Bridge Loan

BRIDGE LOAN AGREEMENT







This Bridge Loan Agreement ("Agreement") is entered into as of this 30th day of April, 1997 by and among Surplus Software, Inc. an Oregon corporation (the "Borrower"), and Egghead, Inc., a Washington corporation (the "Lender").





A. The Lender and the Borrower are entering into an Agreement and Plan of Merger (the "Merger Agreement"), contemporaneously with entering into this Agreement, providing for the acquisition of Borrower by Lender.



B. The Lender and the Borrower wish to enter into this Agreement to establish the terms and conditions upon which the Lender will make a term loan to the Borrower for the purpose of funding Borrower's working capital requirements.





In consideration of the mutual covenants herein contained, the parties hereto agree as follows:



1. DEFINITIONS



The following terms shall have the meanings assigned to them below in this Section 1:



"BUSINESS DAY" - any day on which commercial banks in Seattle, Washington are open for the conduct of normal banking business.



"CHANGE OF CONTROL" - any transaction or series of related transactions (including, without limitation, any reorganization, merger, consolidation, sale of assets or sale of stock), other than the acquisition of Borrower by Lender contemplated by the Merger Agreement, that will result in (x) the shareholders of Borrower immediately prior to such transaction or series of related transactions not holding (by virtue of their shares of capital stock of Borrower or securities issued solely with respect thereto) at least a majority of the voting power of the surviving or continuing entity or the ultimate parent entity thereof; or (y) a sale of all or substantially all of the assets of the Borrower, unless the Borrower's shareholders immediately prior to such sale will, as a result of such sale, hold (by virtue of securities issued as consideration) at least a majority of the voting power of the purchasing entity.











"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" or "GAAP" - generally accepted accounting principles which are (i) consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, in effect for the fiscal year of the Borrower ending May 31, 1996, and (ii) such that certified public accountants would, insofar as the use of accounting principles is pertinent, be in a position to deliver an unqualified opinion as to financial statements in which such principles have been properly applied. Unless otherwise provided, all accounting terms used herein shall be construed in accordance with Generally Accepted Accounting Principles.



"INDEBTEDNESS" - all debt and other similar monetary obligations for borrowed money, and all capital leases, whether direct or indirect (collectively herein defined as "Debt"). Indebtedness also includes all guaranties, endorsements (other than endorsements of notes, bills and checks presented to banks for collection or deposit in the ordinary course of business) and other contingent obligations in respect of Debt of others, including any obligations to supply funds to or in any other manner to invest, directly or indirectly, in the debtor, to purchase indebtedness, goods, supplies or services from the debtor, in any such case for the purpose of enabling the debtor to make payment of any Debt or to assure the owner of the Debt against loss, or otherwise.



"LENDING" - the disbursement by the Lender to the Borrower of the Loan to be made hereunder.



"LOAN DOCUMENTS" - collectively, this Agreement, the Promissory Note referred to in Section 2.3 hereof, the Security Agreement referred to in Section 2.10 hereof and any other instruments or agreements executed and delivered by the Borrower to the Lender in connection with the transactions contemplated by this Agreement.



"OBLIGATIONS" - all indebtedness, obligations and liabilities of the Borrower to the Lender arising on or after the date of this Agreement, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise, whether arising or incurred under this Agreement or in respect of the Loan and the Promissory Note or any other agreements or instruments at any time evidencing or securing any obligations of the Borrower to the Lender.



"PERSON" - any individual, corporation, partnership, trust, unincorporated association, joint stock company or other legal entity or organization and any government or agency or political subdivision thereof.



"PRIME RATE" - the rate of interest designated by Seafirst Bank (or any successor thereto) ("Seafirst Bank") as its "Prime" rate from time to time; provided,











however, that if Seafirst Bank shall discontinue such designation, the Prime Rate shall thereafter refer to the rate of interest charged to Lender for commercial loans obtained by Lender in the ordinary course of its business.



2. THE LOAN



2.1 Commitment to Lend



Subject to all of the terms and conditions set forth herein, including, without limitation, full compliance with all of the conditions precedent set forth in Section 4 below, the Lender agrees to loan to the Borrower an aggregate principal amount of $2,000,000 (the "Loan").



2.2 USE OF PROCEEDS



The proceeds of the Loan shall be used by Borrower solely in the ordinary course of the Borrower's business, including refinancing existing short term indebtedness.



2.3 PROMISSORY NOTE



The Loan shall be evidenced by the Borrower's promissory note substantially in the form of Exhibit A hereto (the "Promissory Note") payable in the manner provided therein to the order of the Lender in the original principal amount of $2,000,000. The Promissory Note shall be dated the date of the disbursement of the Loan evidenced thereby and shall be stated to mature on December 31, 1997 (the "Maturity Date"), unless accelerated as provided herein or therein. The outstanding principal balance of the Loan shall bear interest from the date of disbursement of the Loan through repayment in full of all principal and accrued interest at a rate per annum equal to the Prime Rate from time to time in effect plus five percent (5.00%), provided that any amounts overdue shall bear interest as provided in Section 2.8.



2.4 OPTIONAL PREPAYMENT



The Borrower shall have the right at any time to prepay the outstanding principal amount of the Loan plus accrued interest, in whole or in part, without premium or penalty, upon not less than five Business Days' written or telephonic notice to the Lender, provided that (a) each partial prepayment shall be in the principal amount of $25,000 or an integral multiple thereof, and (b) on the date of each prepayment, the Borrower shall pay accrued interest on the principal so prepaid to the date of such prepayment. Any amounts so prepaid shall not be available for reborrowing by the Borrower.











2.5 OFFSET BY LENDER



In the event that the Merger Agreement is terminated under circumstances where a termination fee is due from Lender to Borrower pursuant to Section 11.1(c) or 11.1(d) of the Merger Agreement, Lender may offset the amount of such fee and any expenses due from Lender to Borrower against the outstanding principal balance of the Loan and accrued interest thereon under the Promissory Note. Any principal amount and accrued interest so offset shall be deemed to have been prepaid by Borrower. Any remaining principal balance and accrued interest shall be paid in accordance with the Promissory Note and this Agreement.



2.6 COMPUTATIONS



All computations of interest on the Loan shall be computed on the basis of a 360-day year, and interest shall accrue for the actual number of days elapsed. The outstanding amount of the Obligations as reflected on the Lender's records from time to time shall, absent demonstrable error, be conclusive and binding on the Borrower. Each change in the rate of interest applicable to the Loan resulting from a change in the Prime Rate shall be effective on the 30th day of the month in which such change in the Prime Rate occurs. Whenever a payment under the Promissory Note becomes due on a day which is not a Business Day, the due date for such payment shall be extended to the next succeeding Business Day and interest and any applicable fees shall accrue during each such extension.



2.7 FUNDS FOR PAYMENTS



The Loan shall be made in immediately available funds by check or wire transfer to a bank account designated in writing by Borrower. Borrower's payments and prepayments under the Loan (whether of principal, interest or other amount) shall be made in immediately available funds at the Lender's principal office in Liberty Lake, Washington or to an account specified by written notice from Lender to Borrower.



2.8 INTEREST ON OVERDUE AMOUNTS



Each overdue amount payable to the Lender under the Promissory Note (whether principal, interest or other amount) shall bear interest from the due date thereof to the date such amount is paid in full (whether before or after judgment) at a rate per annum equal to ten percentage points (10.00%) above the Prime Rate from time to time in effect, compounded daily and payable on demand.













2.9 SUBORDINATION



The Obligations shall be subordinate to the Borrower's existing and future Indebtedness to U.S. Bank of Oregon up to a maximum of $4,500,000 (the "Senior Debt"). Lender agrees to execute and deliver a subordination agreement with such lender in substantially the form of Exhibit B. Except for the Senior Debt, and except for the $2,000,000 principal amount of subordinated Indebtedness of Borrower, plus accrued interest, currently owing to SV Capital Partners, L.P., a Texas limited partnership ("SV Capital") (the "SV Subordinated Debt"), the Obligations shall have priority over any and all other existing and future Indebtedness of the Borrower. The obligees under any existing Indebtedness, other than the Senior Debt and the SV Subordinated Debt, of Borrower shall execute and deliver to Lender a subordination agreement in substantially the form of Exhibit C hereto. Prior to incurring any other Indebtedness after the date hereof, the Borrower shall obtain executed subordination agreements in substantially the form of Exhibit C hereto from each prospective obligee of any such Indebtedness.



2.10 SECURITY AGREEMENT



The Obligations shall be secured by all assets of the Borrower pursuant to the terms and conditions of a Security Agreement in substantially the form of Exhibit D hereto to be entered into by the Borrower, the Lender and SV Capital as a condition precedent to the Lending.



3. REPRESENTATIONS AND WARRANTIES



The Borrower represents and warrants to the Lender as of the date of this Agreement that:



3.1 CORPORATE EXISTENCE AND POWER



The Borrower is a corporation duly organized and validly existing under the laws of the state of Oregon and has all requisite corporate power and authority to own and operate its properties, to carry on its business as now conducted and proposed by the Borrower to be conducted, to enter into this Agreement and the other Loan Documents and to consummate the transactions contemplated hereby and thereby. The Borrower is duly qualified and in good standing in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary and where the failure to be so qualified would have a material adverse effect on the business, properties, operations, condition (financial or other) or prospects of the Borrower (a "Borrower Adverse Effect"). The Borrower has obtained from the appropriate governmental authorities all approvals and licenses necessary for the conduct of its business and operations as currently











conducted, which approvals and licenses are valid and remain in full force and effect, except where the failure to have obtained such approvals or licenses or the failure of such licenses and approvals to be valid and in full force and effect would not have a Borrower Adverse Effect.



3.2 AUTHORIZATION AND ENFORCEABILITY



The execution, delivery and performance of this Agreement and the other Loan Documents by the Borrower and the borrowings and transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Borrower, and this Agreement and the other Loan Docu ...