UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
April 30, 1997
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Date of Report
(Date of earliest event reported)
EGGHEAD, INC.
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(Exact name of registrant as specified in its charter)
Washington 0-16930 91-1296187
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(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
22705 East Mission Ave.
Liberty Lake, Washington 99019
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(Address of principal executive offices, including zip code)
(509) 921-2880
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(Registrant's telephone number, including area code)
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Exhibit Index appears on page 6
ITEM 5. OTHER EVENTS
MERGER AGREEMENT WITH SURPLUS SOFTWARE, INC.
On April 30, 1997, Egghead, Inc. ("Egghead") executed an Agreement and
Plan of Merger, dated as of April 30, 1997 (the "Merger Agreement"), by and
among Egghead, Surplus Software, Inc., an Oregon corporation ("Surplus Direct"),
the principal shareholders of Surplus Direct (the "Principal Shareholders") and
North Face Merger Sub, Inc., a wholly owned subsidiary of Egghead ("Merger
Sub"), providing for the merger of Merger Sub into Surplus Direct, with Surplus
Direct as the surviving corporation (the "Merger"). The parties intend that the
Merger will qualify as a tax-free reorganization. Egghead will account for the
transaction as a purchase.
Pursuant to the Merger Agreement, Egghead will issue up to 5,600,000
shares of its common stock (the "Egghead Common Shares") in exchange for all
outstanding shares of common stock (the "Surplus Direct Common Stock") and
preferred stock (the "Surplus Direct Preferred Stock") of Surplus Direct and
upon the exercise of options to purchase Surplus Direct Common Stock (the
"Surplus Direct Options") to be assumed by Egghead. At the effective time of
the Merger (the "Effective Time"), Merger Sub will merge with and into
Surplus Direct and Surplus Direct, as the surviving corporation, will become
a wholly owned subsidiary of Egghead.
The total number of Egghead Common Shares to be issued in the Merger is
fixed at 5,600,000; however, the allocation of the Egghead Common Shares among
the Surplus Direct Common Stock, the Surplus Direct Preferred Stock and the
Surplus Direct Options will be determined in accordance with the Merger
Agreement based on the average closing price of Egghead Common Shares during the
30-day period ending three days prior to the closing (the "Closing") of the
Merger. For example, if such average price is $4.625, each outstanding share of
Surplus Direct Common Stock and Surplus Direct Preferred Stock will be converted
into 1.53 and 2.01 Egghead Common Shares, respectively, and the terms of each
Surplus Direct Option assumed by Egghead will be adjusted to reflect the
conversion ratio for the Surplus Direct Common Stock. Surplus Direct
shareholders will receive cash in lieu of any fractional Egghead Common Share.
Based on the capitalization of Egghead and Surplus Direct as of April 30,
1997, immediately following consummation of the Merger the shareholders of
Surplus Direct will own approximately 23.3% of the outstanding Egghead Common
Shares (including the Holdback Shares described below and assuming no exercise
of outstanding Surplus Direct Options to be assumed by Egghead) (the "Share
Consideration").
The Merger Agreement provides that, for up to one year following the
Closing, and subject to certain other limitations, the Share Consideration may
be reduced by a number of Egghead Common Shares equal in value to claims for
indemnification by Egghead pursuant to the Merger Agreement, provided such
claims exceed $300,000 in the
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aggregate. Egghead Common Shares representing approximately 10% of the Share
Consideration (the "Holdback Shares") will be retained by Egghead in order to
effect any necessary reduction in the Share Consideration. The Holdback Shares
will be Egghead's sole recourse in the event of claims for indemnification
pursuant to the Merger Agreement.
The Merger is subject to approval of the issuance of Egghead Common Shares
pursuant to the Merger Agreement by holders representing a majority of the
Egghead Common Shares present in person or represented by proxy at a special
meeting of Egghead shareholders, and approval of the Merger Agreement by the
holders of a majority of the outstanding Surplus Direct Common Stock and a
majority of the outstanding Surplus Direct Preferred Stock at a special meeting
of Surplus Direct shareholders. Egghead and Surplus Direct intend to hold their
respective special shareholders meetings in August 1997. The parties expect
that the Closing will occur on or before August 31, 1997. The Merger also is
subject to customary closing conditions, including, without limitation, the
making of all necessary governmental filings, the expiration or termination of
any waiting period applicable to the Merger under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the effectiveness of a
registration statement to be filed with the Securities and Exchange Commission
with respect to the Egghead Common Shares to be issued in the Merger. Under
certain circumstances, either Egghead or Surplus Direct may be required to pay a
termination fee of up to $2,000,000 and to reimburse the other party for its
expenses if the Merger Agreement is terminated.
In connection with the signing of the Merger Agreement, Egghead and
Surplus Direct entered into a Bridge Loan Agreement, dated April 30, 1997,
pursuant to which Egghead loaned Surplus Direct $2,000,000 (the "Bridge Loan")
to finance its working capital needs pending completion of the Merger. The
Bridge Loan will bear interest at the prime rate (as quoted by Seattle-First
National Bank) plus 5.0% per annum and will be due on December 31, 1997 in the
event that the Closing does not occur. The Bridge Loan is subordinated to up to
$4.5 million of senior indebtedness of Surplus Direct under its bank credit
facility with U.S. Bank of Oregon (the "U.S. Bank Debt") and ranks pari passu
with $2.0 million of Surplus Direct debt under a subordinated note payable to SV
Capital Partners, L.P. (the "SV Capital Note"). The Bridge Loan and the SV
Capital Note are secured by a second lien (behind the U.S. Bank Debt) on the
principal assets of Surplus Direct. Egghead has agreed to repay the U.S. Bank
Debt and the SV Capital Note at the Closing, and U.S. Bank of Oregon and SV
Capital Partners, L.P. have agreed not to accelerate their loans prior to the
Closing, except under specified circumstances.
Concurrently with the signing of the Merger Agreement, Egghead and the
Principal Shareholders entered into an agreement, dated as of April 30, 1997
(the "Shareholders Agreement"), pursuant to which, among other things, the
Principal Shareholders have agreed to vote for approval of the Merger Agreement.
As of April 30, 1997, the Principal Shareholders had the power to vote shares
representing approximately 93.9% of the Surplus Direct Common Stock and
approximately 99.3% of the Surplus Direct Preferred Stock.
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Certain officers and other employees of Surplus Direct entered into
amendments to their existing employment agreements with Surplus Direct, to
become effective at the Effective Time, that provide for adjusted base salaries,
annual bonuses and approximately $1 million in signing bonuses. The amended
employment agreements also provide for certain severance benefits upon
termination of employment by Surplus Direct. In addition, following the
Effective Time, the Egghead Board will take all requisite action to appoint
Gregory J. Boudreau and Jonathan W. Brodeur, Chairman and President,
respectively, of Surplus Direct, to the Egghead Board.
The Merger Agreement, Shareholders Agreement and Bridge Loan Agreement
(together, the "Agreements") and a joint press release issued by the parties to
announce the Merger are filed as exhibits to this report and are incorporated
herein by reference. The descriptions of the Agreements herein do not purport
to be complete and are qualified in their entirety by the provisions of the
Agreements.
The Egghead Common Shares are quoted on the Nasdaq National Market under
the trading symbol "EGGS."
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
Exhibit Number Description
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2.1 Agreement and Plan of Merger among
Egghead, Inc., Surplus Software, Inc. and
North Face Merger Sub, Inc., dated as of
April 30, 1997.
10.1 Shareholders Agreement among Egghead, Inc.
and certain shareholders of Surplus
Software, Inc., dated as of
April 30, 1997.
10.2 Bridge Loan Agreement between Egghead,
Inc. and Surplus Software, Inc., dated
April 30, 1997.
99.1 Press Release issued May 1, 1997.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EGGHEAD, INC.
May 5, 1997 By /s/ George P. Orban
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George P. Orban, Chairman of the Board
and Chief Executive Officer
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EXHIBIT INDEX
Exhibit Number Description Page
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2.1 Agreement and Plan of Merger among
Egghead, Inc., Surplus Software,
Inc. and North Face Merger Sub,
Inc., dated as of April 30, 1997.
10.1 Shareholders Agreement among
Egghead, Inc. and certain
shareholders of Surplus Software,
Inc., dated as of April 30, 1996.
10.2 Loan Agreement between Egghead,
Inc. and Surplus Software, Inc.,
dated April 30, 1997.
99.1 Press Release issued May 1, 1997.
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