<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
August 14, 1997
----------------------------------
Date of Report
(Date of earliest event reported)
EGGHEAD, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Washington 0-16930 91-1296187
--------------------------- ------------------- --------------------
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
22705 E. Mission Avenue
Liberty Lake, Washington 99019
- --------------------------------------------------------------------------------
(Address of principal executive offices, including zip code)
(509) 922-7031
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Exhibit Index appears on page 13
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
ACQUISITION OF SURPLUS SOFTWARE, INC.
On August 14, 1997, Egghead, Inc. ("Egghead") acquired all the outstanding
stock of Surplus Software, Inc., an Oregon corporation ("Surplus Direct"),
pursuant to an Agreement and Plan of Merger, dated as of April 30, 1997 and
amended as of May 23, 1997 (the "Merger Agreement"), by and among Egghead,
Surplus Direct, North Face Merger Sub, Inc., an Oregon corporation and a wholly
owned subsidiary of Egghead ("Merger Sub"), and the principal shareholders of
Surplus Direct (the "Principal Shareholders"). In accordance with the terms of
the Merger Agreement, Surplus Direct merged into Merger Sub, with Merger Sub as
the surviving corporation (the "Merger").
At the time of effectiveness of the Merger on August 14, 1997 (the
"Effective Time"), Egghead issued 5,310,887 shares of common stock, par value
$.01 per share (the "Egghead Common Shares"), in exchange for all the
outstanding shares of common stock, no par value, of Surplus Direct (the
"Surplus Direct Common Stock"), and all outstanding shares of preferred stock,
no par value, of Surplus Direct (the "Surplus Direct Preferred Stock" and,
together with the Surplus Direct Common Stock, the "Surplus Direct Stock").
Each issued and outstanding share of Surplus Direct Common Stock converted into
the right to receive approximately 1.55169 Egghead Common Shares, and each
issued and outstanding share of Surplus Direct Preferred Stock converted into
the right to receive approximately 1.97261 Egghead Common Shares. The
allocation of the Egghead Common Shares among the Surplus Direct Common Stock
and the Surplus Direct Preferred Stock was based on the average closing price of
Egghead Common Shares during the 30-day period ending three days prior to the
closing of the Merger (the "Closing Average"). The shareholders of Surplus
Direct (the "Surplus Direct Shareholders") received cash in lieu of any
fractional Egghead Common Shares. In addition, each option to purchase shares
of Surplus Direct Common Stock that was outstanding at the Effective Time was
assumed by Egghead and will be treated as an option to purchase a number of
Egghead Common Shares equal to the product of the conversion ratio for the
Surplus Direct Common Stock (1.55169) and the number of shares of Surplus Direct
Common Stock subject to such option. Immediately following the Effective Time,
the Surplus Direct Shareholders owned approximately 23.17% of the outstanding
Egghead Common Shares (including the Holdback Shares described below, excluding
Egghead Common Shares owned by Surplus Direct Shareholders prior to the Merger
and assuming no exercise of outstanding options to purchase Surplus Direct
Stock) (the "Share Consideration").
Pursuant to the Merger Agreement, the Surplus Direct Shareholders have
agreed to jointly and severally indemnify and hold Egghead harmless for any
losses in excess of $300,000 that may be suffered by Egghead arising out of or
in connection with any inaccuracies in the representations and warranties made
by Surplus Direct in the Merger Agreement and related documents or any failure
by Surplus Direct or any Principal Shareholder to perform its obligations under
the Merger Agreement and related agreements.
2
<PAGE>
Shares representing 10% of the Share Consideration (the "Holdback Shares") have
been retained by Egghead to secure such indemnification obligations. The
Holdback Shares will be Egghead's sole recourse in the event of claims for
indemnification pursuant to the Merger Agreement. Any claims by Egghead against
the Holdback Shares will be accounted for as a reduction of the Share
Consideration.
Egghead's shareholders approved the issuance of Egghead Common Shares in
connection with the Merger at a special meeting held on August 14, 1997. The
Surplus Direct Shareholders also approved the Merger Agreement at a special
meeting held on August 14, 1997.
Pursuant to the Merger Agreement, Gregory J. Boudreau, Chief Executive
Officer and a director of Surplus Direct, and Jonathan W. Brodeur, President and
a director of Surplus Direct, have been appointed to Egghead's Board of
Directors. Certain officers and other employees of Surplus Direct entered into
amendments to their employment agreements with Surplus Direct that became
effective at the Effective Time, providing for adjusted base salaries, annual
bonuses and approximately $1 million in signing bonuses.
REGISTRATION RIGHTS AGREEMENT
Per the terms of the Merger Agreement, on August 14, 1997, Egghead executed
a Registration Rights Agreement (the "Registration Rights Agreement") that
requires Egghead to include in any registration of its securities the Egghead
Common Shares issued to Gregory J. Boudreau, Jonathan W. Brodeur and
Stephen M. Wood (the "Significant Shareholders") in connection with the Merger.
The Registration Rights Agreement terminates on the earlier of three years
following the Effective Time or such time as none of the Significant
Shareholders owns any of the Egghead Common Shares issued to such Significant
Shareholder in connection with the Merger.
The Merger Agreement and the Registration Rights Agreement (together, the
"Agreements") and a press release issued by Egghead to announce the consummation
of the Merger are filed as exhibits to this report and are incorporated herein
by reference. The descriptions of the Agreements herein do not purport to be
complete and are qualified in their entirety by the provisions of the
Agreements.
The Egghead Common Shares are quoted on the Nasdaq National Market under
the trading symbol "EGGS."
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements
Egghead's financial statements are hereby incorporated by reference to
pages F-2 through F-17 of Egghead's Registration Statement on Form S-4 (File
No. 333-31251) filed with the Securities and Exchange Commission (the
"Commission") on July 14, 1997 and to
3
<PAGE>
Egghead's Quarterly Report on Form 10-Q for the fiscal quarter ended June 28,
1997, as filed with the Commission on August 8, 1997.
Surplus Direct's financial statements are hereby incorporated by reference
to pages F-18 through F-32 of Egghead's Registration Statement on Form S-4 (File
No. 333-31251) filed with the Commission on July 14, 1997.
(b) Pro Forma Financial Information
The following Pro Forma Condensed Balance Sheet and Statements of
Operations give effect to the Merger according to the purchase method of
accounting. These Pro Forma Condensed Financial Statements have been prepared
from the historical consolidated financial statements of Egghead and the
historical financial statements of Surplus Direct incorporated by reference
herein and should be read in conjunction therewith. The pro forma condensed
financial information is presented for illustrative purposes only and is not
necessarily indicative of the financial position or results of operations that
would have actually been reported had the Merger occurred at the beginning of
the period presented, nor is it necessarily indicative of future financial
positions or results of operations, and does not incorporate any benefits from
cost savings or synergies of operations of the combined company.
The Pro Forma Condensed Balance Sheet gives effect to the merger as if it
had occurred on June 28, 1997, combining the balance sheets of Egghead as of
June 28, 1997 and of Surplus Direct as of May 31, 1997. The Pro Forma Condensed
Statements of Operations for the fiscal year ended March 29, 1997 give effect to
the Merger as if it had occurred on March 31, 1996, the beginning of Egghead's
1997 fiscal year, combining the results of Egghead for the fiscal year ended
March 29, 1997 with the results of Surplus Direct for the fiscal year ended
May 31, 1997. The Pro Forma Condensed Statements of Operations for the thirteen
weeks ended June 28, 1997 give effect to the Merger as if it had occurred on
March 30, 1997, the beginning of the first fiscal quarter in Egghead's 1998
fiscal year, combining the results of Egghead for the thirteen weeks ended June
28, 1997 with the results of Surplus Direct for its fourth fiscal quarter ended
May 31, 1997.
Egghead and Surplus Direct estimate that they will incur direct transaction
costs of approximately $1.4 million associated with the Merger. It is expected
that approximately $0.9 million of direct transaction costs will be capitalized
as part of the purchase price and $0.5 million of stock issuance costs will be
charged to additional paid-in capital. In addition, it is expected that Egghead
will incur additional charges to operations to reflect costs associated with
integrating the two companies. However, these integration costs cannot
currently be reasonably estimated. There can be no assurance that Egghead will
not incur additional charges to reflect costs associated with the Merger or that
management will be successful in its efforts to integrate the operations of the
two companies.
4
<PAGE>
<TABLE>
<CAPTION>
EGGHEAD, INC.
PRO FORMA
CONDENSED BALANCE SHEET
JUNE 28, 1997
------------------------------------------------------------------
HISTORICAL PRO FORMA(a)
--------------------- -----------------------------------------
NET JOINT
SURPLUS VENTURE OTHER
EGGHEAD DIRECT ADJUSTMENTS(d) ADJUSTMENTS COMBINED
-------- ------- -------------- ----------- ---------
(IN THOUSANDS)
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents and
short-term investments . . . . . . $ 74,176 $ 539 $861 $(8,933)(j) $ 66,643
Accounts receivable, net . . . . . . 18,503 1,511 (3,959) -- 16,055
Merchandise inventories, net . . . . 42,894 6,837 3,061 -- 52,792
Other current assets . . . . . . . . 3,703 2,138 -- -- 5,841
Property held for sale . . . . . . . 7,742 -- -- -- 7,742
-------- ------- ---- ------- ---------
Total current assets . . . . . . 147,018 11,025 (37) (8,933) $ 149,073
Property and equipment, net. . . . . . 11,356 1,898 463 -- 13,717
Other assets, net. . . . . . . . . . . 692 230 (257) -- 665
Goodwill . . . . . . . . . . . . . . . -- -- -- 31,739 31,739
-------- ------- ---- ------- ---------
$159,066 $13,153 $169 $22,806 $195,194
-------- ------- ---- ------- ---------
-------- ------- ---- ------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . $ 36,479 $ 1,335 $ -- $ -- $ 37,814
Accrued liabilities. . . . . . . . . 10,738 2,097 169 1,400(c) 14,404
Bridge Loan. . . . . . . . . . . . . -- 2,000 -- (2,000) --
Bank line of credit. . . . . . . . . -- 3,495 -- (3,495)(e) --
Subordinated debt. . . . . . . . . . . -- 2,000 -- (2,000)(e) --
Current portion of long-term
debt . . . . . . . . . . . . . . . -- 438 -- (438)(e) --
Other current liabilities. . . . . . 15,172 -- -- -- 15,172
-------- ------- ---- ------- ---------
Total current liabilities. . . . . . 62,389 11,365 169 (6,533) 67,390
Other obligations. . . . . . . . . . . 288 46 -- -- 334
Shareholders' equity . . . . . . . . . 96,389 1,742 -- 29,339 127,470
-------- ------- ---- ------- ---------
Total liabilities and
shareholders' equity . . . . . . . . $159,066 $13,153 $169 $22,806 $195,194
-------- ------- ---- ------- ---------
-------- ------- ---- ------- ---------
</TABLE>
See accompanying notes to pro forma condensed financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
EGGHEAD, INC.
PRO FORMA
CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 29, 1997
------------------------------------------------------------------
HISTORICAL PRO FORMA(b)
--------------------- -----------------------------------------
NET JOINT
SURPLUS VENTURE OTHER
EGGHEAD DIRECT ADJUSTMENTS(d) ADJUSTMENTS COMBINED
-------- ------- -------------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . $360,715 $58,697 $(4,843) $-- $414,569
Cost of sales, including certain
buying, occupancy and
distribution costs . . . . . . . . . 326,044 48,655 (5,723) -- 368,976
--------- -------- ------- -------- ---------
Gross margin . . . . . . . . . . . . . 34,671 10,042 880 -- 45,593
Selling, general and administrative
expenses . . . . . . . . . . . . . . 60,632 12,011 1,008 -- 73,651
Depreciation and amortization
expenses . . . . . . . . . . . . . . 6,043 288 54 1,587 (f) 7,972
Restructuring and impairment
charge . . . . . . . . . . . . . . . 15,597 -- -- -- 15,597
--------- -------- ------- -------- ---------
Operating loss . . . . . . . . . . . . (47,601) (2,257) (182) (1,587) (51,627)
Other income (expense) . . . . . . . . 3,428 (291) 182 -- 3,319
--------- -------- ------- -------- ---------
Loss from continuing operations
before income taxes. . . . . . . . . (44,173) (2,548) -- (1,587) (48,308)
Income (tax) benefit . . . . . . . . . (4,788) 218 -- -- (4,570)
--------- -------- ------- -------- ---------
Loss from continuing operations
before effects of discontinued
operations and cumulative effect
of change in accounting
principle(h) . . . . . . . . . . . . $(48,961) $(2,330) $ -- $(1,587) $(52,878)
--------- -------- ------- -------- ---------
Loss from continuing operations
per share. . . . . . . . . . . . . . $ (2.78) $ (0.86) $ (2.31)
--------- -------- ---------
Shares used in per share
calculations . . . . . . . . . . . . 17,591 2,718 22,892 (i)
--------- -------- ---------
</TABLE>
See accompanying notes to pro forma condensed financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
EGGHEAD, INC.
PRO FORMA
CONDENSED STATEMENTS OF OPERATIONS
THIRTEEN WEEKS ENDED JUNE 29, 1997
------------------------------------------------------------------
HISTORICAL PRO FORMA(b)
--------------------- -----------------------------------------
NET JOINT
SURPLUS VENTURE OTHER
EGGHEAD DIRECT ADJUSTMENTS(d) ADJUSTMENTS COMBINED
-------- ------- -------------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . $56,160 $18,577 $(1,558) $ -- $73,179
Cost of sales, including certain
buying, occupancy and
distribution costs . . . . . . . . . 50,385 15,929 (1,937) -- 64,377
--------- -------- -------- ------ --------
Gross margin . . . . . . . . . . . . . 5,775 2,648 379 -- 8,802
Selling, general and administrative
expenses . . . . . . . . . . . . . . 9,481 3,580 476 -- 13,537
Depreciation and amortization
expenses . . . . . . . . . . . . . . 958 96 53 397 (f) 1,504
Restructuring and impairment
charge . . . . . . . . . . . . . . . -- -- -- -- --
-------- -------- -------- ------ --------
Operating loss . . . . . . . . . . . . (4,664) (1,028) (150) (397) (6,239)
Other income (expense) . . . . . . . . 1,006 (133) 150 -- 1,023
-------- -------- -------- ------ --------
Loss from continuing operations
before income taxes. . . . . . . . . (3,658) (1,161) -- (397) (5,216)
Income (tax) benefit . . . . . . . . . -- -- -- -- --
-------- -------- -------- ------ --------
Loss from continuing operations
before effects of discontinued
operations and cumulative effect
of change in accounting
principle(h) . . . . . . . . . . . . $(3,658) $(1,161) $ -- $(397) $(5,216)
-------- -------- -------- ------ --------
Loss from continuing operations
per share. . . . . . . . . . . . . . $ (.21) $ (0.43) $ (.23)
-------- -------- --------
Shares used in per share
calculations . . . . . . . . . . . . 17,581 2,718 22,902 (i)
-------- -------- ---------
</TABLE>
See accompanying notes to pro forma condensed financial statements.
7
<PAGE>
EGGHEAD-SURPLUS DIRECT
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(a) The pro forma condensed balance sheet gives effect to the Merger as if it
had occurred on June 28, 1997, combining the balance sheets of Egghead as
of June 28, 1997 and Surplus Direct as of May 31, 1997.
(b) The pro forma condensed statement of operations for the fiscal year ended
March 29, 1997 gives effect to the Merger as if it had occurred on March 31,
1996, the beginning of Egghead's 1997 fiscal year, combining the results of
continuing operations of Egghead for the fiscal year ended March 29, 1997
with the results of Surplus Direct for the fiscal year ended May 31, 1997.
Egghead's results of continuing operations include a one-time restructuring
and impairment charge of $24.0 million related to the closure of 77 retail
stores, head count reductions, closure of a distribution center and the
impairment of certain real estate assets that Egghead plans to sell.
Egghead also recorded a valuation allowance offsetting its previously
recorded deferred assets. The net noncash charge for the year of
$10.7 million is a component of income expense.
The pro forma condensed statement of operations for the thirteen weeks
ended June 28, 1997 gives effect to the Merger as if it had occurred on
March 30, 1997, the beginning of the first fiscal quarter in Egghead's 1998
fiscal year, combining the results of Egghead for the thirteen weeks ended
June 28, 1997 with the results of Surplus Direct for its fourth fiscal
quarter ended May 31, 1997.
(c) Total direct transaction costs to be incurred by Egghead and Surplus Direct
in connection with the Merger are estimated to be approximately $1.4
million and are shown as a pro forma adjustment to increase accrued
liabilities. These costs relate primarily to legal, accounting, investment
advisory and printing services and filing fees. It is expected that
approximately $0.9 million of direct transaction costs will be capitalized
as part of the purchase price and $0.5 million of stock issuance costs will
be charged to additional paid-in capital. It is possible that Egghead will
incur additional charges to operations to reflect costs associated with
integrating the two companies. However, these integration costs cannot
currently be reasonably estimated.
(d) Had the Merger occurred on June 28, 1997 (for balance sheet purposes),
March 31, 1996 (for statement of operations purposes) or on March 30, 1997
(for interim statement of operations purposes), a joint venture of Egghead
and Surplus Direct (Egghead Computer Surplus) would have been consolidated.
The pro forma adjustments, shown net of eliminating entities, reflect the
assets, liabilities, revenues and expenses of the joint venture as of June
28, 1997 and for the period from November 1, 1996 through March 29, 1997
and the interim period from March 30, 1997 through June 28, 1997.
8
<PAGE>
(e) Pursuant to the terms of the Merger Agreement, Egghead paid approximately
$5.9 million of Surplus Direct's borrowings as of May 31, 1997. For
purposes of pro forma adjustments, this is shown as a reduction in cash and
borrowings.
(f) The excess of the purchase price over the fair value of net assets
purchased (goodwill) would have been $31.7 million had the Merger occurred
on March 29, 1997. Egghead intends to amortize the goodwill over 20 years,
resulting in additional annual amortization expense of approximately $1.6
million annually or $0.4 million for the thirteen weeks ended June 28,
1997. Pursuant to the terms of the Merger Agreement, Egghead will issue up
to 5,600,000 Egghead Common Shares for all outstanding shares of Surplus
Direct Preferred Stock, Surplus Direct Common Stock and Surplus Direct
Options. For purposes of computing the purchase price and pro forma
adjustments, the Egghead Common Share price was assumed to be $5.875, the
closing price on August 14, 1997, the date that Egghead acquired Surplus
Direct. The goodwill was calculated as follows:
<TABLE>
<CAPTION>
<S> <C>
Maximum number of Egghead Common Shares to be issued . . . . . . . . . . . . . . 5,600,000
Assumed Closing Average. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5.875
-------------
Assumed purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,900,000
Net assets of Surplus Direct at May 31, 1997(1). . . . . . . . . . . . . . . . . 2,061,000
-------------
Excess of purchase price over fair value of net assets acquired. . . . . . . . . 30,839,000
Add transaction costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900,000
-------------
Total goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31,739,000
-------------
-------------
</TABLE>
- --------------------
(1) For purposes of calculating pro forma adjustments, the book value of
net assets acquired was assumed to approximate fair value.
(g) Pursuant to the Merger Agreement and related employment agreements,
approximately $1 million in signing bonuses were paid by Egghead to certain
Surplus Direct employees and will be recorded as compensation expense. For
purposes of calculating pro forma adjustments, the signing bonuses have
been shown as a reduction in cash and an increase in retained deficit.
(h) In connection with the signing of the Merger Agreement, Egghead and Surplus
Direct entered into a Bridge Loan Agreement, dated April 30, 1997, pursuant
to which Egghead loaned Surplus Direct $2.0 million to finance its working
capital needs pending completion of the Merger. For purposes of
calculating the pro forma adjustments, the Bridge Loan was eliminated and
shown as a reduction in cash.
9
<PAGE>
(i) The following table reconciles the number of shares used in the pro forma
per share calculations to the number set forth in Egghead's historical
statements of operations:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED THIRTEEN WEEKS ENDED
JUNE 28, 1997 JUNE 28, 1997
------------------- --------------------
(IN THOUSANDS, EXCEPT EXCHANGE RATIO)
<S> <C> <C>
Weighted average common and common
equivalent shares used in per share calculation:
Historical-Egghead. . . . . . . . . . . . . . . . . 17,581 17,591
Historical-Surplus Direct Preferred Stock . . . . . 553 553
Exchange ratio(1) . . . . . . . . . . . . . . . . . 1.97 1.97
------ ------
Pro forma number of Egghead Common
Shares . . . . . . . . . . . . . . . . . . . . . . . 1,090 1,090
Historical-Surplus Direct Common Stock . . . . . . . 2,720 2,720
Exchange ratio(1). . . . . . . . . . . . . . . . . . 1.55 1.55
------ ------
Pro forma number of Egghead Common
Shares . . . . . . . . . . . . . . . . . . . . . . 4,221 4,221
Pro forma combined shares. . . . . . . . . . . . . . 22,892 22,902
------ ------
------ ------
</TABLE>
- ---------------------
(1) Under the terms of the Merger Agreement, the total number of Egghead
Common Shares to be issued was fixed; however, the allocation of the
Egghead Common Shares among the Surplus Direct Common Stock, the
Surplus Direct Preferred Stock and the Surplus Direct Options was
determined based on the Closing Average of the Egghead Common Shares.
The Closing Average of Egghead Common Shares was determined to be
$5.41667, and each outstanding share of Surplus Direct Common Stock
and Surplus Direct Preferred Stock were converted into 1.55169 and
1.97261 Egghead Common Shares, respectively. The terms of each
Surplus Direct Option have been adjusted to reflect the conversion
ratio for the Surplus Direct Common Stock. Accordingly, the Surplus
direct Common Stock and the Surplus Direct Preferred Stock were
converted into approximately 4,220,847 and 1,090,048 Egghead Common
Shares, respectively. The remaining 289,104 Egghead Common Shares
have been reserved for future conversion under the Surplus Direct
Options.
For purposes of computing the pro forma combined weighted average
common and common equivalent shares, the dilutive impact of the
Surplus Direct Options was not considered, as Surplus Direct recorded
a loss for the 12-month period ended May 31, 1997, and the impact of
those options would have been antidilutive.
(j) A reconciliation of the net pro forma adjustment to cash follows:
Payment of Surplus Direct borrowings (see Note e) . . . . . $5,933
Payment of signing bonuses (see Note g) . . . . . . . . . . 1,000
Elimination of Bridge Loan (see Note h) . . . . . . . . . . 2,000
-------
Net adjustment . . . . . . . . . . . . . . . . . . . . . $8,933
-------
-------
10
<PAGE>
(c) Exhibits
Exhibit Number Description
-------------- -----------
2.1* Agreement and Plan of Merger among Egghead, Inc.,
Surplus Software, Inc., North Face Merger Sub, Inc. and
certain Shareholders of Surplus Direct, dated as of
April 30, 1997 and amended as of May 23, 1997.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of KPMG Peat Marwick LLP.
99.1 Registration Rights Agreement among Egghead, Inc.,
Gregory J. Boudreau, Jonathan W. Brodeur and Stephen M.
Wood, dated as of August 14, 1997.
99.2 Press Release issued August 14, 1997.
- ------------------
* Incorporated by reference to Egghead's Registration Statement on Form S-4
(File No. 333-31251) filed with the Commission on July 14, 1997.
11
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EGGHEAD, INC.
Dated: August 27, 1997 By /s/ George P. Orban
------------------------------------
George P. Orban, Chairman of the
Board and Chief Executive Officer
12
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
2.1* Agreement and Plan of Merger among Egghead, Inc.,
Surplus Software, Inc., North Face Merger Sub,
Inc. and certain Shareholders of Surplus Direct,
dated as of April 30, 1997 and amended as of May
23, 1997.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of KPMG Peat Marwick LLP.
99.1 Registration Rights Agreement among Egghead, Inc.,
Gregory J. Boudreau, Jonathan W. Brodeur and
Stephen M. Wood dated as of August 14, 1997.
99.2 Press Release issued August 14, 1997.
- ---------------------
* Incorporated by reference to Egghead's Registration Statement on Form S-4
(File No. 333-31251) filed with the Commission on July 14, 1997.
13
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 8-K of our report dated May 13, 1997 included in
Egghead's Registration Statement on Form S-4 (File No. 333-31251). It should be
noted that we have not audited any financial statements of Egghead subsequent to
March 29, 1997 or performed any audit procedures subsequent to the date of our
report.
ARTHUR ANDERSEN LLP
Seattle, Washington
August 28, 1997
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Surplus Software, Inc.:
We consent to the incorporation by reference in the Form 8-K for Egghead, Inc.
dated August 14, 1997 of our report dated June 27, 1997 with respect to the
consolidated balance sheets of Surplus Software, Inc. as of May 31, 1996 and
1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
May 31, 1997, which report appears in Registration Statement (No. 333-31251) on
Form S-4 of Egghead, Inc.
KPMG PEAT MARWICK LLP
Portland, Oregon
August 27, 1997
<PAGE>
EGGHEAD, INC.
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is entered into as of
August 14, 1997 by and among Egghead, Inc., a Washington corporation (the
"Company"), and the shareholders listed on the Schedule of Investors attached
hereto as Exhibit A (the "Shareholders").
RECITALS
A. As of the date of this Agreement, the Company has acquired Surplus
Software, Inc. ("SSI") pursuant to an Agreement and Plan of Merger (the "Merger
Agreement") dated April 30, 1997 and amended as of May 23, 1997 (the "Merger").
B. The Shareholders are former shareholders of SSI and, as of the date
hereof, are being issued shares of common stock, $.01 par value per share, of
the Company in the Merger as indicated on Exhibit A hereto.
C. The execution and delivery of this Agreement is a condition to the
closing of the Merger under the Merger Agreement.
AGREEMENTS
In consideration of the mutual promises and covenants hereinafter set forth,
the parties agree as follows:
1. CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"HOLDER" shall mean any of the Shareholders listed on Exhibit A hereto
so long as such Shareholder holds Registrable Securities.
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The terms "REGISTER", "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRABLE SECURITIES" means the Shares (or other securities of the
Company issued with respect to the Shares upon any stock split, stock dividend,
recapitalization or similar event); provided, however, that Shares (or other
securities of the Company issued with respect to the Shares upon any stock
split, stock dividend, recapitalization or similar event) shall only be deemed
to be Registrable Securities if and so long as they have not been (A) sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, or (B) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(l) thereof so that all transfer restrictions and restrictive legends
with respect thereto are removed upon the consummation of such sale; provided
further, that Shares (or other securities of the Company issued with respect to
the Shares upon any stock split, stock dividend, recapitalization or similar
event) held by each Shareholder shall cease to be Registrable Securities from
and after such time as such Shareholder shall have sold Shares (or other
securities of the Company issued with respect to the Shares upon any stock
split, stock dividend, recapitalization or similar event), whether such sales
occurred pursuant to Section 2 of this Agreement or otherwise, in one or more
transactions that generated aggregate gross proceeds equal to or greater than
$2,000,000, in the case of Stephen Wood and Gregory Boudreau, and $1,000,000 in
the case of Jonathan Brodeur. Shares (or other securities of the Company issued
with respect to the Shares upon any stock split, stock dividend,
recapitalization or similar event) that have not been sold shall nevertheless be
deemed to have been sold for purposes of the preceding provisos if the Holder
thereof had the opportunity to include such securities in a registration
effected pursuant to Section 2 of this Agreement but elected not to include such
securities, and the price per share with respect to any such deemed sale shall
be the gross price per share at which such securities could have been sold in
such offering.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the
Company in complying with Section 2 hereof, including, without limitation, all
registration, qualification and filing fees (excluding fees attributable to
Registrable Securities), printing expenses, fees and disbursements of counsel
for the Company (except to the extent attributable to the inclusion of
Registrable Securities in a registration), blue sky fees and expenses (excluding
any fees and expenses attributable to Registrable Securities), and the expense
of any special audits incident to or required by any such registration;
provided, however, that in no event shall anything covered in Selling Expenses
be considered a Registration Expense.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
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"SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions, stock transfer taxes, Commission and blue sky filing fees and
related expenses attributable to the Registrable Securities being registered by
the Holders in any registration under Section 2, and all fees and disbursements
of counsel for the Holders and all fees and disbursements of counsel for the
Company to the extent such fees and disbursements are attributable to the
participation of Holders in such registration and the inclusion of Registrable
Securities therein.
"SHARES" shall mean the shares of common stock, $.01 par value per
share, of the Company issued to the Holders in the Merger, as set forth on
Exhibit A hereto.
2. PIGGYBACK REGISTRATION RIGHTS
(a) NOTICE OF REGISTRATION. If at any time or from time to time
during the term of this Agreement the Company shall determine to register any of
its securities, either for its own account or the account of a security holder
or holders, other than (x) a registration relating solely to employee benefit
plans or (y) a registration relating solely to a Commission Rule 145
transaction, the Company will, subject to the limitations set forth elsewhere in
this Agreement:
(i) promptly give to each Holder written notice thereof (the
"Company Notice"); and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, any Registrable Securities specified by written notice from the Holders
to the Company (the "Holder Notice") within 15 business days after the effective
date of the Company Notice.
(b) UNDERWRITING. If the registration described in a Company Notice
is for a registered public offering involving an underwriting, the Company shall
so advise the Holders in such Company Notice. The right of any Holder to
include Registrable Securities in such registration pursuant to this Agreement
shall be conditioned upon such Holder's participation in such underwriting. All
Holders proposing to distribute Registrable Securities through such underwriting
shall (together with the Company and the other holders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by
the Company. Notwithstanding any other provision of this Agreement, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit the
number of Registrable Securities to be included in the registration and
underwriting, on a pro rata basis among the Holders based on the number of
Registrable Securities originally proposed to be included in such registration
and underwriting by each Holder. To facilitate the allocation of shares in
accordance with the above provisions, the Company or the underwriters may round
the number of shares allocated to any Holder to
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<PAGE>
the nearest one hundred (100) shares. If any Holder disapproves of the terms of
any such underwriting, such Holder may elect to withdraw therefrom by written
notice to the Company and the managing underwriter. Any securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration, and
shall not be transferred in a public distribution prior to one hundred eighty
(180) days after the effective date of the registration statement relating
thereto, and, if withdrawn by a Holder, shall be deemed to have been sold by
such Holder pursuant to Section 1 under "Registrable Securities," unless such
registration is withdrawn by the Company pursuant to Section 2(c).
(c) RIGHT TO TERMINATE REGISTRATION. The Company may terminate or
withdraw any registration to which the registration rights in this Section apply
prior to the effectiveness of such registration, whether or not any Holder has
elected to include securities in such registration.
(d) LIMITATIONS. Notwithstanding any other provision of this
Agreement, and in addition to the other limitations, terms and conditions set
forth elsewhere in this Agreement, the registration rights set forth in this
Section 2 shall be subject to the following limitations:
(i) In connection with any proposed registration otherwise
subject to this Section 2, a Holder shall not be entitled to registration of any
shares in excess of a number of shares which would be reasonably expected to
result in gross proceeds to such Holder of $2,000,000, in the case of Stephen
Woods and Gregory Boudreau, or $1,000,000, in the case of Jonathan Brodeur, as
determined by the Company in consultation with the managing underwriter for the
offering, if any.
(ii) In connection with any proposed registration otherwise
subject to this Section 2, no Holder shall be entitled to registration of any
Registrable Securities unless the aggregate gross proceeds of all Registrable
Securities proposed to be included in the registration are reasonably expected
to be at least $1,000,000, as determined by the Company in consultation with the
managing underwriter for the offering, if any.
3. EXPENSES OF REGISTRATION
All Registration Expenses incurred in connection with any registration
pursuant to Section 2 shall be borne by the Company. All Selling Expenses
incurred in connection with any registration pursuant to Section 2 shall be
borne by the Holders of the Registrable Securities included in such
registration pro rata on the basis of the number of shares so registered.
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<PAGE>
4. REGISTRATION PROCEDURES
In the case of each registration required to be effected by the Company
pursuant to Section 2, the Company will:
(a) Furnish to the Holders participating in such registration and to
the underwriters, if any, of the securities being registered such reasonable
number of copies of the registration statement, preliminary prospectus, final
prospectus and such other documents as such underwriters may reasonably request
in order to facilitate the public offering of such securities.
(b) Use commercially reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders; provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act.
(c) Cause the Registrable Securities included in any distribution
effected pursuant this Agreement to be listed on each securities exchange or
other trading market on which similar securities issued by the Company are then
listed.
5. INDEMNIFICATION
(a) The Company will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all actual
out-of-pocket expenses, claims, losses, damages or liabilities (or actions in
respect thereof), including any of the foregoing incurred in any litigation or
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, preliminary 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 or any
alleged violation by the Company of the Securities Act or the Exchange Act or
any state securities law, or of any rule or regulation promulgated under any of
the foregoing applicable to the Company in connection with any such
registration, qualification or compliance, and the Company will reimburse each
such Holder, each of its officers and directors, and each person controlling
such Holder, each such underwriter
PAGE 5
<PAGE>
and each person who controls any such underwriter, for any legal and any other
actual out-of-pocket expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action, as such expenses are incurred; provided, however, that the indemnity
agreement contained in this Section 5(a) shall not apply to amounts paid in
settlement of any such matter if the settlement is effected without the consent
of the Company, which consent shall not be unreasonably withheld; and provided
further that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission or alleged untrue statement or omission, made
in reliance upon and in conformity with written information furnished to the
Company by such Holder, controlling person or underwriter specifically for use
therein.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which a registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all actual out-of-pocket expenses, 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 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, in
light of the circumstances in which they were made, or necessary to make the
statements therein not misleading, and will reimburse the Company, such Holders,
such directors, officers, persons, underwriters or control persons for any legal
and any other actual out-of pocket expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, as such expenses are incurred, in each case to the extent, but only to
the extent, that such untrue statement (or alleged untrue statement) or omission
(or alleged omission) is made in such registration statement, prospectus,
offering circular or other document in reliance upon and in conformity with
written information furnished to the Company by such Holder specifically for use
therein; provided, however, that the indemnity agreement contained in this
Section 5(b) shall not apply to amounts paid in settlement of any matter if the
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; and provided further that the maximum liability of
each selling Holder under this Section 5(b) shall be equal to the total cash
proceeds to such selling Holder as a result of such registration and offering.
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<PAGE>
(c) Each party entitled to indemnification under this Section 5 (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 indemnification 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 be unreasonably
withheld), and the Indemnified Party may participate in such defense at such
party's expense; provided, however, that an Indemnified Party (together with all
other Indemnified Parties which may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the
reasonable fees and expenses of such counsel to be paid by the Indemnifying
Party, if representation of such Indemnified Party by the counsel retained by
the Indemnifying Party would be inappropriate due to actual or potential
differing interests between such Indemnified Party and any other party
represented by such counsel in such proceeding. The failure of any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Section 5 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 (not to be unreasonably
withheld), 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.
(d) If the indemnification provided for in this Section 5 is held by
a court of competent jurisdiction to be unavailable with respect to any loss,
liability, claim, damage, or expense referred to therein, then the Indemnifying
Party, in lieu of indemnifying the applicable Indemnified Party hereunder, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such loss, liability, claim, damage, or expense in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party on the one
hand and of the Indemnified Party on the other in connection with the statements
or omissions that resulted in such loss, liability, claim, damage, or expense as
well as any other relevant equitable considerations; provided, that, in no event
shall any contribution by a Holder under this Subsection 5(d) exceed the net
proceeds from the offering received by such Holder, except in the case of
willful fraud by such Holder. The relative fault of the Indemnifying Party and
of the Indemnified Party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
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(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with any underwritten public offering of Registrable
Securities pursuant to this Agreement are in conflict with the foregoing
provisions, the provisions in the underwriting agreement shall control.
(f) The obligations of the Company and Holders under this Section 5
shall survive the completion of any offering of Registrable Securities pursuant
to a registration statement filed pursuant to this Agreement.
6. INFORMATION BY HOLDER
The Holder or Holders of Registrable Securities included in any
registration shall furnish to the Company such information regarding such Holder
or Holders, the Registrable Securities held by them and the distribution
proposed by such Holder or Holders as the Company may request in writing and as
shall be required in connection with any registration, qualification or
compliance referred to in this Agreement.
7. RULE 144 REPORTING
With a view to making available the benefits of certain rules and
regulations of the Commission which may at any time permit the sale of
Registrable Securities to the public without registration, the Company shall use
commercially reasonable efforts to (a) make and keep public information
available, as those terms are understood and defined in Rule 144 under the
Securities Act, at all times as the Company is subject to the reporting
requirements of the Exchange Act, and (b) file with the Commission in a timely
manner all reports and other documents required of the Company under the
Exchange Act.
8. NO TRANSFER OF REGISTRATION RIGHTS
The registration rights set forth in this Agreement may not be assigned to
any person or entity under any circumstances, except by will or pursuant to the
laws of intestate succession.
9. STANDOFF AGREEMENT
Each Holder agrees in connection with any registration of the Company's
securities (other than a registration of securities in a Rule 145 transaction or
with respect to an employee benefit plan), upon request of the underwriters
managing any underwritten offering of the Company's securities, not to sell,
make any short sale of, loan, pledge (or otherwise encumber or hypothecate),
grant any option for the purchase of, or otherwise directly or indirectly
dispose of any Registrable Securities (other than those included in the
registration) without the prior written consent of the Company and such managing
underwriters for such period of time (not to exceed 180 days) as
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the Board of Directors establishes pursuant to its good faith negotiations
with such managing underwriters.
10. TERMINATION OF RIGHTS AND AGREEMENT
The rights of any particular Holder to cause the Company to register
securities under this Agreement shall terminate at such time as such Holder no
longer owns any Registrable Securities. This Agreement shall terminate at such
time as no Holder owns any Registrable Securities, or three years after the date
hereof, whichever occurs first.
11. SUCCESSORS
Except as otherwise provided herein, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
permitted successors and assigns of the parties hereto.
12. THIRD PARTIES
Nothing in this Agreement, express or implied, is intended to confer upon
any party, other than the parties hereto, and their respective permitted
successors and assigns, any rights, remedies, obligations or liabilities under
or by reason of this Agreement, except as expressly provided herein.
13. GOVERNING LAW
This Agreement shall be governed by and construed under the laws of the
State of Washington in the United States of America without regard to the
conflict or choice of law provisions of such State.
14. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
15. NOTICES
All notices and other communications required or permitted hereunder shall
be in writing and shall be mailed by first class mail, postage prepaid, or
delivered by facsimile, courier or personal delivery, addressed (a) if to a
Holder, at such Holder's address set forth on Exhibit A, or at such other
address as such Holder shall have furnished to the Company in writing, or (b) if
to the Company, at its principal executive office, attention President, or at
such other address as the Company shall have furnished to the Holders. If
notice is provided by mail, it shall be deemed effective three (3) business days
after proper deposit in the U.S. Mail. If notice is given by facsimile, it
shall deemed effective
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upon confirmation by the sender of receipt of transmission by the recipient
(so long as the recipient does not indicate nonreceipt of the transmission
within 24 hours after confirmation of transmission). If notice is given by
courier, it shall deemed effective one business day after deposit properly
addressed and prepaid for priority overnight delivery with a reputable
courier of national standing. If notice is given otherwise by personal
delivery, it shall deemed effective upon receipt.
16. SEVERABILITY
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, portions of such provisions, or such provisions in their
entirety, to the extent necessary, shall be severed from this Agreement, and the
balance of this Agreement shall be enforceable in accordance with its terms.
17. AMENDMENT AND WAIVER
Any provision of this Agreement may be amended with the written consent of
the Company and the Holders of at least fifty percent (50%) of the outstanding
shares of the Registrable Securities. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each Holder of Registrable
Securities and the Company. In addition, the Company may waive performance of
any obligation owing to it, as to some or all of the Holders of Registrable
Securities, or agree to accept alternatives to such performance, without
obtaining the consent of any Holder of Registrable Securities.
18. DELAYS OR OMISSIONS
No delay or omission to exercise any right, power or remedy accruing to any
party to this Agreement, upon any breach or default of the other party, shall
impair any such right, power or remedy of such non-breaching party nor shall it
be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be made in writing and
shall be effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement, or by law or otherwise afforded to
any holder, shall be cumulative and not alternative.
[This space intentionally left blank.]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
EGGHEAD, INC.
By: /s/ George P. Orban
--------------------------------------
George P. Orban, Chairman of the Board
and Chief Financial Officer
HOLDERS:
/s/ Gregory J. Boudreau
- -------------------------------------------
Gregory J. Boudreau
/s/ Jonathan W. Brodeur
- -------------------------------------------
Jonathan W. Brodeur
/s/ Stephen M. Wood
- -------------------------------------------
Stephen M. Wood
PAGE 11
<PAGE>
EXHIBIT A
SCHEDULE OF HOLDERS
Name and Address Number of Shares
Gregory J. Boudreau 1,675,824
Jonathan W. Brodeur 318,614
Stephen M. Wood 1,717,202
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Contact: Brian Bender John Hough
Chief Financial Officer The Rockey Company
Egghead, Inc. 509-891-4858 (August 14 only)
509-891-4858 206-728-1100 or jhough@rockey-
seattle.com
FOR IMMEDIATE RELEASE
EGGHEAD SHAREHOLDERS APPROVE MERGER
COMPANY AIMS FOR LEADERSHIP IN "OFF-PRICE" COMPUTER PRODUCTS MARKET
SPOKANE (Wash.), August 14, 1997 -- Shareholders of Egghead, Inc. (Nasdaq: EGGS)
today approved a merger with closely held Surplus Software, Inc. (dba Surplus
Direct) in a move that will significantly expand the company's business
opportunities. The merger became effective today following approval by the
shareholders of both companies.
George Orban, Egghead chairman and CEO, said, "This merger is a pivotal step in
the company's restructuring. We believe that the combination creates synergies
in management and strategic business options and that it will open new
opportunities for Internet commerce, marketing, retail distribution and product
procurement.
"We believe that the combined strength of the two companies gives Egghead an
opportunity to become a leader again. The fastest growing channels of
distribution for PC hardware and software are the superstore channel, the mail
order channel and the Internet. This merger with Surplus Direct, a young
company which markets close-out and surplus merchandise via the Internet and
catalogs, gives us better opportunities to participate in each of the three
channels, and become a key player in the fast-growing `off price' segment."
Jonathan Brodeur, president of Surplus Direct said, "Together we will combine
our strengths and resources to create a stronger business model. We're
confident this merger will enhance our online and catalog services, bringing a
wider variety of shopping options to our combined customer base which includes 5
million Egghead Cue-TM- cardholders."
Egghead, with revenues of $360.7 million for fiscal year 1997, has a nationwide
consumer franchise as a reseller of personal computer hardware and software
through 86 retail stores, 1-800 Egghead and an Internet site (www.egghead.com).
In November 1996, the company became one of the first major computer products
retailers to deliver software programs over the Internet directly to customers'
computers.
Surplus Direct is a direct marketer of previous-version computer hardware and
software. It operates an Internet commerce site (www.surplusdirect.com), a
catalog business and an Internet auction site (www.surplusauction.com).
Since its inception in 1992, Surplus Direct's sales have grown from $974,000 to
$59 million. Surplus Direct believes, based on data from P.C. Meter, a New York
research firm that tracks Internet usage, that its web site is the most
frequented Internet shopping site for computer related items in the contiguous
United States.
Prior to the merger, the companies were joint venture partners in Egghead
Computer Surplus, a warehouse retail store in Portland, Oregon.
<PAGE>
The merger was approved by 93 percent of the Egghead shares voted and 100
percent of Surplus Direct's shares voted. The transaction, which involved the
issuance of 5.6 million Egghead common shares, is valued at $36.3 million based
on the average daily closing price of Egghead shares over the past 30 days. The
price includes repayment by Egghead of approximately $6.0 million of Surplus
Direct's debt. Surplus Direct CEO Greg Boudreau and President Jon Brodeur join
the Egghead board of directors today. Surplus Direct shareholders will own
approximately 24 percent of the outstanding shares of Egghead, Inc. if all
Surplus Direct stock options to be assumed by Egghead are exercised.
Note: This news release contains forward-looking statements that involve risks
and uncertainties, including risks related to the highly competitive nature of
the computer products retailing industry, the seasonality and quarterly
fluctuation of financial results, the early stage of the company's new store
format, the dependence of the company's sales on the purchase and use of
personal computers and software, and the risks detailed in the company's SEC
reports, including the report on Form 10-K for the year ended March 29, 1997.
Actual results may differ materially.
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