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
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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
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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
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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
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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,
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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
------------------------
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
------------------------------------------
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-
<PAGE>
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-
<PAGE>
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
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<PAGE>
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
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<PAGE>
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-
<PAGE>
(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,
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<PAGE>
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;
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<PAGE>
(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
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<PAGE>
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-
<PAGE>
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,
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<PAGE>
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.
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<PAGE>
(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-
<PAGE>
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
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<PAGE>
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.
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<PAGE>
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;
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<PAGE>
(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-
<PAGE>
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.
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<PAGE>
(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-
<PAGE>
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-
<PAGE>
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;
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<PAGE>
(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.
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<PAGE>
(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
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of this Agreement, determined (i) that the Merger is advisable and fair to, and
in the best interests of
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<PAGE>
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
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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 &
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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
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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 Di