EXHIBIT 10.5a
PLEDGE AGREEMENT
THIS AGREEMENT is made and entered into as of February 25, 1998, by
EGGHEAD.COM, INC., formerly known as Egghead, Inc. ("the Company") for the
benefit of GEORGE P. ORBAN ("Mr. Orban").
RECITALS:
The Company and Mr. Orban have entered into that certain Executive
Employment Agreement dated as of January 31, 1997 (the "Employment Agreement"),
pursuant to which the Company has agreed to pledge to Mr. Orban collateral for
certain obligations of the Company under the Employment Agreement.
The purpose of this Agreement is to set forth the terms and conditions upon
which the Company pledges to Mr. Orban the collateral described in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the Company agrees as follows:
1. DEFINITIONS, ETC.
1.1 TERMS DEFINED
For the purposes of this Agreement, the following terms shall have the
following meanings:
"Account" means that certain account established at Broker in the name of
the Company, currently designated as account no. 04104013137-1001, together with
all replacements and substitutions for such account.
"Broker" means American Express Financial Advisors, Inc. and any successors
in interest to American Express Financial Advisors, Inc.
"Event of Default" means the failure, within ten days of demand by Mr.
Orban, to pay Mr. Orban any amount due pursuant to Section 7.1, 7.5 or 8.1 of
the Employment Agreement.
"Pledged Assets" means the Account, together with (a) all assets now or
hereafter in the Account, including, without limitation, all securities
accounts, securities entitlements, investment property, financial assets,
certificated securities, and uncertificated securities (as those terms are
defined in the Uniform Commercial
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Code adopted in the state of Washington, as amended from time to time), and (b)
all income, products, proceeds, dividends and distributions from any of the
foregoing, including, without limitation, proceeds in the nature of accounts,
general intangibles, and insurance proceeds.
"Required Pledge Amount" means either $1,600,000 or $550,000 as determined
by the provisions of Section 8.2 of the Employment Agreement.
"Secured Obligations" means the obligation of the Company to pay Mr. Orban
all amounts due pursuant to Section 7.1, 7.5 or 8.1 of the Employment Agreement.
1.2 INCORPORATION OF RECITALS AND EXHIBITS
The foregoing recitals are incorporated into this Agreement by reference.
All references to "Exhibits" contained herein are references to exhibits
attached hereto, the terms of which are made a part hereof for all purposes.
2. PLEDGE AND CREATION OF SECURITY INTEREST
2.1 PLEDGE AND GRANT OF SECURITY INTEREST
As security for the full, prompt and complete payment by the Company of
each of the Secured Obligations, the Company hereby pledges, assigns,
hypothecates, and transfers to Mr. Orban the Pledged Assets and grants to Mr.
Orban a security interest under the Uniform Commercial Code of the state of
Washington, as amended, in and to the Pledged Assets. The Company and Mr. Orban
agree that upon completion of the pledge of the Pledged Assets to Mr. Orban as
contemplated by this Agreement, the Company shall be deemed to have satisfied
the obligation to grant collateral to Mr. Orban for the Company's obligations to
him under the terms of the Employment Agreement, notwithstanding the provision
in the Employment agreement that required the Company to complete the pledge of
collateral prior to the date of this Agreement.
2.2 VOTING RIGHTS
Unless and until an Event of Default shall have occurred, the Company shall
be permitted to exercise all voting, corporate, consensual and other rights with
respect to the Pledged Assets, provided, however, that no vote shall be cast or
corporate right exercised or other action taken which, in Mr. Orban's reasonable
judgment, would impair the Pledged Assets or which would be inconsistent with or
result in any violation of any provision of this Agreement.
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2.3 VALUE OF COLLATERAL
(a) Within ten days of the execution of this Agreement, the Company shall
cause to be deposited into the Account cash in the amount of $1,600,000.
(b) In the event that the market value of the Pledged Assets ever exceeds
110% of the Required Pledge Amount (whether or not an Event of Default exists)
during the term of this Agreement, the Company shall be entitled to a release
and distribution from the Account of assets selected by the Company in excess of
the Required Pledge Amount. Mr. Orban agrees to fully cooperate with the
Company in obtaining such a distribution from the Account.
(c) In the event that the market value of the Pledged Assets is ever less
than 90% of the Required Pledge Amount during the term of this Agreement, the
Company shall, within ten days of demand by Mr. Orban, deposit cash into the
Account in an amount necessary to bring the market value of the Pledged Assets
to the Required Pledge Amount.
(d) During the term of this Agreement the Company shall be permitted to
invest funds in the Account in accordance with the investment guidelines
attached to this Agreement as Exhibit A.
3. REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants that:
3.1 NO APPROVALS
No consent, license, permit, approval or authorization of, or filing with,
or notice or report to, or registration, filing or declaration with, any Person
(including, without limitation, any governmental authority or creditors of the
Company), is required in connection with the execution, delivery, performance,
validity or enforceability by or against the Company of this Agreement.
3.2 ENFORCEABILITY
This Agreement has been duly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.
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3.3 OTHER AGREEMENTS
The execution, delivery and performance of this Agreement do not and will
not violate any requirement of law or any contractual obligation applicable to
or binding upon the Company.
3.4 OWNERSHIP
The Company is the owner of and has good and marketable title to the
Pledged Assets and will, at its own expense, defend Mr. Orban's right, title and
security interest in and to the Pledged Assets against the claims of any Person.
3.5 NO ENCUMBRANCES
The Company represents that all of the Pledged Assets are owned by the
Company free of any pledge, mortgage, hypothecation, lien, charge, encumbrance
or security interest in such shares or the proceeds thereof, except for that
granted hereunder.
3.6 FIRST PRIORITY LIEN
The lien against the Pledged Assets granted pursuant to this Agreement
constitutes a valid, perfected first priority lien on the Pledged Assets,
enforceable as such against all creditors of the Company and any Persons
purporting to purchase any of the Pledged Assets from the Company.
4. COVENANTS
The Company covenants and agrees with Mr. Orban that, from and after the
date of this Agreement until the Secured Obligations are paid in full:
4.1 NO OTHER LIENS
The Company will not create or permit the existence of any lien on or
security interest in the Pledged Assets (other than that hereby created) without
the written consent of Mr. Orban.
4.2 SALE OR ENCUMBRANCE
Without the prior written consent of Mr. Orban and except as otherwise
provided in Section 2.3(d), the Company will not (a) sell, assign, transfer,
exchange or otherwise dispose of, or grant any option with respect to, the
Pledged Assets, (b) create, incur or permit to exist any lien or option in favor
of, or any claim of any Person with respect to, any of the Pledged Assets, or
any interest therein, except for
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the lien provided for by this Agreement. The Company will defend the right,
title and interest of Mr. Orban in and to the Pledged Assets against the claims
and demands of all Persons whomsoever. Notwithstanding the foregoing, the
Company may sell one or more of the Pledged Assets so long as the proceeds from
such sale remain in the Account subject to the security interest granted by the
Company to Mr. Orban pursuant to this Agreement.
4.3 FURTHER ASSURANCES
At any time and from time to time, upon the written request of Mr. Orban,
and at the sole expense of the Company, the Company will promptly and duly
execute and deliver such further instruments and documents and take such further
actions as Mr. Orban may reasonably request for the purposes of obtaining or
preserving the full benefits of this Agreement and of the rights and powers
herein granted.
4.4 INDEMNIFICATION
The Company agrees to pay, and to save Mr. Orban harmless from, any and all
liabilities with respect to, or resulting from any delay in paying, any and all
stamp, excise, sales or other taxes (except for the tax imposed on the overall
net income of Mr. Orban) which may be payable or determined to be payable with
respect to any of the Pledged Assets or in connection with any of the
transactions contemplated by this Agreement.
5. RIGHTS AND REMEDIES
5.1 REMEDIES
Mr. Orban may exercise, in addition to all other rights and remedies
granted in this Agreement and in any other instrument or agreement securing,
evidencing or relating to the Secured Obligations, all rights and remedies of a
secured party under the Uniform Commercial Code of the state of Washington.
Without limiting the generality of the foregoing, Mr. Orban, without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law or referred to in this Agreement) to
or upon the Company or any other Person (all and each of which demands,
defenses, advertisements and notices are hereby waived to the extent not
prohibited by law), may in such circumstances forthwith collect, receive,
appropriate and realize upon the Pledged Assets, or any part thereof, and/or may
forthwith withdraw from the Account, sell, assign, give option or options to
purchase or otherwise dispose of and deliver the Pledged Assets or any part
thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, in the over-the-counter market, at any exchange
broker's board or at Mr. Orban's offices or elsewhere upon such terms and
conditions as he may deem
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advisable, for cash or on credit or for future delivery without assumption of
any credit risk. Mr. Orban shall have the right upon any such public sale or
sales and, to the extent permitted by law, upon any such private sale or sales
to purchase the whole or any part of the Pledged Assets so sold, free and clear
of any right or equity of redemption in the Company, which right or equity is
hereby waived or released to the extent not prohibited by law. Mr. Orban shall
apply the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all reasonable costs and expenses of every
kind incurred therein or incidental to the care or safekeeping of any of the
Pledged Assets or in any way relating to the Pledged Assets or the rights of Mr.
Orban hereunder, including, without limitation, reasonable attorneys' fees and
disbursements to the payment in whole or in part of the Secured Obligations in
such order as Mr. Orban may elect, and only after such application and after the
payment by Mr. Orban of any other amount required by any provision of law,
including, without limitation, RCW 62A.9-504(1)(c), need Mr. Orban account for
the surplus, if any, to the Company.
5.2 RIGHTS RE PLEDGE ASSETS
If an Event of Default shall occur: (a) Mr. Orban shall have the right to
receive any and all cash dividends paid in respect of the Pledged Assets and
make application thereof to the Secured Obligations in such order as he may
determine and (b) the Pledged Assets shall be registered in the name of Mr.
Orban or his nominee, and Mr. Orban or his nominee may thereafter exercise (i)
all voting, corporate, consensual and other rights pertaining to such shares of
the Pledged Assets and (ii) any and all rights of conversion, exchange,
subscription and any other rights, privileges or options pertaining to such
shares of the Pledged Assets as if he were the absolute owner thereof
(including, without limitation, the right to exchange at his discretion any and
all of the Pledged Assets upon the merger, consolidation, reorganization,
recapitalization or other fundamental change in the corporate structure of the
issuer of the Pledged Assets, or upon the exercise by the Company or Mr. Orban
of any right, privilege or option pertaining to such Pledged Assets, and in
connection therewith, the right to deposit and deliver any and all of the
Pledged Assets with any committee, depositary, transfer agent, registrar or
other designated agency upon such terms and conditions as he may determine), all
without liability except to account for property actually received by him, but
Mr. Orban shall have no duty to exercise any such right, privilege or option and
shall not be responsible for any failure to do so or delay in so doing.
5.3 RIGHT TO PROCEED AGAINST PLEDGED ASSETS
The rights of Mr. Orban hereunder shall not be conditioned or contingent
upon the pursuit by Mr. Orban of any right or remedy against the Company or
against any
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other Person which may be or become liable in respect of all or any part of the
Secured Obligations or against any other collateral therefor, guarantee thereof
or right of offset with respect thereto. Mr. Orban shall not be liable for any
failure to demand, collect or realize upon all or any part of the Pledged Assets
or for any delay in doing so, nor shall he be under any obligation to sell or
otherwise dispose of any Pledged Assets upon the request of the Company or any
other Person or to take any other action whatsoever with regard to the Pledged
Assets or any part thereof except that Mr. Orban shall be required to exercise
reasonable care with respect to the safe keeping of collateral in his
possession.
5.4 NOTICE OF SALE, ETC.
To the extent permitted by applicable law, the Company waives all claims,
damages and demands it may acquire against Mr. Orban arising out of the exercise
by Mr. Orban of any of his rights hereunder. If any notice of a proposed sale
or other disposition of Pledged Assets shall be required by law, such notice
shall be deemed reasonable and proper if given at least ten days before such
sale or other disposition. To the extent not prohibited by applicable law, the
Company further waives and agrees not to assert any rights or privileges which
it may acquire under RCW 62A.9-112.
6. GENERAL PROVISIONS
6.1 LIMITATION ON DUTIES REGARDING PLEDGED ASSETS
Mr. Orban shall not be liable for failure to demand, collect or realize
upon any of the Pledged Assets or for any delay in doing so or shall be under
any obligation to sell or otherwise dispose of any Pledged Assets upon the
request of the Company or otherwise.
6.2 EXPENSES INCURRED BY MR. ORBAN
Mr. Orban is not required to, but may at his option, pay any tax or other
charge or expense payable by the Company and any filing or recording fees, and
any amounts so paid shall be repayable by the Company upon demand. The Company
will also repay upon demand all of Mr. Orban's reasonable expenses incurred in
collecting, conserving or protecting the Pledged Assets. All such sums shall
bear interest at 8% per annum from the date of Mr. Orban's payment until the
Company's repayment. All such sums and interest thereon shall be secured by the
security interest granted herein. The rights granted by this Section 6.2 are
not a waiver of any other rights of Mr. Orban arising from breach of any of the
Company's covenants.
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6.3 NONWAIVERS
This Agreement shall not be qualified or supplemented by course of dealing.
No waiver or modification by Mr. Orban of any of the terms or conditions hereof
shall be effective unless in writing signed by Mr. Orban. No waiver or
indulgence by Mr. Orban as to any required performance by the Company shall
constitute a waiver as to any subsequent required performance or other
obligations of the Company hereunder.
6.4 ATTORNEYS' FEES, COSTS
In the event of an arbitration of litigation between the parties to enforce
a right or rights under this Agreement, the prevailing party shall be entitled
to recover from the nonprevailing party all costs and expenses, including
reasonable attorneys' fees, incurred by the prevailing party in protecting or
enforcing rights under the terms of this Agreement. Attorneys' fees shall
include services rendered at arbitration, trial and any appeal therefrom, in
bankruptcy, as well as services rendered subsequent to judgment and obtaining
execution thereon.
6.5 TERM OF AGREEMENT
This Agreement shall be a continuing agreement until such time as the
Company has paid the Secured Obligations as described in Section 8.2 of the
Employment Agreement. Upon payment of the Secured Obligations, the Company
shall be entitled to a distribution of all of the Pledged Assets and a written
acknowledgment executed by Mr. Orban that this Agreement is terminated in a form
reasonably designated by the Company. Mr. Orban agrees to cooperate with the
Company in obtaining such a distribution of all of the Pledged Assets and a
written acknowledgment of termination.
6.6 SUCCESSORS
All obligations, rights, powers and privileges herein provided shall inure
to the benefit of and shall bind the heirs, executors, administrators and
successors of the parties hereto.
6.7 GOVERNING LAW
This Agreement and the Secured Obligations are subject to the laws of the
state of Washington and are to be construed in accordance therewith.
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6.8 CONSENT TO JURISDICTION, SERVICE AND VENUE
For the purpose of performance of the obligations under or otherwise in
connection herewith, the parties hereby consent to the jurisdiction and venue of
the courts of the state of Washington or of any federal court located in such
state, including, but not limited to, the Superior Court of Washington for
Spokane County and the United States District Court for the Eastern District of
Washington. The parties hereby waive the right to contest the jurisdiction and
venue of courts located in Spokane County, Washington on the ground of
inconvenience or otherwise.
6.9 SEVERABILITY
Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
6.10 SATISFACTION OF OBLIGATION
The parties agree that notwithstanding the requirement in Section 8.2 of
the Employment Agreement that the parties enter into a pledge and escrow
agreement with respect to the Secured Obligations prior to August 31, 1997, the
execution of this Agreement and consummation of the pledge of the Pledge Assets
in accordance with the provisions of this Agreement shall satisfy the
requirement set forth in Section 8.2 of the Employment Agreement.
6.11 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
shall constitute an original Agreement, but all of which together shall
constitute one and the same instrument.
EGGHEAD.COM, INC.
By: /s/ Brian W. Bender
_____________________________________
Title: Vice President and CFO
__________________________________
Accepted By:
/s/ George P. Orban
________________________________________
George P. Orban
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EXHIBIT A
to Pledge Agreement
EGGHEAD, INC.
EXHIBIT TO SMITH BARNEY, INC.
CERTIFICATE AS TO TRADING AUTHORIZATION
EGGHEAD, INC. INVESTMENT POLICY
April 25, 1991
Revised: May 2, 1996
OBJECTIVES
1. Principal preservation: Minimize principal risk.
2. Liquidity: Meet liquidity requirements.
3. Yield: Deliver after-tax yields consistent with market conditions and
primary objectives of principal preservation and liquidity.
4. Diversification: Investment in one issuer shall not exceed $5 million:
diversified money market funds naming the criteria described below shall be
exempt from this requirement.
5. Control: Provide appropriate fiduciary control of all investments.
INVESTMENT GUIDELINES
1. Maturity: No investment will have a maturity in excess of one year.
Repurchase Agreements will have maturities no greater than 14 days.
2. Liquidity: The portfolio will be constructed so that it can provide a
minimum:
a. $2 million within one day.
b. An additional $3 million within one week.
c. An additional $10 million within thirty days.
3. Eligible Investments: The instruments listed below meet the requirements of
the company's revolving loan agreement with Seattle-First National Bank
(Agent) and U.S. Bank of Washington, N.A.
APPROVED INVESTMENTS
1. Taxable Instruments
a. Obligations issued by the U.S. Treasury.
b. Money Market Funds composed of instruments rated no lower than: AA,
A2, F2 or MIG2, at the time of purchase by the fund. Unrated issues
are acceptable if the quality, as judged by the fund's advisers are of
quality consistent with the fund's requirements.
c. Commercial Paper issued by domestic or foreign institutions rated at
least A1 (Standard & Poor's) or P1 (Moody's). In the case of split
issues, the minimum acceptable rating would be either A2 or P2.
d. Banker's Acceptance. Euro Dollar and Certificates of Deposit with the
issuer possessing a long term debt rating of AA or a Commercial Paper
rating of A1 or P1.
e. Repurchase Agreements which are fully collateralized by U.S. Treasury
or agencies (e.g., FNMA, SLMA, Farm Credits, FHLB) but excluding
mortgage backed securities. All Repurchase Agreements will have
maturity no greater than 14 days.
2. Tax-Exempt/Tax Preferred Instruments
a. Tax Exempt Money Market Funds composed of instruments rated no lower
than: AA, A2, P2 or MIG2 at the time of purchase by the fund. Unrated
issues are acceptable if the quality, as judged by the fund's
advisers, are of quality consistent with the fund's requirements.
b. Municipal Notes/Bonds with a MIG1, VMIG1 or an underlying AA rating of
the state or municipality.
c. Commercial Paper issued by domestic or foreign institutions rated at
least A1 (Standard & Poor's) or P1 (Moody's). In the case of split
issues, the minimum rating would be either A2 or P2.
CONCENTRATION LIMITS
Investments with one issuer (except U.S. Treasury) shall not exceed $5.0
million. Money Market Funds with a well diversified portfolio of instruments and
issuers are exempt from this limit.
EGGHEAD, INC.
Investment Policy
Pg. 2
RESPONSIBILITIES AND REPORTING
The Controller is responsible for prudent investment of Egghead's cash balances
consistent with the guidelines set forth in this policy. The Controller is
authorized to make investments subject to the above guidelines and additional
direction from the President, Chief Financial Officer or Board of Directors.
Reports outlining current investments activity are provided daily to the
Controller and to the Chief Financial Officer, with reporting to the Board of
Directors each period.
- - Chief Financial Officer Brian W. Bender
- - Controller David H. Johns