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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
November 10, 1997
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Date of Report
(Date of earliest event reported)
EGGHEAD, INC.
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(Exact name of registrant as specified in its charter)
Washington 0-16930 91-1296187
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(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
22705 E. Mission Avenue
Liberty Lake, Washington 99019
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(Address of principal executive offices, including zip code)
(509) 922-7031
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(Registrant's telephone number, including area code)
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ITEM 2. DISPOSITION OF ASSETS
SALE OF MAJORITY INTEREST IN SUBSIDIARY
On November 10, 1997, Egghead, Inc. ("Egghead") recapitalized its
wholly-owned subsidiary, Elekom Corporation , a Washington corporation ("Elekom"
or the "Company"). In accordance with the terms of a Series B Preferred Stock
Purchase Agreement, Egghead and two venture capital firms, Hummer Winblad
Venture Partners ("Hummer") and Olympic Venture Partners ("OVP"), collectively
paid cash in the aggregate amount of $2.5 million to Elekom in exchange for an
aggregate 36,689,167 shares of Elekom Series B Preferred Stock. In connection
with the purchase, Hummer received a thirty percent (30%) interest in Elekom
and OVP received a twenty percent (20%) interest in Elekom, with Egghead
retaining a twenty-five percent (25%) interest.
In addition, in accordance with the terms of the Series A Preferred Stock
Exchange Agreement dated November 10, 1997, Egghead was issued 9,172,292 shares
of Series A Preferred Stock of Elekom as consideration for the cancellation of
the debt owed to Egghead by Elekom in the amount of $6,612,524.10. No other
Series A Preferred Stock was issued.
Elekom is a producer of advanced business-to-business electronic commerce
systems whose main product, ELEKOM Procurement, streamlines the procurement
process within large corporations. Elekom was incorporated on August 7, 1995
and prior to November 10, 1997, was wholly owned by Egghead. George P. Orban, a
director of Elekom who is also the Chief Executive Officer and Chairman of the
Board of Directors of Egghead, will remain on the Board of Directors of Elekom.
One of the venture capital firms purchasing shares in Elekom pursuant to this
transaction, OVP, is also a shareholder of Egghead.
SERIES A PREFERRED STOCK EXCHANGE AGREEMENT AND SERIES B PREFERRED STOCK
PURCHASE AGREEMENT
The Series A Preferred Stock Exchange Agreement and the Series B Preferred
Stock Purchase Agreement (collectively, the "Agreements"), and a press release
issued by Egghead to announce the recapitalization of Elekom, are filed as
exhibits to this report and are incorporated herein by reference. The
descriptions of the Agreements herein do not purport to be complete and are
qualified in their entirety by the provisions of the Agreements.
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The Egghead Common Shares are quoted on the Nasdaq National Market under
the trading symbol "EGGS."
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS
(a) Financial Statements
Not applicable.
(b) Pro Forma Financial Information
Not applicable.
(c) Exhibits
EXHIBIT DESCRIPTION
NUMBER
99.1 Series A Preferred Stock Exchange Agreement between Egghead, Inc.
and Elekom Corporation, dated as of November 10, 1997.
99.2 Series B Preferred Stock Purchase Agreement dated as of November
10, 1997, among Elekom Corporation, and the following investors:
Egghead, Inc.; Hummer Winblad Venture Partners III, L.P.; Hummer
Winblad Technology Fund III, L.P.; Olympic Venture Partners IV,
L.P.; and OVP Entrepreneurs Fund, L.P.
99.3 Press Release dated November 11, 1997.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Current Report on Form 8-K to be signed on its
behalf by the undersigned, thereunto duly authorized.
EGGHEAD, INC.
Dated: November 20, 1997 By /s/ George P. Orban
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George P. Orban, Chairman of the Board
and Chief Executive Officer
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
NUMBER
99.1 Series A Preferred Stock Exchange Agreement between Egghead, Inc.
and Elekom Corporation, dated as of November 10, 1997.
99.2 Series B Preferred Stock Purchase Agreement dated as of November
10, 1997, among Elekom Corporation, and the following investors:
Egghead, Inc.; Hummer Winblad Venture Partners III, L.P.; Hummer
Winblad Technology Fund III, L.P.; Olympic Venture Partners IV,
L.P.; and OVP Entrepreneurs Fund, L.P.
99.3 Press Release dated November 11, 1997.
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ELEKOM CORPORATION
SERIES A PREFERRED
STOCK EXCHANGE AGREEMENT
NOVEMBER 10, 1997
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TABLE OF CONTENTS
Page
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1. Issuance and Exchange of Stock . . . . . . . . . . . . . . . . . . . . .1
1.1 Issuance and Exchange of Series A Preferred Stock. . . . . . .1
1.2 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. Representations and Warranties of the Company. . . . . . . . . . . . . .2
2.1 Organization, Good Standing and Qualification. . . . . . . . .2
2.2 Capitalization and Voting Rights . . . . . . . . . . . . . . .2
2.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . .3
2.4 Authorization. . . . . . . . . . . . . . . . . . . . . . . . .3
2.5 Valid issuance of Preferred and Common Stock . . . . . . . . .3
2.6 Governmental Consents. . . . . . . . . . . . . . . . . . . . .3
2.7 Offering . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.8 Compliance with Other Instruments. . . . . . . . . . . . . . .4
3. Representations and Warranties of the Debt Holders . . . . . . . . . . .4
3.1 Authorization. . . . . . . . . . . . . . . . . . . . . . . . .4
3.2 Acquisition Entirely for Own Account . . . . . . . . . . . . .4
3.3 Disclosure of Information. . . . . . . . . . . . . . . . . . .5
3.4 Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . .5
3.5 Accredited Investor. . . . . . . . . . . . . . . . . . . . . .5
3.6 Restricted Securities. . . . . . . . . . . . . . . . . . . . .5
3.7 Further Limitations on Disposition . . . . . . . . . . . . . .5
3.8 Legends. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.9 Release of Indebtedness and Related Claims . . . . . . . . . .6
4. Conditions of Debt Holders' Obligations at Closing . . . . . . . . . . .7
4.1 Representations and Warranties . . . . . . . . . . . . . . . .7
4.2 Performance. . . . . . . . . . . . . . . . . . . . . . . . . .7
4.3 Investors' Rights Agreement. . . . . . . . . . . . . . . . . .7
4.4 Board of Directors . . . . . . . . . . . . . . . . . . . . . .7
5. Conditions of the Company's Obligations at Closing . . . . . . . . . . .7
5.1 Representations and Warranties . . . . . . . . . . . . . . . .7
5.2 Performance. . . . . . . . . . . . . . . . . . . . . . . . . .7
5.3 Qualifications . . . . . . . . . . . . . . . . . . . . . . . .7
6. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
6.1 Survival of Warranties . . . . . . . . . . . . . . . . . . . .7
6.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . .8
6.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . .8
6.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . .8
6.5 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . .8
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6.6 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . .8
6.7 Finder's Fee . . . . . . . . . . . . . . . . . . . . . . . . .8
6.8 Amendments and Waivers . . . . . . . . . . . . . . . . . . . .8
6.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . .9
6.10 Corporate Securities Law. . . . . . . . . . . . . . . . . . .9
6.11 Aggregation of Stock. . . . . . . . . . . . . . . . . . . . .9
6.12 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . .9
SCHEDULE A Schedule of Debt Holders
EXHIBIT A Restated Articles of Incorporation
EXHIBIT B Schedule of Exceptions
EXHIBIT C Investors' Rights Agreements
EXHIBIT D List of Shareholders
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ELEKOM CORPORATION
SERIES A PREFERRED STOCK EXCHANGE AGREEMENT
THIS STOCK EXCHANGE AGREEMENT is made as of the 10th of November,
1997, by and among Elekom Corporation, a Washington corporation (the "Company"),
and the holders of certain debt obligations of the Company, all of whom are
listed on SCHEDULE A hereto, each of which is herein referred to as a "Debt
Holder."
WHEREAS, the Board of Directors of the Company has deemed it advisable
and in the best interests of themselves and their respective shareholders that
the Company reacquire certain debt obligations of the Company in exchange for
shares of Series A Preferred Stock of the Company (the "Exchange");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements, the parties agree as set
forth below.
1. ISSUANCE AND EXCHANGE OF STOCK.
1.1 ISSUANCE AND EXCHANGE OF SERIES A PREFERRED STOCK.
(a) The Company shall adopt and file with the Secretary of State
of the state of Washington on or before the Closing (as defined below) the
Restated Articles of Incorporation in the form attached hereto as EXHIBIT A (the
"Restated Articles").
(b) On or prior to the Closing (as defined below), the Company
shall have authorized (i) the Exchange and (ii) the issuance of the shares of
Common Stock to be issued upon conversion of the Series A Preferred Stock (the
"Conversion Shares"). The Series A Preferred Stock and the Conversion Shares
shall have the rights, preferences, privileges and restrictions set forth in the
Restated Articles.
(c) Subject to the terms and conditions of this Agreement, each
Debt Holder agrees, to forgive and cancel the debt obligation in the amount set
forth opposite such Debt Holder's name on SCHEDULE A in exchange for that number
of shares of Series A Preferred Stock of the Company as provided on SCHEDULE A.
1.2 CLOSING. The Exchange shall take place at the offices of Perkins
Coie, 1201 3rd Avenue, 46th Floor, Seattle, WA 98101, at 10:00 A.M., on
November 10, 1997, or at such other time and place as the Company and Debt
Holders acquiring in the aggregate more than half the shares of Series A
Preferred Stock sold pursuant hereto mutually agree upon orally or in writing
(which time and place are designated as the "Closing"). At the Closing the
Company shall deliver to each Debt Holder a certificate representing the Series
A Preferred Stock that such Debt Holder is purchasing against payment of the
purchase price therefor by cancellation of existing indebtedness and surrender
of any evidence of such indebtedness and the execution of an instrument of
cancellation in form and substance acceptable to the Company.
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2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to each Debt Holder that, except as set forth on
a Schedule of Exceptions attached hereto as EXHIBIT B (the "Schedule of
Exceptions") and furnished to each Debt Holder and special counsel for the Debt
Holders, specifically identifying the relevant subparagraph hereof, which
exceptions shall be deemed to be representations and warranties as if made
hereunder:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized and validly existing under the laws of the state of
Washington and has all requisite corporate power and authority to carry on its
business as now conducted and as proposed to be conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
business or properties.
2.2 CAPITALIZATION AND VOTING RIGHTS. The authorized capital of the
Company consists, or will consist immediately prior to the Closing, of:
(a) PREFERRED STOCK. 47,000,000 shares of Preferred Stock, par
value $0.01 (the "Preferred Stock"), of which 10,000,000 shares have been
designated Series A Preferred Stock, none of which are issued and outstanding
and up to all of which may be sold pursuant to this Agreement, and 37,000,000 of
which have been designated as Series B Preferred Stock, up to all of which will
be sold pursuant to the Series B Preferred Stock Purchase Agreement to be
executed immediately following the Exchange. The rights, privileges and
preferences of the Series A Preferred Stock and Series B Preferred Stock will be
as stated in the Company's Restated Articles.
(b) COMMON STOCK. 63,000,000 shares of common stock, par value
$0.01 ("Common Stock"), of which 500 shares are issued and outstanding.
(c) The outstanding shares of Common Stock are owned by the
shareholders and in the numbers specified in EXHIBIT C hereto.
(d) The outstanding shares of Common Stock are all duly and
validly authorized and issued, fully paid and nonassessable, and were issued in
accordance with the registration or qualification provisions of the Securities
Act of 1933, as amended (the "Act") and any relevant state securities laws, or
pursuant to valid exemptions therefrom.
(e) Except for (A) the conversion privileges of the Series A
Preferred Stock, and the Series B Preferred Stock to be issued under this
Agreement, (B) the rights provided in Section 2.4 of the Investors' Rights
Agreement and (C) currently outstanding options to purchase 556,331 shares of
Common Stock granted to employees and other service providers pursuant to the
Company's 1996 Stock Option Plan (the "Option Plan"), there are not outstanding
any options, warrants, rights (including conversion or preemptive rights) or
agreements for the purchase or acquisition from the Company of any shares of its
capital stock. In addition to the aforementioned options, the Company has
reserved an additional 14,730,322 shares of its Common Stock for purchase upon
exercise of options to be granted in
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the future under the Option Plan. The Company is not a party or subject to any
agreement or understanding, and, to the best of the Company's knowledge, except
as contemplated hereby, there is no agreement or understanding between any
persons and/or entities, which affects or relates to the voting or giving of
written consents with respect to any security or by a director of the Company.
2.3 SUBSIDIARIES. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any joint venture,
partnership, or similar arrangement.
2.4 AUTHORIZATION. All corporate action on the part of the Company,
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement and the Investors' Rights Agreement,
the performance of all obligations of the Company hereunder and thereunder, and
the authorization, issuance (or reservation for issuance), sale and delivery of
the Series A Preferred Stock being sold hereunder and the Common Stock issuable
upon conversion of the Series A Preferred Stock has been taken or will be taken
prior to the Closing, and this Agreement and the Investors' Rights Agreement
constitute valid and legally binding obligations of the Company, enforceable in
accordance with their respective terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, and (iii) to the extent the indemnification
provisions contained in the Investors' Rights Agreement may be limited by
applicable federal or state securities laws.
2.5 VALID ISSUANCE OF PREFERRED AND COMMON STOCK. The Series A
Preferred Stock that is being acquired by the Debt Holders hereunder, when
issued, exchanged and delivered in accordance with the terms of this Agreement
for the consideration expressed herein, will be duly and validly issued, fully
paid, and nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and the Investors' Rights
Agreement and under applicable state and federal securities laws. The Common
Stock issuable upon conversion of the Series A Preferred Stock acquired under
this Agreement has been duly and validly reserved for issuance and, upon
issuance in accordance with the terms of the Restated Articles, will be duly and
validly issued, fully paid, and nonassessable and will be free of restrictions
on transfer other than restrictions on transfer under this Agreement and the
Investors' Rights Agreement and under applicable state and federal securities
laws.
2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except (i) the filing of the Restated Articles
with the Secretary of the state of Washington, or (ii) such post-closing filings
as may be required.
2.7 OFFERING. Subject in part to the truth and accuracy of each Debt
Holder's representations set forth in Section 3 of this Agreement, the offer,
sale and issuance of the Series
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A Preferred Stock as contemplated by this Agreement are exempt from the
registration requirements of any applicable state and federal securities laws,
and neither the Company nor any authorized agent acting on its behalf will take
any action hereafter that would cause the loss of such exemption.
2.8 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default in any material respect of any provision of its Restated
Articles or Bylaws, or in any material respect of any instrument, judgment,
order, writ, decree or contract to which it is a party or by which it is bound,
or, to the best of its knowledge, of any provision of any federal or state
statute, rule or regulation applicable to the Company which violation or default
would have a material adverse effect on the business or properties of the
Company. The execution, delivery and performance of this Agreement, the
Investors' Rights Agreement, and the consummation of the transactions
contemplated hereby and thereby will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving of
notice, either a default under any such provision, instrument, judgment, order,
writ, decree or contract or an event that results in the creation of any lien,
charge or encumbrance upon any assets of the Company or the suspension,
revocation, impairment, forfeiture, or nonrenewal of any material permit,
license, authorization, or approval applicable to the Company, its business or
operations or any of its assets or properties.
3. REPRESENTATIONS AND WARRANTIES OF THE DEBT HOLDERS. The Company
is relying in part upon the Debt Holder's representations and warranties set
forth in this Section 3 for the purpose of qualifying for applicable exemptions
from registration or qualification pursuant to federal and state securities laws
and regulations. Each Debt Holder hereby represents and warrants that:
3.1 AUTHORIZATION. Such Debt Holder has full power and authority to
enter into this Agreement and the Investors' Rights Agreement, and each such
Agreement constitutes its valid and legally binding obligation, enforceable in
accordance with its terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, and (iii) to the extent the indemnification provisions
contained in the Investors' Rights Agreement may be limited by applicable
federal or state securities laws. The execution, delivery and performance of
this Agreement and the Investors' Rights Agreement and the consummation of the
transactions contemplated hereby and thereby (including the ownership of the
Series A Preferred Stock ) by such Debt Holder does not violate any provision
of, or constitute a material breach of or default under any term, condition or
provision of any agreement, indenture or other instrument to which such Debt
Holder is a party, or by which it or its properties or assets are bound, or of
any order, judgment or decree against or binding upon such Investor.
3.2 ACQUISITION ENTIRELY FOR OWN ACCOUNT. This Agreement is made
with such Debt Holder in reliance upon such Debt Holder's representation to the
Company, which by such Debt Holder's execution of this Agreement such Debt
Holder hereby confirms, that the Series A Preferred Stock to be received by such
Debt Holder and the Common Stock issuable
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upon conversion thereof (collectively, the "Securities") will be acquired for
investment for such Debt Holder's own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof, and that such
Debt Holder has no present intention of selling, granting any participation in,
or otherwise distributing the same. By executing this Agreement, such Debt
Holder further represents that such Debt Holder does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities.
3.3 DISCLOSURE OF INFORMATION. Such Debt Holder believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Series A Preferred Stock. Such Debt Holder further
represents that it has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the
Series A Preferred Stock and the business, properties, prospects and financial
condition of the Company. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 2 of this Agreement or
the right of the Debt Holders to rely thereon.
3.4 DUE DILIGENCE. Debt Holder has been solely responsible for its
own due diligence investigation of the Company and its business, and its
analysis of the merits and risks of the investment made pursuant to this
Agreement, and is not relaying on anyone else's analysis or investigation of the
merits and risks of the Series A Preferred Stock, other than professional
advisors employed specifically by Debt Holder to assist Debt Holder. In taking
any action or performing any role relative to arranging the investments being
made pursuant to this Agreement, Debt Holder has acted solely in its own
interest. The foregoing, however, does not limit or modify the representations
and warranties of the Company in Section 2 of this Agreement or the right of the
Debt Holder to rely thereon.
3.5 ACCREDITED INVESTOR. Such Debt Holder is an "accredited
investor" within the meaning of Securities and Exchange Commission ("SEC") Rule
501 of Regulation D, as presently in effect.
3.6 RESTRICTED SECURITIES. Such Debt Holder understands that the
Securities it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act, only in certain limited circumstances. In this connection, such Debt
Holder represents that it is familiar with SEC Rule 144, as presently in effect,
and understands the resale limitations imposed thereby and by the Act.
3.7 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
the representations set forth above, such Debt Holder further agrees not to make
any disposition of all or any portion of the Securities unless and until:
(a) There is then in effect a Registration Statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
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(b) (i) Such Debt Holder shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, such Debt Holder shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company that
such disposition will not require registration of such shares under the Act. It
is agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances.
(c) Notwithstanding the provisions of Paragraphs (a) and (b)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by an Debt Holder that is a partnership to a partner of such
partnership or a retired partner of such partnership who retires after the date
hereof, or to the estate of any such partner or retired partner or the transfer
by gift, will or intestate succession of any partner to his or her spouse or to
the siblings, lineal descendants or ancestors of such partner or his or her
spouse, if the transferee agrees in writing to be subject to the terms hereof to
the same extent as if he or she were an original Debt Holder hereunder.
3.8 LEGENDS. It is understood that the certificates evidencing the
Securities may bear the following legend:
"These securities have not been registered under the Securities
Act of 1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required or unless sold pursuant to Rule
144 of such Act."
3.9 RELEASE OF INDEBTEDNESS AND RELATED CLAIMS. Debt Holder
acknowledges that the Series A Preferred Stock to be received by Debt Holder in
the Exchange has an aggregate value equal to the debt owed by the Company to
Debt Holder, or any entity affiliated with Debt Holder, that any evidence of
such debt is hereby canceled, and agrees to forever fully release, remise,
acquit and discharge the Company and its successors, assigns, agents,
predecessors, related companies and partnerships, officers, directors, members,
general and limited partners, attorneys, investors and employees (collectively,
the "Released Parties") from any further obligation to repay any amount of money
that has been loaned or advanced to the Company by Debt Holder, or any entity
affiliated with Debt Holder, up to and including the date hereof, and covenants
not to sue or otherwise institute or cause to be instituted or any way
participate in or advance legal or administrative proceedings against the
Released Parties with respect to any matter arising out of or connected with any
prior debt obligations or advances from Debt Holders, or any entity affiliated
with Debt Holder, to the Company or the cancellation pursuant to this Agreement
of any repayment obligations created thereby, including any and all liabilities,
claims, demands, contracts, debts, obligations and causes of action of every
nature, kind and description, in law, equity, or otherwise, whether or not now
known or ascertained, which heretofore do or may exist; provided, that nothing
contained herein shall release the Company from any claims arising from any
breach by the Company of its obligations under this
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Agreement. Notwithstanding the foregoing, the Company acknowledges that the
Company shall be responsible for payments under the master lease with COMDISCO,
Inc. after the Closing.
4.0 CONDITIONS OF DEBT HOLDERS' OBLIGATIONS AT CLOSING. The
obligations of each Debt Holder under subsection 1.1(b) of this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions, the waiver of which shall not be effective against any Debt Holder
who does not consent thereto:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
4.2 PERFORMANCE. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
4.3 INVESTORS' RIGHTS AGREEMENT. The Company and each Debt Holder
shall have entered into the Investors' Rights Agreement in the form attached as
EXHIBIT C.
4.4 BOARD OF DIRECTORS. The directors of the Company shall consist
of George Orban, John Hummer, Bill Gurley and there shall be two vacancies.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to each Debt Holder under this Agreement are subject
to the fulfillment on or before the Closing of each of the following conditions
by that Debt Holder:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Debt Holders contained in Section 3 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
5.2 PERFORMANCE. The Debt Holders shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by them on or before the Closing.
5.3 QUALIFICATIONS. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be duly obtained and effective
as of the Closing.
6. MISCELLANEOUS.
6.1 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants of the Company and Debt Holders contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Debt Holders or the Company. Debt
Holder represents that as of the date hereof it has no knowledge of any fact
that
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it believes would constitute a material breach by the Company of any
representations, warranties or covenants made in this Agreement or the
Investors' Rights Agreement. The foregoing, however, does not limit or modify
the representations and warranties of the Company in Section 2 of this Agreement
or the right of the Debt Holders to rely thereon.
6.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any Securities). Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
6.3 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the state of Washington as applied to agreements
among Washington residents entered into and to be performed entirely within
Washington.
6.4 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.
6.5 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.6 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
6.7 FINDER'S FEE. Each party represents that it neither is nor will
be obligated for any finders' fee or commission in connection with this
transaction. Each Debt Holder agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Debt Holder or any of its officers, partners,
employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless each Debt Holder
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Company or any of its officers, employees or
representatives is responsible.
6.8 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the
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Company and the holders of a majority of the Common Stock issuable or issued
upon conversion of the Series A Preferred Stock. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any securities acquired under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company.
6.9 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
6.10 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES THAT ARE
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
DEBT HOLDER HAS BEEN ADVISED, PRIOR TO ITS PURCHASE OF THE SECURITIES
TO BE PURCHASED PURSUANT HERETO, THAT NEITHER THE OFFERING OF SUCH SECURITIES
NOR ANY OFFERING MATERIALS HAVE BEEN REVIEWED BY ANY ADMINISTRATOR UNDER THE
ACT, THE WASHINGTON STATE SECURITIES ACT OR ANY OTHER APPLICABLE SECURITIES ACT
(THE "ACTS") AND THAT SUCH SECURITIES HAVE NOT BEEN REGISTERED UNDER ANY OF THE
ACTS AND THEREFORE CANNOT BE RESOLD UNLESS REGISTERED UNDER THE ACTS OR UNLESS
AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
6.11 AGGREGATION OF STOCK. All shares of the Preferred Stock held or
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
6.12 ENTIRE AGREEMENT. This Agreement and the documents referred to
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY
By: /s/ Kirk W. Lockhart
----------------------------------
Kirk W. Lockhart, President
Address: 500-108th Avenue, Suite 1400
Bellevue, WA 98004
<PAGE>
DEBTHOLDER:
EGGHEAD, INC.
By: /s/ George P. Orban
----------------------------------
George P. Orban
Chief Executive Officer
Address 22705 East Mission
Liberty Lake, WA 99019
<PAGE>
SCHEDULE A
----------
SCHEDULE OF DEBT HOLDERS
------------------------
NUMBER OF
NAME AND ADDRESS SHARES ACQUIRED TOTAL CANCELED DEBT
---------------- --------------- -------------------
Egghead, Inc. 9,172,292 $6,612,524.10
S-1
<PAGE>
ELEKOM CORPORATION
SERIES B PREFERRED
STOCK PURCHASE AGREEMENT
NOVEMBER 10, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
1. Purchase and Sale or Stock . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Sale and Issuance of Series B Preferred Stock. . . . . . . . .1
1.2 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.3 Subsequent Sale of Series B Preferred Stock. . . . . . . . . .1
2. Representations and Warranties of the Company. . . . . . . . . . . . . .2
2.1 Organization, Good Standing and Qualification. . . . . . . . .2
2.2 Capitalization and Voting Rights . . . . . . . . . . . . . . .2
2.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . .3
2.4 Authorization. . . . . . . . . . . . . . . . . . . . . . . . .3
2.5 Valid issuance of Preferred and Common Stock . . . . . . . . .3
2.6 Governmental Consents. . . . . . . . . . . . . . . . . . . . .3
2.7 Offering . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.8 Returns and Complaints . . . . . . . . . . . . . . . . . . . .4
2.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.10 Proprietary Information and Stock Option Letter Agreements. .4
2.11 Patents and Trademarks. . . . . . . . . . . . . . . . . . . .4
2.12 Compliance with Other Instruments . . . . . . . . . . . . . .5
2.13 Agreements; Action. . . . . . . . . . . . . . . . . . . . . .5
2.14 Related Party Transactions. . . . . . . . . . . . . . . . . .6
2.15 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . .7
2.16 Environmental and Safety Laws . . . . . . . . . . . . . . . .7
2.17 Manufacturing and Marketing Rights. . . . . . . . . . . . . .7
2.18 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . .7
2.19 Business Plan . . . . . . . . . . . . . . . . . . . . . . . .7
2.20 Registration Rights . . . . . . . . . . . . . . . . . . . . .7
2.21 Corporate Documents . . . . . . . . . . . . . . . . . . . . .7
2.22 Title to Property and Assets. . . . . . . . . . . . . . . . .8
2.23 Financial Statements. . . . . . . . . . . . . . . . . . . . .8
2.24 Changes . . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.25 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . .9
2.26 Tax Returns, Payments and Elections . . . . . . . . . . . . 10
2.27 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.28 Minute Books. . . . . . . . . . . . . . . . . . . . . . . . 10
2.29 Labor Agreements and Actions; Employee Compensation . . . . 10
2.30 Real Property Holding Company . . . . . . . . . . . . . . . 11
2.31 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.32 Significant Customers and Suppliers . . . . . . . . . . . . 11
3. Representations and Warranties of the Investors. . . . . . . . . . . . 11
3.1 Authorization. . . . . . . . . . . . . . . . . . . . . . . . 11
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3.2 Purchase Entirely for Own Account. . . . . . . . . . . . . . 12
3.3 Disclosure of Information. . . . . . . . . . . . . . . . . . 12
3.4 Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . 12
3.5 Investment Experience. . . . . . . . . . . . . . . . . . . . 12
3.6 Accredited Investor. . . . . . . . . . . . . . . . . . . . . 12
3.7 Restricted Securities. . . . . . . . . . . . . . . . . . . . 13
3.8 Further Limitations on Disposition . . . . . . . . . . . . . 13
3.9 Legends. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4. Conditions of Investors' Obligations at Closing. . . . . . . . . . . . 14
4.1 Representations and Warranties . . . . . . . . . . . . . . . 14
4.2 Performance. . . . . . . . . . . . . . . . . . . . . . . . . 14
4.3 Compliance Certificate . . . . . . . . . . . . . . . . . . . 14
4.4 Qualifications . . . . . . . . . . . . . . . . . . . . . . . 14
4.5 Proceedings and Documents. . . . . . . . . . . . . . . . . . 14
4.6 Proprietary Information and Employee Stock Purchase
Agreements . . . . . . . . . . . . . . . . . . . . . . . . .14
4.7 Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.8 Board of Directors . . . . . . . . . . . . . . . . . . . . . 15
4.9 Opinion of Company Counsel . . . . . . . . . . . . . . . . . 15
4.10 Investors' Rights Agreement . . . . . . . . . . . . . . . . 15
4.11 Conversion of Outstanding Debt. . . . . . . . . . . . . . . 15
5. Conditions of the Company's Obligations at Closing . . . . . . . . . . 15
5.1 Representations and Warranties . . . . . . . . . . . . . . . 15
5.2 Payment of Purchase Price. . . . . . . . . . . . . . . . . . 15
5.3 Qualifications . . . . . . . . . . . . . . . . . . . . . . . 15
6. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.1 Survival of Warranties . . . . . . . . . . . . . . . . . . . 15
6.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . 15
6.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . 16
6.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 16
6.5 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . 16
6.6 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.7 Finder's Fee . . . . . . . . . . . . . . . . . . . . . . . . 16
6.8 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.9 Amendments and Waivers . . . . . . . . . . . . . . . . . . . 16
6.10 Severability. . . . . . . . . . . . . . . . . . . . . . . . 17
6.11 Corporate Securities Law. . . . . . . . . . . . . . . . . . 17
6.12 Aggregation of Stock. . . . . . . . . . . . . . . . . . . . 17
6.13 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . 17
SCHEDULE A Schedule of Investors
EXHIBIT A Restated Articles of Incorporation
ii
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EXHIBIT B Investors' Rights Agreements
EXHIBIT C Schedule of Exceptions
EXHIBIT D List of Shareholders
EXHIBIT E Opinion of Counsel for the Company
iii
<PAGE>
ELEKOM CORPORATION
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the 10th day of November,
1997, by and among Elekom Corporation, a Washington corporation (the "Company"),
and the investors listed on Schedule A hereto, each of which is herein referred
to as an "Investor."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF SERIES B PREFERRED STOCK.
(a) The Company shall adopt and file with the Secretary of the
State of the state of Washington on or before the Closing (as defined below) the
Restated Articles of Incorporation with the designation of the Series A
Convertible Preferred Stock (the "Series A Preferred Stock") and Series B
Convertible Preferred Stock (the "Series B Preferred Stock") in the form
attached hereto as EXHIBIT A (the "Restated Articles").
(b) On or prior to the Closing (as defined below), the Company
shall have authorized (i) the sale and issuance to the Investors of the Series B
Preferred Stock and (ii) the reservation of the shares of Common Stock to be
issued upon conversion of the Series B Preferred Stock (the "Conversion
Shares"). The Series A Preferred Stock and the Series B Preferred Stock and the
Conversion Shares shall have the rights, preferences, privileges and
restrictions set forth in the Restated Articles.
(c) Subject to the terms and conditions of this Agreement, each
Investor agrees, severally and not jointly, to purchase at the Closing or
pursuant to Section 1.3 and the Company agrees to sell and issue to each
Investor at the Closing or pursuant to Section 1.3, that number of shares of the
Company's Series B Preferred Stock set forth opposite such Investor's name on
SCHEDULE A hereto for the purchase price set forth thereon.
1.2 CLOSING. The purchase and sale of the Series B Preferred Stock
shall take place at the offices of Perkins Coie, 1201 3rd Avenue, 46th Floor,
Seattle, WA 98101, at 10:00 A.M., on November 10, 1997, or at such other time
and place as the Company and Investors acquiring in the aggregate more than half
the shares of Series B Preferred Stock sold pursuant hereto mutually agree upon
orally or in writing (which time and place are designated as the "Closing"). At
the Closing the Company shall deliver to each Investor a certificate
representing the Series B Preferred Stock that such Investor is purchasing
against payment of the purchase price therefor by check, wire transfer,
cancellation of indebtedness, or any combination thereof.
1.3 SUBSEQUENT SALE OF SERIES B PREFERRED STOCK. The Company may
sell up to the balance of the authorized number of shares of Series B Preferred
Stock not sold at the Closing to any Investor that did not purchase that number
of shares of Series B Preferred Stock
1
<PAGE>
set forth opposite such Investor's name on SCHEDULE A, at a price not less than
$0.06814 per share, provided the agreement for sale is executed not later than
November 30, 1997. Any such Investor shall become a party to this Agreement and
that certain Investors' Rights Agreement dated November 10, 1997, by and among
the Company and the Investors, the form of which is attached hereto as EXHIBIT B
(the "Investors' Rights Agreement") and shall have the rights and obligations
hereunder and thereunder, unless such Investor enters into an acquisition
agreement that provides otherwise.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to each Investor that, except as set forth on a
Schedule of Exceptions which is attached as EXHIBIT C hereto (the "Schedule of
Exceptions") and furnished to each Investor and special counsel for the
Investors, specifically identifying the relevant subparagraph hereof, which
exceptions shall be deemed to be representations and warranties as if made
hereunder:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized and validly existing under the laws of the state of
Washington and has all requisite corporate power and authority to carry on its
business as now conducted and as proposed to be conducted. The Company is duly
qualified to transact business and is in good standing, or the local equivalent
thereof, in each jurisdiction in which the failure to so qualify would have a
material adverse effect on its business or properties.
2.2 CAPITALIZATION AND VOTING RIGHTS. The authorized capital of the
Company consists, or will consist immediately prior to the Closing, of:
(a) PREFERRED STOCK. 47,000,000 shares of Preferred Stock, par
value $0.01 (the "Preferred Stock"), of which 10,000,000 shares have been
designated Series A Preferred Stock, 9,172,292 of which are issued and
outstanding, and 37,000,000 of which have been designated as Series B Preferred
Stock, up to all of which will be sold pursuant to this Agreement. The rights,
privileges and preferences of the Series A Preferred Stock and Series B
Preferred Stock will be as stated in the Company's Restated Articles.
(b) COMMON STOCK. 63,000,000 shares of common stock, par value
$0.01 ("Common Stock"), of which 500 are issued and outstanding.
(c) The outstanding shares of Common Stock and the Series A
Preferred Stock are owned by the shareholders and in the numbers specified in
EXHIBIT C hereto.
(d) The outstanding shares of Common Stock are all duly and
validly authorized and issued, fully paid and nonassessable, and were issued in
accordance with the registration or qualification provisions of the Securities
Act of 1933, as amended (the "Act") and any relevant state securities laws, or
pursuant to valid exemptions therefrom.
(e) Except for (A) the conversion privileges of the Series A
Preferred Stock, and the Series B Preferred Stock to be issued under this
Agreement, (B) the rights provided in Section 2.4 of the Investors' Rights
Agreement and (C) currently outstanding options
2
<PAGE>
to purchase 556,331 shares of Common Stock granted to employees and other
service providers pursuant to the Company's 1996 Stock Option Plan (the "Option
Plan"), there are not outstanding any options, warrants, rights (including
conversion or preemptive rights) or agreements for the purchase or acquisition
from the Company of any shares of its capital stock. In addition to the
aforementioned options, the Company has reserved an additional 14,730,322 shares
of its Common Stock for purchase upon exercise of options to be granted in the
future under the Option Plan. The Company is not a party or subject to any
agreement or understanding, and, to the best of the Company's knowledge, except
as contemplated hereby, there is no agreement or understanding between any
persons and/or entities, which affects or relates to the voting or giving of
written consents with respect to any security or by a director of the Company.
2.3 SUBSIDIARIES. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any joint venture,
partnership, or similar arrangement.
2.4 AUTHORIZATION. All corporate action on the part of the Company,
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement and the Investors' Rights Agreement,
the performance of all obligations of the Company hereunder and thereunder, and
the authorization, issuance (or reservation for issuance), sale and delivery of
the Series B Preferred Stock being sold hereunder and the Common Stock issuable
upon conversion of the Series B Preferred Stock has been taken or will be taken
prior to the Closing, and this Agreement and the Investors' Rights Agreement
constitute valid and legally binding obligations of the Company, enforceable in
accordance with their respective terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, and (iii) to the extent the indemnification
provisions contained in the Investors' Rights Agreement may be limited by
applicable federal or state securities laws.
2.5 VALID ISSUANCE OF PREFERRED AND COMMON STOCK. The Series B
Preferred Stock that is being purchased by the Investors hereunder, when issued,
sold and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and the Investors' Rights
Agreement and under applicable state and federal securities laws. The Common
Stock issuable upon conversion of the Series B Preferred Stock purchased under
this Agreement has been duly and validly reserved for issuance and, upon
issuance in accordance with the terms of the Restated Articles, will be duly and
validly issued, fully paid, and nonassessable and will be free of restrictions
on transfer other than restrictions on transfer under this Agreement and the
Investors' Rights Agreement and under applicable state and federal securities
laws.
2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the
3
<PAGE>
consummation of the transactions contemplated by this Agreement, except (i) the
filing of the Restated Articles with the Secretary of State of the state of
Washington, or (ii) such post-closing filings as may be required.
2.7 OFFERING. Subject in part to the truth and accuracy of each
Investor's representations set forth in Section 3 of this Agreement, the offer,
sale and issuance of the Series B Preferred Stock as contemplated by this
Agreement are exempt from the registration requirements of any applicable state
and federal securities laws, and neither the Company nor any authorized agent
acting on its behalf will take any action hereafter that would cause the loss of
such exemption.
2.8 RETURNS AND COMPLAINTS. The Company has received no material
customer complaints concerning its products and/or services, nor has it had any
of its products returned by a purchaser thereof, other than minor, nonrecurring
warranty problems.
2.9 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, threatened against the
Company that questions the validity of this Agreement or the Investors' Rights
Agreement or the right of the Company to enter into such agreements, or to
consummate the transactions contemplated hereby or thereby, or that might
result, either individually or in the aggregate, in any material adverse changes
in the assets, condition, affairs or prospects of the Company, financially or
otherwise, or any change in the current equity ownership of the Company, nor is
the Company aware that there is any basis for the foregoing. The foregoing
includes, without limitation, actions, suits, proceedings or investigations
pending or threatened (or any reasonable basis therefor known to the Company)
involving the prior employment of any of the Company's employees, their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. The Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. Except as set forth in
Schedule 2.9 of the Schedule of Exceptions, there is no action, suit, proceeding
or investigation by the Company currently pending or that the Company intends to
initiate.
2.10 PROPRIETARY INFORMATION AND STOCK OPTION LETTER AGREEMENTS. Each
employee, officer and consultant of the Company has executed a Proprietary
Information and Inventions Agreement and, with respect to each employee that has
received an option grant, a Stock Option Letter Agreement in the forms provided
to special counsel to the Investors. The Company is not aware that any of its
employees, officers or consultants are in violation thereof, and the Company
will use its diligent efforts to prevent any such violation.
2.11 PATENTS AND TRADEMARKS. The Company has sufficient title and
ownership of or licenses to all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
necessary for its business as now conducted and as proposed to be conducted
without any conflict with or infringement of the rights of others. Except as
set forth in Schedule 2.11 of the Schedule of Exceptions, there are no
outstanding options, licenses, or agreements of any kind relating to the
foregoing, nor is the Company bound
4
<PAGE>
by or a party to any options, licenses or agreements of any kind with respect to
the patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, proprietary rights and processes of any other person or
entity, except, in either case, for standard end-user, object code, internal-use
software license and support/maintenance agreements. Except as set forth in
Schedule 2.11 of the Schedule of Exceptions, the Company has not received any
communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary rights of
any other person or entity. The Company is not aware that any of its employees
is obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his or
her best efforts to promote the interests of the Company or that would conflict
with the Company's business as proposed to be conducted. Neither the execution
nor delivery of this Agreement or the Investors' Rights Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business as proposed, will, to the best of the
Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. The
Company does not believe it is or will be necessary to utilize in the conduct of
its business as currently contemplated, any inventions of any of its employees
(or people it currently intends to hire) made prior to or outside the scope of
their employment by the Company.
2.12 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default in any material respect of any provision of its Restated
Articles or Bylaws, or in any material respect of any instrument, judgment,
order, writ, decree or contract to which it is a party or by which it is bound,
or, to the best of its knowledge, of any provision of any federal or state
statute, rule or regulation applicable to the Company which violation or default
would have a material adverse affect on the business or properties of the
Company. The execution, delivery and performance of this Agreement, the
Investors' Rights Agreement, and the consummation of the transactions
contemplated hereby and thereby will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving of
notice, either a default under any such provision, instrument, judgment, order,
writ, decree or contract or an event that results in the creation of any
material lien, charge or encumbrance upon any assets of the Company or the
suspension, revocation, impairment, forfeiture, or nonrenewal of any material
permit, license, authorization, or approval applicable to the Company, its
business or operations or any of its assets or properties.
2.13 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated hereby and by
the Investors' Rights Agreement, there are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors,
affiliates, or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or by
5
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which it is bound that may involve (i) obligations (contingent or otherwise) of,
or payments to the Company in excess of, $20,000, or (ii) the license of any
patent, copyright, trade secret or other proprietary right to or from the
Company (other than the license of the Company's software and products in the
ordinary course of business), (iii) provisions restricting or affecting the
development, manufacture or distribution of the Company's products or services,
or (iv) indemnification by the Company with respect to infringements of
proprietary rights.
(c) The Company has not (i) declared or paid any dividends or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities individually in excess of $20,000 or, in the case of
indebtedness and/or liabilities individually less than $20,000, in excess of
$50,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Restated Articles or Bylaws that materially adversely affects its business as
now conducted or as proposed to be conducted, its properties or its financial
condition.
(f) The Company has not engaged in the past three (3) months in
any discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company or a
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of the Company is disposed of, or (iii) regarding any
other form of acquisition, liquidation, dissolution or winding up of the
Company.
2.14 RELATED-PARTY TRANSACTIONS. No employee, officer, or director of
the Company or member of his or her immediate family is indebted to the Company,
nor is the Company indebted (or committed to make loans or extend or guarantee
credit) to any of them. Except as set forth in Schedule 2.14 of the Schedule of
Exceptions, to the best of the Company's knowledge, none of such persons has any
direct or indirect ownership interest in any firm or corporation with which the
Company is affiliated or with which the Company has a business relationship, or
any firm or corporation that competes with the Company, except that employees,
officers, or directors of the Company and members of their immediate families
may own stock in publicly traded companies that may compete with the Company.
No member of the immediate
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family of any officer or director of the Company is directly or indirectly
interested in any material contract with the Company.
2.15 PERMITS. The Company has all franchises, permits, licenses, and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company, and the
Company believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted. The
Company is not in default in any material respect under any of such franchises,
permits, licenses, or other similar authority.
2.16 ENVIRONMENTAL AND SAFETY LAWS. To the best of its knowledge,
the Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
2.17 MANUFACTURING AND MARKETING RIGHTS. The Company has not granted
rights to manufacture, produce, assemble, license, market, or sell its products
to any other person and is not bound by any agreement that affects the Company's
exclusive right to develop, manufacture, assemble, distribute, market or sell
its products.
2.18 DISCLOSURE. The Company has provided each Investor with all the
information in its possession that such Investor has requested for deciding
whether to purchase the Series B Preferred Stock. Neither this Agreement, the
Investors' Rights Agreement, nor any other statements or certificates made or
delivered in connection herewith or therewith contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
herein or therein not misleading in light of the circumstances in which they
were made as of the date hereof.
2.19 BUSINESS PLAN. Except as set forth in Section 2.19 of the
Schedule of Exceptions, the Business Plan dated October 1997, previously
delivered to each Investor has been prepared in good faith by the Company and
does not contain any untrue statement of a material fact nor does it omit to
state a material fact necessary to make the statements made therein not
misleading in light of the circumstances in which they were made as of the date
hereof, except that with respect to projections contained in the Business Plan,
the Company represents only that such projections were prepared in good faith
and that the Company reasonably believes there is a reasonable basis for such
projections.
2.20 REGISTRATION RIGHTS. Except as provided in the Investors'
Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
2.21 CORPORATE DOCUMENTS. Except for amendments necessary to satisfy
representations and warranties or conditions contained herein (the form of which
amendments
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has been approved by the Investors), the Restated Articles and Bylaws of the
Company are in the form previously provided to special counsel for the
Investors.
2.22 TITLE TO PROPERTY AND ASSETS. The Company owns its property and
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens that arise in the ordinary course of business and do
not materially impair the Company's ownership or use of such property or assets.
With respect to the property and assets it leases (through its parent in the
case of property), the Company is in compliance with such leases in all material
respects and, to the best of its knowledge, holds a valid leasehold interest
free of any liens, claims or encumbrances.
2.23 FINANCIAL STATEMENTS. The Company has delivered to each
Investor its unaudited financial statements (balance sheet and statement of
operations) as at and for the nine-month period ended September 30, 1997 (the
"Financial Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated and with each other, except that the
unaudited Financial Statements may not contain all footnotes required by
generally accepted accounting principles. The Financial Statements fairly
present the financial condition and operating results of the Company as of the
dates, and for the periods, indicated therein, subject in the case of the
unaudited Financial Statements to normal year-end audit adjustments. Except as
set forth in the Financial Statements, the Company has no material liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to September 30, 1997 and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in the
Financial Statements, which, in both cases, individually or in the aggregate,
are not material to the financial condition or operating results of the Company.
Except as disclosed in the Financial Statements, the Company is not a guarantor
or indemnitor of any indebtedness of any other person, firm or corporation. The
Company maintains and will continue to maintain a standard system of accounting
established and administered in accordance with generally accepted accounting
principles.
2.24 CHANGES. Since September 30, 1997 there has not been:
(a) except as set forth in Section 2.24(a) of the Schedule of
Exceptions, any change in the assets, liabilities, financial condition or
operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results, or business of the Company (as such business is
presently conducted and as it is proposed to be conducted);
(c) any waiver by the Company of a valuable right or of a
material debt owed to it;
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(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the assets, properties, financial
condition, operating results or business of the Company (as such business is
presently conducted and as it is proposed to be conducted);
(e) any material change or amendment to a material contract or
arrangement by which the Company or any of its assets or properties is bound or
subject;
(f) any material change in any compensation arrangement or
agreement with any employee;
(g) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(h) except as set forth in Schedule 2.24(h) of the Schedule of
Exceptions, any resignation or termination of employment of any key officer of
the Company; and the Company, to the best of its knowledge, does not know of the
impending resignation or termination of employment of any such officer;
(i) receipt of notice that there has been a loss of, or
material order cancellation by, any major customer of the Company;
(j) any mortgage, pledge, transfer of a security interest in,
or lien, created by the Company, with respect to any of its material properties
or assets, except liens for taxes not yet due or payable;
(k) any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(l) except as set forth in Schedule 2.24(l) of the Schedule of
Exceptions, any declaration, setting aside or payment or other distribution in
respect of any of the Company's capital stock, or any direct or indirect
redemption, purchase or other acquisition of any of such stock by the Company;
(m) to the best of the Company's knowledge, any other event or
condition of any character that might materially and adversely affect the
assets, properties, financial condition, operating results or business of the
Company (as such business is presently conducted and as it is proposed to be
conducted); or
(n) any agreement or commitment by the Company to do any of the
things described in this Section 2.24.
2.25 EMPLOYEE BENEFIT PLANS. The Company does not have any Employee
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.
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2.26 TAX RETURNS, PAYMENTS AND ELECTIONS. The Company has filed all
tax returns and reports (including information returns and reports) as required
by law. These returns and reports are true and correct in all material
respects. The Company has paid all taxes and other assessments due, except
those contested by it in good faith, if any, that are listed in Schedule 2.26 of
the Schedule of Exceptions. The provision for taxes of the Company as shown in
the Financial Statements is adequate for taxes due or accrued as of the date
thereof. The Company has not elected pursuant to the Internal Revenue Code of
1986, as amended (the "Code"), to be treated as a Subchapter S corporation or a
collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the
Code, nor has it made any other elections pursuant to the Code (other than
elections that relate solely to methods of accounting, depreciation or
amortization) that would have a material adverse effect on the Company, its
financial condition, its business as presently conducted or proposed to be
conducted or any of its properties or material assets. The Company has never
had any tax deficiency proposed or assessed against it and has not executed any
waiver of any statute of limitations on the assessment or collection of any tax
or governmental charge. None of the Company's federal income tax returns and
none of its state income or franchise tax or sales or use tax returns has ever
been audited by governmental authorities. Since the date of the Financial
Statements, the Company has not incurred any taxes, assessments or governmental
charges other than in the ordinary course of business and the Company has made
adequate provisions on its books of account for all taxes, assessments and
governmental charges with respect to its business, properties and operations for
such period. The Company has withheld or collected from each payment made to
each of its employees, the amount of all taxes (including, but not limited to,
federal income taxes, Federal Insurance Contribution Act taxes and Federal
Unemployment Tax Act taxes) required to be withheld or collected therefrom, and
has paid the same to the proper tax receiving officers or authorized
depositories.
2.27 INSURANCE. The Company has in full force and effect fire and
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
2.28 MINUTE BOOKS. The minute books of the Company provided to the
Investors contain a complete summary of all meetings of directors and
shareholders since the time of incorporation and reflect all transactions
referred to in such minutes accurately in all material respects.
2.29 LABOR AGREEMENTS AND ACTIONS; EMPLOYEE COMPENSATION. The
Company is not bound by or subject to (and none of its assets or properties is
bound by or subject to) any written or oral, express or implied, contract,
commitment or arrangement with any labor union, and no labor union has requested
or, to the best of the Company's knowledge, has sought to represent any of the
employees, representatives or agents of the Company. There is no strike or
other labor dispute involving the Company pending, or to the best of the
Company's knowledge, threatened, that could have a material adverse effect on
the assets, properties, financial condition, operating results, or business of
the Company (as such business is presently conducted and as it is proposed to be
conducted), nor is the Company aware of any labor organization activity
involving its employees. Except as set forth on Schedule 2.29 of the Schedule
of Exceptions, the
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Company is not aware that any officer or key employee, or that any group of key
employees, intends to terminate their employment with the Company, nor does the
Company have a present intention to terminate the employment of any of the
foregoing. The employment of each officer and employee of the Company is
terminable at the will of the Company. To the best of its knowledge, the
Company has complied in all material respects with all applicable state and
federal equal employment opportunity and other laws related to employment. The
Company is not a party to or bound by any currently effective employment
contract, deferred compensation agreement, bonus plan, incentive plan, profit
sharing plan, retirement agreement, or other employee compensation agreement.
2.30 REAL PROPERTY HOLDING COMPANY. The Company is not currently,
and has not been during the prior five years, a United States real property
holding corporation within the meaning of Section 897 of the Code and the
Company has filed with the Internal Revenue Service all statements, if any, with
its United States income tax returns which are required under Section 1.897-2(h)
of the Treasury Regulations.
2.31 BROKERS. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
2.32 SIGNIFICANT CUSTOMERS AND SUPPLIERS. No customer or supplier
that was significant to the Company during the period covered by the financial
statements referred to in Section 2.23 or that has been significant to the
Company thereafter, has terminated, materially reduced or threatened to
terminate or materially reduce its purchases from or provision of products or
services to the Company, as the case may be.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. The Company is
relying in part upon the Investors' representations and warranties set forth in
this Section 3 for the purpose of qualifying for applicable exemptions from
registration or qualification pursuant to federal and state securities laws and
regulations. Each Investor hereby represents and warrants that:
3.1 AUTHORIZATION. Such Investor has full power and authority to
enter into this Agreement and the Investors' Rights Agreement, and each such
Agreement constitutes its valid and legally binding obligation, enforceable in
accordance with its terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, and (iii) to the extent the indemnification provisions
contained in the Investors' Rights Agreement may be limited by applicable
federal or state securities laws. The execution, delivery and performance of
this Agreement and the Investors' Rights Agreement and the consummation of the
transactions contemplated hereby and thereby (including the ownership of the
Series B Preferred Stock) by such Investor does not violate any provision of, or
constitute a material breach of or default under any term, condition or
provision of any agreement, indenture or other
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instrument to which such Investor is a party, or by which it or its properties
or assets are bound, or of any order, judgment or decree against or binding upon
such Investor.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
such Investor in reliance upon such Investor's representation to the Company,
which by such Investor's execution of this Agreement such Investor hereby
confirms, that the Series B Preferred Stock to be received by such Investor and
the Common Stock issuable upon conversion thereof (collectively, the
"Securities") will be acquired for investment for such Investor's own account,
not as a nominee or agent, and not with a view to the resale or distribution of
any part thereof, and that such Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same. By executing
this Agreement, such Investor further represents that such Investor does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person,
with respect to any of the Securities.
3.3 DISCLOSURE OF INFORMATION. Such Investor believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Series B Preferred Stock. Such Investor further
represents that it has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the
Series B Preferred Stock and the business, properties, prospects and financial
condition of the Company. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 2 of this Agreement or
the right of the Investors to rely thereon.
3.4 DUE DILIGENCE. Each Investor has been solely responsible for
its own due diligence investigation of the Company and its business, and its
analysis of the merits and risks of the investment made pursuant to this
Agreement, and is not relaying on anyone else's analysis or investigation of the
merits and risks of the Series B Preferred Stock, other than professional
advisors employed specifically by such Investor to assist such Investor. In
taking any action or performing any role relative to arranging the investments
being made pursuant to this Agreement, such Investor has acted solely in its own
interest and not in that of any of the other Investors, and none of the other
Investors (or any of their respective employees or agents) have acted as an
agent or fiduciary of another Investor. The foregoing, however, does not limit
or modify the representations and warranties of the Company in Section 2 of this
Agreement or the right of the Investors to rely thereon.
3.5 INVESTMENT EXPERIENCE. Such Investor is an investor in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Series B
Preferred Stock. If other than an individual, Investor also represents it has
not been organized for the purpose of acquiring the Series B Preferred Stock.
3.6 ACCREDITED INVESTOR. Such Investor is an "accredited investor"
within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of
Regulation D, as presently in effect.
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3.7 RESTRICTED SECURITIES. Such Investor understands that the
Securities it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act, only in certain limited circumstances. In this connection, such
Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
3.7 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
the representations set forth above, such Investor further agrees not to make
any disposition of all or any portion of the Securities unless and until:
(a) There is then in effect a Registration Statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) Such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, such Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company that
such disposition will not require registration of such shares under the Act. It
is agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances.
(c) Notwithstanding the provisions of Paragraphs (a) and (b)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by an Investor that is a partnership to a partner of such
partnership or a retired partner of such partnership who retires after the date
hereof, or to the estate of any such partner or retired partner or the transfer
by gift, will or intestate succession of any partner to his or her spouse or to
the siblings, lineal descendants or ancestors of such partner or his or her
spouse, if the transferee agrees in writing to be subject to the terms hereof to
the same extent as if he or she were an original Investor hereunder.
3.9 LEGENDS. It is understood that the certificates evidencing the
Securities may bear one or all of the following legends:
(a) "These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not required or unless
sold pursuant to Rule 144 of such Act."
(b) Any legend required by the laws of the State of California,
including any legend required by the California Department of Corporations and
Sections 417 and 418 of the California Corporations Code.
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4. CONDITIONS OF INVESTORS' OBLIGATIONS AT CLOSING. The
obligations of each Investor under subsection 1.1(b) of this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions, the waiver of which shall not be effective against any Investor who
does not consent thereto:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
4.1 PERFORMANCE. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
4.3 COMPLIANCE CERTIFICATE. The President of the Company shall
deliver to each Investor at the Closing a certificate stating that the
conditions specified in Sections 4.1 and 4.2 have been fulfilled and stating
that there shall have been no adverse change in the business, affairs,
prospects, operations, properties, assets or condition of the Company since the
date of the Financial Statements.
4.4 QUALIFICATIONS. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Series B Preferred Stock pursuant to this Agreement shall be duly obtained
and effective as of the Closing.
4.5 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Investors' special counsel, and they shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request. This may include, without limitation, valid existence
certificates and certification by the Company's Secretary regarding the
Company's Articles of Incorporation and Bylaws and Board of Director and
shareholder resolutions relating to this transaction.
4.6 PROPRIETARY INFORMATION AND EMPLOYEE STOCK PURCHASE AGREEMENTS.
Each employee of and consultant to the Company shall have entered into a
Proprietary Information and Inventions Agreement in the form previously provided
to special counsel for the Investors. Each holder of an option grant
exercisable for Common Stock of the Company shall have entered into a Stock
Option Letter Agreement in the form previously provided to special counsel for
the Investors; provided however, the Kirk Lockhart, Todd Ostrander and Roger
Penner shall not be required to have executed the Proprietary Information and
Inventions Agreement as of the Closing.
4.7 BYLAWS. The Bylaws of the Company shall provide that the Board
of Directors of the Company shall consist of five (5) persons, which number
shall not be changed by an Amendment to the Restated Articles or the Bylaws
without consent of a majority of the Series B Preferred Stock.
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4.8 BOARD OF DIRECTORS. The directors of the Company shall consist
of George Orban, John Hummer, Bill Gurley and there shall be two vacancies.
4.9 OPINION OF COMPANY COUNSEL. Each Investor shall have received
from Perkins Coie, counsel for the Company, an opinion, dated as of the Closing,
in the form attached hereto as EXHIBIT E.
4.10 INVESTORS' RIGHTS AGREEMENT. The Company and each Investor
shall have entered into the Investors' Rights Agreement in the form attached as
EXHIBIT B.
4.10 CONVERSION OF OUTSTANDING DEBT. All outstanding debt of
Egghead, Inc. shall have converted or canceled such debt in exchange for shares
of the Company's Series A Preferred Stock. Except as listed on Schedule 4.11,
the Company shall have no other outstanding indebtedness to any party.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to each Investor under this Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions by
that Investor:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Investors contained in Section 3 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
5.2 PAYMENT OF PURCHASE PRICE. The Investor shall have delivered
the purchase price specified in Section 1.2.
5.3 QUALIFICATIONS. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be duly obtained and effective
as of the Closing.
6. MISCELLANEOUS.
6.1 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investors or the Company. Each
Investor represents that as of the date hereof it has no knowledge of any fact
that it believes would constitute a material breach by the Company of any
representations, warranties or covenants made in this Agreement or the
Investors' Rights Agreement. The foregoing, however, does not limit or modify
the representations and warranties of the Company in Section 2 of this Agreement
or the right of the Investors to rely thereon.
6.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any Securities). Nothing in this
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Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
6.3 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the state of Washington as applied to agreements
among Washington residents entered into and to be performed entirely within
Washington.
6.4 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.
6.4 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.6 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
6.7 FINDER'S FEE. Each party represents that it neither is nor will
be obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Investor or any of its officers, partners,
employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor from
any liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
6.8 EXPENSES. Irrespective of whether the Closing is effected, the
Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement. If the
Closing is effected, the Company shall, at the Closing, reimburse the reasonable
fees of special counsel for the Investors, not to exceed $15,000. If any action
at law or in equity is necessary to enforce or interpret the terms of this
Agreement, the Investors' Rights Agreement or the Restated Articles, the
prevailing party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements in addition to any other relief to which such party may
be entitled.
6.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a
<PAGE>
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of a majority of the Common Stock
issuable or issued upon conversion of the Series B Preferred Stock. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any securities purchased under this Agreement at the time
outstanding (including securities into which such securities are convertible),
each future holder of all such securities, and the Company.
6.10 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
6.11 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES THAT ARE
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
EACH INVESTOR HAS BEEN ADVISED, PRIOR TO ITS PURCHASE OF THE
SECURITIES TO BE PURCHASED PURSUANT HERETO, THAT NEITHER THE OFFERING OF SUCH
SECURITIES NOR ANY OFFERING MATERIALS HAVE BEEN REVIEWED BY ANY ADMINISTRATOR
UNDER THE ACT, THE WASHINGTON STATE SECURITIES ACT OR ANY OTHER APPLICABLE
SECURITIES ACT (THE "ACTS") AND THAT SUCH SECURITIES HAVE NOT BEEN REGISTERED
UNDER ANY OF THE ACTS AND THEREFORE CANNOT BE RESOLD UNLESS REGISTERED UNDER THE
ACTS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
6.12 AGGREGATION OF STOCK. All shares of the Preferred Stock held
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
6.13 ENTIRE AGREEMENT. This Agreement and the documents referred
to herein constitute the entire agreement among the parties and no party shall
be liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY
By: /s/ Kirk W. Lockhart
----------------------------------
Kirk W. Lockhart, President
Address: 500-108th Avenue, Suite 1400
Bellevue, WA 98004
<PAGE>
INVESTORS:
HUMMER WINBLAD VENTURE
PARTNERS III, L.P.
By: /s/ John Hummer
---------------------------------
Title: Partner
--------------------------------
Address: Two South Park, 2nd Floor
San Francisco, CA 94107
Facsimile: (415) 979-9601
HUMMER WINBLAD TECHNOLOGY
FUND III, L.P.
By: /s/ John Hummer
---------------------------------
Title: Partner
--------------------------------
Address: Two South Park, 2nd Floor
San Francisco, CA 94107
Facsimile: (415) 979-9601
<PAGE>
EGGHEAD, INC.
By: /s/ George Orban
----------------------------------
George Orban
Chief Executive Officer
Address: 22705 East Mission
Liberty Lake, WA 99019
<PAGE>
OLYMPIC VENTURE PARTNERS IV, L.P.
By: OVMC IV, LLC
Title:General Partner
By: /s/ Gerard H. Langler
--------------------------------
Managing Member
Address: 2420 Carillon Point
Kirkland, WA 98033
Facsimile: (206) 889-0152
OVP IV ENTREPRENEURS FUND, L.P.
By: OVMC IV, LLC
Title:General Partner
By: /s/ Gerald H. Langler
--------------------------------
Managing Member
Address: 2420 Carillon Point
Kirkland, WA 98033
Facsimile: (206) 889-0152
<PAGE>
SCHEDULE A
SCHEDULE OF INVESTORS
NUMBER OF TOTAL PURCHASE
NAME AND ADDRESS SHARES PURCHASED PRICE OF SHARES
---------------- ---------------- ---------------
Hummer Winblad Venture 17,427,355 $1,187,499.97
Partners III, L.P.
Hummer Winblad Technology 917,229 62,499.98
Fund III, L.P.
Egghead, Inc. 6,114,861 416,666.63
Olympic Venture Partners IV, L.P. 11,618,236 791,666.60
OVP IV Entrepreneurs Fund, L.P. 611,486 41,666.66
--------------- --------------
36,689,167 $2,499,999.84
--------------- --------------
--------------- --------------
S-1
<PAGE>
Contact: Brian Bender John Hough
Chief Financial Officer The Rockey Company
Egghead, Inc. 206-728-1100 or [email protected]
509-891-4851
FOR IMMEDIATE RELEASE
EGGHEAD RECAPITALIZES ELEKOM SUBSIDIARY
Spokane, (Wash.) - Nov. 11, 1997 - Egghead, Inc. (Nasdaq: EGGS) has
recapitalized its subsidiary ELEKOM Corporation ("ELEKOM"), a producer of
advanced business-to-business electronic commerce systems.
Egghead Chairman George Orban said Hummer Winblad Venture Partners and Olympic
Venture Partners have made an equity investment in what had been a wholly owned
Egghead subsidiary. Egghead, Hummer Winblad, and Olympic are jointly investing
$2.5 million in ELEKOM.
"This strategic partnership is good news for Egghead shareholders," Orban said.
"ELEKOM is an emerging enterprise and both Hummer Winblad and Olympic are well
qualified to help the company achieve its potential. These two firms have a
unique combination of investment, technical, and operational expertise in the
computer software industry. We believe this investment will help unlock
ELEKOM's potential value while reducing risk for Egghead's shareholders."
As part of the recapitalization, Egghead will retain an initial 25 percent
interest in ELEKOM. Orban will continue to serve on the ELEKOM board of
directors.
ELEKOM's flagship product, ELEKOM Procurement, streamlines the procurement
process within large corporations. The product recently was voted "Best of
Class" in the Accounting,
<PAGE>
Purchasing, and Administration category at The Internet Open Program at The
Internet Commerce Expo in Los Angeles.
San Francisco-based Hummer Winblad Venture Partners was the first venture
capital fund to exclusively focus on investing in computer software companies.
The firm has $95 million under management.
Olympic Venture Partners, with offices in Kirkland, WA and Lake Oswego, OR is
the leading early-stage technology venture capital fund headquartered in the
Pacific Northwest with over $160 million under management. In its fourteen-year
history, Olympic has funded over fifty high technology startups. Target areas
for investment include software, communications, medical devices and
biotechnology, electronics, and high technology services.
Egghead, Inc., with revenues of $415 million for fiscal year 1997, including
recently acquired Surplus Direct, is a reseller of personal computer hardware,
software, and accessories. The combined company operates 85 retail stores, two
direct response divisions (1-800-EGGHEAD and 1-800-SURPLUS) and three Internet
commerce sites (www.egghead.com, www.surplusdirect.com, and
www.surplusauction.com).
This news release contains forward-looking statements that involve certain risks
and uncertainties including, without limitation, changes in competition, the
seasonality of financial results, dependence on suppliers, dependence on
purchase and use of personal computers, and other risks detailed in the
company's Securities and Exchange Commission filings and reports.
