SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period from October 2, 1994 to December 31, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-16930
EGGHEAD, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1296187
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
22011 S.E. 51st
Issaquah, Washington 98027
(Address of principal executive offices) (Zip Code)
(206) 391-0800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
YES _X_ NO ____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock:
Outstanding at
Class January 28, 1995
Common Stock 17,166,031
$.01 par value shares
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements and Supplementary Data
Refer to Exhibit 28 for the results of the limited review performed by
Arthur Andersen LLP, independent public accountants.
EGGHEAD, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<C> <C>
December 31, April 2,
1994 1994
<S> (unaudited)
ASSETS
Current assets:
Cash and cash equivalents $24,323 $ 25,677
Accounts receivable, net of allowance for doubtful,
accounts of $4,529 and $3,432, respectively 91,983 76,241
Merchandise inventories (Note 2) 168,323 117,106
Prepaid expenses and other current assets 3,429 3,717
Current deferred income taxes (Note 3) 7,077 8,085
Total current assets 295,135 230,826
Property and equipment, net 21,269 19,351
Non-current deferred income taxes (Note 3) 3,320 3,014
Other assets 2,244 2,819
$321,968 $256,010
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks (Note 5) $ - $ -
Accounts payable 149,810 91,055
Accrued liabilities 24,256 19,144
Income taxes payable 605 494
Current portion of capital lease obligations 292 295
Total current liabilities 174,963 110,988
Capital lease obligations, less current portion 153 184
Deferred rent 1,421 1,422
Total liabilities 176,537 112,594
Commitments and contingencies (Note 6)
Shareholders' equity:
Common stock, $.01 par value: 50,000,000 shares
authorized; 17,166,031 and 17,121,438 shares
issued and outstanding, respectively 172 171
Additional paid-in capital 120,572 120,287
Retained earnings 24,687 22,958
Total shareholders' equity 145,431 143,416
$321,968 $256,010
</TABLE>
See Notes to Consolidated Financial Statements.
EGGHEAD, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
<TABLE>
<C> <C> <C> <C>
13 Weeks Ended 39 Weeks Ended
(unaudited) (unaudited)
December 31, January 1, December 31, January 1,
1994 1994 1994 1994
<S>
Net sales $254,283 $222,560 $642,442 $568,800
Cost of sales, including certain
buying, occupancy, and
distribution costs 222,444 195,276 566,061 491,545
Gross margin 31,839 27,284 76,381 77,255
Selling, general, and
administrative expense 25,210 22,615 68,461 66,863
Depreciation and amortization
expense, net of amounts
included in cost of sales 2,236 2,314 7,000 6,242
Provision for restructuring costs - - - 4,400
Operating income (loss) 4,393 2,355 920 (250)
Theft insurance recovery (Note 7) 1,650 - 1,650 -
Other income (expense):
Interest income 168 143 506 280
Interest expense (16) (12) (27) (66)
Other, net 55 (105) (206) (138)
Income (loss) before income taxes 6,250 2,381 2,843 (174)
Income tax provision (benefit) 2,437 929 1,109 (67)
Net income (loss) $ 3,813 $ 1,452 $ 1,734 $ (107)
Earnings (loss) per
share (Note 4) $0.22 $0.08 $0.10 $(0.01)
Weighted average common shares
and common equivalent
shares outstanding 17,380 17,129 17,231 17,078
</TABLE>
See Notes to Consolidated Financial Statements.
EGGHEAD, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE> <C> <C>
39 Weeks Ended
(unaudited)
December 31, January 1,
1994 1994
<S>
Cash flows from operating activities:
Net income (loss) $ 1,734 $ (107)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 7,806 7,462
Deferred rent (1) 18
Deferred income taxes 702 (290)
Stock issued as compensation - 552
Loss on disposition of assets 235 150
Changes in assets and liabilities:
Accounts receivable, net (15,774) (12,622)
Merchandise inventories (51,222) (24,411)
Prepaid expenses and other current assets 288 (265)
Other assets 257 (2,171)
Accounts payable 58,805 23,352
Accrued liabilities 5,117 7,034
Income taxes payable 111 (795)
Total adjustments 6,324 (1,986)
Net cash provided (used) by operating activities 8,058 (2,093)
Cash flows from investing activities:
Additions to property and equipment (9,491) (7,592)
Proceeds from sale of equipment 34 96
Net cash used by investing activities (9,457) (7,496)
Cash flows from financing activities:
Payments on capital lease obligations (221) (428)
Proceeds from stock issuances 286 488
Net cash provided by financing activities 65 60
Effect of exchange rates on cash (20) (22)
Net decrease in cash (1,354) (9,551)
Cash at beginning of period 25,677 26,386
Cash at end of period $ 24,323 $ 16,835
Supplemental disclosures of cash paid:
Interest $ 27 $ 63
Income taxes $ 198 $ 847
</TABLE>
See Notes to Consolidated Financial Statements.
EGGHEAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 Basis of Presentation
The accompanying unaudited financial statements have been prepared
in accordance with generally accepted accounting principles for
interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission. While
these statements reflect the adjustments which are, in the opinion
of management, necessary to fairly state the results of the
interim periods, they do not include all the information and
footnotes required by generally accepted accounting principles for
complete financial statements. These adjustments are of a normal
and recurring nature. For further information, refer to the
annual financial statements and footnotes thereto, for the 52 week
period ended April 2, 1994, contained in the Company's Form 10-K,
filed pursuant to the Securities Exchange Act of 1934. The reader
is further cautioned that operating results for the 13 and 39 week
periods ended December 31, 1994, are not necessarily indicative of
the results that may be expected for the full year.
The Company uses a 52/53 week fiscal year, ending on the Saturday
nearest March 31 of each year. Effective the beginning of fiscal
1995, the Company changed it's fiscal quarters such that each
quarter consists of 13 weeks. Previously, fiscal quarters were
such that the first quarter consisted of 16 weeks, the second and
third quarters were each 12 weeks, and the fourth quarter
consisted of the remaining 12 or 13 weeks. The third quarter
fiscal 1994 financial information represents the third 13 weeks of
the fiscal year.
Note 2 Merchandise Inventories
The majority of merchandise inventories are accounted for using
the moving weighted average cost method. The remainder are
accounted for using the first-in first-out cost method. All
inventories are stated at the lower of cost or market.
Note 3 Income Taxes
Deferred income taxes result from temporary differences in certain
items for income tax and financial reporting purposes.
Note 4 Earnings (Loss) Per Share
Earnings (loss) 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 39
week period ended January 1, 1994, because it was anti-dilutive.
EGGHEAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Note 5 Notes Payable to Banks
Effective October 1, 1994, the Company entered into a revolving
loan agreement with two banks providing for unsecured borrowings
of up to $50,000,000 through September 30, 1995. Each bank
provides a $25,000,000 line of credit and one bank serves as agent
for the agreement. The Company may elect interest rates on the
notes based on the participating banks' rates on overnight funds,
or on the agent bank's rate on certificates of deposit, LIBOR, or
prime rate. The agreement contains a number of covenants,
including a restriction on the payment of dividends and certain
financial ratio requirements. The Company was in compliance with
the financial covenants as of December 31, 1994. There were no
borrowings under these or previous lines of credit during the
first three quarters of fiscal 1995.
Note 6 Leases
The Company leases all its retail stores, corporate, government,
and education sales offices, it's distribution facilities in
Lancaster, Pennsylvania and Sacramento, California, and it's
headquarter facilities in Issaquah, Washington, under operating
leases with terms ranging from one to eleven years. As of
December 31, 1994, the future minimum rental payments under these
operating leases were as follows (in thousands):
<TABLE> <C> <C>
<S>
Fiscal Year
1995 (remainder) $ 3,707
1996 12,436
1997 11,160
1998 7,635
1999 4,003
Thereafter 1,075
Total minimum payments $ 40,016
</TABLE>
Note 7 Theft Insurance Recovery
Theft insurance recovery of $1.65 million represents settlement of
an insurance claim, net of expenses, for inventory stolen from
numerous retail stores during fiscal years 1991, 1992, and 1993 by
members of a multi-state shoplifting ring.
Note 8 Reclassifications
Certain reclassifications have been made to the fiscal 1994
financial statements to conform to the fiscal 1995 presentation.
ITEM 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
The Company uses a 52/53 week fiscal year, ending on the Saturday
nearest March 31 of each year. Effective the beginning of fiscal 1995,
the Company changed it's fiscal quarters such that each quarter consists
of 13 weeks. Previously, fiscal quarters were such that the first
quarter consisted of 16 weeks, the second and third quarters were each
12 weeks, and the fourth quarter consisted of the remaining 12 or 13
weeks. The third quarter and year-to-date fiscal 1994 financial
information represent the third 13 weeks and 39 weeks of the fiscal
year.
RESULTS OF OPERATIONS
The following table shows the relationship of certain items included in
the Company's Consolidated Statements of Operations expressed as a
percentage of net sales:
<TABLE>
<C> <C> <C> <C>
Percentage of Net Sales
Third Quarter Year to Date
13 Weeks Ended 39 Weeks Ended
Dec. 31, Jan. 1, Dec. 31, Jan. 1,
1994 1994 1994 1994
<S>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales, including certain buying,
occupancy, and distribution costs 87.5 87.7 88.1 86.4
Gross margin 12.5 12.3 11.9 13.6
Selling, general, and administrative
expense 9.9 10.2 10.7 11.7
Depreciation and amortization
expense, net of amounts
included in cost of sales 0.9 1.0 1.1 1.1
Provision for restructuring costs - - - 0.8
Operating income (loss) 1.7 1.1 0.1 -
Theft insurance recovery 0.7 - 0.3 -
Other income (expense) 0.1 - 0.1 -
Income (loss) before income taxes 2.5 1.1 0.5 -
Income tax provision (benefit) 1.0 0.4 0.2 -
Net income (loss) 1.5 0.7 0.3 -
</TABLE>
Net sales of $254.3 million for the 13 week period ended December 31,
1994, were 14% greater than net sales of $222.6 million for the 13 week
period ended January 1, 1994.
Year-to-date sales of $642.4 million for the 39 week period ended
December 31, 1994 were 13% greater than net sales of $568.8 million for
the 39 week period ended January 1, 1994.
The corporate, government, and education (CGE) group generated 46% of
total net sales during the third quarter of fiscal 1995, with 54%
generated by retail operations. This compares to 47% generated by the
CGE group and 53% generated by retail operations in the third quarter of
fiscal 1994.
Year-to-date fiscal 1995, CGE and retail operations each generated 50%
of total net sales. This compares to 54% for CGE and 46% for retail
year-to-date last year.
Corporate, Government, and Education Sales
CGE sales of $116.4 million in the third quarter of fiscal 1995
increased $11.7 million, or 11%, compared to $104.7 million in the third
quarter of fiscal 1994. During the third quarter of fiscal 1995, the
Company's sales to certain of its large corporate customers and sales in
its Canadian division increased compared to the third quarter a year
ago.
Year-to-date fiscal 1995 CGE sales of $320.6 million increased $15.7
million, or 5%, compared to $304.9 million year-to-date last year.
The increase in third quarter and year-to-date CGE sales compared to the
same periods a year ago were mainly due to increases in the number of
units sold as opposed to increases in prices. Prices for many software
products have continued to decline due to industry-wide pricing
pressure, as discussed in the gross margin section on the following
page.
The Company serves as a designated reseller for volume licensing and
maintenance (VLAM) agreements between certain of its customers and major
publishers of microcomputer software. VLAM agreements typically are
used by large customers seeking to standardize desktop software
applications. For the 13 and 39 week periods ended December 31, 1994,
sales of software through VLAM agreements represented 22% and 17%,
respectively, of total CGE sales.
On December 6, 1994, the Company announced its plans to open a CGE
customer service center in Spokane, Washington on January 23, 1995.
Concurrent with the opening of the new center, the Company consolidated
the operations of ten existing support centers located throughout the
U.S. (The cost of closing the ten existing support centers was reserved
prior to fiscal year 1995.) As discussed in the Company's fiscal year
1994 Form 10-K, management believes its continuing restructuring efforts
in CGE have affected sales.
Retail Sales
Retail sales of $137.9 million in the third quarter of fiscal 1995
increased $20.1 million, or 17%, compared to $117.8 million in the third
quarter of fiscal 1994. Comparable retail store sales increased 23% in
the third quarter this year. The increase in comparable retail store
sales was partially offset by the closure of 17 stores since the end of
the third quarter a year ago.
Year-to-date fiscal 1995 retail sales of $321.8 million increased $57.9
million, or 22%, compared to $263.9 million year-to-date last year.
Year-to-date fiscal 1995 comparable retail store sales increased 24%.
In addition to the comparable store sales growth, there was an increase
in mail order sales due mainly to the acquisition of a mail order
subsidiary, Mac's Place, at the end of the second quarter of fiscal
1994. These increases from comparable stores and the acquisition of
Mac's Place were partially offset by the closure of 17 stores since the
end of the third quarter a year ago, as noted above.
Sales of hardware and related accessories increased from approximately
20% of total retail sales in the third quarter and year-to-date last
year, to approximately 30% in same periods this year. The increase was
due partly to the introduction of additional hardware products, such as
hard drives and printers, since the end of the third quarter a year ago.
Retail Locations
Year-to-date in fiscal 1995, the Company has closed 12 stores, including
two during the third quarter. Since the end of the third quarter last
year, the Company has closed 17 stores. As of the end of the third
quarter of fiscal 1995, the Company operated 177 retail stores, compared
to 194 at the end of the third quarter a year ago. As discussed in the
Company's Form 10-K for the fiscal year ended April 2, 1994, the Company
is examining its retail store format in order to better meet the needs
of its customers.
Gross margin (net sales minus cost of sales, including certain buying,
occupancy, and distribution costs) as a percentage of net sales was
12.5% in the third quarter of fiscal 1995, compared to 12.3% in the
third quarter last year. The improvement in gross margin as a
percentage of sales resulted mainly from decreases in certain costs,
such as retail occupancy costs, while sales increased. The decrease in
occupancy costs resulted mainly from the store closures previously
noted.
This improvement in the third quarter gross margin as a percentage of
sales was partially offset by continued industry-wide pricing pressure
related to both competitors' pricing and vendors' pricing, as discussed
in the Company's fiscal year 1994 Form 10-K.
The third quarter gross margin of 12.5% increased 1.0% compared to 11.5%
in the second quarter of fiscal 1995 due mainly to retail sales making
up a larger percentage of total sales in the third quarter than in the
second quarter. Retail sales, compared to CGE sales, typically have
higher margins and lower volume per transaction.
Year-to-date gross margin as a percentage of sales was 11.9% in fiscal
1995, compared to 13.6% in fiscal 1994. During the second quarter of
fiscal 1994, the Company lowered prices in both its CGE and Retail
businesses to improve its competitive position. Year-to-date gross
margin as a percentage of sales continues to be affected by the
industry-wide pricing pressure discussed above.
The decreases in year-to-date gross margin as a percentage of sales from
the lowering of prices and industry-wide pricing pressure were partially
offset by decreases in certain costs, such as retail occupancy and
distribution costs, while sales increased.
Selling, general, and administrative (SG&A) expense was 9.9% of net
sales in the third quarter of fiscal 1995, compared to 10.2% in the
third quarter of fiscal 1994. The improvement was mainly due to sales
increasing at a faster rate than expenses.
Year-to-date SG&A expense was 10.7% of net sales in fiscal 1995 compared
to 11.7% in fiscal 1994. The year-to-date improvement was also affected
by sales increasing at a faster rate than expenses, partially offset by
additional expenses from Mac's Place, the Company's mail order
subsidiary purchased at the end of the second quarter of fiscal 1994.
Provision for restructuring costs was $4.4 million, or 0.8% of net
sales, year-to-date in fiscal 1994. During fiscal 1994, the Company
lowered its cost structure to improve its ability to compete.
Operating income (loss), as a result of the foregoing factors, was $4.4
million income in the third quarter of fiscal 1995, compared to $0.9
million income in the third quarter last year. Year-to-date operating
income was $2.4 million income in fiscal 1995, compared to
$0.3 million loss in fiscal 1994.
Theft insurance recovery of $1.65 million in the third quarter and year-
to-date fiscal 1995 represents settlement of an insurance claim, net of
expenses, for inventory stolen from numerous retail stores during fiscal
years 1991, 1992, and 1993 by members of a multi-state shoplifting ring.
Income (loss) before income taxes, was $6.3 million in the third quarter
of fiscal 1995 compared to $2.4 million in the third quarter last year.
Year-to-date income before income taxes was $2.8 million in fiscal 1995
compared to a $0.2 million loss in fiscal 1994.
The third quarter and year-to-date fiscal 1995 results were positively
affected by the theft insurance recovery discussed above. The third
quarter and year-to-date results for fiscal years 1995 and 1994 were
negatively affected by the results of Mac's Place. The fiscal 1994
year-to-date results were negatively affected by the provision for
restructuring costs previously discussed.
FINANCIAL CONDITION
Cash and short-term investments were $24.3 million at the end of the
third quarter of fiscal 1995 compared to $25.7 million at April 2, 1994.
The $1.4 million decrease was mainly due to $9.5 million of capital
expenditures, partially offset by $8.1 million of cash provided by
operating activities as presented in the Consolidated Statement of Cash
Flows for the 39 week periods ended December 31, 1994, and January 1,
1994, on page 3.
Accounts receivable, net increased $15.8 million, from $76.2 million at
April 2, 1994 to $92.0 million at the end of the third quarter of
fiscal 1995. The increase resulted mainly from an increase in CGE sales
near the end of the third quarter of fiscal 1995 compared to the end of
fiscal year 1994.
Merchandise inventories increased $51.2 million, or 44%, from $117.1
million at April 2, 1994, to $168.3 million at December 31, 1994.
During the third quarter of fiscal 1995, the Company added to
existing inventory levels for the Christmas season. Also contributing
to the increase was the introduction of additional hardware products,
such as hard drives and printers, since the end of the third quarter a
year ago.
Property and equipment, net increased from $19.4 million at April 2, 1994
to $21.3 million at the end of the third quarter of fiscal 1995.
The increase was due mainly to the purchase of a building and land for
the new CGE customer service center in Spokane, Washington. This
increase was partially offset by depreciation recorded on the Company's
existing base of property and equipment.
Accounts payable increased from $91.1 million at the end of fiscal 1994,
to $149.8 million at December 31, 1994. The increase is consistent with
the increase in inventory.
Accrued liabilities increased from $19.1 million at the end of fiscal
1994, to $24.3 million at the end of the third quarter of fiscal 1995.
The increase was due mainly to increases in sales tax and payroll
accruals due to the timing of the Company's fiscal quarter-end.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $8.1 million for the 39
weeks ended December 31, 1994, compared to $2.1 million used by
operating activities during the same period a year ago. During the
first three quarters of fiscal 1995, there was a $58.8 million increase
in accounts payable, partially offset by a $51.2 million increase in
inventory. During the first three quarters of fiscal 1994, there was a
$23.4 million increase in accounts payable, offset by a $24.4 million
increase in inventory. For further information, see the Consolidated
Statement of Cash Flows for the 39 week periods ended December 31, 1994,
and January 1, 1994, on page 3.
Effective October 1, 1994, the Company entered into a revolving loan
agreement with two banks providing for unsecured borrowings up to $50
million through September 30, 1995. Each bank provides a $25 million
line of credit and one bank serves as agent for the agreement. The
agreement contains a number of covenants, including a restriction on the
payment of dividends and certain financial ratio requirements. The
Company was in compliance with all financial covenants and had no
outstanding borrowings on December 31, 1994.
There was no debt outstanding during the third quarter of fiscal 1995.
The average amount of debt outstanding during the third quarter of
fiscal 1994 was $0.1 million. During the first three quarters of fiscal
1995, working capital requirements and capital expenditures were
financed from operations.
The Company expects that working capital requirements in the foreseeable
future will be satisfied by cash flow from operations and borrowings
under these lines of credit. Depending on its rate of growth, the
Company may require additional financing, including bank borrowings and
further issuances of debt and/or equity securities.
Part II. OTHER INFORMATION
ITEM 1. Legal Proceedings
On June 9, 1994, the Company announced that it had settled a
shareholders' lawsuit originally filed against the Company, a
current officer, and two former officers who were also directors.
The current officer had recently been dismissed from the suit.
The action, originally entitled Finucan v. Egghead, et al., was
filed in federal court in Seattle in September 1993 and was
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
called for a cash payment by the Company of $2.625 million.
Payment was made during the second quarter of fiscal 1995. This
settlement was approved by the United States District Court for
the Western District of Washington on January 12, 1995. Net of
expected insurance recovery, the settlement and related attorneys'
fees resulted in a pretax charge of $1.2 million in fiscal year
1994 ($0.04 per share, net of income tax impact).
ITEM 4. Submission of Matters to a Vote of Security
Holders
None.
ITEM 6. Exhibits and Reports On Form 8-K
a. Exhibits
10.27 Form of Indemnification Agreement between Egghead, Inc.
and its Directors.
10.28 Form of Indemnification Agreement between DJ&J Software
Corporation and its Directors.
27 Financial Data Schedule.
28 Report of Independent Public Accountants.
b. Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EGGHEAD, INC.
(Registrant)
Date: February 2, 1995 /s/ Carolyn J. Tobias
Carolyn J. Tobias
Senior Vice President, Chief
Financial Officer (Principal
Financial and Accounting Officer)
INDEMNIFICATION AGREEMENT
This Agreement is made as of the ____ day of
___________________________ 19___, by and between EGGHEAD, INC., a
Washington corporation (the "Corporation") and _________________ (the
"Indemnitee"), with reference to the following facts:
The Indemnitee is currently serving as a Director and/or Officer
of the Corporation and the Corporation wishes the Indemnitee to continue
in such capacity. The Indemnitee is willing, under certain
circumstances, to continue in such capacity.
The Indemnitee has indicated that he does not regard the
indemnities available under the Corporation's Bylaws and any insurance
remaining in effect as adequate to protect him against the risks
associated with his service to the Corporation.
In order to induce the Indemnitee to continue to serve as a
Director and/or Officer of the Corporation and in consideration for his
continued service, the parties hereby agree as follows:
(1) Definition:
As used in this Agreement:
(a) "Action" means any actual or threatened claim, suit or
proceeding, whether civil, criminal, administrative or investigative.
(b) "Another Enterprise" means a corporation (other than the
Corporation), partnership, joint venture, trust, association, committee,
employee benefit plan or other group or entity.
(c) "Corporation" means EGGHEAD, INC. and any predecessor to it
and any constituent corporation (including any constituent of a
constituent) absorbed by the Corporation in a consolidation or merger.
(d) "Loss" means loss, liability, expenses (including attorneys'
fees), judgments, fines, ERISA excise taxes or penalties and amounts to
be paid in settlement, actually and reasonably incurred or suffered by
the Indemnitee in connection with an Action.
(e) "Director or Officer" means each person who is serving or who
has served as a director or officer of the Corporation or, at the
request of the Corporation, as a director, officer, partner, trustee,
employee or agent of Another Enterprise.
(f) "Indemnitee" means each person who was, is or is threatened
to be made a party to or is involved (including without limitation, as a
witness) in an Action because the person is or was a Director or Officer
of the Corporation.
(2) Right to Indemnification: The Corporation shall indemnify
and hold the Indemnitee harmless against any and all Loss except for
Losses arising out of- (a) the Indemnitee's acts or omissions finally
adjudged to be intentional misconduct or a knowing violation of law, (b)
the Indemnitee's approval of certain distributions by such Indemnitee
which are finally adjudged to be in violation of RCW 23B.08.310 or (c)
any transaction in which it is finally adjudged that the Indemnitee
personally received a benefit in money, property or services to which
the Indemnitee was not legally entitled. Except as provided in Section
(4) of this Agreement, the Corporation shall not indemnify the
Indemnitee in connection with an Action (or part thereof) initiated by
the Indemnitee unless such Action (or part thereof) was authorized by
the board of directors of the Corporation.
(3) Burden of Proof and Procedure for Payments:
(a) The Indemnitee shall be presumed to be entitled to
indemnification under this Agreement upon submission of a written claim,
which may be in the form of Exhibit A hereto (including a claim for
expenses incurred in defending any Action in advance of its final
disposition, where the undertaking in (b) below has been tendered to the
Corporation), and thereafter the Corporation shall have the burden of
proof to overcome the presumption that the Indemnitee is so entitled.
(b) The right to indemnification conferred in this Agreement
shall include the right to be paid by the Corporation all expenses
(including attorneys' fees) incurred in defending any Action in advance
of its final disposition; provided, however, that the payment of such
expenses in advance of the final disposition of an Action shall be made
upon delivery to the Corporation of an undertaking, by or on behalf of
the Indemnitee, which may be in the form of Exhibit B hereto, to repay
all amounts so advanced if it shall ultimately be determined that the
Indemnitee is not entitled to be indemnified under this Agreement or
otherwise.
(4) Right of the Indemnitee to Bring Suit: If a claim under this
Agreement is not paid in full by the Corporation within 60 days after a
written claim has been received by the Corporation, except in the case
of a claim for expenses incurred in defending a proceeding in advance of
its final disposition, in which case the applicable period shall be 20
days, the Indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, to the extent
successful in whole or in part, the Indemnitee shall be entitled to be
paid also the expense of prosecuting such claim. Neither the failure of
the Corporation (including its board of directors, its shareholders or
independent legal counsel) to have made a determination prior to the
commencement of such action that indemnification of or reimbursement or
advancement of expenses to the Indemnitee is proper in the
circumstances, nor an actual determination by the Corporation (including
the board of directors, its shareholders or independent legal counsel)
that the Indemnitee is not entitled to indemnification or to the
reimbursement or advancement of expenses, shall be a defense to the
action or create a presumption that the Indemnitee is not so entitled.
(5) Nonexclusivity of Rights: The right to indemnification and
the payment of expenses incurred in defending an Action in advance of
its final disposition conferred in this Agreement shall not be exclusive
of any other right which any person may have or hereafter acquire under
any statute, provision of the Articles of Incorporation, Bylaws, other
agreement, vote of shareholders or disinterested directors, insurance
policy or otherwise.
(6) Continuation of Rights: Rights of indemnification under this
Agreement shall continue as to an Indemnitee who has ceased to be a
Director or Officer, and shall inure to the benefit of his heirs,
executors and administrators.
(7) Severability: If any provision of this Agreement or any
application thereof shall be invalid, unenforceable or contrary to
applicable law, the remainder of this Agreement, or the application of
such provisions to circumstances other than those as to which it is held
invalid, unenforceable or contrary to applicable law, shall not be
affected thereby and shall continue in full force and effect.
(8) Gender: Whenever the context requires, the gender of all
words used herein shall include the masculine, feminine and neuter.
(9) Governing Law: This Agreement shall be governed by and
construed in accordance with the laws of the State of Washington.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date first written above.
EGGHEAD, INC. INDEMNITEE
By By
Its Its
Name typed or printed Name typed or printed
EXHIBIT A
STATEMENT OF REQUEST FOR INDEMNIFICATION
STATE 0F
COUNTY OF
I, _______________________________________________, being first
duly sworn, do depose and say as follows:
1. This Statement is submitted pursuant to the Indemnification
Agreement (the "Agreement") dated ____________________, 19___, between
EGGHEAD, INC., a Washington corporation, (the "Corporation") and the
undersigned.
2. I am requesting indemnification against Losses, as defined in
the Agreement, all of which have been actually and reasonably incurred
or suffered by me or on my behalf in connection with an actual or
threatened claim, suit or proceeding to which I am a party or am
threatened to be made a party by reason of the fact that I am or was a
director or officer of the Corporation.
3. With respect to all matters related to such losses, I did not:
(a) engage in intentional misconduct or a knowing violation of law, (b)
approve distributions in violation of RCW 23B.08.310 or (c) personally
receive a benefit to which I was not legally entitled.
4. I am requesting indemnification against the following
liabilities:
Signature
Name typed or printed
Subscribed and sworn to before me this _____ day
of________________, 19_____.
Notary Public in and for the State
of Washington, residing
at________________________
My commission expires
________________________
EXHIBIT B
STATEMENT OF UNDERTAKING
STATE OF
COUNTY OF
I, ______________________, being first duly sworn, do depose and
say as follows:
1. This Statement is submitted pursuant to the Indemnification
Agreement (the "Agreement") dated ____________________, 19 ___, between
EGGHEAD, INC., a Washington corporation (the "Corporation") and the
undersigned.
2. I am requesting payment of certain expenses incurred in
defending an Action, as defined in the Agreement, in advance of its
final disposition.
3. I hereby undertake to repay this payment of expenses if it is
ultimately determined that I am not entitled to be indemnified by the
Corporation.
4. The expenses for which advancement is requested are as
follows:
Signature
Name typed or printed
Subscribed and sworn to before me this _____ day of
_______________, 19____.
Notary Public in and for the
State of Washington, residing
at
My commission expires
INDEMNIFICATION AGREEMENT
This Agreement is made as of the ___ day of ___________________,
19_, by and between DJ&J SOFTWARE CORPORATION, a Washington corporation
(the "Corporation") and ___________________________________ (the
"Indemnitee"), with reference to the following facts:
The Indemnitee is currently serving as a Director and/or Officer
of the Corporation and the Corporation wishes the Indemnitee to continue
in such capacity. The Indemnitee is willing, under certain
circumstances, to continue in such capacity.
The Indemnitee has indicated that he does not regard the
indemnities available under the Corporation's Bylaws and any insurance
remaining in effect as adequate to protect him against the risks
associated with his service to the Corporation.
In order to induce the Indemnitee to continue to serve as a
Director and/or Officer of the Corporation and in consideration for his
continued service, the parties hereby agree as follows:
(1) Definitions:
As used in this Agreement:
(a) "Action" means any actual or threatened claim, suit or
proceeding, whether civil, criminal, administrative or investigative.
(b) "Another Enterprise" means a corporation (other than the
Corporation), partnership, joint venture, trust, association, committee,
employee benefit plan or other group or entity.
(c) "Corporation" means DJ&J SOFTWARE CORPORATION and any
predecessor to it and any constituent corporation (including any
constituent of a constituent) absorbed by the Corporation in a
consolidation or merger.
(d) "Loss" means loss, liability, expenses (including attorneys'
fees), judgments, fines, ERISA excise taxes or penalties and amounts to
be paid in settlement, actually and reasonably incurred or suffered by
the Indemnitee in connection with an Action.
(e) "Director or Officer" means each person who is serving or who
has served as a director or officer of the Corporation or, at the
request of the Corporation, as a director, officer, partner, trustee,
employee or agent of Another Enterprise.
(f) "Indemnitee" means each person who was, is or is threatened
to be made a party to or is involved (including without limitation, as a
witness) in an Action because the person is or was a Director or Officer
of the Corporation.
(2) Right to Indemnification: The Corporation shall indemnify
and hold the Indemnitee harmless against any and all Loss except for
Losses arising out of: (a) the Indemnitee's acts or omissions finally
adjudged to be intentional misconduct or a knowing violation of law, (b)
the Indemnitee's approval of certain distributions by such Indemnitee
which are finally adjudged to be in violation of RCW 23B.08.310 or (c)
any transaction in which it is finally adjudged that the Indemnitee
personally received a benefit in money, property or services to which
the Indemnitee was not legally entitled. Except as provided in Section
(4) of this Agreement, the Corporation shall not indemnify the
Indemnitee in connection with an Action (or part thereof) initiated by
the Indemnitee unless such Action (or part thereof) was authorized by
the board of directors of the Corporation.
(3) Burden of Proof and Procedure for Payments:
(a) The Indemnitee shall be presumed to be entitled to
indemnification under this Agreement upon submission of a written claim,
which may be in the form of Exhibit A hereto (including a claim for
expenses incurred in defending any Action in advance of its final
disposition, where the undertaking in (b) below has been tendered to the
Corporation), and thereafter the Corporation shall have the burden of
proof to overcome the presumption that the Indemnitee is so entitled.
(b) The right to indemnification conferred in this Agreement
shall include the right to be paid by the Corporation all expenses
(including attorneys' fees) incurred in defending any Action in advance
of its final disposition; provided, however, that the payment of such
expenses in advance of the final disposition of an Action shall be made
upon delivery to the Corporation of an undertaking, by or on behalf of
the Indemnitee, which may be in the form of Exhibit B hereto, to repay
all amounts so advanced if it shall ultimately be determined that the
Indenmitee is not entitled to be indemnified under this Agreement or
otherwise.
(4) Right of the Indemnitee to Bring a Suit: If a claim under
this Agreement is not paid in full by the Corporation within 60 days
after a written claim has been received by the Corporation, except in
the case of a claim for expenses incurred in defending a proceeding in
advance of its final disposition, in which case the applicable period
shall be 20 days, the Indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and,
to the extent successful in whole or in part, the Indemnitee shall be
entitled to be paid also the expense of prosecuting such claim. Neither
the failure of the Corporation (including its board of directors, its
shareholders or independent legal counsel) to have made a determination
prior to the commencement of such action that indemnification of or
reimbursement or advancement of expenses to the Indemnitee is proper in
the circumstances, nor an actual determination by the Corporation
(including the board of directors, its shareholders or independent legal
counsel) that the Indemnitee is not entitled to indemnification or to
the reimbursement or advancement of expenses, shall be a defense to the
action or create a presumption that the Indemnitee is not so entitled.
(5) Nonexclusivity of Rights: The right to indemnification and
the payment of expenses incurred in defending an Action in advance of
its final disposition conferred in this Agreement shall not be exclusive
of any other right which any person may have or hereafter acquire under
any statute, provision of the Articles of Incorporation, Bylaws, other
agreement, vote of shareholders or disinterested directors, insurance
policy or otherwise.
(6) Continuation of Rights: Rights of indemnification under this
Agreement shall continue as to an Indemnitee who has ceased to be a
Director or Officer, and shall inure to the benefit of his heirs,
executors and administrators.
(7) Severability: If any provision of this Agreement or any
application thereof shall be invalid, unenforceable or contrary to
applicable law, the remainder of this Agreement, or the application of
such provisions to circumstances other than those as to which it is held
invalid, unenforceable or contrary to applicable law, shall not be
affected thereby and shall continue in full force and effect.
(8) Gender: Whenever the context requires, the gender of all
words used herein shall include the masculine, feminine and neuter.
(9) Governing Law: This Agreement shall be governed by and
construed in accordance with the laws of the State of Washington.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first written above.
DJ&J SOFTWARE CORPORATION INDEMNITEE
By By
Its Its
Name typed or printed Name typed or printed
EXHIBIT A
STATEMENT OF REQUEST FOR INDEMNIFICATION
STATE OF
COUNTY OF
I, __________________ , being first duly sworn, do depose and say
as follows:
1. This Statement is submitted pursuant to the Indemnification
Agreement (the "Agreement") dated ________________, 19_____, between DJ
& J SOFTWARE CORPORATION, a Washington corporation, (the "Corporation')
and the undersigned.
2. I am requesting indemnification against Losses, as defined in
the Agreement, all of which have been actually and reasonably incurred
or suffered by me or on my behalf in connection with an actual or
threatened claim, suit or proceeding to which I am a party or am
threatened to be made a party by reason of the fact that I am or was a
director or officer of the Corporation.
3. With respect to all matters related to such losses, I did not:
(a) engage in intentional misconduct or a knowing violation of law, (b)
approve distributions or loans in violation of RCW 23B.08.310 or (c)
personally receive a benefit to which I was not legally entitled.
4. I am requesting indemnification against the following
liabilities:
Signature
Name typed or printed
Subscribed and sworn to before me this _____ day of
_______________, 19___.
Notary Public in and for the
State of Washington,
residing at
My commission expires
EXHIBIT B
STATEMENT OF UNDERTAKING
STATE OF
COUNTY OF
I, ______________________________, being first duly sworn, do
depose and say as follows:
1. This Statement is submitted pursuant to the Indemnification
Agreement (the "Agreement") dated __________________, 19 __, between
DJ&J SOFTWARE CORPORATION, a Washington corporation (the "Corporation")
and the undersigned.
2. I am requesting payment of certain expenses incurred in
defending an Action, as defined in the Agreement, in advance of its
final disposition.
3. I hereby undertake to repay this payment of expenses if it is
ultimately determined that I am not entitled to be indemnified by the
Corporation.
4. The expenses for which advancement is requested are as
follows:
Signature
Name typed or printed
Subscribed and sworn to before me this day _____ of
___________________, 19___.
Notary Public in and for the
State of Washington, residing
at
My commission expires
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-01-1995
<PERIOD-END> DEC-31-1994
<CASH> 24323
<SECURITIES> 0
<RECEIVABLES> 96512
<ALLOWANCES> 4529
<INVENTORY> 168323
<CURRENT-ASSETS> 295135
<PP&E> 57870
<DEPRECIATION> 36601
<TOTAL-ASSETS> 321968
<CURRENT-LIABILITIES> 174963
<BONDS> 0
<COMMON> 172
0
0
<OTHER-SE> 145259
<TOTAL-LIABILITY-AND-EQUITY> 321968
<SALES> 642442
<TOTAL-REVENUES> 642442
<CGS> 566061
<TOTAL-COSTS> 566061
<OTHER-EXPENSES> 73811
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> 2843
<INCOME-TAX> (1109)
<INCOME-CONTINUING> 1734
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1734
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
