SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-Q
[_] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period from April 3, 1994 to July 2, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-16930
EGGHEAD, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1296187
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
22011 S.E. 51st
Issaquah, Washington 98027
(Address of principal executive offices) (Zip Code)
(206) 391-0800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
YES ___ NO ____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock:
Outstanding at
Class July 30, 1994
Common Stock 17,163,406
$.01 par value shares
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements and Supplementary Data
Refer to Exhibit 28 for the results of the limited review performed by
Arthur Andersen & Co., independent public accountants.
EGGHEAD, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<C> <C>
July 2, April 2,
1994 1994
(unaudited)
<S>
ASSETS
Current assets:
Cash and cash equivalents $29,262 $25,677
Accounts receivable, net of allowance
for doubtful accounts of $3,729
and $3,432, respectively 77,622 76,241
Merchandise inventories (Note 2) 124,109 117,106
Prepaid expenses and other current assets 3,862 3,717
Current deferred income taxes (Note 3) 7,890 8,085
Total current assets 242,745 230,826
Property and equipment, net 18,526 19,351
Non-current deferred income taxes (Note 3) 3,030 3,014
Other assets 2,420 2,819
$266,721 $256,010
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks (Note 5) $ - $ -
Accounts payable 100,486 91,055
Accrued liabilities 21,854 19,144
Income taxes payable - 494
Current portion of capital lease obligations 296 295
Total current liabilities 122,636 110,988
Capital lease obligations, less current portion 110 184
Deferred rent 1,405 1,422
Total liabilities 124,151 112,594
Commitments and contingencies (Note 6)
Shareholders' equity:
Common stock, $.01 par value:
50,000,000 shares authorized;
17,163,406 and 17,121,438 shares
issued and outstanding, respectively 172 171
Additional paid-in capital 120,546 120,287
Retained earnings 21,852 22,958
Total shareholders' equity 142,570 143,416
$266,721 $256,010
See Notes to Consolidated Financial Statements.
</TABLE>
EGGHEAD, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
<TABLE>
13 Weeks Ended
(unaudited)
<C> <C>
July 2, July 3,
1994 1993
<S>
Net sales $193,848 $180,835
Cost of sales, including certain buying,
occupancy, and distribution costs 171,656 154,005
Gross margin 22,192 26,830
Selling, general, and administrative expense 21,757 23,637
Depreciation and amortization expense, net of
amounts included in cost of sales 2,412 1,887
Provision for restructuring costs - 4,400
Operating loss (1,977) (3,094)
Other (expense) income:
Interest income 185 109
Interest expense (6) (22)
Other, net (2) 32
Loss before income taxes (1,800) (2,975)
Income tax benefit 702 1,160
Net loss $(1,098) $(1,815)
Loss per share (Note 4) $(0.06) $(0.11)
Weighted average common shares and common
equivalent shares outstanding 17,122 16,989
See Notes to Consolidated Financial Statements.
</TABLE>
EGGHEAD, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
13 Weeks Ended
(unaudited)
<C> <C>
July 2, July 3,
1994 1993
<S>
Cash flows from operating activities:
Net loss $(1,098) $(1,815)
Adjustments to reconcile net loss to
net cash provided (used) by
operating activities:
Depreciation and amortization 2,689 2,308
Deferred rent (17) (19)
Deferred income taxes 179 (442)
Stock issued as compensation - 552
(Gain) loss on disposition of assets 12 (13)
Changes in assets and liabilities:
Accounts receivable, net (1,354) (3,551)
Merchandise inventories (7,001) (4,621)
Prepaid expenses and other current assets (145) (1,209)
Other assets 293 (2)
Accounts payable 9,401 (15,509)
Accrued liabilities 2,710 3,804
Income taxes payable (494) (519)
Total adjustments 6,273 (19,221)
Net cash provided (used) by
operating activities 5,175 (21,036)
Cash flows from investing activities:
Additions to property and equipment (1,793) (1,027)
Proceeds from sale of equipment 24 35
Net cash used by investing activities (1,769) (992)
Cash flows from financing activities:
Payments on capital lease obligations (73) (166)
Proceeds from stock issuances 258 488
Net cash provided by financing activities 185 322
Effect of exchange rates on cash (6) 2
Net increase (decrease) in cash 3,585 (21,704)
Cash at beginning of period 25,677 26,386
Cash at end of period $29,262 $4,682
Supplemental disclosures of cash paid:
Interest $6 $24
Income taxes $145 $722
See Notes to Consolidated Financial Statements.
</TABLE>
EGGHEAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 Basis of Presentation
The accompanying unaudited financial statements have been prepared
in accordance with generally accepted accounting principles for
interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission. While
these statements reflect the adjustments which are, in the opinion
of management, necessary to fairly state the results of the
interim periods, they do not include all the information and
footnotes required by generally accepted accounting principles for
complete financial statements. These adjustments are of a normal
and recurring nature. For further information, refer to the
annual financial statements and footnotes thereto, for the 52 week
period ended April 2, 1994, contained in the Company's Form 10-K,
filed pursuant to the Securities Exchange Act of 1934. The reader
is further cautioned that operating results for the 13 week period
ended 2, 1994, are not necessarily indicative of the results that
may be expected for the full year.
The Company uses a 52/53 week fiscal year, ending on the Saturday
nearest March 31 of each year. Effective the beginning of fiscal
1995, the Company changed it's fiscal quarters such that each
quarter consists of 13 weeks. Previously, fiscal quarters were
such that the first quarter consisted of 16 weeks, the second and
third quarters were each 12 weeks, and the fourth quarter
consisted of the remaining 12 or 13 weeks. The first quarter
fiscal 1994 financial information represents the first 13 weeks of
the fiscal year.
Note 2 Merchandise Inventories
The majority of merchandise inventories are accounted for using
the moving weighted average cost method. The remainder are
accounted for using the first-in first-out cost method. All
inventories are stated at the lower of cost or market.
Note 3 Income Taxes
Deferred income taxes result from temporary differences in certain
items for income tax and financial reporting purposes.
Note 4 Earnings (Loss) Per Share
Primary earnings per share amounts are computed using the weighted
average number of common shares and dilutive common equivalent
shares outstanding during each period using the treasury stock
method. Common equivalent shares result from the assumed exercise
of stock options and from the conversion of cash related to the
employee stock purchase plan into common shares based upon the
terms of the plan. The effect of common equivalent shares was not
included in computation of the loss per share amount for the 13
week periods ended July 2, 1994, and July 3, 1993, because they
were anti-dilutive.
EGGHEAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Note 5 Notes Payable to Banks
Effective October 1, 1993, the Company entered into a revolving
loan agreement with two banks providing for unsecured borrowings
of up to $50,000,000 through September 30, 1994. Each bank
provides a $25,000,000 line of credit and one bank serves as agent
for the agreement. The Company may elect interest rates on the
notes based on the participating banks' rates on overnight funds,
or on the agent bank's rate on certificates of deposit, LIBOR, or
prime rate. The agreement contains a number of covenants,
including a restriction on the payment of dividends and certain
financial ratio requirements. The Company was in compliance with
the financial covenants as of July 2, 1994. There were no
borrowings under the lines of credit during the first quarter of
fiscal 1995.
Note 6 Leases
The Company leases all its retail stores, corporate, government,
and education sales offices, it's distribution facilities in
Lancaster, Pennsylvania and Sacramento, California, and it's
headquarter facilities in Issaquah, Washington, under operating
leases with terms ranging from one to eleven years. As of
July 2, 1994, the future minimum rental payments under these
operating leases were as follows (in thousands):
<TABLE>
<C> <C>
Fiscal Year
1995 (remainder) $10,445
1996 12,813
1997 11,350
1998 7,755
1999 3,994
Thereafter 1,057
Total minimum payments $47,414
</TABLE>
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Company uses a 52/53 week fiscal year, ending on the Saturday
nearest March 31 of each year. Effective the beginning of fiscal 1995,
the Company changed it's fiscal quarters such that each quarter consists
of 13 weeks. Previously, fiscal quarters were such that the first
quarter consisted of 16 weeks, the second and third quarters were each
12 weeks, and the fourth quarter consisted of the remaining 12 or 13
weeks. The first quarter fiscal 1994 financial information represents
the first 13 weeks of the fiscal year.
RESULTS OF OPERATIONS
The following table shows the relationship of certain items included in
the Company's Consolidated Statements of Operations expressed as a
percentage of net sales:
<TABLE>
Percentage of Net Sales
First Quarter
13 Weeks Ended
<C> <C>
July 2, July 3,
1994 1993
<S>
Net sales 100.0% 100.0%
Cost of sales, including certain buying,
occupancy, and distribution costs 88.6 85.2
Gross margin 11.4 14.8
Selling, general, and administrative expense 11.2 13.1
Provision for restructuring costs - 2.4
Depreciation and amortization expense,
net of amounts included in cost of sales 1.2 1.0
Operating loss (1.0) (1.7)
Other income 0.1 0.1
Loss before income taxes (0.9) (1.6)
Income tax benefit 0.3 0.6
Net loss (0.6)% (1.0)%
</TABLE>
Net sales of $193.8 million for the 13 week period ended July 2, 1994,
were 7% greater than net sales of $180.8 million for the 13 week period
ended July 3, 1993.
The corporate, government, and education (CGE) group generated 53% of
net sales during the first quarter of fiscal 1995, with 47% generated by
retail operations. This compares to 57% generated by the CGE group and
43% generated by retail operations in the first quarter of fiscal 1994.
Corporate, Government, and Education
CGE sales were $102.6 million in the first quarter of fiscal 1995
compared to $102.3 million in the first quarter last year.
Retail
Retail sales of $91.2 million in the first quarter of fiscal 1995,
increased $12.7 million, or 16%, compared to $78.5 million in the first
quarter of fiscal 1994. Comparable retail store sales increased 14%.
In addition, there was an increase in mail order sales due mainly to the
acquisition of a mail order subsidiary, Rocky Mountain Computer
Outfitters (Computer Outfitters) at the end of the second quarter of
fiscal 1994. These increases in sales were partially offset by the net
reduction of 16 stores since the end of the first quarter a year ago.
During the first quarter of fiscal 1995, the Company closed five stores.
Since the end of the first quarter last year, the Company has opened two
stores and closed 18. As of the end of the first quarter of fiscal
1995, the Company operated 184 retail stores compared to 200 at
July 3, 1993. The Company will continue to evaluate individual store
performance and make changes in the ordinary course of business.
Gross margin as a percentage of net sales was 11.4% in the first quarter
of fiscal 1995, compared to 14.8% in the first quarter last year.
During the second quarter of fiscal 1994, the Company lowered prices in
both its CGE and retail businesses to improve its competitive position.
This decrease in gross margin as a percentage of sales was partially
offset by retail sales making up a larger percentage of total sales in
the first quarter of fiscal 1995 than in the first quarter a year ago.
Retail sales, compared to CGE sales, typically have higher margins and
lower volume per transaction.
Selling, general, and administrative expense was 11.2% of net sales
in the first quarter of fiscal 1995, compared to 13.1% in the first
quarter of fiscal 1994. Savings associated with previous restructuring
actions, as discussed below, were partially offset by additional
expenses from Computer Outfitters, the Company's new mail order
subsidiary.
Provision for restructuring costs was $4.4 million, or 2.4% of net
sales, in the first quarter of fiscal 1994. During fiscal 1994, the
Company lowered its cost structure to improve its ability to compete.
The $4.4 million included employee severance costs and early lease
termination costs.
FINANCIAL CONDITION
Cash and short-term investments increased from $25.7 million at
April 2, 1994, to $29.3 million at the end of the first quarter of
fiscal 1995. The $3.6 million increase was mainly due to increases in
accounts payable and accrued liabilities, partially offset by an
increase in inventory and additions to property and equipment, as
presented in the Consolidated Statement of Cash Flows for the 13 weeks
ended July 2, 1994, on page 3.
Merchandise inventories increased $7.0 million, or 6%, from $117.1
million at April 2, 1994 to $124.1 million at July 2, 1994. The
increase was partly due to the addition of a limited selection of
computer hardware and printers in the retail stores.
Accounts payable increased $9.4 million, from $91.1 million at the end
of fiscal 1994, to $100.5 million at July 2, 1994. As a percentage of
total inventory, accounts payable (leveraging) increased from 78% at the
end of fiscal 1994 to 81% at the end of the first quarter of fiscal
1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $5.2 million for the 13
weeks ended July 2, 1994, compared to $21.0 million used by operating
activities during the same period a year ago. The increase was mainly
due to a $9.4 million increase in accounts payable during the first
quarter of fiscal 1995, compared to a $15.5 million reduction during the
same quarter a year ago. For further information, see the Consolidated
Statement of Cash Flows for the 13 weeks ended July 2, 1994, on page 3.
Effective October 1, 1993, the Company entered into a revolving loan
agreement with two banks providing for unsecured borrowings up to $50
million through September 30, 1994. Each bank provides a $25 million
line of credit and one bank serves as agent for the agreement. The
agreement contains a number of covenants, including a restriction on the
payment of dividends and certain financial ratio requirements. The
Company was in compliance with the financial covenants and had no
outstanding borrowings as of July 2, 1994.
There was no debt outstanding during the first quarter of fiscal 1995.
The average amount of debt outstanding during the first 13 weeks of
fiscal 1994 was $16,000. During the first quarter of fiscal 1995,
working capital requirements and capital expenditures were financed from
operations.
The Company expects that cash requirements in the foreseeable future
will be satisfied by cash flow from operations and borrowings under
these lines of credit. Depending on its rate of growth, the Company may
in future years require additional financing, including bank borrowings
and further issuances of debt and/or equity securities.
Part II. OTHER INFORMATION
ITEM 1. Legal Proceedings
On June 9, 1994, the Company announced that it had settled a
shareholders' lawsuit originally filed against the Company, a
current officer, and two former officers who were also directors.
The current officer had recently been dismissed from the suit.
The action, originally entitled Finucan v. Egghead, et al., was
filed in federal court in Seattle in September 1993 and is alleged
to be brought on behalf of all purchasers of the Company's common
stock between February 11, 1992, and November 18, 1992, (other
than the individual defendants and other individuals and entities
otherwise affiliated with the Company). The settlement, which is
subject to approval of the court, calls for a cash payment by the
Company of $2.625 million. Net of expected insurance recovery,
the settlement and related attorneys' fees resulted in a pretax
charge of $1.2 million in fiscal year 1994 ($0.04 per share, net
of income tax impact).
ITEM 4. Submission of Matters to a Vote of Security
Holders
None.
ITEM 6. Exhibits and Reports On Form 8-K
a. Exhibits
10.18 Lease termination and rent payment agreement dated June 14,
1994, between Sammamish Park Place II Limited Partnership as
Landlord and DJ&J Software Corporation as Tenant regarding
the Company's administrative headquarters.
28. Report of Independent Public Accountants
b. Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EGGHEAD, INC.
(Registrant)
Date: August 4, 1994 /s/Carolyn J. Tobias
Carolyn J. Tobias
Senior Vice President, Chief
Financial Officer (Principal
Financial and Accounting
Officer)
Exhibit 28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Egghead, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet
of Egghead, Inc. (a Washington corporation) and subsidiaries as of July
2, 1994, and the related condensed consolidated statements of operations
and cash flows for the 13-week periods ended July 2, 1994, and
July 3, 1993. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
/s/ Arthur Andersen & Co.
Seattle, Washington,
July 28, 1994.
LEASE TERMINATION AND RENT PAYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made June 14, 1994, by
and between DJ&J SOFTWARE CORPORATION, a Washington corporation doing
business as Egghead Software ("Egghead"), and SAMMAMISH PARK PLACE II
LIMITED PARTNERSHIP, a Washington limited partnership ("Landlord").
RECITALS
A. Landlord and Egghead are the parties to an Office Building
Lease dated March 23, 1992, under which Egghead is a tenant (the
"Existing Lease"), covering portions of the first and second floors
("Premises") of Sammamish Park Place Building B ("Building"), located in
the City of Issaquah, King County, Washington, which is more fully
described as follows:
Lot 2 of Short Plat No. 1288032, according to the short plat
recorded under King County Recording No. 8911080548.
A complete and true copy of the Existing Lease is attached as Exhibit A
to this Agreement as a reference for determining the terms and
conditions of the Existing Lease.
B. Microsoft Corporation ("Microsoft") desires to enter into a
lease with Landlord for the Building (the "Microsoft Lease").
C. Egghead is willing to surrender the Premises to Landlord so
it can lease them to Microsoft, and Landlord is willing to accept such
surrender and terminate the Existing Lease under the terms set forth in
this Agreement.
D. All capitalized terms used in this Agreement have the same
meaning as set forth in the Existing Lease, except as otherwise
indicated in this Agreement.
NOW THEREFORE, recognizing that Landlord will materially rely on
this Agreement, and in consideration of the mutual promise, in this
Agreement, Egghead and Landlord agree as follows:
1. Surrender of Premises. Egghead shall surrender and vacate the
Premises on or before June 15, 1994.
2. Condition of Premises on Surrender. Egghead shall remove its
personal property and trade fixtures from the Premises at its expense.
Egghead shall leave the Premises in the condition received, except for
reasonable wear and tear, casualty and condemnation damage, and pre-
existing defects.
3. Leasehold Improvements. The leasehold improvements constructed by
Egghead in the Premises shall remain and shall become the property of
Landlord on the Termination Date of the Existing Lease, as defined
below.
4. Indemnity. Landlord agrees to indemnify, hold harmless and defend
Egghead against any damages, costs, liabilities or expenses that Egghead
may incur as a result of Microsoft's possession of the Premises prior to
the Termination Date. Egghead acknowledges that Microsoft will
substantially modify the existing tenant improvements in the Building.
5. Lease Termination. The Existing Lease shall terminate on the
earlier of the date that the Microsoft Lease commences or
September 1, 1994 (the "Termination Date"), without any further action
or notice by the parties. Egghead shall continue to make all payments
due under the Existing Lease until the Termination Date, as defined in
the prior sentence.
6. Condition Subsequent. This Agreement shall be null and void if
Microsoft and Landlord have not executed the Microsoft Lease by
September 1, 1994.
7. Termination of Agreement. This Agreement terminates on
November 1, 1999, regardless of any remaining term or extension under
the Microsoft Lease.
8. Payment of Spread. Egghead agrees to pay to Landlord on the first
day of each calendar month following the Termination Date until the
earlier of the date this Agreement terminates, the date payment of the
Full Amount (defined below) restarts following termination of the
Microsoft Lease, or the date the New Lease (defined below) commences, an
amount equal to (a) the Basic Rent and Operating Costs due each month
under the Existing Lease had it not been terminated, less (b) the
$44,049.13 and utility charges which are attributable to the Premises
each month under the Microsoft Lease (the "Spread"). The utility
charges to be deducted from Operating Costs paid by Egghead are
electricity, natural gas, storm water, water, sewer, disposal and refuse
collection, and any other utility cost payable under the Existing Lease
which are attributable to the Premises or the Common Areas. All charges
that may otherwise qualify as Operating Costs that arise due to a
request by Microsoft or any other tenant of the Building (outside the
scope of Operating Costs as they had been charged to Egghead under the
Existing Lease) shall not be included in Operating Costs payable by
Egghead. Egghead's payment of its portion of the estimated Operating
Costs shall be reconciled against actual Operating Costs in accordance
with the provisions of Exhibit A to this Agreement (that is, the
Existing Lease before it was terminated by this Agreement). Landlord
shall provide Egghead an invoice in substantially the form attached as
Exhibit B each month setting forth the calculation of the Spread.
Landlord shall send Egghead an invoice for payment each month in advance
of the due date based on an estimate of Operating Costs, and will
reconcile those estimates to actual Operating Costs each year, all in
accordance with the provisions of Exhibit A to this Agreement.
9. Payment of Full Amount. Egghead agrees to pay to Landlord on the
first day of each calendar month following the date Microsoft no longer
possesses the Premises after expiration of either the 2-year original
term of the Microsoft Lease, or any of the three 1-year extension
options in the Microsoft Lease, until the earlier of the date this
Agreement terminates or the date the New Lease (defined below)
commences, an amount equal to the Basic Rent and Operating Costs due
each month under the Existing Lease had it not been terminated (the
"Full Amount"). Egghead shall not be obligated to pay the Full Amount
before the expiration of the 2-year original term of the Microsoft Lease
or any extension thereof, regardless of any default under or early
termination of the Microsoft Lease.
10. Late Payment. Egghead acknowledges that late payment of the sums
due under this Agreement will cause Landlord to incur costs not
contemplated by this Agreement, the exact amount of which is difficult
to determine. Therefore, if Egghead fails to pay any sum when due under
this Agreement, and where such failure shall continue for a period of
five (5) days after written notice thereof by Landlord to Egghead, then
Egghead shall pay Landlord the greater of the following: (a) a late
charge equal to five percent (5%) of the amount owing; or (b) that
portion of any penalties, including without limitation additional
interest or default "fees" which Landlord's lenders may impose or
require due solely to the late payment by Egghead (the "Late Charge").
In addition to the Late Charge, Egghead shall pay interest at a rate
equal to six percent (6%) per annum above the prime rate charged from
time to time by SeaFirst Bank or its successor on all late payments
under this Agreement thirty (30) days or more past due, or such lower
maximum allowable interest rate for payments due under this Agreement if
the aforesaid rate violates any applicable laws or regulations.
11. Exercise of Extension Options. Landlord shall provide Egghead
with a copy of Microsoft's election to exercise any option to extend the
Microsoft Lease for any additional term that commences before
November 1, 1999.
12. Modification of Microsoft Lease. Upon written notice to Egghead,
Landlord and Microsoft may modify or waive any of the terms or
conditions of the Microsoft Lease, and may grant and agree to
indulgences for defaults or extensions of time to Microsoft without
releasing Egghead from its obligations under this Agreement. However,
Egghead's liability under this Agreement for the Spread shall not be
increased or accelerated as a result of any such modification.
13. New Lease. Upon termination of the Microsoft Lease and vacation
of the Premises by Microsoft, Egghead and Landlord agree to negotiate in
good faith whether or not to enter a new lease of the Premises
containing the same terms and conditions as the Existing Lease for the
remainder of its originally scheduled term, or on such other terms as
are mutually agreeable (the "New Lease"); provided Egghead shall have no
liability for circumstances or events involving the Premises, and for
the use or condition of the Premises, during any period after the
Existing Lease was terminated and before the commencement date of the
New Lease; and further provided Landlord shall have no obligation to
alter or restore the Premises to the condition existing during the
Existing Lease whether or not the parties enter into a New Lease. If
the parties enter into a New Lease, then there will be no further
Improvement Allowance, as provided for under Section 22.2 of the
Existing Lease. Neither party is obligated to enter the New Lease.
Notwithstanding the provisions of this Section 13, Egghead is obligated
to pay the Full Amount under the terms of Section 9 above unless and
until the earlier of the date this Agreement terminates or the date the
New Lease commences.
14. Commissions. Upon execution of the Microsoft Lease, Egghead shall
pay fifty percent (50%) of that portion of the real estate brokerage
commission due to CB Commercial Real Estate Group, Inc. ("Broker")
attributable to the Premises for the initial term of the Microsoft
Lease, and the other fifty percent (50%) of such portion of the
commission upon Microsoft's occupancy of the Premises. Egghead agrees
to pay that portion of the Broker's commission attributable to each
extension of the Microsoft Lease term attributable to the Premises at
the time Microsoft elects to exercise each of its options to extend.
The Broker's commission payable by Egghead under this Section shall be
based upon Microsoft's lease of that portion of the entire Building that
is the Premises (37,096 rentable square feet), as more fully described
in Exhibit C to this Agreement. Egghead shall not be liable for any
other brokerage commissions in relation to the Microsoft Lease or the
New Lease.
15. Acknowledgments by Egghead. Egghead acknowledges to Landlord and
agrees to the following:
a. Except as set forth in this Agreement, Landlord has made no
representations to Egghead regarding the economic benefits to be derived
by Egghead under this Agreement;
b. Egghead is not a third-party beneficiary of the Microsoft
Lease; and
c. Egghead is not entitled to assert any breach of the
Microsoft Lease by either Landlord or Microsoft thereunder as a basis of
any kind against either Landlord or Microsoft.
16. Notices. All invoices, notices and demands which may or are
required to be given by any party to another under this Agreement shall
be in writing and shall be deemed to have been fully given when
delivered in person, or three days after the postmark date if sent by
first class United States mail with postage prepaid, or on the date
shown on the receipt if sent certified or registered United States mail
with return receipt requested and postage prepaid, and addressed to
Egghead at 22011 S.E. 51st Street, P.O. Box 7004, Issaquah, WA 98027,
and to Landlord at 3605 132nd Avenue S.E., Bellevue, Washington, 98006-
1323. The parties may change the address to which notices may be sent
under this Agreement by providing the other party with written notice of
such change.
17. Successors. The terms of this Agreement are binding upon and
shall inure to the benefit of the parties and their respective heirs,
successors and assigns.
18. Governing Law. This Agreement shall be construed and enforced
under the laws of the State of Washington. The parties consent to the
personal jurisdiction of and venue laid in any court of competent
jurisdiction sitting in King County, Washington.
19. Attorney Fees. The prevailing party in any action to interpret or
enforce this Agreement shall be entitled to collect its reasonable costs
and attorney fees incurred in such action, or in any appeal thereof, or
in any bankruptcy or receivership action, from the non-prevailing party.
20. Amendments. This Agreement may be amended only by written
instrument signed by both Egghead and Landlord.
21. Authority. Each person signing this Agreement on behalf of a
corporation or partnership represents and warrants that they are duly
authorized by the corporation or partnership to execute this Agreement
and that no other signature or authorization is necessary to bind the
corporation or partnership.
22. Entire Agreement. This Agreement is the entire agreement between
the parties concerning the subjects contained in this Agreement.
23. Multiple Originals. This Agreement may be executed in duplicate
or triplicate, each of which shall be deemed an original, and together
they shall constitute one and the same agreement.
24. Recitals. All recital paragraphs shall be part of the parties'
agreement hereunder.
LANDLORD:
SAMMAMISH PARK PLACE II LIMITED
PARTNERSHIP, a Washington limited
partnership
By: VYZIS COMPANY, a Washington
corporation as Managing General
Partner
By: /s/ Cheryl A. Smith
Cheryl A. Smith
Its: Executive Vice President
EGGHEAD:
D J & J SOFTWARE CORPORATION, a
Washington corporation
By: /s/ R. J. Smith
Ronald J. Smith
Its: Vice President
STATE OF WASHINGTON
ss.
COUNTY OF KING
On this 14th day of June, 1994, before me personally appeared Cheryl A.
Smith to me known to be the Executive Vice President of VYZIS COMPANY,
the corporation that is the General Managing Partner of SAMMAMISH PARK
PLACE II LIMITED PARTNERSHIP, the limited partnership executed the
within and foregoing instrument, and acknowledged said instrument to be
the free and voluntary act and deed of said partnership for the uses and
purposes therein mentioned, and on oath stated that she was authorized
to execute said instrument on behalf of the partnership.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed
my official seal the day and year first above written.
/s/ Sheila J. Gill
Name (Printed): Sheila J. Gill
NOTARY PUBLIC in and for the State
of Washington, residing at
Kirkland
My appointment expires: 5-25-96
STATE OF WASHINGTON
ss.
COUNTY OF KING
On this 14th day of June, 1994, before me personally appeared RONALD J.
SMITH, known to be a VICE PRESIDENT of DJ&J SOFTWARE CORPORATION, the
corporation executed the within and foregoing instrument, and
acknowledged said instrument to be the free and voluntary act and deed
of said corporation, for the uses and purposes therein mentioned, and on
oath stated that he was authorized to execute said instrument on behalf
of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year first above written.
/s/ Denise J. Ullery
Name (Printed): Denise Ullery
NOTARY PUBLIC in and for the
State of Washington, residing
at King County
My appointment expires: 9-1-96
EXHIBIT "B"
SAMPLE INVOICE - 1994
SAMMAMISH PARK PLACE II LTD PSHP
3605 132ND AVE. S.E.
SUITE 300
BELLEVUE, WA 98006-1323
EGGHEAD DISCOUNT SOFTWARE
REAL ESTATE DEPARTMENT
ATTN: LESLIE EVENSON
P.O. BOX 7004
ISSAQUAH, WA 98027
<TABLE>
<S> <C>
BASE RENT 43,276.33
OPERATING EXPENSES (1) 12,148.29
INSURANCE 195.93
ELECTRICITY & OTHER UTILITIES 0.00
SUBTOTAL 55,620.55
LESS: MICROSOFT RENT CREDIT 44,049.13
TOTAL 11,571.42 ($3.74/SQ.FT)
</TABLE>
(1) ANY SPECIAL CHARGES ARE BILLED DIRECTLY TO MICROSOFT AND ARE NOT
INCLUDED IN INVOICE TO EGGHEAD.
PLEASE REMIT PAYMENT TO:
SAMMAMISH PARK PLACE II LTD PSHP
3605 132ND AVE. S.E.
SUITE 300
BELLEVUE, WA 98006-1323
EXHIBIT "C"
COMMISSION
This exhibit is incorporated into and made a part of the Lease
Termination Agreement dated June 14, 1994, between Sammamish Park Place
II Limited Partnership, a Washington Limited Partnership, and D J & J
Corporation, a Washington corporation.
The real estate brokerage commission due under the terms of the
Agreement shall be calculated, based on 37,096 rentable square feet, in
accordance with the following terms:
Initial Lease Term: 2 years CB Commercial will be compensated by
a commission of 5% of the total
lease consideration (base rent
combined with operating expenses and
real estate taxes) during this two-
year period. This is calculated to
be a total of $52,861.80 payable by
Egghead one-half (1/2) upon
execution of the Microsoft Lease and
one-half (1/2) upon Microsoft's
occupancy of the Premises.
First Extension Option: 1 year CB Commercial will be compensated by
commission of 5% of the total lease
consideration (base rent combined
with operating expenses and real
estate taxes) during this one-year
period.
Second Extension Option: 1 year CB Commercial will be compensated by
commission of 5% of the total lease
consideration (base rent combined
with operating expenses and real
estate taxes) during this one-year
period.
Third Extension Option: 1 year CB Commercial will be compensated by
commission of 5% of the total lease
consideration (base rent combined
with operating expenses and real
estate taxes) during this one-year
period.
Commission for each of the 1-year lease extension options, if exercised,
shall be due and payable by Egghead upon the commencement of the first
day of the term of each lease extension option exercised by Microsoft.
