The following summary highlights selected information in this proxy statement regarding substantive matters about the merger, the merger agreement and the special meeting and may not contain all the information that may be important to you. Accordingly, we encourage you to read carefully this entire proxy statement, its appendices and the documents referred to or incorporated by reference in this proxy statement. Each item in this summary includes a page reference directing you to a more complete description of that topic. See “Where Stockholders Can Find More Information.”
In this proxy statement, the terms “we,” “us,” “our,” “GSI” and the “Company” refer to GSI Commerce, Inc. and, where appropriate, its subsidiaries. We refer to eBay Inc. as “eBay”; and Gibraltar Acquisition Corp. as “Merger Sub.” We refer to the United States as “U.S.” When we refer to the “merger agreement” we mean the Agreement and Plan of Merger, dated as of March 27, 2011, among GSI, eBay and Merger Sub. We refer to the proposed merger of Merger Sub with and into GSI as the “merger.”
This proxy statement is first being mailed to stockholders on or about , 2011.
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The Parties to the Merger (Page 16)
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GSI Commerce, Inc.
935 First Avenue
Telephone number: (610) 491-7000
GSI operates a network of businesses to enable enterprise clients to maximize their opportunities in the digital channel. GSI operates three business segments: Global e-Commerce Services, Global Marketing Services and Consumer Engagement. Each business segment offers products and services that are, or aim to be, market leaders in their respective areas on a stand-alone basis, but that also complement each other, which allows for cross-selling within and between businesses. The combination of these segments provides a unique view into the digital channel and gives GSI insight into customer and transaction lifecycles, as well as multi-channel activities. The Company provides products and services to over 2,000 brands globally, including Toys ‘R’ Us®, the National Football League®,
Aeropostale®, Polo Ralph Lauren®, Dick’s Sporting Goods®, Dell® and Estee Lauder®. GSI’s worldwide workforce included approximately 5,300 employees as of January 17, 2011.
Detailed descriptions of GSI’s business and financial results are contained in our Form 10-K for the fiscal year ended January 1, 2011, which is incorporated by reference into this proxy statement. See “Where Stockholders Can Find More Information” beginning on page 86 of this proxy statement.
eBay Inc.
2145 Hamilton Avenue
Telephone number: (408) 376-7400
eBay connects millions of buyers and sellers globally on a daily basis through eBay, the world's largest online marketplace, and PayPal, which enables individuals and businesses to securely, easily and quickly send and receive online payments. eBay also reaches millions through specialized marketplaces such as StubHub, the world's largest ticket marketplace, and eBay classifieds sites, which together have a presence in more than 1,000 cities around the world. eBay Inc. and its subsidiaries employed approximately 17,700 people (including temporary employees), approximately 11,100 of whom are located in the U.S as of December 31, 2010.
Gibraltar Acquisition Corp., a newly-formed Delaware corporation, was formed by eBay for the sole purpose of entering into the merger agreement and completing the merger contemplated by the merger agreement. Merger Sub is wholly-owned by eBay and has not engaged in any business except in anticipation of the merger.
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The Proposed Transaction (Page 20)
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You are being asked to vote to adopt the merger agreement, pursuant to which GSI will be acquired by eBay. The acquisition will be effected by the merger of Merger Sub, a wholly-owned subsidiary of eBay, with and into GSI, with GSI surviving as a wholly-owned subsidiary of eBay. At the effective time of the merger, each issued and outstanding share of our common stock (other than shares held by GSI, eBay, Merger Sub or any of their subsidiaries and shares held by stockholders, if any, who validly perfect their appraisal rights under Delaware law) will be converted into the right to receive $29.25 per share in cash, without interest and less any applicable withholding taxes, which we refer to in this proxy statement as the “merger consideration.” The total amount expected to be paid in the merger in respect of our outstanding common
stock and vested equity awards is approximately $2.2 billion.
The parties currently expect to complete the merger in the third quarter of 2011, subject to satisfaction of the conditions described under “Terms of the Merger Agreement — Conditions to the Completion of the Merger” beginning on page 71.
A copy of the merger agreement is attached as Appendix A to this proxy statement. You are encouraged to read the merger agreement carefully in its entirety because it is the legal agreement that governs the merger.
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Treatment of Restricted Stock, Options and Restricted Stock Unit Awards (Page 63)
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to the extent that any outstanding shares of GSI’s common stock are unvested or subject to a repurchase option, risk of forfeiture or other condition as of the effective time of the merger, each such share will be converted into a right to receive $29.25 per share in cash, without interest and less any applicable withholding taxes, at the effective time of the merger, which right will remain unvested and subject to the same repurchase option, risk of forfeiture or other condition previously applicable to the respective shares, and need not be paid until such time as such repurchase option, risk of forfeiture or other condition lapses or otherwise terminates;
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each outstanding stock option of GSI, to the extent vested immediately prior to the effective time of the merger, including the options that will vest contingent upon consummation of the merger, will be terminated and converted into the right to receive an amount in cash (subject to any applicable withholding taxes) equal to (i) the number of shares of GSI common stock underlying the option multiplied by (ii) the difference between (A) $29.25, and (B) the exercise price per share of such option; and
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each outstanding stock option to acquire shares of GSI common stock, to the extent unvested immediately prior to the effective time of the merger, will be converted into an option to purchase eBay common stock in an amount equal to (i) the number of shares of GSI common stock underlying such option immediately prior to the effective time of the merger, multiplied by (ii) a “conversion ratio” equal to (A) $29.25 divided by (B) the average of the closing sale prices of a share of eBay common stock as reported on NASDAQ for each of the ten consecutive trading days immediately preceding the closing date of the merger, rounding the resulting number down to the nearest whole number of shares of eBay common stock. The per share exercise price for the eBay common stock issuable upon exercise of each such unvested GSI stock option converted into an option to purchase eBay common stock will be equal to (i) the per share exercise price of
the GSI common stock subject to such unvested GSI option, as in effect immediately prior to the effective time of the merger, divided by (ii) the conversion ratio, rounding up to the nearest whole cent.
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each restricted stock unit of GSI, to the extent vested immediately prior to the effective time of the merger, will be converted into the right to receive an amount in cash (subject to any applicable withholding taxes) equal to (i) the number of shares of GSI common stock underlying the restricted stock unit multiplied by (ii) $29.25; and
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each restricted stock unit of GSI, to the extent unvested immediately prior to the effective time of the merger, will be converted into a restricted stock unit representing the right to receive the number of shares of eBay common stock equal to (i) the number of shares of GSI common stock subject to such
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restricted stock unit immediately prior to the effective time of the merger, multiplied by (ii) the conversion ratio, rounding down the product to the nearest whole number of shares of eBay common stock.
The total amount expected to be paid in respect of restricted stock, vested stock options and restricted stock units of GSI that will vest prior to the effective time is approximately $50.2 million.
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Recommendation of our Board of Directors and Special Committee (Page 32)
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In connection with the merger, our Board of Directors formed a special committee of the Board of Directors composed of certain independent directors to, among other things, evaluate and make a recommendation to our Board of Directors with respect to the merger. The special committee consisted of the following independent directors: M. Jeffrey Branman, Michael J. Donahue, Ronald D. Fisher, and Jeffrey F. Rayport. The special committee and our Board of Directors (acting upon the unanimous recommendation of the special committee), with the exception of Michael G. Rubin and Mark S. Menell, both of whom recused themselves from the Board of Directors’ vote on the merger, after careful consideration, have unanimously: (i) determined that the merger agreement and the merger, are advisable, fair to and in the best interests of the holders of GSI common stock, (ii) approved and declared advisable the execution, delivery and performance
of the merger agreement and the merger, (iii) recommended that our stockholders vote “FOR” adoption of the merger agreement, and (iv) recommended that the our stockholders vote “FOR” the approval of any proposal to adjourn the special meeting, if necessary or appropriate to solicit additional proxies in the event that there are not sufficient votes in favor of adoption of the merger agreement at the time of the special meeting.
In considering the recommendation of the special committee and the Board of Directors, you should be aware that Mr. Rubin, our chairman of the board, president and chief executive officer, has certain interests in the merger that are different from, and in addition to, the interests of our stockholders generally. NRG Commerce, LLC (“NRG”), a Delaware limited liability company wholly-owned by Mr. Rubin, is a party to a stock purchase agreement, dated as of March 27, 2011, with eBay (the “purchase agreement”), pursuant to which eBay has agreed to sell all or a portion of the equity interests of certain subsidiaries of GSI to NRG immediately after the completion of the merger on the terms and subject to the conditions set forth in the purchase agreement (including the condition
that the merger has been completed). In addition, NRG will enter into a secured loan agreement with GSI pursuant to which GSI, which will be an affiliate of eBay at the time the agreement is entered into, will lend NRG funds to finance a substantial portion of the purchase price for such divestiture transaction on the terms and subject to the conditions set forth in the loan agreement. The closing of the merger is not subject to, or dependent upon, the closing of the divestiture transaction, and the special committee and the Board of Directors have not made any recommendation with regard to the divestiture transaction. In addition, in considering the recommendation of the special committee and the Board of Directors, you should be aware that the other directors and executive officers of GSI have certain other interests in the merger that are different from, and in addition to, the interests of our stockholders generally. The accompanying proxy statement includes
additional information regarding interests of Mr. Rubin and other directors and executive officers of GSI that are different from, and in addition to, the interests of our stockholders generally.
For a discussion of the material factors considered by the special committee and our Board of Directors in reaching their conclusions, see “The Merger—Reasons for the Merger; Recommendation of Our Board of Directors and Special Committee” beginning on page 32.
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Opinion of Morgan Stanley (Page 36)
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In connection with the merger, our Board of Directors received an opinion from Morgan Stanley & Co. Incorporated, or Morgan Stanley, as independent financial advisor to the Company selected by the special committee, that, as of the date of such opinion, and based upon and subject to the various assumptions, considerations, qualifications and limitations set forth in the opinion, the consideration to be received by holders of shares of GSI common stock (other than holders of certain excluded shares) pursuant to the merger agreement was fair from a financial point of view to such holders. The full text of the written opinion of Morgan Stanley, dated March 27, 2011, is attached to this proxy statement as Appendix B. We encourage you to read this opinion carefully and in
its entirety for a description of the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken. Morgan Stanley’s opinion is directed to our Board of Directors and addresses only the fairness of the consideration from a financial point of view to the holders of GSI common stock (other than holders of certain excluded shares), does not address any other aspect of the
merger and does not constitute a recommendation to any stockholder as to how to vote or act with respect to the merger.
Other details of GSI’s arrangement with Morgan Stanley are described under “The Merger — Opinion of Morgan Stanley” beginning on page 36.
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No Financing Condition (Page 44)
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The merger agreement does not contain any financing-related closing condition. GSI and eBay estimate that the total amount of funds necessary to pay the merger consideration is approximately $2.2 billion, and eBay has represented in the merger agreement that it will have sufficient cash available to pay the aggregate merger consideration at the effective time of the merger.
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Interests of Our Directors and Executive Officers in the Merger (Page 46)
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As of , 2011, the record date for the special meeting, our current directors and executive officers, as well as a former director, Mark S. Menell, beneficially owned and are entitled to vote, in the aggregate, shares of our common stock, representing approximately % of our outstanding shares. eBay entered into a Voting and Support Agreement, dated as of March 27, 2011, with Michael Rubin (the “Rubin Support Agreement”) and Voting and Support Agreements, dated as of March 27, 2011, with each of the other directors and certain officers of GSI (the “D&O Support Agreements” and together
with the Rubin Support Agreement, the “Support Agreements”). Under the terms of Support Agreements, the directors and officers party to the Support Agreements agreed to vote all of their shares of our common stock “FOR” the adoption of the merger agreement. Additional details of the voting interests of our directors and executive officers are described under “Security Ownership of Management and Certain Beneficial Owners” beginning on page 81.
In considering the unanimous recommendation of our Board of Directors (other than Messrs. Rubin and Menell, who recused themselves), you should be aware that our directors and executive officers have interests in the merger that are different from, and in addition to, your interests as a stockholder and that may present actual or potential conflicts of interest. Our Board of Directors was aware of these interests and considered that these interests may be different from, and in addition to, the interests of our stockholders generally in approving the merger agreement and the merger, and in determining to recommend that our stockholders vote for adoption of the merger agreement. These interests include, among others:
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accelerated vesting of equity awards in certain specified instances;
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the entry by certain of our executive officers into transaction incentive agreements; and
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continued indemnification and liability insurance for our directors and officers following completion of the merger.
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In addition, NRG is a party to the purchase agreement with eBay, pursuant to which eBay has agreed to sell all or a portion of the equity interests of certain subsidiaries of GSI to NRG immediately after the completion of the merger on the terms and subject to the conditions set forth in the purchase agreement (including the condition that the merger has been completed). In addition, NRG will enter into a secured loan agreement with GSI, pursuant to which GSI, which will be an affiliate of eBay at the time the agreement is entered into, will lend NRG funds to finance a substantial portion of the purchase price for such divestiture transaction on the terms and subject to the conditions set forth in the loan agreement. The closing of the merger is not subject to, or dependent upon, the closing of the divestiture transaction, and neither
the special committee nor the Board of Directors has made any recommendation with regard to the divestiture transaction. In addition, concurrently with the negotiations of the divestiture transaction, Mr. Rubin had preliminary discussions with Mr. Menell concerning the potential employment of Mr. Menell by NRG and, subsequent to GSI’s announcement of the entry into the merger agreement, Mr. Menell resigned from the Board of Directors in order to accept a position with NRG.
For a discussion of these and other interests of our directors and executive officers, see “The Merger—Interests of GSI’s Directors and Executive Officers in the Merger” beginning on page 46.
The merger agreement provides that until 11:59 p.m. California time on May 6, 2011 (the “go-shop” period), GSI and its representatives are permitted to:
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solicit, initiate, encourage, assist, induce or facilitate the submission, announcement or making of acquisition proposals or inquiries with respect to an acquisition proposal or take any action that could reasonably be expected to have such effect;
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furnish and provide access to information to any entity in connection with or in response to a proposal or inquiry relating to an alternative transaction so long as such entity has entered into a confidentiality agreement with the Company that is at least as favorable to the Company as the confidentiality agreement between the Company and eBay and that does not prohibit the Company from making certain disclosures to eBay (an “acceptable confidentiality agreement”); and
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engage in discussions or negotiations with any entity with respect to a proposal or inquiry relating to an alternative transaction.
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The merger agreement provides that within 48 hours after the expiration of the “go-shop” period, the Company must deliver to eBay written notice setting forth the identity of each excluded party (as defined below) as well as any entity that, to the Company’s knowledge, has, or is expected to have, a material equity interest in each excluded party or is expected to participate in the transaction proposed by each excluded party. The Company must also deliver to eBay within 48 hours after the expiration of the “go-shop” period the material terms and conditions (including the per share price) of each excluded party’s acquisition proposal as well as copies of all proposed
definitive documents received by the Company from any excluded party relating to any acquisition proposal.
The merger agreement also provides that after 11:59 p.m. California time on May 6, 2011, the Company and its representatives are required to immediately cease the activities permitted during the “go-shop” period summarized above under “Go-Shop Period” on page 68, except as may relate to excluded parties. Pursuant to the merger agreement, following the expiration of the “go-shop” period, the Company and its representatives must not (except as may be required with respect to an excluded party): (i) solicit, initiate, encourage, assist, induce or facilitate the submission, announcement or making of any acquisition proposals or inquires with respect to an acquisition proposal or take any action
that could reasonably be expected to have such effect; (ii) furnish or provide access to information to any entity in connection with or in response to a proposal or inquiry relating to an alternative transaction, and (iii) engage in discussions or negotiations with any entity with respect to a proposal or inquiry relating to an alternative transaction.
Notwithstanding the restrictions described above, the merger agreement provides that at any time before the adoption of the merger agreement by the Company’s stockholders, the Company may provide information to and engage in discussions with third parties from whom the Company has received an acquisition proposal that was not solicited in violation of the merger agreement, so long as the Board of Directors, acting upon the recommendation of the special committee and after consultation with its financial advisor and outside legal counsel, reasonably determines in good faith that such proposal constitutes or is reasonably likely to constitute a superior offer when compared with
eBay’s offer to acquire the Company. Such third parties must execute an acceptable confidentiality agreement with the Company prior to receiving any confidential information from the Company or its representatives, and the Company must also provide eBay with access to any non-public information furnished to any third party or any excluded party prior to furnishing such information to such third party or excluded party.
In addition, pursuant to the merger agreement, after 11:59 p.m. California time on May 6, 2011, the Company must promptly, and in no event later than 24 hours following the occurrence of any of the following:
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provide written notice to eBay of any proposals, inquiries or requests for non-public information in connection with a potential alternative acquisition, as well as the material terms and conditions thereof, excluding the identity of the entity making such proposal, inquiry or request;
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provide eBay with redacted copies of all proposed definitive documents received by the Company or any of its representatives from any entity or its representatives relating to any acquisition proposal; and
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keep eBay fully informed with respect to the status of any proposals or inquiries related to an alternative acquisition and any modification or proposed modification thereto, and promptly (and in no event later than 24 hours after obtaining knowledge thereof) notify eBay of any material change or development with respect to any such proposal.
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At any time before the adoption of the merger agreement by our stockholders, subject to complying with the applicable terms of the merger agreement, our Board of Directors may withdraw or modify its recommendation with respect to the adoption of the merger agreement if, after the receipt by the Company of an acquisition proposal or
due to a change in circumstances, our Board of Directors determines that such withdrawal or modification is required by the Board of Directors’ fiduciary obligations to our stockholders.
For purposes of the merger agreement, an “excluded party” is any entity from which the Company receives a written acquisition proposal during the “go-shop” period that remains pending upon the expiration of the “go-shop” period, so long as the Board of Directors, acting upon the recommendation of the special committee of the Board of Directors and after consultation with its financial advisor and outside legal counsel, reasonably determines in good faith that such entity’s acquisition proposal constitutes or is reasonably likely to constitute a superior offer when compared with eBay’s agreement to acquire the Company. Excluded parties shall cease being an excluded party for purposes of the merger agreement upon the earliest of: (i) 11:59
p.m. California time on May 31, 2011, the date 25 days after the expiration of the “go-shop” period; or (ii) the withdrawal, termination or expiration of such acquisition proposal; or (iii) the time as of which such acquisition proposal no longer constitutes, or is not reasonably likely to result in, a superior offer; or (iv) in the case of a financial buyer, any change of greater than 20% of the actual or proposed equity ownership of such excluded party.
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Conditions to the Completion of the Merger (Page 71)
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Our obligations and the obligations of eBay and Merger Sub to consummate the merger are subject to the satisfaction at or before the effective time of the merger of the following principal conditions, among others:
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adoption of the merger agreement by our stockholders;
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absence of legal prohibitions on completion of the merger; and
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expiration or termination of any applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and any applicable foreign antitrust or competition law or regulation and any other foreign legal requirement, and obtaining any other required governmental approvals.
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The obligations of eBay and Merger Sub to consummate the merger are subject to the satisfaction at or before the effective time of the merger of the following principal conditions, among others:
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accuracy of the representations and warranties made by us in the merger agreement, subject to customary materiality qualifiers;
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our compliance in all material respects with obligations and preclosing covenants contained in the merger agreement, subject to customary materiality qualifiers; and
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no material adverse effect on us shall have occurred, and no event shall have occurred or circumstance shall exist that, in combination with any other events or circumstances, could reasonably be expected to have or result in a material adverse effect on us.
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Our obligations to consummate the merger are subject to the satisfaction at or before the effective time of the merger of the following principal conditions, among others:
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accuracy of the representations and warranties made by eBay and Merger Sub in the merger agreement, subject to customary materiality qualifiers; and
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eBay’s and Merger Sub’s compliance in all material respects with obligations and preclosing covenants contained in the merger agreement, subject to customary materiality qualifiers.
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Merger Agreement Termination Provisions; Termination Fees (Page 73)
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The merger agreement may be terminated at any time before the effective time of the merger, whether before or after adoption of the merger agreement by our stockholders:
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the merger has not been consummated by December 31, 2011 or our stockholders fail to adopt the merger agreement, except that neither eBay nor the Company may terminate the merger agreement for either of these reasons if either circumstance is attributable to a failure on the part of such party to perform any covenant or obligation required by the merger agreement; or
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there is a permanent legal prohibition to completing the merger;
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by eBay, at any time before the adoption of the merger agreement by our stockholders, if:
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a Triggering Event (as defined below) occurs; or
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(i) any of the Company’s representations and warranties are inaccurate as of the date of the merger agreement or a subsequent date (other than any such representation and warranty made as of a specific earlier date) or (ii) the Company breaches any of its covenants or obligations, in each case such that a condition to closing would not be satisfied as of the effective time of the merger and, with respect to those inaccuracies and breaches that are curable prior to December 31, 2011, the Company fails to cure such inaccuracies and breaches upon 30 days notice, unless eBay is in material breach of the merger agreement in which case eBay may
not terminate the merger agreement for the reasons stated in this subsection;
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by the Company, at any time before the adoption of the merger agreement by our stockholders:
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in certain circumstances related to superior offers with respect to acquisition proposals, such circumstances including, among other things, that our Board of Directors authorizes the Company to enter into an agreement concerning a superior offer and the Company (i) gives eBay written notice of its intention to terminate the merger agreement and provides eBay with four days to make an offer at least as favorable to the stockholders of the Company (during which time we have undertaken to make our representatives reasonably available for further negotiations), and eBay does not make such an offer, and (ii) pays the applicable termination fee; or
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if (i) any of eBay’s representations and warranties are inaccurate as of the date of the merger agreement or (ii) eBay breaches any of its covenants or obligations, in each case such that a condition to closing would not be satisfied as of the effective time of the merger and, with respect to those inaccuracies and breaches that are curable prior to December 31, 2011, eBay fails to cure such inaccuracies and breaches upon 30 days notice, unless the Company is in material breach of the merger agreement in which case the Company may not terminate the merger agreement for the reasons stated in this subsection.
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For purposes of the merger agreement, a “Triggering Event” is deemed to have occurred if:
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our Board of Directors or any committee thereof withdraws or modifies (in a manner adverse to eBay) its recommendation in favor of the merger or takes, authorizes or publicly proposes specified actions related to acquisition proposals or transactions with respect to the Company;
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our Board of Directors fails to reaffirm, unanimously and publicly, its recommendation in favor of the merger within five business days after eBay reasonably requests, in writing, such reaffirmation;
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a tender or exchange offer relating to shares of Company common stock is commenced and the Company fails to issue to its security holders a statement to the effect that the Company recommends rejection of such tender or exchange offer and reaffirming the Board of Directors’ recommendation in favor of the merger within ten business days after the commencement of such tender or exchange offer; or
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the Company or its subsidiaries or any director or executive officer of the Company shall have breached in any material respect or taken any action materially inconsistent with certain provisions of the merger agreement relating to the “go-shop” period or acquisition proposals.
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Under certain circumstances resulting in the termination of the merger agreement, we will be required to pay a termination fee of $74 million to eBay; provided, however, that if we enter into a definitive agreement during the “go-shop” period or with an excluded party, in each instance with respect to a superior offer, the termination fee will be $24 million.
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U.S. Tax Considerations for GSI’s Stockholders (Page 57)
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Generally, the merger will be taxable to our stockholders who are U.S. persons for U.S. federal income tax purposes. A holder of GSI common stock receiving cash in the merger that is a U.S. person generally will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount of cash
received and the holder’s adjusted tax basis in our common stock surrendered. You should consult your own tax advisor for a full understanding of how the merger will affect your particular tax consequences.
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Dissenters’ Rights of Appraisal (Page 59)
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Under Delaware law, if you take certain specific actions and/or refrain from taking other certain specific actions, you are entitled to appraisal rights in connection with the merger. You will have the right, under and assuming full compliance with Delaware law, to have the fair value of your shares of GSI common stock determined by the Court of Chancery of the State of Delaware (the “Delaware Court”) and to receive such fair value, together with interest, if any, as determined by the court, in lieu of the consideration you would otherwise be entitled to pursuant to the merger agreement. This right to appraisal is subject to a number of restrictions and technical requirements. Generally, in order to exercise your appraisal rights you must:
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send a timely written demand to us at the address set forth on page 59 of this proxy statement for appraisal in compliance with Delaware law, which demand must be delivered to us before the stockholder vote to adopt the merger agreement set forth in this proxy statement;
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not vote in favor of the adoption of the merger agreement; and
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continuously hold your shares of GSI common stock, from the date you make the demand for appraisal through the closing of the merger.
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Merely voting against the merger agreement will not protect your rights to an appraisal, which requires all the steps provided under Delaware law. Requirements under Delaware law for exercising appraisal rights are described in further detail beginning on page 59. The relevant section of Delaware law regarding appraisal rights, Section 262 of the Delaware General Corporation Law, regarding appraisal rights is reproduced and attached as Appendix C to this proxy statement.
If you vote for the adoption of the merger agreement, you will be deemed to have waived your rights to seek appraisal of your shares of GSI common stock under Delaware law. This proxy statement constitutes our notice to our stockholders of the availability of appraisal rights in connection with the merger in compliance with the requirements of Section 262 of the Delaware General Corporation Law.
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Litigation Related to the Merger (Page 58)
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Following the announcement of the proposed merger, five putative stockholder class action complaints challenging the transaction (one of which also purports to be brought derivatively on behalf of GSI) were filed in the Delaware Court against various combinations of eBay, Merger Sub, NRG, us, the individual members of our board of directors, and certain of our non-director officers. Additional similar lawsuits may be filed in the future.
The complaints generally allege, among other things, that the members of our board of directors breached their fiduciary duties owed to our public stockholders by entering into the merger agreement, approving the proposed merger, and failing to take steps to maximize our value to our public stockholders; that Mr. Rubin breached his fiduciary duties owed to our public stockholders by engaging in a transaction pursuant to which eBay agreed to sell certain subsidiaries of GSI to NRG after the completion of the merger; and that various combinations of eBay, Merger Sub, NRG, and us aided and abetted such breaches of fiduciary duties. In addition, the complaints allege that the transactions improperly favor eBay and Mr. Rubin and unjustly enrich certain of the defendants; and that certain provisions of the merger agreement unduly restrict our
ability to negotiate with other potential bidders. In one of these actions, the plaintiff also purports to bring derivative claims on behalf of GSI, alleging that the individual members of the board of directors and certain non-director officers are wasting corporate assets, unjustly enriching themselves, and breaching their fiduciary duties, and that eBay and Merger Sub are aiding and abetting such breaches of fiduciary duties. The complaints generally seek, among other things, declaratory and injunctive relief concerning the alleged fiduciary breaches, injunctive relief prohibiting the defendants from consummating the proposed merger, and other forms of equitable relief.
Beginning on April 5, 2011, various plaintiffs in these lawsuits filed motions to consolidate the suits, to expedite the proceedings, to appoint lead plaintiff and lead counsel, and for preliminary injunction. These motions are currently pending before the Delaware Court.
One of the conditions to the closing of the merger is that no restraining order, injunction or ruling by a court or other governmental entity shall be in effect that prevents the consummation of the merger or that makes the
consummation of the merger illegal. As such, if the plaintiffs in any of the actions discussed above are successful in obtaining an injunction prohibiting the defendants from completing the merger on the agreed-upon terms, then such injunction may prevent the merger from becoming effective, or from becoming effective within the expected timeframe.
While these cases are in their early stages, GSI, eBay and the other defendants to these suits believe that the claims asserted therein are without merit and intend to contest the lawsuits vigorously.
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
The following questions and answers are intended to briefly address some commonly asked questions regarding procedural matters relating to the merger, the merger agreement and the special meeting. These questions and answers may not address all questions that may be important to you as a holder of GSI common stock. Please refer to the “Summary” and the more detailed information contained elsewhere in this proxy statement, the appendices to this proxy statement and the documents referred to or incorporated by reference in this proxy statement, which you should read carefully. See “Where Stockholders Can Find More Information” beginning on page 86.
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Why am I receiving these materials?
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eBay and GSI have agreed to a merger, pursuant to which GSI will become a wholly-owned subsidiary of eBay and will no longer be a publicly held corporation. A copy of the merger agreement is attached to this proxy statement as Appendix A. GSI’s stockholders must vote to adopt the merger agreement before the merger can be completed, and GSI is holding a special meeting of its stockholders to enable them to vote on the adoption of the merger agreement.
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You are receiving this proxy statement because you own shares of GSI’s common stock. This proxy statement contains important information about the proposed transaction and the special meeting, and you should read it carefully. The enclosed proxy statement allows you to vote your shares of GSI’s common stock without attending the special meeting in person.
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What will I receive in the merger?
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If the merger is completed, you will receive $29.25 per share in cash, without interest and less any applicable withholding taxes, for each share of GSI common stock that you own. For example, if you own 100 shares of GSI common stock, you will receive $2,925 in cash in exchange for your shares of GSI common stock, without interest and less any applicable withholding taxes. You will not be entitled to receive shares in the surviving corporation.
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How does the per share merger consideration compare to the market price of GSI common stock prior to announcement of the merger?
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The per share merger consideration represents a premium of approximately 51% over the closing price of GSI common stock on March 25, 2011, the last trading day prior to the public announcement of the merger agreement, and a premium of approximately 47% over GSI’s average closing share price over the 30 trading days prior to the announcement of the merger.
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When and where is the special meeting?
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The special meeting of our stockholders will be held at , King of Prussia, PA , on , 2011, at 9:00 a.m, local time.
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What am I being asked to vote on?
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You are being asked to consider and vote on the following proposals:
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the adoption of the merger agreement;
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the adjournment of the special meeting, if necessary or appropriate to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement; and
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on such other business as may properly come before the special meeting or any adjournment thereof.
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How does the Company’s Board of Directors recommend that I vote on the proposals?
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Our Board of Directors unanimously (other than Messrs. Rubin and Menell, who recused themselves) recommends that you vote:
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“FOR” the proposal to adopt the merger agreement; and
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“FOR” adjournment of the special meeting, if necessary or appropriate to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement.
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You should read “The Merger—Reasons for the Merger; Recommendation of Our Board of Directors and Special Committee” beginning on page 32 for a discussion of the factors that our Board of Directors and special committee considered in deciding to recommend the adoption of the merger agreement. See also “The Merger—Interests of GSI’s Directors and Executive Officers in the Merger” beginning on page 46.
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Who is entitled to vote?
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All holders of GSI common stock, as of the close of business on , 2011, the record date for this solicitation, are entitled to receive notice of, attend and vote at, the special meeting. On the record date, approximately shares of GSI common stock, held by approximately stockholders of record, were outstanding and entitled to vote. You may vote all shares you owned as of the record date. You are entitled to one vote per share.
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What vote of stockholders is required to adopt the merger agreement?
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For us to complete the merger, stockholders as of the close of business on the record date for the special meeting holding a majority of the outstanding shares of GSI common stock entitled to vote at the special meeting, must vote “FOR” the adoption of the merger agreement.
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What vote of stockholders is required to adjourn the special meeting, if necessary or appropriate to solicit additional proxies at the special meeting?
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The proposal to adjourn the special meeting, if necessary or appropriate to solicit additional proxies, requires the approval of holders of a majority of our common stock present, in person or by proxy, at the special meeting and entitled to vote on the matter, whether or not a quorum is present.
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What does it mean if I get more than one proxy card?
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If you have shares of GSI common stock that are registered differently or are in more than one account, you will receive more than one proxy card. Please follow the directions for voting on each of the proxy cards you receive to ensure that all of your shares are voted.
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How do I vote without attending the special meeting?
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If you are a registered stockholder (that is, if you hold one or more stock certificates for your GSI common stock), you may submit your proxy and vote your shares by returning the enclosed proxy card, marked, signed and dated, in the postage-paid envelope provided, or by telephone or through the Internet by following the instructions included with the enclosed proxy card.
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If you hold your shares through a broker, dealer, commercial bank, trust company or other nominee, which we refer to in this proxy statement as holding shares in “street name,” you should follow the separate voting instructions provided by the broker, dealer, commercial bank, trust company or other nominee with the proxy statement. If you do not instruct your broker, dealer, commercial bank, trust company or other nominee regarding the voting of your shares, your shares will not be voted and the effect will be the same as a vote “AGAINST” the adoption of the merger agreement.
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How do I vote in person at the special meeting?
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If you are a stockholder of record of the Company, which we refer to in this proxy statement as a “registered stockholder,” you may attend the special meeting and vote your shares in person at the special meeting by giving us a signed proxy card or ballot before voting is closed. If you want to do that, please bring proof of identification with you. Even if you plan to attend the special meeting, we recommend that you vote your shares in advance as described above, so your vote will be counted even if you later decide not to attend.
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If you hold your shares in “street name,” you may vote those shares in person at the special meeting only if you obtain and bring with you a signed proxy from the necessary nominee(s) giving you the right to vote the shares. To do this, you should contact your broker, dealer, commercial bank, trust company or other nominee.
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You may revoke or change your proxy at any time before the vote is taken at the special meeting, except as otherwise described below. If you have not voted through your broker, dealer, commercial bank, trust company or other nominee because you are the registered stockholder, you may revoke or change your proxy before it is voted by:
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filing a notice of revocation, which is dated as of a later date than your proxy, with the Company’s Secretary;
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submitting a signed and completed proxy card bearing a later date;
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submitting a new proxy by telephone or through the Internet at a later time, but not later than 11:59 p.m. (Eastern Time) on , 2011 (or if the special meeting is adjourned, on the date before the special meeting date); or
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voting in person at the special meeting.
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Simply attending the special meeting will not constitute revocation of a proxy. If your shares are held in “street name,” you should follow the instructions of your broker, dealer, commercial bank, trust company or other nominee regarding revocation or change of proxies. If your broker, dealer, commercial bank, trust company or other nominee allows you to submit voting instructions by telephone or through the Internet, you may be able to change your vote by submitting new voting instructions by telephone or through the Internet.
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If my shares are held in “street name” by my broker, dealer, commercial bank, trust company or other nominee, will my nominee automatically vote my shares for me?
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No. You must provide voting instructions to your broker, dealer, commercial bank, trust company or other nominee on how to vote your shares of GSI common stock. If you do not provide your broker, dealer, commercial bank, trust company or other nominee with instructions on how to vote your shares, your shares of GSI common stock will not be voted, which will have the same effect as voting “AGAINST” the proposal to adopt the merger agreement. Please refer to the voting instruction card used by your broker, dealer, commercial bank, trust company or other nominee to see if you may submit voting instructions using the Internet or telephone.
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Is it important for me to vote?
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Yes, since we cannot complete the merger without the affirmative vote of the majority of the holders of the shares of GSI common stock that are entitled to vote at the special meeting, your failure to vote will have the same effect as a vote “AGAINST” the adoption of the merger agreement.
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What happens if I return my proxy card but I do not indicate how to vote?
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If you properly return your proxy card, but do not include instructions on how to vote, your shares of GSI common stock will be voted “FOR” the adoption of the merger agreement and “FOR” the approval of the special meeting adjournment proposal. Our management does not currently intend to bring any other proposals to the special meeting. If other proposals requiring a vote of stockholders are brought before the special meeting in a proper manner, the persons named in the enclosed proxy card will have the authority to vote the shares represented by duly executed proxies in their discretion.
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What happens if I abstain from voting on a proposal?
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If you return your proxy card with instructions to abstain from voting on either proposal, your shares will be counted for determining whether a quorum is present at the special meeting. An abstention with respect to the proposal to adopt the merger agreement has the legal effect of a vote “AGAINST” the proposal to adopt the merger agreement. An abstention with respect to the proposal to adjourn the special meeting, if necessary or appropriate, to permit further solicitation of proxies at the special meeting has the legal effect of a vote “AGAINST” the proposal to adjourn the special meeting.
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What happens if I do not return a proxy card or otherwise do not vote?
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Your failure to return a proxy card or otherwise vote will mean that your shares will not be counted toward determining whether a quorum is present at the special meeting and will have the legal effect of a vote “AGAINST” the proposal to adopt the merger agreement. Such failure will have no legal effect with respect to the vote on the special meeting adjournment proposal.
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What happens if I sell my shares before the special meeting?
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The record date of the special meeting is earlier than the special meeting and the date that the merger is expected to be completed. If you transfer your shares of GSI common stock after the record date but before the special meeting, you will retain your right to vote at the special meeting, but will have transferred the right to
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receive $29.25 per share in cash, without interest and less applicable withholding taxes, to be received by our stockholders in the merger.
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Will a proxy solicitor be used?
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Yes. The Company has engaged Georgeson Inc. to assist in the solicitation of proxies for the special meeting and the Company estimates that it will pay them a fee of approximately $15,000, and will reimburse them for reasonable administrative and out-of-pocket expenses incurred in connection with the solicitation.
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If the merger is completed, how will I receive the cash for my shares?
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If the merger is completed, you will receive a letter of transmittal with instructions on how to send your stock certificates to the paying agent in connection with the merger. You will receive cash for your shares from the paying agent only after you comply with these instructions. If your shares of GSI common stock are held for you in “street name” by your broker, dealer, commercial bank, trust company or other nominee, you will receive instructions from your broker, dealer, commercial bank, trust company or other nominee as to how to effect the surrender of your “street name” shares and receive cash for such shares.
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Should I send in my stock certificates now?
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No. Assuming the merger is completed, you will receive a letter of transmittal shortly thereafter with instructions informing you how to send your share certificates to the paying agent in order to receive the merger consideration, without interest and less applicable withholding taxes. You should use the letter of transmittal to exchange GSI stock certificates for the merger consideration that you are entitled to receive as a result of the merger. Do not send any stock certificates with your proxy.
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When do you expect the merger to be completed?
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We currently expect to complete the merger promptly after stockholder approval is obtained. However, in addition to obtaining stockholder approval, all of the conditions to the merger must have been satisfied or waived. In the event all of the conditions to the merger are not satisfied or waived if and when stockholder approval is obtained, completion of the merger may still occur, but would be delayed.
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What is householding and how does it affect me?
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The Securities and Exchange Commission permits companies to send a single set of certain disclosure documents to any household at which two or more stockholders reside, unless contrary instructions have been received, but only if the company provides advance notice and follows certain procedures. In such cases, each stockholder continues to receive a separate notice of the special meeting and proxy card. This householding process reduces the volume of duplicative information and reduces printing and mailing expenses. Therefore, only one set of proxy materials is being delivered to multiple security holders sharing an address, unless we have received contrary instructions from you or another person sharing your address. If you receive a single set of proxy materials as a result of householding, and you would like to have separate copies of our proxy materials
mailed to you, please submit a request to our proxy solicitor, Georgeson Inc., at the address and telephone number set forth on page ii of this proxy statement and we will promptly send you the proxy materials. If you currently receive multiple copies of proxy materials at your address and would like to begin the householding process, you may request delivery of a single copy by submitting a request to Georgeson Inc. at the address and telephone number set forth on page ii of this proxy statement.
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Who can help answer my other questions?
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If you have more questions about the merger or the special meeting, or require assistance in submitting your proxy or voting your shares or need additional copies of the proxy statement or the enclosed proxy card, please contact Georgeson Inc., our proxy solicitor, toll free at (866) 628-6021. If your broker, dealer, commercial bank, trust company or other nominee holds your shares, you should also call your broker, dealer, commercial bank, trust company or other nominee for additional information.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This proxy statement and the documents to which we refer you in this proxy statement contains statements that are not historical facts and that are considered “forward-looking” within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You can identify these statements by the fact that they do not relate strictly to historical or current facts. We have based these forward-looking statements on our current expectations about future events. Statements that include words such as “may,” “will,” “project,” “might,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “continue” or “pursue,” or the negative or other words or expressions of similar meaning, may identify forward-looking
statements. These forward-looking statements, include without limitation, those relating to future actions, strategies, future performance and future financial results. Although we believe that the expectations underlying these forward looking statements are reasonable, there are a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These forward-looking statements should, therefore, be considered in light of various important factors set forth from time to time in our filings with the Securities and Exchange Commission, which we refer to as the “SEC”. In addition to other factors and matters contained or incorporated in this document, these statements are subject to risks, uncertainties and other factors, including, among others:
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the current market price of our common stock may reflect a market assumption that the merger will occur, and a failure to complete the merger could result in a decline in the market price of our common stock;
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the occurrence of any event, change or other circumstances that could give rise to a termination of the merger agreement;
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under certain circumstances, we may have to pay a termination fee to eBay of $74 million or $24 million;
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the inability to complete the merger due to the failure to obtain stockholder approval or the failure to satisfy other conditions to consummation of the merger;
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the inability to complete the merger due to the failure to obtain regulatory approval with respect to the merger;
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the failure of the merger to close for any other reason;
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our remedies against eBay with respect to certain breaches of the merger agreement may not be adequate to cover our damages;
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the proposed transactions may disrupt current business plans and operations and there may be potential difficulties in attracting and retaining employees as a result of the announced merger;
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due to restrictions imposed in the merger agreement, we may be unable to respond effectively to competitive pressures, industry developments and future opportunities;
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the effect of the announcement of the merger on our business relationships, operating results and business generally; and
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the costs, fees, expenses and charges we have incurred and may incur related to the merger, whether or not the merger is completed.
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The foregoing sets forth some, but not all, of the factors that could affect our ability to achieve results described in any forward-looking statements. A more complete description of the risks applicable to us is provided in our filings with the SEC available at the SEC’s web site at http://www.sec.gov, including our most recent filings on Forms 10-Q and 10-K. Investors are cautioned not to place undue reliance on these forward-looking statements. Stockholders also should understand that it is not possible to predict or identify all risk factors and that neither this list nor the factors identified in our SEC filings should be considered a complete statement of all potential risks and uncertainties. We undertake no obligation to publicly
update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this proxy statement.
CONSIDERATIONS RELATING TO THE PROPOSED MERGER
Set forth below are various risks relating to the proposed merger. The following is not intended to be an exhaustive list of the risks relating to the merger and should be read in conjunction with the other information in this proxy statement. In addition, you should refer to the section entitled “Risk Factors” in GSI’s Annual Report on Form 10-K for the fiscal year ended January 1, 2011, which is incorporated in this proxy statement by reference, for risks relating to GSI’s business, as supplemented with the following risk factors:
Failure to complete the merger could negatively impact the market price of GSI common stock.
If the merger is not completed for any reason, GSI will be subject to a number of material risks, including the following:
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the market price of GSI’s common stock may decline;
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costs relating to the merger, such as legal, accounting and financial advisory fees, and, in specified circumstances, termination fees, must be paid by GSI, even if the merger is not completed; and
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the diversion of management’s attention from the day-to-day business of GSI, the potential disruption to its employees and its relationships with customers, suppliers and distributors and potential diversion from certain aspects of its previously announced capital expenditure program may make it difficult for GSI to regain its financial and market positions.
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If the merger is not adopted by our stockholders at the special meeting, GSI, eBay and Merger Sub will not be permitted under Delaware law to complete the merger, and each of GSI, eBay and Merger Sub will have the right to terminate the merger agreement. Upon such termination, GSI may be required to pay eBay a termination fee. See “Terms of the Merger Agreement — Termination of the Merger Agreement” beginning on page 72 of this proxy statement.
Further, if the merger is terminated and our Board of Directors seeks another merger or business combination, stockholders cannot be certain that we will be able to find a party willing to pay an equivalent or better price than the price to be paid in the proposed merger.
Uncertainties associated with the merger may cause GSI to lose key personnel.
Our current and prospective employees may be uncertain about their future roles and relationships with GSI following the completion of the merger. This uncertainty may adversely affect our ability to attract and retain key management and personnel.
GSI’s executive officers and directors have certain interests in the merger different from other stockholders that may have influenced them to approve the merger agreement and merger and recommend the adoption of the merger agreement.
GSI’s directors and executive officers have interests in the transaction that are different from, and in addition to, the interests of GSI stockholders generally, including with respect to employment, indemnification, stock options, restricted stock units and other arrangements, which may present a potential conflict of interest. Our Board of Directors, and the executive officers in making recommendations to the our Board of Directors relating to the merger, was aware of these interests and considered that these interests may be different from, and in addition to, the interests of our stockholders generally, among other matters, in approving the merger agreement and the merger, and in determining to recommend that our stockholders vote for adoption of the merger agreement. For more information, see the section entitled “Interests of GSI’s Directors and Executive Officers in the Merger” beginning on page 46.
GSI will no longer exist as an independent public company following the merger and GSI’s stockholders will forego any increase in our value.
If the merger is completed, GSI will be a subsidiary of eBay and will no longer be a publicly held corporation, and our stockholders will forego any increase in our value that might have otherwise resulted from our possible growth.
PARTIES INVOLVED IN THE PROPOSED TRANSACTION
GSI
GSI Commerce, Inc.
935 First Avenue
Telephone number: (610) 491-7000
GSI operates a network of businesses to enable enterprise clients to maximize their opportunities in the digital channel. GSI operates three business segments: Global e-Commerce Services, Global Marketing Services and Consumer Engagement. Each business segment offers products and services that are, or aim to be, market leaders in their respective areas on a stand-alone basis, but that also complement each other, which allows for cross-selling within and between businesses. The combination of these segments provides a unique view into the digital channel and gives GSI insight into customer and transaction lifecycles, as well as multi-channel activities. The Company provides products and services to over 2,000 brands globally, including Toys ‘R’ Us®, the National Football League®,
Aeropostale®, Polo Ralph Lauren®, Dick’s Sporting Goods®, Dell® and Estee Lauder®. GSI’s worldwide workforce included approximately 5,300 employees as of January 17, 2011.
Detailed descriptions of GSI’s business and financial results are contained in our Form 10-K for the fiscal year ended January 1, 2011, which is incorporated by reference into this proxy statement. See “Where Stockholders Can Find More Information” beginning on page 86 of this proxy statement.
eBay and Merger Sub.
eBay Inc.
2145 Hamilton Avenue
Telephone number: (408) 376-7400
eBay connects millions of buyers and sellers globally on a daily basis through eBay, the world's largest online marketplace, and PayPal, which enables individuals and businesses to securely, easily and quickly send and receive online payments. eBay also reaches millions through specialized marketplaces such as StubHub, the world's largest ticket marketplace, and eBay classifieds sites, which together have a presence in more than 1,000 cities around the world. eBay Inc. and its subsidiaries employ approximately 17,700 people (including temporary employees), approximately 11,100 of whom are located in the U.S. as of December 31, 2010.
Gibraltar Acquisition Corp., a newly-formed Delaware corporation, was formed by eBay for the sole purpose of entering into the merger agreement and completing the merger contemplated by the merger agreement. Merger Sub is wholly-owned by eBay and has not engaged in any business except in anticipation of the merger.
THE SPECIAL MEETING
General Information
The enclosed proxy is solicited on behalf of our Board of Directors for use at a special meeting of stockholders to be held on , 2011, at 9:00 a.m., local time, or at any adjournments of the special meeting. The special meeting will be held at , King of Prussia, PA . GSI intends to mail this proxy statement and the accompanying proxy card on or about , 2011 to all stockholders entitled to vote at the special meeting.
At the special meeting, stockholders will be asked to:
1. Consider and vote upon a proposal to adopt the merger agreement among GSI, eBay and Merger Sub, which contemplates the merger of Merger Sub with and into GSI, with GSI surviving as a wholly-owned subsidiary of eBay. Pursuant to the merger agreement, among other things, each share of common stock of GSI outstanding immediately prior to the effective time of the merger (other than shares held by eBay, GSI or any of their subsidiaries or shares held by stockholders, if any, who validly perfect their appraisal rights under Delaware law) will be converted into the right to receive $29.25 per share in cash, without interest and less any applicable withholding taxes.
2. Consider and vote upon a proposal to adjourn the special meeting, if necessary or appropriate, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting to adopt the merger agreement referred to in Proposal 1.
GSI does not expect a vote to be taken on any other matters at the special meeting. If any other matters are properly presented at the special meeting, however, the holders of the proxies, if properly authorized, will have authority to vote on these matters in their discretion.
Record Date, Quorum and Voting Power
Stockholders of record at the close of business on , 2011 are entitled to notice of, and to vote at, the special meeting. On , 2011, the outstanding voting securities consisted of shares of GSI common stock. Each share of GSI common stock entitles its holder to one vote on all matters properly coming before the special meeting.
A quorum of holders of our common stock must be present for the special meeting to be held. Holders of a majority of our outstanding common stock entitled to vote will constitute a quorum for the purpose of considering the proposal regarding adoption of the merger agreement. If a quorum exists, then holders of a majority of the shares of GSI common stock present in person or represented by proxy at the special meeting may adjourn the special meeting. Alternatively, if no quorum exists, then holders of a majority of the shares of GSI common stock present at the special meeting or represented by proxy may adjourn the special meeting. Broker non-votes, as described below, will not be counted for purposes of determining whether a quorum is present.
Vote Required for Approval
For us to complete the merger, holders of a majority of the outstanding shares of GSI common stock entitled to vote at the special meeting must vote “FOR” the adoption of the merger agreement. The proposal to adjourn the special meeting, if necessary or appropriate to solicit additional proxies, requires the approval of holders of a majority of our common stock present in person or by proxy at the special meeting and entitled to vote on the matter, whether or not a quorum is present.
In order for your GSI common stock to be included in the vote, if you are a registered stockholder (that is, if you hold one or more stock certificates for your GSI common stock), you must submit your proxy and vote your shares by returning the enclosed proxy card, in the postage prepaid envelope provided, or by telephone or through the Internet, as indicated on the proxy card, or you may vote in person at the special meeting.
Brokers, dealers, commercial banks, trust companies or other nominees who hold shares in street name for customers have the authority to vote on “routine” proposals when they have not received instructions from beneficial owners. However, brokers, dealers, commercial banks, trust companies or other nominees are precluded from exercising their voting discretion with respect to the approval of non-routine matters such as the adoption of the merger agreement, absent specific instructions from the beneficial owner of such shares, brokers, dealers, commercial banks, trust companies or other nominees are not empowered to vote those shares, which are referred to
generally as “broker non-votes.” Because adoption of the merger agreement requires the affirmative vote of the majority of the shares of GSI common stock outstanding on the record date, failures to vote, abstentions and broker non-votes, if any, will have the same effect as votes “AGAINST” adoption of the merger agreement.
Voting by Directors and Executive Officers
As of , 2011, the record date, our current directors and executive officers, as well as a former director, Mr. Menell, held and are entitled to vote, in the aggregate, shares of GSI common stock (excluding options, shares of restricted stock and restricted stock units), representing % of the outstanding GSI common stock. eBay entered into a Voting and Support Agreement, dated as of March 27, 2011, with Michael Rubin (the “Rubin Support Agreement”) and Voting and Support Agreements, dated as of March 27, 2011, with each of the other directors and certain officers of GSI (the “D&O Support Agreements” and together with the Rubin Support Agreement, the “Support Agreements”). Under
the terms of the Support Agreements, the directors and officers party to the Support Agreements have agreed to vote all of their shares of GSI common stock “FOR” the adoption of the merger agreement.
Proxies; Revocation
If you vote your shares of GSI common stock by returning a signed proxy card by mail, or through the Internet or by telephone as indicated on the proxy card, your shares will be voted at the special meeting in accordance with the instructions given. If no instructions are indicated on your signed proxy card, your shares will be voted “FOR” the adoption of the merger agreement, “FOR” adjournment of the special meeting, if necessary or appropriate to permit further solicitation of proxies, and as directed by the persons named on the enclosed proxy card on any other matters properly brought before the special meeting for a vote.
If your shares are held in street name, you should follow the instructions of your broker, dealer, commercial bank, trust company or other nominee regarding revocation or change of proxies. If your broker, dealer, commercial bank, trust company or other nominee allows you to submit voting instructions by telephone or through the Internet, you may be able to change your vote by submitting new voting instructions by telephone or through the Internet.
You may revoke or change your proxy at any time before the vote is taken at the special meeting, except as otherwise described below. If you have not voted through your broker, dealer, commercial bank, trust company or other nominee because you are the registered stockholder, you may revoke or change your proxy before it is voted by:
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submitting a duly executed proxy bearing a later date;
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if you voted by telephone or the Internet, by voting a second time by telephone or Internet, but not later than 11:59 p.m. (Eastern Time) on , 2011 (or, if the special meeting is adjourned, on the date before the special meeting date); or
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by attending the special meeting and voting in person (simply attending the special meeting will not constitute revocation of a proxy; you must vote in person at the special meeting).
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GSI does not expect that any matter other than the proposal to adopt the merger agreement and, if necessary or appropriate, the proposal to adjourn the special meeting will be brought before the special meeting. If, however, such a matter is properly presented at the special meeting or any adjournment of the special meeting, the persons named on the enclosed proxy card will have authority to vote the shares represented by duly executed proxies their discretion.
Please do NOT send in your share certificates with your proxy card. If the merger is completed, stockholders will be mailed a transmittal form following the completion of the merger with instructions for use in effecting the surrender of certificates in exchange for the merger consideration.
Adjournments
Although it is not currently expected, the special meeting may be adjourned for the purpose of soliciting additional proxies. Any adjournment may be made without notice, other than an announcement made at the special meeting, if the adjournment is not for more than 30 days. If a quorum exists, then holders of a majority of the votes of GSI common stock present in person or represented by proxy at the special meeting and entitled to vote on the
matter may adjourn the special meeting. Alternatively, if no quorum exists, then holders of a majority of the stock present at the special meeting in person or represented by proxy may adjourn the special meeting. Any signed proxies received by GSI will be voted in favor of an adjournment in these circumstances, although a proxy voted “AGAINST” the proposal for the adjournment of the special meeting will not be voted in favor of an adjournment for the purpose of soliciting additional proxies. GSI stockholders who have already sent in their proxies may revoke them prior to their use at the reconvened special meeting following such adjournment, in the manner described above. Broker non-votes, if any, will not have any effect on the vote for the adjournment of the special meeting, and abstentions, if any, will have the same effect as a vote “AGAINST” the adjournment of the special meeting.
The Proxy Solicitation
The Board of Directors is soliciting proxies in connection with the special meeting. For information regarding agreements among eBay, our directors and certain of our officers, under which such directors and officers have agreed, among other things, to vote or cause to be voted their shares of GSI common stock in favor of adoption of the merger agreement, see “Voting and Support Agreements” on page 76. The expenses of preparing, printing and mailing this proxy statement and the proxies solicited hereby will be borne by GSI. Additional solicitation may be made by telephone, facsimile, e-mail, in person or other contact by certain of our directors, officers, employees or agents, none of whom will receive additional compensation therefor. We will reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable expenses for forwarding
material to the beneficial owners of shares held of record by others. We have also engaged Georgeson Inc. to assist in the solicitation of proxies for the special meeting, and we estimate that we will pay them a fee of approximately $15,000, and will reimburse them for reasonable administrative and out-of-pocket expenses incurred in connection with such solicitation.
Attending the Special Meeting
In order to attend the special meeting in person, you must be a stockholder of record on the record date, hold a valid proxy from a record holder or be an invited guest of GSI. You will be asked to provide proper identification at the registration desk on the day of the special meeting or any adjournment of the special meeting.
Questions and Additional Information
If you have more questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call our proxy solicitor:
199 Water Street, 26th Floor
Banks and Brokers Call: (212) 440-9800
All Others Toll Free: (866) 628-6021
THE MERGER
Background of the Merger
Our Board of Directors and management regularly review and assess our long-term strategy, objectives and developments in light of our performance, risks, opportunities, stockholder sentiment and overall strategic direction. This review includes, from time to time, proposals for the acquisition or disposition of businesses, formation of commercial relationships with strategic significance, strategic investments and other matters.
In recent years, we have made several acquisitions and investments designed to diversify our business beyond our core e-commerce services segment, expanding into marketing services and consumer engagement businesses. In October 2009, GSI announced the acquisition of Retail Convergence Inc., which operates RueLaLa.com (“Rue La La”), an e-commerce company that conducts private “flash” sales. In the fourth quarter of 2010, GSI launched ShopRunner, a consumer membership program that offers members free two-day shipping and free return shipping from online retailers for an annual membership fee. Certain of these businesses required GSI to own and manage inventory in addition to providing e-commerce services. Research analysts and the investor community expressed some concern that our acquisition strategy had caused our business to become more complex, and our share price declined during the course of 2010 and underperformed
our sector peers.
In November 2010, our Board of Directors met with Morgan Stanley & Co. Incorporated (“Morgan Stanley”) to hear Morgan Stanley’s advice regarding strategic options available to GSI to potentially create value for our stockholders, including a sale of the Company as a whole to either a strategic buyer or a financial sponsor or potential divestitures of certain businesses, including Rue La La. Based on the different businesses that we operate and other factors, Morgan Stanley advised GSI that there were a limited number of potential strategic buyers for the entire Company, and analyzed alternatives for monetizing certain of our businesses, including Rue La La.
In addition to acquisitions, GSI occasionally pursues commercial relationships with strategic significance. GSI has longstanding commercial relationships with eBay and its subsidiaries, including PayPal. Prior to November 2010, these relationships comprised a series of commercial agreements, generally for payment processing services. eBay considered making a strategic purchase of a minority stake in GSI in 2007, when one of our significant stockholders was seeking to sell its shares in a secondary transaction. In that context, GSI and eBay entered into a mutual nondisclosure agreement in November 2007 and eBay met with GSI’s management. Ultimately, eBay decided not to pursue the transaction. However, members of senior management of GSI and eBay continued to develop their working relationship, and, from time to time, discussed the
potential for broader collaboration between the companies. Throughout 2010 GSI’s chief executive officer, Michael Rubin, had frequent calls with Scott Thompson, the president of PayPal, to discuss matters relating to the companies’ working relationship and developments in the e-commerce industry, and Mr. Thompson was a featured speaker in 2010 at GSI’s annual client summit.
On November 3, 2010, GSI entered into a strategic relationship with PayPal related to the integration of PayPal’s Express Checkout payment functionality on GSI’s platform, the purchase of email marketing services by PayPal from GSI and the promotion by PayPal of Rue La La. GSI’s clients, particularly larger brands and retailers, rapidly adopted the PayPal Express Checkout functionality in their payment flows, which was a factor in validating the potential for business collaboration between GSI and PayPal. On December 21, 2010, Mr. Thompson and Robert Swan, eBay’s senior vice president, finance and chief financial officer, called Mr. Rubin to express their enthusiasm for how well the commercial relationship was working and suggested a dinner in January to discuss ways in which the companies could potentially expand their commercial
relationship.
On January 5, 2011, the Company entered into a non-binding indication of interest for the acquisition of Fanatics, Inc. (“Fanatics”), an online retailer of licensed sports merchandise.
On January 30, 2011, Mr. Rubin and Damon Mintzer met with Mr. Swan and Mr. Thompson for dinner and discussed the working relationship between the companies. At the time, Mr. Mintzer was serving as GSI’s executive vice president, sales, but was in the process of transitioning into his new and current position serving as GSI’s executive vice president of strategic business development. At this dinner Mr. Swan raised the possibility of an acquisition of GSI by eBay.
On January 31, 2011, Messrs. Rubin, Mintzer, Thompson and Swan met at GSI’s headquarters. At this meeting, Mr. Swan indicated that eBay would be potentially interested in acquiring GSI, but that, if it did so, it would not be interested in acquiring GSI’s licensed sports merchandise business or consumer engagement businesses (Rue La La and ShopRunner), except that it would be important to eBay to retain a minority stake in the consumer engagement businesses. During the discussion of a possible transaction, Mr. Swan raised the possibility that Mr. Rubin might be a logical buyer for those businesses given his familiarity with them and eBay’s preference that the sale be completed at the time of an acquisition of GSI, if one was to occur. eBay indicated that it would be prepared to extend Mr. Rubin financing on favorable terms (similar to returns eBay was earning on its excess
cash) to purchase these businesses, with some portion of the purchase price to be funded in cash by Mr. Rubin.
Mr. Rubin told Mr. Swan that because GSI’s management team was currently focused on an acquisition of Fanatics, the Company could not consider such a proposal at that time, but that it would be worthwhile to have another discussion after GSI’s earnings announcement, which was scheduled to take place in the week of February 7, 2011. In the course of the discussion between Messrs. Swan and Rubin, Mr. Swan mentioned a possible rough value of the licensed sports merchandise and consumer engagement businesses (after taking into account the Fanatics business) of approximately $500 million. However, Mr. Rubin agreed to make Mr. Minzter available over the next few weeks to help eBay gain a high-level understanding of GSI's business. Later that day, Messrs. Swan, Mintzer and Rubin and other GSI employees
had further discussions regarding the existing and potential commercial relationship between the companies and GSI’s business generally.
On February 1, 2011, Mr. Rubin spoke with Ron Fisher, GSI’s lead independent director, and discussed, among other things, eBay’s expression of interest in a possible acquisition of GSI, the potential structure of the transaction, and the possibility that Mr. Rubin would purchase the licensed sports merchandise business and consumer engagement businesses (with eBay retaining a minority interest in the consumer engagement businesses). Mr. Rubin also informed Mr. Fisher that he would defer any discussion of an acquisition of GSI while the Fanatics transaction was pending other than continuing to educate eBay as to GSI’s business.
On February 3, 2011, Mr. Mintzer visited eBay for a meeting with Mr. Swan. Their discussion consisted of a high-level briefing on GSI’s business.
GSI announced its earnings and the Fanatics transaction on February 9, 2011. Investor reaction was disappointing. Stockholders and analysts expressed frustration with the Company’s guidance relating to expected losses in the Rue La La and ShopRunner businesses as a result of planned investments in those businesses and projected capital expenditures relating to the new IT platform that GSI was in the process of building. Investors also expressed concern that the Fanatics acquisition added further complexity to the business model.
On February 10, 2011, eBay held its analyst day. In discussing its strategic plan, eBay indicated that it would look for opportunities to, among other things, broaden its business to include service offerings targeting larger retailers, discussed the size of the possible market opportunities presented to eBay in this segment and indicated that it would consider exploring strategic acquisitions to expand its footprint in this segment of the e-commerce market.
On February 11, 2011, Mr. Swan called Mr. Rubin to reiterate an interest in discussing a possible acquisition of GSI, and they agreed to follow up with each other in the following week.
On February 15, 2011, Mr. Swan called Mr. Rubin to follow up on their prior discussion. Mr. Swan again stated that eBay was not interested in acquiring the licensed sports merchandise businesses (TeamStore and Fanatics), and that while eBay had some interest in the consumer engagement businesses (ShopRunner and Rue La La), it did not want to own a majority stake in or operate those businesses due to, among other reasons, conflicts of interest with its Marketplaces’ sellers and possible future regulatory issues. Accordingly, Mr. Swan indicated that eBay would have an interest in acquiring GSI in a transaction structured in a manner that would allow eBay to purchase GSI without retaining control of the aforementioned businesses. Hereafter, we will refer to TeamStore, Fanatics, Rue La La and ShopRunner collectively as the “Excluded Businesses.” Messrs. Swan and Rubin
again discussed that a sale of the Excluded Businesses (with eBay retaining a minority interest in the consumer engagement businesses) to Mr. Rubin was a logical option due to his familiarity with the Excluded Businesses. Hereafter, we will refer to the potential sale of the Excluded Businesses to Mr. Rubin (with eBay
retaining a minority interest in the consumer engagement businesses) as the “Divestiture Transaction.” Mr. Swan expressed his view that a transaction structure of the kind being discussed would provide GSI’s stockholders with certainty and compelling value. Mr. Swan and Mr. Rubin also discussed certain additional terms of a possible transaction, including a possible valuation of the Excluded Businesses of $500 million; the possibility that eBay could offer Mr. Rubin a loan with a 7.5 year term, interest-only payments and an interest rate equal to LIBOR; the possibility that eBay would retain a 30% stake in ShopRunner and 15% stake in Rue La La and the possibility that eBay would be willing to provide $37.5 million of working capital to each of ShopRunner and Rue La La and forgive approximately $20 million of intercompany indebtedness between GSI and Rue La La.
Mr. Rubin made it clear that he would not be involved in the negotiation of a merger transaction between the companies. Mr. Rubin indicated that GSI could provide limited high-level due diligence information to enable eBay to determine whether it wanted to pursue a possible transaction, but that GSI would not be in a position to consider any possible transaction prior to the closing of the Fanatics transaction, and that any negotiation relating to an acquisition would be conducted by a committee of independent directors of GSI.
Later that same day Mr. Rubin called Mr. Swan to request that eBay provide a preliminary indication of price ranges for the Company’s common stock in order to determine if eBay’s interest was serious enough to merit providing any due diligence. Mr. Swan indicated that, subject to board approval and assuming certain synergies could be realized, eBay would potentially be willing to offer a purchase price of $27.00-30.00 per share for all of the outstanding shares of GSI.
Later in the day on February 15, 2011, Messrs. Swan, Rubin and Mintzer had a call to discuss eBay’s initial high level due diligence requests. Mr. Mintzer had a further follow-up call on that same day and a meeting on the following day with representatives of eBay’s corporate development group to discuss GSI’s business generally and eBay’s high level due diligence requests. The representatives of GSI and eBay confirmed that the 2007 nondisclosure agreement between eBay and GSI would apply to any information exchanged by the parties.
On February 16, 2011, Mr. Rubin met with Mr. Fisher and briefed him on the status of discussions with eBay regarding a potential transaction with GSI and the potential Divestiture Transaction, noting that he had again declined to enter into negotiations regarding a potential transaction between GSI and eBay, and on eBay’s initial high level due diligence review. Mr. Fisher indicated that the full Board of Directors should be informed at its next meeting, scheduled to take place the following week, on February 23. Mr. Rubin also mentioned eBay’s possible interest in acquiring GSI to other members of GSI’s Board of Directors in the weeks leading up to GSI’s February 23, 2011, Board of Directors meeting.
Also on February 16, 2011, Mr. Mintzer visited eBay’s offices for a meeting with Mr. Swan and members of eBay’s corporate development group to discuss eBay’s requests for information regarding GSI’s business.
On February 22, 2011, Mr. Mintzer attended a meeting at eBay’s offices. Numerous representatives of eBay and two representatives from Goldman Sachs & Co. (“Goldman Sachs”), eBay’s financial advisor, attended this meeting at which Mr. Mintzer further educated eBay regarding GSI’s business.
In the evening of February 22, 2011, all but two of the members of GSI’s Board of Directors and Michael Conn, GSI’s chief financial officer, met for dinner preceding the next day’s Board of Directors meeting. At the dinner, Mr. Rubin described eBay’s potential interest in acquiring the Company, the fact that eBay was not interested in buying the licensed sports merchandise business or majority control of the consumer engagement businesses, the potential Divestiture Transaction and the status of eBay’s ongoing due diligence review.
On February 23, the Board of Directors held a regularly scheduled meeting. Among other matters discussed at the meeting, Mr. Rubin informed the entire Board of Directors of eBay’s interest in a potential acquisition, the potential for a sale of the Excluded Businesses to Mr. Rubin, and that initial due diligence meetings had taken place among representatives of GSI and eBay. Mr. Rubin also told the Board of Directors that he had informed eBay that GSI would not engage in negotiations relating to a potential sale of the Company prior to the closing of the Fanatics acquisition. Paul Cataldo, GSI’s senior vice president and general counsel, legal and corporate affairs, reviewed the Board of Directors’ fiduciary duties arising in connection with a sale of the Company,
including the steps that would be followed if the transaction structure contemplated a transaction with an
interested party. The Board of Directors approved continued high-level due diligence discussions, and instructed Mr. Rubin not to participate in negotiations for the sale of GSI given his potential involvement in the acquisition of the Excluded Businesses.
On March 1, 2011, Mr. Fisher and Mr. Rubin had a telephone conversation in which they discussed eBay’s potential interest in pursuing an acquisition of GSI.
On March 5, 2011, Mr. Rubin and Mr. Thompson held a meeting at PayPal’s offices, at which they discussed the commercial relationship between GSI and PayPal. Mr. Swan joined this meeting and initiated a discussion of the potential transaction between eBay and GSI. In light of a previously scheduled meeting of eBay’s Board of Directors on March 15 and March 16, 2011, Mr. Swan expressed a desire to expedite the due diligence process, and outlined the tasks that eBay would need to complete prior to its board meeting, and before it would be in a position to make any indication of interest to GSI, as well as the detailed due diligence investigation that would need to be conducted after an initial indication of interest but before signing a definitive agreement. Mr. Swan noted eBay’s desire to conduct due diligence on GSI’s new technology
platform, litigation exposures and customer contracts and to meet with key members of GSI’s management team soon. During this meeting, Messrs. Swan and Rubin also discussed further details of the possible Divestiture Transaction, including the purchase price for each of the Excluded Businesses; eBay’s willingness to provide Mr. Rubin with $421 million of debt financing; eBay’s requirement that Mr. Rubin contribute $25 million in cash; eBay’s indication that it wished to retain a 30% interest in Rue La La, rather than 15% as previously indicated; and eBay’s willingness to increase the amount of capital contributed to the Excluded Businesses. The parties also discussed in general terms the key agreements that would need to be entered into in connection with the Divestiture Transaction, and noted the issues that would need to be negotiated. These issues primarily related to eBay’s
rights as a minority stockholder in ShopRunner and Rue La La, such as board seats and rights upon a sale of shares by the other party. Mr. Swan further indicated that eBay would expect Mr. Rubin to enter into a non-competition agreement. The parties also discussed possible candidates to run GSI’s business if a transaction occurred.
Mr. Rubin noted that before eBay would be permitted to proceed with further due diligence, he wanted eBay’s assurance that any offer to acquire GSI would be on “market” terms as to timing and certainty of closure and at an attractive price premium. In that context, Messrs. Swan and Rubin identified some of those key terms, including limited closing conditions, the need for a market check process, and related break-up fees. Mr. Rubin reiterated, however, that, given his involvement in the Divestiture Transaction, he would not be negotiating the merger transaction for GSI and that eBay should be prepared to address the terms discussed with a special committee of GSI’s Board of Directors that would likely be formed for the purpose of conducting merger negotiations. On the basis of Mr. Swan’s assurance that any transaction terms would be reasonable and market-based and that the price would reflect an attractive premium,
Mr. Rubin agreed to arrange for the additional due diligence meetings. With respect to the terms of a possible Divestiture Transaction, Mr. Rubin indicated that he would not be willing to agree to provisions that gave eBay, as a minority investor, veto rights over business decisions and would not agree to be bound by “drag along” or forced sale rights. He indicated that his willingness to enter into a non-competition agreement would depend on the scope of such an agreement.
Finally, the parties discussed the timeline and next steps. Mr. Rubin noted that the Fanatics transaction was scheduled to close on or about March 15, 2011. Mr. Swan indicated that if eBay’s Board of Directors approved proceeding with a transaction, eBay would like the transaction to be completed quickly.
On March 7, 2011, Mr. Rubin informed GSI’s Board of Directors and internal legal counsel that discussions with eBay were ongoing and that eBay had requested an opportunity to conduct additional due diligence on the Company’s new “v11” e-commerce technology platform as well as the opportunity to meet with certain key members of GSI’s management. During the early to mid-March time frame, Mr. Rubin also had conversations with individual members of the Board of Directors, including meetings with Mr. Michael Donahue and Mr. Jeffrey Rayport, each independent directors, regarding the possibility of a transaction between GSI and eBay.
On March 8, 2011, Mr. Fisher and Mr. Rubin had two telephone conversations to discuss the potential transaction between GSI and eBay.
On March 10, 2011, Mr. Fisher had a discussion with Mr. Donahue regarding steps that would need to be taken if eBay expressed an indication of interest, including formation of a special committee and the potential composition of such committee, selection of legal and financial advisors and other process matters.
On March 11, 2011, eBay representatives, including Mr. Swan, Mr. Thompson and several others, visited GSI’s offices in King of Prussia, Pennsylvania and met with multiple GSI representatives from the IT team to conduct due diligence on the IT platform and to see a technology demonstration. Several key members of GSI’s management team also met with eBay representatives.
On March 16, 2011, Mr. Swan called Mr. Rubin and indicated that eBay’s Board of Directors was supportive of a transaction, assuming that the parties were able to reach agreement on price, structure and terms. Mr. Swan also indicated that in addition to acquiring the Company, eBay continued to have an interest in retaining a minority stake in the consumer engagement businesses; that eBay believed that there were transaction structures that could deliver optimal value to GSI’s stockholders and, at the same time, achieve eBay’s goals; that while eBay would be willing to discuss alternative structures, it believed that due to Mr. Rubin’s familiarity with the businesses, a sale to him would simplify execution; that a good next step would be for counsel to the parties to connect and discuss the best
path forward and an appropriate process; that speed was important for all parties so as to avoid any premature public announcement of the discussions; and that because a transaction structure that allowed eBay to pay the most compelling value may involve a divestiture, eBay would want to undertake separation planning in some detail.
Representatives of GSI and eBay and their respective counsel had follow-up calls that same day to discuss implementation of legal processes and next steps. The parties agreed, subject to receiving authorization from GSI’s Board of Directors, that they would focus on issues relating to the separation of the Excluded Businesses as a priority, to confirm that separation was feasible and to achieve a general agreement on structure of the Divestiture Transaction. They further agreed that detailed due diligence and negotiation of documents for the transactions would proceed simultaneously in light of the interest of all parties in avoiding premature disclosure of the possible transactions and, in that context, entering into definitive documentation as soon as practicable.
On March 17, 2011, Mr. Fisher telephoned Mr. Swan and indicated to Mr. Swan that he had talked to Mr. Rubin and was aware of and had been briefed on the previous discussions between Messrs. Rubin and Swan about the possible transactions. Mr. Fisher proceeded to ask Mr. Swan, among other things, to confirm that the price that eBay would offer for the shares of GSI would represent an attractive premium over the historical price of the Company’s common stock prior to the recent decline following the announcement of the Company’s fourth quarter earnings, 2011 earnings guidance and the Fanatics transaction. While Mr. Swan did not provide an indicative price, he did make the confirmation that Mr. Fisher requested. Mr. Fisher
also informed Mr. Swan that all negotiations for the sale of GSI would be conducted by a special committee, and discussed process matters including steps to be taken to preserve confidentiality regarding the transaction and the mutual desire to complete a transaction as soon as possible to avoid premature disclosure. Mr. Fisher also stated that such special committee would expect to negotiate one price for the sale of the Company as a whole and would expect eBay to conduct separate negotiations with Mr. Rubin on the Divestiture Transaction.
A special meeting of GSI’s Board of Directors was convened telephonically on March 17, 2011 in order to discuss eBay’s indication of interest. Mr. Conn, Mr. Cataldo and a representative of Morgan, Lewis & Bockius LLP, outside legal counsel to the Company (“Morgan Lewis”), also attended the meeting. Following a report to the Board of Directors by Mr. Rubin regarding eBay’s interest in GSI, including the details regarding Mr. Swan’s call the previous evening, Mr. Rubin and Mr. Conn were excused from the meeting to enable the Board of Directors to continue in executive session with counsel. Morgan Lewis reviewed with the Board of Directors their fiduciary duties in connection with the potential transaction and provided guidance on the legal considerations and process regarding the
formation of a special committee to consider the potential transaction. Given the potential role of Mr. Rubin in the Divestiture Transaction, the Board of Directors authorized the formation of a special committee consisting of M. Jeffrey Branman, Mr. Donahue, Mr. Fisher and Mr. Rayport, each an independent director, to negotiate the terms of a potential transaction with eBay. The special committee was authorized to consider and negotiate a possible acquisition by eBay and any alternative transaction, with authority to approve any such
transaction reserved to the full Board of Directors. The special committee was also empowered to, among other things: review and evaluate any potential transaction; establish procedures for the review and evaluation of any potential transaction; solicit expressions of interest or proposals for any potential transaction; negotiate the terms of any potential transaction and, to the extent permitted by applicable law, approve the execution and delivery of definitive agreements for any potential transaction; authorize management’s participation in the conduct of negotiations and supervise any such participation by management; determine whether any potential transaction is fair to and in the best interests of the Company’s stockholders and report to the Board of Directors its recommendation with respect to a potential transaction.
Following the meeting, the special committee held an initial organizational meeting by telephone with a representative of Morgan Lewis and Mr. Cataldo in attendance. Morgan Lewis discussed with the special committee issues regarding proper special committee function, including the importance of selecting independent legal and financial advisors. After discussion, the special committee determined to retain Davis Polk & Wardwell LLP (“Davis Polk”) as its legal advisor, and an engagement letter with Davis Polk was executed on the same day. Later that day, the special committee held a second telephonic meeting with representatives of Davis Polk in attendance. At this second meeting, the special committee discussed the contemplated transaction structure and timing and the due diligence process, and authorized Mr. Branman to negotiate two nondisclosure agreements, an agreement with Mr. Rubin and an amendment to eBay’s
existing nondisclosure agreement signed in 2007 with GSI, in order to obtain additional protections for the Company. The special committee also discussed the need to retain a financial advisor and reviewed materials outlining GSI’s relationships with financial advisors since 2007. The special committee discussed the advantages of retaining Morgan Stanley in this capacity, given that Morgan Stanley had recently completed a strategic review of options for maximizing value to GSI stockholders, as well as GSI’s prior experience with Morgan Stanley and members of its investment banking team. In addition, representatives of Davis Polk reviewed the special committee’s fiduciary duties in connection with the potential transaction and provided guidance on the legal process that the special committee should follow to ensure that best transaction reasonably available for GSI stockholders was
achieved.
In the evening of March 17, 2011, Mr. Branman and Mr. Donahue had a discussion with Morgan Stanley regarding its potential engagement. On March 17 and 18, 2011, nondisclosure agreements between GSI and each of eBay and Mr. Rubin were negotiated. The nondisclosure agreements were signed on March 18, 2011.
Also on March 17, 2011, at the request of the special committee, Mr. Rubin agreed to suspend discussions with eBay regarding the Divestiture Transaction and a potential acquisition of GSI until the special committee permitted such discussions to resume, although the special committee permitted Mr. Rubin’s counsel to continue to discuss with eBay’s counsel structural issues regarding the Divestiture Transaction.
The special committee held a telephonic meeting on March 18, 2011 with representatives of Davis Polk in attendance. At this meeting the special committee discussed a number of process matters, including the status of discussions on the nondisclosure agreements, procedures for maintaining confidentiality of information, discussions with Morgan Stanley concerning its potential engagement and a proposal to engage Delaware counsel to the special committee. The special committee discussed procedures to be followed to ensure that the Divestiture Transaction did not adversely affect the special committee’s ability to achieve the best available transaction for GSI’s stockholders in a potential transaction with eBay. The special committee resolved that it would facilitate the planning discussions and monitor the terms of agreements relating to the Divestiture Transaction, in order
to understand and assess any potential impact on stockholder value. Representatives of Davis Polk reviewed with special committee members the legal standards applicable in the context of the potential transaction and Mr. Rubin’s role in the potential Divestiture Transaction.
Also on March 18, 2011, eBay’s counsel, Dewey & LeBoeuf LLP (“Dewey”), sent Davis Polk a draft merger agreement, which did not contain a price proposal, and a form of voting and support agreement. Also on that date, representatives of Morgan Stanley met with Mr. Conn and other representatives of GSI in King of Prussia, and Mr. Cataldo convened an all-hands organizational call among the legal and financial advisors to each of the parties to coordinate the upcoming due diligence process and the schedule for meetings to negotiate the terms of definitive documentation for a potential transaction with eBay.
On March 19 and March 20, 2011, lawyers from Dewey conducted legal due diligence at the offices of Morgan Lewis and GSI. During this period, Mr. Rubin’s legal counsel from Sullivan & Cromwell LLP (“Sullivan & Cromwell”) and eBay’s legal counsel from Dewey discussed structural issues relating to the possible separation of the Excluded Businesses from GSI.
On March 20, 2011, the special committee held a telephonic meeting with representatives of Davis Polk in attendance. The special committee discussed the high-level issues presented in the draft merger agreement prepared by Dewey, including provisions that conditioned the merger on the closing of the Divestiture Transaction, and discussed matters relating to annual equity incentive awards and transaction bonuses under consideration by the Board of Directors’ compensation committee. The special committee discussed Morgan Stanley’s potential engagement as financial advisor and the importance of providing an extra financial incentive for Morgan Stanley to conduct a robust go-shop process. The special committee decided to propose that the fee structure in Morgan Stanley’s engagement letter include an additional success-based fee payable if the transaction value was increased as
a result of a go-shop process. In addition, the special committee discussed the fact that a director of the Company, Mark S. Menell, had expressed interest in joining the management team at ShopRunner. The special committee determined that it would be appropriate for both Mr. Menell and Mr. Rubin to recuse themselves from all Board of Directors deliberations relating to the potential transaction with eBay due to their potential conflicts of interest. The special committee agreed upon a schedule of meetings for the coming week. Also on March 20, 2011, the special committee engaged Richards, Layton & Finger P.A. as its local counsel in Delaware.
On March 21, 2011, the special committee notified Mr. Rubin that he could resume discussions with eBay concerning the Divestiture Transaction, provided that he not discuss the price of the Divestiture Transaction until eBay had delivered a price proposal to the special committee for GSI, or negotiate the terms of the merger transaction.
Also on March 21, 2011, GSI and eBay began a series of in-depth business and legal due diligence meetings at an offsite location near GSI’s offices in King of Prussia. These meetings continued through March 23, 2011. Special committee members Mr. Branman and/or Mr. Donahue also attended portions of the due diligence meetings held on March 21, 2011 and March 23, 2011.
Also on March 21, 2011, the special committee held a telephonic meeting with representatives of Davis Polk in attendance. At this meeting, Mr. Branman provided an update on the negotiations of the Morgan Stanley engagement letter and on certain compensation matters under consideration by the Board of Directors’ compensation committee. Representatives of Davis Polk discussed certain significant issues identified in the merger agreement, which included the extent of inter-conditionality between the merger and the Divestiture Transaction, recommendations for improving the go-shop provisions to facilitate an effective go-shop process, the amount of termination fees, the extensiveness of representations and warranties and other matters relating to certainty of closing. The special committee considered whether it would have a direct role in the negotiation of the terms of the Divestiture
Transaction, and decided that, so long as the merger was not conditioned on the completion of the Divestiture Transaction, and so long as the special committee was satisfied that the Divestiture Transaction, if consummated, would not negatively impact the price paid to the Company’s stockholders, the special committee would not be directly involved in negotiation of the Divestiture Transaction. The special committee authorized Mr. Fisher and Mr. Branman to enter into discussions with eBay on the more significant issues identified in the merger agreement. Subsequent to the meeting, Mr. Fisher and Mr. Branman called Mr. Swan to discuss certain issues presented in the draft merger agreement.
Also on March 21, 2011, Dewey sent to Sullivan & Cromwell the initial draft of a non-competition agreement and a voting and support agreement relating to the potential transactions.
On March 22, 2011, at the direction of the special committee, the Company executed its engagement letter with Morgan Stanley.
Also on March 22, 2011, the special committee held a telephonic meeting with representatives of Davis Polk in attendance. At this meeting the special committee discussed, among other things, actions under consideration by GSI’s compensation committee, including scheduled annual equity incentive awards and a potential retention incentive program relating to the potential transaction. The special committee decided that the
compensation committee and the Board of Directors should defer taking any action on the potential retention incentive program until after the Company and eBay had either agreed on a price for the potential transaction or terminated discussions, and that eBay should be informed of the allocation of awards at that time if a transaction with eBay was to proceed. After discussion on the terms of the merger agreement, the special committee resolved to seek Morgan Stanley’s advice regarding the structure of the potential transaction and terms of the go-shop provision before sending a mark-up of the merger agreement back to Dewey.
Also on March 22, 2011, Sullivan & Cromwell sent initial drafts of the divestiture agreements to Dewey.
On March 23, 2011, the special committee held a telephonic meeting with representatives of Davis Polk in attendance. Representatives of Morgan Stanley were also in attendance for the first half of the meeting. Representatives of Morgan Stanley provided an update on meetings and due diligence sessions that had been conducted during the week and discussed the status of its valuation work and the process for rendering a fairness opinion. Representatives of Morgan Stanley also led a detailed discussion of the go-shop provisions included in the draft merger agreement as compared to provisions found in other transactions with both strategic and financial buyers, as well as the benefits and issues associated with pursing a go-shop process. Representatives of Davis Polk also presented their views on recommended improvements to the go-shop provisions. The special committee authorized
Davis Polk to revise the draft merger agreement to reflect, among other things, the improvements to the go-shop terms discussed at the meeting. Later that evening, Davis Polk sent a revised version of the merger agreement (still without a price term) and form of voting and support agreement to Dewey.
Also on March 23, 2011, Mr. Swan had one-on-one meetings throughout the day with certain members of GSI management. That evening, the eBay and GSI management teams, including Mr. Swan and Mr. Thompson from eBay and Mr. Rubin, Mr. Conn and others from GSI, had dinner in New York. Special committee member Mr. Branman also attended the dinner.
Also on March 23, 2011, representatives of Dewey and Sullivan & Cromwell conducted negotiations on the agreements proposed to be entered into in connection with the Divestiture Transaction.
On March 24, 2011, the special committee held a telephonic meeting. Representatives of Davis Polk, Morgan Lewis and certain members of the Company’s management team, including Mr. Conn, were also in attendance. At this meeting, the special committee discussed the most significant issues affecting eBay’s perception of the value of the Company. The special committee also discussed a number of process matters, including its expectations for receipt of a price proposal from eBay and the agenda items for the full Board of Directors meeting to be held the following day.
Also on March 24, 2011, Sullivan & Cromwell and Dewey conducted negotiations on the terms of the Divestiture Transaction. Mr. Rubin, Mr. Swan and representatives of Goldman Sachs and Qatalyst, Mr. Rubin’s financial advisor, were in attendance for portions of these negotiations. During the course of these negotiations, the parties confirmed the economic terms of the transaction previously discussed, but Mr. Rubin agreed that, in addition to making a $25 million capital contribution, he would personally guarantee $30 million of the debt financing to be provided by eBay.
At 7:00 a.m. on March 25, 2011, Mr. Swan called Mr. Branman and reported that eBay was prepared to offer a price of $27.50 in cash per share to GSI stockholders. Mr. Swan confirmed that the merger would not be conditioned upon the Divestiture Transaction.
In the morning of March 25, 2011, GSI held an in-person and telephonic meeting of the full Board of Directors, with certain members of GSI management, including Mr. Conn, and representatives of Davis Polk, Morgan Lewis, and Morgan Stanley in attendance. Mr. Menell and Mr. Rubin departed the meeting immediately after it commenced and took no part in the deliberations due to potential conflicts of interest in connection with the potential sale of the Company to eBay and the Divestiture Transaction.
After a review of the agenda, Mr. Branman provided an update on the process followed by the special committee since its formation and the status of ongoing due diligence and negotiations with eBay, noting that the
special committee had not participated in any negotiations between eBay and Mr. Rubin with respect to the Divestiture Transaction. Mr. Branman reported that he had received a call from Mr. Swan stating that eBay was prepared to pay $27.50 in cash per share to the Company’s stockholders.
Representatives of Davis Polk described the Board of Directors’ fiduciary duties in connection with considering eBay’s offer and noted that, if the Board of Directors decided to pursue a transaction, it must obtain the best transaction reasonably available for GSI stockholders. Representatives of Davis Polk also led a discussion of the terms of the draft merger agreement and voting and support agreement. Davis Polk outlined certain significant issues presented in the draft merger agreement and the improvements in terms that would be sought. Members of the Board of Directors asked questions and engaged in discussion throughout these presentations.
Thereafter, representatives of Morgan Stanley conducted a presentation regarding its preliminary financial analyses of the proposed transaction, market perspectives on the Company, the various preliminary analyses Morgan Stanley performed in connection with its ongoing valuation of the Company and various process considerations, including Morgan Stanley’s research with respect to “go-shop” provisions. Morgan Stanley also presented its view of candidates that might be interested in pursuing a business combination with GSI, based on its knowledge of the strategic landscape and potential acquirers, its November 2010 analysis as well as discussions that had been held with certain potential buyers in 2007 and 2008, and discussed the “go-shop” process
that Morgan Stanley would run if the Company entered into a transaction with eBay. Morgan Stanley noted that there were a limited number of potential candidates to acquire GSI as a whole, and that having recently announced a strategic plan indicating its intention to focus more on service offerings targeting larger retailers, including by exploring potential acquisitions, eBay currently appeared to Morgan Stanley to be highly motivated to complete a transaction with GSI. Finally, Morgan Stanley and Mr. Conn explained that two different sets of projections, each prepared by GSI’s management, had been examined by Morgan Stanley in performing its financial analyses, one set which reflected the impact of certain potentially achievable operational and financial targets illustrating a potential upside scenario, including anticipated future cost savings arising from the
Company’s investments in its IT platform and potential improvements in performance of recently acquired businesses, and another set which reflected more conservative assumptions, each of which is further described below under “—Projected Financial Information and Sensitivity Analysis” beginning on page 77 of this proxy statement.
The Board of Directors discussed eBay’s initial offer of $27.50 per share to GSI stockholders and expressed disappointment in the offer price. The Board of Directors discussed various alternatives to the proposed transaction, including continuing to pursue a stand-alone strategy, contacting other potential acquirors and exploring options for selling some or all of the Excluded Businesses. The Board of Directors considered that based on the different businesses that GSI operated and other factors, the number of potential buyers for the entire Company was probably limited. With respect to the Excluded Businesses, the Board considered that due to the nature of the Excluded Businesses, there may not be any natural buyers for the Excluded Businesses as a whole, certain change of control limitations related to the Excluded Businesses that presented challenges in selling the Excluded Businesses (in whole or in part) to third parties,
and that alternatives to the sale of the Excluded Business to Mr. Rubin would present execution risk to the transaction with eBay. The Board of Directors also discussed whether it should postpone consideration of a sale of the Company at this time.
Following discussions among the directors, the Board of Directors authorized the special committee to continue negotiations with eBay to seek a price of $31.50 per share. The special committee decided to hold meetings throughout the weekend as necessary and as negotiations regarding the potential transaction progressed.
At this meeting, after excusing the members of management in attendance, the Board of Directors also approved the grant of annual equity awards recommended by the Board of Directors’ compensation committee, but deferred consideration as to potential incentive payments until after price negotiations had been completed.
After the review by the Board of Directors of eBay’s offer, special committee members Mr. Branman and Mr. Fisher met with Mr. Swan and informed him that the Board of Directors expected a higher price per share. They noted that the high end of the previously indicated range was $30.00 per share. Later that morning, GSI asked eBay to consider a price of $31.50 per share.
Also on March 25, 2011, Sullivan & Cromwell and Dewey conducted further negotiations on the terms of the Divestiture Transaction.
During the late afternoon and early evening of March 25, 2011, representatives of the special committee, eBay, Davis Polk, Dewey, Morgan Stanley and Goldman Sachs entered into a series of discussions relating to the Divestiture Transaction, including the purchase price for the Excluded Businesses (other than the minority stake in the consumer engagement businesses that eBay wished to retain) and the terms of the debt financing to be provided to Mr. Rubin by eBay. In addition, the parties discussed the feasibility of attempting to sell the Excluded Businesses to a party other than Mr. Rubin. Separately, representatives of Morgan Stanley and Goldman Sachs discussed their views of the terms of the Divestiture Transaction and the related debt financing.
The special committee, along with representatives from Davis Polk and members of GSI management, including Mr. Conn, held an in-person and telephonic meeting at 8:30 p.m. on March 25, 2011. Mr. Rubin and representatives of Sullivan & Cromwell and Qatalyst also were in attendance for a portion of the meeting. Mr. Rubin outlined the current terms of the Divestiture Transaction, as well as the chronology of his discussions with eBay. Mr. Rubin stated that eBay had indicated that his willingness to purchase and manage the Excluded Businesses was important to eBay’s evaluation of the attractiveness of the potential transaction with GSI, and that eBay had stated that it would be willing to pay more for the Company if Mr. Rubin agreed to purchase the Excluded Businesses while still allowing eBay
to retain a minority stake in the consumer engagement businesses. Mr. Rubin stated that he believed that the Divestiture Transaction was a facilitating factor in eBay’s bid to acquire GSI. Mr. Rubin also stated that eBay indicated that, in light of eBay’s plan to maintain a 30% ownership stake in Rue La La and ShopRunner, it considered his involvement important in creating value in those businesses.
After this discussion concluded, Mr. Rubin and his advisors left the meeting. The special committee discussed the terms of the Divestiture Transaction and the related debt financing, taking into consideration the views expressed by Morgan Stanley, and concluded that the terms of the loan that eBay had offered to Mr. Rubin were not unreasonable, taking into consideration eBay’s large cash reserves and the expressed importance to eBay of avoiding ownership of the Excluded Businesses (other than the minority stake in the consumer engagement businesses that eBay wished to retain), and that the loan terms did not negatively impact the price that eBay was willing to pay for GSI. The special committee confirmed that, after further considering the issue of a sale of the Excluded Businesses to a buyer other than Mr. Rubin, it believed that such a sale was not feasible for several reasons, including, among other reasons, the diverse
nature of the Excluded Businesses, the extent to which the businesses are dependent on Mr. Rubin’s management skills and change in control issues. The special committee members reiterated that the special committee’s focus was to ensure that GSI’s stockholders obtained the best available transaction. The special committee then again considered whether the Divestiture Transaction was a factor in the stockholders’ getting the best transaction available and determined that was a positive factor. The special committee decided that it would ask Mr. Rubin to agree to economic concessions in the terms of the Divestiture Transaction, in order to attempt to secure a higher price for GSI’s stockholders. The special committee delegated authority to Mr. Branman and Mr. Donahue to conduct this discussion with Mr. Rubin.
In the evening of March 25, 2011, and the morning of March 26, 2011, Mr. Branman and Mr. Donahue entered into discussions with Mr. Rubin concerning potential concessions that Mr. Rubin could make to improve the economics of the Divestiture Transaction for eBay. Mr. Rubin agreed to modify the terms of the debt financing he would receive by increasing the rate of interest to LIBOR plus 110 basis points, thereby improving the cash flow for eBay. Mr. Rubin noted that this would result in approximately $37 million of additional interest payments to eBay over the term of the loan. Mr. Rubin also agreed to a $30 million increase in the valuation of the consumer engagement businesses. Mr. Rubin estimated that, after taking into consideration eBay’s 30% retained interest in these businesses, this corresponded to a $21 million increase
in the purchase price payable to eBay, for a total value enhancement to eBay of $58 million.
Late in the evening of March 25, 2011 and into the morning of March 26, 2011, Davis Polk and Dewey met to negotiate the terms of the merger agreement (excluding price terms).
On March 26, 2011, Mr. Rubin’s concessions on the terms of the debt financing and valuation were reported to eBay, along with a request to improve its offer price based on such concessions.
Later in the day on March 26, 2011, Mr. Swan met with Mr. Branman and indicated that eBay would be willing to increase its price to $28.40 per share. Mr. Swan indicated that he might be able to increase the price to a maximum of $29.00 per share if the special committee was successful in obtaining additional concessions from Mr. Rubin. The special committee continued to insist on a higher price, indicating that GSI’s Board of Directors was expecting a price of $30.00 or above.
Subsequently, Mr. Branman met with Mr. Rubin to ask him to consider making further value concessions to eBay as a means of encouraging eBay to improve its price to GSI’s stockholders. At this point, Mr. Rubin stated that he would not consider granting any further economic concessions until all of the other business and legal issues relating to the Divestiture Transaction were resolved with eBay.
In the evening of March 26, 2011, the special committee held a meeting with representatives of Davis Polk and members of GSI’s management, including Mr. Conn, in attendance. The special committee discussed the current status of negotiations between eBay and GSI, including Mr. Rubin’s agreement to increase the interest rate payable on the debt financing relating to the Divestiture Transaction and agreement to an increase in the valuation of assets comprising the Excluded Businesses (other than the minority stake in the consumer engagement businesses that eBay wished to retain), and eBay’s increased offer price for GSI’s stockholders. Representatives of Davis Polk then updated the special committee on certain issues that remained open in the merger agreement.
Also on March 26, 2011, Dewey and Davis Polk exchanged drafts of the merger agreement.
Representatives of Sullivan & Cromwell and Dewey met during the late evening and early morning of March 26, 2011 to March 27, 2011 in order to negotiate the terms of the Divestiture Transaction.
On March 27, 2011, Mr. Rubin agreed to a further $40 million increase in valuation for certain of the Excluded Businesses (other than the minority stake in the consumer engagement businesses that eBay wished to retain), comprising a $10 million increase in the valuation for the licensed sports merchandise business and a $25 million increase in the valuation for Rue La La and a $5 million increase in the valuation of ShopRunner. Mr. Rubin estimated that, taking into account eBay’s retained interests, this corresponded to a purchase price adjustment of $31 million and brought the total value enhancement offered by Mr. Rubin to eBay to $89 million. Mr. Rubin also agreed to increase his initial capital contribution to $31 million from $25 million. Mr. Rubin indicated that this was his final price concession.
Also on March 27, 2011, Mr. Branman engaged in discussions with Mr. Swan regarding the special committee’s request for a higher price and the status of eBay’s negotiations on the Divestiture Transaction. Mr. Swan indicated that eBay was satisfied with the price and terms of the Divestiture Transaction, although certain aspects of the transaction were still under discussion. Mr. Swan stated that eBay had suggested the sale of the Excluded Businesses to Mr. Rubin (with eBay retaining a minority interest in the consumer engagement businesses) because it was of critical importance to eBay to ensure that it could divest the Excluded Businesses (other than the minority stake in the consumer engagement businesses that eBay wished to retain) immediately and avoid owning businesses that compete with eBay’s Marketplaces’ sellers. Mr. Branman asked Mr. Swan whether eBay would proceed
with its proposed acquisition of GSI if eBay did not reach agreement with Mr. Rubin as to the Divestiture Transaction, and Mr. Swan indicated that in that event the merger likely would not occur.
The special committee held meetings throughout the day on March 27, 2011 at 12:00 noon, 6:00 p.m. and 6:50 p.m. At the initial meeting on March 27, the special committee resolved to ask eBay for its best and final price in advance of the full Board of Directors meeting scheduled for 7:00 p.m. At each meeting, the special committee reviewed the status of negotiations on price and other terms of the potential transaction. Representatives of Davis Polk and Dewey also continued to negotiate the merger agreement during the course of the day. The special committee also held a meeting at 1:45 p.m. to discuss the incentive award arrangements proposed to be implemented, subject to discussion with eBay if the price negotiations between eBay and the special committee were successfully concluded.
During the day on March 27, 2011, eBay indicated that it was willing to increase its price to $29.10 per share. The special committee continued to indicate that it needed a higher price. The special committee expressed concern about the level of support from the Board of Directors that could be obtained at a price less than $30.00, but
suggested that the Board of Directors might consider an offer at $29.50 per share. eBay responded by increasing its price to $29.25 per share, but indicated that this was its best and final offer.
At 7:00 p.m. on March 27, 2011, GSI’s full Board of Directors met by telephonic conference call to discuss the final terms of the transaction with eBay and the definitive merger agreement, voting agreement and amendment to the Company’s rights agreement. One member of the Board of Directors, Mr. Menell, who had previously recused himself from consideration of the proposed transaction, was not in attendance. Certain members of senior management, including Mr. Conn, Davis Polk, Morgan Lewis and Morgan Stanley also attended the meeting. Immediately following commencement of the meeting, Mr. Rubin recused himself as a result of conflicts of interest in connection with the potential sale of the
Company to eBay and the potential Divestiture Transaction.
The Board of Directors discussed the importance of the Divestiture Transaction to eBay, and its understanding that eBay likely would not complete the proposed strategic transaction with GSI if it could not obtain certainty with respect to its ability to consummate the Divestiture Transaction. The Board of Directors then discussed eBay’s current offer of $29.25 per share.
Davis Polk, counsel to the special committee, and Morgan Lewis, counsel to the Company, reviewed the Board of Directors’ fiduciary duties in connection with the proposed sale to eBay, and discussed the improvements that had been obtained in the key terms of the merger agreement, copies of which had been distributed to the directors prior to the meeting. Davis Polk and Morgan Lewis confirmed that all conditions to the merger relating to the Divestiture Transaction had been eliminated, that eBay had accepted modifications to length and procedural terms of the “go-shop” provisions, had agreed to a reduced termination fee and had accepted substantial modifications to the representations and warranties, resulting in improved certainty of closure.
Representatives of Morgan Stanley then reviewed updated financial analyses with the Board of Directors and compared a potential transaction at the $29.25 per share price last offered by eBay to implied valuations for the Company based on numerous analyses described under the caption “— Opinion of Morgan Stanley” beginning on page 36.
The Board of Directors recessed the meeting to re-open price negotiations with eBay. Mr. Fisher called Mr. Swan with a request that the price be raised to $29.50 per share to ensure support from GSI’s Board of Directors. Mr. Swan responded that $29.25 per share was eBay’s “best and final” offer.
After the meeting was reconvened, the Board of Directors proceeded to consider the advisability of a merger at a price of $29.25 per share. The Board of Directors discussed in detail the advantages and risks of the proposed transaction that are described in “Reasons for the Merger; Recommendation of Our Board of Directors and Special Committee” below, including, among other things, whether the revised price offered by eBay represented an attractive valuation for GSI’s stockholders when considered in light of the Board of Directors’ knowledge and understanding of the business, operations, management, financial condition and prospects of the Company, including the various challenges presented by a stand-alone strategy, such as risks relating to technology implementation and migration of customers to the new e-commerce
technology platform, potential senior management changes, execution risk of the standalone strategy, including but not limited to challenges in the licensed sports merchandise and consumer engagement businesses, and the challenges of finding another strategic buyer at a later date. The Board of Directors decided that the price eBay offered represented an attractive valuation for stockholders. The Board of Directors also considered the possibility of rejecting eBay’s offer and either pursuing a strategic transaction at a later time or continuing as a stand-alone company. The Board of Directors noted that concerns raised by eBay during the course of negotiations would likely be of concern to other potential acquirors and also discussed the fact that there was no guarantee that eBay would be interested in a strategic transaction with GSI at a later date in the event the current offer were to be rejected.
At the conclusion of this discussion, Morgan Stanley’s representative delivered Morgan Stanley’s oral opinion, subsequently confirmed in writing, that as of March 27, 2011, and based upon and subject to the various assumptions, considerations, qualifications and limitations set forth in the written opinion, the consideration to be received by holders of shares of GSI common stock (other than holders of certain excluded shares) pursuant to the merger agreement was fair from a financial point of view to such holders.
After considering the proposed terms of the merger agreement and the presentations of the legal and financial advisors, including Morgan Stanley’s fairness opinion provided to the Board of Directors, and taking into account the other factors described below under the heading titled “Reasons for the Merger; Recommendation of Our Board of Directors and Special Committee,” the special committee and the Board of Directors, with Messrs. Menell and Rubin absent, each unanimously determined that the merger is advisable and fair to and in the best interests of GSI and its stockholders, and recommended that the Company’s stockholders vote to adopt the merger agreement. See “Reasons for the Merger; Recommendation of Our Board of Directors and Special Committee” for a full description of the factors
considered by the Board of Directors at this meeting. Subsequently, and after excusing the members of GSI management present, the Board of Directors approved the incentive payments described under “Interest of GSI’s Executive Officers and Directors in the Merger”.
On March 27, 2011, representatives of Dewey and Davis Polk finalized the terms of the merger agreement. Later that same day, GSI and eBay executed the merger agreement, all signatories to the voting agreements executed such agreements, and GSI and the rights agent executed the amendment to our rights agreement. During the evening of March 27, 2011, and continuing into the early morning of March 28, 2011, representatives of Dewey and Sullivan & Cromwell finalized the terms of the Divestiture Transaction, and early in the morning of March 28, 2011, eBay and NRG Commerce, LLC, a Delaware limited liability company wholly-owned by Mr. Rubin,
executed the documents relating to the Divesture Transaction.
The executed versions of all of these agreements were delivered to eBay on March 28, 2011. On March 28, 2011, GSI and eBay issued a joint press release announcing the execution of the merger agreement and the Divestiture Transaction.
The merger agreement provides that until 11:59 p.m. California time on May 6, 2011 (the “go-shop” period), GSI and its representatives are permitted to solicit, initiate, encourage, assist, induce or facilitate the submission, announcement or making of acquisition proposals from third parties, furnish and provide access to information to any third party in connection with or in response to an acquisition proposal or inquiry relating to an alternative transaction, and engage in discussions or negotiations with any person with respect to an acquisition proposal or inquiry relating to an alternative transaction. At the direction and under the supervision of the special committee, Morgan Stanley is in the process of contacting potentially interested parties pursuant to the “go-shop” process on behalf of the
Company.
Reasons for the Merger; Recommendation of Our Board of Directors and Special Committee
In determining that the merger is advisable and fair to and in the best interests of the Company and our stockholders, the special committee and the Board of Directors held numerous meetings, consulted with the Company’s management and financial and legal advisors and considered a number of material factors, including the following factors:
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Merger Consideration. The Board of Directors believed that, following the special committee’s extensive negotiations with eBay and its representatives in which eBay made several price concessions, $29.25 per share was the highest price that eBay would be willing to pay and the highest price reasonably obtainable from any party on the date of signing of the merger agreement. The Board of Directors also believed that the merger consideration of $29.25 per share represented an attractive valuation for the Company’s shares of common stock, as this price represented a premium of approximately 51% to the closing price of $19.38 per share on March 25, 2011, the last trading day prior to the announcement of the execution of the merger agreement and a premium of approximately 32% to the
closing price of $22.25 per share on February 8, 2010, the last trading day prior to the Company’s announcement of its 2010 earnings and the Fanatics transaction (which the Board of Directors believed had negatively affected the trading price of the Company’s shares). The Board of Directors also considered the fact that the merger consideration is all cash, which will provide GSI stockholders with certainty of value and the ability to monetize their investment in the Company in the near term and thus avoid long-term business risk.
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Historical and Prospective Financial Performance and Condition. The Board of Directors considered the Company’s operations, financial condition, earnings and prospects, including the prospects of the Company
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continuing as a stand-alone company. The Board of Directors also considered the Company’s ongoing business and strategic objectives and the risks and challenges involved with accomplishing such objectives, including challenges in realizing value from the Company’s recent technology platform initiatives, most notably the upgrade of the Company’s e-commerce platform to a new platform, and the pending migration of the Company’s customers to this new platform. The Board of Directors also considered ongoing execution challenges relating to GSI’s acquired companies, including Rue La La and Fanatics, as well
as the uncertain prospects for the ShopRunner business which launched in late 2010. The Board of Directors considered the possibility that Mr. Rubin was interested in pursuing entrepreneurial opportunities and that the Company might need to transition to a new management team. In considering the risks faced by and opportunities presented to the Company under its existing business plan, the Board of Directors believed it unlikely that the Company’s business would improve in the near and medium term to achieve a share price of $29.25 or better, and that business plan would continue to be subject to long-term risk.
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Financial Conditions and Investor Sentiment. The Board of Directors considered current market conditions, historical market prices and volatility in the trading price of the Company’s common stock, including perceived “fatigue” in the financial analyst community resulting from the Company having regularly provided “guidance” that was below investor expectations and lack of support among investors with respect to recent acquisitions. The Board of Directors considered certain specific factors that were thought to have a negative impact on the current trading price for the Company’s common stock, including existing or potential labor conflicts and work
stoppages in the National Football League and the National Basketball Association. The Board of Directors also considered the possibility that the investor community imposed a “conglomerate discount” on the Company’s stock price. The Board of Directors believed it likely that some or all of these factors would continue to weigh on the trading price of the Company’s common stock in the near and medium term.
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Ability to Seek and Consider Superior Offers. The Board of Directors considered the Company’s ability to terminate the merger agreement in order to accept a superior offer, subject to certain restrictions imposed by the merger agreement, including the requirement that the Company pay eBay a termination or “break-up” fee in such event. The Board of Directors considered the Company’s ability to initiate, solicit and encourage alternative acquisition proposals from third parties for a “go-shop” period of 40 days after execution of the merger agreement, and to continue to engage in negotiations for a further period of 25 days with any third party who
makes a superior proposal during the “go-shop” period. The Board of Directors also considered that the termination fee of $24.0 million payable in the event that the merger agreement is terminated due to the Company entering into an alternative transaction during the “go-shop” period, which represents approximately 1.0% of the proposed transaction value, is reasonable and at the low end of the customary range for a transaction of this size and type. The Board of Directors believed that the duration and structure of the “go-shop” provisions in the merger agreement would encourage third parties who might have an interest in acquiring GSI to make an offer at a higher price. The Board of Directors also considered the Company’s ability following the expiration of the “go-shop”
period to respond to any competing proposal that the Board of Directors determines constitutes or is reasonably likely to constitute a superior proposal to eBay’s, subject to certain restrictions contained in the merger agreement. The Board of Directors considered that the termination fee of $74.0 million payable by the Company as a result of entering into such a transaction, which represents approximately 3% of the proposed transaction value, is within the customary range for a transaction of this size and type.
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Sale Process; Potential Alternatives. The Board of Directors believed that the special committee had conducted a thorough process in connection with negotiating and evaluating the terms and conditions of the merger and reasonably available alternatives. The Board of Directors believed that the merger is more favorable to the Company’s stockholders than the alternatives to the merger, which belief was formed in part on the Board of Directors’ consideration, with the assistance of the special committee and the Company’s management and its financial advisor, of potential strategic alternatives available to the Company. The Board of Directors considered that based
on the different businesses that GSI operated and other factors, there may be limited number of potential strategic buyers for the entire Company. In addition, the Board of Directors considered that there may not be any natural buyers for the Excluded Businesses as a whole, certain change of control limitations related to the Excluded Businesses that would present challenges in selling the Excluded Businesses (in whole or in part) to third parties, the extent to
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which the future success of the Excluded Businesses depended on Mr. Rubin’s management capabilities and that alternatives to the sale of the Excluded Business to Mr. Rubin would present execution risk to the merger transaction. The Board of Directors considered potential opportunities to seek a superior offer from an alternative acquiror, including acquirors identified by Morgan Stanley as the most likely parties other than eBay to consider purchasing the Company, and considered the risk of jeopardizing the merger with eBay as a result of exploring such alternatives prior to execution of the merger agreement. In addition, the Board of Directors, in consultation with its financial advisor, considered that eBay was well positioned to deliver value to the Company’s stockholders
relative to other potential acquirors because of the Company’s strategic value to eBay in connection with its recently announced strategic plan. The Board of Directors also considered that the current offer from eBay may not be available at a future date, and believed that any alternative acquiror would likely share many of the concerns that eBay expressed in arriving at its best and final offer of $29.25 per share, while alterative acquirors would likely not share eBay’s strategic motivations.
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Opinion of the Company’s Financial Advisor. The Board of Directors considered Morgan Stanley’s financial analyses and oral opinion to the Board of Directors, later delivered in writing and dated as of March 27, 2011, concluding that, based upon and subject to the various assumptions, considerations, qualifications and limitations set forth in the written opinion, the consideration to be received by holders of GSI common stock (other than holders of certain excluded shares) pursuant to the merger agreement was fair from a financial point of view to such holders. Such opinion is more fully described below under the caption “— Opinion of Morgan Stanley” beginning on page 36.
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Likelihood of Closing. The Board of Directors considered the likelihood that the merger would be consummated based on among other things, the relatively limited nature of the closing conditions included in the merger agreement, including the absence of any financing or due diligence-related closing conditions and the likelihood that the merger will be approved by requisite regulatory authorities and the Company’s stockholders. The Board of Directors also considered eBay’s substantial financial resources, including cash and cash equivalents of approximately $9.1 billion as of December 31, 2010 (giving effect to short-term investments in the amount of approximately $1.05 billion and long-term investments in the amount of approximately $2.49 billion), all of which increased certainty
of closing.
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Ability of the Board of Directors to Change its Recommendation. The Board of Directors considered that the Board of Directors could change its recommendation in the event that unforeseen circumstances arise which change the Board of Directors’ determination that the merger agreement and the merger is advisable and fair to and in the best interests of the Company and our stockholders.
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Termination Date. The Board of Directors considered that the termination date under the merger agreement allows for sufficient time to complete the merger.
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Lack of Antitrust Risk. The Board of Directors considered the absence of any material risk that any governmental authority would prevent or materially delay the merger under any antitrust law.
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The Board of Directors also identified and considered a number of countervailing factors and risks to the Company and its stockholders relating to the merger and the merger agreement, including the following factors:
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No Participation in Future Growth. The Board of Directors considered the fact that, because the Company’s stockholders will be receiving a fixed amount of cash for their stock, they will not be compensated for any increase in value of the Company or eBay either during the pre-closing period or following the closing.
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Outcome of Go-Shop Process. The Board of Directors considered the possibility that the “go-shop” process would not result in a higher offer to stockholders, and the possibility that provisions in the merger agreement, including the $24.0 million termination fee payable to eBay if the merger agreement were terminated pursuant to the go-shop process, could have the effect of discouraging competing third party proposals.
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Potential Inability to Complete the Merger. The Board of Directors considered the possibility that the merger may not be completed and the potential adverse consequences to the Company if the merger is announced but not completed, including the potential loss of key members of management, customers, suppliers and employees, and the potential erosion of customer, supplier and employee confidence in the Company.
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Costs; Disruption to the Business. The Board of Directors considered the costs involved in connection with entering into and completing the merger as well as the risk of diverting management’s focus and resources from other strategic opportunities and from operational matters while working to implement the merger, and the possibility of other management and employee disruption associated with the merger.
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Interim Operating Covenants. The Board of Directors considered the limitations imposed in the merger agreement on the conduct of the Company’s business during the pre-closing period, which could delay or prevent the Company from undertaking business opportunities that may arise pending completion of the merger.
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eBay’s Conditions and Termination. The Board of Directors considered the conditions to eBay’s obligation to complete the merger as well as the right of eBay to terminate the merger agreement under certain circumstances. The Board of Directors also considered the $74.0 million termination fee payable to eBay if the merger agreement is terminated under certain circumstances, which could have the effect of discouraging competing third party proposals.
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12 month Tail on Termination Fee. The Board of Directors considered the fact that a termination fee would be payable to eBay if the Company consummates or enters into definitive documentation relating to a business combination transaction in which 20% of the Company is acquired by any person within 12 months of eBay or the Company terminating the merger agreement on or after December 31, 2011 or at any point in time following the Company’s stockholders failing to adopt the merger agreement.
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Non-Solicitation following “Go-Shop” Period. The Board of Directors considered restrictions on the Company’s ability to solicit or engage in discussions or negotiations regarding alternative business combination transactions, subject to specified exceptions, following expiration of the “go-shop” period as well as restrictions on the Board of Directors’ ability to change or withdraw its recommendation of the merger, except in response to unforeseen circumstances.
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Taxability. The Board of Directors considered that the merger will be a taxable transaction to the Company’s stockholders.
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Interests of the Company’s Directors and Executive Officers. The Board of Directors considered the fact that the Company’s chief executive officer was entering into a concurrent agreement with eBay to purchase the Excluded Businesses (other than the minority stake in the consumer engagement businesses that eBay wished to retain) after completion of the merger, and the role that the chief executive officer played in structuring and negotiating the Divestiture Transaction prior to and during the special committee’s negotiation of the merger. The Board of Directors also considered the potential conflicts of interest of the Company’s directors and executive officers
in connection with compensation awards made in connection with or close in time to the merger. See “—Interest of GSI’s Executive Officers and Directors in the Merger.”
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The foregoing discussion of the information and factors considered by the Board of Directors is not intended to be exhaustive but includes the material factors considered by the Board of Directors. In light of the complexity and wide variety of factors considered, the Board of Directors did not find it useful to and did not attempt to quantify, rank or otherwise assign relative weights to these factors. In addition, the Board of Directors did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to its ultimate determination, but rather the Board of Directors conducted an overall analysis of the factors described above, including discussions with the Company’s management and its financial and legal advisors. In considering the factors described
above, individual members of the Board of Directors may have given different weights to different factors.
Board of Directors Recommendation
After careful consideration, both the special committee of the Board of Directors and our full Board of Directors, with the exception of Mr. Rubin and Mr. Menell, who recused themselves from the Board of Directors’ vote on the merger, have determined that the merger is advisable and fair to and in the best interests of the Company and our stockholders. Accordingly, our Board of Directors unanimously (as described above) recommends that you vote “FOR” the proposal to adopt the merger agreement.
Opinion of Morgan Stanley & Co. Incorporated
On March 22, 2011, the Company retained Morgan Stanley to provide it with financial advisory services and a financial opinion in connection with a possible merger, sale or other strategic business combination. The Company selected Morgan Stanley to act as its financial advisor based on Morgan Stanley’s qualifications, expertise and reputation and its knowledge of the business and affairs of the Company. At the meeting of the Company’s Board of Directors on March 27, 2011 (from which Messrs.
Rubin and Menell recused themselves), Morgan Stanley rendered its oral opinion, subsequently confirmed in writing, that as of March 27, 2011, and based upon and subject to the various assumptions, considerations, qualifications and limitations set forth in the written opinion, the consideration to be received by holders of shares of Company common stock (other than holders of certain excluded shares) pursuant to the merger agreement was fair from a financial point of view to such holders. Morgan Stanley’s opinion was approved by a committee of Morgan Stanley’s investment banking and other professionals in accordance with Morgan Stanley’s customary practice.
The full text of the written opinion of Morgan Stanley, dated as of March 27, 2011, is attached to this proxy statement as Appendix B. The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion. We encourage you to read the entire opinion carefully and in its entirety.
Morgan Stanley’s opinion is directed to the Company’s Board of Directors and addresses only the fairness from a financial point of view of the consideration to be received by holders of shares of Company common stock (other than holders of certain excluded shares) pursuant to the merger agreement, as of the date of the opinion. It does not address any other aspects of the merger and does not constitute a recommendation to any holder of Company common stock as to how to vote at any stockholder's meeting held in connection with the merger or whether to take any other action with respect to the merger. The summary of the opinion of Morgan Stanley set forth below is qualified in its entirety by reference to the full text of the opinion.
In connection with rendering its opinion, Morgan Stanley, among other things:
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reviewed certain publicly available financial statements and other business and financial information of the Company;
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reviewed certain internal financial statements and other financial and operating data concerning the Company;
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reviewed certain financial projections prepared by the management of the Company;
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discussed the past and current operations and financial condition and the prospects of the Company with senior executives of the Company;
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reviewed the reported prices and trading activity for the Company common stock;
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compared the financial performance of the Company and the prices and trading activity of the Company common stock with that of certain other publicly-traded companies comparable with the Company, and their securities;
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reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions;
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participated in discussions and negotiations among representatives of the Company and eBay and their financial and legal advisors;
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reviewed the merger agreement and certain related documents; and
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performed such other analyses and reviewed such other information and considered such other factors as Morgan Stanley deemed appropriate.
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In arriving at its opinion, Morgan Stanley assumed and relied upon, with the consent of the Company’s Board of Directors and without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to Morgan Stanley by the Company and formed a substantial basis for its opinion. With respect to the financial projections, Morgan Stanley assumed, with the consent of the Company’s Board of Directors, that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of the
Company of the future financial performance of the Company. In addition, Morgan Stanley assumed, with the consent of the Company’s Board of Directors, that the merger will be consummated in accordance with the terms set forth in the merger agreement without any waiver, amendment or delay of any terms or conditions and that the definitive merger agreement would not differ in any material respect from the draft furnished to Morgan Stanley. Morgan Stanley assumed, with the consent of the Company’s Board of Directors, that in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the proposed merger, no delays, limitations, conditions or restrictions will
be imposed that would have a material adverse effect on the benefits expected to be derived in the proposed merger. Morgan Stanley is not a legal, tax or regulatory advisor. Morgan Stanley is a financial advisor only and relied upon, without independent verification, the assessment of the Company and its legal, tax or regulatory advisors with respect to legal, tax or regulatory matters. Morgan Stanley expressed no view on, and its opinion did not address, any other term or aspect of the merger agreement or the merger or any term or aspect of any other agreement or
instrument contemplated by the merger agreement or entered into in connection with the merger, including, without limitation, any Support Agreement, or the fairness of the transactions contemplated thereby to or any consideration received in connection therewith by, the holders of any class of securities or instruments, creditors or other constituencies of the Company. Morgan Stanley also expressed no opinion with respect to the fairness of the amount or nature of the compensation to any of the Company’s officers, directors or employees, or any class of such persons, relative to the consideration to be received by the holders of shares of Company common stock in the transaction. Morgan Stanle’s opinion did not address the relative merits of the merger as compared to any
other alternative business transaction, or other alternatives, or whether or not such alternatives could be achieved or were available. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of the Company nor was Morgan Stanley furnished with any such appraisals. Morgan Stanley’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Morgan Stanley as of, March 27, 2011. Events occurring after March 27, 2011 may affect Morgan Stanley’s opinion and the assumptions used in preparing it, and Morgan Stanley did not assume any obligation to update, revise or reaffirm its opinion.
In arriving at its opinion, Morgan Stanley was not authorized to solicit, and did not solicit, interest from any party with respect to an acquisition, business combination or other extraordinary transaction, involving the Company. Prior to delivery of its opinion, Morgan Stanley did not negotiate with any party, other than eBay, which expressed interest to Morgan Stanley in the possible acquisition of the Company.
The following is a brief summary of the material analyses performed by Morgan Stanley in connection with its oral opinion and the preparation of its written opinion letter dated March 27, 2011. The various analyses summarized below were based on the closing price of $19.38 per share of Company common stock as of March 25, 2011, the last full trading day prior to the meeting of the Company’s Board of Directors to consider and approve, adopt and authorize the merger agreement. Some of these summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute
a complete description of the financial analyses.
Trading Range Analysis. Morgan Stanley performed a trading range analysis with respect to the historical share prices of the Company common stock. Morgan Stanley reviewed the range of closing prices of the Company common stock for various periods ending on March 25, 2011. Morgan Stanley observed the following:
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18.40 – 24.41 |
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18.40 – 26.11 |
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18.40 – 31.10 |
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Morgan Stanley observed that the Company common stock closed at $19.38 on March 25, 2011 (the last full trading day prior to the announcement of the execution of the merger agreement). Morgan Stanley noted that the consideration per share of Company common stock of $29.25 pursuant to the merger agreement reflected a 50.9% premium to the closing price per share of Company common stock as of March 25, 2011, a 35.3% premium to the average closing price per share of Company common stock for the 3 months prior to and including March 25, 2011, a 27.6% premium to the average closing price per share of Company common stock for the 6 months prior to and including March
25, 2011, and an 18.2% premium to the average closing price per share of Company common stock for the 12 months prior to and including March 25, 2011.
Equity Research Analysts’ Future Price Targets. Morgan Stanley reviewed and analyzed future public market trading price targets for the Company common stock prepared and published by equity research analysts following January 5, 2011 and prior to March 25, 2011. These one year forward targets reflected each analyst’s estimate of the future public market trading price of the Company common stock and are not discounted to reflect present values. The range of undiscounted analyst price targets for the Company common stock was $24.00 to $35.00 per share
as of March 25, 2011 and Morgan Stanley noted that the median undiscounted analyst price target was $31.00 per share. The range of analyst price targets per share for the Company common stock discounted at 11.0% to reflect
the Company’s estimated cost of capital was $22.78 to $31.53 per share as of March 25, 2011, and Morgan Stanley noted that the median discounted analyst price target was $27.93 per share.
In addition, Morgan Stanley reviewed and analyzed those future public market trading price targets for the Company common stock prepared and published by equity research analysts following the February 14, 2011 escalation of the NFL labor dispute, which was expected by certain analysts to have a negative impact on the Company’s operating results and public market trading price of the Company common stock, and prior to March 25, 2011. These one year forward targets reflected each analyst’s estimate of the future public market trading price of the
Company common stock and are not discounted to reflect present values. The range of these undiscounted analyst price targets for the Company common stock was $24.00 to $33.00 per share as of March 25, 2011 and Morgan Stanley noted that the median undiscounted analyst price target was $27.50 per share. The range of these analyst price targets per share for the Company common stock discounted at 11.0% to reflect the Company’s estimated cost of capital was $22.52 to $29.73 per share as of March 25, 2011, and Morgan Stanley noted that the median discounted analyst price target was $24.77 per share.
Morgan Stanley noted that the consideration to be received by holders of shares of Company common stock pursuant to the merger agreement was $29.25 per share.
The public market trading price targets published by equity research analysts do not necessarily reflect current market trading prices for the Company common stock and these estimates are subject to uncertainties, including the future financial performance of the Company and future financial market conditions.
Public Trading Comparables Analysis. Morgan Stanley performed a public trading comparables analysis, which attempts to provide an implied value of a company by comparing it to similar companies that are publicly traded. Morgan Stanley compared certain financial information of the Company with comparable publicly available consensus equity research estimates for companies that share similar business characteristics such as those that provide Internet technology or those that have similar scale and operating characteristics (the “Comparable Companies”). These companies included the following:
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Mediamind Technologies, Inc.
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For purposes of this comparative analysis, Morgan Stanley analyzed for each of these Comparable Companies the multiple of aggregate value, to estimated earnings before interest, taxes, depreciation and amortization (“EBITDA”) for calendar years 2011 and 2012 (in each case, based on publicly available consensus estimates).
Based on the analysis of the relevant metrics for each of the Comparable Companies, Morgan Stanley selected representative ranges of financial multiples and applied these ranges of multiples to the relevant Company financial
statistic. For purposes of estimated calendar year 2011 EBITDA and estimated calendar year 2012 EBITDA, Morgan Stanley utilized publicly available estimates prepared by equity research analysts and available to Morgan Stanley as of March 25, 2011 (the “Street Case”), and Morgan Stanley also utilized a set of estimates developed by the Company's management, with assistance from Morgan Stanley, and approved by the Company's management (“Management Case 1”) and a set of estimates prepared by the Company’s management for eBay reflecting the impact of certain potentially achievable operational and financial targets considered to
be potentially achievable illustrating a potential upside scenario, including potential future cost savings arising from the Company’s investments in its IT platform, and potential improvements in performance of recently acquired businesses (“Management Case 2”), each of which is further described below.
Based on the number of shares of the Company’s common stock outstanding on a fully diluted basis (including outstanding options, RSUs and convertible debt) as of March 25, 2011, Morgan Stanley calculated the estimated implied value per share of common stock of the Company as of March 25, 2011 as follows:
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Calendar Year Financial Statistic
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Comparable Company
Multiple Range
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Implied Value
Per Share of the
Company Common Stock
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Street Case
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Aggregate Value to Estimated 2011 EBITDA
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7.0x – 11.0x
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$15.91 - $25.78
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Aggregate Value to Estimated 2012 EBITDA
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6.0x – 9.0x
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$16.87 - $25.95
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Management Case 1
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Aggregate Value to Estimated 2011 EBITDA
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7.0x – 11.0x
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$16.45 - $26.64
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Aggregate Value to Estimated 2012 EBITDA
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6.0x – 9.0x
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$17.11 - $26.31
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Management Case 2
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Aggregate Value to Estimated 2011 EBITDA
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7.0x – 11.0x
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$16.46 - $26.64
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Aggregate Value to Estimated 2012 EBITDA
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6.0x – 9.0x
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$19.78 - $30.31
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Morgan Stanley noted that the consideration to be received by holders of shares of Company common stock pursuant to the merger agreement was $29.25 per share.
No Comparable Company utilized in the public trading comparables analysis is identical to the Company. In evaluating Comparable Companies, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the Company, such as the impact of competition on the businesses of the Company and the industry generally, industry growth and the absence of any adverse material change in the financial condition and prospects of the Company or the industry or in the financial
markets in general. Mathematical analysis (such as determining the average or median) is not in itself a meaningful method of using peer group data.
Sum-of-the-Parts Analysis. Morgan Stanley performed a sum-of-the-parts analysis, which is designed to imply a value of a whole company based on the application of different valuation methodologies to the distinct components that comprise a company’s operations. Morgan Stanley used a variety of different valuation methodologies, including comparable company analysis (similar methodology as described above), discounted equity value analysis (similar methodology as described below), analysis of precedent transactions (similar methodology as described below) and book value analysis noting the impact of certain change-of-control limitations, to value the Company’s five divisions: E-Commerce Services, Marketing Services, Licensed Sports Merchandise, RueLaLa and ShopRunner. Morgan Stanley utilized projections from Management
Case 1 and Management Case 2 in performing its analysis. Certain factors, such as tax inefficiencies, other separation transaction costs and change-of-control restrictions, were excluded from Morgan Stanley’s sum-of-the-parts analysis.
Based on the analysis of the relevant metrics, Morgan Stanley selected representative ranges of value for each division which were aggregated to imply a value for the whole Company. The following table summarizes Morgan Stanley’s analysis:
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Financial Case Analyzed
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$1,653 - $2,081
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$21.77 – $27.40
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$2,066 - $2,494
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$27.21 – $32.84
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Morgan Stanley noted that the consideration to be received by holders of shares of Company common stock pursuant to the merger agreement was $29.25 per share.
Analysis of Precedent Transactions. Morgan Stanley performed a precedent transactions analysis, which is designed to imply a value of a company based on publicly available financial terms and premia of selected transactions that share some characteristics with this transaction. In connection with its analysis of precedent transaction premia, Morgan Stanley compared publicly available statistics for selected technology sector transactions with a transaction value of greater than $250 million announced between January 1, 2010 and March 25, 2011. For each such technology sector transaction, Morgan Stanley noted the following financial statistics where applicable: (1) implied premium to the acquired company’s closing share price on the last trading day prior to announcement; and (2) implied premium to the
acquired company’s 30 trading day average closing share price prior to announcement. In addition, in connection with its analysis of precedent transaction multiples, Morgan Stanley compared publicly available statistics for 12 selected Internet sector transactions occurring between April 25, 2005 and March 25, 2011. The following is a list of these Internet sector transactions:
Selected Internet Sector Transactions (Target / Acquiror)
Drugstore.com, Inc. / Walgreen Co.
Art Technology Group, Inc. / Oracle Corp.
Internet Brands, Inc. / Hellman & Friedman LLC
Bankrate, Inc. / Apax Partners Worldwide LLP
Zappos.com, Inc. / Amazon.com, Inc.
Gmarket Co. / eBay, Inc.
Greenfield Online, Inc. / Microsoft Corp.
CNET Networks, Inc. / CBS Corp.
Getty Images, Inc. / Hellman & Friedman LLC
Digitas, Inc. / Publicis Groupe SA
Fastclick, Inc. / ValueClick Media
DoubleClick Inc. / Hellman & Friedman LLC
For each such Internet sector transaction, Morgan Stanley noted the multiple of aggregate value of the transaction to estimates of last twelve months EBITDA and next twelve months EBITDA.
Based on the analysis of the relevant metrics and time frame for each technology and Internet sector transaction described above, Morgan Stanley selected representative ranges of implied premia and financial multiples of the selected transactions and applied these ranges of premia and financial multiples to the relevant Company financial statistic. For purposes of estimated next twelve months EBITDA, Morgan Stanley utilized publicly available equity research analyst consensus estimates that were available to Morgan Stanley as of March 25, 2011.
The following table summarizes Morgan Stanley’s analysis:
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Precedent Transactions Financial Statistic
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Premium to 1-day Prior Closing Share Price
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20.0% – 40.0%
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$23.26 – $27.13
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Premium to 30-day Average Closing Share Price
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25.0% – 45.0%
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$24.23 – $28.10
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Aggregate Transaction Value to Estimated Next Twelve Months EBITDA
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9.0x – 14.0x
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$20.86 – $33.20
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Aggregate Value to Estimated Last Twelve Months EBITDA
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11.0x – 16.0x
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$22.22 – $32.89
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Aggregate Value to Estimated Next Twelve Months Management Case 1 and Management Case 2 EBITDA
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9.0x – 14.0x
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$21.58 – $34.31
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Morgan Stanley noted that the consideration to be received by holders of shares of Company common stock pursuant to the merger agreement was $29.25 per share.
No company or transaction utilized in the precedent transactions analysis is identical to the Company or the merger.
In evaluating the precedent transactions, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, market and financial conditions and other matters, which are beyond the control of the Company, such as the impact of competition on the business of the Company or the Company’s industry generally, growth of the Company’s industry and the absence of any adverse material change in the financial condition of the Company or the
Company’s industry or in the financial markets in general, which could affect the public trading value of the companies and the aggregate value and equity value of the transactions to which they are being compared.
Discounted Equity Value Analysis. Morgan Stanley performed a discounted equity value analysis, which is designed to provide insight into the estimated future value of a company’s common equity as a function of the company’s estimated future EBITDA and a potential range of aggregate value to EBITDA multiples. The resulting value is subsequently discounted to arrive at a present value for such company’s stock price. In connection with this analysis, Morgan Stanley calculated a range of present equity values per share of the Company’s common stock. To calculate the discounted equity value, Morgan Stanley used calendar year 2012 and 2013 forecasts from each of the Street Case, Management Case 1 and Management Case 2. Morgan Stanley applied
a range of EBITDA multiples to these estimates and applied a discount rate of 11.0% to reflect the Company’s estimated cost of capital.
The following table summarizes Morgan Stanley’s analysis:
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Comparable Company Representative
Multiple Range
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Implied Present
Value Per
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Calendar Year 2012 Assumed EBITDA
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8.0x – 11.0x
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$16.93 – $23.73
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8.0x – 11.0x
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$17.48 – $24.47
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8.0x – 11.0x
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$20.56 – $28.69
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Calendar Year 2013 Assumed EBITDA
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8.0x – 11.0x
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$18.68 – $25.87
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8.0x – 11.0x
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$19.68 – $27.22
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8.0x – 11.0x
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$26.30 – $36.25
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Morgan Stanley noted that the consideration to be received by holders of shares of Company common stock pursuant to the merger agreement was $29.25 per share.
Discounted Cash Flow Analysis. Morgan Stanley calculated a range of equity values per share for the Company based on a discounted cash flow analysis to value the Company as a standalone entity. Morgan Stanley utilized projections from the Street Case, Management Case 1 and Management Case 2. Morgan Stanley calculated the net present value of free cash flows for the Company for calendar years 2011 through 2013 and calculated terminal values at the end of calendar year 2014 based on a terminal exit multiple of EBITDA ranging from 8.0x to 10.0x. These values were discounted to present values as of January 1, 2011
at discount rates ranging from 9.0% to 11.0% to reflect a range of the Company’s estimated cost of capital.
The following table summarizes Morgan Stanley’s analysis:
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Implied Present
Value Per
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Street Case
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$21.03 – $27.41
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Management Case 1
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$24.15 – $31.48
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Management Case 2
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$35.07 – $45.70
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Morgan Stanley noted that the consideration per share to be received by holders of shares of Company common stock pursuant to the merger agreement was $29.25 per share.
Leveraged Buyout Analysis. Morgan Stanley performed an illustrative leveraged buyout analysis to estimate the theoretical prices at which a financial sponsor might effect a leveraged buyout of the Company. For purpose of this analysis, Morgan Stanley assumed a transaction date of December 31, 2010 and an illustrative multiple of debt to last-twelve-months EBITDA at the transaction date of 5.5x. Morgan Stanley also assumed a subsequent exit transaction by the financial sponsor at December 31, 2013 with a valuation of the Company realized by the financial sponsor in such subsequent exit transaction based on an 8.0x
to 10.0x aggregate value to next-twelve-months EBITDA multiple and the Company’s estimated total debt and cash as of December 31, 2013. Morgan Stanley utilized projections from the Street Case, Management Case 1 and Management Case 2 in performing its analysis. The implied acquisition price per share paid by the financial sponsor was based on a hypothetical target range of internal rates of return for the financial sponsor between December 31, 2010 and December 31, 2013 of 15.0 %–25.0%.
The following table summarizes Morgan Stanley’s analysis:
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Implied Present
Value Per
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Street Case
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$17.88 – $24.26
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Management Case 1
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$19.89 – $27.52
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Management Case 2
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$26.97 – $38.95
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Morgan Stanley noted that the consideration per share to be received by holders of shares of Company common stock pursuant to the merger agreement was $29.25 per share.
In connection with the review of the merger by the Company’s Board of Directors, Morgan Stanley performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a financial opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor it considered. Morgan Stanley believes that selecting any portion of its analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analyses and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors, and may have
deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis described above should not be taken to be Morgan Stanley’s view of the actual value of the Company. In performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance, general business and economic conditions and other matters. Many of these assumptions are beyond the control of the Company. Any estimates contained in Morgan Stanley’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.
Morgan Stanley conducted the analyses described above solely as part of its analysis of the fairness from a financial point of view of the consideration to be received by holders of shares of Company common stock (other than holders of certain excluded shares) pursuant to the merger agreement and in connection with the delivery of its opinion, dated March 27, 2011, to the Company’s Board of Directors. These analyses do not purport to be appraisals or to reflect the prices at which shares of common stock of the Company might actually trade.
The per share merger consideration to be received by the holders of shares of Company common stock was determined through arm’s length negotiations between the special committee or members thereof and eBay and was approved by the Company’s Board of Directors (other than Messrs. Rubin and Menell, who recused themselves). Morgan Stanley provided advice to the Company’s Board of Directors during these negotiations. Morgan Stanley
did not, however, recommend any specific consideration to the Company or its special committee or Board of Directors or that any specific consideration constituted the only appropriate consideration for the merger.
Morgan Stanley’s opinion and its presentation to the Company’s Board of Directors was one of many factors taken into consideration by the Company’s special committee and Board of Directors in deciding to approve, adopt and authorize the merger agreement. Consequently, the Morgan Stanley analyses as described above should not be viewed as determinative of the opinion of the Company’s special committee or Board of Directors with respect to the merger consideration, or of whether the Company’s special committee or Board of Directors would have been willing to agree to different consideration.
The Company retained Morgan Stanley based upon Morgan Stanley’s qualifications, experience and expertise and its knowledge of the business affairs of the Company. Morgan Stanley is an internationally recognized investment banking and advisory firm. Morgan Stanley, as part of its investment banking and financial advisory business, is continuously engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate, estate and other purposes. Morgan Stanley also is engaged in securities underwriting, trading and brokerage activities, foreign exchange, commodities and derivatives
trading, prime brokerage, as well as providing investment banking, financing and financial advisory services. Morgan Stanley, its affiliates, directors and officers may at any time invest on a principal basis or manage funds that invest, hold long or short positions, finance positions, and may trade or otherwise structure and effect transactions, for their own account or the accounts of its customers, in debt or equity securities or loans of the Company, eBay, or any other company, or any currency or commodity, that may be involved in this transaction, or any related derivative instrument.
Under the terms of its engagement letter, Morgan Stanley provided the Company financial advisory services and a financial opinion in connection with the merger, and the Company has agreed to pay Morgan Stanley a fee for its services, a portion of which became payable upon execution of the merger agreement and a substantial portion of which is contingent upon the closing of the merger. The engagement letter provides that the fees payable to Morgan Stanley equal a percentage of the aggregate transaction value of the merger, and that such percentage will be higher if Morgan Stanley’s efforts in the “go-shop” process result in any incremental value to be paid by an acquirer of the
Company. The Company has also agreed to reimburse Morgan Stanley for its expenses, including fees of outside counsel and other professional advisors, incurred in connection with its services. In addition, the Company has agreed to indemnify Morgan Stanley and its affiliates, their respective directors, officers, agents and employees and each person, if any, controlling Morgan Stanley or any of its affiliates against certain liabilities and expenses, including certain liabilities under the federal securities laws, relating to or arising out of Morgan Stanley’s engagement. In the two years prior to the date of its opinion, Morgan Stanley has provided financial advisory and financing services for eBay and the Company,
and has received customary fees in connection with such services. Morgan Stanley may also seek to provide such services to eBay and the Company in the future and expects to receive customary fees for the rendering of these services.
Financing
The merger agreement does not contain any financing-related closing conditions, and eBay has represented that it will have sufficient funds at closing to fund the payment of the merger consideration.
Certain Effects of the Merger
Conversion of Outstanding GSI Common Stock and Cancellation of Stock Options, Restricted Stock Unit Awards and Other Awards
If the merger agreement is adopted by our stockholders and the other conditions to the completion of the merger are either satisfied or waived, Merger Sub will be merged with and into GSI, with GSI continuing as the surviving corporation in the merger. Upon the completion of the merger, each issued and outstanding share of our common stock, other than shares held by GSI, eBay, Merger Sub or any of their subsidiaries and shares held by stockholders who validly perfect their appraisal rights to appraisal under Delaware law, will be converted into the right to receive the per share merger consideration. Our stockholders will be required to surrender their shares upon the completion of the merger in exchange for a cash payment equal to the merger consideration. After completion of the merger, stockholders will not have the opportunity to liquidate
their shares at a time and for a price of their own choosing. If
all outstanding shares of common stock, excluding restricted stock, are converted, the total merger consideration expected to be paid is approximately $2.1 billion.
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to the extent that any outstanding shares of GSI’s common stock are unvested or subject to a repurchase option, risk of forfeiture or other condition as of the effective time of the merger, each such share will be converted into a right to receive $29.25, without interest and less applicable withholding taxes, at the effective time of the merger, which right will remain unvested and subject to the same repurchase option, risk of forfeiture or other condition previously applicable to the respective shares, and need not be paid until such time as such repurchase option, risk of forfeiture or other condition lapses or otherwise terminates;.
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·
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each outstanding stock option to acquire shares of GSI common stock, to the extent vested immediately prior to the effective time of the merger, will be converted into the right to receive an amount in cash (subject to any applicable withholding taxes) equal to (i) the number of shares of GSI common stock underlying the option multiplied by (ii) the difference between (A) $29.25, and (B) the exercise price per share of such option; and
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·
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each outstanding stock option to acquire shares of GSI common stock, to the extent unvested immediately prior to the effective time of the merger, will be converted into an option to purchase eBay common stock in an amount equal to (i) the number of shares of GSI common stock underlying such option immediately prior to the effective time of the merger, multiplied by (ii) a “conversion ratio” equal to (A) $29.25 divided by (B) the average of the closing sale prices of a share of eBay common stock as reported on NASDAQ for each of the ten consecutive trading days immediately preceding the closing date of the merger, rounding the resulting number down to the nearest whole number of shares of eBay common stock. The per share exercise price for the eBay common stock issuable upon exercise of each such unvested GSI stock option converted into an option to purchase eBay common stock will be equal (i) the per share exercise price of the
GSI common stock subject to such unvested GSI option, as in effect immediately prior to the effective time of the merger, divided by (ii) the conversion ratio, rounding up to the nearest whole cent.
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The total amount expected to be paid in respect of restricted shares of our common stock is approximately $5.2 million. The total amount expected to be paid in respect of vested stock options is approximately $20.6 million.
The merger agreement also provides that:
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·
|
each restricted stock unit of GSI, to the extent vested immediately prior to the effective time of the merger, will be converted into the right to receive an amount in cash (subject to any applicable withholding taxes) equal to (i) the number of shares of GSI common stock underlying the restricted stock unit multiplied by (ii) $29.25; and
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·
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each restricted stock unit of GSI, to the extent unvested immediately prior to the effective time of the merger, will be converted into a restricted stock unit representing the right to receive the number of shares of eBay common stock equal to (i) the number of shares of GSI common stock subject to such restricted stock unit immediately prior to the effective time of the merger multiplied by (ii) the conversion ratio, rounding the resulting number down to the nearest whole number of shares of eBay common stock.
|
The total amount expected to be paid in respect of restricted stock unit awards that will vest prior to the effective time is approximately $24.4 million.
Effect on Listing; Registration and Status of GSI Common Stock
Our common stock is registered as a class of equity securities under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and is quoted on the NASDAQ Global Select Market under the symbol “GSIC.” As a result of the merger, GSI will be a privately-held company, with no public market for its common stock. After the merger, our common stock will cease to be traded on the NASDAQ Global Select Market, and price quotations with respect to sales of shares of our common stock in the public market will no longer be available. In addition, registration of our common stock under the Exchange Act will be terminated. This termination and the delisting of
GSI’s common stock from the NASDAQ Global Select Market will make certain provisions of the Exchange Act inapplicable to GSI as a stand-alone company, such as:
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•
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the short-swing recovery provisions of Section 16(b) and the requirement to furnish a proxy or an information statement in connection with a stockholders’ meeting; and
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•
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the liability provisions of the Exchange Act and the corporate governance requirements under NASDAQ rules and regulations and under the Sarbanes-Oxley Act of 2002 (such as the requirement that certain executive officers of GSI certify the accuracy of GSI’s financial statements and that annual reports contain management’s report on the effectiveness of the company’s internal controls).
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In addition, GSI will no longer be required to file periodic reports with the SEC after the effective time of the merger with respect to its common stock.
Interests of GSI’s Directors and Executive Officers in the Merger
In considering the unanimous recommendation of our Board of Directors (other than Messrs. Rubin and Menell, who recused themselves), you should be aware that GSI’s directors and executive officers have interests in the transaction that are different from, and in addition to, the interests of GSI stockholders generally and that may present a potential conflict of interest. Our Board of Directors was aware of these interests and considered that these interests may be different from, and in addition to, the interests of our stockholders generally, among other matters, in approving the merger agreement and the merger, and in determining to recommend that our stockholders vote for adoption of the merger agreement.
Divestiture of Certain Assets to NRG Commerce, LLC and Related Transactions
Concurrently with the execution of the merger agreement, eBay and NRG Commerce, LLC (“NRG”), a Delaware limited liability company wholly-owned by Michael G. Rubin, our chairman of the board, president and chief executive officer, entered into a stock purchase agreement (the “purchase agreement”) whereby NRG agreed to acquire (i) 100% of the outstanding shares of capital stock of TeamStore, Inc. and 100% of the outstanding membership interests and other equity interests of Fanatics, LLC (collectively, the “licensed sports business”), (ii) 70% of the outstanding shares of capital stock of RueLaLa, Inc. (“RueLaLa”) and (iii) 70% of the outstanding shares of capital stock of ShopRunner, Inc. (“ShopRunner” and, together with the licensed sports business and RueLaLa, the “purchased entities”) for a purchase price (in the form described below) of $330,000,000, $122,500,000 and $45,500,000, respectively. Each
of the purchased entities are currently subsidiaries of GSI.
The closing of the divestiture transaction is subject to the closing of the merger, but the closing of the merger is not subject to, or dependent upon, the closing of the divestiture transaction. The closing of the divestiture transaction is also subject to other customary conditions, as well as a condition in favor of eBay to the effect that Mr. Rubin must beneficially own a majority of the outstanding equity interests of NRG and must not have died or become permanently disabled. If the merger agreement terminates, the purchase agreement may be terminated by either party on or after the second anniversary of the date of the purchase agreement.
The purchase agreement contemplates that eBay will cause GSI, which will then be a wholly owned subsidiary of eBay, to enter into a secured loan agreement with NRG in connection with the divestiture transaction (the “loan agreement”), pursuant to which GSI will lend to NRG $467 million on the terms and subject to the conditions of the loan agreement (the “loan”) to fund a portion of the purchase price of the purchased entities. The loan will bear interest at an annual rate equal to 3-month LIBOR plus 1.10%. The maturity date of the loan is December 31, 2018. The loan will be secured by substantially all of the assets of the purchased entities and certain other subsidiaries of NRG and may initially be subordinated to up to $100 million of senior indebtedness, which amount may
be increased incrementally up to $200 million if NRG achieves certain revenue milestones. The loan may be prepaid at any time without penalty or premium and must be prepaid (a) quarterly with 25% of excess cash flow generated by NRG and its subsidiaries, and (b) with certain limitations, following an Asset Sale or Casualty Event (each as defined in the loan agreement). The loan is subject to customary conditions, including (a) delivery of fully executed versions of definitive loan documentation, (b) no default on the closing date of the stock purchase, (c) consummation of the merger agreement and purchase agreement, and (d) NRG’s receipt of a capital contribution of $31 million from Mr. Rubin. The loan will be guaranteed jointly and severally by the purchased entities and certain other subsidiaries
of NRG, except that in the event of an initial public offering of the equity securities of RueLaLa or ShopRunner, in each case in an amount not less than $50 million, the liability of RueLaLa and ShopRunner with
respect to the loan will be capped at 30.7% and 11.4%, respectively, of the guaranteed obligations, and subject to dollar caps of $143.4 million and $53.2 million, respectively. In addition, upon the closing under the loan agreement, Mr. Rubin will guarantee to GSI the payment of up to $30 million of the principal and interest payments under the loan agreement to the extent that GSI fails to collect such payment from NRG, the other guarantors and the pledged collateral.
Mr. Rubin will make a capital contribution of $31 million to NRG, which amount will be contributed to one or more of the purchased entities and will be offset against payment of the purchase price for each of the purchased entities.
The purchase agreement also includes certain covenants and agreements among the parties, including, without limitation, the following:
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•
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restrictions on eBay’s operation of the purchased entities other than in the ordinary and usual course of business consistent with past practice in the period between the closing of the merger and the closing of the divestiture transaction;
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•
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eBay’s agreement to cause GSI not to take any action that could be reasonably expected to materially impede or interfere with, delay, postpone or materially and adversely affect the consummation of the divestiture transaction or the other transactions contemplated by the purchase agreement, except as prohibited or required by any governmental order;
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•
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the parties’ agreement to explore, negotiate in good faith and undertake potential business and commercial opportunities between RueLaLa and ShopRunner, on the one hand, and eBay and its affiliates (including PayPal), on the other hand, during the period between signing of the purchase agreement and the date of the closing of the divestiture transaction;
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•
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eBay’s agreement to cause GSI to make capital contributions of $61 million to RueLaLa, $40 million to ShopRunner and $55 million to the licensed sports business at or prior to the closing of the divestiture transaction to the extent not previously made (with $15 million of the $55 million contribution being on account of certain expenses payable to the financial and legal advisors of NRG in connection with the divestiture transaction);
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•
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eBay’s agreement to cause GSI to make a capital contribution to each of RueLaLa, ShopRunner and TeamStore in an amount equal to each such entity’s outstanding debt to GSI (but not to exceed $40 million in the aggregate) for the purpose of repaying such debt;
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•
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eBay’s agreement to make a cash payment to NRG within three days after the closing of the divestiture transaction equal to 50% of the unvested equity awards granted by GSI that will be forfeited by transferred employees at the closing of the divestiture transaction, which cash will be used by NRG to establish a compensation plan for such employees;
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•
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eBay’s agreement to cause GSI Commerce Solutions, Inc. to contribute certain assets and other interests to TeamStore, Inc. at or prior to the closing of the divestiture transaction as specified in the contribution agreement attached as an exhibit to the purchase agreement;
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•
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eBay’s agreement to maintain any guarantees by GSI or its subsidiaries of the performance of the purchased entities under agreements and leases entered into by them prior to the merger for up to one year after closing of the Divestiture Transaction and NRG’s obligation to replace those guarantees with guarantees by NRG or the purchased entities;
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•
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eBay’s agreement to guarantee certain remaining earnout obligations of GSI under the merger agreement pursuant to which GSI acquired RueLaLa (the “RueLaLa Merger Agreement”), subject to NRG’s agreement to indemnify (and cause the purchased entities to indemnify) eBay from losses relating to, among other things, certain corporate guarantees of GSI or its subsidiaries for the performance by the purchased entities of certain obligations to third parties;
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•
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eBay’s agreement, from and after the closing of the divestiture transaction and for so long as Mr. Rubin continues to beneficially own at least a majority of outstanding capital stock of ShopRunner, to use commercially reasonable efforts to cause GSI to continue to make ShopRunner a standard feature on current and future platforms and to maintain custom configuration on current and future platform for TeamStore, Inc.;
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•
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the parties’ agreement that GSI Commerce Solutions, Inc. will provide to the purchased entities, and TeamStore will provide to GSI or its subsidiaries (other than the purchased entities), certain transitional services for a fee for a limited period after closing of the divestiture transaction;
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•
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NRG’s grant to eBay of a license for certain intellectual property rights of RueLaLa and ShopRunner;
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•
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eBay’s agreement not to amend (or grant any consent or waiver under) the merger agreement in a manner that adversely affects in any material respect NRG’s rights and obligations under the purchase agreement, delays or materially impairs the closing of the divestiture transaction, except as prohibited or required by any governmental order;
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•
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eBay’s agreement that the merger will be deemed a change of control under Mr. Rubin’s employment agreement with GSI and that the vesting of Mr. Rubin’s equity awards will be accelerated upon the merger; and
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•
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eBay’s agreement to amend Mr. Rubin’s employment agreement after the closing of the merger to allow Mr. Rubin to use and disclose proprietary information relating to the purchased entities.
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The purchase agreement includes indemnification provisions whereby eBay and NRG (and, after the closing of the divestiture transaction, the purchased entities) agree to indemnify the other from losses relating breach of its representations, warranties, covenants and agreements under the purchase agreement subject to certain minimum thresholds on both individual and aggregate claims. In addition, NRG agreed to indemnify (and to cause the purchased entities to indemnify) eBay from losses relating to (i) certain warehouse facility leases and other contracts assigned to NRG at the closing of the divestiture transaction that arise after the closing date, (ii) 70% of any earnout payments payable by GSI or eBay under the RueLaLa Merger Agreement after the closing of the divestiture transaction as a result of the achievement of specified financial
milestones in accordance with the RueLaLa Merger Agreement and 100% of all other obligations of GSI or eBay under the RueLaLa Merger Agreement, (iii) certain corporate guarantees of GSI or its subsidiaries for the performance by the purchased entities of certain obligations to third parties, (iv) GSI’s obligations under the escrow arrangement established in connection with the merger agreement pursuant to which eBay acquired Fanatics, LLC, (v) claims by employees of GSI or its subsidiaries with respect to the termination of any GSI equity awards in connection with the divestiture transaction, and (vi) all (or 70% in the case of each of ShopRunner and RueLaLa) other obligations of the purchased entities. The purchase agreement also contains indemnification provisions relating to intellectual
property and tax matters.
In connection with the transactions contemplated by the purchase agreement:
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·
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NRG will enter into a management agreement with each of ShopRunner and RueLaLa, each of which is to become effective upon the closing of the merger, pursuant to which NRG will provide certain management services to ShopRunner or RueLaLa, as applicable, in exchange for an annual management fee of $2.5 million and reimbursement of NRG’s out-of-pocket expenses in providing such services;
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·
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NRG will enter into a stockholders agreement with each of ShopRunner and eBay, and RueLaLa and eBay, each of which will to become effective upon the closing of the merger, which include customary corporate governance-related provisions, provisions restricting the sale and transfer of securities of ShopRunner or Rue La La, registration rights of stockholders holding a certain minimum percentage interest in RueLaLa or ShopRunner and certain other customary matters; and
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·
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Mr. Rubin entered into a noncompetition and non-solicitation agreement with eBay that prohibits Mr. Rubin from engaging in certain activities competitive with GSI and its subsidiaries (other than the purchased entities), for a period of 30 months after the effective date of the merger.
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Concurrently with the negotiations of the purchase agreement, Mr. Rubin had preliminary discussions with Mr. Menell concerning the potential employment of Mr. Menell by NRG. As a result of such discussions, Mr. Menell recused himself from the Board of Directors’ deliberations and review of, and vote for, the merger agreement and the transactions contemplated thereby. Subsequent to the announcement of the entry into the merger agreement by GSI, Mr. Menell resigned from the Board of Directors in order to accept a position with NRG and thereafter accepted a position with NRG.
Cash-Out and Conversion of Equity Awards
Stock Options
The merger agreement provides that, prior to the effective time of the merger, each option to acquire shares of our common stock, to the extent vested immediately prior to the effective time of the merger (including any option that vests contingent upon the completion of the merger or upon a termination of service at or immediately prior to the effective time), will be cancelled as of the effective time and converted into the right to receive an amount in cash (subject to any applicable withholding taxes) equal to: (i) the number of shares of GSI common stock underlying such option, immediately prior to the effective time of the merger, multiplied by (ii) the difference between (A) $29.25, and (B) the exercise price per share of such option. Each outstanding stock option of GSI, to the extent unvested immediately prior to the effective time of the merger, will be converted into an option to purchase eBay common stock in an amount
equal to: (i) the number of shares of our common stock underlying such option immediately prior to the effective time of the merger, multiplied by (ii) a “conversion ratio” equal to (A) $29.25, divided by (B) the average of the closing sale prices of a share of eBay common stock as reported on NASDAQ for each of the ten consecutive trading days immediately preceding the closing date of the merger, rounding the resulting number down to the nearest whole number of shares of eBay common stock. The per share exercise price for the eBay common stock issuable upon exercise of each such unvested GSI stock option converted into an option to purchase eBay common stock shall equal: (i) the per share exercise price of the GSI common stock subject to such unvested option, as in effect immediately prior to the effective time of the merger, divided by (ii) the conversion ratio, rounding up to the nearest whole cent.
The following table provides information, for each of our directors and executive officers, regarding the aggregate number of shares of common stock underlying outstanding vested GSI options as of April 11, 2011, the weighted average exercise price of such options and the value of the vested options. None of our directors and executives have any unvested options as of April 11, 2011. The information in the table assumes that all options will remain outstanding through the effective time of the merger.
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Name
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|
Number of
Shares
Underlying Vested
Options
|
|
Weighted
Average
Exercise Price
of Vested
Options
|
|
Value of
Vested
Options(1)
|
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Non-Executive Directors
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|
|
|
|
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M. Jeffrey Branman
|
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35,000
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|
$15.3126
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|
$487,810
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Michael J. Donahue
|
|
-
|
|
-
|
|
-
|
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Ronald D. Fisher
|
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28,750
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12.898
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470,110
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John A. Hunter
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25,000
|
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15.010
|
|
356,000
|
|
Josh Kopelman
|
|
-
|
|
|
|
|
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Jeffrey F. Rayport
|
|
35,500
|
|
12.718
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|
586,885
|
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David Rosenblatt
|
|
-
|
|
-
|
|
-
|
|
Lawrence S. Smith
|
|
-
|
|
-
|
|
-
|
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Andrea M. Weiss
|
|
-
|
|
-
|
|
-
|
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|
|
|
|
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Executive Officers
|
|
|
|
|
|
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Michael G. Rubin
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350,000
|
|
11.236
|
|
6,305,000
|
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Michael R. Conn
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120,000
|
|
11.298
|
|
2,154,300
|
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Christopher Saridakis
|
|
-
|
|
-
|
|
-
|
|
Damon Mintzer
|
|
35,000
|
|
13.460
|
|
552,650
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J. Scott Hardy
|
|
-
|
|
-
|
|
-
|
|
James Flanagan
|
|
45,000
|
|
13.460
|
|
710,550
|
|
(1)
|
Represents the amount payable to the individual following the effective time of the merger with respect to vested options held by the individual. Calculated for each individual by multiplying (i) the aggregate number of shares subject to vested options by (ii) the difference between (A) $29.25, and (B) the weighted average exercise price of the vested options.
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Restricted Stock Units
The merger agreement provides that, prior to the effective time of the merger, each restricted stock unit of GSI, to the extent vested immediately prior to the effective time of the merger (including those that become vested as a result of the completion of the merger), will be converted into the right to receive an amount in cash (subject to any applicable withholding taxes) equal to: (i) the number of shares of GSI common stock underlying the restricted stock unit, multiplied by (ii) $29.25. Each restricted stock unit that is outstanding and unvested immediately prior to the effective time of the merger will be converted into a restricted stock unit representing the right to receive the number of shares of eBay common stock equal to: (i) the number of shares of GSI common stock subject to such restricted stock unit immediately prior to the effective time of the merger, multiplied by (ii) the conversion ratio, rounding the
resulting number down to the nearest whole number of shares.
On March 25, 2011, as part of its review of annual equity grants, GSI’s Board of Directors granted to Mr. Conn a restricted stock unit award of 200,000 shares. 100,000 shares underlying the restricted unit award will vest immediately in full in the event of a change in control (including the merger), provided that Mr. Conn remains in “continuous service” (as defined in the 2010 Equity Incentive Plan) through the date of such change in control. The remaining 100,000 shares underlying the March 25, 2011 restricted stock unit award will vest 25% on March 25 of each of 2012, 2013, 2014 and 2015 and will be converted as described below.
On March 25, 2011, GSI’s Board of Directors granted to Mr. Rubin a restricted stock unit award under the Plan to acquire 27,000 shares of GSI common stock in satisfaction of GSI’s obligation pursuant to Mr. Rubin’s employment agreement to issue to Mr. Rubin an annual restricted stock unit award of a number of shares with a fair market value equal to $675,000. The restricted stock unit award to acquire 27,000 shares of GSI common stock was based on a per share value of $25.00. The March 25, 2011 restricted stock unit award will vest as to 25% of the total number of shares subject to the award on March 25 of each of 2012, 2013, 2014 and 2015. Such vesting will be subject to Mr. Rubin’s continuous service (as defined in the 2010 Equity Incentive Plan) to GSI and to acceleration in certain circumstances following a change in control. Notwithstanding
the foregoing, pursuant to the purchase agreement, the vesting of these restricted stock units will accelerate in full upon consummation of the merger.
On March 25, 2011, as part of GSI’s regular annual process for granting equity awards, GSI’s Board of Directors granted to each of Messrs. Flanagan, Hardy, Mintzer and Saridakis, a restricted stock unit award under the Plan to acquire 20,000 shares of GSI common stock. The March 25, 2011 restricted stock unit award will vest as to 25% of the total number of shares subject to the award on March 25 of each of 2012, 2013, 2014 and 2015.
The unvested March 25, 2011 grants to Messrs. Conn, Flanagan, Hardy, Mintzer and Saridakis will be converted into a restricted stock unit representing the right to receive the number of shares of eBay common stock pursuant to the terms of the merger agreement as discussed above.
Performance-Based Restricted Stock Units
The Board of Directors approved the grant of performance-based restricted stock units to Mr. Rubin on March 25, 2011, which were also granted in satisfaction of GSI’s obligations under Mr. Rubin’s employment agreement. At closing, the applicable performance criteria for this award will be deemed met and so the entire 72,239 units granted will be earned. The Board of Directors also approved the full vesting of the time-based vesting requirements of the performance-based restricted stock unit so that these 72,239 units will be vested and Mr. Rubin will receive an amount equal to the per share merger consideration for each unit in accordance with the merger agreement.
Because the performance criteria established for a standalone public company will no longer be applicable following closing of the merger, the Board of Directors also determined, with respect to the outstanding and unvested performance restricted stock units granted to each of Messrs. Conn, Mintzer, Hardy and Flanagan on March 31, 2010 (each for 5,411 units), that the applicable performance criteria would be deemed met at the target level of performance, but the grants will remain subject to time-based vesting through the applicable vesting date as set forth in the award agreement, which is January 2, 2013.
The following table provides information, for each of our current directors, regarding the approximate cash
value as of April 11, 2011, of outstanding unvested restricted stock units held by such directors. Such unvested restricted stock units will vest immediately prior to the effective time of the merger, under the terms of their award agreements due to termination of their service, and will be converted into the right to receive the same per share merger consideration as a holder of our outstanding common stock:
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Name
|
|
Number of
Restricted Stock Units
|
|
Value of
Restricted Stock Unit Awards(1)
|
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Non-Executive Directors
|
|
|
|
|
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M. Jeffrey Branman
|
|
1,775
|
|
$51,919
|
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Michael J. Donahue
|
|
1,775
|
|
51,919
|
|
Ronald D. Fisher
|
|
1,775
|
|
51,919
|
|
John A. Hunter
|
|
1,775
|
|
51,919
|
|
Josh Kopelman
|
|
5,617
|
|
164,297
|
|
Jeffrey F. Rayport
|
|
1,775
|
|
51,919
|
|
David Rosenblatt
|
|
5,020
|
|
146,835
|
|
Lawrence S. Smith
|
|
3,620
|
|
105,885
|
|
Andrea M. Weiss
|
|
1,775
|
|
51,919
|
|
(1)
|
Represents the value of unvested restricted stock units held by the individual which will vest immediately prior to the effective time of the merger. Calculated for each individual based on the number of unvested restricted stock units and the per share merger consideration of $29.25 per share.
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The following table provides information, for each of our executive officers, regarding the approximate cash value as of April 11, 2011, of outstanding unvested restricted stock units (including performance awards at the deemed target levels as described above) held by such executive officers that would be converted or assumed upon the merger, assuming that the effective time of the merger occurred on April 11, 2011 and a conversion ratio of .9339.
|
Name
|
|
Number of
Unvested Restricted Stock Units
|
|
Value of
Unvested
Restricted Stock Unit Awards(1)
|
|
Executive Officers
|
|
|
|
|
|
Michael G. Rubin(2)
|
|
268,464
|
|
$7,819,910
|
|
Michael R. Conn(3)
|
|
183,710
|
|
5,351,167
|
|
Christopher Saridakis
|
|
109,126
|
|
3,178,659
|
|
Damon Mintzer
|
|
65,760
|
|
1,915,479
|
|
J. Scott Hardy
|
|
90,351
|
|
2,631,774
|
|
James Flanagan
|
|
65,760
|
|
1,915,479
|
|
(1)
|
Represents the value of unvested restricted stock units held by the individual. Calculated for each individual based on the number of unvested restricted stock units, assuming a conversion ratio of .9339 based on the effective time of the merger occurring on April 11, 2011 and a closing stock price of eBay’s common stock of $31.19 per share on such date.
|
|
(2)
|
Pursuant to the terms of the purchase agreement which governs the divestiture of certain assets to NRG discussed herein, the vesting of all outstanding equity awards held by Mr. Rubin, including all restricted stock units and all performance-based restricted stock units, will accelerate in full upon consummation of the merger. These amounts do not include 72,239 performance-based restricted stock units that were granted to Mr. Rubin on March 25, 2011 and will vest immediately in full in connection with the merger as set forth above. The
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approximate cash value of such performance-based restricted stock units that will vest immediately prior to the effective time of the merger, calculated based on the per share merger consideration of $29.25 per share, is $2.1 million.
|
(3)
|
These amounts do not include 100,000 restricted stock units that will vest immediately in full in connection with the proposed merger and that were part of the restricted stock unit award for 200,000 shares granted to Mr. Conn on March 25, 2011. The approximate cash value of such restricted stock units that will vest immediately prior to the effective time of the merger, calculated based on the per share merger consideration of $29.25 per share, is $2.9 million.
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Payments and Benefits Under Change in Control Agreements, Employment Agreements and Transaction Incentive Agreements
Consummation of the merger will constitute a change in control under employment agreements between GSI and Messrs. Rubin and Saridakis, under change in control agreements between GSI and its other executive officers, and under transaction incentive agreements between GSI and certain executive officers.
Change in Control Agreements
GSI previously entered into change in control agreements with its executive officers (other than Messrs. Rubin, Saridakis and Mintzer), and certain other executives. Specifically, the change in control agreements with Messrs. Conn and Flanagan were entered into on August 8, 2006 and the agreement with Mr. Hardy was entered into on March 21, 2007.
Each change in control agreement with Messrs. Conn, Flanagan and Hardy provides that if the employee resigns for “good reason” (as defined in the change in control agreement) or is terminated without “cause” (as defined in the change in control agreement) within 90 days before or two years following a change in control, then:
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•
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all equity awards held by the employee will immediately become fully vested and exercisable and all restrictions set forth in these equity awards related to the passage of time and/or continued employment will immediately lapse; and
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•
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the employee will have continued exercisability of each stock option and stock appreciation right held by the employee, if any, for the remaining term of each such equity award.
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If any payment the employee would receive under the change in control agreement or otherwise constitutes a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code and is subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, then such payment will be reduced to an amount that yields the largest net payment to the employee (after taking into account all applicable federal, state, and local employment taxes, income taxes and the excise tax, all computed at the highest applicable rate). The change in control agreements do not provide the employees with a gross-up payment to make the employees whole if any excise tax under Section 4999 of the Internal Revenue Code is imposed on the employees as a result of the payment.
GSI has offered Mr. Mintzer the opportunity to enter into a change in control agreement, but Mr. Mintzer has not executed the change of control agreement as of the date hereof.
Rubin Employment Agreement
Under Mr. Rubin’s employment agreement dated August 23, 2006, (as amended December 2008), if during the period 183 days before or 183 days after a change in control, Mr. Rubin is terminated by GSI without cause (as defined in the employment agreement), GSI issues a notice of non-renewal of the term of the agreement or Mr. Rubin terminates his employment because his base salary is reduced or because Mr. Rubin’s principal place of employment is moved to a location that is more than 50 miles from the current location (unless such new location is closer to Mr. Rubin’s principal residence), he will be paid $2,525,000 over a period of 24 months following the date of termination or resignation. Upon any such termination or resignation, any time-based vesting condition in Mr. Rubin’s restricted stock units and performance restricted stock units will accelerate.
Upon the termination of Mr. Rubin’s employment under any of the circumstances described above, Mr. Rubin will also be entitled to continuation of his medical benefits for a period of 24 months following the date of termination or resignation, or until he obtains substantially comparable medical coverage, whichever is shorter.
Mr. Rubin has also been granted a right to resign for any reason during a period of 30 days beginning 183 days
following a change in control. If Mr. Rubin exercises this right, he will be entitled to continuation of his medical benefits for the period described in the above sentence. Additionally, any time-based vesting condition in Mr. Rubin’s restricted stock units and performance restricted stock units will accelerate; however, if Mr. Rubin is terminated or resigns following a change in control, any performance restricted stock units that were granted for the performance period in which such termination or resignation occurs will immediately terminate.
Notwithstanding the foregoing, pursuant to the purchase agreement regarding the divestiture of certain assets to NRG, all outstanding equity awards held by Mr. Rubin will accelerate in full (including performance awards assuming that performance has been achieved) upon consummation of the merger.
Under the terms of the employment agreement, if any payment Mr. Rubin would receive under the employment agreement or otherwise constitutes a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code and is subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, then such payment will be reduced to an amount that yields the largest net payment to Mr. Rubin (after taking into account all applicable federal, state, and local employment taxes, income taxes and the excise tax, all computed at the highest applicable rate). The employment agreement does not provide Mr. Rubin with a gross-up payment to make Mr. Rubin whole if any excise tax under Section 4999 of the Internal Revenue Code is imposed on Mr. Rubin as a result of the payment.
Saridakis Employment Agreement
Under Mr. Saridakis’ employment agreement dated March 23, 2010, if during the period 90 days before or 730 days after a change in control Mr. Saridakis is terminated by GSI without “cause” (as defined in the employment agreement), or Mr. Saridakis resigns for “good reason” (as defined in the employment agreement), he will be paid (i) his base salary over a period of 24 months (or 12 months if termination occurs after the first 24 months of the term of the employment agreement), (ii) a pro-rated portion of his annual bonus, if any, for the year in which termination occurs, (iii) the portion of any stock awards (other than performance based awards) that are vested as of the date of termination, and (iv) the portion of any performance based awards that have vested due to satisfaction of applicable performance goals. He also shall be entitled to continue to receive
health and dental benefits under GSI’s health and dental plans for a period of 18 months following the date of termination at the level in effect immediately prior to the date of his termination, payment of any earned but unpaid portion of his base salary and any other benefits accrued by him pursuant to the benefit plans and programs of GSI up to the date of his termination, and any benefits which are to be continued or paid after the date of termination in accordance with the terms of the benefit plans or programs of GSI. In addition, all equity awards held by Mr. Saridakis shall immediately become fully vested, all restrictions set forth in such equity awards related to the passage of time and/or continued employment shall immediately lapse, all option shares and other rights exercisable under such equity awards shall immediately become fully exercisable, and Mr. Saridakis shall have continued exercisability of each stock option and stock appreciation right held
by him (if any) for the remaining term of each such equity award.
Under the terms of the employment agreement, if any payment Mr. Saridakis would receive under the employment agreement or otherwise constitutes a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code and is subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, then such payment will be reduced to an amount that yields the largest net payment to Mr. Saridakis (after taking into account all applicable federal, state, and local employment taxes, income taxes and the excise tax, all computed at the highest applicable rate). The employment agreement does not provide Mr. Saridakis with a gross-up payment to make Mr. Saridakis whole if any excise tax under Section 4999 of the Internal Revenue Code is imposed on Mr. Rubin as a result of the payment.
Transaction Incentive Agreements
Consummation of the merger will constitute a sale of GSI under transaction incentive agreements between GSI and each of Messrs. Conn, Mintzer, Hardy, Saradakis and Flanagan (the “Incentive Agreements”). The form of the Incentive Agreements and the amounts payable thereunder were approved by the Board of Directors concurrently with the approval of the merger agreement.
Under the Incentive Agreements, Messrs. Conn, Mintzer, Hardy, Saradakis and Flanagan will each receive a lump sum incentive payment or series of incentive payments as a result of the merger in the amounts set forth in the table below. Except as provided below, each of these officers must be employed with GSI through the applicable payment date(s) in order to receive his incentive payment(s).
If, prior to the merger, any of these officers ceases to be an employee of GSI in good standing, then he will forfeit his right to payment under his Incentive Agreement. If, prior to the applicable payment date, any such officer’s employment is terminated by GSI without “cause” (as defined in the Incentive Agreement) or any such officer terminates his employment for “good reason”, subject to execution and non-revocation of a release, GSI will pay to such officer, within ten days following his date of termination, an amount of his incentive payment which would otherwise have become payable under the terms of the Incentive Agreement as if such officer was employed through the applicable payment date. If, prior to the applicable payment date, any such officer dies or terminates employment by reason of his disability, GSI will pay to such officer (or his estate in the event of death), within ten days following his termination,
an amount equal to the aggregate amount of his incentive payment multiplied by a fraction, the numerator of which is the number of days that elapsed between the date of the Incentive Agreement and the date of such officer’s death or disability, and the denominator of which is the number of days that elapsed between the date of the Incentive Agreement and the consummation of the sale of GSI.
Under the Incentive Agreements, the officers and GSI may mutually agree, in writing, prior to the applicable payment date(s), that GSI will pay the incentive payment(s) upon circumstances other than those expressly set forth in the Incentive Agreements. If an incentive payment received by Messrs. Conn, Mintzer, Hardy, Saridakis and Flanagan under their Incentive Agreements constitutes a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code and is subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, then such payment will be reduced to an amount that yields the largest net payment to the officer (after taking into account all applicable federal, state, and local employment taxes, income taxes and the excise tax, all computed at the highest applicable rate). The Incentive Agreements do not provide the officers with a gross-up payment to make them whole if any excise tax under
Section 4999 of the Internal Revenue Code is imposed on the officers as a result of the incentive payment(s).
Under the Incentive Agreements, “good reason” means:
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a material reduction in the officer’s duties, positions, titles, offices, authority or responsibilities relative to those in effect immediately prior to a sale of GSI; the assignment to the officer of any duties or responsibilities that are substantially inconsistent with those in effect immediately before such assignment; or removal of the officer from or failure to reappoint or reelect the officer to any of such positions, titles or offices; except that if such event occurs solely from the fact that GSI is no longer a publicly traded and listed company, it will not by itself constitute good reason;
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a reduction in the greater of the officer’s: (i) base salary as in effect immediately prior to the sale of GSI, or (ii) base salary at such higher level as may be determined following a sale of GSI;
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a reduction in the greater of the officer’s: (i) bonus or other cash incentive compensation opportunity as in effect immediately prior to the sale of GSI, or (ii) bonus or other compensation opportunity at such higher level as may be determined following a sale of GSI; a reduction or negative change in the officer’s equity award, other long-term non-cash incentive opportunities or the officer’s benefits other than base salary, bonus or other cash and non cash incentive compensation as in effect immediately prior to the sale of GSI, except if after a sale of GSI, GSI offers the officer a range of cash and non-cash bonus and incentive opportunities and other benefits which, taken as a whole, are comparable to the cash and non-cash bonus and incentive opportunities and other benefits provided to the officer immediately prior to the sale of GSI;
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GSI’s failure to timely pay or provide to the officer any portion of the officer’s compensation or benefits then due to the officer;
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a relocation of the officer’s principal place of employment that will result in an increase of more than thirty (30) miles in the officer’s one-way commute as compared to the officer’s one-way commute prior to the change in control;
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GSI’s material breach of the Incentive Agreement or any other material agreement with the officer; or
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GSI’s failure to obtain, before a sale of GSI occurs, an agreement in writing from any successors and assigns to assume and agree to perform the Incentive Agreement unless otherwise assumed by such successors and assigns by operation of law.
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The following table provides information regarding approximate cash amounts payable, or the approximate value of benefits to be provided, under the Incentive Agreements to the executive officers other than Mr. Rubin (who has not entered into an Incentive Agreement), as a result of the merger.
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Name
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Total Incentive Payment
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Payment on Sale of Company
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Payment on 6-month Anniversary of Sale of Company
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Payment on First Year Anniversary of Sale of Company
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Payment on Third Year Anniversary of Sale of Company
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Michael R. Conn
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$ |
5,000,000 |
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$ |
3,000,000 |
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$ |
2,000,000 |
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- |
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- |
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Damon Mintzer
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5,000,000 |
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|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
5,000,000 |
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J. Scott Hardy
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2,000,000 |
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|
|
- |
|
|
|
- |
|
|
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- |
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2,000,000 |
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Christopher Saridakis
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|
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5,000,000 |
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|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,000,000 |
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James Flanagan
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2,000,000 |
|
|
|
1,000,000 |
|
|
|
- |
|
|
$ |
1,000,000 |
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|
|
- |
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The following table provides information regarding approximate cash amounts payable, or the approximate value of benefits to be provided, to the executive officers, other than pursuant to the cash-out and conversion of equity awards and the Incentive Agreements as previously set forth above, in connection with a termination of employment as a result of the merger.
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|
|
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Value of Continued Health and Welfare Benefits
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|
|
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Michael G. Rubin
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$ |
2,525,000 |
(1) |
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$ |
20,475 |
(2) |
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$ |
2,545,475 |
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Christopher Saridakis
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|
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1,200,000 |
(3) |
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15,356 |
(4) |
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1,215,356 |
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James Flanagan
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|
200,000 |
(5) |
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- |
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200,000 |
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(1)
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Represents amount payable under Mr. Rubin’s employment agreement, payable in 24 monthly installments following termination of employment.
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(2)
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Represents the estimated cost to continue Mr. Rubin’s medical benefits for a period of 24 months following termination of employment, assuming no increases in premiums.
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(3)
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Represents amount payable under Mr. Saridakis’s employment agreement, payable in 24 monthly installments following termination of employment. This amount does not include the prorated bonus Mr. Saridakis would be entitled to pursuant to the terms of his employment agreement.
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(4)
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Represents the estimated cost to continue Mr. Saridakis’s medical benefits for a period of 18 months following termination of employment, assuming no increases in premiums.
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(5)
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Represents 6 months of base salary payable under Mr. Flanagan’s offer letter, which is payable in 6 monthly installments following termination of employment. The offer letter does not provide for any other severance or change in control benefits.
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Indemnification of Officers and Directors
The merger agreement contains provisions relating to the indemnification of GSI’s directors and officers. Under the merger agreement, for six years after the effective time of the merger, eBay will cause GSI to indemnify and hold harmless GSI’s directors and officers (as of the date of the merger agreement) for acts or omissions occurring prior to the effective time of the merger to the extent provided under (i) applicable law, (ii) GSI’s certificate of incorporation or bylaws, or (iii) any indemnification agreements between GSI and GSI’s directors and
officers (in the case of (ii) and (iii), as in effect as of the date of the merger agreement), subject to any limitation imposed under applicable law.
Directors’ and Officers’ Insurance
Under the merger agreement, eBay has agreed that prior to the effective time of the merger, eBay (or at eBay’s option, GSI) will purchase a prepaid, non-cancelable “tail” policy on GSI’s current officers’ and directors’ liability insurance policy (on terms and conditions no less favorable than as provided in GSI’s current policies as of the date of the merger agreement), for a claims reporting or discovery period of at least six years from the effective time of the merger.
The merger agreement provides that if eBay or GSI: (i) consolidates with or merges into any other person and is not the continuing or the surviving corporation or entity of such consolidation or merger, or (ii) transfers or conveys all or substantially all of its properties and assets to any person, then, and in each such case, to the extent necessary, proper provision shall be made so that the successors and assigns of eBay or GSI, as the case may be, will assume the foregoing obligations.
The foregoing summary of the indemnification of directors and officers, and directors’ and officers’ insurance, is not complete and is qualified in its entirety by reference to the merger agreement, which is attached to this proxy statement as Appendix A.
Special Committee Compensation
In consideration of the expected time and effort that would be required of the members of the special committee in evaluating the merger, including negotiating the terms and conditions of the merger agreement, the Board determined that each member of the special committee shall receive a monthly fee equal to $15,000 and a per meeting fee equal to $1,000 and that M. Jeffrey Branman, Michael J. Donahue and Jeffrey F. Rayport shall receive $70,000, $40,000 and $11,000, respectively, in each case for such member’s service on the special committee and for the time such member may be required to spend as a result of any litigation that may result from such member’s service on the special committee or the merger or an alternative transaction. No other meeting fees or other compensation (other than reimbursement for out-of-pocket expenses in connection with attending special committee meetings) will be paid to the members of the special
committee in connection with their service on the special committee.
Regulatory Matters
U.S. Antitrust Authorities and Foreign Governmental Regulation
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the regulations promulgated thereunder required eBay and GSI to file notification and report forms with respect to the merger and related transactions with the Antitrust Division of the U.S. Department of Justice and the Federal Trade Commission. GSI filed its required notification and report form on April 7, 2011, and eBay filed its required form on April 7, 2011. The waiting period relating to these filings is scheduled to expire on May 9, 2011 at 11:59 p.m. Eastern time, or sooner if the request for early termination of the waiting period is granted.
Nevertheless, at any time before or after the completion of the merger, the Antitrust Division of the U.S. Department of Justice or the Federal Trade Commission or any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the merger, to rescind the merger or to seek divestiture of particular assets by either party in connection with the merger. Private parties also may seek to take legal action under the antitrust laws under certain circumstances. Although there is no assurance that they will not do so, we do not expect any regulatory authority, state or private party to take legal action under any antitrust laws.
Although we do not expect these regulatory authorities to raise any significant concerns in connection with their review of the merger, there is no assurance that we will obtain all required regulatory approvals, or that those approvals will not include terms, conditions or restrictions that may have an adverse effect on GSI or, after the completion of the transaction, on eBay.
The merger may be subject to certain regulatory requirements of other municipal, state, federal and foreign governmental and self-regulatory agencies and authorities, including those relating to the offer and sale of securities. Together with eBay, we are currently working to evaluate and comply in all material respects with these requirements, as appropriate, and do not currently anticipate that they will hinder, delay or restrict completion of the
merger. If any approval or action is needed, however, we may not be able to obtain it or any of the other necessary approvals. Even if we could obtain all necessary approvals, and the merger agreement is adopted by our stockholders, conditions may be placed on the merger that could cause us to abandon it.
Material U.S. Federal Income Tax Consequences
The following is a summary of the material U.S. federal income tax consequences of the merger to certain holders of our common stock. This summary is based on the Internal Revenue Code of 1986, as amended, referred to as the “Code” in this proxy statement, regulations promulgated under the Code, administrative rulings and pronouncements issued by the Internal Revenue Service and court decisions now in effect. All of these authorities are subject to change, possibly with retroactive effect so as to result in tax consequences different from those described below. We have not sought any ruling from the Internal Revenue Service (the “IRS”) with respect to statements made and conclusions reached in this discussion, and the statements and conclusions in this proxy are not binding on the IRS or any court. We can provide no assurances that the tax consequences described below will not be challenged by the IRS or will be
sustained by a court if so challenged.
This summary does not address all of the U.S. federal income tax consequences that may be applicable to a particular holder of our common stock. In addition, this summary does not address the U.S. federal income tax consequences of the merger to holders of our common stock who are subject to special treatment under U.S. federal income tax laws, including, for example, banks and other financial institutions, insurance companies, tax-exempt investors, S corporations, U.S. expatriates, dealers in securities, traders in securities who elect the mark-to-market method of accounting for their securities, regulated investment companies, holders who hold their common stock as part of a hedge, straddle or conversion transaction, holders whose functional currency is not the U.S. dollar, holders who acquired our common stock through the exercise of employee stock options or other compensatory arrangements, holders who receive cash pursuant
to the exercise of appraisal rights, holders who are subject to the alternative minimum tax provisions of the Code and holders who do not hold their shares of our common stock as “capital assets” within the meaning of Section 1221 of the Code (generally, for investment).
This discussion does not address the U.S. federal income tax consequences to any holder of our common stock who or which, for U.S. federal income tax purposes, is a nonresident alien individual, a foreign corporation, a foreign partnership or a foreign estate or trust. In addition, this discussion does not address U.S. federal estate or gift tax consequences of the merger, or the tax consequences of the merger under state, local, or foreign tax laws.
If a partnership or other entity treated as a partnership for U.S. federal income tax purposes is a beneficial owner of our common stock, the tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. A beneficial owner of our common stock that is a partnership and partners in such a partnership should consult their tax advisors about the U.S. federal income tax consequences of the merger.
This summary is provided for general information purposes only and is not intended as a substitute for individual tax advice. Each holder of GSI common stock should consult the holder’s individual tax advisors as to the particular tax consequences of the merger to such holder, including the application and effect of any state, local, foreign or other tax laws and the possible effect of changes to such laws.
Exchange of Common Stock for Cash. Generally, the merger will be taxable to the holders of our common stock for U.S. federal income tax purposes. A holder of our common stock receiving cash in the merger generally will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount of cash received and the holder’s adjusted tax basis in our common stock surrendered. Any such gain or loss generally will be capital gain or loss. Any capital gain or loss will be taxed as long-term capital gain or loss if the holder has held our common stock for more than one year prior to the effective time of the merger. If the holder has held our common stock for one year or less prior to the effective time of the merger, any capital gain or loss will be taxed as short-term capital gain or loss. Currently, most long-term capital gains for non-corporate taxpayers are
taxed at a maximum federal tax rate of 15%. The deductibility of capital losses is subject to certain limitations. If a holder acquired different blocks of GSI common stock at different times and different prices, such holder must determine the adjusted tax basis and holding period separately with respect to each such block of GSI common stock.
Dissenting Stockholders. Each holder of GSI common stock who perfects appraisal rights with respect to the merger, as discussed under “— Dissenters’ Rights of Appraisal” beginning on page 59 of this proxy statement and
who receives cash in respect of their shares of our common stock should consult the holder’s individual tax advisor as to the tax consequences of the receipt of cash as a result of exercising appraisal rights.
Information Reporting and Backup Withholding. Generally, holders of GSI common stock will be subject to information reporting on the cash received in the merger unless such a holder is an exempt recipient. In addition, under the U.S. federal backup withholding tax rules, the exchange agent will generally be required to withhold 28% of all cash payments to which a holder of GSI common stock is entitled in connection with the merger unless such holder provides under penalties of perjury on a Form W-9 (or appropriate substitute form) a tax identification number, certifies that such holder is a U.S. person and that tax identification number is correct and that no backup withholding is otherwise required, and otherwise complies with such backup withholding rules, or such holder otherwise establishes an exemption. In general, each holder of GSI common stock should complete and sign the Form W-9 (or appropriate
substitute form) included as part of the letter of transmittal and return it to the exchange agent, in order to certify that the holder is exempt from backup withholding or to provide the necessary information to avoid backup withholding. Backup withholding is not an additional tax. Any amount withheld from a payment to a holder of GSI common stock under these rules will be allowed as a credit against such holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that the required information is timely furnished to the IRS.
HOLDERS OF GSI COMMON STOCK ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF U.S. FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS IN THEIR PARTICULAR CIRCUMSTANCES.
Litigation Related to the Merger
Following the announcement of the proposed merger, five putative stockholder class action complaints challenging the transaction (one of which also purports to be brought derivatively on behalf of GSI) were filed in the Court of Chancery of the State of Delaware (the “Delaware Court”) against various combinations of eBay, Merger Sub, NRG, us, the individual members of our board of directors, and certain of our non-director officers. Additional similar lawsuits may be filed in the future.
The complaints generally allege, among other things, that the members of our board of directors breached their fiduciary duties owed to our public stockholders by entering into the merger agreement, approving the proposed merger, and failing to take steps to maximize our value to our public stockholders; that Mr. Rubin breached his fiduciary duties owed to our public stockholders by engaging in a transaction pursuant to which eBay agreed to sell certain subsidiaries of GSI to NRG after the completion of the merger; and that various combinations of eBay, Merger Sub, NRG, and us aided and abetted such breaches of fiduciary duties. In addition, the complaints allege that the transactions improperly favor eBay and Mr. Rubin and unjustly enriches certain of the defendants; and that certain provisions of the merger agreement unduly restrict
our ability to negotiate with other potential bidders. In one of these actions, the plaintiff also purports to bring derivative claims on behalf of GSI, alleging that the individual members of the board of directors and certain non-director officers are wasting corporate assets, unjustly enriching themselves, and breaching their fiduciary duties, and that eBay and Merger Sub are aiding and abetting such breaches of fiduciary duties. The complaints generally seek, among other things, declaratory and injunctive relief concerning the alleged fiduciary breaches, injunctive relief prohibiting the defendants from consummating the proposed merger, and other forms of equitable relief.
Beginning on April 5, 2011, various plaintiffs in these lawsuits filed motions to consolidate the suits, to expedite the proceedings, to appoint lead plaintiff and lead counsel, and for preliminary injunction. These motions are currently pending before the Delaware Court.
One of the conditions to the closing of the merger is that no restraining order, injunction, or ruling by a court or other governmental entity shall be in effect that prevents the consummation of the merger or that makes the consummation of the merger illegal. As such, while the defendants believe the actions described above are without merit and intend to defend against them vigorously, if the plaintiffs in any of the actions are successful in obtaining an injunction prohibiting the defendants from completing the merger on the agreed-upon terms, then such injunction may prevent the merger from becoming effective, or from becoming effective within the expected timeframe.
Dissenters’ Rights of Appraisal
Under Delaware law, you have the right to dissent from the merger and to receive payment in cash for the fair value of your GSI common stock, as determined by the Court of Chancery of the State of Delaware (the “Chancery Court”), together with interest, if any, as determined by the court, in lieu of the consideration you would otherwise be entitled to pursuant to the merger agreement. Any of our stockholders electing to exercise appraisal rights must comply with the provisions of Section 262 of the Delaware General Corporation Law in order to perfect their rights. We will require strict compliance with the statutory procedures. A copy of Section 262 is attached to this proxy statement as Appendix C.
The following is a brief summary of the material provisions of the Delaware statutory procedures required to be followed by a stockholder in order to dissent from the merger and perfect the stockholder’s appraisal rights. This summary, however, is not a complete statement of all applicable requirements and is qualified in its entirety by reference to Section 262 of the Delaware General Corporation Law. The following summary does not constitute any legal or other advice, nor does it constitute a recommendation that you exercise your right to appraisal under Section 262. If you wish to consider exercising your appraisal rights, you should carefully review the text of Section 262 contained in Appendix C because failure to timely and properly comply with the requirements of Section 262 will result in the loss of your appraisal rights under Delaware law. Section 262 requires that stockholders be notified not
less than 20 days before the special meeting to vote on the adoption of the merger agreement that appraisal rights will be available. A copy of Section 262 must be included with such notice. This proxy statement constitutes our notice to our stockholders of the availability of appraisal rights in connection with the merger in compliance with the requirements of Section 262.
If you elect to demand appraisal of your shares, you must satisfy each of the following conditions:
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You must deliver to us, as set forth below, a written demand for appraisal of your shares before the stockholder vote is taken with respect to the merger at the special meeting. This written demand for appraisal must be in addition to and separate from any proxy or vote abstaining from or voting against adoption of the merger agreement. Voting against or failing to vote for adoption of the merger agreement does not constitute a demand for appraisal under Section 262.
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You must not vote in favor of adoption of the merger agreement. A vote in favor of adoption of the merger agreement, by proxy, over the Internet, by telephone or in person, will constitute a waiver of your appraisal rights in respect of the shares so voted and will nullify any previously filed written demands for appraisal. A proxy which does not contain voting instructions will, unless revoked, be voted in favor of the merger agreement. Therefore, a stockholder who votes by proxy and who wishes to exercise appraisal rights must vote against the merger agreement or abstain from voting on the merger agreement.
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You must hold of record the shares of GSI common stock on the date the written demand for appraisal is made and continue to hold the shares of record through the completion of the merger.
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If you fail to comply with any of these conditions, and the merger is completed, you will be entitled to receive the cash payment for your shares of GSI common stock as provided for in the merger agreement, but will have no appraisal rights with respect to your shares of GSI common stock.
All demands for appraisal should be addressed to GSI Commerce, Inc., Attn: Corporate Secretary, 935 First Avenue, King of Prussia, PA 19406, should be delivered before the vote on adoption of the merger agreement is taken at the special meeting and should be executed by, or on behalf of, the record holder of the shares of GSI common stock. The demand must reasonably inform us of the identity of the stockholder and the intention of the stockholder to demand appraisal of his, her or its shares.
To be effective, a demand for appraisal by a holder of GSI common stock must be made by, or in the name of, such record stockholder, fully and correctly, as the stockholder’s name appears on his or her stock certificate(s) and cannot be made by the beneficial owner if he or she does not also hold the shares of record. The beneficial holder must, in such cases, have the record owner submit the required demand in respect of such shares.
If shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a demand for appraisal should be made by or for the fiduciary; and if the shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or for all joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the
fact that, in executing the demand, he or she is acting as agent for the record owner. A record owner, such as a broker, dealer, commercial bank, trust company or other nominee, who holds shares as a nominee for others, may exercise his, her or its right of appraisal with respect to the shares held for one or more beneficial owners, while not exercising this right for other beneficial owners. In such case, the written demand should state the number of shares as to which appraisal is sought. Where no number of shares is expressly mentioned, the demand will be presumed to cover all shares held in the name of such record owner.
If you hold your shares of GSI common stock in a brokerage or bank account or in other nominee form and you wish to exercise appraisal rights, you should consult with your broker, dealer, commercial bank, trust company or such other nominee to determine the appropriate procedures for the making of a demand for appraisal by such nominee. Within ten days after the effective date of the merger, the surviving entity must give written notice of the date the merger became effective to each GSI stockholder who has properly filed a written demand for appraisal and who did not vote in favor of adoption of the merger agreement. Within 120 days after the effective date of the merger, either the surviving entity or any stockholder who has complied with the requirements of Section 262 may file a petition in the Chancery Court demanding a determination of the fair value of the shares held by all stockholders entitled to appraisal. The surviving
entity has no obligation to file such a petition in the event there are dissenting stockholders and has no intention of doing so. Accordingly, the failure of a stockholder to file such a petition within the period specified could nullify such stockholder’s previous written demand for appraisal.
At any time within 60 days after the effective date of the merger, any stockholder who has demanded an appraisal has the right to withdraw the demand and to accept the cash payment specified by the merger agreement for his or her shares of GSI common stock. Any attempt to withdraw an appraisal demand more than 60 days after the effective date of the merger will require the written approval of the surviving entity. Within 120 days after the effective date of the merger, any stockholder who has complied with Section 262 will be entitled, upon written request, to receive a statement setting forth the aggregate number of shares of GSI common stock not voted in favor of adoption of the merger agreement and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such statement must be mailed within ten days after a written request has been received by the surviving corporation
or within ten days after the expiration of the period for delivery of demands for appraisal, whichever is later. If a petition for appraisal is duly filed by a stockholder and a copy of the petition is delivered to the surviving corporation, the surviving corporation will then be obligated within 20 days after receiving service of a copy of the petition to provide the Chancery Court with a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their shares. After notice to dissenting stockholders who demanded appraisal of their shares, the Chancery Court is empowered to conduct a hearing upon the petition, to determine those stockholders who have complied with Section 262 and who have become entitled to the appraisal rights provided thereby. The Chancery Court may require the stockholders who have demanded payment for their shares to submit their stock certificates to the Register in Chancery for notation thereon of
the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Chancery Court may dismiss the proceedings as to such stockholder.
After determination of the stockholders entitled to appraisal of their shares of GSI common stock, the Chancery Court will appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger, together with interest, if any. When the value is determined the Chancery Court will direct the payment of such value, with interest thereon accrued during the pendency of the proceeding, if the Chancery Court so determines, to the stockholders entitled to receive the same, upon surrender by such holders of the certificates representing such shares.
In determining fair value, the Chancery Court is required to take into account all relevant factors. You should be aware that the fair value of your shares as determined under Section 262 could be more, the same or less than the value that you are entitled to receive pursuant to the merger agreement. You should be aware that investment banking opinions as to the fairness, from a financial point of view, of the consideration payable in a merger are not opinions as to fair value under Section 262. Costs of the appraisal proceeding may be imposed upon the surviving corporation and the stockholders participating in the appraisal proceeding by the Chancery Court as the Chancery Court deems equitable in the circumstances. Upon the application of a stockholder, the Chancery Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable
attorneys’ fees and the fees and expenses of experts, to be charged pro rata against the value of all shares entitled to appraisal. Any stockholder who had demanded appraisal rights will not, after the effective date of the merger, be entitled to vote shares subject to such demand for any purpose or to receive payments of dividends or any other distribution with respect to such shares (other than with respect to payment as of
a record date prior to the effective date); however, if no petition for appraisal is filed within 120 days after the effective date of the merger, or if such stockholder delivers a written withdrawal of his or her demand for appraisal and an acceptance of the merger within 60 days after the effective date of the merger, then the right of such stockholder to appraisal will cease and such stockholder will be entitled to receive the cash payment for shares of his or her GSI common stock pursuant to the merger agreement. Any withdrawal of a demand for appraisal made more than 60 days after the effective date of the merger may only be made with the written approval of the surviving corporation and must, to be effective, be made within 120 days after the effective date.
In view of the complexity of Section 262, any of our stockholders who may wish to dissent from the merger and pursue appraisal rights should consult their legal advisors. Failure to take any required step in connection with exercising appraisal rights may result in the termination or waiver of such rights.
TERMS OF THE MERGER AGREEMENT
The following is a summary of the material terms of the merger agreement and is qualified by reference to the complete merger agreement which is attached as Appendix A to this proxy statement. We urge to you to read the merger agreement carefully and in its entirety because it, and not this proxy statement, is the legal document that governs the merger and the agreement among the Company, eBay and Merger Sub with respect to the merger.
The merger agreement and this summary of its terms have been included to provide you with information regarding the terms of the merger agreement. Factual disclosures about the Company contained in this proxy statement or in the Company’s public reports filed with the SEC may supplement, update or modify the factual disclosures about the Company contained in the merger agreement and described in this summary. The merger agreement contains representations and warranties that the Company, eBay and Merger Sub made to each other as of specific dates. The representations and warranties were negotiated
between the parties with the principal purpose of setting forth their respective rights with respect to their obligation to complete the merger and allocating risk between the parties to the merger agreement, rather than establishing matters as facts. The representations and warranties may also be subject to important limitations and qualifications as set forth (i) therein, including a contractual standard of materiality different from that generally applicable to stockholders or generally applicable under federal securities laws, and (ii) in the disclosure schedule delivered by the Company in connection with the merger agreement. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this proxy statement, may have changed since the date of the merger agreement, and subsequent developments or
new information qualifying a representation or warranty may have been included in this proxy statement.
General; The Merger
Upon the terms and subject to the satisfaction or waiver of the conditions of the merger agreement and in accordance with the Delaware General Corporation Law (the “DGCL”), Merger Sub will merge with and into the Company and the separate corporate existence of Merger Sub will cease. The Company will be the surviving corporation in the merger and will continue to be a Delaware corporation after the merger, wholly-owned by eBay. Unless eBay determines otherwise prior to the effective time of the merger, the certificate of incorporation and bylaws of Merger Sub in effect immediately
prior to the merger will be the certificate of incorporation and bylaws of the surviving corporation immediately after the merger, except that the surviving corporation’s certificate of incorporation shall provide that the name of the corporation shall be “GSI Commerce, Inc.”
The directors and officers of Merger Sub immediately prior to the effective time of the merger will, immediately after the effective time of the merger, be the directors and officers of the Company, as the surviving corporation.
When the Merger Becomes Effective
The merger agreement provides that the merger of Merger Sub and the Company will occur on a date designated by eBay, which shall be no later than the fifth business day after the satisfaction or waiver of all the closing conditions to the merger (other than those conditions that by their nature are to be satisfied at the closing), unless the Company and eBay agree to another date. Subject to the provisions of the merger agreement, the Company and Merger Sub will file a certificate of merger with the Secretary of State of the State of Delaware on the date designated by eBay, and the merger shall become effective at the time the certificate of merger is filed with the Secretary
of State of the State of Delaware or at such other later date and time as specified in the certificate of merger, with the consent of eBay. If the Company’s stockholders adopt the merger agreement, the Company and eBay intend to complete the merger as soon as practicable thereafter.
Consideration to be Received Pursuant to the Merger; Treatment of Stock Options, Restricted Shares and Restricted Stock Unit Awards
Common Stock
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each share of the Company’s common stock issued and outstanding immediately prior to the effective time of the merger (other than shares held by the Company (as treasury stock or otherwise), eBay or Merger Sub or any of subsidiaries and shares held by stockholders who validly perfect their appraisal rights under Delaware law) will be converted (together with any associated rights (the “Rights”) issued
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pursuant to the Rights Agreement dated as of April 3, 2006, between the Company and American Stock Transfer and Trust Company, as Rights Agent (the “Rights Agreement”)) into the right to receive $29.25 per share in cash, without interest and less any applicable withholding taxes, at the effective time of the merger;
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each share of the Company’s common stock owned by the Company (as treasury stock or otherwise), eBay or Merger Sub or any of their subsidiaries will automatically be cancelled and retired and will cease to exist, together with any associated Rights, and no consideration will be paid in exchange for it; and
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each share of common stock of Merger Sub will be converted into and become one share of common stock of the Company, as the surviving corporation.
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The merger agreement also provides that to the extent that any outstanding shares of the Company’s common stock are unvested or subject to a repurchase option, risk of forfeiture or other condition as of the effective time of the merger, each such share will be converted into a right to receive $29.25 per share in cash, without interest and less any applicable withholding taxes, at the effective time of the merger, which right will remain unvested and subject to the same repurchase option, risk of forfeiture or other condition previously applicable to the respective shares, and need not be paid until such time as such repurchase option, risk of forfeiture or other condition lapses or otherwise terminates.
Options
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each outstanding stock option of the Company, to the extent vested immediately prior to the effective time of the merger, will be converted into the right to receive an amount in cash (subject to any applicable withholding taxes) equal to (i) the number of shares of Company common stock underlying the option multiplied by (ii) the difference between (A) $29.25 per share in cash, without interest and less any applicable withholding taxes, and (B) the exercise price per share of such option;
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each outstanding stock option of the Company, to the extent unvested immediately prior to the effective time of the merger, will be converted into an option to purchase eBay common stock in an amount equal to (i) the number of shares of Company common stock underlying such option immediately prior to the effective time of the merger, multiplied by (ii) a “conversion ratio” equal to (A) $29.25 per share in cash, without interest and less any applicable withholding taxes, divided by (B) the average of the closing sale prices of a share of eBay common stock as reported on NASDAQ for each of the ten consecutive trading days immediately preceding the closing date of the merger, rounding the resulting number down to the nearest whole number of shares of eBay common stock. The per share exercise price for the eBay common stock issuable upon
exercise of each such unvested Company stock option converted into an option to purchase eBay common stock will be equal (i) the per share exercise price of the Company common stock subject to such unvested Company option, as in effect immediately prior to the effective time of the merger, divided by (ii) the conversion ratio, rounding up to the nearest whole cent.
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Restricted Stock Units
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each restricted stock unit of the Company, to the extent outstanding and vested immediately prior to the effective time of the merger, will be converted into the right to receive an amount in cash (subject to any applicable withholding taxes) equal to (i) the number of shares of Company common stock underlying the restricted stock unit multiplied by (ii) $29.25 per share in cash, without interest and less any applicable withholding taxes; and
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each restricted stock unit of the Company, to the extent outstanding but unvested immediately prior to the effective time of the merger, will be converted into a restricted stock unit representing the right to receive the number of shares of eBay common stock equal to (i) the number of shares of Company common stock subject to such restricted stock unit immediately prior to the effective time of the merger multiplied by (ii) the conversion ratio, and rounding the resulting number down to the nearest whole number of shares of eBay common stock.
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Payment for Company Common Stock in the Merger
eBay will appoint a paying agent for the payment of the applicable merger consideration in exchange for shares of common stock in the merger. After the effective time of the merger, there will be no further transfers in the records of the Company or its transfer agent of certificates representing the Company’s common stock and, if any certificates are presented to eBay, the Company or the paying agent for transfer, they will be cancelled against payment of the merger consideration. After the effective time of the merger, subject to the right to surrender your certificate in exchange for payment of the amount due to you under the merger agreement, you will cease to have any rights
as a stockholder of the Company.
Promptly after the effective time of the merger, the paying agent will mail to each record holder of the Company’s common stock immediately prior to the effective time of the merger a letter of transmittal and instructions for use in effecting the surrender of their common stock certificates in exchange for such holder’s applicable portion of the merger consideration.
You should not send in your Company common stock certificates with the enclosed proxy card, and you should not forward your stock certificates to the paying agent without a letter of transmittal. The letter of transmittal and instructions will tell you what to do if you have lost a certificate, or if it has been stolen or destroyed. You will have to provide an affidavit to that fact and, if required by eBay or the paying agent, deliver a bond in a reasonable amount as indemnity against any claim that may be made against the paying agent, eBay, Merger Sub or the Company as the surviving corporation with respect to such certificate.
The paying agent will pay you your merger consideration after you have surrendered your certificates to the paying agent and provided to the paying agent any other items specified by the letter of transmittal and instructions. The surrendered certificates will be cancelled upon delivery to the paying agent. The Company (as the surviving corporation), eBay or the paying agent may reduce the amount of any merger consideration paid to you by any applicable withholding taxes as required under federal, state, local or foreign tax law. Any sum that is withheld will be deemed to have been paid to the person with regard to whom it is withheld. No interest will be paid or accrued on the cash payable as the per share merger consideration, as provided above.
If payment is to be made to a person other than the person in whose name the Company’s common stock certificate surrendered is registered, it will be a condition of payment that the certificate so surrendered be properly endorsed and otherwise in proper form for transfer and that the person requesting such payment pay any fiduciary or surety bonds and any transfer or other taxes required by reason of the payment to a person other than the registered holder of the certificate surrendered of the amount due under the merger agreement, or that such person establish to the satisfaction of the paying agent that such bonds and taxes have been paid or are not applicable.
Any portion of the merger consideration made available to the paying agent that remains undistributed to the Company’s stockholders 180 days after the effective time of the merger will be delivered to eBay upon demand and any stockholders who have not properly surrendered their stock certificates will thereafter look only to eBay for payment of the merger consideration in the amount due to them under the merger agreement. If any portion of the merger consideration has not been paid pursuant to proper claims under the procedures summarized above upon the earlier of (i) the fifth anniversary of the effective time of the merger or (ii) the date immediately prior to the date such amount would otherwise escheat to or become the property of any governmental body, then, to the extent permitted by applicable legal requirements, such amount will become
the property of the surviving corporation, free and clear of any claim or interest of any person previously entitled thereto. None of eBay, the surviving corporation or the paying agent will be liable to any former stockholder of the Company for any merger consideration delivered to a public official pursuant to applicable abandoned property, escheat or similar laws.
Representations and Warranties
The merger agreement contains a number of representations and warranties made by each of the Company, eBay and Merger Sub that relate to, among other things:
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valid corporate existence, good standing and qualification or power to conduct business as currently conducted and to enter into and perform obligations under the merger agreement;
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due authorization, execution, delivery, validity and binding nature and enforceability of the merger agreement and to complete the merger;
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required consents and approvals of governmental bodies necessary to complete the merger;
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contravention, violation or breach of, or conflict with, organizational documents, applicable laws or orders, or certain agreements as a result of entering into the merger agreement and the consummation of the merger;
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any consent, approval, order or authorization or, or registration, declaration or filing with, any government body required by such party in connection with the merger agreement or the consummation of the merger;
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legal proceedings pending, threatened against or affecting the applicable party;
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finders’ fees and fees payable to financial advisors in connection with the merger; and
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the accuracy of statements of materials facts for, or the absence of omissions to state any material facts required to be stated in, any proxy statement disclosure in order to make the statements therein, in the light of the circumstances under which they are made, not misleading.
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Additionally, the representations and warranties made by the Company to eBay and Merger Sub in the merger agreement include representations and warranties relating to, among other things:
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contravention, violation or breach of, or conflict with, governmental authorization, as a result of entering into the merger agreement and the consummation of the merger;
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creation of liens upon or with respect to any asset owned or used by the Company and its subsidiaries (except for certain permitted liens) as a result of entering into the merger agreement and the consummation of the merger;
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SEC filings, the absence of material misstatements or omissions from such filings and the Sarbanes-Oxley Act;
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the Company’s business that involves ownership of inventory;
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the absence of material undisclosed liabilities;
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compliance with applicable laws and possession of all material governmental authorizations necessary to enable the Company and its subsidiaries to conduct their respective businesses;
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transactions with affiliates;
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the inapplicability of state anti-takeover statutes to the merger agreement and the merger;
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the stockholder vote required for adoption of the merger agreement and approval of the merger;
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the receipt of a fairness opinion from the Company’s financial advisor; and
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In addition to those summarized above in the paragraph describing representations made by the Company, eBay and Merger Sub, eBay also made representations and warranties to the Company that (i) as of the effective time of the merger, eBay will have sufficient cash, available lines of credit or other sources of readily available funds to enable it to pay all amounts required to be paid in the merger and (ii) no vote of eBay’s stockholders is required to authorize the merger.
Many of the Company’s representations and warranties are qualified as to “materiality” or “material adverse effect.” For purposes of the merger agreement, “material adverse effect” means, with respect to the Company, a material adverse effect on (i) the condition (financial or otherwise), business, assets, operations or financial performance of the Company and its subsidiaries, taken as a whole, or (ii) the ability of the Company to consummate the merger, in each case other than any
effect resulting from:
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changes in the financial or securities markets or general economic or political conditions in the United States that have arisen after the date of the merger agreement and do not have a disproportionate impact on the Company and its subsidiaries;
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changes in generally accepted accounting principles in the United States or changes in the regulatory accounting requirements applicable to any industry in which the Company operates that have arisen after the date of the merger agreement and do not have a disproportionate impact on the Company and its subsidiaries, taken as a whole;
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changes (including changes in applicable legal requirements) or conditions arising after the date of the merger agreement generally affecting the industry in which the Company operates and that do not have a disproportionate effect on the Company and its subsidiaries, taken as a whole;
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acts of war, sabotage or terrorism or natural disasters involving the United States of America occurring after the date of the merger agreement that do not have a disproportionate impact on the Company and its subsidiaries, taken as a whole;
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the announcement or consummation of the merger, including any loss or adverse change in relationships with customers, suppliers, partners or employees or the initiation of litigation by any party in respect of the merger agreement;
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any failure by the Company to meet any internal or published budgets, projections, forecasts or predictions of financial performance for any period (except that the circumstances giving rise to any such failure may be taken into account in determining whether a material adverse effect has occurred or may occur); or
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any failure to take any action expressly prohibited by provisions of the merger agreement for which the Company requests consent in writing and eBay denies such consent, or the taking of any specific action by the Company that eBay expressly requests in writing.
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Certain of eBay’s representations and warranties are qualified as to “materiality” or as to “material adverse effect” on eBay’s ability to consummate the merger.
The representations and warranties of the Company, eBay and Merger Sub will expire upon the effective time of the merger or upon termination of the merger agreement in accordance with its terms.
Conduct of Business Pending the Merger
The Company has agreed to restrictions on the Company and its subsidiaries until the earlier of the effective time of the merger or the termination of the merger agreement in accordance with its terms. In general, the Company has agreed to conduct its business in the ordinary course consistent and in accordance with past practices and to use commercially reasonable efforts to preserve intact its current business organization, keep available the services of current officers, other employees and agents, and maintain relations and goodwill with all suppliers, distributors, customers, landlords,
creditors, licensors, licensees, employees, other parties having business relationships with the Company or its subsidiaries, and with all governmental entities.
Subject to certain exceptions set forth in the merger agreement and the disclosure schedule the Company delivered in connection with the merger agreement, unless eBay consents in writing, the Company and its subsidiaries are restricted from, among other things:
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declaring, accruing, setting aside, or paying dividends or distributions;
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repurchasing, redeeming or reacquiring securities;
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selling, issuing, granting or authorizing securities or derivatives thereof, except for issuance of shares upon (i) the exercise or vesting of outstanding company equity awards and (ii) certain grants to new employees below the level of Senior Vice President in the ordinary course of business and consistent with past practices of up to 300,000 shares of common stock in the aggregate (to the extent that such grants do not contain any vesting acceleration provisions and shall not be subject to acceleration as a result of the merger whether alone or in combination with any termination of employment or other event);
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amending or waiving any material rights, or accelerating vesting under, any material provision of a company equity plan, company equity award, or restricted stock purchase agreement or otherwise modifying any material term of any outstanding equity award, except as may be required by applicable legal requirements;
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amending, terminating or granting any material waiver under the Rights Agreement;
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acquiring any material equity interests in other entities, forming subsidiaries, or engaging in acquisition transactions;
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splitting, recapitalizing, or reclassifying the Company’s capital stock;
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making unbudgeted capital expenditures in excess of $2.5 million individually or $10 million in the aggregate;
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entering into, amending, or terminating certain significant contracts or cancelling, modifying or waiving material debts, in each case in excess of $7.5 million, other than in the ordinary course of business and consistent with past practices;
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acquiring, leasing or licensing any right or other asset from any entity, or selling or otherwise disposing of, leasing or licensing any right or other asset to any entity, except in the ordinary course of business and consistent with past practices;
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making any pledge of any material assets or permitting any material assets to become subject to any encumbrances, except for encumbrances that do not materially detract from the value of such assets or materially impair the operations of the Company or any of its subsidiaries;
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making any loans, advances, capital contributions or investments, other than in the ordinary course of business;
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incurring or guaranteeing any indebtedness, except in the ordinary course of business and consistent with past practices;
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establishing, adopting, entering into or amending any benefit plan or employee agreement, or modifying compensation packages or paying bonuses, except for (i) salary increases or bonuses paid in the ordinary course of business and consistent with past practices and (ii) amendments to plans as required by law or in connection with the integration of certain employees;
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promoting employees to the level of Senior Vice President or above or changing any employee’s title to Senior Vice President or above, except in order to fill a position vacated after the date of the merger agreement;
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hiring any employee with an annual base salary in excess of $300,000;
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changing accounting methods or practices in material respects, except as required by changes in law or generally accepted accounting principals;
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making any material tax election;
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commencing any material legal proceeding, except with respect to routine collection matters in the ordinary course of business and consistent with past practices;
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settling any material legal proceeding or other material claim, except pursuant to a settlement that does not involve any liability or obligation on the part of the Company or its subsidiaries or involves only the
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payment of monies by the Company or its subsidiaries of not more than $10 million in the aggregate for all such settlements;
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entering into contracts with employees, consultants, contractors and directors or making any payments to such persons that will or would be likely to be characterized as “parachute payments” giving rise to tax consequences or lack of deductibility;
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taking any action or omitting to take any action that is reasonably likely to result in any of the conditions to the closing of the merger not being satisfied;
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contributing any cash, making any payment or otherwise transferring any amount to any of the Company’s businesses to be divested by eBay following the merger, other than intercompany loans, payables/receivables or contributions of cash in an amount sufficient to fund working capital during the period prior to the closing of the merger in the ordinary course of business and consistent with past practices; or
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agreeing or committing to take any of the above actions.
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Solicitation of Acquisition Proposals
“Go-Shop” Period
The merger agreement provides that until 11:59 p.m. California time on May 6, 2011, the Company and its representatives are permitted to:
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solicit, initiate, encourage, assist, induce or facilitate the submission, announcement or making of any acquisition proposals or inquires with respect to an acquisition proposal or take any action that could reasonably be expected to have such effect;
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furnish and provide access to information to any entity in connection with or in response to a proposal or inquiry relating to an alternative transaction so long as such entity has entered into a confidentiality agreement with the Company that is at least as favorable to the Company as the confidentiality agreement between the Company and eBay and that does not prohibit the Company from making certain disclosures to eBay (an “acceptable confidentiality agreement”); and
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engage in discussions or negotiations with any entity with respect to a proposal or inquiry relating to an alternative transaction.
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The merger agreement provides that within 48 hours after the expiration of the “go-shop” period, the Company must deliver to eBay written notice setting forth the identity of each excluded party (as defined below) as well as any entity that, to the Company’s knowledge, has, or is expected to have, a material equity interest in each excluded party or is expected to participate in the transaction proposed by each excluded party. The merger agreement also provides that the Company must also deliver to eBay within 48 hours after the expiration of the “go-shop” period the material terms and conditions (including the per share price) of each excluded party’s acquisition
proposal as well as copies of all proposed definitive documents received by the Company from any excluded party relating to any acquisition proposal.
For purposes of the merger agreement, an “excluded party” is any entity from which the Company receives a written acquisition proposal during the “go-shop” period that remains pending upon the expiration of the “go-shop” period, so long as the Board of Directors, acting upon the recommendation of the special committee of the Board of Directors and after consultation with its financial advisor and outside legal counsel, reasonably determines in good faith that such entity’s acquisition proposal constitutes or is reasonably likely to constitute a superior offer when compared with eBay’s agreement to acquire the Company. Excluded parties shall cease being an excluded party for purposes of the merger agreement upon the earliest of: (i) 11:59
p.m. on May 31, 2011 the date 25 days after the expiration of the “go-shop” period; or (ii) the withdrawal, termination or expiration of such acquisition proposal; or (iii) the time as of which such acquisition proposal no longer constitutes, or is not reasonably likely to result in, a superior offer; or (iv) in the case of a financial buyer, any change of greater than 20% of the actual or proposed equity ownership of such excluded party.
For purposes of the merger agreement, an “acquisition proposal” is any offer or proposal (other than an offer or proposal made or submitted by eBay or any of its subsidiaries) relating to:
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any transaction in which an entity or “group” (as defined in the securities laws) of entities directly or indirectly acquires ownership of securities representing 20% or more of the outstanding securities of any class (or instruments convertible into or exercisable or exchangeable for 20% or more of any such class) of the Company’s common stock or in which the Company issues securities representing 20% or more of the outstanding securities of the Company (or instruments convertible into or exercisable or exchangeable for 20% or more of any such class);
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any acquisition or disposition of the equity securities of any business or businesses that constitute or account for 20% or more of the consolidated net revenues, consolidated net income or consolidated assets of the Company;
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any sale, lease, exchange, transfer, license, sublicense, acquisition or disposition of the assets of any business or businesses that constitute or account for 20% or more of the consolidated net revenues, consolidated net income or consolidated assets of the Company; or
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Solicitation after the “Go-Shop” Period
The merger agreement provides that after 11:59 p.m. California time on May 6, 2011, the Company and its representatives are required to immediately cease the activities permitted during the “go-shop” period summarized above under “Go-Shop Period” on page 68, except as may relate to excluded parties. Following the expiration of the “go-shop” period, the Company and its representatives must not (except as may be required with respect to an excluded party): (i) solicit, initiate, encourage, assist, induce or facilitate the submission, announcement or making of any acquisition proposals or inquires with respect to an acquisition proposal or take any action that could reasonably be expected to
have such effect; (ii) furnish or provide access to information to any entity in connection with or in response to a proposal or inquiry relating to an alternative transaction, and (iii) engage in discussions or negotiations with any entity with respect to a proposal or inquiry relating to an alternative transaction.
Notwithstanding the restrictions described above, at any time before the adoption of the merger agreement by the Company’s stockholders, the Company may provide information to and engage in discussions with third parties from whom the Company has received acquisition proposal that was not solicited in violation of the merger agreement, so long as the Board of Directors, acting upon the recommendation of the special committee and after consultation with its financial advisor and outside legal counsel, reasonably determines in good faith that such proposal constitutes or is reasonably likely to constitute a superior offer when compared with eBay’s agreement to acquire the
Company. Such third parties must execute an acceptable confidentiality agreement with the Company prior to receiving any confidential information from the Company or its representatives, and the Company must also provide eBay with access to any non-public information furnished to any third party or any excluded party prior to furnishing such information to such third party or excluded party.
In addition, the merger agreement provides that after 11:59 p.m. California time on May 6, 2011, the Company must promptly, and in no event later than 24 hours following occurrence of any of the following:
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provide written notice to eBay of any proposals, inquiries or requests for non-public information in connection with a potential alternative acquisition, as well as the material terms and conditions thereof, excluding the identity of the entity making such proposal, inquiry or request;
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provide eBay with redacted copies of all proposed definitive documents received by the Company or any of its representatives from any entity or its representatives relating to any acquisition proposal; and
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keep eBay fully informed with respect to the status of any proposals or inquiries related to an alternative acquisition and any modification or proposed modification thereto, and promptly (and in no event later than 24 hours after obtaining knowledge thereof) notify eBay of any material change or development with respect to any such proposal.
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In addition to the foregoing, the Company has agreed in the merger agreement that, except to the extent necessary to enable parties to make acquisition proposals to the Company during the “go-shop” period, (i) the Company will not, nor will it permit its subsidiaries to, release any entity from, amend or waive any “standstill” or similar agreement under which the Company or any of its subsidiaries is
a party or has any rights and (ii) the Company will use best efforts to enforce such agreements at eBay’s request.
Board of Directors’ Recommendation and Actions; Special Meeting of the Company’s Stockholders and Company Actions
The merger agreement provides that this proxy statement shall include a statement to the effect that each of the special committee and the Board of Directors: (i) has unanimously determined and believes that the merger is advisable and fair to and in the best interests of the Company and its stockholders, (ii) unanimously recommends that the Company’s stockholders vote to adopt the merger agreement at the special meeting; and (iii) the Board of Directors, acting upon the recommendation of the special committee, has unanimously adopted the merger agreement, in accordance with the requirements of the DGCL. Unless the merger agreement is terminated, the Company has agreed in the
merger agreement to take all action necessary under applicable legal requirements to convene a meeting of the Company’s stockholders for the purpose of obtaining the stockholders’ approval of the merger and to use reasonable best efforts to ensure that all proxies solicited in connection with such meeting are solicited in compliance with all applicable legal requirements.
Except as expressly permitted by the terms of the merger agreement, the Company has agreed in the merger agreement that neither the Board of Directors nor any committee of the Board of Directors will take, or resolve, agree or publicly propose to take, any of the following actions:
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withdraw or modify in a manner adverse to eBay, or permit the withdrawal or modification in a manner adverse to eBay of the Board of Directors’ recommendation in favor of the merger;
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recommend the approval, acceptance or adoption of, or approve, endorse, accept or adopt any acquisition proposal;
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approve, recommend, or cause or permit the Company or any of its subsidiaries to execute or enter into any letter of intent, memorandum of understanding, agreement in principle, merger agreement, acquisition agreement, option agreement, joint venture agreement, partnership agreement or other similar contract constituting, relating to, contemplating or that is intended or could reasonably be expected to result in an alternative acquisition with a third party, except for an acceptable confidentiality agreement; or
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Despite the foregoing, the merger agreement provides that at any time before the adoption of the merger agreement by the Company’s stockholders, the Board of Directors may withdraw or modify its recommendation in favor of the merger if either:
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the Company receives a bona fide, written acquisition proposal (that is not withdrawn), which did not result from a material breach of the merger agreement, and following the receipt of such proposal, the Board of Directors reasonably determines in good faith (upon the recommendation of the special committee and after consultation with its financial advisor and outside legal counsel) that the proposal constitutes a superior offer when compared with eBay’s agreement to acquire the Company and that, in light of such superior offer, the Board of Directors’ fiduciary obligations to the Company’s stockholders require the Board of Directors to withdraw or modify its recommendation
in favor of the merger, and following such determination the Board of Directors provides written notice to eBay no less than 24 hours prior to withdrawing or modifying its recommendation in favor of the merger, which describes the circumstances, identifies the party that made the superior offer and the terms and conditions of the offer, and attaches a draft of the definitive documentation relating to the superior offer; or
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the Board of Directors reasonably determines in good faith (upon the recommendation of the special committee and after consultation with its financial advisor and outside legal counsel) that in light of a change in circumstances, the Board of Directors’ fiduciary obligations to the Company’s stockholders require the Board of Directors to withdraw or modify its recommendation in favor of the merger, so long as the Board of Directors provides eBay with at least 72 hours notice prior to any Board of Directors meeting to consider and determine whether such change in circumstances requires the Board of Directors to withdraw or modify its recommendation in favor of the merger, and if eBay requests, the Company negotiates with eBay to amend the merger agreement in a
manner that would result in the Board of Directors not needing to make such withdrawal or modification of its recommendation in favor of the merger.
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As described below under “Termination of the Merger Agreement,” if our Board of Directors (acting upon the recommendation of the special committee) determines that a proposal made by a third party constitutes a superior offer, the Company may terminate the merger agreement and enter into an agreement concerning such superior offer, so long as the Company gives eBay written notice of its intention to terminate the agreement, provides eBay a period of four days during which eBay may make an offer at least as favorable to the stockholders of the Company and pays the termination fee provided in the merger agreement to eBay.
Conditions to the Completion of the Merger
Mutual Closing Conditions
The merger agreement provides that the obligations of the Company, eBay and Merger Sub to consummate the merger are subject to the satisfaction at or before the effective time of the merger of the following conditions:
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the adoption of the merger agreement by the Company’s stockholders;
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the expiration or termination of any applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (the “HSR Act”), any applicable foreign antitrust or competition law or regulation and any other foreign legal requirement;
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the obtaining of any governmental authorization or other material consent required under any legal requirement; and
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the absence of any temporary restraining order, injunction or other order preventing the consummation of the merger, and any legal requirement enacted or deemed applicable to the merger that makes consummation of the merger illegal.
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Additional Closing Conditions for the Benefit of eBay and Merger Sub
The merger agreement provides that the obligations of eBay and Merger Sub to complete the merger are subject to the satisfaction at or before the effective time of the merger of the following additional conditions:
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the Company shall have performed in all material respects its covenants and obligations required to be performed by it according to the merger agreement at or before the effective time of the merger;
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the Company’s representations and warranties relating to its certificate of incorporation and bylaws, capitalization, authority to enter into and the binding nature of the merger agreement, the inapplicability of state anti-takeover statutes, the vote required to consummate the merger, the fairness opinion to be provided to the Board of Directors and the amendment to the Rights Agreement must be true and correct in all material respects as of the closing date of the merger (other than any such representation and warranty made as of a specific earlier date, which shall have been accurate
as of such earlier date), except that for purposes of determining the accuracy of such representations and warranties at such time, all materiality and similar qualifications limiting the scope of such representations and warranties shall be disregarded;
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the Company’s other representations and warranties must be true and correct as of the closing date of the merger (other than any such representation and warranty made as of a specific earlier date, which shall have been accurate as of such earlier date), provided that this condition will be deemed to have been satisfied even if any such representations and warranties are not true and correct unless the failure of such representations and warranties to be true and correct, collectively, has a material adverse effect on the Company, except that for purposes of determining the accuracy of such representations and warranties at such time, all materiality and similar qualifications limiting the scope of such representations and warranties shall be disregarded;
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no material adverse effect on the Company shall have occurred, and no event shall have occurred or circumstance shall exist that, in combination with any other events or circumstances, could reasonably be expected to have or result in a material adverse effect on the Company; and
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there shall be no action or proceeding by any governmental authority pending or threatened, and neither eBay nor the Company shall have received any communication from any governmental authority in which such governmental authority indicates a material likelihood of commencing any such action or proceeding or taking any other action, that could materially and adversely affect the right or ability of eBay or the Company to own the assets or operate the business of the Company or which seeks to:
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challenge, restrain or prohibit the merger;
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prohibit or limit in any material respect eBay’s ability to vote, transfer, receive dividends with respect to or otherwise exercise ownership rights with respect to the stock of the surviving corporation;
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compel eBay or the Company to dispose of or hold separate any material assets as a result of the merger; or
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impose (or that could result in the imposition of) any criminal sanctions or liability on the Company or any of its subsidiaries or any of the officers or directors thereof in their capacities as such.
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Additional Closing Conditions for the Benefit of the Company
The merger agreement provides that the obligation of the Company to complete the merger is subject to the satisfaction or waiver at or before the effective time of the merger of the following additional conditions:
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eBay and Merger Sub shall have performed in all material respects their respective covenants and obligations required to be performed by them at or prior to the effective time of the merger; and
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the representations and warranties of eBay and Merger Sub shall be true and correct when made and as of the closing date of the merger (other than any representation and warranty made as of a specific earlier date, which shall have been accurate as of such earlier date), unless such failures to be true and correct would not reasonably be expected to have a material adverse effect on the ability of eBay to consummate the Merger.
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Termination of the Merger Agreement
The merger agreement may be terminated by mutual written consent of eBay and the Company at any time before the effective time of the merger.
The merger agreement may also be terminated by either eBay or the Company at any time before the effective time of the merger if:
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the merger has not been consummated by December 31, 2011, except that neither eBay nor the Company may terminate the merger agreement for this reason if the failure to consummate the merger by such date is attributable to a failure on the part of such party to perform any covenant or obligation required by the merger agreement at or prior to the effective time of the merger;
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there is a permanent legal prohibition to completing the merger; or
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the Company’s stockholders fail to adopt the merger agreement, except that neither eBay nor the Company may terminate the merger agreement for this reason if the failure of the Company’s stockholders to adopt the merger agreement is attributable to a failure on the part of such party to perform any covenant or obligation required by the merger agreement at or prior to the effective time of the merger;
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The merger agreement may also be terminated by eBay at any time before the adoption of the merger agreement by the Company’s stockholders if:
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a Triggering Event (as defined below) occurs; or
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(i) any of the Company’s representations and warranties are inaccurate as of the date of the merger agreement or a subsequent date (other than any such representation and warranty made as of a specific earlier date) or (ii) the Company breaches any of its covenants or obligations, in each case such that a condition to closing would not be satisfied as of the effective time of the merger and, with respect to those inaccuracies and breaches that are curable prior to December 31, 2011, the Company fails to cure such inaccuracies and breaches upon 30 days notice, unless eBay is in material breach of the merger agreement in which case
eBay may not terminate the merger agreement for the reasons stated in this subsection.
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For purposes of the merger agreement, a “Triggering Event” is deemed to have occurred if:
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the Board of Directors or any committee thereof withdraws or modifies (in a manner adverse to eBay) its recommendation in favor of the merger or takes, authorizes or publicly proposes specified actions related to acquisition proposals or transactions with respect to the Company;
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the Board of Directors fails to reaffirm, unanimously and publicly, its recommendation in favor of the merger within five business days after eBay reasonably requests, in writing, such reaffirmation;
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a tender or exchange offer relating to shares of Company common stock is commenced and the Company fails to issue to its security holders a statement to the effect that the Company recommends rejection of such tender or exchange offer and reaffirming the Board of Directors’ recommendation in favor of the merger within ten business days after the commencement of such tender or exchange offer; or
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the Company or its Subsidiaries or any director or executive officer of the Company shall have breached in any material respect or taken any action materially inconsistent with certain provisions of the merger agreement relating to the “go-shop” period or acquisition proposals.
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The merger agreement may also be terminated by the Company at any time before the adoption of the merger agreement by the Company’s stockholders:
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in certain circumstances related to superior offers with respect to acquisition proposals, such circumstances including, among other things, that our Board of Directors (acting upon the recommendation of the special committee) authorizes the Company to enter into an agreement concerning a superior offer and the Company (i) gives eBay written notice of its intention to terminate the agreement and provides eBay with four days to make an offer at least as favorable to the stockholders of the Company (during which time we have undertaken to make our representatives reasonably available for further negotiations), and eBay does not make such an offer, and (ii) pays the applicable termination
fee; or
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if (i) any of eBay’s representations and warranties are inaccurate as of the date of the merger agreement or (ii) eBay breaches any of its covenants or obligations, in each case such that a condition to closing would not be satisfied as of the effective time of the merger and, with respect to those inaccuracies and breaches that are curable prior to December 31, 2011, eBay fails to cure such inaccuracies and breaches upon 30 days notice, unless the Company is in material breach of the merger agreement in which case the Company may not terminate the merger agreement for the reasons stated in this subsection.
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If the merger agreement is validly terminated, the merger agreement will be of no force or effect, except that (i) such termination will not relieve any party from any liability for any inaccuracy in or breach of any representation or warranty, or any willful breach of any covenant, obligation or other provision, contained in the merger agreement and (ii) the provisions of the merger agreement relating to termination fees and expenses, governing law, jurisdiction and waiver of jury trial, the Company’s disclosure schedule, attorneys’ fees, assignability, notices, cooperation, severability, remedies and construction will continue in full force and effect. In addition, the confidentiality agreement between the Company and eBay, as amended, will remain in full
force and effect upon termination of the merger agreement.
The Company has agreed in the merger agreement to pay eBay a fee of $74 million if any of the following payment events occur:
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at or prior to the time of termination of the merger agreement an acquisition proposal shall have been disclosed, announced, commenced, submitted or otherwise made;
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certain specified triggering events have not occurred between the date of the merger agreement and the date of termination of the merger agreement; and
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within 12 months after the date of any such termination, the Company consummates or enters into definitive documentation with respect to an alternative proposal by a third party;
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eBay or the Company validly terminates the merger agreement after the occurrence of any Triggering Event;
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the Company validly terminates the merger agreement in order to accept a superior offer and enter into definitive documentation in connection with such superior offer, except in connection with the entry by the Company into a definitive agreement with respect to a superior offer either during the “go-shop” period or within 25 days of the expiration of the “go-shop” period with an excluded party.
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The Company has agreed in the merger agreement to pay eBay a reduced fee of $24 million if the Company validly terminates the merger agreement in order to accept a superior offer and enter into definitive documentation in connection with such superior offer in connection with the entry by the Company into a definitive agreement with respect to a superior offer either during the “go-shop” period or within 25 days of the expiration of the “go-shop” period with an excluded party and the Board of Directors has made specified determinations as to the superiority of such superior offer.
If the Company fails to pay any of the termination fees described above when such fees are due, the Company has agreed to pay any costs and expenses (including attorneys’ fees) incurred by eBay in connection with the collection of such overdue amount and the enforcement of eBay’s right to receive payment of such fees. In addition, the Company has agreed that the unpaid termination fee will accrue interest at a rate per annum equal to 3% over the prime rate in effect on the date such payment should have been made.
Expenses
Except for termination fees discussed above under “— Termination Fees Payable by the Company” on page 73, whether or not the merger is consummated, all fees and expenses incurred in connection with the merger agreement and the merger will be paid by the party incurring such fees expenses, except that eBay and the Company agreed to share equally all fees and expenses, other than attorneys’ fees, incurred in connection with the filing of the premerger notification and report forms relating to the merger under the HSR Act and the filing of any notice or other document under any applicable foreign antitrust or competition law or regulation.
Remedies
The Company and eBay agreed that irreparable damage would occur in the event that any provision of the merger agreement was not performed in accordance with its specific terms or was otherwise breached, and that in such instance monetary damages, even if available, may not be adequate remedy to compensate the non-breaching party. Therefore, in the event of any breach or threatened breach by any party of any covenant or obligation in the merger agreement, eBay and the Company will be entitled, without having to prove actual damages, to an injunction to prevent breaches or threatened breaches of the merger agreement and to a decree or order of specific performance of the terms and provisions of the merger agreement.
Other Covenants
Employee Matters
The merger agreement provides that if eBay elects not to maintain the surviving corporation’s health, vacation or 401(k) plans after the effective time of the merger, then, subject to the provisions of such plans, contractual requirements or legal requirements:
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all employees of the Company or its subsidiaries who continue employment with eBay or any of its subsidiaries following the merger, which employees are referred to herein as “continuing employees,” will be eligible to participate in eBay’s employee benefits plans, to substantially the same extent as similarly situated employees of eBay;
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for purposes of determining a continuing employee’s eligibility to participate in such plans, each continuing employee will receive credit under such plans for prior years of continuous service with the Company or its subsidiaries prior to the merger, except with respect to eBay’s sabbatical programs; and
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the surviving corporation will assume and perform obligations under the terms of any Company employee agreement providing change in control benefits.
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In addition, unless otherwise requested by eBay, the Company will terminate its 401(k) plans effective no later than the day prior to the effective time of the merger, and eBay’s 401(k) plan will accept rollovers from each terminated Company 401(k) plan. The Company and eBay will cooperate to ensure compliance, prior to the effective time of the merger, with any employee notification or consultation requirements imposed by applicable law with respect to the merger.
For a more detailed description of other employee-related matters, see “The Merger — Interests of the Company’s Directors and Executive Officers in the Merger,” beginning on page 46 of this proxy statement.
Indemnification and Insurance
The merger agreement provides that all rights to indemnification by the Company existing in favor of those persons who are directors and officers of the Company as of the date of the merger agreement for their acts and omissions as directors and officers occurring prior to the effective time of the merger as provided (i) by applicable legal requirements, (ii) in the Company’s certificate of incorporation or bylaws (as in effect as of the date of the merger agreement) or (iii) in any indemnification agreements
between the Company and such persons (as in effect as of the date of the merger agreement), shall survive the merger and shall continue in full force and effect for a period of six years from the date on which the merger becomes effective. In addition, eBay has agreed to cause the surviving corporation’s certificate of incorporation and bylaws to contain provisions regarding elimination of liability of directors, indemnification of officers, directors and employees and advancement of expenses that are no less advantageous to the intended beneficiaries than the corresponding provisions in the Company’s certificate
of incorporation and bylaws as of the date of the merger agreement for a period of six years following the merger.
Under the merger agreement, eBay has agreed it will purchase (or, at eBay’s option, the Company will purchase) a prepaid, non-cancelable “tail” coverage insurance policy under the Company’s existing officers’ and directors’ liability insurance policy (providing coverage not less favorable than currently provided by such insurance), which “tail” policy will be for a claims reporting or discovery period of at least six years from the effective time of the merger in respect of acts or omission occurring prior to the effective time of the merger.
In addition, the merger agreement provides that if eBay or the surviving corporation (i) consolidates with or merges into any other person and is not the continuing or the surviving corporation or entity of such consolidation or merger, or (ii) transfers or conveys all or substantially all of its properties and assets to any person, then, and in each such case, to the extent necessary, proper provision shall be made so that the successors and assigns of eBay or the surviving corporation, as the case may be, will assume the obligations described above.
Reasonable Best Efforts Covenant
The Company and eBay have agreed in the merger agreement to use their reasonable best efforts to take, or cause to be taken, all actions necessary or advisable under applicable laws and regulations to complete the merger. Without limitation, the Company and eBay have agreed to make appropriate filings pursuant to any applicable competition laws, including notification and report forms pursuant to the HSR Act as promptly as reasonably practicable.
Access
The merger agreement provides that subject to certain exceptions, the Company will afford eBay and its representatives reasonable access during normal business hours to the Company’s officers, employees, agents, properties, books, contracts and records and will furnish eBay with copies of documents and information concerning its business, personnel, assets, liabilities and properties as eBay may reasonably request.
Certain Other Covenants
The merger agreement contains additional mutual covenants, including covenants relating to (i) cooperation regarding the execution and delivery of such further documents, certificates, agreements and instruments and the taking of such other actions as may be reasonably requested by the other parties to evidence or reflect the merger and to carry out the intent and purposes of the merger agreement, (ii) cooperation of the parties in the delisting of the Company from NASDAQ and (iii) mutual notification of particular events, including with respect to stockholder litigation.
Amendments; Waivers
The merger agreement provides that any provision of the merger agreement may be amended with the approval of the respective boards of directors of the Company and Merger Sub or waived before the effective time of the merger if the amendment or waiver is in writing and signed, in the case of an amendment, by each party to the merger agreement or, in the case of a waiver, by each party against whom the waiver is to be effective, except that following adoption of the merger agreement by the Company’s stockholders, any amendments to the merger agreement that under Delaware law require approval of stockholders may only be made with the approval of such amendments by the Company’s
stockholders.
VOTING AND SUPPORT AGREEMENTS
The following description summarizes the material provisions of the Support Agreements (as defined below) and is qualified in its entirety by reference to the complete text of the Support Agreements. The Support Agreements included in this proxy statement as Appendices D and E contain the complete terms of those agreements and stockholders should read them carefully and in their entirety.
Voting Arrangements and Related Provisions
In connection with the merger agreement, eBay entered into a Voting and Support Agreement, dated as of March 27, 2011, with Michael G. Rubin (the “Rubin Support Agreement”) and Voting and Support Agreements, dated as of March 27, 2011, with each of the other directors and certain officers of GSI (the “D&O Support Agreements” and together with the Rubin Support Agreement, the “Support Agreements”). The shares of GSI common stock outstanding that are beneficially owned by Mr. Rubin and such directors and officers and that are subject to the Support Agreements represent, in the aggregate, approximately 6.18% of the outstanding shares of GSI’s common stock as of March 25, 2011, the last trading day prior to the execution of the merger agreement.
Under the terms of the Support Agreements, each stockholder party to such agreements, among other things, has agreed to vote, and has irrevocably appointed eBay as its proxy to vote to the fullest extent permitted by applicable law, all shares of GSI’s common stock held by such stockholder at any meeting of (or action by written consent taken by) stockholders of GSI: (i) in favor of the merger and the adoption of the merger agreement and each of the other actions contemplated by the merger agreement; (ii) against any action or agreement that would (in the case of the D&O Support Agreements, to such party’s knowledge) result in a breach of any representation, warranty, covenant or other obligation of GSI under the merger agreement; and (iii) against certain other transactions (other than the merger and any of the other transactions or actions contemplated by the merger agreement), including, among others, (a) any extraordinary
corporate transaction, such as a merger, consolidation or other business combination involving GSI or any of its subsidiaries, (b) any reorganization, recapitalization, dissolution or liquidation of GSI or any of its subsidiaries, (c) any sale, lease, license or other transfer of a material portion of the rights or assets of GSI or any of its subsidiaries, (d) any change in a majority of the Board of Directors of GSI, (e) any amendment to GSI’s certificate of incorporation or bylaws, (f) any material change in GSI’s capitalization
or corporate structure or (g) any other action that is intended, or would reasonably be expected, to impede, interfere with, delay, postpone, discourage or adversely affect the merger or any of the other transactions or actions contemplated by the merger agreement.
The stockholders party to the Support Agreements have also agreed, among other things, (i) not to transfer or otherwise dispose of (subject to certain customary exceptions), tender, grant a proxy or enter into a voting agreement with respect to their shares of GSI’s common stock; and (ii) to waive, in connection with the merger, any dissenters’, appraisal or other similar rights they may have with respect to their shares of GSI’s common stock.
Termination
The Rubin Support Agreement will terminate upon the earliest to occur of the date on which (i) the merger agreement is validly terminated; (ii) the merger becomes effective; or (iii) the merger agreement is amended in a manner (a) that would reduce the amount of consideration payable to stockholders of GSI pursuant to the merger or (b) that is intended, or would reasonably be expected, to impede, interfere with, discourage or adversely affect in any material respect any of the transactions contemplated by the purchase agreement.
The D&O Support Agreements will terminate upon the earlier to occur of the date on which (i) the merger agreement is validly terminated or (ii) the merger becomes effective.
Except for its deemed beneficial ownership of GSI common stock as a result of the Support Agreements, based on a Schedule 13D filed by eBay with the SEC on April 6, 2011, eBay does not own any shares of our common stock.
PROJECTED FINANCIAL INFORMATION AND SENSITIVITY ANALYSIS
We do not, as a matter of course, make public forecasts or projections as to future performance or financial data beyond the current fiscal year and are especially wary of making projections for extended earnings periods due to the inherent unpredictability of the underlying assumptions and estimates. However, in connection with eBay’s interest in pursuing the merger, our management provided certain projections to eBay and to Morgan Stanley, which projections were based on our management’s estimate of the Company’s future financial performance as of the date they were provided. We have included below the material portions of these projections to give our stockholders access to certain nonpublic information prepared for purposes of considering and evaluating the merger. The inclusion of this information should not be regarded as an indication
that we, our Board of Directors, Morgan Stanley or eBay considered, or now considers, this information to be a reliable prediction of actual future results, and such data should not be relied upon as such. Neither we nor any of our affiliates or representatives has made or makes any representations to any person regarding the ultimate performance of GSI compared to the information contained in the projections, and none of them intends to provide any update or revision thereof.
Projected Financial Information
Management prepared two scenarios of projected financial data, which we refer to as the “Projected Financial Information.”
“Management Case 2”, prepared by the Company's management, reflected the impact of certain operational and financial targets considered to be potentially achievable and demonstrating the Company’s upside potential, including potential future cost savings arising from the Company’s investments in its IT platform, and potential improvements in performance of recently acquired businesses. Management Case 2 was based on assumptions addressing, among other things, the completion and rapid adoption of a new technology platform in 2011, and strong cross-selling and new customer growth of GSI’s marketing services offerings resulting in higher revenue growth, gross margin improvement,
and increased cost efficiencies.
“Management Case 1”, developed by the Company's management, with assistance from Morgan Stanley, and approved by the Company's management, was based on assumptions addressing, among other things, completion and positive, although less rapid as compared to Management Case 2, adoption of a new technology platform in 2011, less revenue growth (as compared to Management Case 2) due in part to the potential for continuing impacts from the NFL labor dispute and a potential NBA work stoppage, the NFL’s April 2012 change in jersey manufacturer, modest cross-selling between GSI’s business units, and modest margin expansion from the integration of recently acquired businesses and other cost efficiencies.
Management Case 2 and Management Case 1 were utilized by Morgan Stanley in connection with its analysis of the merger consideration and were presented to and discussed with our Board of Directors in connection with its consideration of the merger transaction with eBay.
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Revenue
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1,774,933 |
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2,042,774 |
|
|
|
2,432,164 |
|
|
|
2,850,065 |
|
|
|
|
|
1,774,933 |
|
|
|
1,956,816 |
|
|
|
2,235,681 |
|
|
|
2,521,138 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGIO (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
195,373 |
|
|
|
270,371 |
|
|
|
369,336 |
|
|
|
489,890 |
|
|
|
|
|
195,373 |
|
|
|
236,328 |
|
|
|
288,028 |
|
|
|
349,326 |
|
|
(1)
|
NGIO is Non-GAAP income from operations. We define non-GAAP income from operations as income from operations excluding stock-based compensation, depreciation and amortization expenses, and the following expenses relating to acquisitions: transaction expenses, due diligence expenses, integration expenses, non-cash inventory valuation adjustments, the cash portion of any deferred acquisition payments recorded as compensation expense, changes in fair value of deferred acquisition payments, and beginning with goodwill and intangible asset impairment charges.
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Cautionary Statement Regarding Projected Financial Information
The Projected Financial Information described above was not prepared with a view towards public disclosure or compliance with generally accepted accounting principles or with published guidelines of SEC or the guidelines established by the American Institute of Certified Public Accountants regarding forecasts or projections. Our independent registered public accounting firm, Deloitte & Touche LLP, has neither examined nor compiled the projections or analysis and, accordingly, Deloitte & Touche LLP does not express an opinion or any other form of assurance with respect thereto. The Deloitte & Touche LLP report included in documents that are incorporated by reference in this proxy statement relates to our historical financial information. It does not extend to these projections or analysis and should not be read to do so. Our internal financial forecasts (upon which
the projections and analysis were based in part) are, in general, prepared solely for internal use and capital budgeting and other management decisions and are subjective in many respects and thus susceptible to interpretation and periodic revision based on actual experience and business developments. The Projected Financial Information also reflects numerous assumptions made by our management with respect to industry performance, general business, economic, market and financial conditions and other matters, all of which are difficult to predict and many of which are beyond our control. Accordingly, we cannot assure you that the projected results will be realized or that actual results will not be significantly higher or lower than projected. In addition, the projections and analysis do not consider the effect of the merger or any future combination of our business with the businesses conducted by eBay.
Readers of this proxy statement are cautioned not to rely on the Projected Financial Information. These projections and analyses are forward-looking statements and are based on expectations and assumptions at the time they were prepared by management. The Projected Financial Information are not guarantees of future performance and involve risks and uncertainties that may cause future financial results and stockholder value of GSI to materially differ from those expressed in the Projected Financial Information. Accordingly, we cannot assure you that the Projected Financial Information will be realized or that the Company’s future financial results will not materially vary from the Projected Financial Information. The Projected Financial Information does not take into account the merger. We do not intend to update or revise the Projected Financial
Information. For a discussion of the risks and uncertainties that may be relevant to GSI’s results, see “Cautionary Statement Regarding Forward-Looking Statements” on page 14.
PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS
Except as described under “The Merger — Background of the Merger” beginning on page 20 of this proxy statement, there have not been any negotiations, transactions or material contacts during the past two years concerning any merger, consolidation, acquisition, tender offer or other acquisition of any class of GSI’s securities, election of GSI’s directors or sale or other transfer of a material amount of GSI’s assets (i) between GSI or any of its affiliates, on the one hand, and GSI, eBay, Merger Sub, their respective executive officers, directors, members or controlling persons, on the other hand, (ii) between any affiliates of GSI or (iii) between GSI and its affiliates, on the one hand, and any person not affiliated with GSI who would have a direct interest in such matters, on the other hand.
MARKETS AND MARKET PRICE
Our common stock trades on the NASDAQ Global Select Market under the symbol “GSIC.” As of the record date, there were shares of common stock outstanding, held by approximately stockholders of record.
The following table sets forth the high and low reported closing sale prices for our common stock for the periods shown as reported on the NASDAQ Global Select Market.
|
|
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High
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Low
|
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|
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|
|
|
|
|
| |
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|
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|
|
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First Quarter
|
|
$
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13.77
|
|
|
$
|
7.35
|
|
| |
|
|
|
|
|
|
|
|
|
Second Quarter
|
|
|
15.59
|
|
|
|
12.29
|
|
| |
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
|
19.75
|
|
|
|
14.09
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|
| |
|
|
|
|
|
|
|
|
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Fourth Quarter
|
|
|
26.00
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|
|
|
18.09
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| |
|
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|
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|
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| |
|
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|
First Quarter
|
|
|
28.49
|
|
|
|
22.53
|
|
| |
|
|
|
|
|
|
|
|
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Second Quarter
|
|
|
31.35
|
|
|
|
24.26
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|
| |
|
|
|
|
|
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|
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Third Quarter
|
|
|
29.99
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|
|
|
20.87
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| |
|
|
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Fourth Quarter
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|
|
26.45
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|
|
|
21.74
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| |
|
|
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|
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|
|
|
|
First Quarter
|
|
|
29.34
|
|
|
|
18.40
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| |
|
|
|
|
|
|
|
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Second Quarter (through , 2011)
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On March 25, 2011, the last trading day before GSI publicly announced the execution of the merger agreement, the high and low sale prices for GSI common stock as reported on the NASDAQ Global Select Market were $19.55 and $19.14 per share, respectively, and the closing sale price on that date was $19.38. On , 2011, the last trading day before this proxy statement was printed, the closing price for our common stock on the NASDAQ Global Select Market was $ .
Stockholders should obtain a current market quotation for GSI common stock before making any decision with respect to the merger.
Pursuant to the terms of our secured credit agreement entered into on February 9, 2011, we are restricted from paying dividends on our common stock. In addition, under the merger agreement, we have agreed not to pay any cash dividends on our common stock before the completion of the merger. After the merger, GSI will be a privately-held subsidiary of eBay.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information regarding beneficial ownership of GSI common stock as of April 11. 2011 (or as of such other dates as are indicated in footnotes 17 through 21 to such table) by (i) each stockholder we believe to own beneficially more than five percent of outstanding GSI common stock, (ii) each director, (iii) each of our Named Executive Officers, and (iv) all our directors and executive officers as a group. Except as indicated in the footnotes to the table, the stockholders who are directors and named executive officers share voting and investment power with respect to shares owned by each of them with eBay pursuant to the terms of the support agreements. In addition, we understand that the “5% Stockholders” listed in the table have sole voting and investment power with respect to the shares owned by them, except as otherwise indicated in the footnotes to the table. The number of shares in the
table below includes shares issuable upon the exercise of outstanding stock options and the vesting of outstanding restricted stock units to the extent that such options or restricted stock units, respectively, vest on or within 60 days after April 11, 2011. In the case of our directors and executive officers, the information below has been provided by such persons at our request.
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Name, Position and Address Of Beneficial Owner
|
|
Amount and Nature
of Beneficial
Ownership
|
|
Percent of Class
|
|
Named Executive Officers and Directors
|
|
Michael G. Rubin (1)
Chairman, President and Chief Executive
Officer
|
|
4,677,099
|
|
6.42
|
|
Michael R. Conn (2)
Executive Vice President, Finance and Chief Financial Officer
|
|
194,719
|
|
*
|
|
J. Scott Hardy (3)
Executive Vice President, Business
Management
|
|
43,806
|
|
*
|
|
Damon Mintzer (4)
Executive Vice President, Strategic Business Development.
|
|
51,743
|
|
*
|
|
Christopher Saridakis (5)
Chief Executive Officer, Global Marketing Services
|
|
17,826
|
|
*
|
|
Stephen J. Gold (6)
Former Executive Vice President, Chief Information Officer and Corporate Chief Technology Officer
|
|
4,167
|
|
*
|
|
M. Jeffrey Branman (7)
Director
|
|
94,063
|
|
*
|
|
Ronald D. Fisher (8)
Director
|
|
30,525
|
|
*
|
|
John A. Hunter (9)
Director
|
|
26,775
|
|
*
|
|
Josh Kopelman (10)
Director
|
|
0
|
|
-
|
|
Jeffrey F. Rayport (11)
Director
|
|
49,563
|
|
*
|
|
Michael J. Donahue (12)
Director
|
|
15,084
|
|
*
|
|
David Rosenblatt (13)
Director
|
|
0
|
|
-
|
|
Name, Position and Address of Beneficial Owner
|
|
Amount and Nature
of Beneficial
Ownership
|
|
Percent of Class
|
|
Lawrence S. Smith (14)
Director
|
|
43,890
|
|
*
|
|
Andrea M. Weiss (15)
Director
|
|
19,301
|
|
*
|
|
All executive officers and directors as a group (15 persons)(16)
|
|
5,319,502
|
|
7.26
|
|
5% Stockholders
|
|
Fred Alger Management, Inc. (17)
Alger Associates, Incorporated
|
|
5,238,948
|
|
7.24
|
|
Wells Fargo and Company (18)
Wells Capital Management Incorporated
Wells Fargo Bank, National Association
Wells Fargo Advisors, LLC
Wells Fargo Funds Management, LLC
|
|
5,415,226
|
|
7.48
|
|
Artisan Partners Holdings LP (19)
Artisan Investment Corporation
Artisan Partners Limited Partnership
Artisan Investments GP LLC
875 East Wisconsin Avenue, Suite 800
|
|
6,669,200
|
|
9.21
|
|
BlackRock, Inc. (20)
BlackRock Institutional Trust Company, N.A.
BlackRock Fund Advisors
BlackRock Asset Management Australia Limited
BlackRock Advisors, LLC
BlackRock Capital Management, Inc.
BlackRock Investment Management, LLC
BlackRock International Limited
State Street Research & Management Company
|
|
4,410,616
|
|
6.09
|
|
eBay Inc. (21)
2145 Hamilton Avenue,
|
|
4,467,545
|
|
6.10
|
|
(1)
|
Includes 440,709 shares issuable upon exercise of options that are currently exercisable or which are issuable upon the vesting of outstanding restricted stock units within 60 days of April 11, 2011. These amounts do not include 72,239 performance-based restricted stock units that will vest immediately in full in connection with the proposed merger.
|
|
(2)
|
Includes 139,752 shares issuable upon exercise of options that are currently exercisable or which are issuable upon the vesting of outstanding restricted stock units within 60 days of April 11, 2011. These amounts do not include 100,000 restricted stock units that will vest immediately in full in connection with the proposed merger.
|
|
(3)
|
Includes 22,091 shares issuable upon the vesting of outstanding restricted stock units within 60 days of April 11, 2011.
|
|
(4)
|
Includes 45,108 shares issuable upon exercise of options that are currently exercisable or which are issuable upon the vesting of outstanding restricted stock units within 60 days of April 11, 2011.
|
|
(5)
|
Includes 17,826 shares issuable upon the vesting of outstanding restricted stock units within 60 days of April 11, 2011.
|
|
(6)
|
Effective May 28, 2010, Mr. Gold resigned from his position as Executive Vice President, Chief Information Officer and Corporate Chief Technology Officer of GSI.
|
|
(7)
|
Includes 36,775 shares issuable upon exercise of options that are currently exercisable or which are issuable upon the vesting of outstanding restricted stock units within 60 days of April 11, 2011.
|
|
(8)
|
Includes 30,525 shares issuable upon exercise of options that are currently exercisable or which are issuable upon the vesting of outstanding restricted stock units within 60 days of April 11, 2011.
|
|
(9)
|
Includes 26,775 shares issuable upon exercise of options that are currently exercisable or which are issuable upon the vesting of outstanding restricted stock units within 60 days of April 11, 2011.
|
|
(10)
|
5,617 restricted stock units that will vest immediately in full in connection with the proposed merger are not included in the total for Mr. Kopelman.
|
|
(11)
|
Includes 37,275 shares issuable upon exercise of options that are currently exercisable or which are issuable upon the vesting of outstanding restricted stock units within 60 days of April 11, 2011.
|
|
(12)
|
Includes 1,775 shares issuable upon the vesting of outstanding restricted stock units within 60 days of April 11, 2011.
|
|
(13)
|
These amounts do not include 5,020 restricted stock units that will vest immediately in full in connection with the proposed merger.
|
|
(14)
|
Includes 18,800 shares owned in an individual retirement investment account, 600 shares owned by a family partnership, the general partner of which is controlled by Mr. Smith, 4,796 shares owned in irrevocable trusts and 3,000 shares owned by a family charitable foundation of which Mr. Smith’s wife is a trustee. Mr. Smith has pledged a total of 17,919 shares of common stock held by him as security for a margin loan. These amounts do not include 1,845 restricted stock units that will vest immediately in full in connection with the proposed merger.
|
|
(15)
|
Includes 1,775 shares issuable upon the vesting of outstanding restricted stock units within 60 days of April 11, 2011.
|
|
(16)
|
Includes (i) 4,985,193 shares of common stock beneficially owned in the aggregate by the Named Officers (other than Mr. Gold who resigned effective May 28, 2010) as set forth in this table (of which 665,486 are issuable upon exercise of options that are currently exercisable or which are issuable upon the vesting of outstanding restricted stock units within 60 days of April 11, 2011); (ii) 279,201 shares of common stock beneficially owned in the aggregate by the directors (other than Mr. Rubin) as set forth in this table (of which 136,675 are issuable upon exercise of options that are currently exercisable or which are issuable upon the vesting of outstanding restricted stock units within 60 days of April 11, 2011); and (iii) 55,108 shares of common stock beneficially owned in the aggregate
by executive officers (other than Named Officers) (of which 55,108 are issuable upon exercise of options that are currently exercisable or which are issuable upon the vesting of outstanding restricted stock units within 60 days of April 11, 2011). These amounts do not include 184,721 performance-based restricted stock units and restricted stock units that will vest immediately in full in connection with the proposed merger.
|
|
(17)
|
Based on a Schedule 13G filed with the Securities and Exchange Commission on February 14, 2011. By virtue of the Alger family’s ownership of controlling interest in Alger Associates, Incorporated, which indirectly owns Fred Alger Management, Inc., ownership of the shares of common stock may be imputed to the Alger family.
|
|
(18)
|
Based on a Schedule 13G/A filed with the Securities and Exchange Commission on April 11, 2011.
|
|
(19)
|
Based on a Schedule 13G filed with the Securities and Exchange Commission on February 11, 2011.
|
|
(20)
|
Based on a Schedule 13G filed with the Securities and Exchange Commission on February 4, 2011.
|
|
(21)
|
As a result of the Support Agreements, Ebay may be deemed to be the beneficial owner of the shares listed in the table, which includes 680,750 shares underlying currently exercisable options and 184,794 shares underlying restricted unit awards that will vest with 60 days of April 11, 2011. However, eBay disclaims beneficial ownership of the shares listed in the table. The information in this footnote is derived from a Schedule 13D filed by eBay with the Securities and Exchange Commission on April 6, 2011.
|
FUTURE STOCKHOLDER PROPOSALS
If the merger is completed, there will be no public participation in any future meetings of GSI stockholders. If the merger is not completed, however, stockholders will continue to be entitled to attend and participate in meetings of GSI stockholders. If the merger is not completed, GSI will inform its stockholders, by press release or other means determined reasonable by GSI, of the date by which stockholder proposals must be received by GSI for inclusion in the proxy materials relating to GSI’s 2011 annual meeting, which proposals must comply with the rules and regulations of the SEC then in effect.
WHERE STOCKHOLDERS CAN FIND MORE INFORMATION
GSI files annual, quarterly and current reports, proxy statements and other documents with the SEC under the Exchange Act. These reports, proxy statements and other information contain additional information about GSI and will be made available for inspection and copying at GSI’s executive offices during regular business hours by any stockholder or a representative of a stockholder as so designated in writing.
Stockholders may read and copy any reports, statements or other information filed by GSI at the SEC’s public reference room at Station Place, 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of this information by mail from the public reference section of the SEC at Station Place, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room. GSI’s SEC filings made electronically through the SEC’s EDGAR system are available to the public at the SEC’s website located at http://www.sec.gov.
A list of stockholders will be available for inspection by stockholders of record during business hours at GSI’s corporate headquarters at 935 First Avenue, King of Prussia, Pennsylvania 19406, for ten days prior to the date of the special meeting and continuing to the date of the special meeting and will also be available for review at the special meeting or any reconvenings thereof. The opinion of Morgan Stanley, a copy of which is attached to this proxy statement as Appendix B, will also available for inspection and copying at the same address, upon written request by, and at the expense of, the interested stockholder.
The SEC allows GSI to “incorporate by reference” information that it files with the SEC in other documents into this proxy statement. This means that GSI may disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this proxy statement. This proxy statement and the information that GSI files later with the SEC may update and supersede the information incorporated by reference. Similarly, the information that GSI later files with the SEC may update and supersede the information in this proxy statement. Such updated and superseded information will not, except as so modified or superseded, constitute part of this proxy statement.
GSI incorporates by reference each document it files under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the initial filing of this proxy statement and before the special meeting, except for the documents, or portions thereof, that are “furnished” rather than filed. GSI also incorporates by reference in this proxy statement the following documents filed by it with the SEC under the Exchange Act:
| |
•
|
GSI’s Annual Report on Form 10-K for the fiscal year ended January 1, 2011; and
|
| |
•
|
GSI’s Current Reports on Form 8-K filed with the SEC on February 9, 2011 at 5:02 p.m., February 10, 2011 (excluding Item 7.01 and Exhibit 99.1 of Item 9.01, as amended by Form 8-K/A filed with the SEC on February 15, 2011), February 18, 2011, March 15, 2011 (excluding Item 7.01 and Exhibit 99.1 of Item 9.01), March 28, 2011 (excluding Item 7.01 and Exhibit 99.3 of Item 9.01), March 30, 2011, and April 5, 2011.
|
GSI undertakes to provide without charge to each person to whom a copy of this proxy statement has been delivered, upon request, by first class mail or other equally prompt means, a copy of any or all of the documents incorporated by reference in this proxy statement, other than the exhibits to these documents, unless the exhibits are specifically incorporated by reference into the information that this proxy statement incorporates. You may obtain documents incorporated by reference by requesting them in writing or by telephone at the following address and telephone number:
GSI Commerce, Inc.
935 First Avenue
Telephone number: (610) 491-7000
You may also obtain documents incorporated by reference by requesting them by telephone from Georgeson Inc., our proxy solicitor, toll free at (866) 628-6021. Documents should be requested by , 2011 in order to receive them before the special meeting. You should be sure to include your complete name and address in your request.
eBay and Merger Sub have supplied, and GSI has not independently verified, the information in this proxy statement relating to eBay and Merger Sub.
This proxy statement does not constitute the solicitation of a proxy in any jurisdiction to or from any person to whom or from whom it is unlawful to make such a proxy solicitation in such jurisdiction.
Stockholders should not rely on information other than that contained or incorporated by reference in this proxy statement. GSI has not authorized anyone to provide information that is different from that contained in this proxy statement. This proxy statement is dated , 2011. No assumption should be made that the information contained in this proxy statement is accurate as of any date other than that date, and the mailing of this proxy statement will not create any implication to the contrary. Notwithstanding the foregoing, in the event of any material change in any of the information previously disclosed, GSI will, where relevant and if required by applicable law, update such information through a supplement to this proxy statement.
Please detach along perforated line and mail in the envelope provided IF you are not voting via telephone or the Internet. 