and officers and each underwriter of the Registrant's securities covered
by such registration statement and each person who controls the
Registrant within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement
of any litigation, commenced or threatened, arising out of or based on
any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, or any violation by the
Holder of any rule or regulation promulgated under the Securities Act
applicable to the Holder in connection with any such registration,
qualification or compliance, and will reimburse the Registrant, such
directors, officers or control persons or underwriters for any legal or
any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action,
in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission)
is made in such registration statement, prospectus, offering circular or
other document in reliance upon and in conformity with written
information furnished to the Registrant by the Holder expressly for use
therein, provided that in no event shall any indemnity under this Section
6(e) exceed the gross proceeds of the offering received by the Holder and
provided further that the indemnity agreement contained in this
subsection 6(e)(ii) shall
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not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such
settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld.
(iii) Each party entitled to indemnification under this Section 6(e)
(the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom, provided
that counsel for the Indemnifying Party, who shall conduct the defense of
such claim or litigation, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld), and the Indemnified
Party may participate in such defense at such party's expense; provided,
however, that the Indemnifying Party shall pay such expense if
representation of the Indemnified Party by counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential
differing interests between the Indemnified Party and any other party
represented by such counsel in such proceeding, and provided further that
the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this
Section 6(e) unless the failure to give such notice is materially
prejudicial to an Indemnifying Party's ability to defend such action. No
Indemnifying Party, in the defense of any such claim or litigation shall,
except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to
such Indemnified Party of a release from all liability in respect to such
claim or litigation. No Indemnifying Party shall be required to indemnify
any Indemnified Party with respect to any settlement entered into without
such Indemnifying Party's prior consent (which shall not be unreasonably
withheld).
7. Adjustment Upon Changes in Capitalization; Rights Plans
(a) In the event of any change in Parent Shares by reason of stock
dividends, stock splits, reverse stock splits, mergers (other than the
Merger), recapitalizations, combinations, exchanges of shares and the like,
the type and number of shares or securities subject to the Option and the
Exercise Price shall be adjusted appropriately, and proper provision shall
be made in the agreements governing such transaction so that Company shall
receive, upon exercise of the Option, the number and class of shares or
other securities or property that Company would have received in respect of
Parent Shares if the Option had been exercised immediately prior to such
event or the record date therefor, as applicable.
(b) Prior to such time as the Option is terminated, and at any time after
the Option is exercised (in whole or in part, if at all), Parent shall not
(i) adopt (or permit the adoption of) a stockholders rights plan that
contains provisions for the distribution or exercise of rights thereunder
as a result of Company or any affiliate or transferee being the beneficial
owner of shares of Parent by virtue of the Option being exercisable or
having been exercised (or as a result of beneficially owning shares
issuable in respect of any Option Shares), or (ii) take any other action
which would prevent or disable Company from exercising its rights under
this Agreement or enjoying the full rights and privileges possessed by
other holders of Parent Common Stock generally.
8. Restrictive Legends. Each certificate representing Option Shares issued to
Company hereunder (other than certificates representing shares sold in a
registered public offering pursuant to Section 6) shall include a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE PARENT STOCK OPTION AGREEMENT DATED AS OF JULY
13, 1999, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER.
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9. Listing and HSR Filing. Parent, upon the request of Company, shall
promptly file an application to list Parent Shares to be acquired upon exercise
of the Option for quotation on the Nasdaq National Market and shall use its
reasonable efforts to obtain approval of such listing as soon as practicable.
Promptly after the date hereof, each of the parties hereto shall promptly file
with the Federal Trade Commission and the Antitrust Division of the United
States Department of Justice all required premerger notification and report
forms and other documents and exhibits required to be filed under the HSR Act
to permit the acquisition of Parent Shares subject to the Option at the
earliest possible date.
10. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. Nothing contained in this Agreement, express or implied, is intended
to confer upon any person other than the parties hereto and their respective
successors and permitted assigns any rights or remedies of any nature
whatsoever by reason of this Agreement.
11. Specific Performance. The parties recognize and agree that if for any
reason any of the provisions of this Agreement are not performed in accordance
with their specific terms or are otherwise breached, immediate and irreparable
harm or injury would be caused for which money damages would not be an adequate
remedy. Accordingly, each party agrees that in addition to other remedies the
other party shall be entitled to an injunction restraining any violation or
threatened violation of the provisions of this Agreement. In the event that any
action shall be brought in equity to enforce the provisions of the Agreement,
neither party will allege, and each party hereby waives the defense, that there
is an adequate remedy at law.
12. Entire Agreement. This Agreement and the Merger Agreement (including the
appendices and exhibits thereto) constitute the entire agreement between the
parties with respect to the subject matter hereof and supersede all other prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof.
13. Further Assurances. Each party will execute and deliver all such further
documents and instruments and take all such further action as may be necessary
in order to consummate the transactions contemplated hereby.
14. Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
15. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at
the following addresses or telecopy numbers (or at such other address or
telecopy numbers for a party as shall be specified by like notice):
<TABLE>
<CAPTION>
If to Company or Merger
Sub, to: If to Parent, to:
<S> <C>
Egghead.com, Inc. Onsale, Inc.
521 S.E. Chkalov Drive 1350 Willow Road
Vancouver, WA 98683 Menlo Park, CA 94025
Attention: Chief Executive
Officer Attention: Chief Executive Officer
Telecopy No.: (360) 816-
7309 Telecopy No.: (650) 473-6990
with a copy to: with a copy to:
Perkins Coie LLP Fenwick & West LLP
1201 Third Avenue Two Palo Alto Square
Seattle, WA 98103 Palo Alto, California 94306
Attention: David McShea,
Ed Belsheim Attention: Gordon K. Davidson, David K. Michaels
Telecopy No.: (206) 583-
8500 Telecopy No.: (650) 494-1417
</TABLE>
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16. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
17. Counterparts. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other party, it being understood that all parties need not
sign the same counterpart.
18. Expenses. Except as otherwise expressly provided herein or in the Merger
Agreement, all costs and expenses incurred in connection with the transactions
contemplated by this Agreement shall be paid by the party incurring such
expenses.
19. Amendments; Waiver. This Agreement may be amended by the parties hereto
and the terms and conditions hereof may be waived only by an instrument in
writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
20. Assignment. Neither Parent nor Company may sell, transfer, assign or
otherwise dispose of (by operation of law or otherwise) any of its rights or
obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other. Any purported
assignment in violation of this Section shall be void. The rights and
obligations hereunder shall inure to the benefit of and be binding upon any
successor of a party hereto.
21. WAIVER OF JURY TRIAL. EACH OF COMPANY AND PARENT HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE ACTIONS OF COMPANY OR PARENT IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
In Witness Whereof, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
Onsale, inc.
/s/ S. Jerrold Kaplan
By:
----------------------------------
Name: S. Jerrold Kaplan
Title: Chief Executive Officer and
President
Egghead.com, inc.
/s/ George P. Orban
By:
----------------------------------
Name: George P. Orban
Title: Chief Executive Officer
[Parent Stock Option Agreement]
D-8
<PAGE>
ANNEX E
COMPANY VOTING AGREEMENT
This Voting Agreement (this "Agreement") is entered into as of July 13, 1999
(the "Agreement Date") by and between Onsale, Inc., a Delaware corporation
("Parent"), and [name of stockholder] ("Stockholder").
RECITALS
A. Parent, Egghead.com, Inc., a Washington corporation (the "Company") and EO
Corporation, a Washington corporation and a wholly-owned subsidiary of Parent
("Sub") are entering into an Agreement and Plan of Merger dated as of July 13,
1999, as such may be hereafter amended from time to time (the "Plan") which
provides (subject to the conditions set forth therein) for the merger of Sub
with and into Company (the "Merger") with Company to survive the Merger. Upon
the effectiveness of the Merger, the outstanding shares of Company's Common
Stock will be converted into shares of the Common Stock of Parent and
outstanding options to purchase shares of Company's Common Stock will be
assumed by Parent, all as more particularly set forth in the Plan. Capitalized
terms used but not otherwise defined in this Agreement will have the same
meanings ascribed to such terms in the Plan.
B. As of the Agreement Date, Stockholder owns in the aggregate (including
shares held both beneficially and of record and other shares held either
beneficially or of record) the number of shares of Company's Common Stock set
forth below Stockholder's name on the signature page of this Agreement (all
such shares, together with any shares of Company's Common Stock or any other
shares of capital stock of Company that may hereafter be acquired by
Stockholder, being collectively referred to herein as the "Subject Shares").
If, between the Agreement Date and the Expiration Date (as defined in Section
1.1 below), the outstanding shares of Company's Common Stock are changed into a
different number or class of shares by reason of any stock split, stock
dividend, reverse stock split, reclassification, recapitalization or other
similar transaction, then the shares constituting the Subject Shares shall be
appropriately adjusted, and shall include any shares or other securities of
Company issued on, or with respect to, the Subject Shares in such a
transaction.
C. As a condition to the willingness of Parent and Sub to enter into the
Plan, Parent and Sub have required that Stockholder agree, and in order to
induce Parent and Sub to enter into the Plan, Stockholder has agreed, to enter
into this Agreement.
In consideration of the facts recited above, the parties to this Agreement,
intending to be legally bound by this Agreement, now hereby agree as follows:
SECTION 1. TRANSFER OF SUBJECT SHARES
1.1 No Transfer of Voting Rights.
(a) Stockholder covenants and agrees that, prior to the Expiration Date,
Stockholder will not deposit any of the Subject Shares into a voting trust
or grant a proxy or enter into an agreement of any kind with respect to any
of the Subject Shares, except for the Proxy called for by Section 2.2 of
this Agreement and except for any other proxy granted by Stockholder to
Parent.
(b) As used in this Agreement, the term "Expiration Date" shall mean the
earlier of (i) the date upon which the Plan is validly terminated in
accordance with the provisions of Article VII of the Plan or (ii) the
Effective Time of the Merger.
1.2 Compliance with Company Affiliate Agreement. If Stockholder is party to a
Company Affiliate Agreement, Stockholder will comply with the terms of such
Company Affiliate Agreement.
E-1
<PAGE>
SECTION 2. VOTING OF SUBJECT SHARES
2.1 Agreement. Stockholder hereby agrees that, prior to the Expiration Date,
at any meeting of the shareholders of Company, however called, and in any
action taken by the written consent of shareholders of Company without a
meeting, unless otherwise directed in writing by Parent, Stockholder shall vote
the Subject Shares:
(a) in favor of the Merger, the execution and delivery by Company of the
Plan and the adoption and approval of the terms thereof and in favor of
each of the other actions and transactions contemplated by the Plan and any
action required in furtherance hereof and thereof; and
(b) in favor of the waiver (by amendment of any such agreement or
otherwise), effective as of immediately prior to the effectiveness of the
Merger, of any rights of first refusal, rights of first offer, rights of
notice, rights of co-sale, tag-along rights, information rights,
registration rights, preemptive rights, rights of redemption or repurchase,
or similar rights of Stockholder under any agreement, arrangement or
understanding applicable to the Subject Shares, to the extent that the same
may apply to the Merger or any other actions or transactions contemplated
by the Plan.
Prior to the Expiration Date, Stockholder shall not enter into any agreement or
understanding with any Person to vote or give instructions in any manner
inconsistent with clause "(a)" or "(b)" of this Section 2.1.
2.2 Proxy. Contemporaneously with the execution of this Agreement,
Stockholder shall deliver to Parent a proxy with respect to the Subject Shares
in the form attached hereto as Exhibit 1, which proxy shall be irrevocable to
the fullest extent permitted by applicable law (the "Proxy").
SECTION 3. WAIVERS
3.1 Appraisal Rights. Stockholder hereby agrees not to exercise any rights of
appraisal and any dissenters' rights that Stockholder may have (whether under
applicable law or otherwise) or could potentially have or acquire in connection
with the Merger.
3.2 Other Rights. Stockholder hereby waives any rights of first refusal,
rights of first offer, rights to notice, rights of co-sale, tag-along rights,
information rights, registration rights, preemptive rights, rights of
redemption or repurchase, and similar rights of Stockholder under any
agreement, arrangement of understanding applicable to the Subject Shares, in
each case as the same may apply to the execution and delivery of the Plan and
the consummation of the Merger and the other actions and transactions
contemplated by the Plan.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
Stockholder hereby represents and warrants to Parent as follows:
4.1 Due Organization, Authorization, etc. Stockholder has all requisite power
and capacity to execute and deliver this Agreement and to perform Stockholder's
obligations hereunder. This Agreement has been duly executed and delivered by
Stockholder and constitutes a legal, valid and binding obligation of
Stockholder, enforceable against Stockholder in accordance with its terms,
subject to (i) laws of general application relating to bankruptcy, insolvency
and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
4.2 No Conflicts, Required Filings and Consents.
(a) The execution and delivery of this Agreement by Stockholder do not,
and the performance of this Agreement by Stockholder will not: (i) conflict
with or violate any order, decree or judgment applicable to Stockholder or
by which Stockholder or any of Stockholder's properties or Subject Shares
is bound or affected; or (ii) result in any breach of or constitute a
default (with notice or lapse of time, or both) under,
E-2
<PAGE>
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of any lien, restriction,
adverse claim, option on, right to acquire, or any encumbrance or security
interest in or to, any of the Subject Shares pursuant to, any written, oral
or other agreement, contract or legally binding commitment to which
Stockholder is a party or by which Stockholder or any of Stockholder's
properties (including but not limited to the Subject Shares) is bound or
affected.
(b) The execution and delivery of this Agreement by Stockholder do not,
and the performance of this Agreement by Stockholder will not, require any
written, oral or other agreement, contract or legally binding commitment of
any third party.
4.3 Title to Subject Shares. As of the Agreement Date, Stockholder
beneficially owns the Subject Shares set forth under Stockholder's name on the
signature page hereof and does not directly or indirectly own, either
beneficially or of record, any shares of capital stock of Company, or rights to
acquire any shares of capital stock of Company, other than the Subject Shares
set forth below Stockholder's name on the signature page hereof.
4.4 Other Rights. Stockholder is not entitled to any rights of first refusal,
rights of first offer, rights to notice, rights of co-sale, tag-along rights,
information rights, registration rights, preemptive rights, rights of
redemption or repurchase or similar rights of Stockholder under any agreement,
arrangement of understanding applicable to the Subject Shares, except as
disclosed in the Company Disclosure Letter and defined in the Merger Agreement.
4.5 Accuracy of Representations. The representations and warranties contained
in this Agreement are accurate in all respects as of the date of this
Agreement, will be accurate in all respects at all times through the Expiration
Date and will be accurate in all respects as of the date of the consummation of
the Merger as if made on that date.
SECTION 5. MISCELLANEOUS
5.1 Expenses. All costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party
incurring such costs and expenses.
5.2 Governing Law. The internal laws of the State of Washington (irrespective
of its choice of law principles) will govern the validity of this Agreement,
the construction of its terms, and the interpretation and enforcement of the
rights and duties of the parties hereto.
5.3 Assignment, Binding Effect, Third Parties. Except as provided herein,
neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by either of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
party. Subject to the preceding sentence, this Agreement shall be binding upon
and shall inure to the benefit of (i) Stockholder and Stockholder's heirs,
successors and assigns and (ii) Parent and its successors and assigns.
Notwithstanding anything contained in this Agreement to the contrary, nothing
in this Agreement, expressed or implied, is intended to confer on any person or
entity other than the parties hereto or their respective heirs, successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
5.4 Severability. If any provision of this Agreement, or the application
thereof, will for any reason and to any extent be invalid or unenforceable,
then the remainder of this Agreement and application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto.
5.5 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.
5.6 Amendment; Waiver. This Agreement may be amended by the written agreement
of the parties hereto. No waiver by any party hereto of any condition or of any
breach of any provision of this Agreement
E-3
<PAGE>
will be effective unless such waiver is set forth in a writing signed by such
party. No waiver by any party of any such condition or breach, in any one
instance, will be deemed to be a further or continuing waiver of any such
condition or breach or a waiver of any other condition or breach of any other
provision contained herein.
5.7 Notices. All notices and other communications required or permitted under
this Agreement will be in writing and will be either hand delivered in person,
sent by telecopier, sent by certified or registered first class mail, postage
pre-paid, or sent by nationally recognized express courier service. Such
notices and other communications will be effective upon receipt if hand
delivered or sent by telecopier, three (3) days after mailing if sent by mail,
and one (l) business day after dispatch if sent by express courier, to the
following addresses, or such other addresses as any party may notify the other
parties in accordance with this Section:
<TABLE>
<C> <S>
If to Stockholder: If to Parent:
At the address set forth below Stockholder's Onsale, Inc.
signature on the signature page hereto; 1350 Willow Road
Menlo Park, CA 94025
Attn: Chief Executive Officer
</TABLE>
or to such other address as a party designates in a writing delivered to each
of the other parties hereto.
5.8 Entire Agreement. This Agreement and any documents delivered by the
parties in connection herewith constitute the entire agreement and
understanding between the parties with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings between the
parties with respect thereto. No addition to or modification of any provision
of this Agreement shall be binding upon either party hereto unless made in
writing and signed by both parties hereto. The parties hereto waive trial by
jury in any action at law or suit in equity based upon, or arising out of, this
Agreement or the subject matter hereof.
5.9 Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement was not
performed in accordance with its specific terms or was otherwise breached. It
is accordingly agreed that, in addition to any other remedy to which Parent is
entitled at law or in equity, Parent shall be entitled to injunctive relief to
prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any California court or in any other court of competent
jurisdiction.
5.10 Other Agreements. Nothing in this Agreement shall limit any of the
rights or remedies of Parent or any of the obligations of Stockholder under any
other agreement.
5.11 Construction. This Agreement has been negotiated by the respective
parties hereto and their attorneys and the language hereof will not be
construed for or against either party. Unless otherwise indicated herein, all
references in this Agreement to "Sections" refer to sections of this Agreement.
The titles and headings herein are for reference purposes only and will not in
any manner limit the construction of this Agreement which will be considered as
a whole.
[The remainder of this page has been left blank intentionally.]
E-4
<PAGE>
IN WITNESS WHEREOF, Parent and Stockholder have caused this Agreement to be
executed as of the Agreement Date first written above.
<TABLE>
<S> <C>
PARENT STOCKHOLDER
By: _______________________________________ Name: _____________________________________
(Please Print)
Title: ____________________________________ By: _______________________________________
(Signature)
Title: ____________________________________
Number of Shares Owned: ___________________
Address: __________________________________
___________________________________________
___________________________________________
Facsimile: ( ) __________________________
</TABLE>
[Signature Page to Company Voting Agreement]
E-5
<PAGE>
EXHIBIT "1" TO VOTING AGREEMENT
IRREVOCABLE PROXY
The undersigned shareholder of Egghead.com, Inc. a Washington corporation
(the "Company"), hereby irrevocably (to the fullest extent permitted by law)
appoints and constitutes S. Jerrold Kaplan, John E. Labbett and/or Onsale,
Inc., a Delaware corporation ("Parent"), and each of them, the attorneys and
proxies of the undersigned, with full power of substitution and resubstitution,
to the fullest extent of the undersigned's rights with respect to (i) the
shares of capital stock of Company owned by the undersigned as of the date of
this proxy, which shares are specified on the final page of this proxy and (ii)
any and all other shares of capital stock of Company which the undersigned may
acquire after the date hereof. (The shares of the capital stock of Company
referred to in clauses (i) and (ii) of the immediately preceding sentence are
collectively referred to as the "Shares"). Upon the execution hereof, all prior
proxies given by the undersigned with respect to any of the Shares (other than
any proxies granted to Parent) are hereby revoked, and no subsequent proxies
will be given with respect to any of the Shares, except for such proxies as the
undersigned shareholder may give in connection with the Company's 1999 Annual
Meeting of Shareholders with respect to proposals or matters unrelated to the
Plan and the Merger.
This proxy is irrevocable, is coupled with an interest and is granted in
connection with that certain Voting Agreement, dated as of the date hereof,
between Parent and the undersigned (the "Voting Agreement"), and is granted in
consideration of Parent entering into the Agreement and Plan of Merger, dated
as of July 13, 1999, among Parent, EO Corporation., a Washington corporation
and wholly-owned subsidiary of Parent, and Company (the "Plan"). Capitalized
terms used but not otherwise defined in this proxy have the meanings ascribed
to such terms in the Plan.
The attorneys and proxies named above will be empowered, and may exercise
this proxy, to vote the Shares at any time until the Expiration Date (as
defined in the Voting Agreement) at any meeting of the shareholders of Company,
however called, or in any action by written consent of shareholders of Company:
(i) in favor of the Plan and the Merger, the execution and delivery by
Company of the Plan, the adoption and approval of the terms thereof and in
favor of each of the other actions contemplated by the Plan, and any action
required in furtherance hereof and thereof; and
(ii) in favor of the waiver (by amendment of any such agreement or
otherwise), effective immediately prior to the effectiveness of the Merger,
of any rights of first refusal, rights of first offer, rights of notice,
rights of co-sale, tag-along rights, information rights, registration
rights, preemptive rights, rights of redemption or repurchase, or similar
rights of Stockholder under any agreement, arrangement or understanding
applicable to the Shares, to the extent that the same may apply to the
Merger or any other actions or transactions contemplated by the Plan.
The undersigned stockholder may vote the Shares on all other matters not
described in the foregoing subparagraph (i) and (ii) above.
Prior to the Expiration Date (as such term is defined in the Voting
Agreement), at any meeting of the shareholders of Company, however called, and
in any action by written consent of shareholders of Company, the attorneys and
proxies named above may, in their sole discretion, elect to abstain from voting
on any matter covered by the foregoing subparagraphs (i) and (ii) above.
This proxy and any obligation of the undersigned hereunder shall be binding
upon the heirs, successors and assigns of the undersigned (including any
transferee of any of the Shares).
E-6
<PAGE>
This proxy shall terminate upon the Expiration Date (as defined in the Voting
Agreement).
Dated: July 13, 1999
Name: _______________________________
By: _________________________________
Title (If Applicable): ______________
E-7
<PAGE>
ANNEX F
PARENT VOTING AGREEMENT
This Voting Agreement (this "Agreement") is entered into as of July 13, 1999
(the "Agreement Date") by and between Egghead.com, Inc., a Washington
corporation (the "Company") and [name of stockholder] ("Stockholder").
RECITALS
A. Onsale, Inc., a Delaware corporation (the "Parent"), Company and EO
Corporation., a Washington corporation and a wholly-owned subsidiary of Parent
("Sub") are entering into an Agreement and Plan of Merger dated as of July 13,
1999, as such may be hereafter amended from time to time (the "Plan") which
provides (subject to the conditions set forth therein) for the merger of Sub
with and into Company (the "Merger") with Company to survive the Merger. Upon
the effectiveness of the Merger, the outstanding shares of Company's Common
Stock will be converted into shares of the Common Stock of Parent and
outstanding options to purchase shares of Company's Common Stock will be
assumed by Parent, all as more particularly set forth in the Plan. Capitalized
terms used but not otherwise defined in this Agreement will have the same
meanings ascribed to such terms in the Plan.
B. As of the Agreement Date, Stockholder owns in the aggregate (including
shares held both beneficially and of record and other shares held either
beneficially or of record) the number of shares of Parent's Common Stock set
forth below Stockholder's name on the signature page of this Agreement (all
such shares, together with any shares of Parent's Common Stock or any other
shares of capital stock of Parent that may hereafter be acquired by
Stockholder, being collectively referred to herein as the "Subject Shares").
If, between the Agreement Date and the Expiration Date (as defined in Section
1.1 below), the outstanding shares of Parent's Common Stock are changed into a
different number or class of shares by reason of any stock split, stock
dividend, reverse stock split, reclassification, recapitalization or other
similar transaction, then the shares constituting the Subject Shares shall be
appropriately adjusted, and shall include any shares or other securities of
Parent issued on, or with respect to, the Subject Shares in such a transaction.
C. As a condition to the willingness of Company to enter into the Plan,
Company has required that Stockholder agree, and in order to induce Company to
enter into the Plan, Stockholder has agreed, to enter into this Agreement.
In consideration of the facts recited above, the parties to this Agreement,
intending to be legally bound by this Agreement, now hereby agree as follows:
SECTION 1. TRANSFER OF SUBJECT SHARES
1.1 No Transfer of Voting Rights.
(a) Stockholder covenants and agrees that, prior to the Expiration Date,
Stockholder will not deposit any of the Subject Shares into a voting trust
or grant a proxy or enter into an agreement of any kind with respect to any
of the Subject Shares, except for the Proxy called for by Section 2.2 of
this Agreement and except for any other proxy granted by Stockholder to
Company.
(b) As used in this Agreement, the term "Expiration Date" shall mean the
earlier of (i) the date upon which the Plan is validly terminated in
accordance with the provisions of Article VII of the Plan or (ii) the
Effective Time of the Merger.
1.2 Compliance with Parent Affiliate Agreement. If Stockholder is a party to
a Parent Affiliate Agreement, Stockholder will comply with the terms of such
Parent Affiliate Agreement.
F-1
<PAGE>
SECTION 2. VOTING OF SUBJECT SHARES
2.1 Agreement. Stockholder hereby agrees that, prior to the Expiration Date,
at any meeting of the stockholders of Parent, however called, and in any action
taken by the written consent of stockholders of Company without a meeting,
unless otherwise directed in writing by Company, Stockholder shall vote the
Subject Shares:
(a) in favor of the issuance of the shares of Parent Common Stock
pursuant to the Merger and an amendment to Parent's Certificate of
Incorporation to change the name of Parent to "Egghead.com, Inc.,"
effective at the Effective Time, and to increase the authorized number of
shares of Parent Common Stock so as to permit the transactions contemplated
by the Plan, subject to and upon consummation of the Merger and, to the
extent that approval by Parent's stockholders is required under the
Delaware General Corporation Law, in favor of the Plan and the Merger, the
execution and delivery by Parent of the Plan and the adoption and approval
of the terms thereof and in favor of each of the other actions contemplated
by the Plan, and any action required in furtherance hereof and thereof; and
(b) in favor of the waiver (by amendment of any such agreement or
otherwise), effective as of immediately prior to the effectiveness of the
Merger, of any rights of first refusal, rights of first offer, rights of
notice, rights of co-sale, tag-along rights, information rights,
registration rights, preemptive rights, rights of redemption or repurchase,
or similar rights of Stockholder under any agreement, arrangement or
understanding applicable to the Subject Shares, to the extent that the same
may apply to the Merger or any other actions or transactions contemplated
by the Plan.
Prior to the Expiration Date, Stockholder shall not enter into any agreement or
understanding with any Person to vote or give instructions in any manner
inconsistent with clause "(a)" or "(b)" of this Section 2.1.
2.2 Proxy. Contemporaneously with the execution of this Agreement,
Stockholder shall deliver to Company a proxy with respect to the Subject Shares
in the form attached hereto as Exhibit 1, which proxy shall be irrevocable to
the fullest extent permitted by applicable law (the "Proxy").
SECTION 3. WAIVERS
3.1 Appraisal Rights. Stockholder hereby agrees not to exercise any rights of
appraisal and any dissenters' rights that Stockholder may have (whether under
applicable law or otherwise) or could potentially have or acquire in connection
with the Merger.
3.2 Other Rights. Stockholder hereby waives any rights of first refusal,
rights of first offer, rights to notice, rights of co-sale, tag-along rights,
information rights, registration rights, preemptive rights, rights of
redemption or repurchase, and similar rights of Stockholder under any
agreement, arrangement of understanding applicable to the Subject Shares, in
each case as the same may apply to the execution and delivery of the Plan and
the consummation of the Merger and the other actions and transactions
contemplated by the Plan.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
Stockholder hereby represents and warrants to Company as follows:
4.1 Due Organization, Authorization, etc. Stockholder has all requisite power
and capacity to execute and deliver this Agreement and to perform Stockholder's
obligations hereunder. This Agreement has been duly executed and delivered by
Stockholder and constitutes a legal, valid and binding obligation of
Stockholder, enforceable against Stockholder in accordance with its terms,
subject to (i) laws of general application relating to bankruptcy, insolvency
and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
F-2
<PAGE>
4.2 No Conflicts, Required Filings and Consents.
(a) The execution and delivery of this Agreement by Stockholder do not,
and the performance of this Agreement by Stockholder will not: (i) conflict
with or violate any order, decree or judgment applicable to Stockholder or
by which Stockholder or any of Stockholder's properties or Subject Shares
is bound or affected; or (ii) result in any breach of or constitute a
default (with notice or lapse of time, or both) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of any lien, restriction, adverse claim, option on,
right to acquire, or any encumbrance or security interest in or to, any of
the Subject Shares pursuant to, any written, oral or other agreement,
contract or legally binding commitment to which Stockholder is a party or
by which Stockholder or any of Stockholder's properties (including but not
limited to the Subject Shares) is bound or affected.
(b) The execution and delivery of this Agreement by Stockholder do not,
and the performance of this Agreement by Stockholder will not, require any
written, oral or other agreement, contract or legally binding commitment of
any third party.
4.3 Title to Subject Shares. As of the Agreement Date, Stockholder
beneficially owns the Subject Shares set forth under Stockholder's name on the
signature page hereof and does not directly or indirectly own, either
beneficially or of record, any shares of capital stock of Parent or rights to
acquire any shares of capital stock of Parent, other than the Subject Shares
set forth below Stockholder's name on the signature page hereof.
4.4 Other Rights. Stockholder is not entitled to any rights of first refusal,
rights of first offer, rights to notice, rights of co-sale, tag-along rights,
information rights, registration rights, preemptive rights, rights of
redemption or repurchase or similar rights under any agreement, arrangement of
understanding applicable to the Subject Shares, except as disclosed in the
Parent Disclosure Letter (as defined in the Merger Agreement).
4.5 Accuracy of Representations. The representations and warranties contained
in this Agreement are accurate in all respects as of the date of this
Agreement, will be accurate in all respects at all times through the Expiration
Date and will be accurate in all respects as of the date of the consummation of
the Merger as if made on that date.
SECTION 5. MISCELLANEOUS
5.1 Expenses. All costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party
incurring such costs and expenses.
5.2 Governing Law. The internal laws of the State of Delaware (irrespective
of its choice of law principles) will govern the validity of this Agreement,
the construction of its terms, and the interpretation and enforcement of the
rights and duties of the parties hereto.
5.3 Assignment, Binding Effect, Third Parties. Except as provided herein,
neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by either of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
party. Subject to the preceding sentence, this Agreement shall be binding upon
and shall inure to the benefit of (i) Stockholder and Stockholder's heirs,
successors and assigns and (ii) Company and its successors and assigns.
Notwithstanding anything contained in this Agreement to the contrary, nothing
in this Agreement, expressed or implied, is intended to confer on any person or
entity other than the parties hereto or their respective heirs, successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
5.4 Severability. If any provision of this Agreement, or the application
thereof, will for any reason and to any extent be invalid or unenforceable,
then the remainder of this Agreement and application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto.
F-3
<PAGE>
5.5 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.
5.6 Amendment; Waiver. This Agreement may be amended by the written agreement
of the parties hereto. No waiver by any party hereto of any condition or of any
breach of any provision of this Agreement will be effective unless such waiver
is set forth in a writing signed by such party. No waiver by any party of any
such condition or breach, in any one instance, will be deemed to be a further
or continuing waiver of any such condition or breach or a waiver of any other
condition or breach of any other provision contained herein.
5.7 Notices. All notices and other communications required or permitted under
this Agreement will be in writing and will be either hand delivered in person,
sent by telecopier, sent by certified or registered first class mail, postage
pre-paid, or sent by nationally recognized express courier service. Such
notices and other communications will be effective upon receipt if hand
delivered or sent by telecopier, three (3) days after mailing if sent by mail,
and one (l) business day after dispatch if sent by express courier, to the
following addresses, or such other addresses as any party may notify the other
parties in accordance with this Section:
<TABLE>
<S> <C>
If to Stockholder: If to Company:
At the address set forth below
Stockholder's Egghead.com, Inc.
signature on the signature page hereto; 521 S.E. Chkalov Drive
Vancouver, WA 98683
Attn: Chief Executive Officer
</TABLE>
or to such other address as a party designates in a writing delivered to each
of the other parties hereto.
5.8 Entire Agreement. This Agreement and any documents delivered by the
parties in connection herewith constitute the entire agreement and
understanding between the parties with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings between the
parties with respect thereto. No addition to or modification of any provision
of this Agreement shall be binding upon either party hereto unless made in
writing and signed by both parties hereto. The parties hereto waive trial by
jury in any action at law or suit in equity based upon, or arising out of, this
Agreement or the subject matter hereof.
5.9 Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement was not
performed in accordance with its specific terms or was otherwise breached. It
is accordingly agreed that, in addition to any other remedy to which Company is
entitled at law or in equity, Company shall be entitled to injunctive relief to
prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any Washington court or in any other court of competent
jurisdiction.
5.10 Other Agreements. Nothing in this Agreement shall limit any of the
rights or remedies of Company or any of the obligations of Stockholder under
any other agreement.
5.11 Construction. This Agreement has been negotiated by the respective
parties hereto and their attorneys and the language hereof will not be
construed for or against either party. Unless otherwise indicated herein, all
references in this Agreement to "Sections" refer to sections of this Agreement.
The titles and headings herein are for reference purposes only and will not in
any manner limit the construction of this Agreement which will be considered as
a whole.
[The remainder of this page has been left blank intentionally.]
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IN WITNESS WHEREOF, Company and Stockholder have caused this Agreement to be
executed as of the Agreement Date first written above.
COMPANY STOCKHOLDER
By: _________________________________ Name: _______________________________
(Please Print)
Title: ______________________________ By: _________________________________
(Signature)
Title: ______________________________
Number of Shares Owned: _____________
Address: ____________________________
_____________________________________
_____________________________________
Facsimile: ( ) ____________________
[Signature Page to Voting Agreement]
F-5
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EXHIBIT "1" TO VOTING AGREEMENT
IRREVOCABLE PROXY
The undersigned stockholder of Onsale, Inc., a Delaware corporation (the
"Parent"), hereby irrevocably (to the fullest extent permitted by law) appoints
and constitutes George P. Orban, Brian Bender and/or Egghead.com, Inc., a
Washington corporation ("Company"), and each of them, the attorneys and proxies
of the undersigned, with full power of substitution and resubstitution, to the
fullest extent of the undersigned's rights with respect to (i) the shares of
capital stock of Parent owned by the undersigned as of the date of this proxy,
which shares are specified on the final page of this proxy and (ii) any and all
other shares of capital stock of Parent which the undersigned may acquire after
the date hereof. (The shares of the capital stock of Parent referred to in
clauses (i) and (ii) of the immediately preceding sentence are collectively
referred to as the "Shares"). Upon the execution hereof, all prior proxies
given by the undersigned with respect to any of the Shares (other than any
proxies granted to Company) are hereby revoked, and no subsequent proxies will
be given with respect to any of the Shares.
This proxy is irrevocable, is coupled with an interest and is granted in
connection with that certain Parent Voting Agreement, dated as of the date
hereof, between Company and the undersigned (the "Voting Agreement"), and is
granted in consideration of Company entering into the Agreement and Plan of
Merger, dated as of July 13, 1999, among Parent, EO Corporation, a Washington
corporation and wholly-owned subsidiary of Parent, and Company ("Plan").
Capitalized terms used but not otherwise defined in this proxy have the
meanings ascribed to such terms in the Plan.
The attorneys and proxies named above will be empowered, and may exercise
this proxy, to vote the Shares at any time until the Expiration Date (as
defined in the Voting Agreement) at any meeting of the stockholders of Parent,
however called, or in any action by written consent of stockholders of Parent:
(i) in favor of the issuance of the shares of Parent Common Stock
pursuant to the Merger and an amendment to Parent's Certificate of
Incorporation to change the name of Parent to "Egghead.com, Inc.,"
effective at the Effective Time, and to increase the authorized number of
shares of Parent Common Stock so as to permit the transactions contemplated
by the Plan, subject to and upon consummation of the Merger and, to the
extent that approval by Parent's stockholders is required under the
Delaware General Corporation Law, in favor of the Plan and the Merger, the
execution and delivery by Parent of the Plan and the adoption and approval
of the terms thereof and in favor of each of the other actions contemplated
by the Plan, and any action required in furtherance hereof and thereof; and
(ii) in favor of the waiver (by amendment of any such agreement or
otherwise) of any rights of first refusal, rights of first offer, rights of
notice, rights of co-sale, tagalong rights, information rights,
registration rights, preemptive rights, rights of redemption or repurchase,
or similar rights of Stockholder under any agreement, arrangement or
understanding applicable to the Shares, to the extent that the same may
apply to the Merger or any other actions or transactions contemplated by
the Plan.
The undersigned stockholder may vote the Shares on all other matters not
described in the foregoing subparagraph (i) and (ii) above.
Prior to the Expiration Date (as such term is defined in the Voting
Agreement), at any meeting of the stockholders of Parent, however called, and
in any action by written consent of stockholders of Parent, the attorneys and
proxies named above may, in their sole discretion, elect to abstain from voting
on any matter covered by the foregoing subparagraphs (i) and (ii) above.
This proxy and any obligation of the undersigned hereunder shall be binding
upon the heirs, successors and assigns of the undersigned (including any
transferee of any of the Shares).
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This proxy shall terminate upon the Expiration Date (as defined in the Voting
Agreement).
Dated: July 13, 1999
Name: _______________________________
By: _________________________________
Title (If Applicable): ______________
F-7
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ANNEX G
July 13, 1999
Board of Directors
Onsale, Inc.
1350 Willow Road
Menlo Park, California 94025
Members of the Board:
We understand that Onsale, Inc. ("Onsale"), Egghead.com, Inc. ("Egghead"),
and EO Corporation ("Merger Sub"), a wholly-owned subsidiary of Onsale, propose
to enter into an Agreement and Plan of Reorganization, substantially in the
form of the draft dated July 12, 1999 (the "Merger Agreement") which provides,
among other things, for the merger (the "Merger") of Merger Sub with and into
Egghead. Pursuant to the Merger, Egghead will become a wholly-owned subsidiary
of Onsale and each outstanding share of common stock, par value $0.01 per
share, (the "Egghead Common Stock"), of Egghead, other than shares held in
treasury or held by Onsale or any affiliate of Onsale or Egghead or as to which
dissenters' rights have been perfected, will be converted into the right to
receive 0.565 shares (the "Exchange Ratio") of common stock, par value $0.001
per share, of Onsale (the "Onsale Common Stock"). The terms and conditions of
the Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to Onsale.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of Onsale and Egghead;
(ii) reviewed certain internal financial statements, certain financial
estimates and other financial and operating data concerning Onsale and
Egghead prepared by the managements of Onsale and Egghead, respectively;
(iii) discussed the past and current operations and financial condition
and the prospects of Onsale, including information relating to certain
strategic, financial and operational benefits anticipated from the Merger,
with senior executives of Onsale;
(iv) discussed the past and current operations and financial condition
and the prospects of Egghead, including information relating to certain
strategic, financial and operational benefits anticipated from the Merger,
with senior executives of Egghead;
(v) reviewed the pro forma impact of the Merger on the earnings per share
of Onsale;
(vi) reviewed the reported prices and trading activity for the Onsale
Common Stock and Egghead Common Stock;
(vii) compared the financial performance of Onsale and Egghead and the
prices and trading activity of the Onsale Common Stock and Egghead Common
Stock with that of certain other publicly-traded companies and their
securities;
(viii) reviewed and discussed with the senior managements of Onsale and
Egghead their strategic rationales for the Merger;
(ix) participated in discussions and negotiations among representatives
of Onsale and Egghead and their financial and legal advisors;
(x) reviewed the draft Merger Agreement and certain related agreements;
and
(xi) performed such other analyses and considered such other factors as
we have deemed appropriate.
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Board of Directors
July 13, 1999
Page 2
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the internal financial statements and other
financial and operating data, and discussions relating to the strategic,
financial and operational benefits anticipated from the Merger provided by
Onsale and Egghead, we have assumed that they have, in each case, been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the prospects of Onsale and Egghead. We have relied upon the
assessment by the managements of Onsale and Egghead of their ability to retain
key employees of Onsale and Egghead. We have also relied upon, without
independent verification, the assessment by the managements of Onsale and
Egghead of: (i) the strategic and other benefits expected to result from the
Merger; (ii) the timing and risks associated with the integration of Onsale and
Egghead; and (iii) the validity of, and risks associated with, Onsale's and
Egghead's existing and future technologies, services or business models. We
have not made any independent valuation or appraisal of the assets or
liabilities or technology of Onsale and Egghead, nor have we been furnished
with any such appraisals. In addition, we have assumed that the Merger will be
treated as a tax-free reorganization and/or exchange each pursuant to the
Internal Revenue Code of 1986 and will be consummated in accordance with the
terms set forth in the Merger Agreement. Our opinion is necessarily based on
financial, economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of Onsale in
connection with this transaction and will receive a fee for our services. In
the ordinary course of our business we may actively trade the securities of
Onsale and Egghead for our own account and for the accounts of our customers
and, accordingly, may at any time hold a long or short position in such
securities.
It is understood that this letter is for the information of the Board of
Directors of Onsale, except that this opinion may be included in its entirety
in any filing made by Onsale with the Securities and Exchange Commission in
respect of the transaction. In addition, this opinion does not in any manner
address the prices at which the Onsale Common Stock will actually trade at any
time and we express no recommendation or opinion as to how the holders of
Onsale Common Stock should vote at the stockholders' meeting held in connection
with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to Onsale.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
/s/ Mark S. Menell
By: _________________________________
Mark S. Menell
Principal
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<PAGE>
ANNEX H
Confidential
The Board of Directors
Egghead.com, Inc.
521 S.E. Chkalov Drive
Vancouver, WA 98683
July 13, 1999
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of common stock (the "Common
Stock") of Egghead.com, Inc. ("Egghead" or the "Company") of the Exchange Ratio
(as defined below) in the proposed merger of EO Corporation ("Merger Sub"), a
wholly owned subsidiary of Onsale, Inc. ("Onsale"), with and into Egghead (the
"Proposed Transaction") pursuant to the Agreement and Plan of Merger, among
Onsale, Merger Sub, and Egghead (the "Agreement").
We understand that the terms of the Agreement provide, among other things,
that each issued and outstanding share of Common Stock shall be converted into
the right to receive 0.565 shares of common stock of Onsale (the "Exchange
Ratio"), as more fully set forth in the Agreement. For purposes of this
opinion, we have assumed that the Proposed Transaction will qualify as a tax-
free reorganization under the United States Internal Revenue Code for the
shareholders of the Company and that the Proposed Transaction will be accounted
for as a pooling of interests.
Hambrecht & Quist LLC ("Hambrecht & Quist"), as part of its investment
banking services, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, strategic transactions,
corporate restructurings, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. We have acted as a financial advisor to the Board of
Directors of Egghead in connection with the Proposed Transaction, and we will
receive a fee for our services, which include the rendering of this opinion.
In the past, we have provided investment banking and other financial advisory
services to Egghead and Onsale and have received fees for rendering these
services. In the ordinary course of business, Hambrecht & Quist acts as a
market maker and broker in the publicly traded securities of Egghead and Onsale
and receives customary compensation in connection therewith, and also provides
research coverage for Egghead and Onsale. In the ordinary course of business,
Hambrecht & Quist actively trades in the equity and derivative securities of
Egghead and Onsale for its own account and for the accounts of its customers
and, accordingly, may at any time hold a long or short position in such
securities. Hambrecht & Quist may in the future provide additional investment
banking or other financial advisory services to Onsale.
In connection with our review of the Proposed Transaction, and in arriving at
our opinion, we have, among other things:
(i) reviewed the publicly available financial statements of Onsale for
recent years and interim periods to date and certain other relevant
financial and operating data of Onsale (including its capital structure)
made available to us from published sources and from the internal records
of Onsale;
(ii) reviewed certain internal financial and operating information,
including certain projections, relating to Onsale prepared by the
management of Onsale;
(iii) discussed the business, financial condition and prospects of Onsale
with certain members of senior management;
(iv) reviewed the publicly available financial statements of Egghead for
recent years and interim periods to date and certain other relevant
financial and operating data of Egghead made available to us from published
sources and from the internal records of Egghead;
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(v) reviewed certain internal financial and operating information,
including certain projections, relating to Egghead prepared by the senior
management of Egghead;
(vi) discussed the business, financial condition and prospects of Egghead
with certain members of senior management;
(vii) reviewed the recent reported prices and trading activity for the
common stocks of Onsale and Egghead and compared such information and
certain financial information for Onsale and Egghead with similar
information for certain other companies engaged in businesses we consider
comparable;
(viii) reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
(ix) reviewed a draft of the Agreement;
(x) discussed the tax and accounting treatment of the Proposed
Transaction with Onsale and Egghead and Onsale's and Egghead's lawyers and
accountants; and
(xi) performed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations and
financial, economic and market data as we deemed relevant.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all of the information concerning Onsale or Egghead considered
in connection with our review of the Proposed Transaction, and we have not
assumed any responsibility for independent verification of such information. We
have not prepared any independent valuation or appraisal of any of the assets
or liabilities of Onsale or Egghead, nor have we conducted a physical
inspection of the properties and facilities of either company. With respect to
the financial forecasts and projections made available to us and used in our
analysis, we have assumed that they reflect the best currently available
estimates and judgments of the expected future financial performance of Onsale
and Egghead. For purposes of this opinion, we have assumed that neither Onsale
nor Egghead is a party to any pending transactions, including external
financings, recapitalizations or material merger discussions, other than the
Proposed Transaction and those activities undertaken in the ordinary course of
conducting their respective businesses. Our opinion is necessarily based upon
market, economic, financial and other conditions as they exist and can be
evaluated as of the date of this letter and any change in such conditions would
require a reevaluation of this opinion. We express no opinion as to the price
at which Onsale common stock will trade subsequent to the Effective Time (as
defined in the Agreement). In rendering this opinion, we have assumed that the
proposed merger will be consummated substantially on the terms discussed in the
Agreement, without any waiver of any material terms or conditions by any party
thereto.
It is understood that this letter is for the information of the Board of
Directors in connection with their evaluation of the Proposed Transaction and
may not be used for any other purpose without our prior written consent;
provided, however, that this letter may be reproduced in full in the Proxy
Statement. This letter does not constitute a recommendation to any stockholder
as to how such stockholder should vote on the Proposed Transaction.
Based upon and subject to the foregoing and after considering such other
matters as we deem relevant, we are of the opinion that as of the date hereof
the Exchange Ratio in the Proposed Transaction is fair to the holders of the
outstanding shares of Common Stock from a financial point of view.
Very truly yours,
Hambrecht & Quist LLC
/s/ Paul B. Cleveland
By: _________________________________
Paul B. Cleveland
Managing Director
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ANNEX I
CHAPTER 23B.13 OF THE WASHINGTON BUSINESS CORPORATION ACT
(DISSENTERS' RIGHTS)
23B.13.010 Definitions
As used in this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from corporate
action under RCW 23B.13.020 and who exercises that right when and in the manner
required by RCW 23B.13.200 through 23B.13.280.
(3) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate action
until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are registered
in the records of a corporation or the beneficial owner of shares to the extent
of the rights granted by a nominee certificate on file with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial shareholder.
23B.13.020 Right to Dissent
(1) A shareholder is entitled to dissent from, and obtain payment of the fair
value of the shareholder's shares in the event of, any of the following
corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required for the merger by RCW 23B.11.030,
23B.11.080, or the articles of incorporation and the shareholder is
entitled to vote on the merger, or (ii) if the corporation is a subsidiary
that is merged with its parent under RCW 23B.11.040;
(b) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale;
(d) An amendment of the articles of incorporation that materially reduces
the number of shares owned by the shareholder to a fraction of a share if
the fractional share so created is to be acquired for cash under RCW
23B.06.040; or
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(e) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action fails to comply with
the procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent with
respect to the shareholder or the corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair value
of the shareholder's shares shall terminate upon the occurrence of any one of
the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
(c) The shareholder's demand for payment is withdrawn with the written
consent of the corporation.
23B.13.030 Dissent by Nominees and Beneficial Owners
(1) A record shareholder may assert dissenters' rights as to fewer than all
shares registered in the shareholder's name only if the shareholder dissents
with respect to all shares beneficially owned by any one person and notifies
the corporation in writing of the name and address of each person on whose
behalf the shareholder asserts dissenters' rights. The rights of a partial
dissenter under this subsection are determined as if the shares as to which the
dissenter dissents and the dissenter's other shares were registered in the
names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares held
on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares of
which such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote.
23B.13.200 Notice of Dissenters' Rights
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert
dissenters' rights under this chapter and be accompanied by a copy of this
chapter.
(2) If corporate action creating dissenters' rights under RCW 23B.13.020 is
taken without a vote of shareholders, the corporation, within ten days after
effective date of such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in RCW 23B.13.220.
23B.13.210 Notice of Intent to Demand Payment
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights must (a) deliver to the corporation before
the vote is taken written notice of the shareholder's intent to demand payment
for the shareholder's shares if the proposed action is effected, and (b) not
vote such shares in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection (1) of
this section is not entitled to payment for the shareholder's shares under this
chapter.
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23B.13.220 Dissenters' Notice
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of RCW 23B.13.210.
(2) The dissenters' notice must be sent within ten days after the effective
date of the corporate action, and must:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date;
(d) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after the
date the notice in subsection (1) of this section is delivered; and
(e) Be accompanied by a copy of this chapter.
23B.13.230 Duty to Demand Payment
(1) A shareholder sent a dissenters' notice described in RCW 23B.13.220 must
demand payment, certify whether the shareholder acquired beneficial ownership
of the shares before the date required to be set forth in the dissenters'
notice pursuant to RCW 23B.13.220(2)(c), and deposit the shareholder's
certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's share
certificates under subsection (1) of this section retains all other rights of a
shareholder until the proposed corporate action is effected.
(3) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter.
23B.13.240 Share Restrictions
(1) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is effected or the restriction is released under RCW 23B.13.260.
(2) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until the effective date of
the proposed corporate action.
23B.13.250 Payment
(1) Except as provided in RCW 23B.13.270, within thirty days of the later of
the effective date of the proposed corporate action, or the date the payment
demand is received, the corporation shall pay each dissenter who complied with
RCW 23B.13.230 the amount the corporation estimates to be the fair value of the
shareholder's shares, plus accrued interest.
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(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(b) An explanation of how the corporation estimated the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under RCW
23B.13.280; and
(e) A copy of this chapter.
23B.13.260 Failure to Take Action
(1) If the corporation does not effect the proposed action within sixty days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release any transfer
restrictions imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it must
send a new dissenters' notice under RCW 23B.13.220 and repeat the payment
demand procedure.
23B.13.270 After-acquired Shares
(1) A corporation may elect to withhold payment required by RCW 23B.13.250
from a dissenter unless the dissenter was the beneficial owner of the shares
before the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
(2) To the extent the corporation elects to withhold payment under subsection
(1) of this section, after taking the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall pay
this amount to each dissenter who agrees to accept it in full satisfaction of
the dissenter's demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares, an explanation of
how the interest was calculated, and a statement of the dissenter's right to
demand payment under RCW 23B.13.280.
23B.13.280 Procedure if Shareholder Dissatisfied with Payment or Offer
(1) A dissenter may notify the corporation in writing of the dissenter's own
estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate, less any payment under RCW
23B.13.250, or reject the corporation's offer under RCW 23B.13.270 and demand
payment of the dissenter's estimate of the fair value of the dissenter's shares
and interest due, if:
(a) The dissenter believes that the amount paid under RCW 23B.13.250 or
offered under RCW 23B.13.270 is less than the fair value of the dissenter's
shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under RCW 23B.13.250 within
sixty days after the date set for demanding payment; or
(c) The corporation does not effect the proposed action and does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
(2) A dissenter waives the right to demand payment under this section unless
the dissenter notifies the corporation of the dissenter's demand in writing
under subsection (1) of this section within thirty days after the corporation
made or offered payment for the dissenter's shares.
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23B.13.300 Court Action
(1) If a demand for payment under RCW 23B.13.280 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding
within the sixty-day period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the superior court of
the county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign
corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The corporation may join as a party to the proceeding any shareholder who
claims to be a dissenter but who has not, in the opinion of the corporation,
complied with the provisions of this chapter. If the court determines that such
shareholder has not complied with the provisions of this chapter, the
shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced under
subsection (2) of this section is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The dissenters are entitled
to the same discovery rights as parties in other civil proceedings.
(6) Each dissenter made a party to the proceeding is entitled to judgment (a)
for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation,
or (b) for the fair value, plus accrued interest, of the dissenter's after-
acquired shares for which the corporation elected to withhold payment under RCW
23B.13.270.
23B.13.310 Court Costs and Counsel Fees
(1) The court in a proceeding commenced under RCW 23B.13.300 shall determine
all costs of the proceeding, including the reasonable compensation and expenses
of appraisers appointed by the court. The court shall assess the costs against
the corporation, except that the court may assess the costs against all or some
of the dissenters, in amounts the court finds equitable, to the extent the
court finds the dissenters acted arbitrarily, vexatiously, or not in good faith
in demanding payment under RCW 23B.13.280.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of RCW 23B.13.200 through 23B.13.280; or
(b) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by chapter 23B.13 RCW.
(3) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court
may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
I-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Officers and Directors
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities, including reimbursement for expenses
incurred, arising under the Securities Act of 1933, as amended (the "Securities
Act").
As permitted by the Delaware General Corporation Law, the Registrant's
certificate of incorporation includes a provision that eliminates the personal
liability of its directors to the Registrant or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability:
. for any breach of the director's duty of loyalty to the corporation or
its stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law; or
. for any transaction from which the director derived an improper personal
benefit.
As permitted by Section 145 of the Delaware General Corporation Law, the
amended and restated bylaws further provide:
. for mandatory indemnification, to the fullest extent permitted by
applicable law, for any person who is or was a director or officer, or
is or was serving at the request of the Registrant as a director,
officer, employee or agent of another corporation or of a partnership,
joint venture, trust, enterprise or nonprofit entity, including service
with respect to employee benefit plans, against all liability and loss
suffered and expenses (including attorneys' fees) reasonably incurred by
such person;
. that the Registrant must advance to all indemnified parties the expenses
(including attorney's fees) incurred in defending any proceeding
provided that indemnified parties (if they are directors or officers)
must provide the Registrant an undertaking to repay such advances if
indemnification is determined to be unavailable;
. that the rights conferred in the certificate of incorporation are not
exclusive; and
. that the Registrant may not retroactively amend the certificate of
incorporation provisions relating to indemnity.
The indemnification provision in the Registrant's certificate of
incorporation, amended and restated bylaws and the indemnification agreements
entered into between the Registrant and each of its directors and executive
officers may be sufficiently broad to permit indemnification of the
Registrant's directors and officers for liabilities arising under the
Securities Act.
The Registrant has also obtained directors' and officers' liability
insurance.
II-1
<PAGE>
ITEM 21. Exhibits and Financial Schedules.
(a) The following exhibits are filed with this registration statement or
incorporated into this registration statement by reference:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
2.01 Agreement and Plan of Merger dated July 13, 1999 between the
Registrant, EO Corporation and Egghead.com, Inc. (incorporated by
reference to exhibit 2.01 to the Registrant's current report on Form
8-K (File No. 000-29184) filed with the Commission on July 23, 1999.)
2.02 Parent Stock Option Agreement dated July 13, 1999 between the
Registrant and Egghead, pursuant to which Egghead holds an option to
purchase the Registrant's common stock (incorporated by reference to
exhibit 2.02 to the Registrant's current report on Form 8-K (File No.
000-29184) filed with the Commission on July 23, 1999).
2.03 Company Stock Option Agreement dated July 13, 1999 between Egghead and
the Registrant, pursuant to which the Registrant holds an option to
purchase Egghead common stock (incorporated by reference to exhibit
2.03 to the Registrant's current report on Form 8-K (File No. 000-
29184) filed with the Commission on July 23, 1999).
3.01 The Registrant's Certificate of Incorporation (incorporated by
reference to exhibit 3.01 to the Registrant's registration statement
on Form S-1 (File No. 333-18489) filed with the Commission on December
20, 1996).
3.02 Form of the Registrant's Amended and Restated Certificate of
Incorporation, subject to approval by the Registrant's stockholders
(included as Annex B to the prospectus which is a part of this
registration statement).
3.03* The Registrant's Amended and Restated Bylaws.
4.01 Investors Rights Agreement, dated September 12, 1996 (incorporated by
reference to exhibit 4.01 to the Registrant's registration statement
on Form S-1 (File No. 333-18489) filed with the Commission on December
20, 1996).
5.01* Opinion of Fenwick & West LLP dated September 17, 1999 regarding the
legality of the securities being registered.
8.01* Tax opinion of Fenwick & West LLP dated September 17, 1999.
8.02* Tax opinion of Perkins Coie LLP dated September 17, 1999.
9.01 Form of Parent Voting Agreement entered into between Egghead and
certain stockholders of the Registrant on July 13, 1999, together with
the form of Irrevocable Proxy delivered therewith (incorporated by
reference to exhibit 2.04 to the Registrant's current report on Form
8-K (File No. 000-29184) filed with the Commission on July 23, 1999).
9.02 Form of Company Voting Agreement entered into between the Registrant
and certain shareholders of Egghead on July 13, 1999 together with the
form of Irrevocable Proxy delivered therewith (incorporated by
reference to exhibit 2.05 to the Registrant's current report on Form
8-K (File No. 000-29184) filed with the Commission on July 23, 1999).
10.01 Form of Indemnity Agreement entered into by the Registrant with
certain of its directors and executive officers (incorporated by
reference to exhibit 10.04 to the Registrant's registration statement
on Form S-1 (File No. 333-18489) filed with the Commission on December
20, 1996).
10.02 Offer letter dated February 25, 1997 by the Registrant to Merle
McIntosh (incorporated by reference to exhibit 10.17 to the
Registrant's registration statement on Form S-1 (File No. 333-18489)
filed with the Commission on March 17, 1997).
10.03 Offer letter dated June 18, 1998 by the Registrant to John Labbett
(incorporated by reference to exhibit 10.30 to the Registrant's annual
report on Form 10-K for the year ended December 31, 1998).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
10.04 Offer letter dated October 2, 1998 by the Registrant to Jeffrey
Sheahan (incorporated by reference to exhibit 10.31 to the
Registrant's annual report on Form 10-K for the year ended December
31, 1998).
10.05 Offer letter dated February 17, 1999 by the Registrant to Bari M.
Abdul (incorporated by reference to exhibit 10.33 to the Registrant's
quarterly report on Form 10-Q for the quarter ended March 31, 1999).
10.06* Offer letter dated August 18, 1999 by the Registrant to William A.
Skinner.
10.07 Loan agreement and related agreements dated February 19, 1998 between
Dennis Shepard and the Registrant (incorporated by reference to
exhibit 10.23 to the Registrant's annual report on Form 10-K for the
year ended December 31, 1997).
10.08 Loan agreement and related agreements dated April 27, 1998 between
Merle McIntosh and the Registrant (incorporated by reference to
exhibit 10.1 to the Registrant's quarterly report on Form 10-Q for the
quarter ended March 31, 1998).
10.09 Loan agreement and related agreements dated May 15, 1998 between
Dennis Shepard and the Registrant (incorporated by reference to
exhibit 10.2 to the Registrant's quarterly report on Form 10-Q for the
quarter ended March 31, 1998).
10.10 Loan agreement and related agreements dated November 23, 1998 between
Jeffrey Sheahan and the Registrant (incorporated by reference to
exhibit 10.32 to the Registrant's annual report on Form 10-K for the
year ended December 31, 1998).
10.11* Loan agreement and related agreements dated May 15, 1999, between John
Dean and the Registrant.
10.12* The Registrant's 1995 Equity Incentive Plan, as amended and restated
on September 10, 1999, and form of related agreements.
10.13* The Registrant's 1996 Employee Stock Purchase Plan, as amended and
restated on March 16, 1998 (incorporated by reference to exhibit 4.01
to the Registrant's registration statement on Form S-8 (File No. 333-
58991) filed with the Commission on July 13, 1998) and form of related
agreements.
10.14* The Registrant's 1996 Directors Stock Option Plan, as amended and
restated on March 15, 1999, and form of related agreements.
10.15 Lease Agreement dated March 31, 1998 between the Registrant and SCI
Limited Partnership-I, (incorporated by reference to exhibit 10.01 to
the Registrant's quarterly report on Form 10-Q for the quarter ended
June 30, 1998).
10.16 Lease Agreement dated August 9, 1997 between the Registrant and
Lincoln Menlo VI (incorporated by reference to exhibit 10.21 to the
Registrant's registration statement on Form S-1 (File No. 333-37171)
filed with the Commission on October 8, 1997).
10.17* First Amendment to Lease Agreement dated August 26, 1997 between the
Registrant and Lincoln Menlo VI.
10.18* Second Amendment to Lease Agreement dated September 5, 1997 between
the Registrant and Lincoln Menlo VI.
10.19* Third Amendment to Lease Agreement dated November 5, 1997 between the
Registrant and Lincoln Menlo VI.
10.20* Fourth Amendment to Lease Agreement dated June 25, 1999 between the
Registrant and Lincoln Menlo VI.
23.01* Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02* Consent of PricewaterhouseCoopers LLP, independent accountants.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
23.03 Consent of Arthur Andersen LLP, independent public accountants.
24.01* Power of Attorney.
27.01 Financial Data Schedule for the quarter ended June 30, 1999
(incorporated by reference to exhibit 27.1 to the Registrant's
quarterly report on Form 10-Q for the quarter ended June 30, 1999).
99.01* Form of proxy of the Registrant.
99.02* Form of proxy of Egghead.com, Inc.
</TABLE>
- --------
* Previously filed.
(b) Financial Statement Schedules
The information required to be set forth herein is incorporated by reference
to the Registrant's quarterly report on Form 10-Q for the quarter ended June
30, 1999.
Item 22. Undertakings
The undersigned registrant hereby undertakes:
(a) 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;
(b) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the registrant
undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form;
(c) That every prospectus (i) that is filed pursuant to paragraph (b)
immediately preceding, or (ii) that purports to meet the requirements
of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof;
(d) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of
this Form, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through
the date of responding to the request; and
(e) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration
statement when it became effective.
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
II-4
<PAGE>
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.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Onsale, Inc., 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 Menlo Park, State of California, on this 22nd day of
September 1999.
ONSALE, INC.
/s/ S. Jerrold Kaplan
By: _________________________________
S. Jerrold Kaplan
President, Chief Executive
Officer and Director
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 and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
Principal Executive Officer:
<S> <C> <C>
/s/ S. Jerrold Kaplan President, Chief Executive September 22, 1999
______________________________________ Officer and Director
Jerrold Kaplan
Principal Financial and Accounting Officer:
John E. Labbett* Senior Vice President and September 22, 1999
______________________________________ Chief Financial Officer
John E. Labbett
Additional Directors:
Alan S. Fisher* Director September 22, 1999
______________________________________
Alan S. Fisher
Peter L. Harris* Director September 22, 1999
______________________________________
Peter L. Harris
Peter H. Jackson* Director September 22, 1999
______________________________________
Peter H. Jackson
Kenneth J. Orton* Director September 22, 1999
______________________________________
Kenneth J. Orton
</TABLE>
/s/ S. Jerrold Kaplan
*By:________________________
S. Jerrold Kaplan
Attorney-in-fact
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
23.03 Consent of Arthur Andersen LLP, independent public accountants.
</TABLE>
<PAGE>
Exhibit 23.03
CONSENT OF INDEPENDENT
PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Seattle, Washington
September 20, 1999
