EGGHEAD, INC.
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is entered into as of
August 14, 1997 by and among Egghead, Inc., a Washington corporation (the
"Company"), and the shareholders listed on the Schedule of Investors attached
hereto as Exhibit A (the "Shareholders").
RECITALS
A. As of the date of this Agreement, the Company has acquired Surplus
Software, Inc. ("SSI") pursuant to an Agreement and Plan of Merger (the "Merger
Agreement") dated April 30, 1997 and amended as of May 23, 1997 (the "Merger").
B. The Shareholders are former shareholders of SSI and, as of the date
hereof, are being issued shares of common stock, $.01 par value per share, of
the Company in the Merger as indicated on Exhibit A hereto.
C. The execution and delivery of this Agreement is a condition to the
closing of the Merger under the Merger Agreement.
AGREEMENTS
In consideration of the mutual promises and covenants hereinafter set forth,
the parties agree as follows:
1. CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"HOLDER" shall mean any of the Shareholders listed on Exhibit A hereto
so long as such Shareholder holds Registrable Securities.
PAGE 1
The terms "REGISTER", "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRABLE SECURITIES" means the Shares (or other securities of the
Company issued with respect to the Shares upon any stock split, stock dividend,
recapitalization or similar event); provided, however, that Shares (or other
securities of the Company issued with respect to the Shares upon any stock
split, stock dividend, recapitalization or similar event) shall only be deemed
to be Registrable Securities if and so long as they have not been (A) sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, or (B) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(l) thereof so that all transfer restrictions and restrictive legends
with respect thereto are removed upon the consummation of such sale; provided
further, that Shares (or other securities of the Company issued with respect to
the Shares upon any stock split, stock dividend, recapitalization or similar
event) held by each Shareholder shall cease to be Registrable Securities from
and after such time as such Shareholder shall have sold Shares (or other
securities of the Company issued with respect to the Shares upon any stock
split, stock dividend, recapitalization or similar event), whether such sales
occurred pursuant to Section 2 of this Agreement or otherwise, in one or more
transactions that generated aggregate gross proceeds equal to or greater than
$2,000,000, in the case of ▇▇▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, and $1,000,000 in
the case of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇. Shares (or other securities of the Company issued
with respect to the Shares upon any stock split, stock dividend,
recapitalization or similar event) that have not been sold shall nevertheless be
deemed to have been sold for purposes of the preceding provisos if the Holder
thereof had the opportunity to include such securities in a registration
effected pursuant to Section 2 of this Agreement but elected not to include such
securities, and the price per share with respect to any such deemed sale shall
be the gross price per share at which such securities could have been sold in
such offering.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the
Company in complying with Section 2 hereof, including, without limitation, all
registration, qualification and filing fees (excluding fees attributable to
Registrable Securities), printing expenses, fees and disbursements of counsel
for the Company (except to the extent attributable to the inclusion of
Registrable Securities in a registration), blue sky fees and expenses (excluding
any fees and expenses attributable to Registrable Securities), and the expense
of any special audits incident to or required by any such registration;
provided, however, that in no event shall anything covered in Selling Expenses
be considered a Registration Expense.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
PAGE 2
"SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions, stock transfer taxes, Commission and blue sky filing fees and
related expenses attributable to the Registrable Securities being registered by
the Holders in any registration under Section 2, and all fees and disbursements
of counsel for the Holders and all fees and disbursements of counsel for the
Company to the extent such fees and disbursements are attributable to the
participation of Holders in such registration and the inclusion of Registrable
Securities therein.
"SHARES" shall mean the shares of common stock, $.01 par value per
share, of the Company issued to the Holders in the Merger, as set forth on
Exhibit A hereto.
2. PIGGYBACK REGISTRATION RIGHTS
(a) NOTICE OF REGISTRATION. If at any time or from time to time
during the term of this Agreement the Company shall determine to register any of
its securities, either for its own account or the account of a security holder
or holders, other than (x) a registration relating solely to employee benefit
plans or (y) a registration relating solely to a Commission Rule 145
transaction, the Company will, subject to the limitations set forth elsewhere in
this Agreement:
(i) promptly give to each Holder written notice thereof (the
"Company Notice"); and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, any Registrable Securities specified by written notice from the Holders
to the Company (the "Holder Notice") within 15 business days after the effective
date of the Company Notice.
(b) UNDERWRITING. If the registration described in a Company Notice
is for a registered public offering involving an underwriting, the Company shall
so advise the Holders in such Company Notice. The right of any Holder to
include Registrable Securities in such registration pursuant to this Agreement
shall be conditioned upon such Holder's participation in such underwriting. All
Holders proposing to distribute Registrable Securities through such underwriting
shall (together with the Company and the other holders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by
the Company. Notwithstanding any other provision of this Agreement, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit the
number of Registrable Securities to be included in the registration and
underwriting, on a pro rata basis among the Holders based on the number of
Registrable Securities originally proposed to be included in such registration
and underwriting by each Holder. To facilitate the allocation of shares in
accordance with the above provisions, the Company or the underwriters may round
the number of shares allocated to any Holder to
PAGE 3
the nearest one hundred (100) shares. If any Holder disapproves of the terms of
any such underwriting, such Holder may elect to withdraw therefrom by written
notice to the Company and the managing underwriter. Any securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration, and
shall not be transferred in a public distribution prior to one hundred eighty
(180) days after the effective date of the registration statement relating
thereto, and, if withdrawn by a Holder, shall be deemed to have been sold by
such Holder pursuant to Section 1 under "Registrable Securities," unless such
registration is withdrawn by the Company pursuant to Section 2(c).
(c) RIGHT TO TERMINATE REGISTRATION. The Company may terminate or
withdraw any registration to which the registration rights in this Section apply
prior to the effectiveness of such registration, whether or not any Holder has
elected to include securities in such registration.
(d) LIMITATIONS. Notwithstanding any other provision of this
Agreement, and in addition to the other limitations, terms and conditions set
forth elsewhere in this Agreement, the registration rights set forth in this
Section 2 shall be subject to the following limitations:
(i) In connection with any proposed registration otherwise
subject to this Section 2, a Holder shall not be entitled to registration of any
shares in excess of a number of shares which would be reasonably expected to
result in gross proceeds to such Holder of $2,000,000, in the case of ▇▇▇▇▇▇▇
▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, or $1,000,000, in the case of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, as
determined by the Company in consultation with the managing underwriter for the
offering, if any.
(ii) In connection with any proposed registration otherwise
subject to this Section 2, no Holder shall be entitled to registration of any
Registrable Securities unless the aggregate gross proceeds of all Registrable
Securities proposed to be included in the registration are reasonably expected
to be at least $1,000,000, as determined by the Company in consultation with the
managing underwriter for the offering, if any.
3. EXPENSES OF REGISTRATION
All Registration Expenses incurred in connection with any registration
pursuant to Section 2 shall be borne by the Company. All Selling Expenses
incurred in connection with any registration pursuant to Section 2 shall be
borne by the Holders of the Registrable Securities included in such
registration pro rata on the basis of the number of shares so registered.
PAGE 4
4. REGISTRATION PROCEDURES
In the case of each registration required to be effected by the Company
pursuant to Section 2, the Company will:
(a) Furnish to the Holders participating in such registration and to
the underwriters, if any, of the securities being registered such reasonable
number of copies of the registration statement, preliminary prospectus, final
prospectus and such other documents as such underwriters may reasonably request
in order to facilitate the public offering of such securities.
(b) Use commercially reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders; provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act.
(c) Cause the Registrable Securities included in any distribution
effected pursuant this Agreement to be listed on each securities exchange or
other trading market on which similar securities issued by the Company are then
listed.
5. INDEMNIFICATION
(a) The Company will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all actual
out-of-pocket expenses, claims, losses, damages or liabilities (or actions in
respect thereof), including any of the foregoing incurred in any litigation or
in settlement of any litigation, commenced or threatened, arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, preliminary prospectus,
offering circular or other document, or any amendment or supplement thereto,
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or any violation or any
alleged violation by the Company of the Securities Act or the Exchange Act or
any state securities law, or of any rule or regulation promulgated under any of
the foregoing applicable to the Company in connection with any such
registration, qualification or compliance, and the Company will reimburse each
such Holder, each of its officers and directors, and each person controlling
such Holder, each such underwriter
PAGE 5
and each person who controls any such underwriter, for any legal and any other
actual out-of-pocket expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action, as such expenses are incurred; provided, however, that the indemnity
agreement contained in this Section 5(a) shall not apply to amounts paid in
settlement of any such matter if the settlement is effected without the consent
of the Company, which consent shall not be unreasonably withheld; and provided
further that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission or alleged untrue statement or omission, made
in reliance upon and in conformity with written information furnished to the
Company by such Holder, controlling person or underwriter specifically for use
therein.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which a registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all actual out-of-pocket expenses, claims, losses, damages and
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular
or other document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein, in
light of the circumstances in which they were made, or necessary to make the
statements therein not misleading, and will reimburse the Company, such Holders,
such directors, officers, persons, underwriters or control persons for any legal
and any other actual out-of pocket expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, as such expenses are incurred, in each case to the extent, but only to
the extent, that such untrue statement (or alleged untrue statement) or omission
(or alleged omission) is made in such registration statement, prospectus,
offering circular or other document in reliance upon and in conformity with
written information furnished to the Company by such Holder specifically for use
therein; provided, however, that the indemnity agreement contained in this
Section 5(b) shall not apply to amounts paid in settlement of any matter if the
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; and provided further that the maximum liability of
each selling Holder under this Section 5(b) shall be equal to the total cash
proceeds to such selling Holder as a result of such registration and offering.
PAGE 6
(c) Each party entitled to indemnification under this Section 5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnification may be sought, and
shall permit the Indemnifying Party to assume the defense of any such claim or
any litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at such
party's expense; provided, however, that an Indemnified Party (together with all
other Indemnified Parties which may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the
reasonable fees and expenses of such counsel to be paid by the Indemnifying
Party, if representation of such Indemnified Party by the counsel retained by
the Indemnifying Party would be inappropriate due to actual or potential
differing interests between such Indemnified Party and any other party
represented by such counsel in such proceeding. The failure of any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Section 5 unless the failure to give such notice
is materially prejudicial to an Indemnifying Party's ability to defend such
action. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party (not to be unreasonably
withheld), consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation.
(d) If the indemnification provided for in this Section 5 is held by
a court of competent jurisdiction to be unavailable with respect to any loss,
liability, claim, damage, or expense referred to therein, then the Indemnifying
Party, in lieu of indemnifying the applicable Indemnified Party hereunder, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such loss, liability, claim, damage, or expense in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party on the one
hand and of the Indemnified Party on the other in connection with the statements
or omissions that resulted in such loss, liability, claim, damage, or expense as
well as any other relevant equitable considerations; provided, that, in no event
shall any contribution by a Holder under this Subsection 5(d) exceed the net
proceeds from the offering received by such Holder, except in the case of
willful fraud by such Holder. The relative fault of the Indemnifying Party and
of the Indemnified Party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
PAGE 7
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with any underwritten public offering of Registrable
Securities pursuant to this Agreement are in conflict with the foregoing
provisions, the provisions in the underwriting agreement shall control.
(f) The obligations of the Company and Holders under this Section 5
shall survive the completion of any offering of Registrable Securities pursuant
to a registration statement filed pursuant to this Agreement.
6. INFORMATION BY HOLDER
The Holder or Holders of Registrable Securities included in any
registration shall furnish to the Company such information regarding such Holder
or Holders, the Registrable Securities held by them and the distribution
proposed by such Holder or Holders as the Company may request in writing and as
shall be required in connection with any registration, qualification or
compliance referred to in this Agreement.
7. RULE 144 REPORTING
With a view to making available the benefits of certain rules and
regulations of the Commission which may at any time permit the sale of
Registrable Securities to the public without registration, the Company shall use
commercially reasonable efforts to (a) make and keep public information
available, as those terms are understood and defined in Rule 144 under the
Securities Act, at all times as the Company is subject to the reporting
requirements of the Exchange Act, and (b) file with the Commission in a timely
manner all reports and other documents required of the Company under the
Exchange Act.
8. NO TRANSFER OF REGISTRATION RIGHTS
The registration rights set forth in this Agreement may not be assigned to
any person or entity under any circumstances, except by will or pursuant to the
laws of intestate succession.
9. STANDOFF AGREEMENT
Each Holder agrees in connection with any registration of the Company's
securities (other than a registration of securities in a Rule 145 transaction or
with respect to an employee benefit plan), upon request of the underwriters
managing any underwritten offering of the Company's securities, not to sell,
make any short sale of, loan, pledge (or otherwise encumber or hypothecate),
grant any option for the purchase of, or otherwise directly or indirectly
dispose of any Registrable Securities (other than those included in the
registration) without the prior written consent of the Company and such managing
underwriters for such period of time (not to exceed 180 days) as
PAGE 8
the Board of Directors establishes pursuant to its good faith negotiations
with such managing underwriters.
10. TERMINATION OF RIGHTS AND AGREEMENT
The rights of any particular Holder to cause the Company to register
securities under this Agreement shall terminate at such time as such Holder no
longer owns any Registrable Securities. This Agreement shall terminate at such
time as no Holder owns any Registrable Securities, or three years after the date
hereof, whichever occurs first.
11. SUCCESSORS
Except as otherwise provided herein, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
permitted successors and assigns of the parties hereto.
12. THIRD PARTIES
Nothing in this Agreement, express or implied, is intended to confer upon
any party, other than the parties hereto, and their respective permitted
successors and assigns, any rights, remedies, obligations or liabilities under
or by reason of this Agreement, except as expressly provided herein.
13. GOVERNING LAW
This Agreement shall be governed by and construed under the laws of the
State of Washington in the United States of America without regard to the
conflict or choice of law provisions of such State.
14. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
15. NOTICES
All notices and other communications required or permitted hereunder shall
be in writing and shall be mailed by first class mail, postage prepaid, or
delivered by facsimile, courier or personal delivery, addressed (a) if to a
Holder, at such Holder's address set forth on Exhibit A, or at such other
address as such Holder shall have furnished to the Company in writing, or (b) if
to the Company, at its principal executive office, attention President, or at
such other address as the Company shall have furnished to the Holders. If
notice is provided by mail, it shall be deemed effective three (3) business days
after proper deposit in the U.S. Mail. If notice is given by facsimile, it
shall deemed effective
PAGE 9
upon confirmation by the sender of receipt of transmission by the recipient
(so long as the recipient does not indicate nonreceipt of the transmission
within 24 hours after confirmation of transmission). If notice is given by
courier, it shall deemed effective one business day after deposit properly
addressed and prepaid for priority overnight delivery with a reputable
courier of national standing. If notice is given otherwise by personal
delivery, it shall deemed effective upon receipt.
16. SEVERABILITY
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, portions of such provisions, or such provisions in their
entirety, to the extent necessary, shall be severed from this Agreement, and the
balance of this Agreement shall be enforceable in accordance with its terms.
17. AMENDMENT AND WAIVER
Any provision of this Agreement may be amended with the written consent of
the Company and the Holders of at least fifty percent (50%) of the outstanding
shares of the Registrable Securities. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each Holder of Registrable
Securities and the Company. In addition, the Company may waive performance of
any obligation owing to it, as to some or all of the Holders of Registrable
Securities, or agree to accept alternatives to such performance, without
obtaining the consent of any Holder of Registrable Securities.
18. DELAYS OR OMISSIONS
No delay or omission to exercise any right, power or remedy accruing to any
party to this Agreement, upon any breach or default of the other party, shall
impair any such right, power or remedy of such non-breaching party nor shall it
be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be made in writing and
shall be effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement, or by law or otherwise afforded to
any holder, shall be cumulative and not alternative.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
EGGHEAD, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Chairman of the Board
and Chief Financial Officer
HOLDERS:
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇
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EXHIBIT A
SCHEDULE OF HOLDERS
Name and Address Number of Shares
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 1,675,824
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 318,614
▇▇▇▇▇▇▇ ▇. ▇▇▇▇ 1,717,202
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