Agreement and Plan Of Merger
among
Onsale, Inc.
EO Corporation
and
Egghead.com, Inc.
JULY 13, 1999
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TABLE OF CONTENTS
Page
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ARTICLE I THE MERGER............................................... 2
1.1 The Merger................................................ 2
1.2 Timing of the Merger...................................... 2
1.3 Effect of the Merger...................................... 2
1.4 Effect on Capital Stock................................... 3
1.10 Restricted Stock.......................................... 4
1.5 Surrender of Certificates................................. 5
1.7 Tax and Accounting Consequences........................... 9
1.8 Taking of Necessary Action; Further Act................... 9
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY............... 10
2.1 Organization and Good Standing............................ 10
2.2 Subsidiaries and Other Interests.......................... 10
2.3 Certificate of Incorporation and Bylaws................... 10
2.4 Authority................................................. 10
2.5 Company Capital Structure................................. 12
2.6 Obligations With Respect to Capital Stock................. 13
2.7 SEC Filings; Company Financial Statements................. 14
2.8 Absence of Certain Changes or Events...................... 15
2.9 Taxes..................................................... 16
2.10 Title to Properties; Absence of Liens and Encumbrances.... 18
2.11 Intellectual Property..................................... 18
2.12 Compliance with Laws; Permits; Restrictions............... 22
2.13 Litigation................................................ 22
2.14 Employee Benefit Plans.................................... 23
2.15 Environmental Matters..................................... 27
2.16 Agreements, Contracts and Commitments..................... 28
2.17 Change of Control Payments................................ 29
2.18 Insurance................................................. 29
2.19 Customers and Suppliers................................... 29
2.20 Disclosure................................................ 30
2.21 Board Approval............................................ 30
2.22 Fairness Opinion.......................................... 31
2.23 Brokers' and Finders' Fees................................ 31
2.25 Affiliates................................................ 31
2.26 Pooling of Interests...................................... 31
2.27 No Existing Discussions................................... 31
TABLE OF CONTENTS
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB.................................................................. 32
3.1 Organization and Good Standing..................................... 32
3.2 Subsidiaries and Other Interests................................... 32
3.3 Certificate of Incorporation and Bylaws............................ 32
3.4 Authority.......................................................... 32
3.5 Parent and Merger Sub Capital Structure............................ 34
3.6 Obligations With Respect to Capital Stock.......................... 35
3.7 SEC Filings; Parent Financial Statements........................... 36
3.8 Absence of Certain Changes or Events............................... 37
3.9 Taxes.............................................................. 38
3.10 Title to Properties; Absence of Liens and Encumbrances............. 39
3.11 Intellectual Property.............................................. 40
3.12 Compliance with Laws; Permits; Restrictions........................ 43
3.13 Litigation......................................................... 43
3.14 Employee Benefit Plans............................................. 43
3.15 Environmental Matters.............................................. 47
3.16 Agreements, Contracts and Commitments.............................. 48
3.17 Change of Control Payments......................................... 49
3.18 Insurance.......................................................... 50
3.19 Customers and Suppliers............................................ 50
3.20 Disclosure......................................................... 50
3.21 Board Approval..................................................... 51
3.22 Fairness Opinion................................................... 51
3.23 Brokers' and Finders' Fees......................................... 51
3.24 DGCL Section 203 Not Applicable.................................... 51
3.25 Affiliates......................................................... 51
3.26 Pooling of Interests............................................... 51
3.27 No Existing Discussions............................................ 51
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.............................. 52
4.1 Conduct of Business................................................ 52
4.2 Cooperation........................................................ 56
ARTICLE V ADDITIONAL AGREEMENTS............................................. 57
5.1 Proxy Statement/Prospectus; Registration Statement; Antitrust and
Other Filings...................................................... 57
5.2 Meeting of Company Shareholders.................................... 58
5.3 Meeting of Parent Stockholders..................................... 60
5.4 Confidentiality; Access to Information............................. 63
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TABLE OF CONTENTS
(CONTINUED)
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5.5 No Solicitation........................................ 63
5.6 Public Disclosure...................................... 67
5.7 Reasonable Efforts; Notification....................... 67
5.8 Third Party Consents................................... 68
5.9 Stock Options, Warrants, ESPP and Employee Benefits.... 68
5.10 Form S-8............................................... 69
5.11 Nasdaq Quotation....................................... 69
5.12 Indemnification........................................ 70
5.13 Affiliate Agreements................................... 70
5.14 Letter of Company's Accountants........................ 70
5.15 Letter of Parent's Accountants......................... 71
5.16 Takeover Statutes...................................... 71
5.17 Certain Employee Benefits.............................. 71
5.18 Stockholder Litigation................................. 71
5.19 Pooling Accounting..................................... 72
ARTICLE VI CONDITIONS TO THE MERGER............................. 73
6.1 Conditions to Obligations of Each Party to Effect
the Merger............................................. 73
6.2 Additional Conditions to Obligations of Company........ 74
6.3 Additional Conditions to the Obligations of Parent
and Merger Sub......................................... 75
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER................... 78
7.1 Termination............................................ 78
7.2 Notice of Termination Effect of Termination............ 80
7.3 Fees and Expenses...................................... 81
7.4 Amendment.............................................. 84
7.5 Extension; Waiver...................................... 84
ARTICLE VIII GENERAL PROVISIONS................................. 85
8.1 Non-Survival of Representations and Warranties......... 85
8.2 Notices................................................ 85
8.3 Interpretation; Certain Defined Terms.................. 85
8.4 Counterparts........................................... 87
8.5 Entire Agreement; Third Party Beneficiaries............ 87
8.6 Severability........................................... 87
8.7 Other Remedies; Specific Performance................... 87
8.8 Governing Law.......................................... 88
8.9 Rules of Construction.................................. 88
8.10 Assignment............................................. 88
8.11 Disclosure Letter...................................... 88
8.12 WAIVER OF JURY TRIAL................................... 89
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Index of Exhibits
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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
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
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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
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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
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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").
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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
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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.
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(a) Effective Time. Subject to the provisions of this Agreement, the
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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
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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
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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
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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
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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
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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
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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
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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,
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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 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
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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
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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
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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
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Stock. Each share of Company Common Stock held by Company or owned by Merger
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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
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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
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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
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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 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.
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(h) Dissenters' Rights of Company Shareholders.
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(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,
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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.
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(a) Exchange Agent. Parent shall select a bank or trust company
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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
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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
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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 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
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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
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Certificates shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange for such
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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
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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, 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.
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1.6 Directors of Parent.
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(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
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change its corporate name to Egghead.com, Inc., effective at the Effective Time.
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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.
(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
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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.
-9-
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
-10-
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 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
-11-
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 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
-12-
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.
-13-
(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.
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,
-14-
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).
(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;
-15-
(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;
(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
-16-
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
-17-
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 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,
-18-
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. 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.
-19-
(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
-20-
Company's design, development, 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
-21-
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
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.
-22-
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;
(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;
-23-
(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
-24-
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 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.
-25-
(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 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
-26-
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 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
-27-
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;
-28-
(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 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.
-29-
(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
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
-30-
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)).
-31-
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
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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 increase the authorized number
of shares of Parent Common Stock so as to permit the transactions contemplated
by this Agreement, and to approve the issuance of the shares of Parent Common
Stock pursuant to the Merger. Parent, as the sole stockholder of Merger Sub,
has acted by written 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,
-33-
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 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.
-34-
(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.
-35-
(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 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
-36-
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 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
-37-
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;
(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;
-38-
(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
-39-
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 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
-40-
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.
(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
-41-
(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 significant defect in connection with processing data
containing dates in leap years or in the year 2000 or any preceding or
following years.
-42-
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:
-43-
(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;
(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
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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 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.
-45-
(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
-46-
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 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.
-47-
(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, 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;
-48-
(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).
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.
-49-
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
-50-
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 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
-52-
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);
(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;
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(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 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;
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(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;
(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
-55-
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
-57-
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 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
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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 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
-59-
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 or by proxy) to constitute a quorum
-60-
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
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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 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.
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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, 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
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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.
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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 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
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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 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.
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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.
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
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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
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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 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.
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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
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
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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 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
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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.
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(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 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
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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.
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
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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.
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(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.
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(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 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
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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.
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.
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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%
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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.
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
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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.
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.
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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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ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations and Warranties. The representations
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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
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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):
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)473-6990 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, 40th Floor
Palo Alto, California 94306 Seattle, WA 91010-3099
Attention: Gordon K. Davidson Attention: David F. McShea
David K. Michaels Ed Belsheim
Facsimile Number: (650)494-1417 Facsimile Number: (206)583-8500
8.3 Interpretation; Certain Defined Terms. When a reference is made in
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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;
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(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;
(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;
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(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
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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
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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.
8.6 Severability. In the event that any provision of this Agreement or
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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
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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
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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
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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
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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
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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
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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.
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8.12 WAIVER OF JURY TRIAL. EACH OF PARENT, COMPANY AND MERGER SUB HEREBY
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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.
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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Agreement and Plan Of Merger - Onsale Inc. and Egghead.com Inc.
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