SHAREHOLDERS AGREEMENT
This SHAREHOLDERS AGREEMENT (this "Agreement"), dated as of April 30, 1997,
is made and entered into among Egghead, Inc., a Washington corporation
("Egghead"), Surplus Software, Inc., an Oregon corporation ("Seller"), and
certain shareholders of Seller listed on Schedule A attached (individually, a
"Seller Shareholder" and, collectively, the "Seller Shareholders").
RECITALS
A. Concurrently herewith, Egghead, North Face Merger Sub, Inc., an Oregon
corporation and wholly owned subsidiary of Egghead ("Merger Sub"), and Seller
have entered into an Agreement and Plan of Merger (the "Merger Agreement")
pursuant to which Merger Sub will merge with and into Seller (the "Merger").
Capitalized terms used and not defined herein shall have the meanings assigned
to such terms in the Merger Agreement.
B. Approval of the Merger Agreement by the Seller's shareholders and
approval of the issuance of Egghead Common Shares in the Merger by Egghead's
shareholders are each conditions to the consummation of the Merger.
C. For federal income tax purposes, it is intended that the Merger shall
qualify as a reorganization within the meaning of Section 368(a) of the Code.
D. As a condition to the parties' entering into the Merger Agreement,
Egghead has required that the Seller Shareholders agree, and each of the Seller
Shareholders have agreed, to enter into this Agreement.
AGREEMENT
In consideration of the foregoing and the mutual covenants contained
herein, the parties hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF EACH SELLER SHAREHOLDER
Each Seller Shareholder represents and warrants to Egghead that:
(a) GENERAL REPRESENTATIONS.
(i) As of the date hereof, such Seller Shareholder owns
beneficially or of record the number of Shares set forth on Schedule A hereto,
and there are no outstanding proxies with respect to such Shares.
(ii) Such Seller Shareholder has the requisite power to enter
into this Agreement and to carry out his, her or its obligations hereunder. If
such Seller Shareholder is a corporation or other entity, the execution and
delivery of this Agreement by such Seller Shareholder and the consummation by it
of the transactions contemplated hereby have been duly authorized by all
necessary corporate or other action on the part of such Seller Shareholder.
(iii) This Agreement is a legal and valid agreement and obligation
binding upon such Seller Shareholder, enforceable against such Seller
Shareholder in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general application which may affect the enforcement of creditors' rights
generally and by general equitable principles.
(iv) The execution and delivery of this Agreement does not, and
the consummation of the transactions contemplated hereby and compliance with the
terms hereof will not, conflict with, or result in any violation of or default
(with or without notice or lapse of time or both) under, any provision of (A) in
the case of a Seller Shareholder which is a corporation or other entity, its
charter, bylaws or other organizational documents or (B) in the case of any
Seller Shareholder, any agreement, instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to such Seller Shareholder or to his, her or its property or assets.
(v) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court or Governmental Body, is
required by or with respect to such Seller Shareholder in connection with the
execution and delivery of this Agreement or the consummation by such Seller
Shareholder of the transactions contemplated hereby.
(b) SECURITIES ACT COVENANTS AND REPRESENTATIONS.
(i) Such Seller Shareholder has been advised that the offering,
sale and delivery of Egghead Common Shares pursuant to the Merger will be
registered under the Securities Act on a Registration Statement on Form S-4.
Such Seller Shareholder has also been advised, however, that, to the extent such
Seller
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Shareholder is considered an Affiliate of Seller at the time the Merger
Agreement is submitted for a vote of the shareholders of Seller, any public
offering or sale by such Seller Shareholder of any Egghead Common Shares
received by such Seller Shareholder in the Merger will, under current law,
require (A) further registration under the Securities Act of such Egghead Common
Shares to be sold by such Seller Shareholder or (B) compliance with Rule 145
promulgated by the SEC under the Securities Act or (C) the availability of
another exemption from such registration under the Securities Act.
(ii) Such Seller Shareholder has read this Agreement and the
Merger Agreement and has discussed their requirements and other applicable
limitations upon such Seller Shareholder's ability to sell, transfer or
otherwise dispose of Egghead Common Shares, to the extent such Seller
Shareholder believed necessary, with such Seller Shareholder's counsel or
counsel for Seller.
(iii) Such Seller Shareholder also understands that stop transfer
instructions will be given to Egghead's transfer agent with respect to Egghead
Common Shares and that a legend will be placed on the certificates for the
Egghead Common Shares issued to such Seller Shareholder in the Merger, or any
substitutions.
(c) TAX COVENANTS AND REPRESENTATIONS.
In addition to, and not in lieu of, the representations set forth in
clause (b) above, each Seller Shareholder represents and warrants to Egghead
that, except for distributions permitted by clause (d) below, such Seller
Shareholder does not now, and will not at the Effective Time, have any plan or
intention to sell, transfer or otherwise dispose of a number of Egghead Common
Shares to be received by such Seller Shareholder in the Merger that would reduce
such Seller Shareholder's ownership of Egghead Common Shares to a number of
shares having a value, as of the Effective Time, of less than 75% of the value
of all of the formerly outstanding capital stock of Seller held by such Seller
Shareholder as of the same date. Furthermore, each Seller Shareholder that will
make a distribution permitted by clause (d) below represents and warrants that
it does not now and will not at the Effective Time, and to its knowledge its
partners do not now and will not at the Effective Time, have any plan or
intention to sell, transfer or otherwise dispose of a number of Egghead Common
Shares to be received by such Seller Shareholder in the Merger that would,
taking into account any sales, transfers or dispositions by the Seller
Shareholder described in the previous sentence, reduce the aggregate number of
Egghead Common Shares held by such Seller Shareholder and its partners to a
number having a value, as of the Effective Time, of less than 75% of the value
of all of the Egghead Common Shares received by such Seller Shareholder in the
Merger. For purposes of these representations, shares of Seller capital stock
exchanged for cash or other property
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and Shares exchanged for cash in lieu of fractional Egghead Common Shares will
be treated as outstanding Seller capital stock, and any Egghead Common Shares
held by such Seller Shareholder on the date hereof and otherwise sold, redeemed
or disposed of prior to or subsequent to the Effective Time will be considered
in making this representation. Such representations will be relied upon by
Xxxxxxx Coie in issuing the opinion at the Effective Time pursuant to
Section 8.3(e) of the Merger Agreement. Between the date of this Agreement and
the Effective Time, each Seller Shareholder shall notify Xxxxxxx Coie and
Egghead of any change or event that would cause this Section 1(c) to be untrue
or inaccurate in any respect.
(d) CERTAIN PARTNERSHIPS.
Notwithstanding the representations contained in clauses (b) and (c)
above, after the Effective Time a Seller Shareholder which is and has been since
its formation a general or limited partnership for income tax purposes, as
determined under Section 7701 of the Code and the underlying Treasury
Regulations, may distribute all or part of the Egghead Common Shares received by
such Seller Shareholder in the Merger to all of its partners for no additional
consideration and in a transaction in which no gain or loss is recognized for
income tax purposes; provided, however, that (i) any such transfer shall be made
pro rata based on each partner's ownership interest in such Seller Shareholder,
(ii) prior to any distribution pursuant to this clause (d), each partner of such
Seller Shareholder shall agree in writing to be bound by the terms of clause (c)
above to the same extent as the Seller Shareholder that transferred the Egghead
Common Shares to such partner and (iii) the partnership interest in the Seller
Shareholder held by each partner at the time of the distribution has been
continuously held by such partner, and is unchanged from the proportionate
interest held by such partner, since the execution of the Merger Agreement.
2. REPRESENTATIONS AND WARRANTIES OF EGGHEAD AND SELLER
(a) Egghead represents and warrants to the Seller Shareholders that:
(i) Egghead is a corporation duly organized, validly existing
and in good standing under the laws of the state of Washington.
(ii) Egghead has the requisite corporate power to enter into this
Agreement and to carry out its obligations hereunder.
(iii) This Agreement is a legal and valid agreement and obligation
binding upon Egghead, enforceable against Egghead in accordance with its terms,
except as may be limited by applicable bankruptcy, insolvency, reorganization,
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moratorium and other similar laws of general application which may affect the
enforcement of creditors' rights generally and by general equitable principles.
(b) Seller represents and warrants to Egghead that:
(i) Seller is a corporation duly organized and validly existing
under the laws of the state of Oregon.
(ii) Seller has the requisite corporate power to enter into this
Agreement and to carry out its obligations hereunder.
(iii) This Agreement is a legal and valid agreement and obligation
binding upon Seller, enforceable against Seller in accordance with its terms,
except as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application which may affect the
enforcement of creditors' rights generally and by general equitable principles.
3. OBLIGATION OF THE SELLER SHAREHOLDERS TO APPROVE MERGER
(a) Each Seller Shareholder hereby irrevocably agrees to attend any
special meeting of the shareholders of Seller called for the purpose of
approving the Merger Agreement and/or the Merger (the "Seller Shareholders
Meeting"), in person or by proxy, and to vote (or cause to be voted) all Shares,
and any other voting securities of Seller, whether issued heretofore or
hereafter, that such Seller Shareholder owns or has the right to vote, for
approval and adoption of the Merger and the Merger Agreement, such agreement to
vote to apply also to any adjournment or adjournments of the Seller Shareholders
Meeting.
(b) To the extent inconsistent with the foregoing provisions of this
Section 3, each Seller Shareholder hereby revokes any and all previous proxies
with respect to such Seller Shareholder's Shares or any other voting securities
of Seller.
4. TERMINATION OF AGREEMENTS
Subject to and effective upon consummation of the Merger, each Seller
Shareholder hereby irrevocably waives, and agrees to execute any agreement
providing for the termination of, (a) any and all preemptive rights, rights of
first refusal or first offer and registration rights with respect to any Shares
or other securities of Seller or any securities issued in exchange therefor and
(b) any and all stock purchase agreements or other agreements pursuant to which
such securities were purchased from the Company and any and all shareholders
agreements or other agreements among shareholders of the Company or between
shareholders and the
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Company, other than the promissory notes between Xxxxxxxx X. Xxxxxxx and Xxxxx
X. Xxxxxx and the Company.
5. TERMINATION
This Agreement shall terminate on the earlier of (a) mutual written consent
of the parties hereto or (b) the date on which the Merger Agreement is
terminated in accordance with Article IX thereof. Upon the termination of this
Agreement pursuant to this Xxxxxxx 0, xxxx of the parties to this Agreement
shall have any further obligation hereunder.
6. NOTICES
All notices, requests, demands or other communications required by or
otherwise with respect to this Agreement shall be in writing and shall be deemed
to have been duly given to any party when delivered personally (by courier
service or otherwise), when delivered by facsimile and confirmed by return
facsimile, or seven days after being mailed by first-class mail, postage prepaid
and return receipt requested in each case to the applicable addresses set forth
below:
If to Egghead:
Egghead, Inc.
00000 Xxxx Xxxxxxx Xxx.
Xxxxxxx Xxxx, XX 00000
Attn: Xxxxxx X. Xxxxx, Chief Executive Officer
Facsimile: (000) 000-0000
with a copy to:
Xxxxxxx Coie
0000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxx, Xxxxxxxxxx 00000-0000
Attn.: Xxxxxx Xxxx Xxxxxx, Esq.
Facsimile: (000) 000-0000
If to Seller:
Surplus Software, Inc.
000 Xxxxx 0xx Xxxxxx, Xxxxx 000
Xxxx Xxxxx, Xxxxxx 00000
Attn: Xxxxxxxx Xxxxxxx President
Facsimile: (000) 000-0000
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with a copy to:
Tonkon, Xxxx, Xxxxx, Marmaduke & Booth
0000 Xxxxxxx Xxxxx
000 X.X. Xxxxx Xxxxxx
Xxxxxxxx, XX 00000-0000
Attn: Xxxxxx X. Xxxxxxxx, Esq.
Facsimile: (000) 000-0000
If to the Seller Shareholders, to their respective addresses set forth
on Schedule A hereto, with copies to:
Tonkon, Xxxx, Xxxxx, Marmaduke & Booth
0000 Xxxxxxx Xxxxx
000 X.X. Xxxxx Xxxxxx
Xxxxxxxx, XX 00000-0000
Attn: Xxxxxx X. Xxxxxxxx, Esq.
Facsimile: (000) 000-0000
or to such other address as such party shall have designated by notice so given
to each other party.
7. TRANSFER; ASSIGNMENT
Neither this Agreement nor any of the rights, interests or obligations in
this Agreement shall be assigned by any of the parties hereto without the prior
written consent of the other parties hereto. Subject to the preceding sentence,
this Agreement shall be binding upon, inure to the benefit of and be enforceable
by the parties hereto and their respective heirs, legal representatives,
successors and permitted assigns.
8. AMENDMENT
This Agreement cannot be amended or modified except by a written instrument
executed by the parties to this Agreement who propose to be bound by the
amendment or modification.
9. HEADINGS
The headings in this Agreement are inserted for convenience of reference
only and are not intended to be a part of or affect the meaning or
interpretation of this Agreement.
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10. ENTIRE AGREEMENT
This Agreement supersedes any and all oral or written agreements and
understandings heretofore made relating to the subject matter hereof and
contains the entire agreement of the parties hereto relating to the subject
matter hereof.
11. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
internal laws of the state of Oregon without regard to conflicts-of-laws
principles.
12. REMEDIES
Each party hereto acknowledges that the other parties to this Agreement may
not have an adequate remedy at law for money damages if this Agreement is not
performed by such party in accordance with its terms and, therefore, agrees that
each party shall be entitled to specific performance of, and injunctive relief
to prevent any violation of, the terms hereof, in addition to any other remedy
or relief available at law or in equity, and further agrees not to take action,
directly or indirectly, in opposition to any other party's seeking such specific
enforcement or injunctive relief.
13. SEVERABILITY
If any term of this Agreement or the application thereof to any party or
circumstance shall be held invalid or unenforceable to any extent, the remainder
of this Agreement and the application of such term to the other parties or
circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by applicable law; provided, however, that in such
event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
14. NO WAIVER
The failure of any party hereto to exercise any right, power or remedy
provided under this Agreement or otherwise available in respect hereof at law or
in equity, or to insist upon compliance by any other party hereto with its
obligations hereunder, and any custom or practice of the parties at variance
with the terms hereof, shall not constitute a waiver by such party of its right
to exercise any such or other right, power or remedy or to demand such
compliance.
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15. NO THIRD PARTY BENEFICIARIES
This Agreement is not intended to be for the benefit of and shall not be
enforceable by any Person who or which is not a party hereto.
16. LIMITATION ON LIABILITY
No Seller Shareholder shall have any liability hereunder for any actions or
omissions of any other Seller Shareholder.
17. COUNTERPARTS
This Agreement may be executed in several counterparts, each of which will
be deemed an original but all of which together constitute one and the same
instrument.
18. AFFILIATE STATUS
The execution of this Agreement by each of the Seller Shareholders shall
not be deemed to be an admission by such Seller Shareholder that such Seller
Shareholder is an "affiliate" of Seller within the meaning of Rule 12b-2 under
the Securities Exchange Act of 1934, as amended.
[This space intentionally left blank.]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
EGGHEAD, INC. SURPLUS SOFTWARE, INC.
By XXXXX X. XXXXXX By XXXXXXXX X. XXXXXXX
-------------------------- -------------------
Its Chief Financial Officer Its President
----------------------- ----------------
SELLER SHAREHOLDERS:
/s/ XXXXX X. XXXXXX
------------------------
Xxxxx X. Xxxxxx
Address:
00000 X.X. Xxxxxxx Xxxx
Xxxxxxx, XX 00000
/s/ XXXXXXX X. XXXXXXXX
-------------------------
Xxxxxxx X. Xxxxxxxx
Address:
0000 Xxxxxxx Xxxx
Xxxx Xxxxx, XX 00000
/s/ XXXXXXXX XXXXXXX
-------------------------
Xxxxxxxx Xxxxxxx
Address:
00 Xxxxxxxx Xxxxxx
Xxxx Xxxxx, XX 00000
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/s/ XXXXXXX X. XXXX
-------------------------
Xxxxxxx X. Xxxx
Address:
0000 Xxxxxxx Xxxxx
Xxxx Xxxxx, XX 00000
/s/ XXXXXX XXXXXX
--------------------------
Xxxxxx Xxxxxx
Address:
0000 XX Xxxxx Xxxx Xxxx
Xxxxxxxxx, XX 00000
/s/ XXXXXXX XXXXXXXXX
--------------------------
Xxxxxxx Xxxxxxxxx
Address:
0000 Xxxxx Xxxxx
Xxxx Xxxxx, XX 00000
SV Capital Partners, L.P.
By: SV Capital Management, Inc.
Its: General Partner
By:/s/ X.X. XXXXXX
-----------------------
Name:X.X. Xxxxxx
--------------------
Its:MANAGING DIRECTOR
-----------------
Address:
X.X. Xxx 000000
Xxx Xxxxxxx, Xxxxx 00000-0000
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Olympic Venture Partners III, L.P.
By: OVMC III, L.P.
Its: General Partner
By:/s/ XXXXXX X. XXXXXXXX
--------------------------
Name:Xxxxxx X. Xxxxxxxx
-----------------------
Its:GENERAL PARTNER
------------------------
Address:
0000 Xxxxxxxx Xxxxx
Xxxxxxxx, XX 00000
OVP III Entrepreneurs Fund
By: OVMC III, L.P.
Its: General Partner
By:XXXXXX X. XXXXXXXX
--------------------------
Name:Xxxxxx X. Xxxxxxxx
-----------------------
Its:GENERAL PARTNER
------------------------
Address:
0000 Xxxxxxxx Xxxxx
Xxxxxxxx, XX 00000
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