<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
THIS DOCUMENT IS A COPY OF THE REGISTRANT'S FORM 10-K
FOR FISCAL YEAR ENDED MARCH 30, 1996 FILED ON JUNE 28, 1996
PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- - ---
EXCHANGE ACT OF 1934 For the fiscal year ended March 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- - ---
EXCHANGE ACT OF 1934 For the transition period from to
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Commission file number 0-16930
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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.)
EAST 22705 MISSION
LIBERTY LAKE, WASHINGTON 99019
- - ------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (509) 922-7031
---------------
Securities registered pursuant to Section 12(b) of the Act: NONE
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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 delinquent 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 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 April 29, 1996 was
$116,838,370.
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 APRIL 29, 1996
----- --------------
Common Stock, $.01 par value 17,548,606 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement relating to the
Company's 1996 Annual Meeting of Shareholders are incorporated by reference into
Part III of this Form 10-K.
PAGE 1 OF [ ] PAGES
EXHIBIT INDEX APPEARS ON PAGE 42
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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 Share-
holder 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 . . . . . . . . . . . 24
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure. . . . . . . . . . . . . . . . . . . . . 40
PART III
Item 10. Directors and Executive Officers of the Registrant. . . . . . . . 41
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . 41
Item 12. Security Ownership of Certain Beneficial Owners and
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Item 13. Certain Relationships and Related Transactions. . . . . . . . . . 41
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
2
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Egghead, Inc. (Egghead or the Company), a reseller of personal computer
(PC) software, hardware, and related products, serves small businesses and
individuals through retail outlets and mail order. As of March 30, 1996,
the Company operated 164 retail stores, a direct response group, and Elekom
Corporation (ELEKOM), all of which are included in continuing operations.
The Company has also historically served corporate, governmental, and
educational customers through its corporate, government, and education
(CGE) division. On March 25, 1996, the Company announced the sale of the
CGE Division to Software Spectrum, Inc. (SSI), a Texas corporation, for
$45.0 million in cash which did not include the CGE division's receivables
and inventory that Egghead is liquidating in an orderly manner, all of
which are expected to result in total gross cash proceeds of approximately
$90.0 million. The sale, which was effective, May 13, 1996 included a
Fulfillment Agreement relating to the provision by Egghead to SSI of
certain support services for a period not to exceed 120 days and a Call
Center Lease detailing the lease for a period of three years of a portion
of Egghead's Spokane facility to SSI. (Exhibits on Form 8-K filed May 23).
Information contained in this filing excludes, unless otherwise stated, any
data relative to the discontinued operations of the CGE division.
Egghead, a Washington corporation, was incorporated in 1988 and is the
successor to a corporation which was incorporated in Washington in 1984.
Egghead is the parent company of DJ&J Software Corporation, Eggspert
Software, Ltd. (Eggspert), EH Direct, Inc., Egghead International, Inc.
(Egghead International) and ELEKOM. Eggspert and Egghead International
became inactive subsidiaries on May 13, 1996 following the sale of the CGE
division to SSI. Unless the context indicates otherwise, references to
"the Company" and "Egghead" include Egghead and its subsidiaries.
Operating results of Eggspert and Egghead International are included in
discontinued operations. See Note 8 of Notes to the Consolidated Financial
Statements.
Egghead's retail stores offer a broad in-store selection of products at
competitive prices, as well as special order capabilities for additional
products. The Company employs a knowledgeable sales force to assist
customers in selecting software, hardware, and related products. At fiscal
year end, the Company was operating 19 of its retail stores under a new
merchandising format which is approximately twice the size of original
stores and is arranged in a more user-friendly format. The performance of
these new stores has been mixed and management continues to evaluate
results while refining the format. While assessing the overall
contribution of the new merchandising format, management intends to open
six new stores. Pending such evaluation and refinement of the new format,
the Company does not intend to open more than the six new stores.
3
<PAGE>
In December 1995, Egghead formed ELEKOM, a new subsidiary. ELEKOM was
formed to develop electronic commerce applications and services which link
customers and their suppliers. EleTrade, a product being developed by
ELEKOM, uses Lotus Notes and other notes networks to provide large
organizations an easy-to-use, cost-effective, secure and reliable product
ordering and order management system for non-production goods and services.
EleTrade allows companies to create customized electronic catalogs with
multi-media product information and customer-specific pricing. ELEKOM is
also developing additional enhancements which will automate the internal
requisition and approval process and which may create better
asset/inventory management and allow electronic software distribution.
ELEKOM, a development stage company, incurred selling, general and
administrative costs of approximately $1.1 million in fiscal 1996 and is
not expected to make significant sales or distribution of products in
fiscal year 1997.
MARKET OVERVIEW
The software industry is undergoing a noticeable degree of consolidation as
large software publishers acquire either other software publishers or
complete software product lines. Smaller software publishers are attempting
to concentrate on specialized products in limited markets. Software
resellers are also merging with or acquiring other software resellers.
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 the individual
components 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, 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.
Prices of microprocessor chips continue to fall due to increased
competition among computer chip manufacturers, and the introduction of
newer, faster microprocessor chips. The decrease in microprocessor chip
prices has forced PC prices down, resulting in increased sales of PCs to
businesses and individual consumers. Sales of home computers, especially
those equipped for multimedia, have increased dramatically as consumers
begin to use PCs for a variety of uses such as telecommuting, home
productivity, entertainment, communications, and education.
Price performance improvements in microcomputer hardware and the
availability of CD-ROM technology have a dramatic impact on the retail
segment of the market. Sales of PC hardware accessories, such as hard
drives 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.
Access to electronic communication networks, such as the Internet and
commercially available on-line services, has become increasingly important
to both businesses and individual consumers. These electronic
communication networks have grown at a tremendous pace over the last year.
The networks are expected to provide substantial opportunities both now and
in the future for communications, commerce, and the exchange of data.
Software publishers have recognized the significance of this trend, and
have begun to integrate interfaces for these electronic communications
networks into their operating systems and workgroup software.
4
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PRODUCTS AND SERVICES
Egghead resells PC software, hardware and related products, computer-
related magazines and books, tutorials, and selected peripheral devices and
accessories. Egghead has approximately 2,000 software products (including
both IBM-Registered Trademark--compatible and Apple-Registered Trademark-
Macintosh-Registered Trademark- software) and other products in its retail
stores, and thousands more available through 1-800-EGGHEAD's special order
service.
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 (CUE-SM-) PROGRAM - a preferred customer
membership program providing discounts and other benefits in the
retail stores and direct response. CUE-SM- also provides the Company
with a valuable database of customers, their PC equipment profiles,
and a history of their software purchases.
COMPUTER SELECT - a CD-ROM-based system updated monthly with
information on most software and hardware products. Articles can be
obtained from all major personal computer publications and sent to
customers as requested.
INTERNET SITE - Egghead now maintains a site on the internet for
information, customer support, and product sales. Egghead's page can
be found at http://www.egghead.com. The site allows Egghead to reach
customers through a new medium as an expanding consumer base purchases
hardware and/or software that allows Internet access. The site uses
the new merchandising format to display SKUs in a manner similar to
the new format Egghead retail stores. Egghead plans to begin offering
electronic delivery of software in the second quarter of 1997.
1-800-EGGHEAD - Egghead maintains a direct response unit which
processes all telephone and mail orders. These orders are solicited
through catalog distribution. Catalogs have been redesigned to use
the merchandising format found in Egghead's new retail stores. 1-800-
EGGHEAD also provides customer service for the 164 stores, as well as
store referral to callers who would like to try a product. 1-800-
EGGHEAD also allows customers access to products not available through
retail outlets by offering a special order service.
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.
5
<PAGE>
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 3 million of its
CUE customers, Egghead sends regular direct mail product promotions to
purchased lists of computer owners. The Company also uses both local and
national newspapers. Catalogs are designed to reflect the same layout as
customers will find in Egghead's new format retail stores. These catalogs
are updated and distributed throughout the year.
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 comprised primarily of individuals and
small businesses and uses specific marketing strategies to target different
customer segments.
RETAIL OPERATIONS
Egghead's retail stores are designed to provide a pleasant shopping
environment for walk-in customers, primarily individuals, who purchase PC
software and hardware products for their personal use and/or for use in a
small business. A knowledgeable sales force offers solutions-oriented
assistance to customers selecting software, hardware, and related products.
Egghead's retail stores offer customers competitive prices, a wide
selection of products, excellent service, and convenient store locations.
In addition to stocking approximately 2,000 SKUs in the retail stores,
Egghead customers have access to thousands more through 1-800-EGGHEAD's
special order service. The Company also stocks selected PC hardware
products, computer-related magazines and books, tutorials, and selected
peripheral devices and accessories. Egghead also provides installation
services in most of its stores.
During fiscal 1996, the Company introduced 19 stores based on a new
merchandising format which is approximately twice the size of older format
stores and is arranged in a more user-friendly environment. The
performance of these new stores has been mixed and management continues to
evaluate results while refining the format. While assessing the overall
contribution of the new merchandising format, management intends to open
six new stores. Pending such evaluation and refinement of the new format,
the Company does not intend to open more than the six new stores. The
balance of the Egghead stores contain approximately 2,500 square feet of
retail selling space. Most stores are located in strip shopping centers.
Store locations are researched and chosen to be in areas with high
distribution of personal computers, high population density, and high mean
income levels. Egghead provides in-store demonstration of software, with
most stores having personal computers available for use by customers in
evaluating software in the stores.
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.
6
<PAGE>
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 and
Western Digital. In fiscal years 1996 and 1995, sales derived from
software programs supplied by Microsoft, Egghead's largest vendor,
represented approximately 18% and 15% 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.
SUPPLY AND DEMAND FOR COMPUTER SOFTWARE, HARDWARE AND RELATED SUPPLIES
Sales by Egghead and other similar resellers are dependent upon the
continued purchase and expanded use of home and home office personal
computers, as well as the continued development of personal computer
software. A long-term decline in the purchase or use of home or home
office personal computers, or an interruption in the continued development
of personal computer software, would have a material adverse effect on the
Company's results of operations and financial position.
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 products are sent directly from vendors or distributors to
stores or customers. The Company's distribution facilities also process
most returned merchandise. The Company leases a 138,000 square foot
facility in Sacramento, California and a 125,000 square foot facility in
Lancaster, Pennsylvania.
The manner in which microcomputer software products are sold and
distributed is changing rapidly. Other methods of distribution, such as
electronic software distribution could have an impact on how the Company
distributes products in the future.
COMPETITION
The business of selling microcomputer software and hardware is intensely
competitive. The Company currently competes with other "direct sales"
organizations, other software retailers, computer and office superstores,
consumer electronic superstores, mass merchandisers, direct response
companies, computer manufacturers, and software publishers that sell
directly to end-users through traditional and electronic methods of
distribution.
Other software retail competitors include mall-based stores such as
Electronics Boutique, Babbages, and Software Etc.
7
<PAGE>
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.
Large computer superstores, like Computer City, offer on-site installation
of software and hardware upgrades. Some superstores also offer training
and technical services.
Consumer electronic superstores, such as Best Buy, Future Shop, and Circuit
City, are a growing source of competition for the Company's retail stores
in the markets in which they operate.
Mass merchandisers, such as Wal-Mart, Incredible Universe, and Sears, and
warehouse clubs such as SAM's and Price/Costco, generally concentrate on
basic software products and carry relatively few titles.
Direct response businesses, such as MicroWarehouse, Programmers Paradise,
and PC Connection, are another important channel for software sales.
MicroWarehouse sells their products internationally, and has experienced
significant growth in international markets.
Many superstores and computer manufacturers sell PCs to consumers with
custom-installed hardware and pre-loaded software. This bundling of
products is very convenient for the consumer, and eliminates many of the
technical difficulties involved with the installation of software or
hardware.
Software publishers continue to directly market and sell to end-users. It
is also becoming more common for software publishers to distribute software
over electronic communications networks. Such networks provide the
convenience of allowing the customer to purchase software products directly
from their home or office. However, distribution directly by a publisher
does not provide the customer with a broad selection, personal assistance
from the sales force, or a full demonstration of the product prior to
purchase. There has also been a continuing trend of software publishers
offering new software products at deeply discounted introductory prices.
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 operating and cost control and the
ability to adapt quickly and efficiently to changes in industry trends.
EMPLOYEES
At March 30, 1996, Egghead had approximately 2,300 employees, (including
temporary employees) consisting of approximately 1,800 retail personnel
(including direct response), 200 distribution center employees, and 300
headquarters personnel. Employees are not represented by a collective
bargaining unit.
8
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TRADEMARKS AND TRADENAMES
"EGGHEAD-Registered Trademark-", "EGGHEAD DISCOUNT SOFTWARE-Registered
Trademark-", "EGG CARTON-Registered Trademark-", "EGGSPERT-Registered
Trademark-", the "PROFESSOR EGGHEAD-Registered Trademark-" design, and
"EGGCESSORIES-Registered Trademark-", 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",
"Egghead Discount Software", and "Mac's Place at Egghead." In addition,
the Company is the owner of a number of common law trademarks and service
marks, including "SOFTWARE ASSET MANAGEMENT-SM-", "SAM-SM-", "CUE-SM-",
"EGGHEAD-Registered Trademark- EXPRESS-TM-", "ELEKOM-TM-", "EleTrade-TM-",
and certain "EGG" combination words, "MAC'S PLACE-SM-," and "MAC'S PLACE AT
EGGHEAD-SM-." 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 focus of such laws.
9
<PAGE>
ITEM 2. PROPERTIES
At March 30, 1996, Egghead operated 164 retail stores in 30 states and the
District of Columbia. 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 March 30, 1996, the Company's retail stores were located as follows:
Number of
Retail
Location Outlets
-------- -------
Arizona 3
California 42
Colorado 4
Connecticut 2
District of Columbia 3
Florida 3
Georgia 1
Idaho 1
Illinois 15
Indiana 2
Kansas 1
Maryland 6
Massachusetts 8
Michigan 5
Minnesota 4
Missouri 2
New Jersey 7
New Mexico 1
New York 10
Nevada 2
North Carolina 4
Ohio 4
Oklahoma 1
Oregon 4
Pennsylvania 5
Tennessee 1
Texas 4
Utah 1
Virginia 7
Washington 9
Wisconsin 2
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Total 164
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---
The Company leases 163 of its retail stores under leases expiring from
fiscal 1997 to fiscal 2001. The Company expects those leases with terms
expiring during fiscal year 1997 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.
10
<PAGE>
The Company leases its distribution facilities in Lancaster, Pennsylvania
and Sacramento, California; and an additional storage facility in Kent,
Washington. The Company has a lease for a distribution facility in
Wilmington, Ohio. The distribution from this facility will be discontinued
following the CGE sale and management will attempt to sublease the
facility. The lease terms on the Company's distribution facilities expire
from fiscal 1998 to fiscal 2000, with renewal options available.
The Company owns its administrative headquarters building in Spokane,
Washington, its retail store in Issaquah, Washington and an office building
in Kalispell, Montana. Approximately 51% of the Spokane facility is being
leased to SSI pursuant to the Call Center Lease agreement entered into by
Egghead and SSI in connection with the sale of the CGE division. The lease
has a three year term with an option for renewal. The Company's direct
response operation, 1-800-EGGHEAD is located in the Spokane, Washington
building. The Company plans to sell or lease the building in Kalispell.
See Note 4 of Notes to Consolidated Financial Statements for additional
information about the Company's leases.
ITEM 3. LEGAL PROCEEDINGS
None
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 1996.
11
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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 1, 1995, and March 30, 1996 are set forth
below. The prices reflect last sale prices as reported by Nasdaq National
Market System.
High Low
---- ---
Quarter ended July 2, 1994 $8.76 $6.81
Quarter ended October 1, 1994 7.63 6.19
Quarter ended December 31, 1994 11.81 7.00
Quarter ended April 1, 1995 11.75 8.50
Quarter ended July 1, 1995 $13.38 $8.88
Quarter ended September 30, 1995 13.75 7.88
Quarter ended December 30, 1995 8.75 5.88
Quarter ended March 30, 1996 10.69 5.13
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 April
29, 1996, was 1,227.
DIVIDENDS
The Company has never paid cash dividends on its capital stock and does not
plan to pay cash dividends in the foreseeable future.
12
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ITEM 6. SELECTED FINANCIAL DATA
Statement of Operations Data (1):
<TABLE>
<CAPTION>
Fiscal Year
-----------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(Dollars in thousands,
except per share data)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net sales $ 403,841 $ 434,021 $ 373,510 $ 321,566 $ 288,385
Cost of sales, including certain
buying, occupancy, and
distribution costs 357,373 380,428 322,210 270,266 230,724
--------- --------- --------- --------- ---------
Gross margin 46,468 53,593 51,300 51,300 57,661
Selling, general, and
administrative expense 59,639 53,895 56,096 48,249 51,071
Depreciation and amortization
expense, net of amounts
included in cost of sales 7,449 7,363 7,603 6,089 4,545
Provision for restructuring costs - - - 858 16
Provision for shareholder litigation - - 1,200 - -
--------- --------- --------- --------- ---------
Operating income (loss) (20,620) (7,665) (13,599) (3,896) 2,029
Theft insurance recovery - 1,650 - - -
Other (expense) income:
Interest expense (77) (39) (82) (248) (342)
Interest income 2,232 761 353 290 515
Other, net 314 (104) (372) (531) (110)
--------- --------- --------- --------- ---------
Income (loss) from continuing
operations before
income taxes (18,151) (5,397) (13,700) (4,385) 2,092
Income tax benefit/(provision) 7,030 2,106 5,343 1,711 (795)
--------- --------- --------- --------- ---------
Income (loss) from continuing
operations (11,121) (3,291) (8,357) (2,674) 1,297
Income from discontinued
operations, net of tax 376 5,959 7,843 9,604 14,416
--------- --------- --------- --------- ---------
Net income (loss) $ (10,745) $ 2,668 $ (514) $ 6,930 $ 15,713
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings (loss) per share:
Continuing operations $ (0.64) $ (0.19) $ (0.49) $ (0.15) $ 0.07
Discontinued operations $ 0.02 $ 0.34 $ 0.46 $ 0.56 $ 0.83
--------- --------- --------- --------- ---------
Net income (loss) per share $ (0.62) $ 0.15 $ (0.03) $ 0.41 $ 0.90
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
(1) All amounts reflect the CGE activities as discontinued operations.
NOTE: Fiscal year 1993 had 53 weeks. All other fiscal years presented had
52 weeks.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
13
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<TABLE>
<CAPTION>
Fiscal Year
-----------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Number of retail stores:
Open at end of period 164 169 189 205 182
Opened during period 10 - 3 33 5
Closed during period 15 20 19 10 10
Weighted average number open
during period (1) 166 178 197 195 182
BALANCE SHEET DATA:
Total assets 281,555 270,141 256,010 263,216 235,349
Bank loans - - - - -
Long-term debt - - - - -
Shareholders' equity 139,269 146,416 143,416 142,990 135,233
</TABLE>
(1) Calculated by dividing the total number of store months open during
the period by 12.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
14
<PAGE>
Selected financial data for each quarter of fiscal years 1996 and 1995 follows
(in millions, except per share data). Each quarter consists of 13 weeks
CONTINUING OPERATIONS
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
---------------- ---------------- ---------------- ----------------
1996 1995 1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 84.7 $ 91.3 $100.6 $ 92.7 $121.7 $137.8 $96.8 $112.2
Gross margin 10.0 9.9 11.2 10.9 14.5 18.9 10.8 13.9
Selling, general, and
administrative expense 14.3 13.0 15.3 12.5 14.9 15.4 15.2 13.0
Operating income (loss) (6.1) (5.2) (5.9) (3.6) (2.2) 1.8 (6.4) (0.7)
Theft insurance recovery - - - - - 1.7 - -
Income (loss) from
continuing operations
before income taxes (5.4) (5.0) (5.0) (3.8) (1.8) 3.8 (6.0) (0.4)
Income (loss) from
continuing
operations (3.3) (3.1) (3.0) (2.3) (1.1) 2.3 (3.7) (0.2)
Earnings (loss) per share
from continuing
operations $(0.19) $(0.18) $(0.17) $(0.13) $(0.06) $0.13 $(0.21) $(0.01)
</TABLE>
DISCONTINUED OPERATIONS
Financial data for the CGE division for each quarter follows. This division was
sold May 13, 1996 and is reported as discontinued operations in the consolidated
financial statements included in this filing.
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
---------------- ---------------- ---------------- ----------------
1996 1995 1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 90.0 $ 102.6 $90.6 $101.6 $ 94.7 $116.4 $88.0 $107.9
Gross margin 9.3 12.3 8.6 11.5 8.8 12.9 10.1 11.8
Selling, general, and
administrative expense 8.2 8.7 8.6 9.0 8.0 9.8 8.6 9.3
Operating income (loss) 0.4 3.2 (0.6) 2.1 0.2 (0.1) 0.9 1.9
Income (loss) before income
taxes 0.2 3.2 (0.8) 2.2 0.3 2.6 0.9 1.9
Income (loss) from
discontinued operations,
net of tax 0.1 2.0 (0.5) 1.3 0.2 1.5 0.6 1.2
Earnings (loss) per share
from discontinued
operations 0.01 0.12 (0.03) 0.08 0.01 0.09 0.03 0.07
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Egghead, Inc. (Egghead or the Company), a reseller of personal computer
(PC) software, hardware, and related products, serves small businesses and
individuals through retail outlets and mail order. 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 March 30, 1996,
the Company operated 164 stores located throughout the United States. The
Company employs a knowledgeable sales force to assist customers in
selecting software, hardware, and related products. At the end of fiscal
1996 the Company was operating 19 of its retail stores under a new
merchandising format which is approximately twice the size of predecessor
stores and is arranged in a more user-friendly format. The performance of
these new stores has been mixed and management continues to evaluate
results while refining the format. While assessing the overall
contribution of the new merchandising format, management intends to open
six new stores. Pending such evaluation and refinement of the new format,
the Company does not intend to open more than six new stores.
Egghead continues to implement changes to restructure the Company. The
Company has historically served corporate, governmental and educational
customers through its corporate, government and education sales (CGE)
division. On March 25, 1996, the Company announced the sale of the CGE
division to Software Spectrum, Inc. (SSI), a Texas corporation, for $45.0
million in cash which did not include CGE division's receivables and
inventory that Egghead is liquidating in an orderly manner, all of which
are expected to result in total gross cash proceeds of approximately $90.0
million. The sale, which was effective May 13, 1996, included a
Fulfillment Agreement relating to the provision by Egghead to SSI of
certain support services for a period not to exceed 120 days and a Call
Center Lease detailing the lease for a period of three years of a portion
of Egghead's Spokane facility to SSI. Information contained in this filing
excludes, unless otherwise stated, any data relative to the discontinued
operations of the CGE division. The sales and gross margin performance of
the Company's CGE division had declined and selling, general and
administrative expenses as a percentage of sales had increased in the
months prior to the sale. The sale of the CGE division will allow
management to focus on the Company's retail business. See "--Results of
Operations--DISCONTINUED OPERATIONS."
In December 1995, Egghead formed Elekom Corporation (ELEKOM), a new
subsidiary. ELEKOM was formed to develop electronic commerce applications
and services which link customers and their suppliers. EleTrade, a product
being developed by ELEKOM, uses Lotus Notes and other notes networks to
give large organizations an easy-to-use, cost-effective, secure and
reliable product ordering and order management system for non-production
goods and services. EleTrade allows companies to create customized
electronic catalogs with multi-media product information and customer-
specific pricing. ELEKOM is also developing additional enhancements which
will automate the internal requisition and approval process and which may
create better asset/inventory management and allow electronic software
distribution. ELEKOM, a development stage company, incurred selling,
general and administrative costs of approximately $1.1 million in fiscal
1996 and is not expected to have significant sales or distribute products
in fiscal year 1997.
16
<PAGE>
Over the past twelve months, Egghead consolidated into a new corporate
headquarters location in Spokane, Washington its direct response
operations, formerly in Kalispell, Montana, and its administrative
operations, previously located in Issaquah, Washington. The relocation,
severance and related costs of approximately $4.6 million are included in
the fiscal 1996 operating results. The Company implemented these changes
to improve customer service and reduce future operating costs.
The Company uses a 52/53 week fiscal year, ending on the Saturday nearest
March 31 of each year. Fiscal years 1996, 1995, and 1994 each had 52
weeks. All references herein to fiscal 1996, 1995, and 1994 relate to the
fiscal years ended March 30, 1996, April 1, 1995, and April 2, 1994
respectively.
CERTAIN RISK FACTORS
In addition to other information contained in this filing, the following
factors could affect the Company's actual results and could cause such
results to differ materially from those achieved in the past or expressed
in the Company's forward-looking statements. When used in this filing, the
words "expects," "believes," "anticipates," and similar expressions are
intended to identify forward-looking statements.
Competition - The personal computer software, hardware and other related
products retailing industry is highly competitive. Egghead competes with
other software specialty stores located in malls and in other locations, as
well as with computer and office superstores, consumer electronic
superstores, mass merchandisers, direct response businesses and software
publishers. In addition, there can be no assurance that other methods of
distribution will not emerge in the future which would result in increased
competition for Egghead. Increased competition may lead to reduced profit
margins on personal computer software, hardware and related products, which
could have an adverse effect on Egghead's results of operations. Certain
of Egghead's competitors have substantially greater financial and other
resources than Egghead, which may give them certain competitive advantages.
See "Business - Competition."
Seasonality and Quarterly Fluctuations - As is the case with many
retailers, a significant portion of Egghead's sales will be generated in
the fiscal quarter which includes the Christmas selling season. As a
result, the annual earnings of Egghead will be heavily dependent on the
results of that quarter. Egghead's quarterly results of operations may
also fluctuate as a result of the amount of sales contributed by new
stores, the timing of costs associated with the construction and opening of
these stores, the timing of the closing of any stores, the timing of
product releases and a variety of other factors.
Dependence on Suppliers - Egghead expects to purchase a significant number
of its products from Microsoft and Western Digital. During fiscal 1996 and
1995, sales derived from products supplied by Microsoft and Western Digital
accounted for 23.7% and 22.9%, respectively, of Egghead's total net sales.
The Company believes the loss of Microsoft or Western Digital as a supplier
could have a material adverse effect on Egghead's business and financial
results. In addition, Egghead's financial performance is in a large part
dependent on the terms it obtains from its suppliers. Such terms include
unit prices, unsold product return policies, advertising and market
development allowances, freight charges and payment terms. If Egghead is
unable to maintain favorable terms with its suppliers, its results of
operations could be materially adversely affected. See "Business -
Merchandising."
17
<PAGE>
New Merchandising Store Format - Egghead's ability to open and operate new
stores profitably will depend upon the success of the recently opened new
merchandising format stores, the availability of suitable store locations,
the negotiation of acceptable lease terms, its financial resources and its
ability to control the operational aspects of its growth. While assessing
the overall contribution of the new merchandising format, management
intends to open six new stores. Pending such evaluation and refinement of
the new format, the Company does not intend to open more than the six new
stores. See "Business - Retail Operations."
Dependence on Purchase and Use of Personal Computers and Software - Sales
by Egghead of personal computer software, hardware and related products
will be dependent upon the continued purchase and expanded use of home and
home office personal computers, as well as the continued development of
personal computer software. A long-term decline in the purchase or use of
home or home office personal computers, or an interruption in the continued
development of personal computer software, would have a material adverse
effect on the Company's results of operations and financial position.
Dependence on Key Personnel - The success of Egghead will also be dependent
upon its ability to attract, motivate and retain key management personnel
involved in store operations, merchandising, marketing and administration.
The loss of services of key personnel could have a material adverse effect
on Egghead's business and financial results. As of June 28, 1996, the
Company did not have employment agreements with any officers or directors.
Development Stage Subsidiary - In December 1995, the Company formed ELEKOM,
a subsidiary, which is developing electronic commerce applications and
services which link customers and their suppliers. Selling, general and
administrative costs of approximately $1.1 million and $407,000 were
incurred by ELEKOM in fiscal 1996 and 1995, respectively. ELEKOM is
expected to continue to incur costs in development of these products and is
not expected to make significant sales or distribution of products in
fiscal 1997. There can be no assurance that ELEKOM will complete
development of these products, or if completed, that the products will have
a market or that another similar product will not be already be introduced
by a competitor. See "Business - General
Readers are cautioned not to place undue reliance on the Company's forward-
looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the results of any revisions to
such forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
18
<PAGE>
RESULTS OF OPERATIONS
OVERVIEW
Egghead reported a total net loss for continuing and discontinued
operations of $10.7 million for fiscal 1996 compared to net income of $2.7
million and a net loss of $514,000 for fiscal years 1995 and 1994,
respectively. The net loss during fiscal 1996 was due primarily to a
decrease in sales due to a reduction in the average number of stores in
full operation during the year, one-time costs of approximately $4.6
million associated with the relocation of the corporate headquarters, costs
of rolling out the new format retail stores, and investments of
approximately $1.1 million in ELEKOM. Fiscal year 1995 net income included
a one-time theft insurance recovery of $1.65 million, pre-tax, related to
inventory stolen from retail stores in prior years. Earnings (loss) per
share for the fiscal years 1996, 1995, and 1994 was $(0.62), $0.15, and
$(0.03), respectively.
CONTINUING OPERATIONS
Income (loss) from continuing operations includes the results of the
Company's retail division, direct response divisions, and ELEKOM as well as
selling, general, and administrative expenses related to these operations.
The following table shows the relationship of certain items relating to
continuing operations included in the Company's Consolidated Statements of
Operations expressed as a percentage of net sales:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales, including certain buying,
occupancy and distribution costs 88.5 87.7 86.3
-------- -------- --------
Gross margin 11.5 12.3 13.7
Selling, general, and administrative expense 14.8 12.4 15.0
Depreciation and amortization expense, net
of amounts included in cost of sales 1.8 1.7 2.0
Provision for shareholder litigation - - 0.3
-------- -------- --------
Operating income (loss) (5.1) (1.8) (3.6)
Theft insurance recovery - 0.4 -
Other income/(expense), net 0.6 0.1 -
-------- -------- --------
Loss before income taxes (4.5) (1.3) (3.6)
Income tax benefit 1.7 0.5 1.4
-------- -------- --------
Loss from continuing operations (2.8)% (0.8)% (2.2)%
-------- -------- --------
-------- -------- --------
</TABLE>
19
<PAGE>
NET SALES in fiscal 1996 were $403.8 million, a decrease of $30.2 million
or 7% from fiscal 1995 net sales of $434.0 million. Fiscal 1995 sales
increased $60.5 million or 16% from fiscal 1994 sales of $373.5 million.
Fiscal 1996 sales decreases were affected by a reduction in the average
number of stores in full operation, which was 166 during fiscal 1996,
compared to 178 stores during the previous year. Comparable retail store
sales increased 0.1% in fiscal 1996 compared to fiscal 1995. Comparable
store sales for the third and fourth quarters of fiscal 1996 decreased 6.6%
and 12.5%, respectively, as compared to the fiscal 1995 third and fourth
quarters. Comparable store sales performance in the fiscal 1997 months of
April and May have continued this trend with decreases of 7.4% and 6.1%
over the same periods in fiscal 1996. In fiscal 1995, comparable retail
store sales increased 21% compared to fiscal 1994. Comparable store sales
measure sales for stores which were open in both periods being evaluated.
Because new format stores were opened during fiscal 1996, their sales will
not impact comparable store sales statistics until they have been active
during all periods evaluated.
During fiscal 1996, the Company opened 10 stores, remodeled 10 stores, and
closed 15 stores, operating a total of 164 stores at March 30, 1996. This
compares to the 169 stores open at fiscal year end 1995 and 189 stores open
at fiscal year end 1994. At the end of fiscal 1996, the Company was
operating 19 of its retail stores under a new merchandising format which is
approximately twice the size of older format stores and is arranged in a
more user-friendly format. The performance of these new stores has been
mixed and management continues to evaluate results while refining the
format. While assessing the overall contribution of the new merchandising
format, management intends to open six new stores. Pending such evaluation
and refinement of the new format, the Company does not intend to open more
than the six new stores.
GROSS MARGIN (net sales minus cost of sales, including certain buying,
occupancy, and distribution costs) as a percentage of net sales was 11.5%
in fiscal 1996, compared to 12.3% and 13.7% in fiscal years 1995 and 1994,
respectively. During 1996, gross margins were negatively affected by the
Company's promotion of Microsoft Windows 95 and a clearance sale during the
last quarter of the fiscal year. Gross margin as a percentage of sales
continues to be affected by industry-wide pricing pressure related to both
competitors' pricing and vendors' pricing.
SELLING, GENERAL, AND ADMINISTRATIVE (SG&A) EXPENSE as a percentage of net
sales was 14.8% in fiscal 1996, compared to 12.4%, and 15.0% in fiscal
years 1995 and 1994, respectively. The increased expenses in fiscal 1996
include $4.6 million incurred in connection with the relocation of the
corporate offices to Spokane and $1.1 million related to development of
products by ELEKOM. SG&A expense as a percentage of net sales not
including relocation expense or ELEKOM would be 13.3% in fiscal 1996 and
12.3% in fiscal 1995. The improvement in the fiscal 1995 SG&A expense as a
percentage of sales compared to fiscal 1994 was due mainly to sales
increasing at a faster rate than expenses.
DEPRECIATION AND AMORTIZATION EXPENSE, NET OF AMOUNTS INCLUDED IN COST OF
SALES, of $7.4 million in fiscal 1996, compared to $7.4 million and $7.6
million in fiscal years 1995 and 1994, respectively has remained constant.
PROVISION FOR SHAREHOLDER LITIGATION of $1.2 million in fiscal 1994
represents a charge for the settlement and related attorneys' fees, net of
an insurance recovery, of a shareholders' lawsuit. See note 10 of Notes to
Consolidated Financial Statements.
20
<PAGE>
THEFT INSURANCE RECOVERY of $1.65 million in fiscal 1995 represents
settlement of an insurance claim, net of expenses, for inventory stolen by
members of a multi-state shoplifting ring from numerous retail stores
during fiscal years 1991, 1992, and 1993.
DISCONTINUED OPERATIONS
Due to the subsequent sale of the CGE division, all results for the
operations of the CGE division are reported as a discontinued operation.
Certain general, administrative and distribution areas have traditionally
supported all of the Company's business lines. The expenses reflected in
the discontinued operations results reflect only those activities directly
related to the CGE business.
NET SALES for the discontinued operations of CGE declined $65.2 million, or
15.2% from $428.5 million to $363.3 million in fiscal 1996. Fiscal 1995
net sales were $23.7 million, or 5.9% greater than net sales of $404.8
million in fiscal 1994.
GROSS MARGIN for CGE (net sales minus cost of sales, including certain
buying, occupancy, and distribution costs) as a percentage of net sales was
10.1% in fiscal 1996, compared to 11.3% and 12.8% in fiscal years 1995 and
1994, respectively
SELLING, GENERAL, AND ADMINISTRATIVE (SG&A) EXPENSE as a percentage of net
sales was 9.2% in fiscal 1996, compared to 8.6%, and 8.3% in fiscal years
1995 and 1994, respectively.
DEPRECIATION AND AMORTIZATION EXPENSE, NET OF AMOUNTS INCLUDED IN COST OF
SALES, was $2.3 million in fiscal 1996, compared to $2.0 million and $1.1
million in fiscal years 1995 and 1994, respectively.
OPERATING INCOME, as a result of the foregoing factors, was $0.9 million in
fiscal 1996, compared to $7.1 million and $12.8 million in fiscal years
1995 and 1994, respectively
INCOME BEFORE INCOME TAXES, was $0.6 million in fiscal 1996 compared to
$9.8 million and $12.9 million in fiscal years 1995 and 1994, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $7.0 million from $42.6 million at the
end of fiscal 1995, to $49.6 million at the end of fiscal 1996. The
increase was due principally to a $13.8 million decrease in inventory, a
$14.9 million increase in accounts payable, all of which were partially
offset by $16.2 million of additions to property and equipment. In
addition, the Company had cash losses of $1.2 million in fiscal 1996,
compared to cash income of $14.3 million in fiscal 1995.
Net accounts receivable increased $3.6 million from $20.5 million at April
1, 1995, to $24.1 million at March 30, 1996. The increase is due primarily
to an increase of approximately $2.6 million in amounts due from vendors.
Merchandise inventories decreased $13.8 million, or 11%, from $98.5 million
at the end of fiscal 1995, to $84.7 million at the end of fiscal 1996. The
decrease is consistent with current sales declines and management's efforts
to reduce inventory levels.
21
<PAGE>
Assets of discontinued operations include all of the current assets of CGE
as of March 30, 1996 and April 1, 1995, respectively. These amounts are
primarily trade accounts receivable. See Note 8 of Notes to the
Consolidated Financial Statements.
Current and non-current deferred income taxes totaling $9.1 million and
$8.4 million at March 30, 1996, and April 1, 1995, respectively, resulted
from taxes paid on temporary differences which caused taxable income to
exceed financial reporting income.
Net property and equipment increased $7.6 million, from $21.9 million at
the end of fiscal 1995, to $29.5 million at March 30, 1996. The increase
is principally due to the addition or remodel of 19 new format stores as
well as improvements to the corporate headquarters building in Spokane.
Accounts payable increased $14.9 million, from $104.4 million at April 1,
1995, to $119.3 million at March 30, 1996. The increase in accounts
payable is primarily attributable to merchandise purchases near the fiscal
year end and outstanding vendor payables to be offset by product returns.
During fiscal 1996, the Company financed its working capital requirements
and capital expenditures with cash provided by operations. Effective
December 8, 1995, the Company entered into a revolving loan agreement with
two banks providing for unsecured borrowings of up to $35 million through
April 30, 1996. Each bank provided a $17.5 million line of credit and one
bank served as agent for the agreement. The Company could elect interest
rates on the notes based on the participating banks' rates on certificates
of deposit, LIBOR, or prime rate. The agreement contained a number of
covenants, including a restriction on the payment of dividends and
compliance with certain financial ratios. The Company was not in
compliance with the net worth covenant at March 30, 1996. The Company had
no outstanding borrowings under the revolving loan agreement at March 30,
1996. The line was not renewed at expiration.
Capital expenditures in fiscal 1996 totaled approximately $16.2 million.
Capital expenditures included leasehold improvements, fixtures, computer
hardware, software and communications equipment, principally due to the
remodel or addition of 19 new format stores and the relocation of the
corporate headquarters. Capital expenditures in fiscal 1995 totaled
approximately $14.7 million. Capital expenditures included land and a
building in Spokane, Washington for the corporate headquarters. Other
expenditures included computer software and communications equipment.
Cash and cash equivalents at March 30, 1996 were $49.6 million. On May 13,
1996, the Company also received $45.0 million of gross cash proceeds from
the sale of CGE to SSI, which did not include the CGE division's
receivables and inventory that Egghead is liquidating in an orderly manner,
all of which are expected to result in total gross cash proceeds of
approximately $90.0 million. The Company expects these balances will be
adequate to meet future cash requirements for operations.
22
<PAGE>
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of. This new standard requires long-
lived assets and certain identifiable intangible assets be evaluated to
determine whether the carrying amount is recoverable based on estimated
future cash flows expected from the use of the assets and/or cash to be
received upon disposal of the assets. The Company will adopt this standard
in the first quarter of fiscal year 1997 and anticipates the effect of the
adjustment, primarily from goodwill associated with direct response to be a
charge of approximately $1.3 million before income taxes.
In October 1995, the FASB issued Statement No. 123, Accounting for Stock-
Based Compensation. This new standard requires entities to choose either a
fair valued based method or an intrinsic value based method of accounting
for all employee stock compensation plans. The Company currently uses and
plans to continue to use the intrinsic value based method which requires no
compensation cost to be recognized at the date of the stock compensation
grant if the option is granted at the current market price. The Company
will adopt this new standard during fiscal 1997 at which time additional
footnote disclosure will be required.
23
<PAGE>
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 March 30, 1996 and April 1, 1995,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three fiscal years in the period ended March 30,
1996. 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 March 30, 1996 and April 1, 1995, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
March 30, 1996, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Seattle, Washington,
May 29, 1996
24
<PAGE>
EGGHEAD, INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
Consolidated Balance Sheets
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
March 30, April 1,
1996 1995
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 49,590 $ 42,592
Non-trade accounts receivables, net of allowance for
doubtful accounts of $2,098 and $2,169, respectively 24,079 20,494
Merchandise inventories, net 84,712 98,543
Prepaid expenses and other current assets 9,455 4,045
Current deferred income taxes (Note 4) 4,859 5,300
Discontinued operations - net current assets (Note 8) 71,796 70,059
---------- ----------
Total current assets 244,491 241,033
---------- ----------
Property and equipment, net (Note 2) 29,495 21,925
Non-current deferred income taxes (Note 4) 4,221 3,051
Other assets 1,621 2,172
Discontinued operations - net long-term assets (Note 8) 1,727 1,960
---------- ----------
$ 281,555 $ 270,141
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks (Note 3) $ - $ -
Accounts payable 119,341 104,425
Accrued liabilities 15,817 16,395
Income taxes payable (Note 4) - 325
Current portion of capital lease obligations 295 252
Discontinued operations - current liabilities (Note 8) 5,650 908
---------- ----------
Total current liabilities 141,103 122,305
---------- ----------
Capital lease obligations, less current portion (Note 7) 280 106
Deferred rent 903 1,314
---------- ----------
Total liabilities 142,286 123,725
---------- ----------
Commitments and contingencies (Note 7) - -
Shareholders' equity (Note 5):
Common stock, $.01 par value:
50,000,000 shares authorized; 17,546,548 and
17,166,031 shares issued and outstanding, respectively 176 172
Additional paid-in capital 124,104 120,572
Retained earnings 14,989 25,672
---------- ----------
Total shareholders' equity 139,269 146,416
---------- ----------
$281,555 $270,141
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO CONSODOLIDATED FINANCIAL STATEMENTS.
25
<PAGE>
EGGHEAD, INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
Consolidated Statements of Operations
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales $403,841 $434,021 $373,510
Cost of sales, including certain buying, occupancy
and distribution costs 357,373 380,428 322,210
-------- -------- --------
Gross margin 46,468 53,593 51,300
Selling, general and administrative expense 59,639 53,895 56,096
Depreciation and amortization expense, net of
amounts included in cost of sales 7,449 7,363 7,603
Provision for shareholder litigation (Note 10) - - 1,200
-------- -------- --------
Operating loss (20,620) (7,665) (13,599)
Theft insurance recovery (Note 9) - 1,650 -
Other (expense) income:
Interest expense (77) (39) (82)
Interest income 2,232 761 352
Other, net 314 (104) (371)
-------- -------- --------
Loss from continuing operations
before income taxes (18,151) (5,397) (13,700)
Income tax benefit (Note 4) 7,030 2,106 5,343
-------- -------- --------
Net loss from continuing operations (11,121) (3,291) (8,357)
Income from discontinued
operations, net of tax (Note 8) 376 5,959 7,843
-------- -------- --------
Net income (loss) $(10,745) $ 2,668 $ (514)
-------- -------- --------
-------- -------- --------
Earnings (loss) per share:
Continuing operations $ (0.64) $ (0.19) $ (0.49)
Discontinued operations 0.02 0.34 0.46
-------- -------- --------
Earnings (loss) per share $ (0.62) $ 0.15 $ (0.03)
-------- -------- --------
-------- -------- --------
Weighted average common shares outstanding 17,437 17,281 17,088
-------- -------- --------
-------- -------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
26
<PAGE>
EGGHEAD, INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
Consolidated Statements of Shareholders' Equity
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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
Stock issued for cash, pursuant
to employee stock purchase plan 42 1 258 - 259
Stock issued for cash, pursuant
to stock option plan 3 - 27 - 27
Translation adjustment - - - 46 46
Net income - - - 2,668 2,668
--------- --------- --------- --------- ---------
Balance, April 1, 1995 17,166 172 120,572 25,672 146,416
Stock issued for cash, pursuant
to employee stock purchase plan 46 1 286 - 287
Stock issued for cash, pursuant
to stock option plan 335 3 3,246 - 3,249
Translation adjustment - - - 62 62
Net loss - - - (10,745) (10,745)
--------- --------- --------- --------- ---------
Balance, March 30, 1996 17,547 $ 176 $ 124,104 $ 14,989 $ 139,269
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
27
<PAGE>
EGGHEAD, INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss from operations $(10,745) $ 2,668 $ (514)
-------- -------- --------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 10,721 10,468 10,250
Deferred rent (411) (108) (85)
Deferred income taxes (729) 1,084 (1,322)
Stock issued as compensation - - 552
(Gain) loss on disposition of property
and equipment (55) 187 327
Changes in assets and liabilities:
Account receivable, net (3,585) 1,089 (7,935)
Merchandise inventories 13,831 13,558 19,948
Prepaid expenses & other current assets (5,410) (574) 15
Other assets 128 (245) (2,288)
Discontinued operations, net 3,005 (6,881) (4,233)
Accounts payable 14,916 13,401 (7,040)
Accrued liabilities (578) (2,359) 1,307
Income taxes payable (325) (169) (295)
-------- -------- --------
Total adjustments 31,508 29,451 9,201
-------- -------- --------
Net cash provided by operating activities 20,763 32,119 8,687
-------- -------- --------
Cash flows from investing activities:
Additions to property and equipment (16,174) (14,741) (9,483)
Proceeds from sale of equipment 86 103 117
Discontinued operations, net (788) (520) -
-------- -------- --------
Net cash used by investing activities (16,876) (15,158) (9,366)
-------- -------- --------
Cash flows from financing activities:
Proceeds from stock issuances 3,536 286 488
Payments made on capital lease obligations (487) (308) (493)
-------- -------- --------
Net cash provided (used) by
financing activities 3,049 (22) (5)
-------- -------- --------
Effect of exchange rates on cash 62 (24) (25)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents 6,998 16,915 (709)
Cash and cash equivalents at beginning of period 42,592 25,677 26,386
-------- -------- --------
Cash and cash equivalents at end of period $ 49,590 $ 42,592 $ 25,677
-------- -------- --------
-------- -------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
28
<PAGE>
EGGHEAD, INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows (CONTINUED)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH PAID
DURING THE YEAR (IN THOUSANDS):
Interest $ 77 $ 39 $ 76
Income taxes $ 334 $ 668 $ 1,314
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations totaling $0.7 million and $0.2 million were recorded
in fiscal years 1996 and 1995 respectively, when the Company acquired new
equipment.
29
<PAGE>
EGGHEAD, INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
All references herein to fiscal 1996, 1995 and 1994 relate to the fiscal years
ended March 30, 1996, April 1, 1995, and April 2, 1994, respectively.
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Egghead, Inc. sells personal computer software, hardware 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), Egghead International,
Inc. (Egghead International), and Elekom Corporation (Elekom). References
to "the Company" and "Egghead" include Egghead, Inc., its predecessors, and
its subsidiaries. Eggspert and Egghead International became inactive
subsidiaries May 13, 1996 following the sale of corporate, government, and
education (CGE) division to Software Spectrum, Inc. (SSI) SEE NOTE 8.
CONSOLIDATION
The consolidated financial statements include the accounts of Egghead, Inc.
and its wholly-owned subsidiaries, DJ&J, Eggspert, EH Direct, Egghead
International, and ELEKOM, and include all such adjustments and
reclassifications necessary to eliminate the effect of significant
intercompany accounts and transactions. Operating results for Eggspert and
Egghead International are included in discontinued operations. SEE NOTE
8.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
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 AND REVENUE RECOGNITION
Company sales made on credit generally have terms of net 30 days. The
sales and corresponding trade receivables for inventoried product 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.
30
<PAGE>
EGGHEAD, INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (CONTINUED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MERCHANDISE INVENTORIES
Merchandise inventories are accounted for using the moving weighted average
cost method and are stated at the lower of cost or market. Egghead
maintains reserves for the obsolescence of merchandise inventory. These
reserves totaled approximately $6.7 million and $8.0 million at March 30,
1996 and April 1, 1995 respectively. Management has developed a plan to
dispose of this obsolete inventory and believes the reserve is adequate to
cover any losses on disposition. Inventories on the balance sheet are
shown net of this reserve.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation of equipment, furniture, and fixtures is provided using the
straight-line method over their estimated useful lives ranging from two to
seven years. Depreciation of buildings is provided using the straight-line
method over their estimated useful lives ranging from 20 to 30 years.
Amortization of leasehold improvements is provided using the straight-line
method over the lesser of the lease term or the assets' estimated useful
lives.
GOODWILL
Net assets of organizations acquired in purchase transactions are recorded
at fair value at date of acquisitions. Unidentified intangibles are
amortized straight line over the estimated life of the remaining long-term
assets acquired. Unidentified intangibles at March 30, 1996 and April 1,
1995 were $998,000 and $1.4 million, respectively, net of accumulated
amortization of $993,000 and $595,000, respectively.
ACCOUNTS PAYABLE
Outstanding checks included in accounts payable were $9.0 million and
$10.4 million at March 30, 1996 and April 1, 1995, respectively.
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 on a
straight-line basis over the lease term beginning when the store opens.
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 the recognition of certain items
for income tax and financial reporting purposes.
EARNINGS (LOSS) PER SHARE
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 which would have a dilutive effect in
years where there are earnings. Common equivalent shares had no material
effect on the computation in fiscal years 1996, 1995, or 1994.
31
<PAGE>
EGGHEAD, INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (CONTINUED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
Balance sheet accounts of the Company's foreign operations are translated
into U.S. dollars at the exchange rate on the balance sheet date. Results
of operations are translated at the average exchange rate prevailing during
the fiscal year. The results of unrealized exchange rate fluctuations on
translating foreign currency assets and liabilities into U.S. dollars are
recorded as a component of retained earnings. Realized gains and losses
from foreign currency transactions are included in net income.
OTHER ACCOUNTING PRINCIPLES
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of. This new standard requires long-
lived assets and certain identifiable intangible assets be evaluated to
determine whether the carrying amount is recoverable based on estimated
future cash flows expected from the use of the assets and cash to be
received upon disposal of the assets. The Company will adopt this standard
in the first quarter of fiscal year 1997 and anticipates the effect of the
adjustment, primarily from goodwill associated with direct response, to be
a charge of approximately $1.3 million before income taxes.
In October 1995, the FASB issued Statement No. 123, Accounting for Stock-
Based Compensation. This new standard requires entities to choose either a
fair valued based method or an intrinsic value based method of accounting
for all employee stock compensation plans. The Company currently uses and
plans to continue to use the intrinsic value based method which requires no
compensation cost to be recognized at the date of the stock compensation
grant if the option is granted at the current market price. The Company
will adopt this new standard during fiscal 1997 at which time additional
footnote disclosure will be required.
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 three
quarters consist of 13 weeks and the fourth quarter consists of the
remaining 13/14 weeks. Fiscal years 1996, 1995 and 1994 each had 52
weeks.
32
<PAGE>
EGGHEAD, INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (CONTINUED)
NOTE 2 PROPERTY AND EQUIPMENT
The components of property and equipment at March 30, 1996 and April 1,
1995 were as follows (in thousands):
March 30, April 1,
1996 1995
--------- ---------
Land and buildings $ 8,547 $ 6,574
Equipment 38,814 33,559
Leasehold improvements 14,157 8,652
Furniture and fixtures 7,080 6,674
--------- ---------
68,598 55,459
Less accumulated depreciation and
amortization (39,103) (33,534)
--------- ---------
Property and equipment, net $ 29,495 $ 21,925
--------- ---------
--------- ---------
NOTE 3 NOTES PAYABLE TO BANKS
Effective December 8, 1995, the Company entered into a revolving loan
agreement with two banks providing for unsecured borrowings of up to $35
million through April 30, 1996. Each bank provided a $17.5 million line of
credit and one bank served as agent for the agreement. The Company could
elect interest rates on the notes based on the participating banks' rates
on certificates of deposit, LIBOR, or prime rate. The agreement contained
a number of covenants, including a restriction on the payment of dividends
and compliance with certain financial ratios. The Company was not in
compliance with net worth ratios as of March 30, 1996. The Company had no
outstanding borrowings under the revolving loan agreement at March 30,
1996. The line was not renewed at expiration.
A summary of borrowings under the lines of credit follows (in thousands):
Fiscal year
-----------
1996 1995 1994
--------- --------- ---------
Maximum amount outstanding $ 11,275 $ - $ 5,950
Average amount outstanding $ 7,400 $ - $ 350
Weighted average interest rate 8.0% -% 3.9%
33
<PAGE>
EGGHEAD, INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (CONTINUED)
NOTE 4 INCOME TAXES
The provision (benefit) for income taxes is comprised of the following (in
thousands):
Fiscal year
-----------
1996 1995 1994
--------- --------- ---------
Current:
Federal $ (4,383) $ (2,048) $ (3,545)
State (1,917) (896) (990)
--------- --------- ---------
(6,300) (2,944) (4,535)
--------- --------- ---------
Deferred:
Federal (404) 730 (704)
State (326) 108 (104)
--------- --------- ---------
(730) 838 (808)
--------- --------- ---------
Total $ (7,030) $ (2,106) $ (5,343)
--------- --------- ---------
--------- --------- ---------
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:
March 30, April 1,
1996 1995
--------- ---------
Accounts receivable $ 857 $ 868
Merchandise inventories 2,651 2,919
Property and equipment 3,625 2,385
Other assets 256 155
Accrued liabilities 1,442 1,717
Deferred rent 249 307
--------- ---------
Total deferred tax assets $ 9,080 $ 8,351
--------- ---------
--------- ---------
The Company's income tax benefit differs from the amount computed by applying
the statutory federal tax rate to loss from continuing operations before taxes
as follows:
Fiscal year
-----------
1996 1995 1994
--------- --------- ---------
Statutory Federal tax rate (34.0)% (34.0)% (34.0)%
State taxes, net of Federal benefit (4.6) (4.0) (4.4)
Tax exempt interest income (1.8) (3.3) (0.7)
Other, net 1.7 2.3 0.1
--------- --------- ---------
(38.7)% (39.0)% (39.0)%
--------- --------- ---------
--------- --------- ---------
34
<PAGE>
EGGHEAD, INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (CONTINUED)
NOTE 5 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 March 30, 1996, there were approximately 340,000 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 were reserved for issuance. The 1993 Plan replaced
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
was increased by the shares reserved for issuance under the 1986 Combined
Plan that were not subject to outstanding stock options. Shares presently
subject to outstanding stock options under the 1986 Combined Plan, which
subsequently are canceled or will expire, will increase the number of
shares reserved for issuance under the 1993 Plan. 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:
Fiscal year
-----------
1996 1995 1994
--------- --------- ---------
Outstanding, beginning
of year 1,513,089 702,322 1,184,338
Options granted 621,100 1,140,900 250,000
Options exercised (55,395) (2,625) -
Options canceled (705,907) (327,508) (732,016)
--------- --------- ---------
Outstanding, end of year 1,372,887 1,513,089 702,322
--------- --------- ---------
Exercisable, end of year 359,277 293,139 237,497
--------- --------- ---------
--------- --------- ---------
Available for grant in
future years 1,860,873 1,776,066 2,589,458
--------- --------- ---------
--------- --------- ---------
Price of Options:
Granted during year $9.50 - $10.75 $6.19 - $10.25 $7.50 - $8.13
Exercised during year $6.19 - $12.75 $9.88 - $10.75 -
Canceled during year $6.19 - $17.00 $6.19 - $17.00 $8.37 - 17.00
35
<PAGE>
EGGHEAD, INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (CONTINUED)
NOTE 5 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, and in August 1995 the Company's shareholders
approved amendments thereto (as amended, the "Director Plan") under which
450,000 shares of the Company's Common Stock were reserved for issuance.
As of March 30, 1996, 315,000 shares were available for grant and 135,000
shares were subject to outstanding options which have been granted at
prices ranging from $7.25 to $13.75. As of March 30, 1996, options for
90,000 shares were vested.
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 March 30, 1996, 325,000 shares were available for
grant and 1,096,324 were 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. All outstanding options are vested and
expire in February 1999. As of March 30, 1996, 278,676 of the options had
been exercised at $10.38 per share.
NOTE 6 401(K) PLAN
The Company has a 401(k) retirement plan for the benefit of its employees.
After six months of full-time employment (more than 1,000 hours), 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 $228,000, $446,000 and $571,000 in fiscal years 1996, 1995,
and 1994, respectively.
36
<PAGE>
EGGHEAD, INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (CONTINUED)
NOTE 7 COMMITMENTS AND CONTINGENCIES
Significant supplier
In fiscal 1996 and 1995, one supplier accounted for sales aggregating
approximately $71.6 million and $61.0 million, respectively. The loss of
this supplier could have a material adverse effect on the Company's
business and financial results and condition.
Leases
The Company leases retail stores and distribution facilities under
operating leases with remaining lives on most leases ranging from one to
five years. 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 1996, 1995, and 1994 was
approximately $15,990,829, $16,769,000 and $18,012,000, respectively. As
of March 30, 1996, future minimum rental payments under non-cancelable
operating and capital leases for retail stores and distribution facilities,
and equipment consisted of the following (in thousands):
Capital Operating
Fiscal Year leases leases
----------------------------------------------
1997 330 13,261
1998 306 9,251
1999 - 5,446
2000 - 2,404
2001 1,157
Thereafter - -
------ ------
Total minimum payments 636 $31,519
------
------
Less interest (61)
------
Present value of minimum
lease payments 575
Less current portion (295)
------
Capital lease obligations,
less current portion $280
------
------
37
<PAGE>
EGGHEAD, INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (CONTINUED)
NOTE 8 DISCONTINUED OPERATIONS AND SUBSEQUENT EVENTS
Effective May 13, 1996, the Company sold its CGE division to SSI, a Texas
corporation, for $45 million in cash pursuant to the terms of an asset
purchase agreement entered into on March 23, 1996. Egghead and SSI also
entered into a Fulfillment Agreement and a Call Center Lease relating to
the provision of certain support services by Egghead to SSI and to the
lease for a period of three years of a portion of Egghead's facility
previously used by the CGE division. The assets, liabilities, and results
of discontinued operations of the CGE division are presented separately in
the accompanying financial statements.
The income from discontinued operations for 1996, 1995, and 1994 is
comprised of the following (in thousands):
Fiscal year
-----------
1996 1995 1994
-------- -------- --------
Net sales $ 363.3 $ 428.5 $ 404.8
Costs and expenses 362.7 418.7 391.9
-------- -------- --------
Income before provision
for income taxes 0.6 9.8 12.9
Income tax expense 0.2 3.8 5.1
-------- -------- --------
Income from
discontinued operations $ 0.4 $ 6.0 $ 7.8
-------- -------- --------
-------- -------- --------
The net assets of discontinued operations for 1996 and 1995 consist of the
following (in thousands):
1996 1995
-------- --------
Accounts receivable - trade, net of allowance $ 61.7 $ 64.0
Merchandise inventory, net 9.3 4.4
Deferred taxes 0.8 1.7
-------- --------
Net current assets of discontinued operations $ 71.8 $ 70.1
-------- --------
-------- --------
NOTE 9 THEFT INSURANCE RECOVERY
Theft insurance recovery of $1.65 million in 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.
38
<PAGE>
EGGHEAD, INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (CONTINUED)
NOTE 10 SHAREHOLDER LITIGATION
On June 9, 1994, the Company announced that it had settled a shareholders'
lawsuit originally filed against the Company and two former officers who
were also directors. 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 fiscal 1995. This
settlement was approved by the United States District Court for the Western
District of Washington on January 12, 1995. Net of 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).
39
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
40
<PAGE>
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
1996 Annual Meeting of Shareholders, which will be filed pursuant to
Regulation 14A within 120 days of March 30, 1996.
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
1996 Annual Meeting of Shareholders, which will be filed pursuant to
Regulation 14A within 120 days of March 30, 1996.
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
1996 Annual Meeting of Shareholders, which will be filed pursuant to
Regulation 14A within 120 days of March 30, 1996.
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
1996 Annual Meeting of Shareholders, which will be filed pursuant to
Regulation 14A within 120 days of March 30, 1996.
41
<PAGE>
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
(vii) 3.2 Amended Bylaws of the Company
(x) 10.1 * Microsoft 1995/1996 Channel Agreement dated July
1, 1995, as amended through January 1, 1996.
10.2 (Intentionally left blank.)
10.3 (Intentionally left blank.)
10.4 (Intentionally left blank.)
(iv) 10.5 * Microsoft January - June, 1993 Reseller Rebate
and Marketing Fund Agreement.
(v) 10.6 * Microsoft 1993/1994 Channel Agreement dated July
1, 1993.
(v) 10.7 * Rebate and Marketing Fund Addendum to the
1993/1994 Microsoft Channel Agreement dated
November 1, 1993.
(v) 10.8 * Amendment to the Microsoft 1993/1994 Channel
Agreement (appointment as a Major Chain
Reseller) dated November 10, 1993.
(v) 10.9 * Reseller agreement with WordPerfect Corporation
dated April 1, 1994.
(vi) 10.10 * Microsoft 1994/1995 Channel Agreement dated July
1, 1994.
(vi) 10.11 * Addendum to the Microsoft 1994/1995 Channel
Agreement dated July 1, 1994.
(vii) 10.11a Amendment No. 1 to the Addendum to the Microsoft
1994/1995 Channel Agreement (Appointment as a
Large Account Reseller) dated July 1994.
(vi) 10.12 * Follow up letter dated August 2, 1994, from
Microsoft regarding Microsoft 1994/1995 Channel
Agreement dated July 1, 1994.
(vii) 10.13 * Addendum to the 1994/1995 Microsoft Channel
Agreement dated January 1995.
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.)
42
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
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 Lease Termination and Rent Payment
Agreement 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-Q for the first quarter of fiscal 1995
ended July 2, 1994.)
(vi) 10.18a First Amendment to Lease Termination and
Rent Payment Agreement between Sammamish
Park Place II Limited Partnership as
Landlord and DJ&J Software Corporation as
Tenant.
(vi) 10.18b Second Amendment to Lease Termination and
Rent Payment Agreement between Sammamish
Park Place II Limited Partnership as
Landlord and DJ&J Software Corporation as
Tenant.
(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.
(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.)
(viii) 10.25 Asset Purchase Agreement by and among
Software Spectrum, Inc., Egghead, Inc. and
DJ&J Software Corporation dated as of March
23, 1996 with Exhibits 4.11 and 4.12
thereto
10.26 (Intentionally left blank.)
10.27 Form of Indemnification Agreement between
the Company and its directors. (Previously
filed with registrant's Form 10-Q for the
third quarter of fiscal 1995 ended December
31, 1994.)
10.28 Form of Indemnification Agreement between
DJ&J Software Corporation and its
directors. (Previously filed with
registrant's Form 10-Q for the third
quarter of fiscal 1995 ended December 31,
1994.)
43
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
(vi) 10.29 Revolving Loan Agreement dated September
30, 1994, among Seattle-First National Bank
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 Seattle-First National Bank
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.)
10.31 (Intentionally left blank.)
10.32 (Intentionally left blank.)
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.)
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.
44
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
(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.)
(x) 10.50 ** Egghead, Inc. Restated Nonemployee Director
Stock Option Plan.
(x) 21.1 Schedule of subsidiaries.
(x) 23.1 Consent of Independent Public Accountants.
24.1 Power of Attorney (See Page 44).
(x) 27 Financial Data Schedule.
Footnotes
(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.
(v) Previously filed with registrant's Form 10-K for the fiscal
year ended April 2, 1994, as same Exhibit number.
(vi) Previously filed with registrant's Form 10-Q for the second
quarter of fiscal 1995 ended October 1, 1994.
(vii) Previously filed with registrant's Form 10-K for the fiscal
year ended April 1, 1995, as same Exhibit number.
(viii) Previously filed with registrant's Form 8-K dated March 23,
1996, as Exhibit number 2.1.
(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.
2b. Form 8-K
Egghead, Inc., filed one report on Form 8-K, dated March 23,
1996, during the fourth quarter of its fiscal year ended
March 30, 1996, which reported on Items 5 and 7 of Form 8-K.
45
<PAGE>
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 Liberty Lake, State of Washington, on June 28, 1996.
EGGHEAD, INC.
By
------------------------------------
Terence M. Strom
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Terence M. Strom and Edward S. Wozniak, 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 __, 1996,
on behalf of the Registrant and in the capacities indicated.
Signature Title
--------- -----
------------------------------ President, Chief Executive Officer,
Terence M. Strom and Director (Principal
Executive Officer)
------------------------------ Vice President, Chief Financial
Edward S. Wozniak Officer (Principal Financial and
Accounting Officer)
------------------------------ Chairman of the Board, Director
George P. Orban
------------------------------ Director
Paul G. Allen
------------------------------ Director
Richard P. Cooley
------------------------------ Director
Steven E. Lebow
48
<PAGE>
SIGNATURES (CONTINUED)
------------------------------ Director
Linda Fayne Levinson
------------------------------ Director
Samuel N. Stroum
49
<PAGE>
MICROSOFT CORPORATION
1995/1996 CHANNEL
AGREEMENT
This Microsoft Corporation 1995/1996 Channel Agreement ("Agreement") is entered
into as of the 1st day of July, 1995 between MICROSOFT CORPORATION ("MS") having
its principal place of business at One Microsoft Way, Redmond, WA 98052-6399 and
EGGHEAD SOFTWARE ("CUSTOMER") having its principal place of business at 22011 SE
51st Street, Issaquah, WA 98027.
1. DEFINITIONS
All capitalized terms included in this Agreement are as defined in Schedule A
attached hereto.
2. TERM OF AGREEMENT
2.1 TERM
This Agreement shall take effect on the date indicated above and shall continue
until June 30, 1996.
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 Product
acquired by CUSTOMER pursuant to this Agreement which is in its possession as of
the termination of this Agreement shall be distributed by CUSTOMER subject to
the restrictions in this Agreement, or may be returned to MS only within sixty
(60) days of termination 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 STATEMENT
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 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.
3.3 NO ALTERATIONS OF PRODUCT
CUSTOMER shall not alter the Product or Product packaging, and shall have no
authority to make copies of MS diskettes or documentation. CUSTOMER shall
distribute Product to its customers in unopened packages as shipped by MS.
MICROSOFT CONFIDENTIAL - DISCLOSURE PROHIBITED
<PAGE>
3.4 USE OF TRADEMARKS
The appropriate trademark symbol (either "-TM-" or "-Registered Trademark-" 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 available upon requested.
3.5 AUTHORIZED DISTRIBUTION
Product acquired under this Agreement shall be distributed only within the
Territory. CUSTOMER shall not, without the prior written consent of MS,
distribute Product to any Reseller or End User whom they have reason to believe
may re-distribute such Product outside of the Territory.
3.6 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 or
expenses.
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 NO WARRANTIES FOR PRODUCT 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.
4.3 AUDITS
During the term of this Agreement and for a period of two (2) years following
its termination, MS may audit the applicable records and operations of CUSTOMER
as is reasonable to verify CUSTOMER's compliance with the terms of this
Agreement. CUSTOMER shall promptly correct any errors 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 PRODUCT WARRANTY; LIMITATION OF LIABILITY
(A) MS warrants its software and hardware Product to End Users as defined in
the written limited warranty document accompanying each Product. All replacement
Product is delivered subject to the terms of the MS limited Product warranty.
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.
(B) NEITHER MS NOR ANYONE ELSE WHO HAS BEEN INVOLVED IN THE CREATION,
PRODUCTION, OR DELIVERY OF ANY PRODUCT WHICH ARE THE SUBJECT OF THIS AGREEMENT
SHALL BE LIABLE FOR ANY DIRECT, 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
ANY PRODUCT EVEN IF MS HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
(C) IN ANY CASE, THE LIABILITY OF MS (i) UNDER ANY PROVISION OF THIS
AGREEMENT; (ii) FOR ANY DAMAGES CAUSED BY A PROGRAM DEFECT OR FAILURE IN ANY
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD SOFTWARE PAGE 2
<PAGE>
PRODUCT OR (iii) ARISING FROM A COURT OF PROPER JURISDICTION HOLDING ANY OF THE
ABOVE WARRANTIES OR DISCLAIMERS OF WARRANTIES INADEQUATE OR INVALID SHALL BE
LIMITED TO THE AMOUNT ACTUALLY PAID BY CUSTOMER TO MS UNDER MS AGREEMENT. MS'
LIMITATION OF LIABILITY IS CUMULATIVE WITH ALL OF MS' EXPENDITURES BEING
AGGREGATED TO DETERMINE SATISFACTION OF THE LIMIT. THE EXISTENCE OF CLAIMS OR
SUITS AGAINST MORE THAN ONE PRODUCT LICENSED UNDER THIS AGREEMENT WILL NOT
ENLARGE OR EXTEND THE LIMIT. CUSTOMER RELEASES MS FROM ALL OBLIGATIONS,
LIABILITY, CLAIMS OR DEMANDS IN EXCESS OF THE LIMITATION.
5.2 SEMESTER PROGRAMS
(A) MARKETING FUNDS
Each Semester, 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 Addendum to this Agreement, and Microsoft's Marketing Fund
Guidelines, as such may be promulgated and modified by MS, in its sole
discretion, from time to time.
(B) REBATES
Each Semester, 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 Addendum to this Agreement, and CUSTOMER's Rebate
Program Guidelines, as such may be promulgated and modified by MS, in its sole
discretion, from time to time.
(C) ELECTRONIC DATA INTERCHANGE
MS shall require CUSTOMER to provide weekly and monthly sales reporting during
the term of this Agreement. Such sales reporting shall be submitted to MS in
accordance with the Electronic Data Interchange (EDI) Guidelines as provided to
CUSTOMER by MS, from time to time.
6. PATENT, COPYRIGHT AND TRADEMARK INFRINGEMENT
MS shall defend and pay the amount of any final adverse judgement 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. 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
Product in its sole discretion.
8. NO WAIVER
None of the provisions of this Agreement shall be deemed to have been waived by
any act or acquiescence on the part of MS, CUSTOMER or their respective agents
or employees, but may be waived 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.
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD SOFTWARE PAGE 3
<PAGE>
9. NO PARTNERSHIP OR AGENCY
Nothing in this Agreement shall be deemed to create or constitute a partnership,
joint venture, franchise, agency, or contract of employment between MS and
CUSTOMER.
10. 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
non-exclusive jurisdiction and venue in King County, Washington.
11. ENTIRE AGREEMENT
This Agreement and all attached Amendments, Addenda 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 any provisions in
purchase orders which are inconsistent with this Agreement
12. 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
252.227-7013, or as 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
data 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.
13. CONFIDENTIALITY
CUSTOMER expressly undertakes to retain in confidence the terms and conditions
of this Agreement, and all information and know-how transmitted to it by MS and
make no use of such information and know-how except under the terms and during
the existence of this Agreement. CUSTOMER shall guarantee and ensure its
employees' compliance with this paragraph. CUSTOMER'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.
14. 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 may
not assign its rights or obligations under this Agreement in any way without the
prior written consent of MS.
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD SOFTWARE PAGE 4
<PAGE>
15. NOTICES
All notices sent by MS or CUSTOMER alleging, regarding, responding to, or in any
way connected with any claim of breach of this Agreement or any other legal
obligation related hereto, shall be sent via U.S. certified mail (return receipt
requested), or via overnight courier (e.g., Federal Express, or DHL), and
addressed as follows:
<TABLE>
<S> <C>
If to MS: Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attn: Sr. Vice President, Microsoft North America
With cc to: Law and Corporate Affairs
If to CUSTOMER:
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
Attn:
--------------------------------------------------
</TABLE>
16. SURVIVAL
Sections 2.2, 3.2, 3.3, 3.4, 3.5, 3.6, 4.2, 4.3, 5.1, 5.2(c), 11, 12, 13, 14 and
16 shall survive any termination of this Agreement.
IN WITNESS WHEREOF, the parties have signed this Agreement on the dates
indicated below. This Agreement is not binding until executed by MS.
<TABLE>
<S> <C>
MICROSOFT CORPORATION ("MS") EGGHEAD SOFTWARE ("CUSTOMER")
By: By:
- - --------------------------------------- ---------------------------------------
- - ------------------------------------------- -------------------------------------------
Name (please print) Name (please print)
- - ------------------------------------------- -------------------------------------------
Title Title
- - ------------------------------------------- -------------------------------------------
Date Date
</TABLE>
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD SOFTWARE PAGE 5
<PAGE>
SCHEDULE A
DEFINED TERMS
"DISTRIBUTOR" is defined as any MS customer which purchases MS Product
directly from MS, and distributes said Product to Resellers.
"END USER" is defined as the ultimate consumer of Product.
"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, prepared in accordance with Generally Accepted
Accounting Principles ("GAAP"). Any deviation from GAAP in the quarterly
statements shall be clearly noted. These statements must be signed by an officer
of CUSTOMER as being representative of the books and accounts of CUSTOMER.
"PRODUCT" is defined as any MS Stock Keeping Unit ("SKU") listed on
CUSTOMER's then current Price List.
"PURCHASE CREDIT" is defined as a dollar amount credited to CUSTOMER's
account with MS, which amount may only be used by CUSTOMER in the manner set
forth in this Agreement.
"RESELLER" is defined as any software retailer which purchases Product from
MS or a MS authorized Distributor.
"SEMESTER" is defined as a six month period. There are two (2) Semesters
during the term of this Agreement, January 1 through June 30, and July I through
December 31.
"TERRITORY" is defined as the geographic boundaries of the United States of
America, excluding all United States territories, possessions, or protectorates.
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD SOFTWARE PAGE A1
<PAGE>
REBATE AND MARKETING FUND
ADDENDUM TO THE 1995/1996 MICROSOFT
CHANNEL AGREEMENT
(JANUARY - JUNE, 1995)
This Addendum ("Addendum") entered into as of the 1st day of July, 1995,
supplements that certain Microsoft 1995/1996 Channel Agreement ("Agreement")
between MICROSOFT CORPORATION ("MS") having its principal place of business at
One Microsoft Way Redmond, WA 98052 and EGGHEAD SOFTWARE ("CUSTOMER") having its
principal place of business at 22011 SE 51st Street, Issaquah, WA 98027. The
Agreement is hereby supplemented as follows:
1. PURPOSE
The purpose of this Addendum is to set forth the framework by which CUSTOMER may
earn Rebates and Marketing Funds.
2. TERM AND TERMINATION
This Addendum shall be effective as of the date indicated above, and shall
expire on December 31, 1995. Either party may terminate this Addendum, with or
without cause, upon thirty (30) days prior written notice. This Addendum is not
valid unless both MS and CUSTOMER have executed a Microsoft 1995/1996 Channel
Agreement, and the Addendum to The Microsoft 1995/1996 Channel Agreement
(Appointment As a Direct Reseller).
3. DEFINITIONS
For purposes of this Addendum, capitalized terms not otherwise defined herein,
shall have the same definitions as set forth in the Agreement. Additional
capitalized terms included in this Addendum are as defined in Schedule A
attached hereto.
4. REBATES
CUSTOMER is eligible to receive up to a [ * ] percent [ * ] Rebate on its
Qualified Sales made during the Rebate and Marketing Fund Period. The Rebate
shall be paid provided CUSTOMER complies with the Rebate Program Guidelines
outlined in Schedule B. Notwithstanding such Rebate Program Guidelines, MS may,
at its sole discretion, pay all or any portion of the Rebate prior to the end of
the Rebate and Marketing Fund Period. The Rebate so paid may be adjusted
subsequently based upon compliance with the Rebate Program Guidelines.
5. MARKETING FUNDS
5.1 BASE LEVEL FUNDS
MS hereby grants to CUSTOMER the use of Marketing Funds calculated monthly by
the total number of each Product CUSTOMER purchased from MS multiplied by each
Product's respective Marketing Fund Accrual rate as outlined in Schedule C
attached hereto. MS reserves the right to modify Schedule C at anytime without
notice. Marketing Funds accrue monthly and shall expire on February 29, 1995.
Marketing Funds shall not begin accruing until both CUSTOMER and MS have
executed this Addendum. Should CUSTOMER fail to execute, or should MS be unable
to execute this Addendum by July 1, 1995, for each full month after July 1,
1995, in which this Addendum is not executed, CUSTOMER shall not receive such
month's Marketing Fund accrual.
5.2 OPPORTUNITY FUNDS
Periodically, MS may allow CUSTOMER to participate in other MS programs in which
CUSTOMER shall receive additional Marketing Funds.
* CONFIDENTIAL TREATMENT REQUESTED
MICROSOFT CONFIDENTIAL - DISCLOSURE PROHIBITED
<PAGE>
5.3 GUIDELINES FOR MARKETING FUND USE
MS shall provide CUSTOMER with a guideline of activities which MS sees as a
priority for spending the funds. The Microsoft Reseller Marketing Fund
Guidelines is attached hereto as Schedule D.
5.4 MARKETING FUND AUDIT
During the term of this Agreement and for a period of two (2) years following
its termination, MS may audit the applicable records and operations of CUSTOMER
as is reasonable to verify CUSTOMER's use of Base Level Marketing Funds and
Opportunity Funds. 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. Should such audit disclose material discrepancies, audit
expenses shall be paid by CUSTOMER. For purposes of this Addendum, "material
discrepancies" shall mean ten thousand U.S. dollars (US$10,000) or more.
If the results of such audit show that CUSTOMER used Marketing Funds in any
manner other than is authorized under this Addendum, MS shall be entitled to
recover from CUSTOMER any and all Marketing Funds so used, in additional to any
other remedies available to MS under law or equity plus injunctive relief and/or
any other damages as may be permitted by law.
5.5 MARKETING FUND REIMBURSEMENT POLICY FOR MICROSOFT-REGISTERED TRADEMARK-
WINDOWS-REGISTERED TRADEMARK- 95
CUSTOMER agrees to abide by the Marketing Fund Reimbursement Guidelines,
attached hereto as Schedule G, and as revised from time to time by MS.
6. REPORTING REQUIREMENTS
CUSTOMER shall submit reports to MS as outlined in CUSTOMER's Rebate Program
Guidelines, and Schedule F attached hereto in accordance with the EDI
Implementation Guide attached hereto as Schedule E. Failure by CUSTOMER to
comply with the terms of the Guidelines shall result in CUSTOMER's loss of its
monthly Compliance Rebate total for each month reporting is non-compliant.
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.
<TABLE>
<S> <C>
AGREED AND ACCEPTED TO BY AGREED AND ACCEPTED TO BY
MICROSOFT CORPORATION ("MS"): EGGHEAD SOFTWARE ("CUSTOMER"):
By: By:
- - --------------------------------------- ---------------------------------------
- - ------------------------------------------- -------------------------------------------
Name (please print) Name (please print)
- - ------------------------------------------- -------------------------------------------
Title Title
- - ------------------------------------------- -------------------------------------------
Date Date
</TABLE>
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD SOFTWARE PAGE 2
JULY - DECEMBER, 1995, REBATE AND
MARKETING FUND ADDENDUM
<PAGE>
SCHEDULE A
DEFINITIONS
"AMS REPORTING" (ACCOUNT MANAGEMENT SYSTEMS REPORTING) is defined as a
monthly report of CUSTOMER's monthly Sell To sales of all MS Product, reported
in the format Attached hereto as Schedule F.
"ELECTRONIC DATA INTERCHANGE" or "EDI" is defined as the ANSI-ASCII X.12
standard, adopted by CompTIA, by which CUSTOMER shall submit sales reporting to
MS.
"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.
"MARKETING FUNDS" is defined as the purchase credit amount accrued by
CUSTOMER as a percentage of Qualified Purchases, and used to fund CUSTOMER's
pre-approved MS marketing activities.
"MARKETING FUND ACCRUAL" is defined as the dollar amount MS grants CUSTOMER
for each Product purchased from MS.
"MICROSOFT MARKETING FUNDS GUIDELINES" is defined as MS' then current terms
and conditions attached hereto as Attachment D, available from the Microsoft
Reseller Account Representative, for the use of Marketing Funds.
"QUALIFIED SALES" is defined as net sales, made during the Rebate and
Marketing Fund Period, to CUSTOMER's End User customers as reported to MS in
CUSTOMER's normal sales reporting.
"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 for which payment in full has
been received by MS from CUSTOMER within thirty (30) days after the end of the
Rebate and Marketing Fund Period, and shall not include Microsoft Select.
"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 and
reporting requirements as set forth herein.
"REBATE AND MARKETING FUND PERIOD" is defined as the six (6) calendar
months, from July 1, 1995 through December 31, 1995, during which CUSTOMER shall
earn Rebates and Marketing Funds.
"SALESOUT" or "SELL THROUGH REPORTING" is defined as the reporting of the
number of Product units that CUSTOMER location distributes to its customers.
"SELL TO" is defined as Product specific (per MS SKU) sales to all End
Users.
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD SOFTWARE PAGE A1
JULY - DECEMBER, 1995, REBATE AND
MARKETING FUND ADDENDUM
<PAGE>
SCHEDULE B
REBATE PROGRAM GUIDELINES
REBATE PROGRAM OVERVIEW
PROGRAMS: Microsoft offers four rebate programs for the July - December, 1995
Rebate period. Rebate percentages available are listed in the table below.
Details on each program are also included in this document.
<TABLE>
<CAPTION>
MAXIMUM PERCENTAGE OUTLINED ON
REBATE INCENTIVE AVAILABLE PAGE(S)
- - ----------------------------------------------------------- --------------------- -----------
<S> <C> <C>
Compliance Program [ * ] B2 - B4
Total Sales-out Program [ * ] B4 - B5
Business Systems Program [ * ] B5 - B6
Win Office and Mac Office Sales-out Program [ * ] B7 - B8
Consumer Sales-out Program [ * ] B8 - B9
-----
TOTAL [ * ]
-----
-----
</TABLE>
REBATE CALCULATIONS AND PAYMENTS: Rebates will be paid in the form of a
Microsoft purchase credit forty-five (45) days after the end of each quarterly
rebate period (i.e. November 15th for July - September, 1995 quarter). Rebates
are calculated by multiplying the achieved rebate percentage by the total
Qualified Sales for the rebate period. Revenue generated from Microsoft Select
Enrollment Forms executed by MS on or after July 1, 1994, shall be included in
calculating CUSTOMER's
achievement toward the Sales-out goal, but shall not be included in CUSTOMER's
final total Qualified Sales for purposes of Rebate payment. Revenue generated
from Microsoft Select Enrollment Forms executed by MS prior to July 1, 1994 will
be included in calculating CUSTOMER's achievement towards the sales-out goal and
will also be eligible for a Grandfathered rebate. Rebate payment for such Select
Enrollment Forms shall be in the form of a purchase credit forty-five (45) days
after the end of each quarterly rebate period.
PURCHASES THROUGH DISTRIBUTION: CUSTOMER's purchases through distribution will
be subtracted from CUSTOMER's Qualified Sales for purposes of Rebate payment.
PRODUCT AVAILABILITY: If Microsoft is unable to ship a CURRENT VERSION of a
product for any ten (10) consecutive business days, CUSTOMER's purchases through
distribution of those SKUs will count toward CUSTOMER's Qualified Sales for
purchases of Rebate payment.
All copies of eligible purchase orders placed through distribution along with a
copy of the Microsoft Stock Out Report must be sent to Microsoft no later than
fifteen (15) days following the semester end. Please send purchase order copies
and the Microsoft Stock Out Report to the following address:
MICROSOFT CORPORATION
ONE MICROSOFT WAY
BLDG. 22/4051
REDMOND, WA 98052
ATTN: KRISTIN WEEBER, REBATE SPECIALIST
COMPLIANCE REBATE PAYMENT: The Microsoft Compliance Rebate will be calculated
on a monthly basis. If CUSTOMER has met all of the Compliance Rebate criteria in
a given month, CUSTOMER will be entitled to one percent of that month's total
Qualified Sales. The rebate payment will be made forty-five (45) days after the
end of each quarterly rebate period.
* CONFIDENTIAL TREATMENT REQUESTED
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD SOFTWARE PAGE B1
JULY - DECEMBER, 1995, REBATE AND
MARKETING FUND ADDENDUM
<PAGE>
ANY ISSUES REGARDING REBATES SHOULD BE SENT IN WRITING TO KRISTIN WEEBER, REBATE
SPECIALIST, NO LATER THAN THIRTY (30) DAYS FOLLOWING RECEIPT OF REBATE PAYMENT.
If such written notice is not provided within thirty (30) days, CUSTOMER shall
have no further right to dispute rebate payment.
COMPLIANCE REBATE PROGRAM
PROGRAM OBJECTIVES: The objective of the Compliance Rebate Program is to
provide incentive for CUSTOMER to comply with Microsoft contractual requirements
for payments, Street Dates, reporting, and EDI ordering for Select 3.0.
NON-COMPLIANCE: During any given month, failure to comply with any or all of
the current compliance criteria will result in the forfeiture of the entire
compliance rebate for that month.
1. MICROSOFT PAYMENT REQUIREMENTS:
Microsoft requires it's customers to pay it's invoices within terms. In order to
maintain compliance, 100% of the gross invoice value for non-Select and 85% of
the gross invoice value for Select must be current as of Microsoft's fiscal
month-end. Unapplied credits will be excluded from the calculation. Failure to
comply with this section will result in the loss of CUSTOMER's Select Compliance
Rebate.
2. MICROSOFT STREET DATE REQUIREMENTS:
From time to time, Microsoft may announce a new product or new versions of an
existing product for which Microsoft shall set a Street Date. In order to comply
with the Street Date requirements, CUSTOMER shall not:
- Ship or deliver the product to any end-user customer prior to the Street
Date.
- Accept any end user payment for the product prior to the Street Date.
Checks and/or credit card numbers may be accepted by CUSTOMER, but can
only be processed when product is delivered to the end user on or after
the Street Date.
- Advertise, merchandise, or promote the product to end user customers until
it is officially announced by Microsoft. Usually, the product announcement
is on the Street Date. If the product announcement is earlier than the
Street Date, Microsoft will clearly communicate the announce date to the
channel. If product is announced by Microsoft before the Street Date, the
product can be advertised, merchandised and/or promoted immediately after
such announcement, provided that all such promotions clearly state that
the product is not yet available for purchase.
- Allow it's distribution centers and/or warehouses to distribute, for a
period of up to twelve months, a Street Date product to any individual
sales office, retail store, or outlet which Microsoft in its sole
discretion has determined to be in violation of the Street Date
Requirements.
In the event CUSTOMER violates the Street Date for any special products
specified in a Microsoft Street Date letter (including, but not limited to
Microsoft-Registered Trademark- Windows-Registered Trademark- 95), CUSTOMER
shall forfeit up to the entire Compliance Rebate for the six month Rebate period
in which the violation occurred.
Should CUSTOMER fail to comply with the Street Date Requirements, Microsoft may
also, for a period of up to twelve (12) months, withhold shipments to CUSTOMER
of future product until the Street Date of such product.
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD SOFTWARE PAGE B2
JULY - DECEMBER, 1995, REBATE AND
MARKETING FUND ADDENDUM
<PAGE>
Should CUSTOMER wish to report a Street Date violation, CUSTOMER may fax a copy
of a dated sales receipt to STREET DATE VIOLATIONS AT MICROSOFT AT (206)
936-7329. Once a violation has been reported, Microsoft shall investigate the
violation, and take remedial action as appropriate. Please note, in order to
confirm a suspected violation, Microsoft must receive a dated sales receipt.
3. MICROSOFT TRANSACTION REQUIREMENTS
Electronic Data Interchange format ("EDI") transactions are defined as 850/855
EDI transactions. CUSTOMER must place EDI transaction orders at a minimum of
once per month per Enrollment Site if product is purchased during said month.
4. MICROSOFT REPORTING REQUIREMENTS
ALL REPORTS OUTLINED BELOW MUST BE TIMELY, ACCURATE, AND COMPLETE. FOR PURPOSES
OF THE MICROSOFT CHANNEL AGREEMENT, "TIMELY" IS DEFINED AS MS RECEIPT OF
REPORTING BY THE DUE DATE AND TIME INDICATED, "ACCURATE" IS DEFINED AS THE
CORRECT POPULATION OF ALL REPORTING FIELDS, AND "COMPLETE" IS DEFINED AS THE
POPULATION OF ALL REQUIRED REPORTING FIELDS.
FAST TRACK REPORTING
Fast Track Reporting is defined as a weekly report sent to Microsoft via
Electronic Data Interchange format ("EDI") of weekly Sales, Inventory, and
Internal Market Share. CUSTOMER must make the EDI reports available to MS' EDI
mailbox each Monday by 12:00 noon (Pacific time). These reports shall cover the
seven-day period ending the prior Friday night. Please refer to the EDI
Reporting Guidelines for details on reporting requirements.
Microsoft reserves the right to conduct audits on CUSTOMER's market share data
at any time. If the results of the audit show that CUSTOMER is reporting one or
more market share categories incorrectly, CUSTOMER must correct the specified
categories and provide the corrected back data through the beginning of July,
1994 before CUSTOMER is eligible to receive a compliance rebate.
REPORTING REQUIREMENTS
- Each unit of single license Full Package Product should be reported as one
unit. This applies for both Microsoft products and for competitive
products.
- Any single Microsoft product that includes multiple licenses should be
reported as one unit. Microsoft will then convert the quantity of multiple
license units sold to the number of licenses they represent. Examples of
these products include MMLP 20 Pack, MMLP 100 Pack, and AE 10 Pack.
- All volume licensing agreements (such as MOLP, Variable Licenses, and
Enterprise Licenses) should be reported as one unit for each license sold.
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD SOFTWARE PAGE B3
JULY - DECEMBER, 1995, REBATE AND
MARKETING FUND ADDENDUM
<PAGE>
MARKET SHARE REPORTING
The following table outlines the Market Share product categories for EDI
reporting. The table also specifies the top competitive products that must be
included in the aggregated market share reporting for the Fast Track Rebate
Program. All competitive products within a given category must be reported. The
products listed below are just examples, not a comprehensive list.
<TABLE>
<CAPTION>
CATEGORY MICROSOFT PRODUCT COMPETITIVE PRODUCTS
- - --------------------------- --------------------------------- ----------------------------------------
<S> <C> <C>
Windows word processors Microsoft-Registered Trademark- [ * ]
Word for [ * ]
Windows-Registered Trademark-
Windows spreadsheets Microsoft-Registered Trademark- [ * ]
Excel for [ * ]
Windows-Registered Trademark-
Windows bundles Microsoft-Registered Trademark- [ * ]
Office for [ * ]
Windows-Registered Trademark- [ * ]
Windows Databases Microsoft [ * ]
Access-Registered Trademark- for [ * ]
Windows-Registered Trademark- [ * ]
FoxPro-Registered Trademark- for [ * ]
Windows-Registered Trademark-
Mail Servers Microsoft-Registered Trademark- [ * ]
Mail [ * ]
[ * ]
Network Operating Systems Microsoft-Registered Trademark- [ * ]
Windows [ * ]
NT-TM- Server [ * ]
[ * ]
[ * ]
</TABLE>
Accounts are required to report sell-through units and inventory units for each
Microsoft SKU, but are required only to report the total license count for
competitive product sell-through for each category. All SKUs for these titles
should be counted, including full packaged product, upgrades, Microsoft license
packs, education, and government SKUs. Please refer to the EDI Reporting
Guidelines for details on reporting requirements.
EXAMPLE: IF CUSTOMER SOLD-THROUGH FIFTY (50) UNITS OF [ * ]IN ONE
WEEK, THEN CUSTOMER WOULD REPORT A TOTAL OF SEVENTY (70) LICENSES FOR
SELL-THROUGH OF COMPETITOR'S PRODUCTS IN THE WINDOWS SPREADSHEET CATEGORY.
MBS REPORTING
CUSTOMER must submit MBS reporting by the 10th of each month for the prior month
in the format outlined in Schedule D. Reporting shall be transmitted in
electronic format and sent via modem to 1-800-831-6316, or on tape or diskette
to MS at the following address:
MICROSOFT CORPORATION
RESELLER REPORTING GROUP
BLDG. 8N/2
ONE MICROSOFT WAY
REDMOND, WA 98052
* CONFIDENTIAL TREATMENT REQUESTED
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD SOFTWARE PAGE B4
JULY - DECEMBER, 1995, REBATE AND
MARKETING FUND ADDENDUM
<PAGE>
Should CUSTOMER provide both monthly MBS reporting and weekly Fast Track
reporting on a compliant basis for three (3) consecutive months, MS may at its
sole discretion grant a written waiver of CUSTOMER monthly MBS reporting
requirements.
TOTAL SALES-OUT REBATE PROGRAM
PROGRAM OBJECTIVE: The objective of the Total Sales-out Rebate Program is to
increase the sales of Microsoft products. All license types (Select, Microsoft
Open License, Full Package Product, MLPs) are included in measuring performance
against this goal.
REBATE PERCENTAGES: The total possible rebate percentage achievable for the
Total Sales-out Rebate Program is [ * ] of Qualified Sales for the July -
December, 1995 semester.
GOAL DEFINITIONS: The program goals are based upon the following:
- CUSTOMER's historical sales-out of Microsoft products by Microsoft product
division.
- Microsoft's United States total sales-out goals.
- CUSTOMER's contribution to Microsoft's historical sales.
REBATE GOALS: CUSTOMER has a first quarter sales-out goal and a total semester
sales-out goal. CUSTOMER's performance for the first three months of the July
- - -December, 1995 semester will be measured against the first quarter sales-out
goal. At the end of the first quarter, CUSTOMER will receive the percentage of
the eligible rebate earned based on performance against the first quarter goal.
At the end of the semester, CUSTOMER will be measured on their six-month
performance against the total semester goal. Even if CUSTOMER does not meet 100%
of the first quarter goal, CUSTOMER can still achieve 100% of the semester goal
provided that the semester goal is met at the end of the six-month period.
CUSTOMER's Total Sales-out Rebate Program goals are as follows:
- Quarter 1 Goal (July - September, 1995): [ * ]
- Semester Goal (July - December, 1995): [ * ]
SALES-OUT DEFINITIONS/MEASUREMENT: Microsoft Product Sales-out is defined as
those Microsoft net product units sold through CUSTOMER's outlet locations.
CUSTOMER's full packaged product, Microsoft Open License, and upgrade sales-out
units will be measured from the sales-out reported by CUSTOMER to Microsoft.
Licensing sales (Select, Microsoft Maintenance) are captured and generated by
Microsoft's financial systems and included in total sales-out used to measure
product sales-out rebate performance.
Microsoft Select 2.x and 1.x and Microsoft Maintenance revenue credit is granted
as Microsoft recognizes the revenue. This occurs when Microsoft has received the
customer's license reporting. Following receipt of reporting, Microsoft bills
the customer/reseller and simultaneously recognizes the revenue.
PAYMENT: At the end of the semester, CUSTOMER will be paid a sales-out rebate
based on performance against the semester goal. If CUSTOMER achieves greater
than sixty percent (60%) of the semester sales-out goal, CUSTOMER will receive
the exact achieved percentage of the eligible sales-out rebate up to one hundred
percent (100%). If CUSTOMER achieves less than sixty percent (60%) of the
sales-out rebate goal, CUSTOMER will not receive any portion of the sales-out
rebate. The purpose of this scale is to offer an incentive for accounts to meet
a portion of their goal in the event they cannot achieve the full Microsoft
sales-out goal.
* CONFIDENTIAL TREATMENT REQUESTED
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD SOFTWARE PAGE B5
JULY - DECEMBER, 1995, REBATE AND
MARKETING FUND ADDENDUM
<PAGE>
Although Microsoft pays the sales-out rebate ultimately based on performance
against the semester sales-out goal, Microsoft also pays a sales-out rebate at
the end of the first quarter based on performance against the first quarter
goal. Microsoft pays a portion of the rebate after the first quarter to provide
incentive for CUSTOMER to focus on sales-out throughout the entire semester. The
scale for the first quarter payment is the same as the scale for the semester
payment. The first quarter payment amount will be subtracted from the final
semester payment for the sales-out rebate.
EXAMPLE: IF CUSTOMER HAS A QUARTERLY SALES OUT GOAL OF $1,000,000 AND A TOTAL
SEMESTER GOAL $2,500,000, AND CUSTOMER SELLS $800,000 OVER THE FIRST QUARTER
PERIOD AND $2,600,000 OVER THE ENTIRE SEMESTER PERIOD, CUSTOMER WILL RECEIVE THE
FOLLOWING REBATE PAYMENTS:
<TABLE>
<CAPTION>
SELL-THROUGH
PERIOD GOAL ACHIEVED PAYMENT
- - ---------------- ------------- ------------- -------------------------------------------------------
<S> <C> <C> <C>
First Quarter $ 1,000,000 $ 800,000 80% of [ * ] eligible rebate = [ * ] of July -
September Qualified Sales.
Semester $ 2,500,000 $ 2,600,000 104% of [ * ] eligible rebate = [ * ] of July -
December Qualified Sales less first quarter payment.
The maximum allowable rebate is [ * ].
</TABLE>
BUSINESS SYSTEMS REBATE PROGRAM
PROGRAM OBJECTIVE: The objective of the Microsoft Business Systems Rebate
Program is to increase the Microsoft Business Systems revenue as well as to
increase the ratio of Microsoft Windows NT Client to Server sales. The Microsoft
Business Systems products consist of any license type of the following products:
MICROSOFT-REGISTERED TRADEMARK- BACKOFFICE, MICROSOFT-REGISTERED TRADEMARK-
EXCHANGE, MICROSOFT-REGISTERED TRADEMARK- MAIL, MICROSOFT-REGISTERED TRADEMARK-
SNA SERVER, MICROSOFT-REGISTERED TRADEMARK- SQL SERVER-REGISTERED TRADEMARK-,
MICROSOFT-REGISTERED TRADEMARK- SYSTEMS MANAGEMENT SERVER,
MICROSOFT-REGISTERED TRADEMARK- WINDOWS NT-TM- SERVER, AND
MICROSOFT-REGISTERED TRADEMARK- WINDOWS NT-TM-WORKSTATION.
REBATE PERCENTAGES: The total possible rebate percentage achievable for the
Business Systems Rebate Program is [ * ] of Qualified Sales for the July -
December, 1995 semester.
GOAL DEFINITIONS: The program goals are based upon the following:
- Existing Microsoft Business Systems revenue.
- Microsoft's Business Systems revenue goals.
- Microsoft's Windows NT Client to Server Ratio goals.
REBATE GOALS: CUSTOMER must meet a minimum Windows NT Client to Server Ratio of
[ * ] in order to receive any portion of the Business Systems rebate.
Performance against the Client to Server goal will be measured against all
license types of Microsoft Windows NT including full packaged product, MLPs,
MOLP, and Select license types. Provided that CUSTOMER meets the [ * ] Client to
Server Ratio, CUSTOMER's achievement against the Business Systems goal will be
based on CUSTOMER's performance against the Business Systems revenue goal.
CUSTOMER has a first quarter rebate goal and a total semester rebate goal.
CUSTOMER's performance for the first three months of the July - December, 1995
semester will be measured against the first quarter rebate goal. At the end of
the first quarter, CUSTOMER will receive the percentage of the eligible rebate
earned based on performance against the first quarter goal. At the end of the
semester, CUSTOMER will be measured on their six-month performance against the
total semester goal. Even if CUSTOMER does not meet 100% of the first quarter
goal, CUSTOMER can still achieve 100% of the semester goal provided that the
semester goal is met at the end of the six-month period.
* CONFIDENTIAL TREATMENT REQUESTED
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD SOFTWARE PAGE B6
JULY - DECEMBER, 1995, REBATE AND
MARKETING FUND ADDENDUM
<PAGE>
CUSTOMER's Business Systems Rebate Program goals are as follows:
- Minimum Windows NT Client to Server Ratio of [ * ]
- Quarter 1 Goal (July - September, 1995): [ * ]
- Semester Goal (July - December, 1995): [ * ]
PAYMENT: As stated earlier, CUSTOMER must attain a [ * ] Client to Server ratio
of Microsoft Windows NT in order to receive any portion of the Business Systems
Rebate. Provided CUSTOMER meets the Client to Server Ratio requirement, CUSTOMER
will be paid a Business Systems rebate based on performance against the semester
goal at the end of the semester. If CUSTOMER achieves greater than sixty percent
(60%) of the semester Business Systems revenue goal and attains a minimum of
[ * ] Windows NT Client to Server ratio, CUSTOMER will receive the exact
achieved percentage of the eligible Business Systems rebate up to one hundred
percent (100%). If CUSTOMER achieves less than sixty percent (60%) of the
Business Systems revenue goal, CUSTOMER will not receive any portion of the
Business Systems rebate. The purpose of this scale is to offer an incentive for
accounts to meet a portion of their goal in the event they cannot achieve the
full Microsoft Business Systems goal.
Although Microsoft pays the rebate ultimately based on performance against the
semester goal, Microsoft also pays a rebate at the end of the first quarter
based on performance against the first quarter goal. Microsoft pays a portion of
the rebate after the first quarter to provide incentive for CUSTOMER to focus on
the Business Systems rebate program throughout the entire semester. The scale
for the first quarter payment is the same as the scale for the semester payment.
The first quarter payment amount will be subtracted from the final semester
payment for the rebate.
EXAMPLE:
GOALS:
- QUARTERLY BUSINESS SYSTEMS REVENUE GOAL OF $1,000,000
- SEMESTER BUSINESS SYSTEMS REVENUE GOAL OF $2,500,000
- MINIMUM WINDOWS NT CLIENT TO SERVER RATIO OF 10:1
PERFORMANCE:
- WINDOWS NT CLIENT TO SERVER RATIO OF 11:1
- ACTUAL QUARTER BUSINESS SYSTEMS REVENUE IS $800,000
- ACTUAL SEMESTER BUSINESS SYSTEMS REVENUE IS $2,600,000
BECAUSE CUSTOMER ATTAINED THE MINIMUM WINDOWS NT CLIENT TO SERVER RATIO OF 10:1,
CUSTOMER'S BUSINESS SYSTEMS REBATE PAYMENT WOULD BE AS FOLLOWS:
<TABLE>
<CAPTION>
SELL THROUGH
PERIOD GOAL ACHIEVED PAYMENT
- - ---------------- ------------- ------------- -------------------------------------------------------
<S> <C> <C> <C>
First Quarter $ 1,000,000 $ 800,000 80% of [ * ] eligible rebate = [ * ] of July -
September Qualified Sales.
Semester $ 2,500,000 $ 2,600,000 104% of [ * ] eligible rebate = [ * ] of July -
December Qualified Sales less first quarter payment.
The maximum allowable Business Systems rebate is [ * ].
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD SOFTWARE PAGE B7
JULY - DECEMBER, 1995, REBATE AND
MARKETING FUND ADDENDUM
<PAGE>
OFFICE SALES-OUT REBATE PROGRAM
PROGRAM OBJECTIVE: The objective of the Microsoft Office Sales-out Rebate
Program is to increase sales and support the efforts of Microsoft Office for
Windows Standard and Professional products and Microsoft Office for the
Macintosh products. All Microsoft Office license types (Select, Microsoft Open
License, Full Package Product, MLPs) are included in measuring performance
against this goal.
REBATE PERCENTAGES: The total possible rebate percentage achievable for Office
Sales-out Rebate Program is [ * ] percent [ * ] of net qualified purchases for
July - December, 1995.
GOAL DEFINITIONS: The program goals are based upon the following:
- CUSTOMER's historical Sales-out of Office.
- Microsoft's North America Office Sales-out goals.
- CUSTOMER's contribution to Microsoft's historical Office sales.
REBATE GOALS: CUSTOMER has a first quarter sales-out goal and a total semester
sales-out goal. CUSTOMER's performance for the first three months of the July
- - -December, 1995 semester will be measured against the first quarter sales-out
goal. At the end of the first quarter, CUSTOMER will receive the percentage of
the eligible rebate earned based on performance against the first quarter-goal.
At the end of the semester, CUSTOMER will be measured on their six-month
performance against the total semester goal. Even if CUSTOMER does not meet 100%
of the first quarter goal, CUSTOMER can still achieve 100% of the semester goal
provided that the semester goal is met at the end of the six-month period.
CUSTOMER's Office Sales-out Rebate Program goals are as follows:
- Quarter 1 Goal (July - September, 1995): [ * ]
- Semester Goal (July - December, 1995): [ * ]
SALES-OUT DEFINITIONS/MEASUREMENT: Microsoft Office Product Sales-out is
defined as those Office net product units sold through reseller outlet
locations. CUSTOMER's full packaged product and upgrade sales-out units will
measured from the sales-out reported by CUSTOMER to Microsoft, which includes
MOLP sales. Licensing sales (Select, and Microsoft Maintenance) are captured and
generated by Microsoft's financial systems and included in total Sales-out used
to measure Office product sales-out rebate performance.
Microsoft Select 2.x and 1.x and Microsoft Maintenance revenue credit is granted
as Microsoft recognizes the revenue. This occurs when Microsoft has received the
customer's license reporting. Following receipt of reporting, Microsoft bills
the customer/reseller and simultaneously recognizes the revenue.
PAYMENT: At the end of the semester, CUSTOMER will be paid a sales-out rebate
based on performance against the semester goal. If CUSTOMER achieves greater
than sixty percent (60%) of the semester sales-out goal, CUSTOMER will receive
the exact achieved percentage of the eligible sales-out rebate up to one hundred
percent (100%). If CUSTOMER achieves less than sixty percent (60%) of the
sales-out rebate goal, CUSTOMER will not receive any portion of the sales-out
rebate. The purpose of this scale is to offer an incentive for accounts to meet
a portion of their goal in the event they cannot achieve the full Microsoft
sales-out goal.
* CONFIDENTIAL TREATMENT REQUESTED
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD SOFTWARE PAGE B8
JULY - DECEMBER, 1995, REBATE AND
MARKETING FUND ADDENDUM
<PAGE>
Although Microsoft pays the sales-out rebate ultimately based on performance
against the semester sales-out goal, Microsoft also pays a sales-out rebate at
the end of the first quarter based on performance against the first quarter
goal. The scale for the first quarter payment is the same as the scale for the
semester payment. The first quarter payment amount will be subtracted from the
final semester payment for the sales-out rebate.
EXAMPLE: IF CUSTOMER HAS A QUARTERLY SALES-OUT GOAL OF $1,000,000 AND A TOTAL
SEMESTER GOAL $2,500,000, AND CUSTOMER SELLS $800,000 OVER THE FIRST QUARTER
PERIOD AND $2,600,000 OVER THE ENTIRE SEMESTER PERIOD, CUSTOMER WILL RECEIVE THE
FOLLOWING REBATE PAYMENTS:
<TABLE>
<CAPTION>
SELL-THROUGH
PERIOD GOAL ACHIEVED PAYMENT
- - ---------------- ------------- ------------- -------------------------------------------------------
<S> <C> <C> <C>
First Quarter $ 1,000,000 $ 800,000 80% of [ * ] eligible rebate = [ * ] of July -
September Qualified Purchases.
Semester $ 2,500,000 $ 2,600,000 104% of [ * ] eligible rebate = [ * ] of July -
December Qualified Purchases less first quarter
payment. The maximum allowable rebate is [ * ]
</TABLE>
CONSUMER PRODUCT SALES-OUT REBATE PROGRAM
PROGRAM OBJECTIVE: The objective of the Microsoft Consumer Product Sales-out
Rebate Program is to increase sales and support the efforts of Microsoft
Consumer Division products. All Microsoft Consumer license types (Select,
Microsoft Open License, Full Package Product, MLPs) are included in measuring
performance against this goal.
REBATE PERCENTAGES: The total possible rebate percentage achievable for
Consumer Product Sales-out Rebate Program is [ * ] of net qualified
purchases for July - December, 1995.
GOAL DEFINITIONS: The program goals are based upon the following:
- CUSTOMER's historical Sales-out of Consumer products.
- Microsoft's North America Consumer Division Sales-out goals.
- CUSTOMER's contribution to Microsoft's historical Consumer product sales.
REBATE GOALS: CUSTOMER has a first quarter sales-out goal and a total semester
sales-out goal. CUSTOMER's performance for the first three months of the July
- - -December, 1995 semester will be measured against the first quarter sales-out
goal. At the end of the first quarter, CUSTOMER will receive the percentage of
the eligible rebate earned based on performance against the first quarter goal.
At the end of the semester, CUSTOMER will be measured on their six-month
performance against the total semester goal. Even if CUSTOMER does not meet 100%
of the first quarter goal, CUSTOMER can still achieve 100% of the semester goal
provided that the semester goal is met at the end of the six-month period.
CUSTOMER's Consumer Product Sales-out Rebate Program goals are as follows:
- Quarter 1 Goal (July - September, 1995): [ * ]
- Semester Goal (July - December, 1995): [ * ]
SALES-OUT DEFINITIONS/MEASUREMENT: Microsoft Consumer Product Sales-out is
defined as those Consumer net product units sold through reseller outlet
locations. CUSTOMER's full packaged product and upgrade sales-out units will be
measured from the sales-out reported by CUSTOMER to
* CONFIDENTIAL TREATMENT REQUESTED
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD SOFTWARE PAGE B9
JULY - DECEMBER, 1995, REBATE AND
MARKETING FUND ADDENDUM
<PAGE>
Microsoft, which includes MOLP sales. Licensing sales (Select, and Microsoft
Maintenance) are captured and generated by Microsoft's financial systems and
included in total Sales-out used to measure Consumer product sales-out rebate
performance.
Microsoft Select 2.x and 1.x and Microsoft Maintenance revenue credit is granted
as Microsoft recognizes the revenue. This occurs when Microsoft has received the
customer's license reporting. Following receipt of reporting, Microsoft bills
the customer/reseller and simultaneously recognizes the revenue.
PAYMENT: At the end of the semester, CUSTOMER will be paid a sales-out rebate
based on performance against the semester goal. If CUSTOMER achieves greater
than sixty percent (60%) of the semester sales-out goal, CUSTOMER will receive
the exact achieved percentage of the eligible sales-out rebate up to one hundred
percent (100%). If CUSTOMER achieves less than sixty percent (60%) of the
sales-out rebate goal, CUSTOMER will receive any portion of the sales-out
rebate. The purpose of this scale is to offer an incentive for accounts to meet
a portion of their goal in the event they cannot achieve the full Microsoft
sales-out goal.
Although Microsoft pays the sales-out rebate ultimately based on performance
against the semester sales-out goal, Microsoft also pays a sales-out rebate at
the end of the first quarter based on performance against the first quarter
goal. The scale for the first quarter payment is the same as the scale for the
semester payment. The first quarter payment amount will be subtracted from the
final semester payment for the sales-out rebate.
EXAMPLE: IF CUSTOMER HAS A QUARTERLY SALES-OUT GOAL OF $1,000,000 AND A TOTAL
SEMESTER GOAL $2,500,000, AND CUSTOMER SELLS $800,000 OVER THE FIRST QUARTER
PERIOD AND $2,600,000 OVER THE ENTIRE SEMESTER PERIOD, CUSTOMER WILL RECEIVE THE
FOLLOWING REBATE PAYMENTS:
<TABLE>
<CAPTION>
SELL-THROUGH
PERIOD GOAL ACHIEVED PAYMENT
- - ---------------- ------------- ------------- -------------------------------------------------------
<S> <C> <C> <C>
First Quarter $ 1,000,000 $ 800,000 80% of [ * ] eligible rebate = [ * ] of July -
September Qualified Purchases.
Semester $ 2,500,000 $ 2,600,000 104% of [ * ] eligible rebate = [ * ] of July -
December Qualified Purchases less first quarter
payment. The maximum allowable rebate is [ * ]
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD SOFTWARE PAGE B10
JULY - DECEMBER, 1995, REBATE AND
MARKETING FUND ADDENDUM
<PAGE>
AMENDMENT NO. 1 TO THE
REBATE AND MARKETING FUND ADDENDUM TO THE
MICROSOFT 1995/1996 CHANNEL AGREEMENT
This Amendment No. 1 ("Amendment"), dated the first day of January, 1996, amends
that certain Rebate and Marketing Fund Addendum to The Microsoft 1995/1996
Channel Agreement ("Addendum"), dated July 1, 1995, 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 ("CUSTOMER")
having its principal place of business at 22705 East Mission, Liberty Lake, WA
99019. The Addendum is hereby amended as follows:
2. TERM AND TERMINATION
The first sentence of the section is replaced with the following:
"This Addendum shall be effective as of January 1, 1996, and shall expire on
June 30, 1996."
4. REBATES
The section is replaced in its entirety with:
"4.1 PACKAGED PRODUCT REBATE
CUSTOMER is eligible to receive up to a [ * ] percent [ * ] Rebate on its
Qualified Sales, excluding Open License sales, made during the Rebate and
Marketing Fund Period. The Rebate shall be paid provided CUSTOMER complies with
the Rebate Program Guidelines outlined in Schedule B.
4.2 OPEN LICENSE REBATE
CUSTOMER is eligible to receive up to a [ * ] percent [ * ] Rebate on its Open
License sales made during the Rebate and Marketing Fund Period. The Rebate shall
be paid provided CUSTOMER complies with the those portions of the Packaged
Product Rebate Guidelines outlined in Schedule J.
4.3 PROVISION FOR EARLY PAYMENT OF REBATES
Notwithstanding such Rebate Program Guidelines, MS may, at its sole discretion,
pay all or any portion of the Rebate prior to the end of the Rebate and
Marketing Fund Period. The Rebate so paid may be adjusted subsequently based
upon compliance with the Rebate Program Guidelines."
5. MARKETING FUNDS
The section is replaced in its entirety with:
"5.1 OPPORTUNITY FUNDS
Periodically, MS at its discretion may allow CUSTOMER to participate in MS
programs which provide the opportunity to earn Opportunity Marketing Funds.
CUSTOMER's participation in such programs shall be governed by this Addendum.
Grant of Opportunity Marketing Funds is subject to prior approval by MS.
5.2 USE OF MARKETING FUNDS
Acquisition, use of, and proof of expenditures of Opportunity Marketing Funds
shall be in accordance with this Addendum, and the terms of each Opportunity
Fund Proposal approved by CUSTOMER's MS Account Manager. Without limiting the
foregoing, CUSTOMER shall abide by the Spending Period dates as outlined in the
then-current Microsoft Marketing Fund Guidelines. Marketing Fund Claims
exceeding the then-current balance in CUSTOMER's Marketing Fund account at MS'
Marketing Fund vendor, currently Pinpoint Marketing, Inc. ("PMI") or submitted
in excess of the pre-approved dollar amount shall not be granted to CUSTOMER.
* CONFIDENTIAL TREATMENT REQUESTED
MICROSOFT CONFIDENTIAL - DISCLOSURE PROHIBITED
<PAGE>
CUSTOMER must obtain MS approval from a MS representative prior to claiming
Marketing Funds. CUSTOMER agrees to report to PMI any suspected error or
discrepancy in the amount of Marketing Funds received by CUSTOMER within thirty
(30) days of receipt thereof. Failure to provide such notice within the
specified period shall mean that CUSTOMER forfeits the opportunity to request a
re-audit. MS reserves the right at any time to adjust CUSTOMER's Marketing Fund
balance should MS discover that an error or discrepancy has occurred.
5.3 MARKETING FUND AND REBATE AUDIT
During the term of this Addendum and for a period of two (2) years following its
termination, MS may audit the applicable records and operations of CUSTOMER as
is reasonable to verify CUSTOMER's compliance with the terms of this Addendum.
Additionally, MS may audit specific Opportunity Marketing Fund claims submitted
by CUSTOMER as outlined in CUSTOMER's then current Marketing Fund Guidelines.
Any audit shall be conducted during CUSTOMER's normal business hours in such a
manner as not to unreasonably interfere with CUSTOMER's normal business
activities. Audit expenses shall be paid by MS unless material discrepancies are
disclosed by such audit, in which case audit expenses shall be paid by CUSTOMER.
For purposes of this Section, "material discrepancies" shall mean ten thousand
U.S. dollars (US$10,000) or more.
If the results of any audit show that CUSTOMER used Marketing Funds in any
manner other than as authorized under this Addendum, MS shall be entitled to
recover from CUSTOMER any and all Marketing Funds so used, in addition to any
other remedies available to MS under law or equity plus injunctive relief and/or
any other damages as may be permitted by law. Further, if any such audits shows
that CUSTOMER has submitted incorrect sales reporting, and such reporting was
the basis of any rebate payment, MS shall have the right to recover any and all
rebate paid."
5.4 MARKETING FUND REIMBURSEMENT POLICY
CUSTOMER agrees to abide by the Marketing Fund Reimbursement Guidelines,
attached hereto as Schedule G, and as revised from time to time by MS."
6. REPORTING REQUIREMENTS
The first sentence of the section is replaced with the following:
CUSTOMER shall submit reports to MS as outlined in CUSTOMER's Rebate Program
Guidelines in accordance with the then current EDI Implementation Guide provided
by MS.
SCHEDULE B
The Schedule is replaced in its entirety with the attached Schedule H.
SCHEDULE G
The Schedule is replaced in its entirety with the attached Schedule I.
AMENDMENT NO. 1 TO THE REBATE AND PAGE 2
MARKETING FUND ADDENDUM TO THE
MICROSOFT 1995/1996 CHANNEL AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Amendment on the date indicated
below. This Amendment is hereby made part of the Addendum. All terms and
conditions of the Addendum not amended herein shall remain in full force and
effect. This Amendment is not binding until executed by MS.
<TABLE>
<S> <C>
AGREED AND ACCEPTED TO BY AGREED AND ACCEPTED TO BY
MICROSOFT CORPORATION ("MS"): DJ&J SOFTWARE CORPORATION
D/B/A EGGHEAD ("CUSTOMER"):
By: By:
- - --------------------------------------- ---------------------------------------
- - ------------------------------------------- -------------------------------------------
Name (please print) Name (please print)
- - ------------------------------------------- -------------------------------------------
Title Title
- - ------------------------------------------- -------------------------------------------
</TABLE>
AMENDMENT NO. 1 TO THE REBATE AND PAGE 3
MARKETING FUND ADDENDUM TO THE
MICROSOFT 1995/1996 CHANNEL AGREEMENT
<PAGE>
SCHEDULE H
JANUARY - JUNE, 1996
REBATE GUIDELINES
PROGRAMS: Microsoft offers five rebate programs for the January - June, 1996
Rebate period. The total available Rebate is divided as follows:
<TABLE>
<CAPTION>
MAXIMUM PERCENTAGE
REBATE INCENTIVE AVAILABLE
- - ------------------------------------------------------------------------- ---------------------
<S> <C>
Compliance Program [ * ]
Total Sales-out Program [ * ]
Business Systems Program [ * ]
Desktop Applications Sales-out Program [ * ]
Consumer Sales-out Program [ * ]
-----
TOTAL [ * ]
-----
-----
</TABLE>
REBATE CALCULATIONS AND PAYMENTS: Rebates will be paid in the form of a
Microsoft purchase credit forty-five (45) days after the end of each quarterly
rebate period (i.e. May 15th for January - March, 1996 quarter). Any such Rebate
paid shall be credited against CUSTOMER's account balance. In the event
CUSTOMER's account balance is less than the total Rebate payment, MS may, at its
sole discretion, elect to pay the Rebate in the form of a check. In no case
shall CUSTOMER deduct from invoice any Rebate payment due from MS prior to the
issue of the purchase credit or check. Rebates are calculated by multiplying the
achieved rebate percentage by the total Qualified Sales for the rebate period.
Revenue generated from Microsoft Select Enrollment Forms executed by MS on or
after July 1, 1994, shall be included in calculating CUSTOMER's achievement
toward the Sales-out goal, but shall not be included in CUSTOMER's final total
Qualified Sales for purposes of Rebate payment. Revenue generated from Microsoft
Select Enrollment Forms executed by MS prior to July 1, 1994 will be included in
calculating CUSTOMER's achievement towards the sales-out goal and will also be
eligible for a Grandfathered rebate. Rebate payment for such Select Enrollment
Forms shall be in the form of a purchase credit forty-five (45) days after the
end of each quarterly rebate period.
PURCHASES THROUGH DISTRIBUTION: CUSTOMER's full packaged product and MLP
purchases through distribution will be subtracted from CUSTOMER's Qualified
Sales for purposes of Rebate payment.
PRODUCT AVAILABILITY: If Microsoft is unable to ship a CURRENT VERSION of a
product for any ten (10) consecutive business days, CUSTOMER's purchases through
distribution of those SKUs will count toward CUSTOMER's Qualified Sales for
purchases of Rebate payment.
All copies of eligible purchase orders placed through distribution along with a
copy of the Microsoft Stock Out Report must be sent to Microsoft no later than
fifteen (15) days following the quarter end. Please send purchase order copies
and the Microsoft Stock Out Report to the following address:
MICROSOFT CORPORATION
ONE MICROSOFT WAY
BLDG. 22/4054
REDMOND, WA 98052
ATTN: KRISTIN WEEBER, MARKETING MANAGER
COMPLIANCE REBATE PAYMENT: The Microsoft Compliance Rebate will be calculated
on a monthly basis. If CUSTOMER has met all of the Compliance Rebate criteria in
a given month, CUSTOMER will be entitled to two percent of that month's total
Qualified Sales. The rebate payment will be made forty-five (45) days after the
end of each quarterly rebate period.
* CONFIDENTIAL TREATMENT REQUESTED
AMENDMENT NO. 1 TO THE REBATE AND PAGE H4
MARKETING FUND ADDENDUM TO THE
MICROSOFT 1995/1996 CHANNEL AGREEMENT
<PAGE>
ANY ISSUES REGARDING REBATES SHOULD BE SENT IN WRITING TO KRISTIN WEEBER,
MARKETING MANAGER, NO LATER THAN THIRTY (30) DAYS FOLLOWING RECEIPT OF REBATE
PAYMENT. If such written notice is not provided within thirty (30) days,
CUSTOMER shall have no further right to dispute rebate payment.
COMPLIANCE REBATE PROGRAM
PROGRAM OBJECTIVES: The objective of the Compliance Rebate Program is to
provide incentive for CUSTOMER to comply with Microsoft contractual requirements
for payments, Street Dates, reporting, and EDI ordering for Select 3.0.
NON-COMPLIANCE: During any given month, failure to comply with any or all of
the current compliance criteria will result in the forfeiture of the entire
compliance rebate for that month.
1. MICROSOFT PAYMENT REQUIREMENTS
Microsoft requires its customers to pay its invoices within terms. In order to
maintain compliance, 100% of the gross invoice value for non-Select and 85% of
the gross invoice value for Select must be current as of Microsoft's fiscal
month-end. Unapplied credits will be excluded from the calculation. Failure to
comply with this section will also result in the loss of CUSTOMER's Select
Compliance Rebate.
2. MICROSOFT STREET DATE REQUIREMENTS
From time to time, Microsoft may announce a new product or new versions of an
existing product for which Microsoft shall set a Street Date. In order to comply
with the Street Date requirements, CUSTOMER shall not:
- Ship or deliver the product to any end-user customer prior to the Street
Date.
- Accept any end user payment for the product prior to the Street Date.
Checks and/or credit card numbers may be accepted by CUSTOMER, but can
only be processed when product is delivered to the end user on or after
the Street Date.
- Advertise, merchandise, or promote the product to end user customers until
it is officially announced by Microsoft. Usually, the product announcement
is on the Street Date. If the product announcement is earlier than the
Street Date, Microsoft will clearly communicate the announce date to the
channel. If product is announced by Microsoft before the Street Date, the
product can be advertised, merchandised and/or promoted immediately after
such announcement, provided that all such promotions clearly state that
the product is not yet available for purchase.
- Allow it's distribution centers and/or warehouses to distribute, for a
period of up to twelve months, a Street Date product to any individual
sales office, retail store, or outlet which Microsoft in its sole
discretion has determined to be in violation of the Street Date
Requirements.
In the event CUSTOMER violates the Street Date for any special products
specified in a Microsoft Street Date letter, CUSTOMER shall forfeit up to the
entire Compliance Rebate for the six month Rebate period in which the violation
occurred.
Should CUSTOMER fail to comply with the Street Date Requirements, Microsoft may
also, for a period of up to twelve (12) months, withhold shipments to CUSTOMER
of future product until the Street Date of such product.
AMENDMENT NO. 1 TO THE REBATE AND PAGE H5
MARKETING FUND ADDENDUM TO THE
MICROSOFT 1995/1996 CHANNEL AGREEMENT
<PAGE>
Should CUSTOMER wish to report a Street Date violation, CUSTOMER may fax a copy
of a dated sales receipt to STREET DATE VIOLATIONS AT MICROSOFT AT (206)
936-7329. Once a violation has been reported, Microsoft shall investigate the
violation, and take remedial action as appropriate. Please note, in order to
confirm a suspected violation, Microsoft must receive a dated sales receipt.
3. MICROSOFT TRANSACTION REQUIREMENTS
Electronic Data Interchange format ("EDI") transactions are defined as 850/855
EDI transactions. CUSTOMER must place EDI transaction orders at a minimum of
once per month per Enrollment Site if product is purchased during said month.
4. MICROSOFT REPORTING REQUIREMENTS
ALL REPORTS OUTLINED BELOW MUST BE TIMELY, ACCURATE, AND COMPLETE. FOR PURPOSES
OF THIS AGREEMENT, "TIMELY" IS DEFINED AS MS RECEIPT OF REPORTING BY THE DUE
DATE AND TIME INDICATED, "ACCURATE" IS DEFINED AS THE CORRECT POPULATION OF ALL
REPORTING FIELDS, AND "COMPLETE" IS DEFINED AS THE POPULATION OF ALL REQUIRED
REPORTING FIELDS.
Reporting is defined as a weekly report sent to Microsoft via Electronic Data
Interchange format ("EDI") of weekly Sales, Inventory, and Internal Market
Share. CUSTOMER must make the EDI reports available to MS' EDI mailbox each
Monday by 12:00 noon (Pacific time). These reports shall cover the seven-day
period ending the prior Saturday night. Please refer to the EDI Reporting
Guidelines for details on reporting requirements.
REPORTING REQUIREMENTS
- - - Each unit of single license Full Package Product should be reported as one
unit. This applies for both MS products and for competitive products.
- - - Any single Microsoft product that includes multiple licenses should be
reported as one unit MS will then convert the quantity of multiple license
units sold to the number of licenses they represent. Examples of these
products include MMLP 20 Pack, MMLP 100 Pack, and AE 10 Pack.
- - - All volume licensing agreements (such as MOLP, Variable Licenses, and
Enterprise Licenses) should be reported as one unit for each license sold.
- - - Each competitive multiple license product should be reported as the number of
licenses represented.
Accounts are required to report sell-through units and inventory units for each
MS SKU, but are required only to report the total license count for competitive
product sell-through for each category. All SKUs for these titles should be
counted, including full packaged product, upgrades, license packs, education,
and government SKUs. Please refer to the EDI Reporting Guidelines for details on
reporting requirements.
AMENDMENT NO. 1 TO THE REBATE AND PAGE H6
MARKETING FUND ADDENDUM TO THE
MICROSOFT 1995/1996 CHANNEL AGREEMENT
<PAGE>
MARKET SHARE REPORTING
The following table outlines the Market Share product categories for EDI
reporting. The table also specifies the top competitive products that must be
included in the aggregated market share reporting. All competitive products
within a given category must be reported. The products listed below are just
examples, not a comprehensive list.
<TABLE>
<CAPTION>
CATEGORY MICROSOFT PRODUCT COMPETITIVE PRODUCTS
- - --------------------------- --------------------------------- ----------------------------------------
<S> <C> <C>
Windows word processors Microsoft-Registered Trademark- [ * ]
Word for [ * ]
Windows-Registered Trademark-
Windows spreadsheets Microsoft-Registered Trademark- [ * ]
Excel for Windows [ * ]
Windows bundles Microsoft-Registered Trademark- [ * ]
Office for [ * ]
Windows-Registered Trademark- [ * ]
Windows Databases Microsoft [ * ]
Access-Registered Trademark- for [ * ]
Windows-Registered Trademark- [ * ]
FoxPro-Registered Trademark- for [ * ]
Windows-Registered Trademark-
Mail Servers Microsoft-Registered Trademark- [ * ][ * ]
Mail [ * ]
Network Operating Systems Microsoft-Registered Trademark- [ * ]
Windows [ * ]
NT-TM- Server [ * ]
[ * ]
[ * ]
</TABLE>
EXAMPLE: IF CUSTOMER SOLD-THROUGH FIFTY (50) UNITS OF
[ * ] IN
ONE WEEK, THEN CUSTOMER WOULD REPORT A TOTAL OF SEVENTY (70) LICENSES FOR
SELL-THROUGH OF COMPETITOR'S PRODUCTS IN THE WINDOWS SPREADSHEET CATEGORY.
SALES-OUT REBATE PROGRAMS
PROGRAM OBJECTIVE: The objective of all Sales-out Rebate Programs is to
increase the sales of Microsoft products. All license types (Select, Microsoft
Open License, Full Package Product, MLPs) are included in measuring performance
against this goal, however, the Rebate is paid on full packaged product and MOLP
sales only.
REBATE GOALS: CUSTOMER has first quarter sales-out goals and total semester
sales-out goals. CUSTOMER's performance for the first three months of the
January - June, 1996, semester will be measured against the first quarter
sales-out goals. At the end of the first quarter, CUSTOMER will receive the
percentage of the eligible rebates earned based on performance against the first
quarter goals. At the end of the semester, CUSTOMER will be measured on their
six-month performance against the total semester goals. Even if CUSTOMER does
not meet 100% of the first quarter goals, CUSTOMER can still achieve 100% of the
semester goals provided that the semester goals are met at the end of the
six-month period.
SALES-OUT DEFINITIONS/MEASUREMENT: MS Product Sales-out is defined as those MS
net product units sold through CUSTOMER's outlet locations. CUSTOMER's full
packaged product, Microsoft Open License, and upgrade sales-out units will be
measured from the sales-out reported by CUSTOMER to MS. Licensing sales (Select,
Microsoft Maintenance) are captured and generated by MS' financial systems and
included in total sales-out used to measure product sales-out rebate
performance.
* CONFIDENTIAL TREATMENT REQUESTED
AMENDMENT NO. 1 TO THE REBATE AND PAGE H7
MARKETING FUND ADDENDUM TO THE
MICROSOFT 1995/1996 CHANNEL AGREEMENT
<PAGE>
Any Microsoft Select 2.x and 1.x and Microsoft Maintenance revenue credit is
granted as MS recognizes the revenue. This occurs when MS has received the
customer's license reporting. Following receipt of reporting, MS bills the
customer/reseller and simultaneously recognizes the revenue.
PAYMENT: At the end of the semester, CUSTOMER will be paid sales-out rebates
based on performance against the semester goals. If CUSTOMER achieves greater
than sixty percent (60%) of each semester sales-out goal, CUSTOMER will receive
the exact achieved percentage of the eligible sales-out rebate up to one hundred
percent (100%). If CUSTOMER achieves less than sixty percent (60%) of any
sales-out rebate goal, CUSTOMER will not receive any portion of that sales-out
rebate.
Although MS pays the sales-out rebate ultimately based on performance against
the semester sales-out goal, Microsoft also pays a sales-out rebate at the end
of the first quarter based on performance against the first quarter goal.
Microsoft pays a portion of the rebate after the first quarter to provide
incentive for CUSTOMER to focus on sales-out throughout the entire semester. The
scale for the first quarter payment is the same as the scale for the semester
payment. The first quarter payment amount will be subtracted from the final
semester payment for the sales-out rebate.
EXAMPLE: IF CUSTOMER HAS A QUARTERLY TOTAL SALES OUT GOAL OF $1,000,000 AND A
SEMESTER TOTAL SALES OUT GOAL $2,500,000, AND CUSTOMER SELLS $800,000 OVER THE
FIRST QUARTER PERIOD AND $2,600,000 OVER THE ENTIRE SEMESTER PERIOD, CUSTOMER
WILL RECEIVE THE FOLLOWING REBATE PAYMENTS.
<TABLE>
<CAPTION>
SELL-THROUGH
PERIOD GOAL ACHIEVED PAYMENT
- - ---------------- ------------- ------------- -------------------------------------------------------
<S> <C> <C> <C>
First Quarter... $ 1,000,000 $ 800,000 80% of [ * ] eligible rebate = [ * ] of January - March
sales.
Semester $ 2,500,000 $ 2,600,000 104% of [ * ] eligible rebate = [ * ] of January - June
sales less first quarter payment. The maximum allowable
total sales out rebate is [ * ].
</TABLE>
TOTAL SALES-OUT REBATE PROGRAM
REBATE PERCENTAGES: The total possible rebate percentage achievable for the
Total Sales-out Rebate Program is [ * ] of Qualified Sales for the January -
June, 1996 semester.
CUSTOMER's Total Sales-out Rebate Program goals are as follows:
- Quarter 1 Goal (January - March, 1996): [ * ]
- Semester Goal (January - June, 1996): [ * ]
DESKTOP APPLICATIONS SALES-OUT REBATE PROGRAM
REBATE PERCENTAGES: The total possible rebate percentage achievable for the
Desktop Applications Sales-out Rebate Program is [ * ] of Qualified Sales for
the January - June, 1996 semester.
CUSTOMER's Office Sales-out Rebate Program goals are as follows:
- Quarter 1 Goal (January - March, 1996): [ * ]
- Semester Goal (January - June, 1996): [ * ]
CONSUMER PRODUCT SALES-OUT REBATE PROGRAM
REBATE PERCENTAGES: The total possible rebate percentage achievable for the
Consumer Product Sales-out Rebate Program is [ * ] of Qualified Sales for the
January - June, 1996 semester.
* CONFIDENTIAL TREATMENT REQUESTED
AMENDMENT NO. 1 TO THE REBATE AND PAGE H8
MARKETING FUND ADDENDUM TO THE
MICROSOFT 1995/1996 CHANNEL AGREEMENT
<PAGE>
CUSTOMER Office Sales-out Rebate Program goals are as follows:
- Quarter I Goal (January - March, 1996): [ * ]
- Semester Goal (January - June, 1996): [ * ]
BUSINESS SYSTEMS SALES-OUT REBATE PROGRAM
REBATE PERCENTAGES: The total possible rebate percentage achievable for the
Business Systems Sales-out Rebate Program is [ * ] of Qualified Sales for the
January - June, 1996 semester.
REBATE GOALS: CUSTOMER must sell a minimum number
Microsoft-Registered Trademark- BackOffice client licenses in order to receive
any portion of the Business Systems rebate. Provided that CUSTOMER sells the
minimum number of BackOffice client licenses, CUSTOMER's achievement against the
Business Systems goal will be based on CUSTOMER's performance against the
Business Systems revenue goal.
CUSTOMER's BackOffice client license unit goals are as follows:
- Quarter 1 Goal (January - March, 1996) [ * ]
- Semester Goal (January - June, 1996) [ * ]
CUSTOMER's Business Systems Sales-out Rebate Program goals are as follows:
- Quarter 1 Goal (January - March, 1996): [ * ]
- Semester Goal (January - June, 1996): [ * ]
* CONFIDENTIAL TREATMENT REQUESTED
AMENDMENT NO. 1 TO THE REBATE AND PAGE H9
MARKETING FUND ADDENDUM TO THE
MICROSOFT 1995/1996 CHANNEL AGREEMENT
<PAGE>
SCHEDULE I
MARKETING FUND REIMBURSEMENT POLICY
OVERVIEW
As designated from time to time by MS, CUSTOMER must comply with MS' Marketing
Fund Reimbursement Policy in order to receive Marketing Funds from MS.
RULES
1. PROGRAM SCOPE. This Program affects only CUSTOMER's eligibility for MS
Marketing Funds, and CUSTOMER is always free to advertise and price all MS
products however CUSTOMER chooses.
MARKETING FUNDS AND PRICE ADVERTISING. In order for CUSTOMER to be eligible for
Marketing Funds, all advertisements of such product made by CUSTOMER or on
CUSTOMER's behalf must state no less than the price designated by MS exclusive
of sales tax.
Alternatively, CUSTOMER's advertisements may state no price whatsoever. The
following specific requirements apply to advertisements in which CUSTOMER is
offering other services or products together with the product:
- CUSTOMER may advertise "free" end-user training or support in connection
with the product.
- CUSTOMER may advertise a package of products offered for a single price
including the product, but only if the net package price is at or above
the price designated by MS. Alternatively, CUSTOMER's advertisements may
state no price whatsoever.
- MS reserves the right to change the designated price upon notice to
CUSTOMER.
3. LOSS OF MARKETING FUNDS. If CUSTOMER fails to comply with the rules of this
Program, then notwithstanding any other provisions of the Addendum to which
this Schedule is attached, CUSTOMER will be ineligible to receive Opportunity
Funds for a period of six (6) months. Marketing Funds ineligibility shall begin
with the entire month in which the failure to comply first occurred and shall
continue for six (6) months which may include CUSTOMER's ineligibility for
Opportunity Funds in a subsequent Rebate and Marketing Fund Period. MS' sole
judgment is final in determining CUSTOMER compliance with this Program.
4. ADVERTISEMENTS. The term "advertisement" means any printed, broadcast,
direct mail or transmitted advertisements for the product, including without
limitation, all newspaper, television, radio, and Internet or on-line
advertisements.
5. QUESTIONS AND INQUIRIES. If CUSTOMER has questions about whether CUSTOMER's
advertisements comply with this Program or if CUSTOMER has other inquiries,
CUSTOMER must direct these questions and inquires to the following MS contact:
Arlene Yanow
One Microsoft Way
Redmond, WA 98052
(206) 882-8080
The above contact is CUSTOMER's only authorized source of information at MS
about this Program, and CUSTOMER may not rely on any other source of
information, including other MS employees. No MS employee, including the above
contact, is authorized to communicate with CUSTOMER about any alleged
infractions of any other reseller.
8. PROGRAM MODIFICATIONS/TERMINATION: MS reserves the right to modify or
terminate this program at any time, in its sole discretion.
AMENDMENT NO. 1 TO THE REBATE AND PAGE I1
MARKETING FUND ADDENDUM TO THE
MICROSOFT 1995/1996 CHANNEL AGREEMENT
<PAGE>
SCHEDULE J
JANUARY - JUNE, 1996
OPEN LICENSE
REBATE PROGRAMS
PROGRAMS: Microsoft offers three Open License rebate programs for the January -
June, 1996 Rebate period. The total available Rebate is divided as follows:
<TABLE>
<CAPTION>
MAXIMUM PERCENTAGE
REBATE INCENTIVE AVAILABLE
- - --------------------------------------------------------------- -------------------
<S> <C>
Compliance Program [ * ]
Total Sales-out Program [ * ]
Business Systems Program [ * ]
TOTAL [ * ]
</TABLE>
All guidelines, including actual Rebate goals, shall be as outlined for the
Packaged Product Rebate.
* CONFIDENTIAL TREATMENT REQUESTED
AMENDMENT NO. 1 TO THE REBATE AND PAGE I2
MARKETING FUND ADDENDUM TO THE
MICROSOFT 1995/1996 CHANNEL AGREEMENT
<PAGE>
ADDENDUM TO THE
MICROSOFT 1995/1996
CHANNEL AGREEMENT
(APPOINTMENT AS A DIRECT RESELLER)
This Addendum ("Addendum") entered into as of the 1st day of July, 1995,
modifies that certain Microsoft 1995/1996 Channel Agreement ("Agreement")
between MICROSOFT CORPORATION ("MS") having its principal place of business at
One Microsoft Way Redmond, WA 98052 and EGGHEAD SOFTWARE ("CUSTOMER") having its
principal place of business at 22011 SE 51st Street, Issaquah, WA 98027. The
Agreement is supplemented as follows:
1. PURPOSE
The purpose of this Addendum is to set forth the framework by which MS appoints
CUSTOMER as a non-exclusive Direct Reseller in the United States of America for
the MS Product listed on the CUSTOMER Price List attached hereto as Schedule B.
For purposes of this Addendum, capitalized terms not otherwise defined herein,
shall have the same definition as set forth in the Agreement.
2. DEFINITIONS
For purposes of this Addendum, capitalized terms are as defined in Schedule A
attached hereto.
3. CUSTOMER OBLIGATIONS
3.1 DISTRIBUTION TO END USERS ONLY
Product distributed pursuant to this Addendum shall be distributed solely to End
Users located in the Territory, and not to Resellers of any kind.
3.2 LICENSING PROVISIONS
CUSTOMER acknowledges that the Product are distributed to End Users subject to
the terms of the applicable Microsoft End User License Agreement. CUSTOMER shall
make commercially reasonable efforts to prevent distribution of Product to End
Users who intend to copy or reproduce the Product in violation of the Microsoft
End User License Agreement.
3.3 PRODUCT PURCHASES
Product acquired by CUSTOMER shall be purchased only from MS or MS authorized
Distributors.
3.4 PAYMENT TERMS
Payment terms are net thirty (30) days from the date of MS' invoice, subject to
approval of open term by MS. All invoices outstanding over thirty (30) days may
be assessed a finance charge of the then current prime rate plus two percent
(2%) per month of 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 payments to MS by CUSTOMER pursuant to this Addendum shall be in the form of
a bank wire transfer, sent to the following:
First Interstate Bank of Washington
Seattle Main Branch
ABA: #125 000 286
Beneficiary: Microsoft Corporation
Account No. 001 025865
3.5 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 such claims not submitted in
MICROSOFT CONFIDENTIAL - DISCLOSURE PROHIBITED
<PAGE>
writing to MS within the fifteen (15) day period shall be deemed waived by
CUSTOMER. CUSTOMER shall be responsible for all such claims made with respect to
freight collect shipments, and shall not withhold payment to MS a result of such
claims.
3.6 PRODUCT FORECASTING
From time to time, MS may require Product forecasting for CUSTOMER. CUSTOMER
shall comply with all Product forecasting requirements designated by MS from
time to time.
4. MS OBLIGATIONS
4.1 NEW PRODUCTS; PROMOTIONAL PRODUCTS
MS may elect at any time during the term of this Addendum to announce new or
Promotional Product to which the terms and conditions of this Addendum to not
apply. In the event MS elects to announce Promotional Product, MS shall provide
CUSTOMER with thirty (30) days prior written notice of such announcement.
4.2 INVENTORY PRICE PROTECTION
During the term of this Addendum, MS shall grant CUSTOMER a price adjustment
against Product price reductions made by MS, which price reductions are made on
an indefinite basis, on all CUSTOMER's inventory which CUSTOMER reports as in
its inventory as of the day of the reduction. Such price adjustment shall be in
the form of a Purchase Credit equal to the difference between the lowest price
paid by CUSTOMER during the six (6) months prior to the price reduction and the
reduced price, and shall be paid no later than thirty (30) days after CUSTOMER
provides proof of inventory. Special temporary prices and promotional offerings,
which may include price reductions or free goods, shall not be considered a
price reduction to which this Section applies.
5. CUSTOMER AND MS OBLIGATIONS
5.1 PRICE SCHEDULE
CUSTOMER prices are set forth on the CUSTOMER Price List attached hereto as
Schedule B. MS may modify the CUSTOMER Price List at any time upon thirty (30)
days written notice to CUSTOMER. MS may offer, without prior notice, temporary
"special" prices on any or all Product.
5.2 DELIVERY AND PRODUCT DISTRIBUTION
Product shall be invoiced and shipped Free On Board ("FOB") Bothell, Washington,
and CUSTOMER shall be responsible for freight charges. Should CUSTOMER desire to
specify its own carrier, 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 $200,000 of Product 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 Product to
those CUSTOMER warehouses for that month will be paid by MS.
In any month CUSTOMER's Rate Based Distribution Program participation exceeds
seventy five percent (75%) of eligible product shipments, CUSTOMER will be
allowed to adjust CUSTOMER's forecast of two (2) MS Product SKU's. Such
adjustments to the forecast shall not exceed fifty (50%) upward or one hundred
percent (100%) downward from the final forecast, four weeks prior to the first
ship date.
5.3 ORDER PROCESSING
CUSTOMER shall order Product from MS by written or electronically transmitted
purchase order. All orders by CUSTOMER shall be in Master Pack quantities only.
MS shall have ten (10) days from
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD PAGE 2
DIRECT PURCHASING RESELLER ADDENDUM
<PAGE>
receipt to reject any purchase order. MS shall fulfill unconditional written or
electronic purchase orders from CUSTOMER subject to CUSTOMER's credit limits,
current payment status, and approved Average Payment Days ("APD") guidelines as
determined by MS.
Except as provided herein, CUSTOMER shall have the right to change or cancel any
purchase order, provided that CUSTOMER notifies MS of the change or cancellation
no later than twenty-four (24) hours prior to the order shipment to CUSTOMER by
MS. Should CUSTOMER choose to change any purchase order line item, CUSTOMER
shall be required to submit a new purchase order to MS, clearly indicating which
line item(s) are changed. Line item changes shall not affect the remaining items
on CUSTOMER's purchase order. Should CUSTOMER choose to cancel a purchase order,
CUSTOMER must provide MS with a written cancellation request.
MS may elect, during the term of this Agreement, to require CUSTOMER to
implement order management via EDI. Should MS require such order management
change, MS shall provide CUSTOMER with no less than one hundred twenty (120)
days prior written notice.
Notwithstanding the foregoing, MS reserves the right to limit order quantities.
5.4 DEFECTIVE PRODUCT CREDIT
At MS' sole discretion, MS may determine that a Product or Product shipment is
Defective. Should MS determine that a Product or Product shipment is Defective,
MS shall provide CUSTOMER with a replacement for all Defective Product destroyed
at CUSTOMER's location. MS shall pay freight costs for shipment of replacement
Product from MS to CUSTOMER.
5.5 INVENTORY BALANCING
To reduce its inventory risk, CUSTOMER shall be entitled to balance its Product
inventory in accordance with the following:
(A) Product inventory may be balanced only during the Months of January, May
and September, and within thirty (30) days of the date of issue of the Return
Authorization;
(B) Product may be balanced only if, at the time of balancing, it is listed
on the then current MS Price List;
(C) Product may be balanced only if CUSTOMER's Product return is accompanied
by a new Product order in an aggregate dollar amount equal to or greater than
the aggregate dollar amount of the Product return;
(D) The aggregate quantity of Product that may be returned shall be limited
to; (i) in the case of Product classified by MS as "Consumer Product"
(excluding, however, the Microsoft Mouse Product), [ * ] percent [ * ] of net
dollar shipment of such Consumer Product for the four full Months immediately
preceding the inventory balancing request, (ii) in the case of
Microsoft-Registered Trademark- Windows-Registered Trademark- 95,
[ * ] percent [ * ] of net dollar shipments of
Microsoft-Registered Trademark- Windows-Registered Trademark- 95, (iii) in the
case of Microsoft-Registered Trademark- Office for Windows-Registered Trademark-
95, [ * ] percent [ * ] of Microsoft-Registered Trademark- Office
for Windows-Registered Trademark- 95, and (iv) in the case of all Product other
than that referred to in clauses (i) through (iv) above, to [ * ]
percent [ * ] of net dollar shipments of all other Product for the four full
Months immediately preceding the inventory balancing request, where net
shipments shall not include any Microsoft-Registered Trademark- Variable
Licenses; Microsoft Enterprise Licenses, or Microsoft Maintenance;
(E) Promotional Product may not be balanced;
(F) Product to be balanced may only include Product purchase by CUSTOMER
from MS;
(G) Unresaleable Product may not be balanced; and
* CONFIDENTIAL TREATMENT REQUESTED
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD PAGE 3
DIRECT PURCHASING RESELLER ADDENDUM
<PAGE>
(H) Product is subject to inspection by MS or an MS authorized agent prior
to return by CUSTOMER to MS pursuant to the terms of MS' then current Return
Processing Guidelines.
CUSTOMER must submit a written or electronic MS Return Authorization to return
Product for the purpose of inventory balancing, summarizing the quantities of
each Product to be returned. Upon verification that CUSTOMER has met its
inventory balancing terms, MS shall issue a Return Authorization Number, which
shall expire thirty (30) days from the date of issue.
If the foregoing conditions have been met, CUSTOMER shall return Product to MS
freight prepaid in cartons clearly marked with the Return Authorization Number
and a packing slip attached to the outside. Any Product returned to MS which
does not comply with the provisions of this Section may, at MS' sole discretion,
be returned by MS to CUSTOMER subject to a five percent (5%) inspection fee and
the freight costs incurred by MS in returning such Product, which shall be paid
immediately by CUSTOMER to MS upon receipt of an invoice therefor.
Upon receipt of Product which complies with the conditions set forth in this
Section, MS shall issue a Purchase Credit for the returned Product in an amount
equal to the lowest price CUSTOMER paid for the Product in the six (6) Months
prior to the return. In no event will cash refunds be given for exchanges,
replacements, or returned merchandise hereunder. CUSTOMER shall pay all freight
and other costs of replacement Product in the same manner and on the dame terms
as new Product purchased by CUSTOMER under this Addendum.
5.6 PRIOR VERSION CREDIT
When MS ships a new version of a Product or a Discontinued Product to CUSTOMER,
CUSTOMER shall receive a Purchase Credit for prior version of the Product,
provided CUSTOMER complies with all of the following:
(A) Product shall be destroyed at CUSTOMER's location once every other
Month;
(B) Product for which CUSTOMER receives a Purchase Credit must be offset by
a new Product order in an aggregate dollar amount equal to or greater than the
aggregate dollar amount of the Purchase Credit, and is solely for the new
version of the Product for which CUSTOMER has received such Purchase Credit;
(C) CUSTOMER shall be eligible to receive a Purchase Credit for up to one
hundred eighty (180) days from the date the new version of such Product first
ships from MS to CUSTOMER;
(D) Promotional Product is not eligible for credit pursuant to this Section;
(E) Product must only include Product purchased by CUSTOMER from MS;
(F) Unresaleable Product is not eligible for credit pursuant to this
Section; and
(G) Product shall be limited to the version number immediately prior to the
new Product version.
MS shall use its best efforts to notify CUSTOMER within thirty (30) days prior
to the shipment of any new Product version, or the existence of a Discontinued
Product which would be subject to this Section.
It the foregoing conditions have been met, Product shall be destroyed at
CUSTOMER's locations pursuant to the terms of MS' then current Return Processing
Guidelines.
5.7 UNRESALEABLE PRODUCT ALLOWANCE
CUSTOMER shall be eligible to receive a Purchase Credit of up to [ * ] percent
[ * ] of CUSTOMER's net purchases, excluding Microsoft Variable Licenses,
Microsoft Enterprise Licenses, and Microsoft
* CONFIDENTIAL TREATMENT REQUESTED
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD PAGE 4
DIRECT PURCHASING RESELLER ADDENDUM
<PAGE>
Maintenance, for the previous two (2) Months. Such Purchase Credit shall be to
compensate CUSTOMER for Product held in CUSTOMER's inventory which is no longer
resaleable, provided that CUSTOMER agrees to destroy or recycle all such
Product, and provide MS with a full report of all Unresaleable Product.
Unresaleable Product may not be resold or donated.
5.8 PRODUCT AUTHORIZATION CATEGORY PROCEDURES
From time to time, MS may classify certain of its Product by Product
Authorization Category, which Product 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 Product 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.
6.0 SURVIVAL
Sections 3.1, 3.2, and 3.4 shall survive any termination of this Addendum.
IN WITNESS WHEREOF, the parties have signed this Addendum on the dates indicated
below. All terms and conditions of the Agreement not amended herein shall remain
in full force and effect. This Addendum is not binding until executed by MS.
<TABLE>
<S> <C>
AGREED AND ACCEPTED TO BY AGREED AND ACCEPTED TO BY
MICROSOFT CORPORATION ("MS") EGGHEAD SOFTWARE ("CUSTOMER")
By: By:
- - --------------------------------------- ---------------------------------------
- - ------------------------------------------- -------------------------------------------
Name (please print) Name (please print)
- - ------------------------------------------- -------------------------------------------
Title Title
- - ------------------------------------------- -------------------------------------------
Date Date
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD PAGE 5
DIRECT PURCHASING RESELLER ADDENDUM
<PAGE>
SCHEDULE A
DEFINITIONS
"DEFECTIVE PRODUCT" is defined as a manufacturer's defect in materials or
media.
"DISCONTINUED PRODUCT" is defined as Product that MS has stopped
manufacturing and discontinued from the CUSTOMER Price List.
"INVENTORY BALANCING" is defined as the return of eligible MS Product for
the purpose of reducing CUSTOMER's stock of such Product.
"MONTH" is defined as a MS fiscal month as outlined in the calendar attached
hereto as Schedule C.
"PROMOTIONAL PRODUCT" is defined as a special Product SKU which is available
to CUSTOMER for resale for a limited time. Free Product promotions are not
considered Promotional Product.
"RETURN AUTHORIZATION NUMBER" is defined as the unique number assigned to
CUSTOMER by MS for the purpose of Product returns for CUSTOMER to MS.
"UNRESALEABLE PRODUCT" is defined as any Product held in CUSTOMER's
inventory, including damaged Product and Product returned by CUSTOMER's
customers which is no longer fit for resale, and is ineligible for return to MS.
for purposes of this Addendum, Unresaleable Product shall not include that
Product which has sustained solely shrink wrap damage.
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD PAGE A1
DIRECT PURCHASING RESELLER ADDENDUM
<PAGE>
SCHEDULE B
CUSTOMER PRICE LIST
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD PAGE B1
DIRECT PURCHASING RESELLER ADDENDUM
<PAGE>
SCHEDULE C
MS CALENDAR
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD PAGE C1
DIRECT PURCHASING RESELLER ADDENDUM
<PAGE>
ADDENDUM TO THE
MICROSOFT 1995/1996
CHANNEL AGREEMENT
(START32 CAMPAIGN REBATE)
This Addendum ("Addendum") supplements that certain Microsoft 1995/1996 Channel
Agreement ("Agreement") dated July 1, 1995, by and between MICROSOFT CORPORATION
("MS") having its principal place of business at One Microsoft Way, Redmond, WA
98052 and EGGHEAD ("CUSTOMER") having its principal place of business at 22705 E
Mission, Liberty Lake, WA 99019. The Agreement is hereby supplemented as
follows:
1. PURPOSE
The purpose of this Addendum is to set forth the framework by which CUSTOMER
shall earn a Rebate on sales of certain Microsoft Select and Microsoft Open
License products to End User customers.
2. TERM AND TERMINATION
This Addendum shall be effective as of January 1, 1996, and shall expire on June
30, 1996. Either party may terminate this Addendum, with or with out cause, upon
thirty (30) days prior written notice. This Addendum is not valid unless both
CUSTOMER and MS have executed a Microsoft 1995/1996 Channel Agreement, and the
Addendum to The Microsoft 1995/1996 Channel Agreement (Appointment As A Large
Account Reseller).
3. DEFINITIONS
For purposes of this Addendum, capitalized terms not otherwise defined herein
shall have the same definition as set forth in the Agreement and it's current
addenda.
4. REBATE
4.1 REBATE PROGRAM
CUSTOMER is eligible to receive [ * ] dollars ($[ * ]) plus a
[ * ] percent [ * ] Rebate on sales of those Microsoft-Registered Trademark-
Windows-Registered Trademark- SKUs listed on the attached Schedule A, and
[ * ] dollars ($[ * ]) plus a [ * ] percent [ * ] Rebate on sales
of those Microsoft-Registered Trademark- Office SKUs listed on the attached
Schedule B. Each of the two available [ * ] percent [ * ] Rebates shall be
measured and paid independent of the other. The Rebate shall be paid provided
CUSTOMER complies with the program guidelines outlined in Section 4.2 below.
4.2 PROGRAM GUIDELINES
4.2(A) ELIGIBILITY
In order to participate in the Start32 Campaign Rebate, CUSTOMER must provide
compliant weekly EDI sales, inventory and market share reporting by May 1, 1996.
4.2(B) QUALIFIED SALES
Only revenue recognized for those SKUs listed on Schedules A and B shall be
eligible. In order to be considered Qualified Sales, payment for licenses must
be invoiced by Microsoft between January 1, 1996 and July 31, 1996.
Additionally, all Select usage reports must be received by MS by July 15, 1996.
Licenses invoiced in January, 1996, shall not be considered Qualified Sales
unless the licenses were actually purchased by the End User during the term of
this Addendum.
Two year, pre-paid Maintenance sales made during the term of this Addendum
shall be considered Qualified Sales. Two year, pre-paid Maintenance sales made
prior to the term of this Addendum shall not be considered Qualified Sales.
* CONFIDENTIAL TREATMENT REQUESTED
MICROSOFT CONFIDENTIAL - DISCLOSURE PROHIBITED
<PAGE>
4.2(C) REBATE GOALS
CUSTOMER's Start32 Campaign Rebate license goals are as follows:
<TABLE>
<S> <C>
Microsoft-Registered Trademark-
Windows-Registered Trademark-: [ * ] licenses
Microsoft-Registered Trademark- Office: [ * ] licenses
</TABLE>
4.2(D) REBATE PAYMENT
Provided that CUSTOMER achieves one hundred percent (100%) of it's
Microsoft-Registered Trademark- Windows-Registered Trademark- and/or
Microsoft-Registered Trademark- Office Rebate goals, CUSTOMER shall receive the
Rebate indicated in Section 4.1 above. Any such Rebate earned shall be paid to
CUSTOMER in the form of a purchase credit forty-five (45) days after the
expiration of this Addendum.
IN WITNESS WHEREOF, the parties have signed this Addendum on the dates
indicated below. This Addendum is hereby made part of the Agreement. All terms
and conditions of the Agreement, or its addenda and amendments not supplemented
herein shall remain in full force and effect. This Addendum is not binding until
executed by MS.
<TABLE>
<S> <C>
AGREED AND ACCEPTED TO BY AGREED AND ACCEPTED TO BY
MICROSOFT CORPORATION ("MS") EGGHEAD SOFTWARE ("CUSTOMER")
By: By:
- - --------------------------------------- ---------------------------------------
- - ------------------------------------------- -------------------------------------------
Name (please print) Name (please print)
- - ------------------------------------------- -------------------------------------------
Title Title
- - ------------------------------------------- -------------------------------------------
Date Date
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
ADDENDUM TO THE MICROSOFT PAGE 2
1995/1996 CHANNEL AGREEMENT
(START32 CAMPAIGN REBATE)
<PAGE>
ADDENDUM TO THE MICROSOFT
1995/1996 CHANNEL AGREEMENT
(APPOINTMENT AS A LARGE ACCOUNT RESELLER)
This Addendum ("Addendum") entered into this 1st day of July, 1995, supplements
that certain 1995/1996 Channel Agreement ("Agreement") between MICROSOFT
CORPORATION ("MS") having its principal place of business at One Microsoft Way,
Redmond, WA 98052 and EGGHEAD SOFTWARE ("CUSTOMER") having its principal place
of business at 22011 SE 51st Street, Issaquah, WA 98027. The Agreement is hereby
supplemented as follows:
1. PURPOSE
The purpose of this Addendum is to set forth the framework by which MS appoints
CUSTOMER as a nonexclusive Large Account Reseller in the Territory and Canada
with the right to acquire Microsoft Select Software Products from MS and to
distribute such Select Software Products and their associated license rights to
Select Customers which have designated CUSTOMER in their Enrollment Form as
their Large Account Reseller.
2. DEFINITIONS
For purposes of this Addendum, capitalized terms are as defined in Schedule A
attached hereto.
3. CUSTOMER OBLIGATIONS
3.1 DISTRIBUTION OF SELECT SOFTWARE PRODUCTS
CUSTOMER my only distribute Select Software Products to Select Customers located
in the Territory and Canada, and at the direction of its Select Customer's,
outside of the Territory and Canada. Select Customers are entitled to distribute
the rights associated with their Select Software Products outside of the
Territory if they so elect, in accordance with the Master Agreement and all
applicable laws. However, in the event a Select Customer wants to initiate an
Enrollment Form in a country outside of the Territory, the Select Customer is
required by the terms of the Microsoft Select Program to locate a Large Account
Reseller in the desired country and acquire Select Software Products from that
Large Account Reseller.
3.2 DOCUMENTATION
CUSTOMER shall be authorized to purchase documentation SKUs from Microsoft Easy
Fulfillment (MEF) and to resell these documentation SKUs directly to CUSTOMER's
Select Customers.
3.3 DISTRIBUTION RESTRICTIONS
MS's authorization of the Large Account Reseller to acquire and distribute
Select Software Products as set forth herein shall not include the authorization
for the Large Account Reseller to use Select Software Products internally or to
distribute or otherwise transfer Select Software Products to any entity which
owns, controls, is owned or controlled by, or under common ownership or control
with the Large Account Reseller ("Large Account Reseller Affiliates") without
the prior written consent of MS. For the purposes of this Addendum, an entity is
"controlled" by another if that other company or legal entity, either directly
or through its control of another company or legal entity: (i) holds the
majority of voting rights in it; (ii) is a member of it and has the right to
appoint or remove a majority of its board of directors; or (iii) is a member of
it and controls alone or under an agreement with other shareholders or members,
the majority of the voting rights in it.
3.4 CUSTOMER ACCEPTANCE OF ENROLLMENT FORMS
Upon execution by MS of a Select Customer's Enrollment Form naming CUSTOMER as
the Large Account Reseller, MS shall deliver to CUSTOMER's designated Select
Program Administrator a copy of such Enrollment Form. CUSTOMER shall have
fifteen (15) days from the date of receipt of the Enrollment Form to decline to
acquire and distribute Select Software Products associated with such
MICROSOFT CONFIDENTIAL - DISCLOSURE PROHIBITED
<PAGE>
Enrollment Form by notifying MS in writing of such election. All other
Enrollment Forms delivered to CUSTOMER by MS shall be deemed as accepted by
CUSTOMER fifteen (15) days after receipt by CUSTOMER, and shall constitute
CUSTOMER's agreement to pay MS as set forth in Section 3.6 below for all copies
of Select Software Products made by the Select Customer pursuant to the
Enrollment Form and its associated Master Agreement.
3.5 CUSTOMER SELECT PRICE SCHEDULE
CUSTOMER's prices are set forth on the CUSTOMER Select Price Schedule attached
hereto as Schedule B. MS may modify the CUSTOMER Select Price Schedule at any
time by providing thirty (30) days written notice to CUSTOMER.
3.6 CUSTOMER'S REPORTING AND/OR ORDERING AND PAYMENT TO MS
(A) MICROSOFT SELECT 1.X AND 2.X ENROLLMENT AGREEMENT REPORTING
For each executed Microsoft Select version 1.x or version 2.x Enrollment
Agreement, the Select Customer is obligated by the terms of the Microsoft Select
Program to deliver to MS within fifteen (15) days of the end of each calendar
quarter, a written verified report for each Select Software Product acquired
from CUSTOMER pursuant to the terms of this Agreement. Following receipt of a
report from a given Select Customer, MS shall invoice CUSTOMER and CUSTOMER
shall be obligated to pay MS the fees set forth on Schedule B for each unit
reported by the Select Customer.
Should the Select Customer elect to submit reports to MS in addition to the
Select Customer's regular quarterly report, MS shall invoice CUSTOMER
immediately following receipt of such report, and CUSTOMER shall be obligated to
pay MS pursuant to the terms of this Section 3.6.
In the event CUSTOMER wants to receive copies of its Select Customers' quarterly
reports, CUSTOMER shall negotiate with its Select Customers for the right to
receive such copies.
(B) MICROSOFT SELECT 3.0 ENROLLMENT FORM ORDERING
For each of its executed Microsoft Select version 3.0 Enrollment Forms, CUSTOMER
shall deliver to MS via Electronic Data Interchange ("EDI") no later than the
fifteenth (15th) day of each calendar month, a purchase order for each Select
Software Product ordered and acquired from CUSTOMER by the Select Customer or
Enrollment site pursuant to the terms of this Agreement during the previous
month. Following receipt of such purchase order, MS shall invoice CUSTOMER and
CUSTOMER shall be obligated to pay MS the fees set forth on Schedule B for each
unit indicated on the purchase order, along with any applicable quarterly
Maintenance fees.
(C) PAYMENT TERMS
All amounts are due and owing net thirty (30) days of date of invoice. All
payments not received by MS from CUSTOMER within the required time frame may be
assessed a finance charge of the then-current prime rate plus two percent (2%)
per month or the legal maximum, which ever is less. CUSTOMER shall be obligated
to pay MS regardless of whether CUSTOMER has received payment from the Select
Customer. All payments shall be in the form of bank wire transfer, sent to the
following:
First Interstate Bank of WA
Seattle Main Branch
ABA: #125-000-286
Beneficiary: Microsoft Corporation
Account No. 001-025865
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD SOFTWARE PAGE 2
LARGE ACCOUNT RESELLER ADDENDUM
<PAGE>
3.7 TAXES
(A) SALES TAX
CUSTOMER shall either provide MS with a bona fide resale certificate for all
Select Software Products delivered to CUSTOMER by MS pursuant to the terms of
this Addendum, or shall pay to MS all applicable sales, use or other excise
taxes due on such Select Software Products.
(B) WITHHOLDING TAXES
In the event taxes are required to be withheld by any government on payments
required hereunder, CUSTOMER may deduct such taxes from the amount owed and pay
such taxes to the appropriate tax authority; provided, however, that CUSTOMER
shall promptly secure and deliver to MS an official receipt for any such taxes
withheld or other documents necessary to enable MS to claim a foreign tax
credit. CUSTOMER shall make certain that any taxes withheld are minimized to the
extent possible under the applicable law.
3.8 AGREEMENTS BETWEEN CUSTOMER AND ITS SELECT CUSTOMERS
With the exception of the terms contained in this Addendum and the terms
relating to the exercise of the intellectual property rights set forth in the
applicable Select Software Products, the applicable License Agreement for such
Select Software Products, Master Agreement and Enrollment Form, CUSTOMER shall
have complete discretion to establish with each Select Customer the pricing and
all other terms and conditions regarding CUSTOMER's provision of Select Software
Products and their associated license rights to CUSTOMER's Select Customers. The
negotiation of these terms between CUSTOMER and its Select Customers shall not
be subject to approval or review by MS in any way.
3.9 ROLE OF THE SELECT PROGRAM ADMINISTRATOR
CUSTOMER agrees to appoint a representative to serve as CUSTOMER's Select
Program Administrator. CUSTOMER agrees to promptly make that individual, as well
as CUSTOMER's other sales employees, available for training on the Microsoft
Select Program and on the licensing policies related to such products at such
times and places as MS reasonably requests. The individual appointed by CUSTOMER
as its Select Program Administrator shall be an individual generally
knowledgeable on MS products and in regard to Microsoft's Select Program. The
Select Program Administrator shall be responsible for administering all of
CUSTOMER's Select Customer billings, for general administration of CUSTOMER's
Select Customers and for working with the Microsoft Select Account Manager (or
local MS Contact) in regard to any problems relevant to a given Select Customer.
CUSTOMER's Select Program Administrator shall be:
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
CUSTOMER shall provide MS with at least ten (10) days advance written notice of
any change in the individual serving as its Select Program Administrator.
3.10 ENROLLMENT OF NEW SELECT CUSTOMERS
CUSTOMER's solicitation of new customers shall be on such terms and conditions
as MS specifies from time to time. MS reserves the right to accept or reject in
its sole discretion any proposed customer.
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD SOFTWARE PAGE 3
LARGE ACCOUNT RESELLER ADDENDUM
<PAGE>
3.11 CUSTOMER'S REPRESENTATIONS AND WARRANTIES
CUSTOMER hereby represents and warrants that:
(A) It will use its best efforts to service and support its Select Customers
and will promptly inform the appropriate Microsoft Select contact of any
difficulties it encounters in servicing its Select Customers;
(B) It will not alter in any way or form the Select Software Products or
their packaging;
(C) It will only deliver the Select Software Products to the Select Customer
specified on the outside of the Select Software Product packaging and will only
deliver CD-ROMs and program materials and information to the Select Customer
named on each such CD-ROM or materials; and
(D) It will promptly inform MS of any known or suspected violations by a
Select Customer of the terms and conditions of the Master Agreement, Enrollment
Form, its Select Software Products and/or the applicable License Agreement.
3.12 CONFIDENTIALITY
CUSTOMER expressly undertakes to retain in confidence the terms and conditions
of this Addendum, and the terms and conditions of all executed Select Master
Agreements and Select Enrollment Forms which are made available to CUSTOMER.
Should CUSTOMER disclose the terms and conditions of any executed Select Master
Agreement or Select Enrollment Form, this Addendum shall immediately terminate.
CUSTOMER shall guarantee and ensure its employees' compliance with this
paragraph. CUSTOMER'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 in the public domain or five (5) years following the
termination of this Agreement.
4. CUSTOMER AND MS OBLIGATIONS
4.1 DELIVERY OF SELECT SOFTWARE PRODUCTS AND SELECT CD-ROMS
Within fifteen (15) days of MS's approval of a given Enrollment Form, MS agrees
to deliver to CUSTOMER the Select Software Products identified on the Enrollment
Form. Each Select Software Product delivered to CUSTOMER will be a custom
package specific to the named Select Customer and will set forth the Customer's
Select Agreement Number and any special conditions relevant to the named Select
Customer. Select Software Products are provided in order that CUSTOMER may
provide the Select Software Products and their associated license rights to the
named Select Customer on such pricing and payment terms and conditions as
CUSTOMER and the Select Customer agree. CUSTOMER agrees to pay MS for Select
Software Products as set forth in Section 3.6 above. From time to time during
the term of this Addendum, MS will provide CUSTOMER with CD-ROMs containing
upgraded copies of the Select Software Products covered by a Select Customer's
Select Agreement. CUSTOMER agrees to immediately deliver all CD-ROMs and any
additional MS supplied program information and materials to the named Select
Customer.
4.2 RESERVATION OF RIGHTS
MS expressly reserves the right at any time during the term of this Addendum to
terminate any Select Customer's status as a Select Customer in the event the
Select Customer fails to comply with the terms of either the Master Agreement,
the Enrollment Form or the applicable License Agreement. MS agrees to promptly
notify CUSTOMER of the termination of any Select Customer to whom CUSTOMER has
distributed Select Software Products. Following such a notice, CUSTOMER shall
thereafter not deliver to the terminated Select Customer any additional Select
Software Products, licenses, CD-ROMs or any additional program information and
materials. Termination shall not, however, affect the Select Customer's
obligation to file the next due order/report and MS's right to invoice CUSTOMER
in regard to such order. If MS terminates a given Select Customer, CUSTOMER
shall not
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD SOFTWARE PAGE 4
LARGE ACCOUNT RESELLER ADDENDUM
<PAGE>
have any claim against MS or the Select Customer for damages or lost profits
resulting from such termination. CUSTOMER shall, however, be entitled to invoice
the Select Customer for copies of Select Software Products reproduced by the
Select Customer as set forth in the Customer's final order, such invoice to be
on the terms and conditions previously agreed to between CUSTOMER and the Select
Customer.
4.3 OBLIGATIONS ON TERMINATION
Promptly following termination of this Addendum, MS shall inform each of
CUSTOMER's Select Customers that CUSTOMER is no longer a Large Account Reseller
and shall request that each Select Customer appoint a new Large Account
Reseller. In the event this Addendum is terminated without cause or expires of
its own accord, each Select Customer shall be obligated to file its next due
order/ report and to pay CUSTOMER any and all amounts due for such order as
agreed to between CUSTOMER and the Select Customer. CUSTOMER shall in turn be
obligated to pay to MS in accordance with the terms of this Addendum any and all
amounts due MS as a result of the Select Customer's above-referenced order.
Thereafter, any and all future payments by CUSTOMER's Select Customers shall be
made to each Select Customer's newly designated Large Account Reseller (if any)
or to MS as the case may be and CUSTOMER shall not be entitled to any portion
of, or any compensation for its Select Customers' future orders and payments. In
the event this Addendum is terminated for cause, MS shall be entitled to direct
all of CUSTOMER's Select Customers to report/order and pay to MS or to the
Select Customer's newly designated Select Large Account Reseller any and all
payments due after termination. In such an event, CUSTOMER shall not under any
circumstances be entitled to any portion of, or any compensation for, the Select
Customers' next orders and payments or any future orders and payments.
4.4 ESSENTIAL ELEMENT
Both CUSTOMER and MS acknowledge that this Addendum is essential to any
agreement it enters into with a Select Customer. Except as is specifically
provided in Section 4.3 related to CUSTOMER's right to collect any outstanding
payment following termination of this Addendum, CUSTOMER's rights to acquire
and/or distribute Select Software Products, Select CD-ROMs and/or any additional
program information and materials, and to collect payment from its Select
Customers are conditional upon this Addendum being in full force and effect.
CUSTOMER acknowledges further that, if and when it is the subject of a
bankruptcy filing (under any Chapter of 11 United States Code Section 101 ET
SEQ. including any future amendments), then assumption of any contract with a
Select Customer is conditional upon the assumption of this Addendum.
5. SURVIVAL
Sections 3.6, 3.7, 3.12, 4.3, and 4.4 shall survive any termination of this
Addendum.
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD SOFTWARE PAGE 5
LARGE ACCOUNT RESELLER ADDENDUM
<PAGE>
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.
<TABLE>
<S> <C>
MICROSOFT CORPORATION EGGHEAD SOFTWARE
("MS") ("CUSTOMER")
By: By:
- - --------------------------------------- ---------------------------------------
- - ------------------------------------------- -------------------------------------------
Name (please print) Name (please print)
- - ------------------------------------------- -------------------------------------------
Title Title
- - ------------------------------------------- -------------------------------------------
Date Date
</TABLE>
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD SOFTWARE PAGE 6
LARGE ACCOUNT RESELLER ADDENDUM
<PAGE>
SCHEDULE A
DEFINITIONS
"ENROLLMENT AGREEMENT" is defined as the Microsoft Select Enrollment
Agreement in the form provided by MS to be signed by each Select Customer and
CUSTOMER, and approved by MS.
"ENROLLMENT FORM" is defined as the Microsoft Select Enrollment Form in the
form provided by MS to be signed by each Select Customer and approved by MS.
"LARGE ACCOUNT RESELLER" is defined as any reseller which MS has authorized
to distribute licenses to Select Customers.
"LEAD CUSTOMER" is defined as the company or entity signing a Master
Agreement.
"LEAD CUSTOMER AFFILIATE" is defined as a company or legal entity which owns
and controls, is owned or controlled by, or is under common ownership and
control with, the Lead Customer.
"LICENSE AGREEMENT(S)" is defined as the license agreement attached to the
Enrollment Form.
"MASTER AGREEMENT" is defined as the Microsoft Select Master Agreement in
the form provided by MS to be signed by a given Select Customer or an entity
acting on behalf of the Select Customer.
"MASTER AGREEMENT NUMBER" is defined as the number assigned by MS to a given
Master Agreement
"SELECT CUSTOMER" is defined as the Lead Customer, any Lead Customer
Affiliate and /or identifiable division, business unit or office location of the
foregoing identified as the Select Customer on an Enrollment Form.
"SELECT PROGRAM ADMINISTRATOR" is defined as the individual appointed by
CUSTOMER to act as CUSTOMER's primary contact with respect to the Microsoft
Select Program.
"SELECT SOFTWARE PRODUCT" is defined as the MS software as designated from
time to time by Microsoft which may be reproduced pursuant to an Enrollment
Form.
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD SOFTWARE PAGE A1
LARGE ACCOUNT RESELLER ADDENDUM
<PAGE>
SCHEDULE B
CUSTOMER SELECT PRICE SCHEDULE
MICROSOFT 1995/1996 CHANNEL AGREEMENT EGGHEAD SOFTWARE PAGE B1
LARGE ACCOUNT RESELLER ADDENDUM
<PAGE>
AMENDMENT NO. 1 TO THE
LARGE ACCOUNT RESELLER ADDENDUM TO THE
MICROSOFT 1995/1996 CHANNEL AGREEMENT
This Amendment No. 1 ("Amendment"), dated this first day of January, 1996,
amends that certain Large Account Reseller Addendum to The Microsoft 1995/1996
Channel Agreement ("Addendum") dated July 1, 1995, 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 ("CUSTOMER") having its
principal place of business at 22705 East Mission, Liberty Lake, WA 99019. The
Addendum is hereby amended as follows:
2. TERM AND TERMINATION
The first sentence of the section is replaced with the following:
"This Addendum shall be effective as of January 1, 1996, and shall expire June
30, 1996."
SCHEDULE B
Schedule B is replaced in its entirety with the attached Schedule C.
IN WITNESS WHEREOF, the parties have signed this Amendment on the date indicated
below. This Amendment is hereby made part of the Addendum. All terms and
conditions of the Addendum not amended herein shall remain in full force and
effect. This Amendment is not binding until executed by MS.
<TABLE>
<S> <C>
AGREED AND ACCEPTED TO BY AGREED AND ACCEPTED TO BY
MICROSOFT CORPORATION ("MS") DJ&J SOFTWARE CORPORATION
D/B/A EGGHEAD ("CUSTOMER")
By: By:
- - --------------------------------------- ---------------------------------------
- - ------------------------------------------- -------------------------------------------
Name (please print) Name (please print)
- - ------------------------------------------- -------------------------------------------
Title Title
- - ------------------------------------------- -------------------------------------------
Date Date
</TABLE>
MICROSOFT CONFIDENTIAL - DISCLOSURE PROHIBITED
<PAGE>
SCHEDULE C
JANUARY - JUNE, 1996
REBATE GUIDELINES
SELECT REBATE PROGRAM OVERVIEW
PROGRAMS: Microsoft offers four Select rebate programs for the January - June,
1996 Rebate period:
<TABLE>
<CAPTION>
MAXIMUM PERCENTAGE
REBATE INCENTIVE AVAILABLE
- - ------------------------------------------------------------------------- ---------------------
<S> <C>
Compliance Program [ * ]
Maintenance Sales-out Program [ * ]
Enterprise Sales-out Program [ * ]
Business Systems Sales-out Program [ * ]
-----
TOTAL [ * ]
-----
-----
</TABLE>
REBATE CALCULATIONS AND PAYMENTS: Rebates will be paid in the form of a
Microsoft purchase credit forty-five (45) days after the end of each quarterly
rebate period (i.e. May 15th for the January - March, 1996 quarter). Any such
Rebate paid shall be credited against CUSTOMER's account balance. In the event
CUSTOMER's account balance is less than the total Rebate payment, MS may, at its
sole discretion, elect to pay the Rebate in the form of a check. In no case
shall CUSTOMER deduct from invoice any Rebate payment due from MS prior to the
issue of the purchase credit or check. Rebates are calculated by multiplying the
achieved rebate percentage by the total Qualified Select Sales for the rebate
period. All Microsoft Select revenue will be included in calculating CUSTOMER's
performance against the Select Rebate goals. Revenue generated from Microsoft
Select Enrollment Forms executed by MS prior to July 1, 1994, shall be included
in calculating CUSTOMER's achievement toward the Select Rebate goals, but shall
not be included in CUSTOMER's final total Qualified Select Sales for purposes of
the Rebate payment. Only revenue generated from Microsoft Select Enrollment
Forms executed by MS on or after July 1, 1994 (excluding any Microsoft Select
Maintenance) will be included in CUSTOMER's final total Qualified Select Sales
for purposes of the Rebate payment.
ANY ISSUES SURROUNDING REBATES SHOULD BE SENT IN WRITING TO KRISTIN WEEBER,
MARKETING MANAGER, NO LATER THAN THIRTY (30) DAYS FOLLOWING RECEIPT OF REBATE
PAYMENT. If such written notice is not provided within thirty (30) days,
CUSTOMER shall have no further right to dispute rebate payment.
COMPLIANCE REBATE PROGRAM
PROGRAM OBJECTIVES: The objective of the Compliance Rebate Program is to
provide incentive for CUSTOMER to comply with Microsoft contractual requirements
for payments, Street Dates, and EDI ordering for Select 3.0.
NON-COMPLIANCE: During any given month, failure to comply with any or all of
the current compliance criteria will result in the forfeiture of the entire
compliance rebate for that month.
1. MICROSOFT PAYMENT REQUIREMENTS
Microsoft requires its customers to pay its invoices within terms. In order to
maintain compliance, 85% of the gross invoice value for Select must be current
as of Microsoft's fiscal month-end. Unapplied credits will be excluded from the
calculation.
* CONFIDENTIAL TREATMENT REQUESTED
AMENDMENT NO. 1 TO THE LARGE ACCOUNT PAGE C2
RESELLER REBATE ADDENDUM TO THE MICROSOFT
1995/1996 CHANNEL AGREEMENT
<PAGE>
2. MICROSOFT STREET DATE REQUIREMENTS
From time to time, Microsoft may announce a new product or new versions of an
existing product for which Microsoft shall set a Street Date. In order to comply
with the Street Date requirements, CUSTOMER shall not:
- Ship or deliver the product to any end-user customer prior to the Street
Date.
- Accept any end user payment for the product prior to the Street Date.
Checks and/or credit card numbers may be accepted by CUSTOMER, but can
only be processed when product is delivered to the end user on or after
the Street Date.
- Advertise, merchandise, or promote the product to end user customers until
it is officially announced by Microsoft. Usually, the product announcement
is on the Street Date. If the product announcement is earlier than the
Street Date, Microsoft will clearly communicate the announcement date to
the channel. If product is announced by Microsoft before the Street Date,
the product can be advertised, merchandised and/or promoted immediately
after such announcement, provided that all such promotions clearly state
that the product is not yet available for purchase.
- Allow it's distribution centers and/or warehouses to distribute, for a
period of up to twelve months, a Street Date product to any individual
sales office, retail store, or outlet which Microsoft in its sole
discretion has determined to be in violation of the Street Date
Requirements.
In the event CUSTOMER violates the Street Date for any special products
specified in a Microsoft Street Date letter, CUSTOMER shall forfeit up to the
entire Compliance Rebate for the six month Rebate period in which the violation
occurred.
Should CUSTOMER fail to comply with the Street Date Requirements, Microsoft may
also, for a period of up to twelve (12) months, withhold shipments to CUSTOMER
of future product until the Street Date of such product.
Should CUSTOMER wish to report a Street Date violation, CUSTOMER may fax a copy
of a dated sales receipt to STREET DATE VIOLATIONS AT MICROSOFT AT (206)
936-7329. Once a violation has been reported, Microsoft shall investigate the
violation, and take remedial action as appropriate. Please note, in order to
confirm a suspected violation, Microsoft must receive a dated sales receipt.
3. MICROSOFT REPORTING REQUIREMENTS
CUSTOMER must comply with the reporting requirements as outlined in CUSTOMER's
then current 1995/1996 Channel Agreement and/or Senior Partner Marketing Fund
and Reporting Agreement, as applicable. Should MS elect to modify the EDI
Guidelines at anytime other than the beginning of each semester, CUSTOMER shall
have no less than thirty (30) days to comply with such changes.
4. MICROSOFT TRANSACTION REQUIREMENTS
Electronic Data Interchange format ("EDI") transactions include, but are not
limited to 850/855 EDI transactions and all other EDI reporting requirements
which may be required by MS and in the EDI Implementation Guide provided by MS
from time to time. Should MS elect to modify the EDI Guidelines at any time
other than the beginning of each semester, CUSTOMER shall have no less than
thirty (30) days to comply with such changes. CUSTOMER must place EDI
transaction orders at a minimum of once per month per Enrollment Site if product
is purchased during said month.
AMENDMENT NO. 1 TO THE LARGE ACCOUNT PAGE C3
RESELLER REBATE ADDENDUM TO THE MICROSOFT
1995/1996 CHANNEL AGREEMENT
<PAGE>
5. SELECT CERTIFICATION PROGRAM
CUSTOMER shall participate in and obtain certification in the Microsoft Select
Certification Program for no less than two (2) CUSTOMER Select administration
contacts by June 30, 1996.
COMPLIANCE REBATE CALCULATION: The Microsoft Compliance Rebate will be
calculated on a monthly basis. If CUSTOMER has met all of the Compliance Rebate
criteria in a given month, CUSTOMER will be entitled to a Rebate payment equal
to one percent (1%) of that month's total Qualified Select Sales. The rebate
payment will be made forty-five (45) days after the end of each quarterly rebate
period.
SALES-OUT REBATE PROGRAMS
REBATE GOALS: CUSTOMER has first quarter sales-out goals and total semester
sales-out goals. CUSTOMER's performance for the first three months of the
January - June, 1996, semester will be measured against the first quarter
sales-out goals. At the end of the first quarter, CUSTOMER will receive the
percentage of the eligible rebates earned based on performance against the first
quarter goals. At the end of the semester, CUSTOMER will be measured on their
six-month performance against the total semester goals. Even if CUSTOMER does
not meet 100% of the first quarter goals, CUSTOMER can still achieve 100% of the
semester goals provided that the semester goals are met at the end of the
six-month period.
SALES-OUT DEFINITIONS/MEASUREMENT: MS Product Sales-out is defined as those MS
net product units sold through CUSTOMER's outlet locations. For the Business
Systems sales-out goal, CUSTOMERs full packaged product, Microsoft Open License,
and upgrade sales-out units will be measured from the sales-out reported by
CUSTOMER to MS. For the Maintenance and Enterprises sales-out goals, only the
appropriate Select license will be measured. Licensing sales (Select, Microsoft
Maintenance) are captured and generated by MS' financial systems and included in
total sales-out used to measure product sales-out rebate performance.
Any Microsoft Select 2.x and 1.x and Microsoft Maintenance revenue credit is
granted as MS recognizes the revenue. This occurs when MS has received the
customer's license reporting. Following receipt of reporting, MS bills the
customer/reseller and simultaneously recognizes the revenue.
PAYMENT: At the end of the semester, CUSTOMER will be paid sales-out rebates
based on performance against the semester goals. If CUSTOMER achieves greater
than sixty percent (60%) of each semester sales-out goal, CUSTOMER will receive
the exact achieved percentage of the eligible sales-out rebate up to one hundred
percent (100%). If CUSTOMER achieves less than sixty percent (60%) of any
sales-out rebate goal, CUSTOMER will not receive any portion of that sales-out
rebate.
Although MS pays the sales-out rebate ultimately based on performance against
the semester sales-out goal, MS also pays a sales-out rebate at the end of the
first quarter based on performance against the first quarter goal. MS pays a
portion of the rebate after the first quarter to provide incentive for CUSTOMER
to focus on sales-out throughout the entire semester. The scale for the first
quarter payment is the same as the scale for the semester payment. The first
quarter payment amount will be subtracted from the final semester payment for
the sales-out rebate.
AMENDMENT NO. 1 TO THE LARGE ACCOUNT PAGE C4
RESELLER REBATE ADDENDUM TO THE MICROSOFT
1995/1996 CHANNEL AGREEMENT
<PAGE>
EXAMPLE: IF CUSTOMER HAS A QUARTERLY BUSINESS SYSTEMS SALES OUT GOAL OF
$1,000,000 AND A TOTAL SEMESTER BUSINESS SYSTEMS GOAL $2,500,000, AND CUSTOMER
SELLS $800,000 OVER THE FIRST QUARTER PERIOD AND $2,600,000 OVER THE ENTIRE
SEMESTER PERIOD, CUSTOMER WILL RECEIVE THE FOLLOWING REBATE PAYMENTS:
<TABLE>
<CAPTION>
SELL-THROUGH
PERIOD GOAL ACHIEVED PAYMENT
- - ---------------- ------------- ------------- -------------------------------------------------------
<S> <C> <C> <C>
First Quarter $ 1,000,000 $ 800,000 80% of [ * ] eligible rebate = [ * ] of January - June
sales.
Semester $ 2,500,000 $ 2,600,000 104% of [ * ] eligible rebate = [ * ] of January - June
sales less first quarter payment. The maximum allowable
rebate is [ * ].
</TABLE>
SELECT MAINTENANCE SALES-OUT REBATE PROGRAM
REBATE PERCENTAGES: The total possible rebate percentage achievable for the
Maintenance Sales-out Rebate Program is [ * ] of Qualified Sales for the January
- - -June, 1996 muster.
CUSTOMER's Total Sales-out Rebate Program goals are as follows:
- Quarter 1 Goal (January - March, 1996): [ * ]
- Semester Goal (January - June, 1996): [ * ]
ENTERPRISE SALES-OUT REBATE PROGRAM
REBATE PERCENTAGES: The total possible rebate percentage achievable for the
Enterprise Sales-out Rebate Program is [ * ] of Qualified Sales for the January
- - -June, 1996 semester.
CUSTOMER's Total Sales-out Rebate Program goals are as follows:
- Quarter 1 Goal (January - March, 1996): [ * ]
- Semester Goal (January - June, 1996): [ * ]
BUSINESS SYSTEMS SALES-OUT REBATE PROGRAM
REBATE PERCENTAGES: The total possible rebate percentage achievable for the
Business Systems Sales-out Rebate Program is [ * ] of Qualified Sales for the
January - June, 1996 semester.
REBATE GOALS: CUSTOMER must meet a minimum Microsoft-Registered Trademark-
BackOffice client license unit sales goal in order to receive any portion of the
Business Systems rebate. Provided that CUSTOMER meets the client license unit
sales goal, CUSTOMER's achievement against the Business Systems goal will be
based on CUSTOMER's performance against the Business Systems revenue goal.
CUSTOMER's Microsoft-Registered Trademark- BackOffice unit sales goals are as
follows:
- Quarter 1 Goal (January - March, 1996): [ * ]
- Semester Goal (January - June, 1996): [ * ]
CUSTOMER's Business Systems Sales-out Rebate Program goals are as follows:
- Quarter 1 Goal (January - March, 1996): [ * ]
- Semester Goal (January - June, 1996): [ * ]
* CONFIDENTIAL TREATMENT REQUESTED
AMENDMENT NO. 1 TO THE LARGE ACCOUNT PAGE C5
RESELLER REBATE ADDENDUM TO THE MICROSOFT
1995/1996 CHANNEL AGREEMENT
<PAGE>
LARGE ACCOUNT RESELLER
REBATE ADDENDUM TO THE
MICROSOFT 1995/1996 CHANNEL AGREEMENT
(JULY - DECEMBER, 1995)
This Addendum ("Addendum") entered into as of the 1st day of July, 1995,
supplements that certain Microsoft 1995/1996 Channel Agreement ("Agreement")
between MICR0SOFT CORPORATION ("MS") having its principal place of business at
One Microsoft Way, Redmond, WA 98052 and EGGHEAD SOFTWARE ("CUSTOMER") having
its principal place of business at 22011 SE 51st Street, Issaquah, WA 98027. The
Agreement is hereby supplemented as follows:
1. PURPOSE
The purpose of this Addendum is to set forth the framework by which CUSTOMER may
earn Rebates on Microsoft Select sales.
2. TERM AND TERMINATION
This Addendum shall be effective as of the date indicated above, and shall
expire December 31, 1995. Either party may terminate this Addendum, with or
without cause, upon thirty (30) days prior written notice. This Addendum is not
valid unless both MS and CUSTOMER have executed a Microsoft 1995/1996 Channel
Agreement and the Addendum to the Microsoft 1995/1996 Channel Agreement
(Appointment As A Large Account Reseller).
3. DEFINITIONS
For purposes of this Addendum, capitalized terms not otherwise defined herein,
shall have the same definitions as set forth in the Agreement. Additional
capitalized terms included in this Addendum are as defined in Schedule A
attached hereto.
4. REBATES
CUSTOMER is eligible to receive up to a [ * ] percent [ * ] Rebate on its
Qualified Select Sales made during the Rebate Period. The Rebate shall be paid
provided CUSTOMER complies with the Select Rebate Program Guidelines outlined in
Schedule B. Notwithstanding such Rebate Program Guidelines, MS may, at its sole
discretion, pay all or any portion of the Rebate prior to the end of the Rebate
Period. The Rebate so paid may be adjusted subsequently based upon compliance
with the Rebate Program Guidelines.
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.
<TABLE>
<S> <C>
AGREED AND ACCEPTED BY AGREED AND ACCEPTED TO BY
MICROSOFT CORPORATION EGGHEAD SOFTWARE
("MS") ("CUSTOMER")
By: By:
- - --------------------------------------- ---------------------------------------
- - ------------------------------------------- -------------------------------------------
Name (please print) Name (please print)
- - ------------------------------------------- -------------------------------------------
Title Title
- - ------------------------------------------- -------------------------------------------
Date Date
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
MICROSOFT CONFIDENTIAL - DISCLOSURE PROHIBITED
<PAGE>
SCHEDULE A
DEFINITIONS
"ELECTRONIC DATA INTERCHANGE" OR "EDI" is defined as the ANSI-ASCII X.12
standard, adopted by CompTIA, by which CUSTOMER shall order and report to MS.
"QUALIFIED SELECT SALES" is defined as net Select sales excluding the Select
Maintenance revenue of all Enrollment Agreements signed prior to July 1, 1995,
and all revenue from Enrollment Agreements signed prior to July 1, 1994, made
during the Rebate Period, to CUSTOMER's End User customers as reported to MS in
CUSTOMER's normal sales reporting.
"REBATE" is defined as the dollar amount paid to CUSTOMER by MS in the form
of a purchase credit for achieving specific rebate goals as set forth herein.
"REBATE PERIOD" is defined as the six (6) calendar months, July 1, 1995 -
December 31, 1995, during which CUSTOMER shall be eligible to earn Rebates.
"STREET DATE" is defined as the date prior to which new Product or new
versions of existing Product shall not be available for End User purchase.
MICROSOFT 1995/1996 CHANNEL AGREEMENT PAGE A1
LARGE ACCOUNT RESELLER REBATE ADDENDUM
JULY - DECEMBER, 1995
<PAGE>
SCHEDULE B
REBATE PROGRAM GUIDELINES
SELECT REBATE PROGRAM OVERVIEW
PROGRAMS: Microsoft offers four Select rebate programs for the July - December,
1995 Rebate period. Rebate percentages available are listed in the table below.
Details on each program are also included in this document.
<TABLE>
<CAPTION>
MAXIMUM PERCENTAGE OUTLINED ON
REBATE INCENTIVE AVAILABLE PAGE(S)
- - ----------------------------------------------------------- --------------------- -----------
<S> <C> <C>
Compliance Program [ * ] B1 - B2
Business Systems Program [ * ] B2 - B4
Maintenance Program [ * ] B4 - B5
Enterprise (MELP) Program [ * ] B5 - B6
-----
TOTAL [ * ]
-----
-----
</TABLE>
REBATE CALCULATIONS AND PAYMENTS: Rebates will be paid in the form of a
Microsoft purchase credit forty-five (45) days after the end of each quarterly
rebate period (i.e. November 15th for the July - September, 1995 quarter).
Rebates are calculated by multiplying the achieved rebate percentage by the
total Qualified Select Sales for the rebate period. All Microsoft Select revenue
will be included in calculating CUSTOMER's performance against the Select Rebate
goals. Revenue generated from Microsoft Select Enrollment Forms executed by MS
prior to July 1, 1994, shall be included in calculating CUSTOMER's achievement
toward the Select Rebate goals, but shall not be included in CUSTOMER's final
total Qualified Select Sales for purposes of the Rebate payment. Only revenue
generated from Microsoft Select Enrollment Forms executed by MS on or after July
1, 1994 (excluding any Microsoft Select Maintenance) will be included in
CUSTOMER's final total Qualified Select Sales for purposes of the Rebate
payment.
ANY ISSUES SURROUNDING REBATES SHOULD BE SENT IN WRITING TO KRISTIN WEEBER,
REBATE SPECIALIST, NO LATER THAN THIRTY (30) DAYS FOLLOWING RECEIPT OF REBATE
PAYMENT. If such written notice is not provided within thirty (30) days,
CUSTOMER shall have no further right to dispute rebate payment.
COMPLIANCE REBATE PROGRAM
PROGRAM OBJECTIVES: The objective of the Compliance Rebate Program is to
provide incentive for CUSTOMER to comply with Microsoft contractual requirements
for payments, Street Dates, and EDI ordering for Select 3.0.
NON-COMPLIANCE: During any given month, failure to comply with any or all of
the current compliance criteria will result in the forfeiture of the entire
compliance rebate for that month.
1. MICROSOFT PAYMENT REQUIREMENTS:
Microsoft requires it's customers to pay it's invoices within terms. In order to
maintain compliance, 85% of the gross invoice value for Select must be current
as of Microsoft's fiscal month-end. Unapplied credits will be excluded from the
calculation.
2. MICROSOFT STREET DATE REQUIREMENTS:
From time to time, Microsoft may announce a new product or new versions of an
existing product for which Microsoft shall set a Street Date. In order to comply
with the Street Date requirements, CUSTOMER shall not:
- Ship or deliver the product to any end-user customer prior to the Street
Date.
* CONFIDENTIAL TREATMENT REQUESTED
MICROSOFT 1995/1996 CHANNEL AGREEMENT PAGE A2
LARGE ACCOUNT RESELLER REBATE ADDENDUM
JULY - DECEMBER, 1995
<PAGE>
- Accept any end user payment for the product prior to the Street Date.
Checks and/or credit card numbers may be accepted by CUSTOMER, but can
only be processed when product is delivered to the end user on or after
the Street Date.
- Advertise, merchandise, or promote the product to end user customers until
it is officially announced by Microsoft. Usually, the product announcement
is on the Street Date. If the product announcement is earlier than the
Street Date, Microsoft will clearly communicate the announce date to the
channel. If product is announced by Microsoft before the Street Date, the
product can be advertised, merchandised and/or promoted immediately after
such announcement, provided that all such promotions clearly state that
the product is not yet available for purchase.
- Allow it's distribution centers and/or warehouses to distribute, for a
period of up to twelve months, a Street Date product to any individual
sales office, retail store, or outlet which Microsoft in its sole
discretion has determined to be in violation of the Street Date
Requirements.
In the event CUSTOMER violates the Street Date for any special products
specified in a Microsoft Street Date letter (including, but not limited to
Microsoft-Registered Trademark- Windows-Registered Trademark- 95), CUSTOMER
shall forfeit up to the entire Compliance Rebate for the six month Rebate period
in which the violation occurred.
Should CUSTOMER fail to comply with the Street Date Requirements, Microsoft may
also, for a period of up to twelve (12) months, withhold shipments to CUSTOMER
of future product until the Street Date of such product.
Should CUSTOMER wish to report a Street Date violation, CUSTOMER may fax a copy
of a dated sales receipt to STREET DATE VIOLATIONS AT MICROSOFT AT (206)
936-7329. Once a violation has been reported, Microsoft shall investigate the
violation, and take remedial action as appropriate. Please note, in order to
confirm a suspected violation, Microsoft must receive a dated sales receipt.
3. MICROSOFT REPORTING REQUIREMENTS
CUSTOMER must comply with the reporting requirements as outlined in the
1995/1996 Channel Agreement and/or the Senior Partner Marketing Fund and
Reporting Agreement. as applicable.
4. MICROSOFT TRANSACTION REQUIREMENTS
Electronic Data Interchange format ("EDI") transactions include, but are not
limited to 850/855 EDI transactions and all other EDI reporting requirements
which may be required by MS and in the EDI Implementation Guide attached hereto
as Schedule C. CUSTOMER must place EDI transaction orders at a minimum of once
per month per Enrollment Site if product is purchased during said month.
COMPLIANCE REBATE CALCULATION: The Microsoft Compliance Rebate will be
calculated on a monthly basis. If CUSTOMER has met all of the Compliance Rebate
criteria in a given month, CUSTOMER will be entitled to a Rebate payment equal
to one percent (1%) of that month's total Qualified Select Sales. The rebate
payment will be made forty-five (45) days after the end of each quarterly rebate
period.
BUSINESS SYSTEMS REBATE PROGRAM
PROGRAM OBJECTIVE: The objective of the Microsoft Business Systems Rebate
Program is to increase the Microsoft Business Systems revenue as well as to
increase the ratio of Microsoft Windows NT Client licenses to Server license
sales. The Microsoft Business Systems products consist of any license
MICROSOFT 1995/1996 CHANNEL AGREEMENT PAGE A3
LARGE ACCOUNT RESELLER REBATE ADDENDUM
JULY - DECEMBER, 1995
<PAGE>
type of the following products: MICROSOFT-REGISTERED TRADEMARK- BACKOFFICE,
MICROSOFT-REGISTERED TRADEMARK- MAIL, MICROSOFT-REGISTERED TRADEMARK- EXCHANGE,
MICROSOFT-REGISTERED TRADEMARK- SNA SERVER, MICROSOFT-REGISTERED TRADEMARK- SQL
SERVER-TM-, MICROSOFT-REGISTERED TRADEMARK- SYSTEMS MANAGEMENT SERVER,
MICROSOFT-REGISTERED TRADEMARK- WINDOWS NT-TM- SERVER, AND
MICROSOFT-REGISTERED TRADEMARK- WINDOWS NT-TM- WORKSTATION.
REBATE PERCENTAGES: The total possible rebate percentage achievable for the
Business Systems Rebate Program is [ * ] of Qualified Select Sales for the July
- - -December, 1995 semester.
GOAL DEFINITIONS: The program goals are based upon the following:
- Existing Microsoft Business Systems revenue.
- Microsoft's Business Systems revenue goals.
- Microsoft's Windows NT Client to Server Ratio goals.
REBATE GOALS: CUSTOMER must meet a minimum Windows NT Client to Server Ratio of
[ * ] in order to receive any portion of the Business Systems rebate.
Performance against the Client to Server goal will be measured against all
license types of Microsoft Windows NT including full packaged product, MLPs,
MOLP, and Select license types. Provided that CUSTOMER meets the [ * ] Client to
Server Ratio, CUSTOMER's achievement against the Business Systems goal will be
based on CUSTOMER's performance against the Business Systems revenue goal.
CUSTOMER's performance against the revenue goal will also be based on all
license types.
CUSTOMER has a first quarter rebate goal and a total semester rebate goal.
CUSTOMER's performance for the first three months of the July - December, 1995
semester will be measured against the first quarter rebate goal. At the end of
the first quarter, CUSTOMER will receive the percentage of the eligible rebate
earned based on performance against the first quarter goal. At the end of the
semester, CUSTOMER will be measured on their six-month performance against the
total semester goal. Even if CUSTOMER does not meet 100% of the first quarter
goal, CUSTOMER can still achieve 100% of the semester goal provided that the
semester goal is met at the end of the six-month period.
CUSTOMER's Business Systems Rebate Program goals are as follows:
- Minimum Windows NT Client to Server Ratio of [ * ]
- Quarter 1 Goal (July - September, 1995): [ * ]
- Semester Goal (July - December, 1995): [ * ]
PAYMENT: As stated earlier, CUSTOMER must attain a [ * ] Client to Server ratio
of Microsoft Windows NT in order to receive any portion of the Business Systems
Rebate. Provided CUSTOMER meets the Client to Server Ratio requirement, CUSTOMER
will be paid a Business Systems rebate based on performance against the semester
goal at the end of the semester. If CUSTOMER achieves greater than sixty percent
(60%) of the semester Business Systems revenue goal, and attains a minimum of
[ * ] Windows NT Client to Server ratio CUSTOMER will receive the exact achieved
percentage of the eligible Business Systems rebate up to one hundred percent
(100%). If CUSTOMER achieves less than sixty percent (60%) of the Business
Systems revenue goal, CUSTOMER will not receive any portion of the Business
Systems rebate. The purpose of this scale is to offer an incentive for accounts
to meet a portion of their goal in the event they cannot achieve the full
Microsoft Business Systems goal.
Although Microsoft pays the rebate ultimately based on performance against the
semester goal, Microsoft also pays a rebate at the end of the first quarter
based on performance against the first quarter goal. Microsoft pays a portion of
the rebate after the first quarter as an incentive for CUSTOMER to focus on the
Business Systems rebate program throughout the entire semester. The scale for
the first quarter payment is the same as the scale for the semester payment. The
first quarter
* CONFIDENTIAL TREATMENT REQUESTED
MICROSOFT 1995/1996 CHANNEL AGREEMENT PAGE A4
LARGE ACCOUNT RESELLER REBATE ADDENDUM
JULY - DECEMBER, 1995
<PAGE>
payment amount will be subtracted from the final semester payment for the
rebate. Should CUSTOMER fail to meet the minimum attainment for the final
semester goal, MS will not seek reimbursement for Rebate paid. Please note:
Although performance against the Business Systems Rebate is based on all Select,
and non-Select Business Systems revenue, payment will be based on Select revenue
only.
EXAMPLE:
GOALS:
- QUARTERLY BUSINESS SYSTEMS REVENUE GOAL OF $1,000,000
- SEMESTER BUSINESS SYSTEMS REVENUE GOAL OF $2,500,000
- MINIMUM WINDOWS NT CLIENT TO SERVER RATIO OF 10:1
PERFORMANCE:
- WINDOWS NT CLIENT TO SERVER RATIO OF 11:1
- ACTUAL QUARTER BUSINESS SYSTEMS REVENUE IS $800,000
- ACTUAL SEMESTER BUSINESS SYSTEMS REVENUE IS $2,600,000
BECAUSE CUSTOMER ATTAINED THE MINIMUM WINDOWS NT CLIENT TO SERVER RATIO OF
[ * ], CUSTOMER'S BUSINESS SYSTEMS REBATE PAYMENT WOULD BE AS FOLLOWS:
<TABLE>
<CAPTION>
SELL THROUGH
PERIOD GOAL ACHIEVED PAYMENT
- - ---------------- ------------- ------------- -------------------------------------------------------
<S> <C> <C> <C>
First Quarter $ 1,000,000 $ 800,000 80% of [ * ] eligible rebate = [ * ] of July -
September Select Sales.
Semester $ 2,500,000 $ 2,600,000 104% of [ * ] eligible rebate = [ * ] of July -
December Select Sales less first quarter payment. The
maximum allowable Business Systems rebate is [ * ].
</TABLE>
MAINTENANCE REBATE PROGRAM
PROGRAM OBJECTIVE: The objective of the Microsoft Maintenance Rebate Program is
to increase the Microsoft Maintenance revenue percentage of total Select
revenue.
REBATE PERCENTAGES: The total possible rebate percentage achievable for the
Maintenance Rebate Program is [ * ] of Qualified Select Sales for the July -
December, 1995 semester.
GOAL DEFINITIONS: The program goals are based upon the following:
- Existing Maintenance revenue percentage of total Select revenue.
- Microsoft's Maintenance revenue goals.
REBATE GOALS: CUSTOMER's achievement against the Maintenance goal will be based
on CUSTOMER's Select Maintenance revenue percentage of CUSTOMER's total Select
revenue.
CUSTOMER has a first quarter rebate goal and a total semester rebate goal.
CUSTOMER's performance for the first three months of the July - December, 1995
semester will be measured against the first quarter rebate goal. At the end of
the first quarter, CUSTOMER will receive the percentage of the eligible rebate
based on performance against the first quarter goal. At the end of the semester,
* CONFIDENTIAL TREATMENT REQUESTED
MICROSOFT 1995/1996 CHANNEL AGREEMENT PAGE A5
LARGE ACCOUNT RESELLER REBATE ADDENDUM
JULY - DECEMBER, 1995
<PAGE>
CUSTOMER will be measured on their six-month performance against the total
semester goal. Even if CUSTOMER does not meet 100% of the first quarter goal,
CUSTOMER can still achieve 100% of the semester goal provided that the semester
goal is met at the end of the six-month period.
CUSTOMER's Maintenance Rebate Program goals are as follows:
- Quarter 1 Goal (July - September, 1995): [ * ]
- Semester Goal (July - December, 1995): [ * ]
PAYMENT: CUSTOMER will be paid a Maintenance rebate based on performance
against the semester goal at the end of the semester. If CUSTOMER achieves
greater than eighty percent (80%) of the semester Maintenance rebate goal,
CUSTOMER will receive the exact achieved percentage of the eligible Maintenance
rebate up to one hundred percent (100%). If CUSTOMER achieves less than eighty
percent (80%) of the Maintenance rebate goal, CUSTOMER will not receive any
portion of the Maintenance rebate. The purpose of this scale is to offer an
incentive for accounts to meet a portion of their goal in the event they cannot
achieve the full Microsoft Maintenance goal.
Although Microsoft pays the rebate ultimately based on performance against the
semester goal, Microsoft pays a rebate at the end of the first quarter based on
performance against the first quarter goal. Microsoft pays a portion of the
rebate after the first quarter as an incentive for CUSTOMER to focus on the
Maintenance rebate program throughout the entire semester. The scale for the
first quarter payment is the same as the scale for the semester payment. The
first quarter payment amount will be subtracted from the final semester rebate
payment. However, if CUSTOMER does not meet the minimum attainment for the
semester goal, Microsoft will not seek reimbursement of the first quarter rebate
payment.
EXAMPLE:
GOALS:
- QUARTERLY MAINTENANCE GOAL OF 25% OF TOTAL SELECT REVENUE
- SEMESTER MAINTENANCE GOAL OF 25% OF TOTAL SELECT REVENUE
PERFORMANCE:
- ACTUAL MAINTENANCE REVENUE IS 23% OF TOTAL SELECT REVENUE AT THE END OF
THE QUARTER
- ACTUAL MAINTENANCE REVENUE IS 27% OF SELECT REVENUE AT THE END OF THE
SEMESTER
CUSTOMER'S MAINTENANCE REBATE PAYMENT WOULD BE AS FOLLOWS:
<TABLE>
<CAPTION>
PERCENTAGE
PERIOD GOAL ACHIEVED PAYMENT
- - ---------------- --------- ------------- ------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter 25% 23% 92% of [ * ] eligible rebate = [ * ] of July - September Select
Sales.
Semester 25% 27% 108% of [ * ] eligible rebate = [ * ] of July - December Select
Sales less first quarter payment. The maximum allowable
Maintenance rebate is [ * ].
</TABLE>
ENTERPRISE REBATE PROGRAM
PROGRAM OBJECTIVE: The objective of the Microsoft Enterprise Rebate Program is
to increase the Microsoft Enterprise revenue percentage of total Select revenue.
REBATE PERCENTAGES: The total possible rebate percentage achievable for the
Enterprise Rebate Program is [ * ] of Qualified Select Sales for the July -
December, 1995 semester.
* CONFIDENTIAL TREATMENT REQUESTED
MICROSOFT 1995/1996 CHANNEL AGREEMENT PAGE A6
LARGE ACCOUNT RESELLER REBATE ADDENDUM
JULY - DECEMBER, 1995
<PAGE>
GOAL DEFINITIONS: The program goals are based upon the following:
- Existing Enterprise revenue percentage of total Select revenue.
- Microsoft's Enterprise revenue goals.
REBATE GOALS: CUSTOMER's achievement against the Enterprise goal will be based
on CUSTOMER's Enterprise revenue percentage of CUSTOMER's total Select revenue.
CUSTOMER has a first quarter rebate goal and a total semester rebate goal.
CUSTOMER's performance for the first three months of the July - December, 1995
semester will be measured against the first quarter rebate goal. At the end of
the first quarter, CUSTOMER will receive the percentage of the eligible rebate
earned based on performance against the first quarter goal. At the end of the
semester, CUSTOMER will be measured on their six-month performance against the
total semester goal. Even if CUSTOMER does not meet 100% of the first quarter
goal, CUSTOMER can still achieve 100% of the semester goal provided that the
semester goal is met at the end of the six-month period.
CUSTOMER's Enterprise Rebate Program goals are as follows:
- Quarter 1 Goal (July - September, 1995): [ * ].
- Semester Goal (July - December, 1995): [ * ]
PAYMENT: CUSTOMER will be paid a Enterprise rebate based on performance against
the semester goal at the end of the semester. If CUSTOMER achieves greater than
eighty percent (80%) of the semester Enterprise rebate goal, CUSTOMER will
receive the exact achieved percentage of the eligible Enterprise rebate up to
one hundred percent (100%). If CUSTOMER achieves less than eighty percent (80%)
of the Enterprise rebate goal, CUSTOMER will not receive any portion of the
Enterprise rebate. The purpose of this scale is to offer an incentive for
accounts to meet a portion of their goal in the event they cannot achieve the
full Microsoft Enterprise goal.
Although Microsoft pays the rebate ultimately based on performance against the
semester goal, Microsoft also pays a rebate at the end of the first quarter
based on performance against the first quarter goal. Microsoft pays a portion of
the rebate after the first quarter as an incentive for CUSTOMER to focus on the
Enterprise rebate program throughout the entire semester. The scale for the
first quarter payment is the same as the scale for the semester payment. The
first quarter payment amount will be subtracted from the final semester rebate
payment. However, if CUSTOMER does not meet the minimum attainment for the
semester goal, Microsoft will not seek reimbursement of the first quarter rebate
payment.
EXAMPLE:
GOALS:
- QUARTERLY ENTERPRISE GOAL OF [ * ] OF TOTAL SELECT REVENUE
- SEMESTER ENTERPRISE GOAL OF [ * ] OF TOTAL SELECT REVENUE
PERFORMANCE:
- ACTUAL ENTERPRISE REVENUE IS [ * ] OF TOTAL SELECT REVENUE AT THE END OF
THE QUARTER
- ACTUAL ENTERPRISE REVENUE IS [ * ] OF SELECT REVENUE AT THE END OF THE
SEMESTER
* CONFIDENTIAL TREATMENT REQUESTED
MICROSOFT 1995/1996 CHANNEL AGREEMENT PAGE A7
LARGE ACCOUNT RESELLER REBATE ADDENDUM
JULY - DECEMBER, 1995
<PAGE>
CUSTOMER'S ENTERPRISE REBATE PAYMENT WOULD BE AS FOLLOWS:
<TABLE>
<CAPTION>
PERCENTAGE
PERIOD GOAL ACHIEVED PAYMENT
- - ---------------- --------- ------------- ------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter 35% 36% 103% of [ * ] eligible rebate = [ * ] of July - September Select
Sales.
Semester 35% 27% 77% of [ * ] eligible rebate does not qualify for any portion of
the Business Systems rebate. However the first quarter payment
will not be affected and Microsoft will not ask for reimbursement.
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
MICROSOFT 1995/1996 CHANNEL AGREEMENT PAGE A8
LARGE ACCOUNT RESELLER REBATE ADDENDUM
JULY - DECEMBER, 1995
<PAGE>
EXHIBIT 10.50
EGGHEAD, INC.
RESTATED NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
ARTICLE I. PURPOSES
The purposes of the Egghead, Inc. Restated Nonemployee Director Stock Option
Plan (the "Plan") are to attract and retain the services of experienced and
knowledgeable nonemployee directors of Egghead, Inc. (the "Corporation") and to
provide an incentive for such directors to increase their proprietary interests
in the Corporation's long-term success and progress.
ARTICLE II. SHARES SUBJECT TO THE PLAN
Subject to adjustment in accordance with Article VI hereof, the total number of
shares of the Corporation's common stock (the "Common Stock") for which options
may be granted under the Plan is 450,000 (the "Shares"). The Shares shall be
shares presently authorized but unissued or subsequently acquired by the
Corporation and shall include shares representing the unexercised portion of any
option granted under the Plan that expires or terminates without being exercised
in full.
ARTICLE III. ADMINISTRATION OF THE PLAN
The administrator of the Plan (the "Plan Administrator") shall be the Board of
Directors of the Corporation (the "Board"). Subject to the terms of the Plan,
the Plan Administrator shall have the power to construe the provisions of the
Plan, to determine all questions arising thereunder, and to adopt and amend such
rules and regulations for the administration of the Plan as it may deem
desirable. No member of the Plan Administrator shall participate in any vote by
the Plan Administrator on any matter materially affecting the rights of any such
member under the Plan.
ARTICLE IV. PARTICIPATION IN THE PLAN
Each member of the Board elected or appointed who is not otherwise an employee
of the Corporation or any parent or subsidiary corporation (an "Eligible
Director") shall automatically receive the following options:
1. INITIAL GRANTS
(a) Each Eligible Director who is in office on the day the Plan is adopted by
the Board and who continues in office after the annual meeting of shareholders
to be held in 1993 (the "1993 Annual Meeting") shall automatically receive a
grant of an option to purchase 9,000 Shares on the day this Plan is adopted by
the Board.
(b) Each Eligible Director who is elected for the first time at the 1993 Annual
Meeting or at any subsequent annual meeting of shareholders prior to June 7,
1995 shall automatically receive a grant of an option to purchase 9,000 Shares
on the day after such annual meeting.
(c) Each Eligible Director who is elected for the first time at an annual
meeting of shareholders after June 7, 1995 shall automatically receive a grant
of an option to purchase 22,500 Shares on the day after such annual meeting.
(d) Each Eligible Director who is appointed or elected after June 7, 1995 other
than at an annual meeting of shareholders shall, on the day of such appointment
or election, automatically receive a grant of an option to purchase that number
of Shares equal to 7,500 multiplied by a fraction, the numerator of which is 12
minus the number of whole months which have elapsed since the last annual
meeting of shareholders and the denominator of which is 12; provided, however,
that such option shall vest in full on the day of the first annual meeting of
shareholders to occur after the grant.
51
<PAGE>
2. SUPPLEMENTAL INITIAL GRANTS
Each Eligible Director who is in office on June 7, 1995 shall automatically
receive a grant of an option to purchase 13,500 Shares on that date.
3. ADDITIONAL GRANTS
Each Eligible Director who holds an option granted on or after June 7, 1995 that
has become fully vested shall automatically receive a grant of an option to
purchase 22,500 Shares on the day after the annual meeting of shareholders at
which such prior option has become fully vested.
If insufficient Shares remain available for issuance under the Plan to fully
fund one or more grants to be made under this Article IV on the same grant date,
then such grant or grants shall be made as follows: (i) a single Initial Grant
shall be made for the remaining number of Shares reserved under this Article IV
on that grant date; and (ii) multiple Initial and/or Additional Grants shall be
reduced ratably so that the aggregate number of Shares subject to all such
grants equals the remaining number of Shares available for issuance under this
Article IV on that grant date. If the Company's shareholders do not approve the
amendment to the Plan dated June 7, 1995, all grants made pursuant to
paragraphs 1(c), 1(d), 2 and 3 above shall be deemed null and void.
ARTICLE V. OPTION TERMS
Each option granted to an Eligible Director under the Plan and the issuance of
Shares thereunder shall be subject to the following terms:
1. OPTION AGREEMENT
Each option granted under the Plan shall be evidenced by an option agreement (an
"Agreement") duly executed on behalf of the Corporation. Each Agreement shall
comply with and be subject to the terms and conditions of the Plan. Any
Agreement may contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Plan Administrator.
2. OPTION EXERCISE PRICE
The option exercise price for an option granted under the Plan shall be the fair
market value of the Shares covered by the option at the time the option is
granted. For purposes of the Plan, "fair market value" shall be the average of
the high and low sales prices at which the Common Stock was sold on such date as
reported by the Nasdaq National Market on such date or, if no Common Stock was
traded on such date, on the next preceding date on which Common Stock was so
traded.
3. VESTING AND EXERCISABILITY
Except as set forth in paragraph 1(d) of Article IV, Initial Grants (other than
Supplemental Initial Grants) and Additional Grants shall become exercisable in
accordance with the following schedule and vested portions may be exercised in
full at one time or in part from time to time:
<TABLE>
<CAPTION>
PERIOD OF OPTIONEE'S CONTINUOUS SERVICE AS A DIRECTOR PORTION OF GRANT
WITH THE COMPANY FROM THE DATE THE OPTION IS GRANTED THAT IS EXERCISABLE
- - ------------------------------------------------------------------------ -------------------
<S> <C>
Until first subsequent annual meeting of shareholders after grant 0%
Until second subsequent annual meeting of shareholders after grant 33 1/3%
Until third subsequent annual meeting of shareholders after grant 66 2/3%
Thereafter 100%
</TABLE>
For purposes of options granted at the time this Plan is initially adopted by
the Board, the first subsequent annual meeting of shareholders shall be the
meeting held in 1994.
Supplemental Initial Grants shall become exercisable in accordance with the
following schedule and vested portions may be exercised in full at one time or
in part from time to time.
<TABLE>
<CAPTION>
PERIOD OF OPTIONEE'S CONTINUOUS SERVICE AS A DIRECTOR PORTION OF GRANT
WITH THE COMPANY FROM THE DATE THE OPTION IS GRANTED THAT IS EXERCISABLE
- - ------------------------------------------------------------------------- -------------------
<S> <C>
Until first subsequent annual meeting of shareholders after grant 33 1/3%
Until second subsequent annual meeting of shareholders after grant 66 2/3%
Thereafter 100%
</TABLE>
52
<PAGE>
4. TIME AND MANNER OF EXERCISE OF OPTION
Each option may be exercised in whole or in part at any time and from time to
time; provided, however, that no fewer than 100 Shares (or the remaining Shares
then purchasable under the option, if less than 100 Shares) may be purchased
upon any exercise of option rights hereunder and that only whole Shares will be
issued pursuant to the exercise of any option.
Any option may be exercised by given written notice, signed by the person
exercising the option, to the Corporation stating the number of Shares with
respect to which the option is being exercised, accompanied by payment in full
for such Shares, which payment may be in whole or in part (i) in cash or by
check or (ii) in shares of Common Stock already owned for at least six
(6) months by the person exercising the option, valued at fair market value at
the time of such exercise.
5. TERM OF OPTIONS
Each option shall expire ten (10) years from the date of the granting thereof,
but shall be subject to earlier termination as follows:
(a) In the event that an optionee ceases to be a director of the Corporation
for any reason other than the death of the optionee, the options granted to such
optionee may be exercised by him or her only within one (1) year after the date
such optionee ceases to be a director of the Corporation and only as to that
portion of the option that has become vested as of the date of such cessation.
(b) In the event of the death of an optionee, whether during the optionee's
service as a director or during the one (1) year period referred to in
Section 5(a), the options granted to such optionee shall be exercisable, to the
extent vested as provided in Section 5(a) or as of the date of death, as the
case may be, and such options shall expire unless exercised within one (1) year
after the date of the optionee's death, by the legal representatives or the
estate of such optionee, by any person or persons whom the optionee shall have
designated in writing on forms prescribed by and filed with the Corporation or,
if no such designation has been made, by the person or persons to whom the
optionee's rights have passed by will or the laws of descent and distribution.
6. TRANSFERABILITY
During a optionee's lifetime, an option may be exercised only by the optionee.
Options granted under the Plan and the rights and privileges conferred thereby
shall not be subject to execution, attachment or similar process and may not be
transferred, assigned, pledged or hypothecated in any manner (whether by
operation of law or otherwise) other than by will or by the applicable laws of
descent and distribution except that, to the extent permitted by applicable law
and Rule 16b-3 promulgated under Section 16(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the Plan Administrator may permit a
recipient of an option to designate in writing during the optionee's lifetime a
beneficiary to receive and exercise options in the event of the optionee's death
as provided in Section 5(b)). Any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of any option under the Plan or of any right or
privilege conferred thereby, contrary to the provisions of the Plan, or the sale
or levy or any attachment or similar process upon the rights and privileges
conferred hereby, shall be null and void.
7. PARTICIPANT'S OR SUCCESSOR'S RIGHTS AS STOCKHOLDER
Neither the recipient of an option under the Plan nor the optionee's
successor(s) in interest shall have any rights as a stockholder of the
Corporation with respect to any Shares subject to an option granted to such
person until such person becomes a holder of record of such Shares.
8. LIMITATION AS TO DIRECTORSHIP
Neither the Plan nor the granting of an option nor any other action taken
pursuant to the Plan shall constitute or be evidence of any agreement or
understanding, express or implied, that an optionee has a right to continue as a
director for any period of time or at any particular rate of compensation.
9. REGULATORY APPROVAL AND COMPLIANCE
The Corporation shall not be required to issue any certificate or certificates
for Shares upon the exercise of an option granted under the Plan, or record as a
holder of record of Shares the name of the
53
<PAGE>
individual exercising an option under the Plan, without obtaining to the
complete satisfaction of the Plan Administrator the approval of all regulatory
bodies deemed necessary by the Plan Administrator, and without complying, to the
Plan Administrator's complete satisfaction, with all rules and regulations under
federal, state or local law deemed applicable by the Plan Administrator.
ARTICLE VI. CAPITAL ADJUSTMENTS
The aggregate number and class of Shares for which options may be granted under
the Plan, the number and class of Shares covered by each automatic grant and
each outstanding option and the exercise price per Share thereof (but not the
total price) shall all be proportionately adjusted for any stock dividends,
stock splits, recapitalizations, combinations or exchanges of shares, split-ups,
split-offs, spinoffs, or other similar changes in capitalization. Upon the
effective date of a dissolution or liquidation of the Corporation, or of a
reorganization, merger or consolidation of the Corporation with one or more
corporations that results in more than 20% of the outstanding voting shares of
the Corporation being owned by one or more affiliated corporations or other
affiliated entities, or of a transfer of all or substantially all the assets or
more than 20% of the then outstanding shares of the Corporation to another
corporation or other entity, this Plan and all options granted hereunder shall
terminate. In the event of such dissolution, liquidation, reorganization,
merger, consolidation, transfer of assets or transfer of stock, each optionee
shall be entitled, for a period of twenty days prior to the effective date of
such transaction, to purchase the full number of shares under his or her option
which he or she otherwise would have been entitled to purchase during the
remaining term of such option.
Adjustments under this Article VI shall be made by the Plan Administrator, whose
determination shall be final. In the event of any adjustment in the number of
Shares covered by any option, any fractional Shares resulting from such
adjustment shall be disregarded and each such option shall cover only the number
of full Shares resulting from such adjustment.
ARTICLE VII. EXPENSES OF THE PLAN
All costs and expenses of the adoption and administration of the Plan shall be
borne by the Corporation; none of such expenses shall be charged to any
optionee.
ARTICLE VIII. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan became effective on June 16, 1993. The Plan shall continue in effect
until it is terminated by action of the Board or the Corporation's shareholders,
but such termination shall not affect the then outstanding terms of any options.
ARTICLE IX. TERMINATION AND AMENDMENT OF THE PLAN
The Board may amend, terminate or suspend the Plan at any time, in its sole and
absolute discretion; provided, however, that if required to qualify the Plan
under Rule 16b-3 promulgated under Section 16(b) of the Exchange Act, no
amendment may be made more than once every six (6) months that would change the
amount, price, timing or vesting of the options, other than to comply with
changes in the Internal Revenue Code of 1986, as amended, or the rules and
regulations promulgated thereunder; and provided, further, that if required to
qualify the Plan under Rule 16b-3, no amendment that would
(a) materially increase the number of Shares that may be issued under the Plan,
(b) materially modify the requirements as to eligibility for participation in
the Plan, or
(c) otherwise materially increase the benefits accruing to participants under
the Plan shall be made without the approval of the Corporation's shareholders.
ARTICLE X. COMPLIANCE WITH RULE 16b-3
It is the intention of the Corporation that the Plan comply in all respects with
Rule 16b-3 promulgated under Section 16(b) of the Exchange Act and that Plan
participants remain disinterested persons ("Disinterested Persons") for purposes
of administering other employee benefit plans of the Corporation and having such
other plans be exempt from Section 16(b) of the Exchange Act. Therefore, if any
Plan provision is later found not to be in compliance with Rule 16b-3 or if any
Plan
54
<PAGE>
provision would disqualify Plan participants from remaining Disinterested
Persons, that provision shall be deemed null and void, and in all events the
Plan shall be construed in favor of its meeting the requirements of Rule 16b-3.
55
<PAGE>
LIST OF SUBSIDIARY COMPANIES
<TABLE>
<CAPTION>
PERCENTAGE DATE ACQUIRED DOMESTIC OR
NAME BUSINESS OR TYPE OF OPERATION OF OWNERSHIP OR CREATED(1) FOREIGN
- - ---------------------------------- ---------------------------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
DJ&J Software Corp. Reseller of computer software and 100% 1983 Domestic
accessories
Eggspert Software, Ltd. Reseller of computer software and 100% 1989 Foreign
accessories in Canada
EH Direct, Inc. Mail order 100% 1993 Domestic
Elckom Corporation Electronic commerce 100% 1995 Domestic
*MPI Corporation Mail order reseller of software, *100% 1993 Domestic
software accessories and
peripherals
Egghead International Inc. Reseller of computer software and 100% 1993 Domestic
accessories and peripherals
**Egghead Europe, Inc Reseller of computer software, **100% 1994 Domestic
accessories and peripherals
</TABLE>
* 100% Subsidiary of EH DIRECT, INC.
** 100% Subsidiary of EGGHEAD INTERNATIONAL, INC.
(1) Acquired* only applies to assets and liabilities of MAC's Place. All other
subsidiaries were "founded" by us, including MPI Corporation.
<PAGE>
EXHIBIT 23.1
<PAGE>
Arthur Andersen & Co.
EXHIBIT 23.1
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. 1986 Combined Incentive and
Non-Qualified Stock Option Plan); No. 33-29453, (Egghead, Inc. 1989 Employee
Stock Purchase Plan); No. 33-33101, (Egghead, Inc. 1989 Executive Retention
Incentive Stock Option Plan); and No. 33-64033, (Restated Nonemployee Director
Stock Option Plan).
Arthur Andersen
Seattle, Washington
June 28, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-30-1996
<PERIOD-END> MAR-30-1996
<CASH> $49,590
<SECURITIES> 0
<RECEIVABLES> 26,177
<ALLOWANCES> 2,098
<INVENTORY> 84,712
<CURRENT-ASSETS> 244,491
<PP&E> 68,598
<DEPRECIATION> 39,103
<TOTAL-ASSETS> 281,555
<CURRENT-LIABILITIES> 141,108
<BONDS> 0
0
0
<COMMON> 176
<OTHER-SE> 139,093
<TOTAL-LIABILITY-AND-EQUITY> 281,555
<SALES> 403,841
<TOTAL-REVENUES> 403,841
<CGS> 357,373
<TOTAL-COSTS> 357,373
<OTHER-EXPENSES> 67,088
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77
<INCOME-PRETAX> (18,151)
<INCOME-TAX> 7,030
<INCOME-CONTINUING> (11,121)
<DISCONTINUED> 376
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,745)
<EPS-PRIMARY> (0.62)
<EPS-DILUTED> (0.62)
</TABLE>