SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended April 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 No.)
22011 S.E. 51st Street
Issaquah, Washington 98027
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 391-0800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
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 X No
Indicate by check mark if disclosure of delinquet filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this this Form 10-K or any amendment
to this Form 10-K.
To the best of Egghead, Inc.'s knowledge, the aggregate market value of the
voting stock held by non-affiliates of the registrant at May 27, 1994 was
$117,558,819.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
Outstanding at
Class May 27, 1994
Common Stock, $.01 par value 17,121,438 shares
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K into which the document is incorporated: Portions of
the registrant's definitive Proxy Statement relating to the Company's 1994
Annual Meeting of Shareholders are incorporated by reference into Part III of
this Form 10-K.
PAGE 1 OF 42 PAGES
EXHIBIT INDEX APPEARS ON PAGE 39
EGGHEAD, INC.
TABLE OF CONTENTS
Page
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . 10
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 11
Item 4. Submission of Matters to a Vote of Security Holders . . 11
PART II
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters . . . . . . . . . . . . . . . . . . 12
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 16
Item 8. Financial Statements and Supplementary Data . . . . . . 22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . 37
PART III
Item 10. Directors and Executive Officers of the Registrant . . . 38
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . 38
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . 38
Item 13. Certain Relationships and Related Transactions . . . . . 38
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 39
PART I
Item 1. Business
General
Egghead, Inc. (Egghead or the Company), a personal computer (PC)
software and hardware reseller, serves a diverse customer base
consisting of businesses, government agencies, educational institutions,
and individuals. As of April 2, 1994, the Company had 13 corporate,
government, and education (CGE) regional sales support centers, 189
company-operated retail stores, and two mail order groups.
Egghead, Inc., a Washington corporation, was incorporated in 1988 and is
the successor to a corporation which was incorporated in Washington in
1984. Egghead, Inc. is the parent company of DJ&J Software Corporation,
Eggspert Software, Ltd., EH Direct, Inc., and Egghead International,
Inc. EH Direct, Inc. is the parent company of MPI Corporation, d/b/a,
Rocky Mountain Computer Outfitters.
DJ&J Software Corporation, the Company's primary operating subsidiary,
was incorporated in Washington in 1983. Eggspert Software, Ltd., a
Canadian subsidiary, was incorporated in fiscal year 1989. EH Direct,
Inc. and Egghead International, Inc., were incorporated in Washington in
fiscal year 1994. Unless the context indicates otherwise, references to
the "Company" and "Egghead" include Egghead, Inc., and its subsidiaries.
In fiscal years 1994, 1993, and 1992, sales to corporations, government
agencies, and educational institutions served by Egghead's CGE sales
group accounted for approximately 52%, 56%, and 57% of the Company's
total net sales, respectively. The remaining net sales were generated
through its retail stores and mail order groups, mainly from sales to
individuals and small businesses.
Egghead's CGE sales group targets three main types of accounts:
corporations, government agencies nationwide (federal, state, and
local), and educational institutions. These customers are served by
well-trained outside sales representatives and inside sales support
staff, who provide customers with competitive prices, fast delivery, and
individualized service.
Egghead's retail stores offer a broad in-store selection of products at
competitive prices, as well as special order capabilities for additional
products. On April 2, 1994, the Company operated stores located
throughout the United States and Western Canada in 56 western cities, 61
eastern cities, and 48 mid-western cities. The Company employs a
knowledgeable sales staff committed to providing customers with software
technology solutions. The Company will continue to evaluate individual
store performance and make changes in the ordinary course of business in
fiscal year 1995.
Market Overview
The software industry is undergoing a noticeable degree of consolidation
as large software publishers acquire either other software publishers or
complete software products. Smaller software publishers are attempting
to concentrate on specialized products in limited markets.
Both businesses and individual consumers have shown an increasing
preference for integrated software packages which combine word
processing, spreadsheet, presentation, and database software. These
integrated packages are appealing to the consumer for several reasons.
The purchase cost of an integrated software package is lower than if the
individual components were purchased separately. In addition,
integration reduces some of the complexity and learning time involved in
using software. Integrated software packages also help standardize the
computing environment for Local Area Networks (LANs), which are becoming
more common in the business world. This shift toward integration and
standardization is viewed by many companies as a way to significantly
reduce the cost of supporting PC applications in their organizations.
The growing market for workgroup computing software has also affected
the corporate, government, and education segments. This category of
software provides the ability for groups of people to exchange messages,
documents, and data easily over an electronic network, and has become
increasingly important to businesses as a tool for increasing employee
efficiency. Many software publishers continue to develop and improve
workgroup software, and view workgroup computing as one of the most
important applications of computer technology in this decade.
The increasing complexity of software has lead many organizations to
seek additional technical, asset management, and software distribution
services. Many organizations are now outsourcing their microcomputer
software servicing, and developing partnerships between software
resellers and technical service firms.
Prices of microprocessor chips continue to fall due to increased
competition among computer manufacturers. Competitors in the IBM*-
compatible PC microprocessor market, and the availability of new types
of microprocessors in the market (i.e., Power PC by Motorola/IBM),
continue to force PC prices down. Lower PC prices have resulted in
increased sales of PCs to businesses and individual consumers.
Price performance improvements in microcomputer hardware and the
availability of CD-ROM technology have had a dramatic impact on the
retail segment of the market. Sales of PC hardware accessories, such as
multimedia hardware and modems, have increased as consumers enhance
their PCs. Multimedia capability has enabled home users to more
effectively use microcomputers for educational and entertainment
purposes.
Products and Services
Egghead sells PC software programs and related products, PC hardware,
computer-related magazines and books, tutorials, and selected peripheral
devices and accessories. Certain of these products are sold under the
"Egghead" private label. Egghead has approximately 1,600 software
programs (including both IBMr-compatible and Appler Macintoshr software
packages) and other products in its retail stores, and thousands more
available for delivery from the Company's distribution centers or
through special order.
The Company's CGE sales group also sells volume license agreements and
vendor maintenance agreements. Volume license agreements typically
entitle customers to predetermined price discounts based on their
purchase volume. Maintenance agreements entitle customers to all
upgrades of certain products during a specified period of time. Due to
the significant cost savings to corporate, government, and education
customers, management believes this trend toward volume license and
maintenance agreements will continue.
The Company offers a broad array of customer support services to assist
customers in the selection and administration of their software
purchases, including the following:
Custom Updates and Eggstras (CUESM) program - a preferred customer
membership program providing discounts and other benefits in the
retail stores. CUESM also provides the Company with a valuable
database of customers, their PC equipment profiles, and a history of
their software purchases.
Customer Usage Report - a report for corporate, government, and
education customers that lists purchasing activity for up to the
previous 15 months. Over 600 of these reports are generated for
customers each month.
Eggheadr Express* - a Windows-based PC application which allows
customers to verify price and inventory, send orders, check the
status of orders, and exchange messages with Egghead electronically.
Electronic Bulletin Board - a comprehensive library of the most
commonly needed patches and drivers which can be down-loaded to CGE
customers.
Electronic Data Interchange (EDI) - the ability to conduct business
electronically using electronic business documents based on published
national and industry standards. As of April 2, 1994, the Company
conducted business with over 50 customers using EDI. In fiscal year
1994, the Company extended this system to transactions with
suppliers.
Master Upgrade Agreement - a single agreement authorizing a U.S.
organization to upgrade products from sixteen manufacturers without
the administrative burden of collecting the title pages, serial
numbers, or other proof of ownership for previous versions.
Price List Updates - each month the Company updates a list of
approximately 200 core products and their prices. This list is
available to any CGE customer who requests it.
Product Information Centers - a CD-ROM-based system updated monthly
with information on certain products. Articles can be obtained from
all major personal computer publications and sent to customers as
requested.
Software Asset ManagementSM (SAMSM) - a service which provides
corporate, government, and education customers with an inventory of
their software assets, guidance on licensing issues, and a suggested
plan for future purchases.
Technical Support - a "help desk" support service that helps the
Company's corporate contract customers resolve difficult
compatibility problems and provides technical support.
Volume License and Maintenance Contract Administration - includes
contract execution, disk duplication and documentation fulfillment,
vendor reporting, and other contract administration services for
volume license agreements and vendor maintenance agreements between
vendors and Egghead customers.
Workflow Development - consulting services to define, develop, and
implement a more efficient workflow process to streamline customers'
business practices.
Marketing, Advertising, and Promotion
Egghead's marketing philosophy is to position itself as the reseller of
choice by providing the customer with the best value in terms of
competitive prices, selection, service, and convenience. In addition,
Egghead strives to create primary demand for the products it sells. The
Company's strategy to meet these objectives is to use aggressive
advertising and marketing efforts.
The Company's advertising campaign emphasizes a broad selection of
available merchandise and competitive prices. Advertising is also used
to promote major new product launches.
Egghead's primary advertising medium is direct mail, which is used to
target the highly identifiable segment of the population which owns
and/or uses computers. In addition to a database of more than 2.3
million of its CUE customers, Egghead sends regular direct mail product
promotions to purchased lists of computer owners. The Company also uses
newspaper, both local and national, as well as national computer
publications, as part of its media mix.
Egghead has entered into cooperative advertising and other promotional
and market development fund agreements with numerous manufacturers and
distributors. The funds obtained through these agreements assist the
Company in achieving high visibility in the marketplace.
Customers
Egghead has a diverse customer base and uses specific marketing
strategies to target different customer segments. The first three
segments, corporations, government agencies, and educational
institutions, are served mainly by Egghead's CGE sales group. The
fourth and fifth segments, individuals and small businesses, are served
by Egghead's retail store operations and mail order groups.
Corporate, Government, and Education Sales Group
Corporate Customers. Egghead's CGE sales group competes for customers
in the United States and Canada by providing customers a wide selection
of products, competitive prices, convenience, support services, and
technology consulting services. The Company also has a call center in
Appledoorn, The Netherlands to support the needs of its corporate
customers with operations in Western Europe.
The CGE sales force provides product demonstrations and seminars,
processes orders quickly and accurately, and provides value-added
customer support services for its customers in a number of other ways.
For further information on services provided, see the Products and
Services section beginning on page 4.
Egghead's CGE sales force, supported by an on-line sales order entry
system, orders software and related products from the Company's
distribution centers for quick delivery directly to the customer.
Despite large aggregate purchases, most individual orders by the
Company's customers are for a small number of items and require prompt
delivery to different locations. The Company also continues to be a
leader in providing EDI support for its corporate customers.
CGE outside sales representatives work in one of the 13 regional sales
support centers, in their homes, or in a sales office to provide
personal service to businesses in their trading area. The 13 regional
sales support centers are located in ten states and Canada. Inside
sales support staff and technical sales support representatives work out
of the regional sales support centers. All sales personnel provide
individualized attention and knowledgeable service to customers.
The Company currently has thousands of corporate and government sales
accounts, including major customers such as AT&T, The Boeing Company,
International Business Machines Corporation, and 3M (Minnesota Mining
and Manufacturing). In fiscal 1994, no single customer represented more
than 3% of the Company's total net sales.
Government Agencies. The Company has a government accounts program that
targets federal, state, and local governmental entities throughout the
United States. Egghead is currently an authorized Federal Government
General Services Administration (GSA) Schedule C vendor under an
agreement which expires on March 31, 1995. Government agencies
typically require competitive prices, prompt delivery to different
locations, and unique ordering and billing procedures.
Educational Institutions. The Company's educational sales group targets
educational institutions nationwide. As the number of PCs in schools
continues to grow, so does the need for software.
Retail Operations
Egghead's retail stores are designed to provide a pleasant shopping
environment for walk-in customers, primarily individuals who purchase PC
software for their personal use and/or for use in a small business. A
knowledgeable sales force assists customers in selecting software and
related products.
Egghead's retail stores offer customers competitive prices, a wide
selection of products, excellent service, and convenient store
locations. Each store stocks approximately 1,600 products, including
software, books, and accessories, with thousands more available through
the Company's distribution centers or through special order.
A typical Egghead store contains approximately 1,900 square feet of
retail selling space. Most of the stores are located in strip shopping
centers. Egghead stores are located where the Company's customers live
and work to save them time when they shop. Egghead provides in-store
demonstration of software, with most stores having three personal
computers for use by customers in evaluating software in the stores:
two IBMr PC compatibles and an Appler Macintoshr. The Company is
continually examining its retail store format in order to meet the needs
of its customers.
The Company's retail operations also include two mail order businesses,
1-800-EGGHEAD and Rocky Mountain Computer Outfitters (formerly Mac's
Place).
Merchandising
Egghead purchases most of its products through a central merchandise
buying department. Inventory levels and product mix are based upon
rates of sale, seasonality, and store demographics and size. The
Company also special orders non-inventoried software products to satisfy
customers' special needs.
Egghead's decision to buy merchandise directly from manufacturers or
through distributors is determined on a transaction-by-transaction basis
depending on cost, availability, and potential product obsolescence.
For certain products, Egghead has sufficient sales volume to purchase
directly from manufacturers at volume discounts. The Company purchases
software and other products directly from more than 250 manufacturers.
Egghead minimizes the administrative overhead associated with buying
products from hundreds of smaller manufacturers by using a limited
number of distributors.
Egghead conducts business with major vendors including Microsoft, Lotus,
and WordPerfect. In fiscal years 1994, 1993, and 1992, sales derived
from software programs supplied by Microsoft represented approximately
28%, 26% and 20% of total net sales, respectively.
Egghead has certain exchange and return privileges with many of its
vendors, which typically include time, volume, and other limitations.
These exchange and return privileges allow the Company to reduce the
risk of loss resulting from obsolete and defective merchandise.
Distribution
Most inventory that Egghead purchases is received in one of the
Company's distribution facilities before it is sent to a customer or to
a retail store. Some purchases are sent directly from vendors or
distributors to stores or customers. The Company's distribution
facilities also process most returned merchandise. Orders from the
Company's CGE sales group are filled from the distribution facilities
every week day. Orders from the Company's retail stores are filled on a
weekly basis. The Company leases a 121,000 square foot facility in
Sacramento, California, and a 125,000 square foot facility in Lancaster,
Pennsylvania.
Egghead's distribution system recently became ISO9003 certified. ISO
(International Standards Organization) has a series of standards for
quality assurance which are accepted by the European community and by
more than 50 nations worldwide. The Company was required to develop,
document, and define its quality assurance system and quality management
practices to become ISO9003 certified.
The manner in which microcomputer software products are sold and
distributed is changing rapidly. Other methods of distribution, such as
Volume License and Maintenance contracts and Electronic Software
Distribution (ESD), could have an impact on how the Company distributes
products in the future.
Competition
The business of selling microcomputer software is very competitive. The
Company currently competes with other "direct sales" organizations,
other software retailers, value-added resellers, computer and office
superstores, consumer electronic superstores, mass merchandisers, mail-
order companies, and software publishers that sell directly to end-
users.
Egghead's primary competition from other software "direct sales"
organizations, comes from Corporate Software, Inc., Software Spectrum,
Softmart, Inc., and 1-800-Software. Egghead also competes with "value-
added resellers," such as Governmental Technical Services, Inc., a
company that focuses mainly on selling in the government marketplace.
Other software retail competitors include mall-based stores such as
Electronics Boutique, Babbages, and Software Etc. Management believes
these stores offer a less extensive PC software product selection than
Egghead and are generally less price competitive.
Computer and office superstores, such as CompUSA, Computer City, Micro
Center, and Office Depot provide significant competition for Egghead's
retail stores in the markets in which they are located. These stores
are very price competitive. Computer superstores typically offer a wide
product selection, while office superstores have a more limited
selection. Management believes the customer service offered by computer
and office superstores for software products is generally limited.
Consumer electronic superstores, such as Best Buy and Circuit City are a
growing source of competition for the Company's retail stores in the
markets in which they operate. Although they are very price
competitive, management believes these stores have a more limited
software product assortment and offer less customer service for software
products than Egghead.
Mass merchandisers, such as Wal-Mart and Sears, and warehouse clubs,
such as SAM's and Price/Costco, generally concentrate on basic software
products and carry relatively few titles. Customer service by mass
merchandisers and warehouse clubs for software products is very
limited.
Mail-order businesses, such as MicroWarehouse and PC Connection, are
another important retail channel for software sales. Mail-order
businesses generally compete based on low prices but provide limited
customer service and do not provide demonstration capabilities.
Software publishers continue to directly market and sell to end-users.
There has also been a continuing trend of software publishers offering
new software products at deeply discounted introductory prices.
Management believes that software publishers generally do not offer the
breadth of product selection or scope of services necessary to maintain
corporate accounts.
Because the microcomputer software market is very competitive, software
resellers typically have low gross margins and operating income as a
percentage of sales. Therefore, the Company's profitability is highly
dependent upon effective internal and cost controls.
Employees
At April 2, 1994, Egghead had approximately 2,500 employees, (including
temporary employees) consisting of approximately 1,700 retail personnel,
300 CGE personnel (including both sales and administrative personnel),
200 distribution center employees, and 300 headquarters personnel. None
of the Company's employees is represented by a union.
Trademarks and Tradenames
"EGGHEADr," "EGGHEAD DISCOUNT SOFTWAREr," "EGG CARTONr," "EGGSPERTr,"
the "PROFESSOR EGGHEADr" design, and "EGGCESSORIESr," are registered in
the United States Patent and Trademark Office as service marks or
trademarks of the Company. The Company also does business under the
trade names "Egghead Software" and "Egghead Discount Software." In
addition, the Company is the owner of a number of common law trademarks
and service marks, including "SOFTWARE ASSET MANAGEMENTSM," "SAMSM,"
"CUESM," "EGGHEADr EXPRESS*," and certain "EGG" combination words. The
Company believes the strength of its trademarks and service marks
benefits its business and intends to continue to protect and promote its
registered and common law trademarks and service marks.
Environmental Laws
Compliance with federal, state, and local laws enacted for protection of
the environment has had no material effect upon Egghead's capital
expenditures, earnings, or competitive position. The Company does not
anticipate any material adverse effects in the future based on the
nature of its operations and the current thrust of such laws.
Item 2. Properties
At April 2, 1994, Egghead operated 13 Corporate, Government, and
Education (CGE) regional sales support centers in ten states and Canada,
and operated 189 retail stores in 30 states, the District of Columbia,
and Canada. Most of the Company's stores are located in strip shopping
centers to provide customers convenient access. The Company has not
opened, nor does it intend to open, retail stores on a franchise basis.
As of April 2, 1994, the Company's retail stores and CGE regional sales
support centers were located as follows:
<TABLE>
<CAPTION>
<C> <C>
Number of Number of
<S> Retail CGE Regional Sales
Location Outlets Support Centers
Arizona 3 -
Canada 3 2
California 50 2
Colorado 4 1
Connecticut 2 -
District of Columbia 3 -
Florida 4 -
Georgia 3 1
Illinois 16 1
Indiana 2 -
Kansas 1 -
Maryland 8 -
Massachusetts 10 1
Michigan 6 -
Minnesota 4 1
Missouri 2 -
New Jersey 11 -
New Mexico 1 -
New York 10 -
Nevada 1 -
North Carolina 4 -
Ohio 4 -
Oklahoma 1 -
Oregon 4 -
Pennsylvania 7 1
Rhode Island 1 -
Tennessee 1 -
Texas 4 1
Utah 1 -
Virginia 9 1
Washington 7 1
Wisconsin 2 -
Total 189 13
</TABLE>
The Company leases all of its retail stores under leases expiring from
fiscal 1995 to fiscal 2000. The Company expects that those leases with
terms expiring during fiscal year 1995 could be renewed under
substantially similar terms. Substantially all of the Company's leases
provide for a minimum monthly rent that is either constant or adjusts
periodically throughout the lease term, including renewal periods.
The Company leases its CGE regional sales support centers under leases
expiring from fiscal 1995 through fiscal 1997.
The Company leases its administrative offices in Issaquah, Washington;
distribution facilities in Lancaster, Pennsylvania, and in Sacramento,
California; and an additional storage facility in Kent, Washington. The
lease terms on the Company's administrative and distribution facilities
expire from fiscal 1996 to fiscal 2000, with renewal options available.
The Company owns one office building in Kalispell, Montana, which is
occupied by the Company's mail order subsidiary, Rocky Mountain Computer
Outfitters.
See Note 4 of Notes to Consolidated Financial Statements on page 31 for
additional information about the Company's leases.
Item 3. 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
There were no matters submitted to a vote of security holders in the
fourth quarter of fiscal year 1994.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters
Market and Market Price for Common Stock
Egghead's common stock, $0.01 par value, is traded over the counter
under the symbol EGGS and is quoted as part of the NASDAQ National
Market System.
The closing market prices per share of the Company's common stock during
the fiscal years ended April 3, 1993, and April 2, 1994, respectively,
are set forth below. The prices reflect last sale prices as reported by
NASDAQ.
<TABLE>
<CAPTION>
<C> <C>
High Low
<S>
Quarter ended July 18, 1992 $27.50 $16.25
Quarter ended October 10, 1992 18.75 8.25
Quarter ended January 2, 1993 12.00 7.75
Quarter ended April 3, 1993 11.00 7.75
Quarter ended July 24, 1993 $9.88 $7.38
Quarter ended October 16, 1993 8.63 6.75
Quarter ended January 8, 1994 9.75 7.00
Quarter ended April 2, 1994 10.63 8.63
</TABLE>
Holders
The approximate number of holders of record of Egghead's common stock as
recorded on the books of Egghead's Registrar and Transfer Agent as of
May 27, 1994, was 1,618.
Dividends
The Company has never paid cash dividends on its capital stock and does
not plan to pay cash dividends in the foreseeable future. The Company's
revolving line of credit restricts the payment of dividends by the
Company. See Note 3 of Notes to Consolidated Financial Statements on
page 30.
<TABLE>
<CAPTION>
Item 6. Selected Financial Data
<C> <C> <C> <C> <C>
Fiscal Year
1994 1993 1992 1991 1990
(Dollars in thousands,
<S> except per share data)
Consolidated Statements of
Operations Data:
Net sales $778,327 $725,447 $664,850 $518,542 $456,342
Cost of sales, including
certain buying, occupancy,
and distribution costs 675,377 618,618 549,850 427,840 376,302
Gross margin 102,950 106,829 115,000 90,702 80,040
Selling, general, and
administrative expense 89,496 85,070 84,262 68,332 75,294
Depreciation and amortization
expense, net of amounts
included in cost of sales 8,681 7,062 5,254 4,985 6,049
Provision for restructuring
costs 4,400 2,700 - - -
Provision for shareholder
litigation 1,200 - - 800 3,100
Operating income (loss) (827) 11,997 25,484 16,585 (4,403)
Other (expense) income:
Interest expense (82) (248) (342) (444) (1,106)
Interest income 352 290 515 222 96
Other, net (285) (679) (313) 166 (1,667)
Income (loss) before income
taxes (842) 11,360 25,344 16,529 (7,080)
Income tax benefit/(provision) 328 (4,430) (9,631) (1,166) (586)
Net income (loss) $(514) $6,930 $15,713 $15,363 $(7,666)
Per share amounts:
Primary earnings (loss)
per share $(0.03) $0.41 $0.92 $0.92 $(0.47)
Fully diluted earnings (loss)
per share $(0.03) $0.41 $0.90 N/A N/A
Note: Fiscal year 1993 had 53 weeks. All other fiscal years presented had 52
weeks.
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C>
Fiscal Year
1994 1993 1992 1991 1990
(Dollars in thousands)
Operating Data:
Number of retail stores:
Open at end of period 189 205 182 187 200
Opened during period 3 33 5 1 19
Closed during period 19 10 10 14 15
Weighted average number
open during period (1) 197 195 182 190 202
Number of Retail stores open
at the end of each month
of fiscal 1994:
April 1993 204
May 1993 203
June 1993 200
July 1993 202
August 1993 199
September 1993 195
October 1993 194
November 1993 194
December 1993 194
January 1994 192
February 1994 191
March 1994 189
Balance Sheet Data:
Working capital $119,838 $121,711 $115,338 $100,165 $78,924
Total assets 256,010 263,216 235,349 192,329 169,908
Bank loans - - - - 12,000
Long-term debt - - - - -
Shareholders' equity 143,416 142,990 135,233 115,170 98,436
(1) Calculated by dividing the total number of store days open during
the period by the number of days in that period.
See Notes to Consolidated Financial Statements.
</TABLE>
Selected financial data for each quarter of fiscal years 1994 and 1993 follows
(in millions, except per share data). Fiscal quarters are such that the first
quarter consists of 16 weeks, the second and third quarters are each 12 weeks,
and the fourth quarter consists of the remaining 12 or 13 weeks. Fiscal year
1994 had 52 weeks and fiscal year 1993 had 53 weeks. The fourth quarter of
fiscal 1993 had 13 weeks, compared to 12 weeks in the fourth quarter of fiscal
1994.
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C> <C> <C> <C>
First Quarter Second Quarter Third Quarter Fourth Quarter
1994 1993 1994 1993 1994 1993 1994 1993
<S>
Net sales $218.2 $202.1 $156.7 $139.5 $208.6 $188.3 $194.9 $195.6
Gross margin 32.3 30.3 21.0 20.0 25.6 26.9 24.0 29.7
Selling, general, and
administrative
expense 28.9 25.5 18.2 17.2 21.1 19.2 21.3 23.2
Provision for
restructuring
costs 4.4 - - - - 2.1 - 0.6
Provision for
shareholder
litigation - - - - 0.1 - 1.1 -
Operating income
(loss) (3.5) 2.8 0.9 1.2 2.3 4.0 (0.5) 4.0
Income (loss) before
income taxes (3.3) 2.8 0.8 1.1 2.3 3.8 (0.6) 3.7
Net income (loss)(2.0) 1.7 0.5 0.7 1.4 2.3 (0.4) 2.2
Earnings (loss)
per share $(0.12) $0.10 $0.03 $0.04 $0.08 $0.14 $(0.02) $0.13
</TABLE>
<TABLE>
<CAPTION>
The following table shows the relationship of certain items included in the
Company's quarterly Consolidated Statements of Operations expressed as a
percentage of net sales:
<C> <C> <C> <C> <C> <C> <C> <C>
First Quarter Second Quarter Third Quarter Fourth Quarter
1994 1993 1994 1993 1994 1993 1994 1993
<S>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross margin 14.8 15.0 13.4 14.3 12.3 14.3 12.3 15.2
Selling, general,
and administrative
expense 13.2 12.6 11.6 12.3 10.2 10.2 10.9 11.9
Provision for
restructuring
costs 2.0 - - - - 1.1 - 0.3
Provision for
shareholder
litigation - - - - - - 0.6 -
Operating income
(loss) (1.6) 1.4 0.6 0.9 1.1 2.1 (0.3) 2.0
Income (loss) before
income taxes (1.5) 1.4 0.5 0.8 1.1 2.0 (0.3) 1.9
Net income
(loss) (0.9)% 0.9% 0.3% 0.5% 0.7% 1.2% (0.2)% 1.1%
Effective the beginning of fiscal 1995, the Company will change it's fiscal
quarters such that each quarter will consist of 13 weeks. The quarterly
results the Company would have reported if the 13-week quarter format was used
during fiscal 1994 are shown on page 36.
See Notes to Consolidated Financial Statements.
</TABLE>
Item 7. 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. Fiscal years 1994 and 1992 each had 52
weeks and fiscal year 1993 had 53 weeks. All references herein to
fiscal 1994, 1993, and 1992 relate to the fiscal years ended April 2,
1994, April 3, 1993, and March 28, 1992, respectively.
Effective the beginning of fiscal 1995, the Company will change it's
fiscal quarters such that each quarter will consist of 13 weeks. The
quarterly results the Company would have reported if the 13-week quarter
format was used during fiscal 1994 are shown on page 36.
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>
<CAPTION>
<C> <C> <C>
1994 1993 1992
<S>
Net sales 100.0% 100.0% 100.0%
Cost of sales, including certain
buying,occupancy, and
distribution costs 86.8 85.3 82.7
Gross margin 13.2 14.7 17.3
Selling, general, and administrative
expense 11.5 11.7 12.7
Depreciation and amortization expense,
net of amounts included in cost
of sales 1.1 1.0 0.8
Provision for restructuring costs 0.6 0.4 -
Provision for shareholder litigation 0.1 - -
Operating income (loss) (0.1) 1.6 3.8
Income (loss) before income taxes (0.1) 1.6 3.8
Income tax benefit/(provision) - (0.6) (1.4)
Net income (loss) (0.1)% 1.0% 2.4%
</TABLE>
Net sales increased $72.4 million, or 10%, to $778.3 million in fiscal
1994 compared to $705.9 million in fiscal 1993, excluding the 53rd week,
which were $41.0 million, or 6%, greater than net sales of $664.9
million in fiscal 1992. Including the 53rd week in fiscal 1993, fiscal
1994 net sales increased $52.9 million, or 7%, compared to fiscal 1993.
During the last week of fiscal 1993, the Company launched a promotion
for the sale of Microsoftr DOS 6.0 (DOS 6). Major new product releases
by the Company's vendors have historically had a positive affect on
sales.
Net sales of $194.9 million for the fourth quarter of fiscal 1994
increased $18.9 million, or 11%, compared to $176.0 million in the
fourth quarter of fiscal 1993, excluding the extra week. Including the
extra week in the fourth quarter of fiscal 1993, fourth quarter fiscal
1994 net sales decreased $0.7 million.
Corporate, Government and Education Sales
Corporate, government and education (CGE) sales operations generated
$404.8 million of net sales in fiscal 1994, a $9.8 million, or 2%,
increase compared to $395.0 million in fiscal 1993, excluding the 53rd
week, which were $18.5 million, or 5%, greater than net sales of $376.5
million in fiscal 1992. Including the 53rd week in fiscal 1993, fiscal
1994 CGE sales increased $0.9 million. CGE sales accounted for 52%,
56%, and 57% of total net sales in fiscal 1994, 1993, and 1992,
respectively.
The Company lowered prices during the second quarter of fiscal 1994 in
both its CGE and retail businesses to improve its competitive position.
During the second half of fiscal 1994, there was a decrease in the
average selling price per unit for CGE compared to last year, while the
number of units sold increased slightly. Management believes its
restructuring initiative in CGE affected sales during fiscal 1994. See
further discussion on restructuring in the provision for restructuring
costs section on page 19.
Management believes the fiscal 1993 CGE sales increase was mainly due to
expanding into new markets and major new product introductions during
fiscal 1993. This improvement was partially offset by slow-downs in
buying by some of the Company's major customers in the aerospace and
government industries during fiscal 1993. The Company also experienced
increased CGE sales competition in many markets during fiscal 1993,
which affected sales compared to fiscal 1992.
Total CGE sales of $93.4 million in the fourth quarter of fiscal 1994
decreased $0.3 million compared to $93.7 million in the fourth
quarter of fiscal 1993, excluding the extra week. Including the 53rd
week in fiscal 1993, fiscal 1994 fourth quarter CGE sales decreased $9.2
million, or 9%. As previously noted, during the last week of fiscal
1993, the Company launched a promotion for the sale of DOS 6.
Retail
Retail sales operations generated $373.5 million of net sales in fiscal
1994, a $62.6 million, or 20% increase, compared to $310.9 million in
fiscal 1993, excluding the 53rd week, which were 8% greater than net
sales of $288.4 million in fiscal 1992. Including the 53rd week in
fiscal 1993, fiscal 1994 retail sales increased $51.9 million, or 16%.
Retail sales accounted for 48%, 44%, and 43%, of total sales in fiscal
1994, 1993, and 1992, respectively.
Comparable retail store sales increased 13% in fiscal 1994 compared to
fiscal 1993, excluding the 53rd week. As previously noted, the Company
lowered prices during the second quarter of fiscal 1994 to improve its
competitive position. The number of units sold in retail increased
during fiscal year 1994, compared to last year.
There was also an increase in mail order sales in fiscal 1994 due mainly
to the acquisition of a new mail order subsidiary, Rocky Mountain
Computer Outfitters (Computer Outfitters), formerly Mac's Place, during
the second quarter of fiscal 1994.
Management believes the fiscal 1993 sales growth was mainly due to the
net addition of 23 stores from the end of fiscal 1992 to April 3, 1993.
Excluding the 53rd week in fiscal 1993, comparable retail store sales
were flat compared to fiscal 1992. Management believes the comparison
of fiscal 1993 to fiscal 1992 was affected by a promotion for a major
product introduction run during the beginning of fiscal 1992 (DOS 5) and
the momentum gained from that promotion, which resulted in record
comparable retail store sales growth of 31% in fiscal 1992 compared to
fiscal 1991.
Total retail sales of $101.5 million in the fourth quarter of fiscal
1994 increased $19.2 million, or 23%, compared to $82.3 million in the
fourth quarter of fiscal 1993 excluding the extra week. Including the
53rd week in fiscal 1993, fiscal 1994 fourth quarter retail sales
increased $8.5 million, or 9%.
Comparable retail store sales increased approximately 18% in the fourth
quarter of fiscal 1994 compared to the fourth quarter of fiscal 1993,
excluding the extra week.
During fiscal 1994, the Company opened three stores and closed 19,
operating a total of 189 stores at April 2, 1994. This compares to the
addition of 33 retail stores, closure of ten, and relocation of four
during fiscal 1993. The Company will continue to evaluate individual
store performance and make changes during the ordinary course of
business during fiscal 1995.
Gross margin (net sales minus cost of sales, including certain buying,
occupancy, and distribution costs) as a percentage of net sales was
13.2% in fiscal 1994, compared to 14.7% and 17.3% in fiscal years 1993
and 1992, respectively. The Company lowered prices in both its CGE and
Retail businesses during the second quarter of fiscal 1994 to improve
its competitive position. As discussed in the Company's previous Forms
10-Q and fiscal 1993 Form 10-K, gross margin as a percentage of sales
had been affected by industry-wide pricing pressure related to both
competitors' pricing and vendors' pricing.
The factors discussed above which reduced gross margin as a percentage
of sales in fiscal 1994 were partially offset by certain costs, such as
retail occupancy and distribution costs, remaining relatively constant
while sales increased. Also offsetting the decline was the impact of
retail sales making up a larger percentage of total sales compared to
last year. Retail sales, compared to CGE sales, typically have higher
margins and lower volume per transaction.
Gross margin as a percentage of net sales was 12.3% in the fourth
quarter of fiscal 1994, unchanged from 12.3% in the third quarter.
The decrease in gross margin as a percentage of sales from fiscal 1992
to fiscal 1993 also resulted mainly from industry-wide pricing pressure
related to both competitors' pricing and vendors' pricing. Also
contributing to the gross margin decline were lower-margin products
making up a larger percentage of total sales in fiscal year 1993
compared to fiscal year 1992 and the Company's commitment to price
products competitively in its CGE and Retail businesses.
In addition, the Company launched its CUE membership program in the
first quarter of fiscal 1993, which offers retail customers a 5%
discount on retail purchases, as well as special events and promotional
mailings tailored to their individual needs.
Selling, general, and administrative (SG&A) expense as a percentage of
net sales was 11.5% in fiscal 1994, compared to 11.7%, and 12.7% in
fiscal years 1993 and 1992, respectively. The fiscal 1994 amount
includes savings resulting from restructuring actions initiated by
management to lower the Company's cost structure to improve its ability
to compete. See further discussion in the provision for restructuring
costs section on the following page.
Most of the savings associated with this restructuring were offset by a
decrease in marketing revenue and additional expenses from Computer
Outfitters, the Company's new mail order subsidiary.
During fiscal 1995, management plans to continue to invest in strategic
projects, facilities, and technology that will support the Company's
continued growth and improve long-term productivity and efficiency.
The improvement in SG&A expense as a percentage of sales from 12.7% in
fiscal 1992 to 11.7% in fiscal 1993 was mainly due to a decrease in
marketing expense as a percentage of net sales. In fiscal 1992, as part
of the Company's DOS 5 promotion, the Company's retail customers were
given a $20 rebate at the point of sale for completing a questionnaire
regarding the type of hardware or software they owned or used. The
rebates were recorded as marketing expense. This decrease in SG&A
expense as a percentage of net sales from fiscal 1992 to fiscal 1993 was
partially offset by costs of company-wide expansion and costs of adding
or enhancing programs and systems in fiscal 1993.
Depreciation and amortization expense, net of amounts included in cost
of sales, was $8.7 million in fiscal 1994, compared to $7.1 million and
$5.3 million in fiscal years 1993 and 1992, respectively. The increases
from fiscal 1993 to fiscal 1994 and from fiscal 1992 to fiscal 1993
resulted from additions to property and equipment, as discussed on
page 20.
Provision for restructuring costs was $4.4 million, or 0.6% of net
sales, in fiscal 1994. During fiscal 1994, the Company lowered its cost
structure to improve its ability to compete. The $4.4 million included
employee relocation costs, severance costs, and early lease termination
costs.
During the third and fourth quarters of fiscal 1993, the Company
established a reserve for restructuring charges totaling $2.7 million.
The reserve was primarily related to reorganizing the Company's CGE
sales group to improve customer service. In addition, other Company
departments were reduced in size due to the impact of the reorganization
in CGE and for improved efficiency.
Provision for shareholder litigation of $1.2 million in fiscal 1994
represents a charge for the settlement and related attorneys' fees, net
of an expected insurance recovery, related to the legal proceedings
described in Note 10 of Notes to Consolidated Financial Statements on
page 36.
Operating income (loss), as a result of the foregoing factors, was a
loss of $0.8 million in fiscal 1994, compared to income of $12.0 million
and $25.5 million in fiscal years 1993 and 1992, respectively. The
fiscal 1994 operating loss was negatively impacted by the $4.4 million
provision for restructuring costs and the $1.2 million provision for
shareholder litigation previously discussed, and the operating results
of Computer Outfitters.
Financial Condition
Net accounts receivable increased $11.5 million from $64.7 million at
April 3, 1993, to $76.2 million at April 2, 1994. The increase was due
partly to an increase in credit card receivables due to a new payment
schedule. This change was made in exchange for lower fees. Also
contributing to the increase was a receivable for the estimated
insurance recovery related to the settlement of the shareholder
litigation discussed above.
Merchandise inventories decreased $20.1 million, or 15%, from $137.2
million at April 3, 1993, to $117.1 million at the end of fiscal 1994.
Inventory for a major new product introduction was received just prior
to the end of fiscal 1993. In addition, the Company had 16 fewer stores
at the end of fiscal 1994 than at the end of fiscal 1993. The decrease
also reflects an effort by management to increase inventory turns.
Current and non-current deferred income taxes totaling $11.1 million and
$9.8 million at April 2, 1994, and April 3, 1993, respectively, resulted
from taxes paid on temporary differences which caused taxable income to
exceed financial reporting income.
Net property and equipment decreased $1.8 million, from $21.2 million at
the end of fiscal 1993, to $19.4 million at April 2, 1994. The decrease
resulted primarily from depreciation taken on the Company's existing
base of fixed assets partially offset by additions to property and
equipment in the ordinary course of business and the acquisition of
certain assets of Computer Outfitters during fiscal 1994.
Accounts payable decreased $7.3 million, from $98.4 million at April 3,
1993, to $91.1 million at April 2, 1994. Accounts payable as a
percentage of total inventory (leveraging) was 78% and 72% at the end of
fiscal years 1994 and 1993, respectively. The Company continues to pay
vendors according to the negotiated terms.
Liquidity and Capital Resources
Cash provided by operating activities was $8.7 million in fiscal 1994
compared to $17.0 million and $6.3 million in fiscal years 1993 and
1992, respectively. A decrease in inventory, net of a decrease in
accounts payable, resulted in a $12.9 million source of cash in fiscal
1994, compared to fiscal 1993 when an increase in inventory, net of an
increase in accounts payable resulted in a $0.1 million use of cash.
This improvement was offset by a reduction in net income, a larger
increase in net accounts receivable in fiscal 1994 compared to fiscal
1993, and a smaller increase in accrued liabilities in fiscal 1994,
compared to fiscal 1993. For further information see the Consolidated
Statements of Cash Flows on page 26.
The $10.7 million increase in cash provided by operating activities in
fiscal 1993 compared to fiscal 1992 resulted mainly from smaller
increases in merchandise inventories and in trade and non-trade
receivables in fiscal 1993 than in fiscal 1992. This was partially
offset by a decrease in net income in fiscal 1993 compared to fiscal
1992.
During fiscal 1994, the Company financed its working capital
requirements and capital expenditures with proceeds from operations and
short-term borrowings. 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 rate for 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 minimum capital ratio, net worth, and working capital requirements.
The Company was in compliance with all financial covenants as of the end
of fiscal 1994. The Company had no outstanding borrowings under the
revolving loan agreement at April 2, 1994.
Capital expenditures in fiscal 1994 totaled approximately $9.5 million.
Capital expenditures consisted mainly of new personal computers (PCs)
for the stores, CGE sales, and headquarters personnel, a new telephone
system, and acquisition of certain assets of Mac's Place, Inc.
The PCs were purchased primarily to upgrade existing machines to enable
all employees to use workgroup computing software, which increases
efficiency by allowing employees to exchange messages, documents, and
other data over an electronic network. The telephone system was
purchased in order to support the corporate office and one of the CGE
regional sales support centers.
During the second quarter of fiscal 1994, the Company purchased certain
assets of Mac's Place, Inc., a mail order company. The Company also
purchased a building, including the land on which it is situated, in
Kalispell, Montana, which is occupied by Computer Outfitters (formerly
Mac's Place, Inc.).
Capital expenditures in fiscal 1993 totaled approximately $10.3 million.
Capital expenditures consisted mainly of new PCs for the stores, CGE
sales, and headquarters personnel. The PCs were purchased primarily to
upgrade existing machines to enable employees to run recent software
releases that the Company sells to its customers, as well as to install
PCs in the new stores for software demonstration.
In addition, the Company installed AS/400 computers in its two
distribution centers during the first quarter of fiscal 1993 to
facilitate the use of barcoding for receiving and shipping merchandise
inventory. The Company also added leasehold improvements and purchased
fixtures for the opening of new stores.
The Company expects that cash requirements for the foreseeable future
will be satisfied by cash flow from operations and borrowings under the
lines of credit. Depending on its rate of growth, the Company may
require additional financing, including bank borrowings and further
issuances of debt and/or equity securities.
Inflation
The Company does not believe that its business has been affected to any
significant degree by inflation.
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Egghead, Inc.:
We have audited the accompanying consolidated balance sheets of Egghead, Inc.
(a Washington corporation) and subsidiaries as of April 2, 1994 and April 3,
1993, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three fiscal years in the period ended
April 2, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Egghead, Inc. and
subsidiaries as of April 2, 1994 and April 3, 1993, and the results of their
operations and their cash flows for each of the three fiscal years in the
period ended April 2, 1994, in conformity with generally accepted accounting
principles.
Arthur Andersen & Co.
Seattle, Washington,
June 7, 1994
<TABLE>
<CAPTION>
EGGHEAD, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
<S>
ASSETS <C> <C>
April 2, April 3,
1994 1993
Current assets:
Cash and cash equivalents (Note 1) $ 25,677 $ 26,386
Accounts receivables, net of allowance for
doubtful accounts of $3,432 and $2,391,
respectively (Note 1) 76,241 64,720
Merchandise inventories (Note 1) 117,106 137,158
Prepaid expenses and other current assets 3,717 3,219
Current deferred income taxes (Notes 1 and 5) 8,085 7,850
Total current assets 230,826 239,333
Property and equipment, net (Notes 1 and 2) 19,351 21,214
Non-current deferred income taxes (Notes 1 and 5) 3,014 1,927
Other assets 2,819 742
$256,010 $263,216
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks (Note 3) $ - $ -
Accounts payable (Note 1) 91,055 98,410
Accrued liabilities (Note 1) 19,144 17,707
Income taxes payable (Note 5) 494 795
Current portion of capital lease obligations 295 710
Total current liabilities 110,988 117,622
Capital lease obligations, less current
portion (Note 4) 184 1,097
Deferred rent (Note 1) 1,422 1,507
Total liabilities 112,594 120,226
Commitments and contingencies (Note 4)
Shareholders' equity (Notes 1, 3 and 6)
Common stock, $.01 par value:
50,000,000 shares authorized; 17,121,438
and 16,982,737 shares issued and
outstanding, respectively 171 170
Additional paid-in capital 120,287 119,242
Retained earnings 22,958 23,578
Total shareholders' equity 143,416 142,990
$256,010 $263,216
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
EGGHEAD, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
<C> <C> <C>
1994 1993 1992
<S>
Net sales $778,327 $725,447 $664,850
Cost of sales, including certain buying,
occupancy and distribution costs 675,377 618,618 549,850
Gross margin 102,950 106,829 115,000
Selling, general, and administrative expense 89,496 85,070 84,262
Depreciation and amortization expense, net of
amounts included in cost of sales 8,681 7,062 5,254
Provision for restructuring costs 4,400 2,700 -
Provision for shareholder litigation (Note 10) 1,200 - -
Operating income (loss) (827) 11,997 25,484
Other (expense) income:
Interest expense (82) (248) (342)
Interest income 352 290 515
Other, net (285) (679) (313)
Income (loss) before income taxes (842) 11,360 25,344
Income tax benefit/(provision) (Notes 1 and 5) 328 (4,430) (9,631)
Net income (loss) $(514) $6,930 $15,713
Earnings (loss) per share (Note 1):
Primary:
Earnings (loss) per share $(0.03) $0.41 $0.92
Weighted average common shares and
common equivalent shares outstanding 17,088 17,090 17,074
Fully Diluted:
Earnings (loss) per share $(0.03) $0.41 $0.90
Weighted average common shares and
common equivalent shares outstanding 17,088 17,090 17,403
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
EGGHEAD, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(Amounts in thousands)
<C> <C> <C> <C> <C>
Additional
Common Stock Paid-in Retained
<S> Shares Amount Capital Earnings Total
Balance,
March 30, 1991 16,614 $166 $113,989 $1,015 $115,170
Stock issued for
cash, pursuant
to stock
option plan 261 3 2,720 - 2,723
Tax benefit related
to stock options - - 1,221 - 1,221
Stock issued for
cash, pursuant
to employee stock
purchase plan 35 - 406 - 406
Net income - - - 15,713 15,713
Balance,
March 28, 1992 16,910 169 118,336 16,728 135,233
Stock issued for
cash, pursuant
to stock
option plan 19 - 220 - 220
Tax benefit related
to stock options - - 82 - 82
Stock issued for
cash, pursuant
to employee stock
purchase plan 44 1 520 - 521
Stock granted as
compensation 10 - 84 - 84
Translation
adjustment - - - (80) (80)
Net income - - - 6,930 6,930
Balance,
April 3, 1993 16,983 170 119,242 23,578 142,990
Stock issued for
cash, pursuant
to employee stock
purchase plan 70 1 487 - 488
Tax benefit related
to stock options - - 6 - 6
Stock granted as
compensation 68 - 552 - 552
Translation
adjustment - - - (106) (106)
Net loss - - - (514) (514)
Balance,
April 2, 1994 17,121 $171 $120,287 22,958 $143,416
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
EGGHEAD, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
<C> <C> <C>
<S> 1994 1993 1992
Cash flows from operating activities:
Net income (loss) $(514) $6,930 $15,713
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 10,250 9,083 7,240
Deferred rent (85) 132 (171)
Deferred income taxes (1,322) (2,165) (2,303)
Stock issued as compensation 552 - -
Loss on disposition of property
and equipment 327 1,080 165
Changes in assets and liabilities:
Account receivable, net (11,796) (2,155) (12,583)
Merchandise inventories 19,948 (14,689) (26,141)
Prepaid expenses and other
current assets (499) (979) 1,479
Other assets (2,288) (52) 5
Accounts payable (7,040) 14,613 19,829
Accrued liabilities 1,449 5,281 2,354
Income taxes payable (295) (40) 707
Total adjustments 9,201 10,109 (9,419)
Net cash provided by operating
activities 8,687 17,039 6,294
Cash flows from investing activities:
Additions to property and equipment (9,483) (10,261) (11,028)
Proceeds from sale of equipment 117 107 57
Net cash used by investing
activities (9,366) (10,154) (10,971)
Cash flows from financing activities:
Proceeds from stock issuances 488 825 3,129
Payments made on capital lease
obligations (493) (595) (140)
Net cash provided (used) by
financing activities (5) 230 2,989
Effect of exchange rates on cash (25) (29) -
Net increase (decrease) in cash and cash
equivalents (709) 7,086 (1,688)
Cash and cash equivalents at beginning
of period 26,386 19,300 20,988
Cash and cash equivalents at end of period $25,677 $26,386 $19,300
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
EGGHEAD, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
<C> <C> <C>
1994 1993 1992
<S>
Supplemental disclosures of cash paid
during the year (in thousands):
Interest $76 $224 $296
Income taxes 1,314 6,802 11,226
</TABLE>
Supplemental disclosure of non-cash
investing and financing activities:
Capital lease obligations totaling $0.9 million and $1.6 million were recorded
in fiscal years 1993 and 1992, respectively, when the Company acquired new
equipment. In fiscal 1994, a $0.9 million capital lease obligation was
eliminated when the Company upgraded equipment.
In fiscal years 1994, 1993 and 1992, the Company recorded tax benefits of
$6,000, $82,000, and $1,221,000, respectively, resulting from the exercise of
non-qualified stock options and the disqualifying disposition of shares
acquired through incentive stock options and the employee stock purchase plan.
These tax benefits have been added to additional paid-in capital.
See Notes to Consolidated Financial Statements.
EGGHEAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
All references herein to fiscal 1994, 1993, and 1992 relate to the fiscal
years ended April 2, 1994, Aril 3, 1993, and March 28, 1992, respectively.
Note 1 Summary of Significant Accounting Policies
Business
Egghead, Inc. sells personal computer software and related products
through its wholly-owned subsidiaries, DJ&J Software Corporation (DJ&J,
d/b/a Egghead Software) and Eggspert Software, Ltd. (Eggspert, a
Canadian subsidiary), EH Direct, Inc. (EH Direct), and Egghead
International, Inc. (Egghead International). References to "the
Company" and "Egghead" include Egghead, Inc., its predecessors, and its
subsidiaries.
Consolidation
The Consolidated Financial Statements include the accounts of Egghead,
Inc. and its wholly-owned subsidiaries, DJ&J, Eggspert, EH Direct, and
Egghead International, and include all such adjustments and
reclassifications necessary to eliminate the effect of significant
intercompany accounts and transactions.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents.
The carrying amount of cash equivalents approximates fair value because
of the short-term maturity of those instruments.
Accounts Receivable
Company sales made on credit generally have terms of net 30 days. The
sales and corresponding trade receivables are recorded upon merchandise
shipment. The Company records provisions for doubtful accounts and
sales returns and allowances based upon historical experience.
Certain advertising and promotional expenditures are reimbursable from
suppliers under cooperative advertising and other promotional and market
development fund arrangements. Amounts qualifying for reimbursement are
recorded as receivables from the suppliers and as a corresponding
reduction of net advertising expense in the period the expenditure
occurs. Also included in accounts receivable are credit card
receivables and amounts due from vendors for returned inventory and
other programs. The Company records a provision for uncollectible
vendor receivables based upon historical experience.
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.
Property and Equipment
Property and equipment are stated at cost. Depreciation of equipment,
furniture, and fixtures is provided using the straight-line method over
their estimated useful lives ranging from three to seven years.
Depreciation of the building is provided using the straight-line method
over a 30-year estimated useful life. Amortization of leasehold
improvements is provided using the straight-line method over the lesser
of the lease term or the assets' estimated useful lives.
Accounts Payable
Outstanding checks included in accounts payable were $11.9 million and
$13.3 million at April 2, 1994, and April 3, 1993, respectively.
EGGHEAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 1 Summary of Significant Accounting Policies (continued)
Accrued Liabilities
Accrued compensation and benefits included in accrued liabilities were
$4.6 million and $6.6 million at April 2, 1994 and April 3, 1993,
respectively. The fiscal 1993 balance was higher due mainly to having
an extra week of payroll and benefits accrued at April 3, 1993, due to
having an extra week in fiscal 1993.
Deferred Rent
Certain store lease agreements provide for scheduled rent increases or
for rent payments to commence at a date later than the date of
occupancy. In these cases, the Company recognizes the aggregate rent
expense when the retail store opens on a straight-line basis over the
lease term.
Income Taxes
The Company determines its income tax accounts in accordance with
Statement of Financial Accounting Standards No. 109. Deferred income
taxes result primarily from temporary differences in certain items for
income tax and financial reporting purposes.
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 fiscal year ended April 2, 1994, because it was
anti-dilutive.
Foreign Currency Translation
Balance sheet accounts of DJ&J's Canadian branch are translated into
U.S. dollars at the exchange rate on the balance sheet date. Revenues,
costs, and expenses are translated at average exchange rates prevailing
during the fiscal year. Net translation gains or losses are recorded as
a component of retained earnings.
Fiscal Years
The Company uses a 52/53 week fiscal year, ending on the Saturday
nearest March 31 of each year. Fiscal quarters are such that the first
quarter consists of 16 weeks, the second and third quarters are each 12
weeks, and the fourth quarter consists of the remaining 12/13 weeks.
Fiscal year 1993 had 53 weeks, and fiscal years 1994 and 1992 each had
52 weeks.
Effective the beginning of fiscal year 1995, the Company will change
fiscal quarters such that each quarter will consist of 13 weeks. See
Note 8 for the Company's fiscal 1994 quarterly financial results as they
would have been reported if the Company had been using the 13-week
quarters.
Reclassifications
Certain reclassifications have been made to the fiscal 1993 and 1992
financial statements to conform to the fiscal 1994 presentation.
EGGHEAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 2 Property and Equipment
<TABLE>
The components of property and equipment at April 2, 1994 and
April 3, 1993 were as follows (in thousands):
<C> <C>
April 2, April 3,
<S> 1994 1993
Land and building $1,547 $-
Equipment 31,674 29,015
Leasehold improvements 9,053 9,135
Furniture and fixtures 8,988 9,246
51,262 47,396
Less accumulated depreciation and
amortization (31,911) (26,182)
Property and equipment, net $19,351 $21,214
</TABLE>
Note 3 Lines of Credit
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, 1993. 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 rate for 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
minimum capital ratio, net worth, and working capital requirements. The
Company was in compliance with all financial covenants as of
April 2, 1994.
A summary of borrowings under the lines of credit follows (in
thousands):
<TABLE>
<C> <C> <C>
Fiscal year
1994 1993 1992
<S>
Maximum amount outstanding $5,950 $21,600 $26,000
Average amount outstanding $350 $3,665 $5,395
Weighted average interest rate 3.9% 4.2% 5.5%
</TABLE>
EGGHEAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 4 Leases
The Company leases its retail stores, CGE regional sales support
centers, head-quarters, and distribution facilities under operating
leases with terms on most leases ranging from one to eleven years. The
terms on the remaining leases are month to month. Some leases contain
renewal options of one to five years which the Company may exercise at
the end of the initial lease term. The leases generally require the
Company to pay taxes, insurance, and certain common area maintenance
costs.
Aggregate rental expense, including common area maintenance charges, for
all operating leases for the fiscal years ended 1994, 1993, and 1992 was
approximately $18,012,000, $17,939,000, and $14,622,000, respectively.
As of April 2, 1994, future minimum rental payments under non-cancelable
operating and capital leases for retail stores, CGE sales offices,
headquarters and distribution facilities, and equipment consisted of the
following (in thousands):
<TABLE> <C> <C>
<S> Capital Operating
Fiscal Year leases leases
1995 $312 $14,805
1996 188 13,249
1997 - 11,297
1998 - 7,671
1999 - 3,917
Thereafter - 1,038
Total minimum payments 500 $51,977
Less interest (21)
Present value of minimum
lease payments 479
Less current portion (295)
Capital lease obligations,
less current portion $184
</TABLE>
EGGHEAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 5 Income Taxes
The provision (benefit) for income taxes is comprised of the following (in
thousands):
<TABLE>
<C> <C> <C>
Fiscal year
<S> 1994 1993 1992
Current:
Federal $777 $5,316 $9,692
State 217 1,279 2,242
994 6,595 11,934
Deferred:
Federal (1,152) (1,888) (2,048)
State (170) (277) (255)
(1,322) (2,165) (2,303)
Total $(328) $4,430 $9,631
</TABLE>
Deferred income taxes result primarily from temporary differences in certain
items for income tax and financial reporting purposes. The tax effects of
temporary differences giving rise to the deferred tax assets are as follows:
<TABLE>
<C> <C>
April 2, April 3,
1994 1993
<S>
Accounts receivables $942 $1,166
Merchandise inventories 3,532 4,148
Property and equipment 2,644 1,758
Other assets 54 -
Accrued liabilities 3,736 2,571
Deferred rent 191 134
Total deferred tax assets $11,099 $9,777
</TABLE>
Income tax differs from the amount computed by applying the statutory Federal
tax rate to income (loss) before taxes as follows:
<TABLE>
<C> <C> <C>
Fiscal year
1994 1993 1992
<S>
Statutory Federal tax rate (34.0)% 34.0% 34.0%
State taxes, net of Federal benefit 2.6 5.3 5.3
Tax exempt interest income (11.9) (0.7) (0.6)
Other, net 4.3 0.4 (0.7)
(39.0)% 39.0% 38.0%
</TABLE>
EGGHEAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 6 Stock Option and Stock Purchase Plans
Employee Stock Purchase Plan
The Egghead, Inc. 1989 Employee Stock Purchase Plan currently provides
options to acquire the Common Stock of the Company to substantially all
full-time and certain other employees at the lesser of 85% of the fair
market value of the Common Stock on August 1 of the first and second
plan years and July 1 thereafter or 85% of the fair market value on the
following July 31 of the first plan year and June 30 of each plan year
thereafter. Under the plan, a maximum of 650,000 shares were reserved
for issuance. As of April 2, 1994, there were 428,906 shares available
for future issuance.
The 1993 Stock Option Plan
In September 1993, the Company's shareholders approved the 1993 Stock
Option Plan (the "1993 Plan"), under which 2,000,000 shares of the
Company's Common Stock have been reserved for issuance. The 1993 Plan
replaces the 1986 Combined Incentive and Non-Qualified Stock Option Plan
(the "1986 Combined Plan") under which 2,000,000 shares were originally
reserved for issuance. The number of shares reserved for issuance under
the 1993 Plan will be increased by the shares reserved for issuance
under the 1986 Combined Plan that (i) are not subject to outstanding
stock options and (ii) are presently subject to outstanding stock
options which subsequently are canceled or expire. No additional stock
options will be granted under the 1986 Combined Plan.
Options granted, exercised, and canceled under the above Plans are
summarized as follows:
<TABLE>
<C> <C> <C>
Fiscal year
<S> 1994 1993 1992
Outstanding, beginning
of year 1,184,338 786,208 744,794
Options granted 250,000 548,465 424,955
Options exercised - (19,363) (202,443)
Options canceled (732,016) (130,972) (181,098)
Outstanding, end of year 702,322 1,184,338 786,208
Exercisable, end of year 237,497 291,702 136,783
Available for grant in
future years 2,589,458 107,442 524,935
Price of Options:
Granted during year $7.50-$8.13 $8.38-$17.00 $13.75-$17.00
Exercised during year - $6.25-$13.75 $2.08-$13.50
Canceled during year $8.37-17.00 $6.25-$19.50 $6.25-$13.50
</TABLE>
EGGHEAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 6 Stock Option and Stock Purchase Plans (continued)
The Non-employee Director Stock Option Plan
In September 1993, the Company's shareholders approved the Non-employee
Director Stock Option Plan (the "Director Plan"), under which 175,000
shares of the Company's Common Stock have been reserved for issuance.
As of April 2, 1994, 121,000 shares are available for grant and 54,000
shares are subject to outstanding options which have been granted at
prices ranging from $7.25 to $8.06. As of April 2, 1994, none of the
outstanding options were vested.
The Directors' Plan
In October 1987, the Board of Directors approved the Directors'
Nonqualified Stock Option Plan (the "Directors' Plan"), whereby each of
the outside Company directors was granted a nonqualified stock option to
purchase 10,000 shares of Common Stock at $11.25. The options were
fully vested at the date of grant. Under the Plan, 90,000 shares of
Common Stock were issued pursuant to the exercise of options. The
remaining 10,000 shares expired in December 1992 when the Plan
terminated.
The Executive Plan
In February 1989, the Board of Directors approved four-year employment
agreements and stock option agreements for three executive officers who
are no longer with the Company, Stuart Sloan, Ronald Weinstein, and
Matthew Griffin, whereby the officers' compensation was based on equity
incentives. Each drew an annual salary of $1 per year during their term
of employment. Options to acquire up to 1,700,000 shares of common
stock are authorized under the Plan. As of April 2, 1994, 325,000
shares are available for grant and 1,375,000 are subject to outstanding
options which have been granted to the above named executive officers of
the Company at prices ranging from $10.38 to $20.00, with a weighted
average exercise price of $13.21. All outstanding options are vested
and expire in February 1999. As of April 2, 1994, none of the options
had been exercised.
Note 7 401(k) Plan
The Company has a 401(k) retirement plan for the benefit of its
employees. After six months of full-time employment, an employee is
eligible to participate in the plan. Employee contributions are matched
by the Company at 50% of each employee's contribution up to 4% of their
compensation. The Company's contributions are fully vested upon the
completion of two years of service. The Company's contributions were
approximately $571,000, $558,000, and $327,000 in fiscal years 1994,
1993, and 1992, respectively.
EGGHEAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 8 Selected Quarterly Consolidated Financial Information
(Unaudited)
Selected financial data for each quarter of fiscal years 1994 and 1993
is as follows (in millions, except per share data):
<TABLE>
<C> <C> <C> <C> <C> <C> <C> <C>
First Quarter Second Quarter Third Quarter Fourth Quarter
1994 1993 1994 1993 1994 1993 1994 1993
<S>
Net sales $218.2 $202.1 $156.7 $139.5 $208.6 $188.3 $194.9 $195.6
Gross margin 32.3 30.3 21.0 20.0 25.6 26.9 24.0 29.7
Selling,
general, and
administrative
expense 28.9 25.5 18.2 17.2 21.1 19.2 21.3 23.2
Provision for
restructuring
costs 4.4 - - - - 2.1 - 0.6
Provision for
shareholder
litigation - - - - 0.1 - 1.1 -
Operating income
(loss) (3.5) 2.8 0.9 1.2 2.3 4.0 (0.5) 4.0
Income (loss)
before income
taxes (3.3) 2.8 0.8 1.1 2.3 3.8 (0.6) 3.7
Net income
(loss) (2.0) 1.7 0.5 0.7 1.4 2.3 (0.4) 2.2
Earnings (loss)
per share $(0.12) $0.10 $0.03 $0.04 $0.08 $0.14 $(0.02) $0.13
</TABLE>
Effective the beginning of fiscal 1995, the Company will change it's
fiscal quarters such that each quarter will consist of 13 weeks. If the
Company would have reported using the 13-week quarter format during
fiscal 1994, the quarterly results would have been reported as follows
(in millions, except per share data):
<TABLE>
<C> <C> <C> <C>
Fiscal Year 1994
First Second Third Fourth
<S> Quarter Quarter Quarter Quarter
Net sales $180.8 $165.4 $222.6 $209.5
Gross margin 26.8 23.1 27.3 25.7
Selling, general, and administrative
expense 23.6 20.6 22.6 22.7
Provision for restructuring costs 4.4 - - -
Provision for shareholder litigation - - 0.1 1.1
Operating income (loss) (3.1) 0.5 2.4 (0.6)
Income (loss) before income taxes (3.0) 0.4 2.4 (0.6)
Net income (loss) (1.8) 0.3 1.4 (0.4)
Earnings (loss) per share $(0.11) $0.02 $0.08 $(0.02)
</TABLE>
EGGHEAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 9 Concentration of Credit Risk
During fiscal years 1994 and 1993, the Company granted credit to
substantially all of its corporate and government sales customers.
Approximately 15% and 14% of the Company's accounts receivable were from
customers in various segments of the United States government at April
2, 1994 and April 3, 1993, respectively. The financial position of
these and other customers was considered in determining the allowance
for doubtful accounts.
Note 10 Subsequent Event
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 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by Part III, Item 10, is incorporated by
reference from Egghead, Inc.'s definitive Proxy Statement relating to
Egghead, Inc.'s 1994 Annual Meeting of Shareholders, which will be filed
pursuant to Regulation 14A within 120 days of April 2, 1994.
Item 11. Executive Compensation
The information required by Part III, Item 11, is incorporated by
reference from Egghead, Inc.'s definitive Proxy Statement relating to
Egghead, Inc.'s 1994 Annual Meeting of Shareholders, which will be filed
pursuant to Regulation 14A within 120 days of April 2, 1994.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by Part III, Item 12, is incorporated by
reference from Egghead, Inc.'s definitive Proxy Statement relating to
Egghead, Inc.'s 1994 Annual Meeting of Shareholders, which will be filed
pursuant to Regulation 14A within 120 days of April 2, 1994.
Item 13. Certain Relationships and Related Transactions
The information required by Part III, Item 13, is incorporated by
reference from Egghead, Inc.'s definitive Proxy Statement relating to
Egghead, Inc.'s 1994 Annual Meeting of Shareholders, which will be filed
pursuant to Regulation 14A within 120 days of April 2, 1994.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
A) Documents filed as a part of this report:
1. Financial Statements
The Consolidated Financial Statements, Notes thereto, Financial
Statement Schedules (none), and Accountants' Report thereon are
included in Part II, Item 8, of this report.
2a. Exhibits
(i) 3.1 Restated Articles of Incorporation of the Company
(iii) 3.2 Amended Bylaws of the Company
(i) 10.1 House Account Agreement (U.S.) with Lotus Development
Corporation dated September 4, 1986.
10.2 First amendment to House Account Agreement (U.S.) with
Lotus Development Corporation dated May 12, 1989.
(Previously filed with registrant's Form 10-K for the
fiscal year ended March 31, 1990, as Exhibit 10.1a.)
(iv) 10.3 * Microsoft 1992 Reseller Agreement dated June 26, 1992.
(iv) 10.4 * Extension of Microsoft 1992 Reseller Agreement dated
November 31, 1992.
(iv) 10.5 * Microsoft January - June, 1993 Reseller Rebate and
Marketing Fund Agreement.
(x) 10.6 * Microsoft 1993/1994 Channel Agreement dated July 1, 1993.
(x) 10.7 * Rebate and Marketing Fund Addendum to the 1993/1994
Microsoft Channel Agreement dated November 1, 1993.
(x) 10.8 * Amendment to the Microsoft 1993/1994 Channel Agreement
(appointment as a Major Chain Reseller) dated
November 10, 1993.
(x) 10.9 * Reseller agreement with WordPerfect Corporation dated
April 1, 1994.
10.10 (Intentionally left blank.)
10.11 (Intentionally left blank.)
10.12 (Intentionally left blank.)
10.13 (Intentionally left blank.)
10.14 (Intentionally left blank.)
10.15 Lease, as amended, dated June 9, 1988, between Sammamish
Park Place I Limited Partnership as Landlord and DJ&J
Software Corporation as Tenant regarding the Company's
administrative headquarters. (Previously filed with
registrant's Form 10-K for the fiscal year ended
April 1, 1989, as Exhibit 10.46.)
10.16 First Amendment to June 9, 1988 lease between Sammamish
Park Place I Limited Partnership and DJ&J Software
Corporation dated October 4, 1989. (Previously filed with
registrant's Form 10-K for the fiscal year ended
March 31, 1990, as Exhibit 10.46a.)
10.17 Lease dated March 23, 1992 between Sammamish Park Place II
Limited Partnership as Landlord and DJ&J Software
Corporation as Tenant regarding the Company's
administrative headquarters. (Previously filed with
registrant's Form 10-K for the fiscal year ended
March 28, 1992, as Exhibit 10.47.)
10.18 (Intentionally left blank.)
(iii) 10.19 Lease dated March 23, 1989, between The CHY Company as
Landlord and DJ&J Software as Tenant regarding the
Company's Sacramento distribution facility.
(iii) 10.20 First amendment to lease between The CHY Company as
Landlord and DJ&J Software, as Tenant regarding the
Company's Sacramento distribution facility.
10.21 (Intentionally left blank.)
(i) 10.22 Lease Agreement dated January 7, 1988, with Granite
Properties, a limited partnership, as Landlord and DJ&J
Software Corporation, as Tenant regarding Lancaster
distribution facility.
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K (continued)
(i) 10.23 Master License Agreement dated February 12, 1988, with
Staples, Inc. as Licensor and DJ&J Software Corporation as
Licensee, regarding an exclusive right to sell items in
Staples' discount stores.
10.24 First Amendment to Master License Agreement between
Staples, Inc. and DJ&J Software Corporation dated November
14, 1990. (Previously filed with registrant's Form 10-K
for the fiscal year ended March 30, 1991, as same Exhibit
number.)
10.25 (Intentionally left blank.)
10.26 (Intentionally left blank.)
(i) 10.27 Form of Indemnification Agreement between the Company and
its directors.
(i) 10.28 Form of Indemnification Agreement between DJ&J Software
Corporation and its directors.
(iv) 10.29 Revolving Loan Agreement dated September 30, 1992, among
Security Pacific Bank Washington, N.A. and U.S. Bank of
Washington, National Association, Egghead, Inc., and DJ&J
Software Corporation.
10.30 Revolving Loan Agreement dated September 30, 1993 among
Security Pacific Bank Washington, N.A. and U.S. Bank of
Washington, National Association, Egghead, Inc., and DJ&J
Software Corporation. (Previously filed with registrant's
Form 10-Q dated October 16, 1993, as same exhibit number.)
(iv) 10.31 ** Executive employment between Egghead, Inc. and Ronald P.
Erickson dated February 22, 1993.
(iv) 10.32 ** Executive employment agreement between Egghead, Inc. and
Timothy E. Turnpaugh dated February 22, 1993.
(x) 10.32a** Amended and restated executive employment agreement
between Egghead, Inc. and Timothy E. Turnpaugh dated
June 1993.
(x) 10.32b** Separation agreement between Egghead, Inc. and DJ&J
Software Corporation (the "Company") and Timothy E.
Turnpaugh dated August 25, 1993.
10.33 ** Executive employment agreement between Egghead, Inc. and
Terence M. Strom dated June 28, 1993. (Previously filed
with registrant's Form 10-Q dated October 16, 1993, as
Exhibit 10.34.)
(ii) 10.34 ** Egghead, Inc. 1989 Executive Retention Incentive Stock
Option Plan.
(ii) 10.35 ** Egghead, Inc. 1989 Executive Retention Incentive Stock
Option Agreement between Egghead, Inc. and Stuart M.
Sloan dated February 23, 1989.
(ii) 10.36 ** Egghead, Inc. 1989 Executive Retention Non-Qualified Stock
Option Agreement between Egghead, Inc. and Stuart M. Sloan
dated February 23, 1989.
(iii) 10.36a** Amendment No. 1 to Egghead, Inc. 1989 Executive Retention
Non-Qualified Stock Option Agreement between Egghead, Inc.
and Stuart M. Sloan dated April 17, 1991.
10.37 (Intentionally left blank.)
10.38 (Intentionally left blank.)
(ii) 10.39 ** Egghead, Inc. 1989 Executive Retention Incentive Stock
Option Agreement between Egghead, Inc. and Ronald A.
Weinstein dated February 23, 1989.
(iii) 10.39a** Amendment No. 1 to Egghead, Inc. 1989 Executive Retention
Incentive Stock Option Agreement between Egghead, Inc. and
Ronald A. Weinstein dated April 17, 1991.
(ii) 10.40 ** Egghead, Inc. 1989 Executive Retention Non-Qualified Stock
Option Agreement between Egghead, Inc. and Ronald A.
Weinstein dated February 23, 1989.
(iii) 10.40a** Amendment No. 1 to Egghead, Inc. 1989 Executive Retention
Non-Qualified Stock Option Agreement between Egghead, Inc.
and Ronald A. Weinstein dated April 17, 1991.
10.41 (Intentionally left blank.)
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K (continued)
10.42 (Intentionally left blank.)
(ii) 10.43 ** Egghead, Inc. 1989 Executive Retention Incentive Stock
Option Agreement between Egghead, Inc. and Matthew J.
Griffin dated February 23, 1989.
(ii) 10.44 ** Egghead, Inc. 1989 Executive Retention Non-Qualified Stock
Option Agreement between Egghead, Inc. and Matthew J.
Griffin dated February 23, 1989.
(iii) 10.44a** Egghead, Inc. 1989 Executive Retention Non-Qualified Stock
Option Agreement between Egghead, Inc., and Matthew J.
Griffin dated April 17, 1991.
10.45 (Intentionally left blank.)
10.46 (Intentionally left blank.)
10.47 (Intentionally left blank.)
10.48 ** Egghead, Inc. 1989 Employee Stock Purchase plan.
(Previously filed with registrant's Form S-8 dated June
23, 1990, as Exhibit 10.)
10.49 ** Egghead, Inc. 1993 Stock Option Plan. (Previously filed
with registrant's Form 10-Q dated October 16, 1993, as
Exhibit 10.31.)
10.50 ** Egghead, Inc. Nonemployee Director Stock Option Plan.
(Previously filed with registrant's Form 10-Q dated
October 16, 1993, as Exhibit 10.32.)
(x) 21.1 Schedule of subsidiaries.
(x) 23.1 Consent of Independent Public Accountants.
24.1 Power of Attorney (See Page 42).
2b. Form 8-K
None.
(i) Previously filed with registrant's Registration Statement on Form
S-1, Registration No. 33-21472, as same Exhibit number.
(ii) Previously filed with the registrant's Form 8-K dated February
23, 1989, as Exhibit numbers 10.1 to 10.13.
(iii) Previously filed with registrant's Form 10-K for the fiscal year
ended March 28, 1992, as same Exhibit number.
(iv) Previously filed with registrant's Form 10-K for the fiscal year
ended April 3, 1993, as same Exhibit number.
(x) Filed herewith.
* Confidential portions of this exhibit have been omitted and filed
separately with the Commission pursuant to an Application for
Confidential Treatment under Rule 24b-2 under the Securities
Exchange Act of 1934. Each exhibit has been marked to identify
the confidential portions that are omitted.
** Designates management contract or compensatory plan or
arrangement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in
the city of Issaquah, State of Washington, on June 9, 1994.
EGGHEAD, INC.
By /s/Terence M. Strom
Terence M. Strom
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Terence M. Strom and Carolyn J. Tobias, or either of them, his
attorneys-in-fact, with the power of substitution, for him in any and
all capacities, to sign any amendments to this report, and to file the
same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on June 9, 1994, on
behalf of the Registrant and in the capacities indicated.
Signature Title
/s/Terence M. Strom President, Chief Executive Officer,
Terence M. Strom and Director (Principal Executive
Officer)
/s/Carolyn J. Tobias Senior Vice President, Chief
Carolyn J. Tobias Financial Officer (Principal
Financial and Accounting Officer)
/s/ Paul G. Allen Director
Paul G. Allen
Director
Richard P. Cooley
/s/ Ronald P. Erickson Director
Ronald P. Erickson
/s/ Steven E. Lebow Director
Steven E. Lebow
Director
Linda Fayne Levinson
Director
George P. Orban
/s/ Samuel N. Stroum Director
Samuel N. Stroum
Exhibit 10-6
Microsoft
1993/1994 Channel
Agreement
This Agreement ("Agreement") is entered into is of the 1st day of July, 1993
between MICROSOFT CORPORATION ("MS") having its principle place of business at
One Microsoft Way, Redmond, WA 98052-6399 and DJ&J SOFTWARE CORPORATION d.b.a.
EGGHEAD SOFTWARE ("CUSTOMER") having its principle place of business at 22011
SE 51st Street, Issaquah, WA 98027 .
1. Definitions
1.1 "Customer Satisfaction Product" is defined us Product returned to
CUSTOMER by its End Users as being unacceptable.
1.2 "Defective Product" is defined as Product containing a
manufacturer's defect in materials or media.
1.3 "Distributor" is defined is any MS customer which purchases MS
Product directly from MS, and distributes said Product to Resellers.
1.4 " End User" is defined as the ultimate consumer of MS Product.
1.5 "Financial Statement" is defined as a Balance Sheet as of the last
day of the calendar quarter, and an Income Statement and Statement of Cash
Flows for the quarter and year-to-date, containing as much detail as is
required in United States Securities and Exchange Commission statements, and
prepared in accordance with Generally Accepted Accounting Principles ("GAAP").
Any deviation from GAAP in the quarterly statements shall be clearly noted.
These settlements must be signed by an officer of CUSTOMER as being
representative of the books and accounts of CUSTOMER.
1.6 "Franchisor" is defined as any MS customer which purchases MS
Product directly from MS and distributes said Product to franchisees and
affiliates.
1.7 "Obsolete Products" is defined as those MS Products no longer
listed on MS' Price List. Prior versions of current MS products are not
considered Obsolete Products.
1.8 "Price List" is defined as MS' then current listing of available
MS Products and their associated suggested retail prices.
1.9 "Product" is defined as any MS Stock Keeping Unit ("SKU") listed
on MS's current Price List.
1.10 "Product Authorization Category" is defined as one or more defined
set of MS Products which is available for resell only from those CUSTOMERs
authorized in written by MS.
1.11 "Promotional Product" is defined as MS Products eligible for
resale by CUSTOMER for limited time only. Free Product promotions are not
considered Promotional Product.
1.12 "Purchase Credit" is defined as credit to CUSTOMER's account with
MS for use toward future purchases of MS Product.
1.13 "Reseller" is defined as any software retailer which purchases MS
Product from MS or a MS authorized Distributor, Franchisor or Rack Jobber.
1.14 "Return Authorization Number" is defined as the unique number
assigned to CUSTOMER by MS for the purpose of Product returns from CUSTOMER to
MS.
1.15 "Semester" is defined as a six (6) month period. There are two
(2) semesters in the calendar year: January 1 through June 30, and July 1
through December 31.
1.16 "Inventory Balancing" is defined as the return of eligible MS
Products for the purpose of reducing CUSTOMER's stock of such Products.
1.17 "Warehouse" is defined as CUSTOMERs location(s) for receipt of
Product from MS.
2. Term of Agreement
2.1 Term
This Agreement shall take effect on the Effective Date and shall continue
until June 30, 1994.
2.2 Termination
Either MS or CUSTOMER may terminate this Agreement and/or any amendment hereto
at any time, with or without cause, upon thirty (30) days prior written
notice. Neither party shall be responsible to the other for any costs or
damages resulting from the termination of this Agreement. Rights to payment
of money which have accrued prior to termination shall survive termination.
Any Products acquired by CUSTOMER pursuant to this Agreement which are in its
possession as of the termination of this Agreement shall be distributed by
CUSTOMER subject to the restrictions in this Agreement, or may only be
returned to MS within sixty (60) days of termination only as authorized
herein. CUSTOMER shall make a final report to MS within ninety (90) days of
termination of this Agreement. Termination of this Agreement shall
automatically terminate any amendments hereto.
3. CUSTOMER Obligations 3.1 Financial Statements
CUSTOMER will provide to MS' credit management quarterly Financial Statements
within forty-five (45) days after the end of each calendar quarter. CUSTOMER
financial statements will be used by MS' credit department solely for the
purpose of establishing and reviewing CUSTOMER's credit. Financial Statements
should be forwarded to attn. Credit Manager, Finance, Microsoft, One
Microsoft Way, Redmond, WA 98052-6399.
3.2 Payment Terms
Payment terms are net ----- (-----) days from the date of MS' invoice, subject
to approval of open discount terms by MS. Amounts outstanding over ----- (---
- - --) days may be assessed a finance charge of the then-current prime rate plus
two percent (2%) per month or the legal maximum, whichever is less. Failure
by CUSTOMER to meet payment terms may result in a hold by MS of all pending
CUSTOMER orders.
All invoices from MS shall include CUSTOMER's purchase order number. Invoices
shall be sent to CUSTOMER's corporate headquarters as named in the Agreement,
attention Accounts Payable, or to any other facility CUSTOMER may designate,
provided however, that such designation must be made in writing to MS thirty
(30) days prior to the change.
3.3 Shipment Shortage Claims
CUSTOMER shall submit all claims for shortages and/or variances in shipments
to MS in writing within fifteen (15) days of CUSTOMER's receipt of the
shipment. All claims made with respect to freight collect shipments must
include written proof of delivery. All such claims not submitted in writing
to MS within the fifteen (15) day period shall be deemed waived by CUSTOMER.
3.4 No Other Product Warranties by CUSTOMER
Neither CUSTOMER nor any of its employees or agents shall have any right to
make any other warranties or promises for the use of Product which are not
contained in the written warranty document accompanying the Product. CUSTOMER
may, however, make representations and give instructions for the use of the
Product which are contained on the Product label or container, or End User
documentation provided with the manual or MS product literature denoted by a
MS part number or authorized in writing by MS.
3.5 No Alterations of Product
CUSTOMER shall not alter the Products or Product packaging, and shall have no
authority to make copies of MS diskettes or documentation. CUSTOMER shall
distribute Products to its customers in unopened packages as shipped by MS.
3.6 Use of Trademarks
The appropriate trademark symbol (either "TM" or "*" in a superscript
following the Product name) shall be used whenever a Product name is first
mentioned in any advertisement, brochure, or other material circulated or
displayed by CUSTOMER. MS' current trademark list is attached hereto as
Schedule A.
3.7 Authorized Distribution
Products acquired under this Agreement shall be distributed only within the
geographic boundaries of the United States. CUSTOMER shall not distribute
Products to any one Reseller or End User whom they have reason to believe may
re-distribute such Products outside of the United States without the prior
written consent of MS.
3.8 Taxes
CUSTOMER shall be liable for all sales, use, value added, duties, tariffs or
other similar taxes of any nature whatsoever associated with the distribution
of the Product, and shall indemnify and hold MS harmless from any such taxes.
4. MS Obligations
4.1 Assistance with Reporting
Upon request, MS shall use best efforts to assist CUSTOMER in data reporting,
and will work with CUSTOMER's MIS department to facilitate the data reporting
process.
4.2 New Products
MS may elect at any time during the time of this Agreement to announce new
products to which the terms and conditions of this Agreement do not apply.
New versions, upgrades, and maintenance releases of existing Products will not
be considered new products.
4.3 Inventory Price Protection
During the term of the Agreement, MS shall grant CUSTOMER a price adjustment
against Product suggested retail price reductions made by MS, which price
reductions are made on an indefinite basis, on all CUSTOMER's inventory. Such
price adjustment shall be in the form of a Purchase Credit equal to the
difference between the price paid by CUSTOMER for the Product during the -----
(-----) months prior to the price reduction and the reduced price, and shall
be paid no later than ----- (-----) days after CUSTOMER provides proof of
inventory. Special temporary prices and promotional offerings, which may
include price reductions. free goods, or additional discounts, shall not be
considered a price reduction to which this section applies.
4.4 No Warranties for Products Not Manufactured by MS
MS makes no warranties as to items distributed under a third party name,
copyright, trademark or trade name which may be included within the retail
package of a Product sold hereunder. To the extent permitted by its contract
with the supplier of such included item, MS shall assign to CUSTOMER any
rights that MS may have under such supplier's warranty.
4.5 Audits
MS may audit the applicable records of CUSTOMER as is reasonable to verify
CUSTOMER's compliance with the terms of this Agreement. CUSTOMER shall
promptly correct any efforts and omissions disclosed by such audit. Any audit
will be conducted during CUSTOMER's normal business hours in such a manner as
not to unreasonably interfere with CUSTOMER's normal business activities.
5. CUSTOMER and MS Obligations 5.1 Order Processing
CUSTOMER shall order Products from MS by written or electronically transmitted
purchase order. All orders by CUSTOMER shall be in Master Pack quantities
only. MS shall have five business days from receipt to reject any purchase
order. MS shall fulfill unconditional written or electronic purchase orders
from CUSTOMER, subject to CUSTOMER's credit limits and approved Average
Payment Days ("APD") guidelines as determined by MS.
5.2 Defective Product Returns and Product Warranty
CUSTOMER shall allow its customers to exchange Defective Products within the
warranty periods provided for by MS provided that the customer has complied
with the applicable Product warranty. CUSTOMER shall submit a request for
authorization to return defective Products summarizing the quantities of each
Product to be returned. Upon verification of meeting Defective Product return
terms, MS shall issue a return authorization, which shill expire ----- (-----)
days from the due of issue.
MS shall provide CUSTOMER with a Purchase Credit or replacement for all
defective Products returned to MS. Defective Product returns shall be limited
to ----- percent (-----%) of CUSTOMER's average monthly net purchases for the
- - ----- (-----) months prior to the return. Only current versions of MS Product
shall be eligible for return under this section. Defective Product shall, at
MS' sole discretion, be destroyed at CUSTOMER locations, or returned to MS.
All Defective Products returned to MS shall be shipped freight prepaid by
CUSTOMER in cartons clearly marked with the Return Authorization Number and a
packing slip affixed to the carton. MS shall pay freight costs for shipment
of replacement Products from MS to CUSTOMER. CUSTOMER shall be subject to
inspection fee equivalent to ----- percent (-----%) and a restocking charge
equivalent to ----- percent (-----%) of the then current CUSTOMER price for
each returned Product which CUSTOMER asserts is defective but which is found
by MS to conform to the warranties made herein. Such inspection fee shall be
waived for those Products destroyed pursuant to the terms of MS' current
onsite destruction return policy. At CUSTOMER's discretion, non-defective
Product will be returned to CUSTOMER, or will be included in CUSTOMER's normal
inventory balancing.
MS may at its sole discretion, issue a manufacturer's recall for any MS
Product inadvertently released with significant defects.
MS warrants its software and hardware Products to End Users as defined in the
written limited warranty document accompanying each Product. MS will accept
all Products returned by End Users for failure to meet the written limited
warranty which are processed by CUSTOMER provided that: (i) written notice of
the End User warranty claim is received by MS from CUSTOMER within thirty (30)
days of CUSTOMER's receipt of such claim from the End User (ii) after MS'
authorization, the non-conforming" Products are returned by CUSTOMER to MS,
freight charges prepaid; and (iii) after examination, MS determines to its
satisfaction that the Products are nonconforming. All replacement Products
are delivered subject to the terms of the MS limited product warranty.
CUSTOMER's sole remedy and MS' sole obligation under this Section 4.4 shall
be, at MS' election, replacement of the returned Product or issuance oft
Purchase Credit to CUSTOMER's account. THE ABOVE LIMITED WARRANTIES ARE IN
LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, OR STATUTORY, INCLUDING
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND
OF ALL OTHER OBLIGATIONS OR LIABILITIES ON MS' PART.
5.3 Marketing Funds
Periodically, MS may allow CUSTOMER to participate in programs which provide
the opportunity to earn marketing funds. CUSTOMER's participation in such
programs shall be governed by CUSTOMER's then current Microsoft Rebate and
Marketing Fund Agreement, and Microsoft's Marketing Fund Guidelines.
5.4 Rebates
Periodically, MS may allow CUSTOMER to participate in programs which provide
the opportunity to earn rebates as described in CUSTOMER's current Microsoft
Rebate and Marketing Fund Agreement.
6. Patent, Copyright and Trademark Infringement
MS shall defend and pay the amount of any final adverse judgment against
CUSTOMER, or settlement to which MS has consented, resulting from claims of
infringement of any United States patent, copyright, trademark and/or service
mark with respect to a Product, provided that the Product has not been
altered, and provided further that MS is notified promptly in writing of such
a claim and has sole control over its defense or settlement and CUSTOMER
provides reasonable assistance in the defense of the same.
7. Limitation of Liability
Neither MS nor anyone else who has been involved in the creation, production,
or delivery of the Products which are the subject of this agreement shall be
liable for any indirect, consequential or incidental damages (including
damages for loss of business profits, business interruption, loss of business
information, and the like) arising out of the use or inability to use the
products even if MS has been advised of the possibility of such damages.
8. Delay in Performance
Neither party shall be liable for failure or delay in the performance of any
of its obligations under this Agreement, except obligations for the payment of
money, if such delay or failure is caused by circumstances beyond the control
of the party affected. Strikes or other labor difficulties which are not
capable of being terminated on terms acceptable to the party affected shall
not be considered circumstances within the control of such party. In the
event of Product shortages, MS shall have the right to allocate available
supplies of the Products in its sole discretion.
9. No Waiver
None of the provisions of this Agreement shall be deemed to have been waved by
any act or acquiescence on the part of MS, CUSTOMER or their respective agents
or employees, but may be waved only by an instrument in writing signed by an
authorized officer of the waiving party. No waiver of any provision of this
Agreement shall constitute a waiver of any other provision or of the same
provision on another occasion.
10. No Partnership or Agency
Nothing in this Agreement shall be deemed to create or constitute a
partnership, joint venture, agency, or contract of employment between MS and
CUSTOMER.
11. Attorney's Fees; Governing Law
In the event an action is commenced to enforce a party's rights under this
Agreement, the prevailing party in such action shall be entitled to recover
its costs and attorneys' fees. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Washington. CUSTOMER
consents to nonexclusive jurisdiction and venue in King County, Washington.
12. Entire Agreement
This Agreement and all attached Amendments and Schedules constitute the entire
agreement between MS and CUSTOMER, and supersedes and terminates any and all
prior agreements or contracts, written or oral, entered into between the
parties relating to the subject matter hereof. Any representations, promises,
or conditions in connection therewith not in writing signed by both parties
shall not be binding upon either party. This Agreement shall control over any
provisions in purchase orders which are inconsistent with this Agreement.
13. U.S. Government Restricted Rights
Any Product which CUSTOMER distributes or licenses to or on behalf of the
United States of America, its agencies and/or instrumentalities (the
"Government"), are provided to CUSTOMER with RESTRICTED RIGHTS. Use,
duplication or disclosure by the Government is subject to restriction as set
forth in subparagraph (c)(1)(ii) of the rights in Technical Data and Computer
Software clause at DFAR 252.2277013, or is set forth in the particular
department or agency regulations or rules which provide MS protection
equivalent to or greater than the above-cited clause. CUSTOMER shall comply
with any requirements of the Government to obtain such RESTRICTED RIGHTS
protection, including without limitation, the placement of any restrictive
legends on the Product software, Product documentation, and any license
agreement used in connection with the distribution of the Product.
Manufacturer is Microsoft Corporation, One Microsoft Way, Redmond. Washington
98052-6399. Under no circumstances shall MS be obligated to comply with any
Governmental requirements regarding the submission of or the request for
exemption from submission of cost or pricing date or cost accounting
requirements. For any distribution or license of the Product that would
require compliance by MS with Governmental requirements relating to cost or
pricing data or cost accounting requirements, CUSTOMER must obtain an
appropriate waiver or exemption from such requirements for the benefit of MS
from the appropriate Governmental authority before the distribution and/or
license of the Product to the Government.
14. Confidentiality
CUSTOMER and MS expressly undertake to retain in confidence the terms and
conditions of this Agreement. and all information and know-how transmitted and
make no use of such information and know-how except under the terms and during
the existence of this Agreement. CUSTOMER and MS shall guarantee and ensure
its employees' compliance with this paragraph. CUSTOMER's and MS's
obligations under this paragraph shall survive any termination of this
Agreement and shall extend to the earlier of such time as the information is
public domain or five (5) years following the termination of this Agreement.
15. No Assignment
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, provided that CUSTOMER and
MS may not assign its rights or obligations under this Agreement in any way
without the prior written consent of the other party.
16. Notices
All notices sent by MS and CUSTOMER regarding termination or breach of this
Agreement shall be sent to the other party via certified mail, return receipt
requested, or via overnight courier service (e.g. Federal Express, DHL, etc.).
IN WITNESS WHEREOF, the parties have signed this Agreement on the dates
indicted below. This Agreement is not binding until executed by MS.
MICROSOFT CORPORATION ("MS") DJ&J SOFTWARE CORPORATION d.b.a.
EGGHEAD SOFTWARE ("CUSTOMER")
By: By:
Name (please print) Name (please print)
Title Title
Date Date
<TABLE>
Schedule A
MS Trademark List
<C> <C>
Product Name Environment Line
Microsoft Access* for WindowsTM
Microsoft Access* Distribution Kit for WindowsTM
Microsoft Access* Exploration Kit for WindowsTM
Microsoft* Aircraft & Scenery Designer for MS-DOS*
Microsoft* BallPoint* (none)
Microsoft* BallPoint* with QuickPortTM Connection (none)
Microsoft* Basic for Macintosh*<F1>
Microsoft* Basic for UNIX*
Microsoft* Basic for MS-DOS*
Microsoft* Basic for OS/2*<F2>
Microsoft* Bookshelf* for MS-DOS*
Microsoft* Bookshelf* for WindowsTM
Microsoft* C for MS-DOS*
Microsoft* C/C++ for MS-DOS*
Microsoft* C Developers Toolkit for MS-DOS*
Microsoft* Chart for MS-DOS*
Microsoft* Chart for Macintosh*
Microsoft* CinemaniaTM for WindowsTM
Microsoft* COBOL for UNIX*
Microsoft* COBOL for MS-DOS*
Microsoft* COBOL for OS/2*
Microsoft* CodeView* for MS-DOS*
Microsoft* CodeView* for WindowsTM
DCA*<F3> /Microsoft* Communications Server
(aka DCA*/Microsoft* Comm Server) Networking Series
DCA*/Microsoft* Communications Workstation Networking Series
Microsoft* Developer's System Networking Series
Microsoft* EncarataTM for WindowsTM
Microsoft* Entertainment Pack for WindowsTM
Microsoft* Excel for Macintosh*
Microsoft* Excel for MS-DOS*
Microsoft* Excel for OS/2*TM
Microsoft* Excel for WindowsTM
Microsoft* Excel for WindowsTM on CD-ROM
Microsoft* Excel Macro Programming Courseware for WindowsTM
Microsoft* File for Macintosh*
Microsoft* Flight Simulator*<F4> for MS-DOS*
Microsoft* Flight Simulator* for Macintosh*
Microsoft* FORTRAN for UNIX*
Microsoft* FORTRAN for MS-DOS*
Microsoft* FORTRAN for OS/2*
Microsoft* FORTRAN Powerstation for MS-DOS*
Microsoft* FoxBASE+* for Macintosh*
</TABLE>
[FN]
<F1> Macintosh is a registered trademark of Apple Computer, Inc.
<F2> OS/2 is a registered trademark of International Business Machines
Corporation.
<F3> DCA is a registered trademark of Digital Communications Associates.
<F4> Flight Simulator is a registered trademark of Bruce Artwick.
<TABLE>
Schedule A
MS Trademark List
<C> <C>
Product Name Environment Line
Microsoft* FoxPro* for MS-DOS*
Microsoft* FoxPro* for WindowsTM
Microsoft* Game Shop for MS-DOS*
Microsoft* Golf for WindowsTM
Microsoft* GW-BASIC* for MS-DOS*
Microsoft* GW-BASIC* for MS-DOS*
Microsoft* Hewlett-Packard*<F5> Font Pack for WindowsTM
Microsoft* HG Translator (none)
Microsoft* InPort* for MS-DOS*
Microsoft* LAN Manager Networking Series
Microsoft* LAN Manager for UNIX*<F6> Networking Series
Microsoft* LAN Manager Network Device Driver Kit Networking Series
Microsoft* LAN Manager Remote Access Service Networking Series
Microsoft* LAN Manager Services for Macintosh* Networking Series
Microsoft* LAN Manager Sockets Development Kit Networking Series
Microsoft* LAN Manager TCP/IP Utilities Networking Series
Microsoft* LAN Manager Toolkit for Visual
BasicTM Networking Series
Microsoft* Learning MS-DOS* for MS-DOS*
Microsoft* Macro Assembler for MS-DOS*
Microsoft* Macro Assembler for OS/2*
Microsoft* Mail AppleTalk<F7> and
compatible
networks
Microsoft* Mail PC Networks
Microsoft* MAS for MS-DOS*
Microsoft* Modular WindowsTM
Microsoft* Modular WindowsTM Software
Development Kit for WindowsTM
Microsoft* Mondrian* for MS-DOS*
Microsoft* Money for WindowsTM
Microsoft* Mouse (none)
Microsoft* MS-DOS*
Microsoft* MS-DOS* 5 Upgrade
Microsoft* MS-DOS* 6
Microsoft* MS-DOS* CD-ROM Extensions CD-ROM Series
Microsoft* MS-DOS* Manager for MS-DOS*
Microsoft* MS-DOS* QBasicTM for MS-DOS*
Microsoft* MS-DOS* Shell for MS-DOS*
Multimedia Beethoven: The Ninth Symphony for WindowsTM on CD-ROM
Microsoft* Multimedia Development Kit for WindowsTM
Microsoft* Multimedia Viewer for WindowsTM
Microsoft* Multiplan* for Macintosh*
Microsoft* Multiplan* for MS-DOS*
Microsoft* Multiplan* for OS/2*
Microsoft* Musical Instruments for WindowsTM
</TABLE>
[FN]
<F5> Hewlett-Packard is a registered trademark of Hewlett-Packard Company.
<F6> UNIX is a registered trademark of UNIX Systems Laboratories.
<F7> AppleTalk is a registered trademark of Apple Computer, Inc.
<TABLE>
Schedule A
MS Trademark List
<C> <C>
Product Name Environment Line
Microsoft* Networks for MS-DOS*
Microsoft* Networks for UNIX*
The Microsoft* Office for Macintosh*
The Microsoft* Office for WindowsTM
The Microsoft* Office for WindowsTM on CD-ROM
The Microsoft* Office for Macintosh* on CD-ROM
Microsoft* OnCall (none: miscellaneous)
Microsoft* OnLine (none: miscellaneous)
Microsoft* OnLine for WindowsTM (none: miscellaneous)
Microsoft* Open EIS Pak for WindowsTM
Microsoft* Open EIS Pak for Macintosh*
Microsoft* Operating System/2*
(aka MS* OS/2*, Microsoft* OS/2*)
Microsoft* Original Mouse (none)
MS* OS/2* LADDR Development Kit for OS/2*
Microsoft* OS/2* LAN Manager Network
Device Driver Kit for OS/2*
Microsoft* OS/2* Presentation
Manager*<F8> Softset for OS/2*
Microsoft* OS/2* Presentation Manager* Toolkit for OS/2*
MS* OS/2* Software Development Kit for OS/2*
Microsoft* PaintbrushTM<F9> for MS-DOS*
Microsoft* Pascal for MS-DOS*
Microsoft* Pascal for OS/2*
Microsoft* Pascal for UNIX*
Microsoft* PC Paintbrush*<F10> for WindowsTM
Microsoft* PowerPoint* for Macintosh*
Microsoft* PowerPoint* for MS-DOS*
Microsoft* PowerPoint* for WindowsTM
Microsoft* Presentation Manager*/X for UNIX*
Microsoft* Productivity Pack for WindowsTM
Microsoft* Professional Advisor Library Kit for MS-DOS*
Microsoft* Professional Advisor Library Kit for OS/2*
Microsoft* Professional Toolkit for
Visual BasicTM for WindowsTM
Microsoft* Profit for WindowsTM
Microsoft* Programmer's Library CD-ROM Series
Microsoft* Project for Macintosh*
Microsoft* Project for MS-DOS*
Microsoft* Project for WindowsTM
Microsoft* Publisher for WindowsTM
Microsoft* Publisher Design Pack for WindowsTM
Microsoft* Quick AssemblerTM for MS-DOS*
Microsoft Quick BasicTM for Macintosh*
Microsoft Quick BasicTM for MS-DOS*
Microsoft Quick BasicTM Interpreter for MS-DOS*
</TABLE>
[FN]
<F8> Presentation Manager is a registered trademark of International Business
Machines Corporation.
<F9> Paintbrush is a trademark of ZSoft Corporation.
<F10> PC Paintbrush is a registered trademark of ZSoft Corporation.
<TABLE>
Schedule A
MS Trademark List
<C> <C>
Product Name Environment Line
Microsoft* QuickC* for MS-DOS*
Microsoft* QuickC* for WindowsTM
Microsoft* QuickC* Compiler with
QuickAssemblerTM for MS-DOS*
Microsoft* QuickPascal* for MS-DOS*
Microsoft* Schedule+ for Macintosh*
Microsoft* Schedule+ for WindowsTM
Microsoft* Small Business Consultant CD-ROM Series
Microsoft* Soft/Print (none: miscellaneous)
Microsoft* SoundBitsTM for WindowsTM
Microsoft* SQL Administrator for WindowsTM Networking Series
Microsoft* SQL Bridge Networking Series
Microsoft* SQL Server Networking Series
Microsoft* SQL Server Programmer's Toolkit Networking Series
Microsoft* SQL Server Software Development Kit for Windows NTTM
Microsoft* Stat Pack CD-ROM Series
Microsoft* Support Advantage Service (none)
Microsoft* System V/386 Release 3.2 for UNIX*
Microsoft* Test for WindowsTM
Microsoft* TrueImageTM (none: miscellaneous)
Microsoft* TrueType*<F11> Font Pack for WindowsTM
Microsoft* TrueType* Font Pack 2 for WindowsTM
Microsoft* Video for WindowsTM
Microsoft* Visual BasicTM for MS-DOS*
Microsoft* Visual BasicTM for MS-DOS*
Microsoft* Visual BasicTM for WindowsTM
Microsoft* Visual BasicTM for WindowsTM
Microsoft* Visual BasicTM with Professional
Toolkit for WindowsTM
Microsoft* Visual C++TM for WindowsTM
Microsoft* Visual C++TM for WindowsTM
Microsoft* Visual Control Pack for WindowsTM
Microsoft* Visual Tool Suite for WindowsTM
Microsoft* Win32TM for WindowsTM
Microsoft* Win32sTM for WindowsTM
Microsoft* WindowsTM for MS-DOS* (version 3.0)
Microsoft* WindowsTM/286 for MS-DOS*
Microsoft* WindowsTM/386 for MS-DOS*
Microsoft* WindowsTM & MS-DOS* 5
for IBM*<F12> PS/2*<F13>
Microsoft* WindowsTM & MS-DOS* 5 Upgrade
Microsoft* WindowsTM Device Driver Kit for MS-DOS*
Microsoft* WindowsTM for OS/2* Development Kit for MS-DOS*
Microsoft* WindowsTM for OS/2* Development Kit for OS/2*
Microsoft* WindowsTM for Workgroups for WindowsTM
</TABLE>
[FN]
<F11> TrueType is a registered trademark of Apple Computer, Inc.
<F12> IBM is a registered trademark for International Business Machines
Corporation.
<F13> PS/2 is a registered Trademark of International Business Machines
Corporation.
<TABLE>
Schedule A
MS Trademark List
<C> <C>
Product Name Environment Line
Microsoft* WindowsTM Libraries for OS/2*
Development Kit for MS-DOS*
Microsoft* WindowsTM Libraries for OS/2*
Development Kit for OS/2*
Microsoft* WindowsTM Printing System for WindowsTM
Microsoft* WindowsTM Software Development Kit for MS-DOS*
Microsoft* WindowsTM Sound System for WindowsTM
Microsoft* WinLogin for WindowsTM
Microsoft* Word for Macintosh*
Microsoft* Word for MS-DOS*
Microsoft* Word for WindowsTM
Microsoft* Word for OS/2*
Microsoft* Word for WindowsTM & Bookshelf,
Multimedia Edition* for WindowsTM
Microsoft* Works for Macintosh*
Microsoft* Works for MS-DOS*
Microsoft* Works for WindowsTM
Microsoft* Works, Multimedia Edition for WindowsTM on CD-ROM
Microsoft* Write for Macintosh*
Microsoft* XENIX* System V/286 for UNIX*
Microsoft* XENIX* System V/386 for UNIX*
</TABLE>
Exhibit 10-7
Rebate and Marketing Fund
Addendum to The 1993/1994 Microsoft Channel Agreement
(July - December, 1993)
This Addendum ("Addendum") entered into as of the 1st day of November, 1993,
modifies that certain Microsoft 1993/1994 Channel Agreement ("Agreement")
between MICROSOFT CORPORATION ("MS") having its principal place of business at
One Microsoft Way Redmond, WA 98052 and DJ&J SOFTWARE CORPORATION d.b.a.
EGGHEAD SOFTWARE ("CUSTOMER") having its principal place of business at 22011
SE 51st Street, Issaquah, WA 98027. The Agreement is hereby supplemented -is
follows:
1. Purpose
The purpose of this Addendum is to set forth the framework by which CUSTOMER
may earn Rebates and Marketing Funds. For purposes of this Addendum,
capitalized terms not otherwise defined herein, shall have the same
definitions as set forth in the Agreement.
2. Term and Termination
This Addendum shall be effective as of the date executed by MS below, and
shall expire on December 31, 1993. Either party may terminate this Addendum,
with or without cause. upon thirty (30) days prior written notice,
3. Definitions
3.1 "Account Management Systems Reporting" or "AMS Reporting" is
defined as the reporting of all Product specific End User sales.
3.2 "Inventory Reporting" is defined as the reporting of Product
specific month end inventory. If CUSTOMER has multiple locations, inventory
reporting shall be by location, and shall include the name, street address,
city, state and zip code for each location.
3.3 "Marketing, Funds" is defined is the dollar amount accrued by
CUSTOMER as a percentage Qualified Purchases, and used to fund CUSTOMER's pre-
approved MS marketing activities.
3.4 "Microsoft Marketing Funds guidelines" is defined as MS' then
current terms and conditions, available from the Microsoft Reseller Account
Representative, for the use. of Marketing Funds.
3.5 "Microsoft Prior Authorization/Claim Form" is defined as the
documentation, available from the Microsoft Reseller Account Representative,
necessary for use of Marketing Funds for marketing activities.
3.6 "Qualified Purchases" is defined as net purchases made during the
Rebate and Marketing Fund Period; provided, however, that Qualified Purchases
shall include only those purchases which are shipped to CUSTOMER during the
Rebate and Marketing Fund Period, less returns, and credits, and for which
payment in full has been received by MS from CUSTOMER within ----- (-----)
days after the end of the Rebate and Marketing Fund Period; and provided
further that Microsoft ----- purchases shall not be included in calculating
Qualified Purchases for rebate payment.
3.7 "Rebate" is defined as the dollar amount paid to CUSTOMER by MS in
the form of a purchase credit for achieving of specific rebate program goals
as set forth herein.
3.8 "Rebate and Marketing Fund Period" is defined as the six (6)
calendar months, from July 1, 1993 through December 31, 1993, during which
CUSTOMER shall earn Rebates and Marketing Funds.
3.9 "Salesout" or "Sell Through Reporting" is defined as the reporting
of the number of Product units that CUSTOMER location distributes to its
customers.
4. Rebate
CUSTOMER is eligible to receive up to a ----- percent (-----%) Rebate during
the Rebate and Marketing Fund Period. The Rebate shall be paid provided
CUSTOMER complies with the reporting and program guidelines outlined in
Attachments A-B. CUSTOMER shall submit reports to MS in the electronic
format, as provided by MS, by the 10th day of the month following the
applicable reporting month.
5. Marketing Funds
5.1 Establishment of Marketing Fund and Purchase Forecast
In partial consideration for CUSTOMER's Qualified Purchases, MS hereby grants
to CUSTOMER the use of Marketing Funds equivalent to ----- percent (-----%) of
Qualified Purchases of eligible MS Product during the Rebate and Marketing
Fund Period. Marketing Funds accrue monthly and can be used for up to -----
(-----) months from the last day of the Rebate and Marketing Fund Period. In
order to estimate CUSTOMER's total Marketing Funds, CUSTOMER hereby forecasts
that it will purchase ----- US dollars (US $-----) of MS Product during the
Rebate and Marketing Fund Period.
$----- $-----
Qualified Purchase Forecast Marketing Funds @ -----%
5.2 Marketing Plan
Use of the Marketing Funds provided herein is contingent upon prior written
approval by MS of a marketing plan detailing the approximate times and
activities for which the Marketing Funds are to be used. The marketing plan
will be developed and documented by your Microsoft Reseller Account
Representative. The marketing plan must be signed by CUSTOMER and submitted
by July 31, 1993 to your Microsoft Reseller Account Representative for
approval by MS.
5.3 Marketing Fund Guidelines
Use of Marketing Funds and proof of Marketing Fund expenditures shall be in
accordance with the provisions of the then current "Microsoft Reseller
Marketing Fund Guidelines".
5.4 Marketing Fund Claims
Claims for reimbursement of Marketing Funds must be submitted to MS c/o
Pinpoint Marketing no later than ----- (-----) days after the end of the
Rebate and Marketing Fund Period. Claims submitted shall be accompanied by a
Microsoft Prior Authorization/Claim Form approved by your Microsoft Reseller
Account Representative, with the supporting documentation for reimbursement as
described on the form. Forms may be obtained from your Microsoft Reseller
Account Representative of Pinpoint Marketing.
IN WITNESS WHEREOF, the parties have signed this Addendum on the date
indicated below. This Addendum is hereby made part of the Agreement. All
terms and conditions of the Agreement not supplemented herein shall remain in
full force and effect. This Addendum is not binding until executed by MS.
AGREED AND ACCEPTED TO BY AGREED AND ACCEPTED TO BY
MICROSOFT CORPORATION ("MS"): DJ&J SOFTWARE CORPORATION d.b.a.
EGGHEAD SOFTWARE ("CUSTOMER"):
By By
Name Name
Title Title
Date Date
ATTACHMENT A
SALES REPORTING FORMATS
Salesout, Sell-Through and Inventory Report Format
<TABLE>
<C> <C> <C>
Field Field Description Max Size
1 Distributor's Customer or Outlet X(20)
Number
2 Customer or Outlet Name X(40)
3 Customer or Outlet Address I X(40)
4 Customer or Outlet Address 2 X(40)
5 Customer or Outlet City X(40)
6 Customer or Outlet State X(02)
7 Customer or Outlet Zip X(10)
8 Customer or Outlet Phone X(14)
9 Distributor Part Number X(20)
10 Part Description X(50)
11 Salesout Quantity 9(11)
12 Sell-Through Quantity 9(11)
13 Ending Inventory Quantity 9(11)
14 Unit Price 9(11).99
15 Calendar Year Shipped X(02)
16 Calendar Month Shipped X(02)
</TABLE>
ATTACHMENT A
SALES REPORTING FORMATS
AMS Report Format
<TABLE>
<C> <C> <C> <C>
Field Field Name Comments Optional?
1 Reseller Outlet ID
2 Outlet Name
3 Outlet Address 1
4 Outlet Address 2
5 Outlet Phone Yes
6 Outlet Fax Yes
7 Outlet City
8 Outlet State
9 Outlet Zip
10 Bill-to Customer ID Yes, if end user
11 Bill-to Name Yes, if end user
12 Bill-to State Yes, if end user
13 Bill-to Zip Yes, if end user
14 Ship-to Customer ID Yes, if end user
15 Ship-to Name Yes, if end user
16 Ship-to State Yes, if end user
17 Ship-to Zip If Null and end user,
Outlet Zip will be used Yes, if end user
18 Invoice Number Yes, if end user
19 Invoice Date Yes, if end user
20 Vendor- Part One of Microsoft, Merisel,
Ingram,Techdata, Handelman,
NACSCORP, Microage, Computerland,
or Intelligent Electronics
21 Reseller Part Number
22 Part Description
23 Quantity Sold
24 Agreement Number Yes
25 Agreement Type List to be provided Yes
(ex., 1 = MSM, 2 = Select, ...)
26 Sale Type "E" for End User,
"A" for Academic,
"G" forGovernment,
"C" for Corporate Account.
</TABLE>
ATTACHMENT B
REBATE PROGRAM GUIDELINES
Attachment B - July/December 1993 Major Chains Rebate Programs
Programs The July - December 1993 Rebate period has three rebate programs
for Major Chains. Rebate percentages available are listed in the
table below. Details on each of the programs are included in this
document
<TABLE> <C> <C>
Rebate Incentive Maximum Percentage Available
Sell-through Program -----%
Mass Merchandiser Program -----%
Total -----%
</TABLE>
Sell-Through Rebate Program
Program
Objective The objective of the Sell-Through Rebate Program is to increase
sales of Microsoft products by rewarding the resellers for
increasing their total sell-through revenues while allowing
the reseller to focus on the best product mix for their customer
segments.
Goal
Definitions The program sell-through goals are based on the following factors:
* Fiscal year 1993 projected and actual sell-through revenues by reseller.
* Microsoft US Finished Goods (referred to as "USFG" throughout the
remainder of this document) fiscal year 1994 revenue growth
percentage goals.
* Reseller revenue growth as a percentage of total Microsoft USFG
revenue growth.
* Reseller projected revenue growth for fiscal year 1994.
Goal
Calculation The formula used to derive the goal is:
July/December July/December 1993
1992 Revenues (1 + -----%) Sell-Through Revenue Goal
Components of this formula are outlined below.
July/December 1992 Sell-Through Revenues - July/December 1992
ending sell-through revenues reflect reseller sell-through units
at fiscal 1994 reseller discounts. It also includes Special
Agreement, Maintenance, and Select sales for July/December 1992
semester.
Growth Rate - The major chain reseller growth percentage was
derived by weighting and scaling the following factors:
1. Reseller's projected growth for fiscal 1994 based on
historical analysis by Microsoft.
2. Microsoft USFG projected fiscal year 1994 growth.
3. Major Chain Reseller projected fiscal 1994 growth.
Major Chain Reseller projected fiscal 1994 growth was derived by
examining revenue growth for all major chain resellers from fiscal
year 1992 to fiscal 1993 as it relates to Microsoft USFG growth.
Major Chain's fiscal year 1993 growth over fiscal 1992 was -----%.
Based on that growth, Microsoft projects Major Chain fiscal 1994
growth to be -----%.
Formula Calculation: The sell-through revenue goals are derived by
taking July/December 1992 ending sell-through revenues and
multiplied by the Major Chain reseller growth rate.
The table below gives an example of the use of the formula for a
reseller with a growth rate of _____% and July/December fiscal
1992 revenue of $20,000,000.
<TABLE> <C> <C>
July/December 1992 Sell- July - December 1993
Through Growth Goal
Reseller (A) (B) = A *(1+ -----%)
Reseller X $20,000,000 $-----
</TABLE>
Rebate
Sliding
Scale Resellers are rebated based on a sliding rebate scale, with -----%
being the total rebate percentage attainable. The purpose of this
scale is to offer an incentive for resellers to meet a portion of
their goal in the event they cannot achieve the full sell-through
revenue forecast. In order to earn the full -----% rebate, the
reseller must grow total sellthrough revenue dollars by -----%.
The following table outlines the rebate scale for major chain
resellers for July/December 1993. Individual reseller rebate
scales can be found on page 6 of this attachment.
<TABLE>
<C> <C>
If reseller achieves this growth in
July/December 1993, then they will earn the respective rebate
-----% -----%
-----% -----%
-----% -----%
-----% -----%
-----% -----%
-----% -----%
-----% -----%
</TABLE>
The table below is an example of how the rebate scale would work
for a reseller experiencing -----% growth in sell-through
($25,000,000) for July/December 1993. Based on the scale, the
reseller will earn a -----% rebate.
<TABLE>
<C> <C> <C>
July/December 1993 July/December Growth %
Sell-through Achieved Rebate %
$25,400,000 -----% -----%
$25,000,000 -----% -----%
$24,600,000 -----% -----%
$24,200,000 -----% -----%
$23,800,000 -----% -----%
$23,400,000 -----% -----%
$23,000,000 -----% -----%
</TABLE>
Reporting
Revenues Sell-through revenues will not be included if they are due to the
acquisition of another reseller during the period. Revenues
generated from internal expansion, new store openings, will be
included. Revenues from three-way special agreements with
Microsoft will also be included when the Major Chain reseller is
selected as the "reseller of choice" by the end user account.
This revenue will include Microsoft net revenues from end user
account based on shipments, not contractual commitments. Sell-
through data sources are outlined below.
Sell-through
Measurement Each Major Chain Reseller's total sell-through includes reseller
reported sell-through, Special Agreement Sales, Maintenance Sales,
and Select Sales. The definitions, sources, and computations for
Sell-through are is as follows:
Sell-through: Those full packaged product units sold through
reseller outlet locations to an end user. Sell-through is
reported by each reseller to Microsoft. The full package product
sell-through excludes Select (license only), Maintenance, Special
Agreements, and miscellaneous unloaded part sales (please refer to
Page 5 of Attachment B for a list of these parts). A price
leveling factor is applied to each reseller's loaded units in
order to provide an equitable measuring system. Sell-through is
computed as follows:
Sell-through = Reported Sell-through units * SRP * (price leveling
factor)
.----- price level factor applied to full package product units
.----- price level factor applied to hardware
.----- price level factor applied to upgrades
Promotional pricing is used instead of SRP during the promotion
period
Promotional pricing is defined as any special price offered for a
limited time only. For example, Microsoft AccessTM was offered at
$99.00 from November 1992 - December 1992. The price, using the
pricing schematic listed above, would be $----- ($99.00 * .-----)
rather than $----- ($----- * .-----).
Special Agreement Sales: The product unit license sales between Microsoft and
the Corporate Account named in each contract. Each Special Agreement has a
reseller designated, for whom qualifies to receive credit for Special
Agreements Sales. Those special agreement rebate credits issued during the
July/December 1993 semester qualify as Special Agreement sales that will
included in each semester's sell-through totals. For example, the sell-
through for the semester ending December 30, 1993 will capture those special
agreement revenues for which rebate credits were issued between July 1, 1993
and December 31, 1993. Qualifying sales are those license sales
reported and recognized by Microsoft. The source of this data is Microsoft's
financial system.
Microsoft Maintenance Sales: Those maintenance sales recognized by Microsoft.
Billing occurs at the beginning of a quarter, and revenue is recognized
appropriately. Therefore, the maintenance sales to be included are those
maintenance sales recognized as revenue by Microsoft during each semester.
For example, those maintenance sales recognized for the quarters ending
September 1993 and December 1993 will be included in total sell-through for
the July/December 1993 semester. The source of this data is Microsoft's
financial systems.
Select Sales: Select agreement sales will be included in the resellers sell-
through totals. Select sales will come from two sources:
Reseller electronic reporting, and
Microsoft Select database.
The Select program sales, MLP and MMLP's, will be reported by the resellers in
their monthly electronic reporting. Similar to sell-through, these units are
loaded in Microsoft's Marketing Business System, and price leveling is
applied. Price leveling is applied to each reseller's loaded units in order
to provide an equitable measuring system.
The Select program sales, MELP and MVLP, will be captured from the Microsoft
financial systems as recognized revenue. The two current quarter's recognized
will be included in semester sell-through and qualified purchase totals. For
example, the quarters ending September 1993 and December 1993 will be included
in July/December 1993 semester sell-through totals.
Those disks, purchased by Major Chain resellers from RR Donnelley for
fulfillment in Select Agreements, will be not be included in sell-through or
qualified purchases.
Sell-through Exclusions: The following list of product sales are not included
in sellthrough totals for rebate measurement purposes:
Manuals/documents
Resource Kits
XLA units
Mouse extension cables
Device drivers
Mouse pads
International sales
Select Disk and Documentation sales (purchases from RR Donnelley)
Reporting
Requirement Microsoft must receive timely and accurate electronic LVA, sell-
through, and ending inventory reporting monthly by the 10th of the
following month. In the event this requirement is not met, net
revenues for the month in question will not be counted in the
Sell-Through rebate program. The reseller will also be penalized
1/6 (1.5%) of their total rebate for each month the reporting
requirement is not met. Reporting details are outlined in each
reseller's semester agreements.
Rebate
Calculations
& Payment The total rebate possible for achieving the sell-through revenue
goal is -----% of qualified purchases. Rebates are paid in the
form of a purchase credits at Microsoft ----- days after the end
of the semester rebate period, ----- for July/December 1993
semester. Rebates are calculated by taking the achieved rebate
percentage times qualified purchases. Qualified purchases is
defined on the next page.
Qualified purchases includes the following:
* Net qualified purchases from Microsoft (Net qualified purchases
are defined as: Purchased product shipped during the rebate
period for which payment has been received by ----- days after
the end of the rebate period. This excludes all returns,
credits, and promotional product).
* Special Agreement revenues for those special agreement rebate
credits that were issued during the July/December 1993 semester
(see "Sell-through Measurement" section for further
explanation).
* Microsoft Maintenance revenues (see 'Sell-through Measurement"
section for further explanation).
* Microsoft Select Program revenues (see "Sell-through
Measurement" section for further explanation).
* Qualifying purchases through distribution (see "Product
Availability" section below for further explanation).
Any issues surrounding rebates should be sent, in writing, to Amy
Harry no later than 30 days following receipt of rebate payment If
no issues are received, that rebate period will be closed for any
later issues that may be brought to our attention.
Product
Availability Should Microsoft be unable to ship a product for any
consecutive ten business day period, all Resellers who have that
product on order will need to submit purchase order copies and a
summary for those products purchased through distribution. This
excludes promotional product orders. If resellers do not order
promotional products by the Microsoft announced date and the
reseller purchases product through distribution for Microsoft out
of stock product, then those promotional product orders will not
qualify to be included in qualified purchases for rebate purposes.
All purchase order copies and a summary of those sales they wish
to qualify should be sent no later than 15 days following the end
of the semester. Those qualifying purchases will be included in
the semester qualified purchase total to be rebated on. Please
send purchase order copies, and summary of the qualifying
purchases to the following address:
Microsoft Corporation
One Microsoft Way
Bldg 22/3088
Redmond, Washington 98052-6399
Attention: Amy Harry, Sales Support
Auditing Microsoft reserves the right to randomly audit resellers on
reported sell-through information.
<TABLE>
July/December
1993 Rebate Scale
<C> <C> <C>
July - December Achieve this
1993 Sell-Through Percentage Receive this
Reseller Goals Growth Rebate Percentage
Egghead $----- -----% -----%
Egghead $----- -----% -----%
Egghead $----- -----% -----%
Egghead $----- -----% -----%
Egghead $----- -----% -----%
Egghead $----- -----% -----%
Egghead $----- -----% -----%
</TABLE>
Mass Merchandising Rebate Program
Program
Objective The objectives of the Mass Merchandising Rebate Program for
July/December 1993 are to reward Major Chain resellers a total of
-----% rebate for maximizing merchandising presence of Microsoft
products and for obtaining reseller support for all new Microsoft
product introductions. The program allows each reseller the
flexibility in developing their own mass merchandise plan to
achieve these objectives.
Goal
Definitions Each reseller's Mass Merchandising goals will be established and
measured based on the semi-annual mass merchandising plan
submitted (mass merchandising plan requirements are outlined
below). The goals established will represent the following:
* Major Chain's goals and objectives outlined in mass
merchandising plan.
* Microsoft's goals and objectives for mass merchandising.
* Each major chain's mass merchandising history.
Rebate
Requirements To receive the -----% merchandising rebate, major chains must
develop a semi-annual merchandising plan, which includes the
following sections:
1. Objectives covering the following areas:
* Microsoft Product Assortment
* Plans for eliminating/reducing Microsoft product stock-outs
* Shelf-management plans
* Incremental displays.
2. Strategies for achieving each objective listed above (this should be
quantifiable/specific).
3. Measurement: define how each objective will be measured.
4. Designated Sales Representative Communication Plan
The template for submitting Mass Merchandising Plan can be found on Page
8 of Attachment B, and will also be provided to each resellers account
manager. This template must be used in submitting mass merchandising
plan for July/December 1993.
Microsoft will evaluate each plan. Once a plan has been approved and
agreed upon by Microsoft and the reseller, the plan will implemented on
August 1, 1993.
Measurement At the end of July/December 1993 Semester, each reseller's
performance will be measured against the measurement system
outlined in each reseller's mass merchandising plan.
Mass
Merchandising
Plan Each Microsoft Account Manager will work closely with each
reseller in creating a mass merchandising plan. Plans must be
submitted by July 30, 1993 to the following address:
Microsoft Corporation
One Microsoft Way
Bldg 22/3088
Redmond, Washington 98052-6399
Attention: Amy Harry, Sales Support
Rebate
Calculation In order to receive the -----% Mass Merchandising Rebate for
July/December 1993, each reseller must accomplish 100% of each
objective outlined in their mass merchandise plan. If a reseller
fails to complete/accomplish each objective, then they will not be
awarded the -----% Mass Merchandising Rebate.
Rebate
Payment Total rebate possible for achieving the mass merchandising goal is
-----% of net qualified purchases. Rebates will be paid in the
form of a purchase credit from Microsoft no later than 45 days
after the end of the rebate period July/December, February 15.
Reporting
Requirement Microsoft must receive timely and accurate electronic LVA, sell-
through, and ending inventory reporting monthly by the 10th of the
following month. The reseller will also be penalized ----- (-----
%) of their total rebate for each month the reporting requirement
is not met. Reporting details are outlined in each reseller's
semester agreements.
Mass Merchandising Plan Template
Objectives/Strategies:
Number I Objective #1
Strategy #1
Number 2 Objective #2
Strategy #2
Number 3 Objective #3
Strategy #3
Stock-out Plans:
Shelf-management
Plans:
Incremental
Display Plans:
Exhibit 10-8
Amendment To The
Microsoft 1993/1994
Channel Agreement
(Appointment As a Major Chain Reseller)
This amendment ("Amendment") entered into as of the 10th day of November,
1993, modifies that certain Microsoft 1993/1994 Channel Agreement
("Agreement") between MICROSOFT CORPORATION ("MS") having its principal place
of business at One Microsoft Way Redmond, WA 98052 and DJ&J SOFTWARE
CORPORATION d.b.a. EGGHEAD SOFTWARE ("CUSTOMER") having its principal place of
business at 22011 SE 51st Street, Issaquah, WA 98027. The Agreement is
amended as follows:
1. Purpose
The purpose of this Amendment is to set forth the framework by which MS
appoints CUSTOMER as a non-exclusive major chain reseller in the United States
of America for the MS Products listed on the MS Price List attached hereto as
Schedule B. For purposes of this Amendment, capitalized terms not otherwise
defined herein, shall have the same definition as set forth in the Agreement.
2. CUSTOMER Obligations
2.1 Distribution to End Users Only
Products distributed pursuant to this Amendment shall be distributed solely to
end users, and not to resellers of any kind.
2.2 Licensing Provisions
CUSTOMER acknowledges that the Products are distributed to end users subject
to the terms of the applicable end user license agreement. CUSTOMER shall
make commercially reasonable efforts to prevent distribution of Products to
end users who intend to copy or reproduce the Products in violation of the end
user license agreement.
2.3 Product Purchases
Products acquired by CUSTOMER shall be purchased only from MS or MS authorized
distributors and franchisers.
2.4 ----- Reporting
CUSTOMER shall provide MS month ----------------------------------------------
- - --------- reporting as outlined in CUSTOMER's current Microsoft Rebate and
Marketing Fund Agreement. CUSTOMER shall submit all required reports to MS
within ----- (-----) days after the end of each calendar month.
3. CUSTOMER and MS Obligations
3.1 Prices and Discount Schedule
CUSTOMER discounts are set forth on the CUSTOMER Discount Schedule attached
hereto as Schedule A. The United States Suggested Retail Price ("SRP") for all
Products are set forth in the MS Price List, Schedule B. MS may modify the MS
Price List or CUSTOMER Discount Schedule at any time upon ----- (-----) days
written notice to CUSTOMER. MS may offer, without prior notice, temporary
"special" prices on any or all Products.
3.2 Delivery and Product Distribution
Products shall be invoiced and shipped Free On Board ("FOB") Bothell,
Washington. CUSTOMER shall have the right to specify its own carrier on
condition that delivery shall then be "freight collect."
In any month CUSTOMER participates in the MS Rate Based Distribution Program,
for all CUSTOMER warehouses that receive a minimum of $----- of Products in MS
Master Carton quantities calculated on the basis of CUSTOMER's net prices from
MS, and MS chooses the carrier, the freight costs of delivery of Products to
those CUSTOMER warehouses for that month will be paid by MS. In any month
CUSTOMER's Rate Based Distribution Program participation exceeds ----- percent
(-----%) of eligible product shipments, CUSTOMER will be allowed to adjust
CUSTOMER's forecast of ----- (-----) MS Product SKU's. Such adjustments to
the forecast shall not exceed ----- (-----%) upward or ----- percent (-----%)
downward from the final forecast, ----- weeks prior to the first ship date.
3.3 Product Authorization Category Procedures
From time to time, MS may classify certain of its Products by Product
Authorization Category, which Products may only be obtained and distributed by
CUSTOMER upon written authorization from MS. Such written authorization from
MS may be specific to the particular CUSTOMER outlet location. CUSTOMER may
apply for such authorization by completing the applicable Reseller
Authorization Application and/or Agreement process required by MS. MS may by
prior written notification terminate CUSTOMER's authorization to obtain and
distribute Product Authorization Category Products with respect to one or more
CUSTOMER outlets. For each Product Authorization Category Product
distributed, CUSTOMER shall complete and return to MS all requested customer
registration documents.
3.4 Inventory Balancing
To reduce inventory risk, CUSTOMER shall be entitled to balance its inventory
of Products ---- (-----) times each calendar year provided such Products are
still on the then-current MS Price List. Products may be returned to MS and a
Purchase Credit will be issued for the returned units, based on the average
price CUSTOMER paid for the Products in the ----- (-----) months prior to the
return. Only current versions of MS Product titles will be excepted for
return pursuant to this section. CUSTOMER returns shall be limited to -----
percent (-----%) of net dollar shipments for the ----- (-----) month period
immediately preceding the stock balancing request month.
CUSTOMER may submit a written request for authorization to return Products for
the purpose of inventory balancing ----- and ----- summarizing the quantities
of each Product to be returned. Upon verification that CUSTOMER is meeting
its inventory balancing terms, MS shall issue a return authorization, which
will expire ----- (-----) days from the date of issue. CUSTOMER is limited to
- - ----- (-----) inventory balancing returns per year.
All Products returned for inventory balancing must be in fit condition, shrink
wrap intact, to be distributed to other MS customers. Any Products returned
that are not in fit condition for resale shall be returned to CUSTOMER and
CUSTOMER shall be subject to a ----- percent (-----%) inspection fee and the
cost of freight for returning such Products. Such inspection fee will be
assessed at CUSTOMER's cost, and shall be waived for those Products destroyed
pursuant to the terms of MS' current onsite destruction return policy.
Promotional merchandise may not be returned for inventory balancing under this
provision. No cash refunds shall be given for exchanges, replacements, or
returned merchandise under this or any other provision of this Agreement. All
Products returned to MS under this section shall be shipped freight prepaid by
- - ----- in cartons clearly marked with the return authorization number and a
packing slip attached to the outside. ----- shall pay freight costs for
shipment of all replacement Products from MS to CUSTOMER.
3.5 Prior Version Returns
When MS ships a new version of a Product, CUSTOMER may return prior versions.
CUSTOMER Purchase Credit for such returns shall be ----- percent (-----%) of
the Product value when Product is returned within ----- (-----) days of the
date the new version is first shipped from MS, and ----- percent (-----%) for
Product returned between ----- (-----) and ----- (-----) days after the new
version is first shipped from MS. The Product value will be equal to the ----
- - - by CUSTOMER during the ----- (-----) months prior to the return for the
quantity of Product returned by CUSTOMER. Prior versions returned after one
hundred eighty (180) days after the new version is first shipped from MS will
not be eligible for credit. All Products returned to MS under this section
shall be shipped freight prepaid by ----- in cartons clearly marked with the
return authorization number and a packing slip attached to the outside. ----
shall pay freight costs for shipment of all replacement Products from MS to
CUSTOMER.
Discontinued products, defined as Product that MS has stopped manufacturing
and discontinued from the MS Price List, shall be considered prior versions
pursuant to this section. MS shall provide CUSTOMER with thirty (30) days
written notice of any discontinued Product.
3.6 Customer Satisfaction Product Returns
MS shall provide CUSTOMER with a Purchase Credit or replacement for Product
returned to MS pursuant to CUSTOMER's customer service return policy.
Customer Satisfaction Product returns shall be limited to ----- percent (-----
%) of CUSTOMER's average monthly net purchases for the ----- (-----) months
prior to the return. CUSTOMER shall submit a request for authorization to
return Product summarizing the quantities of each Product to be returned.
Upon receipt, MS shall issue a Return Authorization Number, which shall expire
- - --- (----) days from the date of issue. Only current versions of MS Product
shall be eligible for return under this section. All Product returned to MS
shall be shipped freight prepaid by ----- in cartons clearly marked with the
Return Authorization Number and a packing slip affixed to the carton. -----
shall pay freight costs for shipment of replacement Products from MS to
CUSTOMER.
IN WITNESS WHEREOF, the parties have signed this Amendment on the dates
indicated below. All terms and conditions of the Microsoft 1993/1994 Channel
Agreement not amended herein shall remain in full force and effect. This
Amendment is not binding until executed by MS.
AGREED AND ACCEPTED TO BY AGREED AND ACCEPTED TO BY
MICROSOFT CORPORATION ("MS") DJ&J SOFTWARE CORPORATION d.b.a.
EGGHEAD SOFTWARE ("CUSTOMER")
By: By:
Name (please print) Name (please print)
Title Title
Date Date
Schedule A
CUSTOMER Discount Schedule
For the period of the Amendment CUSTOMER shall receive the following discounts
from the Product SRI listed on MS' then current Price List MS may change
CUSTOMER's Discount Schedule at any time by providing ----- (-----) days
written notice to CUSTOMER.
<TABLE>
<C> <C>
Full Packaged Product Software -----%
Upgrade Software -----%
Microsoft Select -----%
Hardware -----%
</TABLE>
Schedule B
MS Price List
Exhibit 10-9
EGGHEAD
S 0 F T W A R E
April 21, 1994
Rod Brooks
VP Sales & Marketing
WordPerfect
1555 N. Technology Way
Orem Utah 84057-2399
Re: 94 agreement
Dear Rod:
My review of the 1994 Letter of Agreement with Franci Willis, Bryan Johanson,
Bob Hughes, and William Gilsing was completed 4/18/94 and we finally have
agreement on proceeding with business.
The core concept of the following agreement is an elimination of any possible
extraneous or non productive activities. This will move our relationship
closer to the Low Cost Provider relationship that Egghead will require going
forward.
WPCorp. will keep this agreement competitive in total rebates, discounts, and
available funding to like volume resellers.
To support the ongoing cooperative partnership we agree to the following:
1. PLANNING
Egghead and WordPerfect will co-generate a rolling ----- (-----) month Plan to
entail all anticipated product launches, promotions, offers, etc. within the
appropriate Egghead channel of sales:
Retail - Corporate - Government - Education
The Plan is to include -------------------------------------------------------
- - -----------------------------, as well as any other details as deemed
appropriate by the buyer and account manager. The plan will be updated on an
ongoing ----- day cycle. Quarterly meetings will be established for review
and modification of the sell through and channel goals agreed upon.
The proposed Plan may also look to qualify funding to the channels as
appropriate to the -----------------------------------------------------------
- - ------------------------------------------------------------. A copy of the
Plan will be set up as a dated addendum and will be referenced and agreed to
by both WordPerfect and Egghead.
2. SIMPLIFICATION of TRANSACTION
A. --------------------------- of accumulated defective products: The
following sequence of events to occur on a Monthly basis:
1) Generation and fax transmittal of Egghead Software Return Request
to WPCorp (See attached example). The current -------------------
- - ------------ less the current ------------------------------ shall
be used in calculations of extended value.
2) WPCorp. will have ----- (-----) working days to respond to the
request with:
a) an authorization number or
b) a request to hold the product for inspection and/or auditing
purposes,
c) a request to send all or a portion of the requested -----
product to WPCorp. (per attachment F). Remaining unshipped
portion shall be ---- per (3) below.
3) Upon receipt of an authorization number(2a) or If a response to
hold (2b, 2c) is not received in the allotted time, the product
quantities and costs as detailed on the request, shall be ----- by
Egghead personnel or a bonded contracted. Documentation of -----
will be sent to WPCorp on a monthly basis.
4) A debit memo will be generated within ----- (-----) working days
and applied to the WPCorp. account on those items ----- in item
(3). WPCorp will apply a credit memo to Eggheads' account within
- - ----- (-----) working days of the issuance of the return
authorization number. Debit/Credit memos' created will reference
the Egghead Number shown on the request and if supplied, the
WPCorp authorization number.
5) Any request held for inspection from item(2b) will be inspected by
WPCorp. or their designee and resolved within ----- days of the
original date of the request, or the items will be ------ per
item(3) and (4) above.
6) Total returns (Not including version returns) from Egghead are not
anticipated to exceed ----- percent (-----%) of the prior -----
purchases of WPCorp products. Excess return penalties of -----
percent (-----%) will be applied to those returns in excess of the
- - ----- percent (-----%), unless other wise agreed to in writing
prior to the return by WPCorp.
7) All other returns and stock balances will require prior return
authorization number from WPCorp. See attachment (F) for further
details.
B. COOP and Rebate billing
The basic change proposed to the current WPCorp program is the deduction from
the face of --------------------------------. Egghead requests the -----
deduction to be taken from the total of the ----- in a separate line item.
<TABLE> <C> <C>
<S> Quarter 2 Quarter 3,4
Basic discount As shown on As shown on
Current WPCorp. Current WP Corp.
Price Sheet Price Sheet
Marketing Softdollars Preapproved from Preapproved from
- - ----- / credited at the beginning Marketing plan Marketing plan
of each ----- for each specific $ amount specific $ amount
- - ----- activities by Plan.
Potential Total Rebate % -----% TBD by channel
See Attachment A for program each
specific -----%, quarter
Goals. details
</TABLE>
Each quarters' Marketing Softdollars will be ----- of each -----, for the
activities planned within each -----.
At the end of each quarter, any additional Rebate amounts due to Egghead will
be paid within ----- days of receipt of sellthrough reporting. If the COGS
from Egghead show that ----- ----- were taken at a higher rate than the
channel program would have allowed, Egghead will apply an adjustment to the
following quarter's -----% to offset ( See attachment A for details). This
program will be adjusted quarterly to be consistent with WPCorp's channel
rebate program.
Prior to each calendar quarter, the Plan and the anticipated rebate level will
be reviewed and agreed upon by both Egghead and WPCorp. WPCorp reserves the
right to change published SRP and/or discounts and rebates with ----- (-----)
days written prior notice.
3) REPORTING
Egghead agrees to provide the requested reports with some differences, as
listed below:
Egghead will agree to provide reporting for sellthrough and inventory, as
shown by the ----- for each preceding -----.
A. ----- by ZIP including COGS
B. ----- by ZIP including COGS
C. ----- By Zip including COGS
D. WordPerfect requested format = Summary by month by SKU for each
Channel To include SKU#, ----- Units & COGS, ----- Units & COGS, -
- - ---- Units & COGS, ----- Units & COGS, total Units & COGS,
Inventory Units & COGS, Summary for each channel and grand total.
Reports shall be sent in ASCII delimited format on disk to the attention of-
WordPerfect
Contact Name: Franci Willis
Street Address: 11704 NE 166th Court
City: Bothell
State: WA
Zip Code: 98011
WPCorp CAP and GSA required reporting shall be continued to be provided under
separate cover and format.
4) ORDERING and FULFILLMENT
A) Egghead needs specific support from WPCorp. for those SKUs, primarily of
corporate nature, that experience significant peaks in demand and rush
delivery requirements. Egghead does not anticipate this volume of
business to be over -----% of the total purchases in any given time
frame. The ---- hour minimum inhouse turnaround time on these orders
from WPCorp ------------------------------------:
1) The required quick refill orders and rush special orders will be
placed with
- - --------------------------------- by Egghead. Supplier
determination will be based on product availability, and support
of the required time lines for each order.
2) These orders shall fall within the earned rebates as detailed
above for all programs. Orders that exceed the anticipated -----%
will not earn be eligible for the earned rebates except as
approved in writing from WPCorp.
3) Egghead will report these purchases to WPCorp. in summary form on
a ----- basis for inclusion into all rebate calculations.
B) Regular stocking Orders will be placed each ----- to support an instock
level equivalent to no more than ----- (-----) weeks or less than -----
(-----) weeks of inventory at the current rate of sale unless otherwise
agreed to by both WPCorp and Egghead.
C) Egghead agrees to prioritize implementation of ----- with WordPerfect in
order to lower processing costs for both companies. Reporting functions
as outlined above will be made available through -----.
5) TERMS and CONDITIONS
A. Payment Terms: Terms of payment for any order shall be net ---- (-----)
days from the date of invoice. Invoices are considered past due after -
- - ---- (-----) days from invoice date and interest may accrue on past due
balances a the lesser of -----% per month or the -----.
B. Shipping: AR shipping of WPCorp. products shall be FOB origin.
C. Termination:
1. This agreement may be terminated at any time by either party
giving ----- (-----)
days prior written notice to the other.
2. WPCorp. may terminate this agreement immediately upon notice if
the Reseller dissolves, terminates or suspends its business, or
makes an assignment for the benefit of creditors, or otherwise
becomes subject to any bankruptcy or insolvency laws.
3. This agreement may be terminated immediately in the event of
either party's breach of any condition set forth herein.
D. Territory: The Territory in which Egghead may distribute WPCorp.
products is limited to -----.
E. The term of this agreement shall be April 1, 1994 through December 31,
1995
Egghead looks forward to continuing the great relationship with WordPerfect
and the growth of our strategic partnership. Please call me upon receipt of
this document that we may get started on the implementation of this new
agreement.
Ed Block Date Rod Brooks Date
Buyer VP Sales & Marketing
Egghead Software WordPerfect Corp.
CC: Bryan Johanson / Franci Willis WordPerfect
Peter Janssen / William Gilsing Egghead
Attachment A Quarter 2 (April I - June 30 ) Rebate schedule
The basic change proposed to the current WPCorp program is the ---------------
- - ----------, a minimum agreed anticipation of the sellthrough rebate. Egghead
requests the invoice deduction to be taken from the total of the ----- in a
separate line item.
Based on a Prior years' Quarter 2 COGS of $-----
<TABLE> <C> <C> <C>
Required
Sellthrough
COGS
volume Percentage
<S>
Basic Rebate for Reporting*** N/A -----% --------------
Rebate for ----% COGS growth*** $----- -----% --------------
Rebate for ----% COGS growth $_____ -----% Additional Rebated
at quarter-end
Rebate for -----% COGS growth $----- -----% Additional Rebated
at quarter-end
Rebate for -----% COGS growth $----- -----% Additional Rebated
at quarter-end
Potential Total Additional
Rebate % -----%
Total ----- -----%
</TABLE>
At the end of each quarter, any additional amounts due to Egghead will be paid
within 30 days of receipt of sellthrough reporting. If the COGS from Egghead
show that ----- were taken at a higher rate than the channel program would
have allowed, Egghead will apply an adjustment to the following quarter's ----
- - - % to offset.
Attachment F
Freight and Product Return Guidelines
Restock Product, Cosmetically Damaged Product, and Defective Product returns
are accepted under the product returns guide lines. All products will be
returned on a dollar for dollar basis and must be accompanied by an approved
RMA number as directed below. Shipments that do no have an assigned RMA will
be subject to a ----- percent (-----%) restocking fee. Upon the release of a
major version change Reseller may return ----- and without penalty, zone
shipment per warehouse, for restock of the old version provided Reseller uses
a WPCorp., designated shipping company. Reseller shall pay for the
replacement of the product shipped from WPCorp.
Method of shipment: Products are to be returned to WPCorp. with freight
prepaid by the -----. Separate RMA numbers are required for each shipment of
Returned Products and the corresponding RMA number must be clearly printed on
the outside of each shipment container/box.
Restocking Fees: During each calendar quarter, Reseller may return to WPCorp.
without penalty, up to ----- percent (-----%) of Reseller's prior calendar ---
- - -- sales of WPCorp Products. Any Returned Products in excess of ----- percent
(-----%) will be subject to a ----- percent (-------%) restocking fee and will
be automatically deducted from any credit memo or payment issued to Reseller
for such returns.
Freight Damaged Product: means Products that are damaged in transit or during
the shipping process outside of WPCorp's control. Freight damaged Product
shall not qualify for credit from WPCorp., and Reseller shall be responsible
for pursuing the necessary claim with the designated carrier. WPCorp.
reserves the right to withhold the issuance of a credit memo or other payment
to Reseller for any Product Return that includes Freight Damaged Product.
Return Authorization Number ("RMA"):
RMA's are required for all product returns. RMA guidelines are as follows:
* Each RMA is valid for ----- (-----) days from the date of issuance.
* RMA is held open for only one shipment of product.
* Only the items requested and authorized on the RMA will be credited by
WPCorp. (Any additional items will be subject to ----- percent (-----%)
restocking fee.)
* **Products returned without the certificate of License -----.
The following are the required modifications as called out above to support
the Egghead WPCorp. agreement.
* Up to ----- (-----) return shipments will be allowed, each with appropriate
RMA,
** Revised to match Simplification of Transaction item #6 "Product returned
without the
Certificate of License -----.
EXHIBIT 10.32a
AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
EGGHEAD, INC.
DJ&J SOFTWARE CORPORATION
TIMOTHY E. TURNPAUGH
Dated as of June -, 1993
AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
This Amended and Restated Executive Employment Agreement (this "Agreement")
among Egghead, Inc. ("Egghead"), a Washington corporation, DJ&J Software
Corporation ("DJ&J"), a Washington corporation and a wholly-owned subsidiary of
Egghead, and Timothy E. Turnpaugh ("Executive") is dated and entered into as of
June -, 1993 and amends and restates that certain Executive Employment
Agreement dated February 22, 1993 between the Company and the Executive,
which agreement is hereby amended and superseded by this Agreement. Egghead
and DJ&J are hereinafter referred to collectively as the "Company."
In consideration of the mutual covenants and promises contained herein, the
Company and the Executive agree as follows:
1. Employment
The Company will employ the Executive and the Executive will accept employment
by the Company as its chairman and Chief Executive officer. The Executive
shall be responsible for the general management of the Company and for the
management and direction of (i) direct corporate and government sales to
Egghead customers in the very large and upper middle market account categories
(as determined by the Board of Directors), (ii) international sales and other
international activities, (iii) finance, audit, asset management and legal
matters and public relations, (iv) human resources, and (v) mergers and
acquisitions, subject to the direction and control of the Board of Directors
and to the terms of the Company's Articles of Incorporation and Bylaws. The
Executive will perform such additional duties as may be assigned from time
to time by the Board of Directors of the Company which relate to the business
of the Company, its subsidiaries or any business ventures in which the
Company or its subsidiaries may participate. The Executive shall be, with
the President, one of the two senior officers responsible for managing the
Company. The Company has established a Strategic Planning Committee,
consisting of three non-employee directors, the function of which, at the
request of one or both such senior officers, will be to advise the two
officers regarding their responsibilities and to resolve differences between
them regarding such responsibilities and regarding management policies.
The determinations of the Strategic Planning Committee shall be binding on
the Executive. The Executive shall initially be a member of the Company's
Board of Directors. Thereafter, subject to and consistent with the
Company's Articles of Incorporation and Bylaws and subject to and consistent
with its responsibilities under law, the Board of Directors will include the
Executive as a part of the appropriate slate of directors for whom it
solicits proxies in connection with the annual meeting of shareholders. If
the Executive's employment as Chairman and Chief Executive Officer terminates
for any reason, the Executive hereby resigns as a director, effective upon
such termination.
2. Attention and Effort
The Executive will devote his full business time, attention and effort to
the Company's business and will use his skills and render services to the best
of his ability to serve the interests of the Company.
3. Term
Unless otherwise terminated as provided in paragraph 6 of this Agreement, the
Executive's term of employment under this Agreement shall commence on the
date hereof and shall expire on March 31, 1996 (the "Term").
4. Compensation
4.1 Base Salary
The Executive's compensation shall consist, in part, of an annual base salary
of $250,000 for the period from February 22, 1993 until June 26, 1993 and
$300,000 thereafter, before all customary payroll deductions (the "Base
Salary"). The Base Salary shall be paid in substantially equal installments
at the same intervals as other officers of the Company are paid. The Board
of Directors of the Company shall determine any increases in the Base Salary
in future years.
4.2 Bonus
The Executive may be entitled to receive, in addition to the annual base
salary described above, an annual bonus (the "Bonus") in an amount to be
determined pursuant to an incentive bonus plan to be established by the
Executive and the Board of Directors in good faith and having the following
characteristics: (i) the maximum bonus payable to the Executive in respect
of any of the fiscal years ending on or about March 31, 1994, 1995 and
1996 shall be 100% of the Executive's Base Salary for such fiscal year;
(ii) the Executive and the Board of Directors, as soon as practicable after
the date hereof and prior to the beginning of fiscal years 1995 and 1996,
shall establish, in good faith and in cooperation with the Executive,
performance goals for each fiscal year 1994, 1995 and 1996; (iii) depending
on the extent to which such goals shall have been achieved in any such fiscal
year, the Executive shall be awarded a percentage of the maximum bonus, up to
the full amount thereof if all such goals have been achieved; (iv) for fiscal
year 1994, the Executive shall receive a minimum bonus of $300,000.
4.3 Grant of Stock
In consideration of entering into this Agreement, the Company shall, at no cost
to the Executive, issue to the Executive 10,000 shares of Common Stock of the
Company, such stock to be valued at the closing price on the NASDAQ National
Market System as the date of commencement of the Executive's employment.
4.4 Stock Options
Effective upon employment with the Company, the Executive has been granted
nonqualified stock options to purchase 200,000 shares of Common Stock of the
Company. The Option Agreement evidencing such options and the terms and
conditions thereof is attached hereto as Exhibit A.
5. Benefits and Expenses
5.1 Expenses
The Company shall promptly reimburse the Executive for all reasonable and
necessary business expenses incurred and advanced by him in carrying out his
duties under this Agreement. The Executive shall present to the Company from
time to time an itemized account of such expenses in such form as may be
required by the Company.
5.2 Benefits
During the term of employment hereunder, the Executive shall be entitled to
participate fully in any benefit plans, programs, policies and any fringe
benefits which may be made available to the senior executives of the Company
generally, including but not limited to medical, dental, disability, life
insurance and other death benefits; provided, however, that the Executive
shall not be entitled to participate in any bonus or compensation plan
currently in effect or subsequently established by the Company, except as
contemplated in subparagraph 4.2.
5. 3 Other
The Company shall provide the Executive an office and with secretarial support
suitable to the position of chairman. In addition, the Executive shall be
entitled to travel first class in the case of any air travel on Company
business extending for more than two and one-half hours.
6. Termination
Employment of the Executive pursuant to this Agreement may be terminated as
follows, but in any case, the provisions of noncompetition, nonsolicitation
and nondisclosure set forth in paragraphs 8 and 9 of this Agreement shall
survive the termination of the Executive's employment:
6.1 By the Company
With or without Cause (as defined below), the Board of Directors may
terminate the employment of the Executive at any time during the Term upon
giving Notice of Termination (as defined below).
6.2 By the Executive
The Executive may terminate his employment at any time for Good Reason (as
defined below) or otherwise upon giving Notice of Termination.
6.3 Automatic Termination
Employment shall terminate automatically upon death or total disability of the
Executive. The term "total disability" as used herein, shall mean an
inability to perform the duties set forth in paragraph 1 of this Agreement
because of illness or physical or mental disability for a period or periods
aggregating 180 calendar days in any 12-month period, unless the Executive
is granted a leave of absence by the Board of Directors of the Company.
Employee and Employer hereby acknowledge that the Executive's ability to
perform the duties specified in paragraph 1 hereof is of the essence of this
Agreement. Termination hereunder shall be deemed to be effective immediately
upon the Executive's death or 30 days following a Notice of Termination based
upon a determination by the Board of Directors of the Company of the
Executive's total disability, as defined herein.
6.4 Notice
The term "Notice of Termination" shall mean written notice of termination of
the Executive's employment. At the election of the Company, as set forth in
the Notice of Termination, the Executive's employment and performance of
services may continue for a period of 30 days following the Notice of
Termination. Otherwise the Executive's employment shall terminate effective
upon receipt of the Notice of Termination, provided that the Executive shall
be entitled to termination payments in accordance with paragraph 7. The
effective date of the termination of the Executive's employment hereunder
shall be the date on which such 30-day period expires.
6.5 Good Reason
For purpose of this Agreement, "Good Reason" shall mean any of the following
(without the Executive's express prior written consent):
(i) The assignment to the Executive by the Company of duties inconsistent
with the Executive's positions, duties, responsibilities, titles or offices
at the commencement of the Term, or any reduction in his duties or
responsibilities or any removal of the Executive from or any failure
to re-elect the Executive to any of such positions, except in connection with
the termination of the Executive's employment for Cause, disability or as a
result of the Executive's death or by the Executive other than for Good Reason.
(ii) A relocation of the Company's principal executive offices to a location
outside of the Seattle, Washington metropolitan area, or the Company's
requiring the Executive to be based anywhere other than the location within
the Seattle, Washington metropolitan area, except for required travel on the
Company's business to an extent substantially consistent with the Executive's
position, duties and responsibilities.
(iii) Any material breach by the Company of any provision of this Agreement
which breach is not cured within thirty (30) days following notice of such
breach.
6.6 Cause
Wherever reference is made in this Agreement to termination being with or
without Cause, "Cause" means cause given by the Executive to the Company and
is limited to the following:
(i) Repeated failure or refusal to carry out the directions of the Board of
Directors of the Company,which directions are reasonably consistent with the
duties herein set forth to be performed by the Executive;
(ii) Violation of a state or federal criminal law involving the commission of a
crime against the Company or a felony;
(iii) Misuse of alcohol or controlled substances or any action by the
Executive involving willful malfeasance, in any such case having a material
adverse effect on the Company.
(iv) Any other material breach of this Agreement, which is not cured within
30 days after written notice.
7. Termination Payments
In the event of termination of the employment of the Executive, all
compensation and benefits set forth in this Agreement shall terminate except
as specifically provided in this paragraph 7:
7.1 Termination by the company During FirstYear of Term
If, on or before the end of the first year of the Term, the Company
terminates the Executive's employment without Cause, the Executive shall be
entitled to receive (i) any unpaid Base salary which has accrued for services
already performed as of the date termination of the Executive's employment
becomes effective, (ii) the Base Salary the Executive would have received
if his employment had continued until the end of the first year of the Term,
payable as provided in subparagraph 4.1, (iii) an amount equal to the Base
Salary, payable following the end of the first year of the Term in
substantially the same manner as the Base Salary was paid in such first year,
(iv) if the Board of Directors requests that the Executive continue employment
for a transitional period of up to six months following the end of the first
year of the term, a bonus of $150,000, payable at the completion
of the period of transitional employment requested by the Board of Directors,
provided that the Executive is not terminated by the Company for Cause or
the Executive does not terminate his employment for other than Good Reason
prior to completion of such period of transitional employment. If the
Executive is terminated by the Company for Cause on or before the end of the
first year of the Term, the Executive shall not be entitled to receive any
of the foregoing payments, other than those set forth in clause (i) above.
7.2 Termination by the Company After the FirstYear of the Term
If, after the first year of the Term but prior to the end of the Term, the
Company terminates the Executive's employment without Cause, the Executive
shall be entitled to receive (i) any unpaid Base Salary which has accrued for
services already performed as of the date termination of the Executive's
employment becomes effective, (ii) the Base Salary the Executive would have
received if his employment had continued until the end of the Term,
payable as provided in subparagraph 4.1, and (iii) an amount equal to the
most recent bonus paid to the Executive under subparagraph 4.2, multiplied by
a fraction the numerator of which is the number of full months which have
elapsed during the then-current fiscal year prior to termination and the
denominator of which is 12, payable at the end of the then-current year
of the Term. if the Executive is terminated by the Company for Cause, the
Executive shall not be entitled to receive any of the foregoing benefits,
other than those set forth in clause (i).
7.3 Termination by the Executive for Good Reason
In the case of the termination of employment by the Executive for Good Reason:
(i) if termination occurs prior to or at the end of the first year of
the Term, the Executive shall be entitled to the payments set forth in
clauses (i), (ii) and (iii) of subparagraph 7.1; (ii) if termination occurs
during the period of transitional employment referred to in subparagraph
7.1, the Executive shall be entitled to the payments set forth in clause
(iv) of subparagraph 7.1 in addition to any other payments to which the
Executive is entitled; and (iii) if termination occurs otherwise after the
end of such first year, the Executive shall be entitled to the payments set
forth in subparagraph 7.2.
7.4 Termination by the Executive for other Than Good Reason
If the Executive terminates his employment for other than Good Reason, the
Executive shall not be entitled to receive any payments hereunder other than
(i) any unpaid Base Salary which has accrued for services already performed
as of the date termination of the Executive's employment becomes effective,
and (ii) any unpaid Bonus due in respect of any fiscal year completed prior to
any Notice of Termination given by the Executive; provided, however, if
such termination occurs during the period of transitional employment referred
to in clause (iv) subparagraph 7.1, the Executive shall, notwithstanding such
termination, be entitled to the payments provided in such clause (iv).
7.5 Expiration of Term
In the case of a termination of the Executive's employment as a result of the
expiration of the term of this Agreement, the Executive shall not be entitled
to receive any payments hereunder other than (i) any unpaid Base Salary which
has accrued which has accrued for services already performed as of the date
termination of the Executive's employment becomes effective, and (ii) any
unpaid Bonus due in respect of any fiscal year completed prior to such
or at expiration.
7.6 Termination Because of Death or Total Disability
In the event of a termination of the Executive's employment because of his
death or total disability, the Executive or his personal representative
shall not be entitled to receive any payments hereunder other than (i) any
unpaid Base Salary which has accrued for services already performed as of
the date termination of the Executive's employment becomes effective, and (ii)
any unpaid Bonus due in respect of any fiscal year completed prior to such
death or permanent disability.
8. Noncompetition and Nonsolicitation
8.1 Applicability
This paragraph 8 shall survive the termination of the Executive's employment
with the Company or the expiration of the term of this Agreement.
8.2 Scope of Competition
The Executive agrees that he will not, directly or indirectly, during his
employment and for a period of one year from the date on which his employment
with the Company terminates or this Agreement expires directly or indirectly be
employed by, own, manage, operate, join, control or participate in the
ownership, management, operation or control of or be connected with, in any
manner, any person or entity engaged in any operations in competition with the
Company in the computer software resale market in the United States, Canada,
Mexico, Western Europe, Japan, Australia or New Zealand, unless released from
such obligation in writing by the Company's Board of Directors. The Executive
shall be deemed to be connected with such business if such business is carried
on by a partnership, corporation or association of which he is an employee,
member, consultant or agent; provided, however, that nothing herein shall
prevent the purchase or ownership by the Executive of shares which constitute
less than 2% of the outstanding equity securities of a publicly or privately
held corporation.
8.3 Scope of Nonsolicitation
The Executive shall not, in addition, directly or indirectly solicit, influence
or entice any employee or consultant of the Company to cease his relationship
with the Company or solicit, entice or in any way divert any customer or
supplier of the Company to do business with an entity described herein. This
subparagraph 8.3 shall apply during the time period and geographical area
described in subparagraph 8.2 hereof.
8.4 Equitable Relief
The Executive acknowledges that the provisions of this paragraph 8 are
essential to the Company, that the Company would not enter into this Agreement
if it did not include covenants not to compete or solicit and that damages
sustained by the Company as a result of a breach of such covenants cannot be
adequately remedied by damages, and the Executive agrees that the Company,
notwithstanding any other provision of this Agreement, in addition to any
other remedy it may have under this Agreement or at law, shall be entitled
injunctive and other equitable relief to prevent or curtail any breach of any
provision of this Agreement, including without limitation this paragraphs 8.
The Executive acknowledges that the covenants in this Agreement are reasonable
and that compliance with such covenants will not prevent him from pursuing
his livelihood.
8.5 Effect of Violation
The Executive and the Company agree that additional consideration has been
given for the Executive entering into the noncompetition and nonsolicitation
provisions of this Agreement, such additional consideration including, without
limitation certain provisions for termination payments pursuant to paragraph 7
of this Agreement. Violation by the Executive of such noncompetition and
nonsolicitation provisions shall relieve the Company of any obligation it may
have to make such termination payments, but shall not relieve the Executive
of his obligations hereunder not to compete or solicit.
8.6 Definition of the Company
For purposes of subparagraph 8.2 and subparagraph 8.3 hereof, "the Company"
shall include all subsidiaries of the Company, the Company's parent corporation
and any business ventures in which the Company, its subsidiaries or its parent
corporation may participate.
9. Nondisclosure
As a condition of his employment hereunder, the Executive has executed and
delivered to the Company an agreement addressing the nondisclosure of
confidential information (the "Nondisclosure Agreement") in the form attached
hereto as Exhibit B and incorporated herein by reference as if set forth in
full herein, which Nondisclosure Agreement shall survive the termination
of the Executive's employment.
10. Form of Notice
Every notice required by the terms of this Agreement shall be given in
writing by serving the same upon the party to whom it was addressed
personally, by courier, by facsimile transmission (with hard copy delivered by
overnight courier) or by registered or certified mail, return receipt
requested, at the address set forth below or at such other address as may
hereafter be designated by notice given in compliance with the terms hereof:
If to the Executive: Timothy E. Turnpaugh
2812 - 29th Avenue W.
Seattle, Washington 98199
If to the Company: Egghead, Inc.
22011 S.E. 51st Street
Issaquah, Washington 98027
Attention: Thomas M. Hogan,
Vice President and
General Counsel
copy to: Michael E. Stansbury
Perkins Coie
1201 Third Avenue, 40th Floor
Seattle, Washington 98101
or such other address as shall be provided in accordance with the terms
hereof. Notice shall be effective upon personal delivery, delivery by courier,
receipt of facsimile transmission or three days after mailing.
11. Assignment
The Executive agrees that this Agreement may be transferred or assigned by
the Company to (a) any corporation resulting from any merger, consolidation
or other reorganization to which the Company is a party or (b) any corporation,
partnership, association or other person to which the Company may transfer
all or substantially all of the assets and business, and such assignee or
transferee shall succeed to the rights and obligations of the Company
hereunder. This Agreement is not assignable by the Executive.
12. Waiver
No waiver of any of the provisions hereof shall be valid unless in writing,
signed by the party against whom such claim or waiver is sought to be
enforced, nor shall failure to enforce any right hereunder constitute a
continuing waiver of the same or a waiver of any other right hereunder.
13. Amendments in Writing
No amendment, modification, waiver, termination or discharge of any provision
of this Agreement, nor consent to any departure therefrom by either party
hereto, shall in any event be effective unless the same shall be in writing,
specifically identifying this Agreement and the provision intended to be
amended, modified, waived, terminated or discharged and signed by the Company
and the Executive, and each such amendment, modification, waiver, termination
or discharge shall be effective only in the specific instance and for the
specific purpose for which given. No provision of this Agreement shall be
varied, contradicted or explained by any oral agreement, course of dealing or
performance or any other matter not set forth in an agreement in writing
and signed by the Company and the Executive.
14. Applicable Law
This Agreement shall be governed by the substantive laws of the state of
Washington, without regard to its conflicts of laws provisions.
15. Severability
In the event that any provision of this Agreement shall be determined by any
court or arbitrator of competent jurisdiction to be unenforceable or
otherwise invalid for any reason, including but not limited to the duration of
such provision, its geographical scope or the extent of the activities
prohibited or required by it, such provisions shall be enforced and validated
to the extent permitted by law, and the court or arbitrator shall have the
power to reform such provision to the extent necessary for such provision to
be enforceable under applicable law. All provisions of this Agreement are
severable, and the unenforceability or invalidity of any single provision
hereof shall not affect the remaining provisions.
16. Headings
All headings or titles in this Agreement are for the purpose of reference
only and shall not in any way affect the interpretation or construction
of this Agreement.
17. Attorneys
In any action or proceeding brought by any party against the other arising
out of or relating in any way to this Agreement, the prevailing party shall,
in addition to other allowable costs, be entitled to an award of reasonable
attorneys' fees.
IN WITNESS WHEREOF, the parties have executed and entered into this Agreement
on the date set forth above.
EXECUTIVE:
Timothy E. Turnpaugh
COMPANY:
EGGHEAD, INC.
By
Its
DJ&J SOFTWARE CORPORATION
By
Its
EXHIBIT 10.32b
August 25, 1993
Mr. Timothy Turnpaugh
2812 - 29th Avenue West
Seattle WA 98199
Dear Mr. Turnpaugh:
This will confirm that in lieu of termination by the Company, you
resign your employment with Egghead Inc., and DJ&J Software Corporation
(collectively the "Company") effective immediately. Termination
payments will be made as if employment were terminated by the Company.
In addition, you resign as a director, effective immediately.
You and the company are parties to an Executive Employment
Agreement dated February 22, 1993. Additionally, the parties agreed to
an amended and restated version of this Agreement in June 1993 (the
"Amended Agreement"). The Amended Agreement modified your base salary,,
raising it from $250,0OO to $300,000 annually (the "Base Salary"),
effective June 26 1993, and modified your position and duties.
While the Amended Agreement was never fully executed, this will
confirm that (i) the Amended Agreement became fully effective and
enforceable as of June 26, 1993 and (ii) as of the present date the
Amended Agreement is the entire Agreement of the parties with respect to
your employment and sets forth all rights or obligations of the parties
with respect to your employment and its termination.
In accordance with the terms of the Amended Agreement, the
following is a complete listing of all payments or benefits due from the
Company to you:
(a) Any unpaid Base Salary which has accrued for services
already performed by you as of the date hereof and, as severance
payments to you, amounts equal to the Base Salary you would have
received if employment had continued until March 31, 1995, payable
following in the same manner as the Base Salary has been paid to the
date hereof;
Mr. Timothy Turnpaugh.
August 25p 1993
Page 2
(b) Reimbursement for any business expenses incurred through the present
date to the extent not already reimbursed.
(c) Continuation, at your election and on a self-paid basis of your
participation in benefit plans governed by Comprehensive Omnibus Budget
Reconciliation Act ("COBRA") for the time period provided in that Act.
Please confirm your understanding and agreement by signing below.
Sincerely,
Terence M. Strom
Agreed and confirmed:
Timothy E. Turnpaugh
August 25, 1993
EXHIBIT 21.1
SCHEDULE OF SUBSIDIARIES
D J & J Software Corporation, a Washington corporation.
Eggspert Software, Ltd., a Canadian federal corporation.
EH Direct, Inc., a Washington corporation.
Egghead International, Inc., a Washington corporation.
MPI Corporation, a Washington corporation and subsidiary of EH Direct, Inc.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statements No. 33-24978, (Egghead, Inc. 1985 Incentive Stock
Option Plan, Egghead, Inc. 1986 Combined Incentive and Non-Qualified Stock
Option Plan, Directors' Nonqualified Stock Option Plan); No. 33-29453,
(Egghead, Inc. 1989 Employee Stock Purchase Plan); and No. 33-33101, (Egghead,
Inc. 1989 Executive Retention Incentive Stock Option Plan).
ARTHUR ANDERSEN & CO.
Seattle, Washington,
June 7, 1994.
