EAGLE HARDWARE & GARDEN INC/WA/, S-3/A, 1996-09-17

EAGLE HARDWARE & GARDEN INC/WA/
S-3/A, 1996-09-17
LUMBER & OTHER BUILDING MATERIALS DEALERS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1996

REGISTRATION NO. 333-10597

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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

------------------------

EAGLE HARDWARE & GARDEN, INC.
(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C> <C>
WASHINGTON 91-1465348
(State or other jurisdiction (I.R.S. Employer
of Identification
incorporation or organization) Number)
</TABLE>

981 POWELL AVENUE S.W.
RENTON, WASHINGTON 98055
(206) 227-5740
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)

DAVID J. HEERENSPERGER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
EAGLE HARDWARE & GARDEN, INC.
981 POWELL AVENUE S.W.
RENTON, WASHINGTON 98055
(206) 227-5740
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------

COPIES TO:

<TABLE>
<S> <C>
Michael J. Erickson Stephen A. McKeon
Laura A. Bertin David C. Clarke
HELLER, EHRMAN, WHITE & MCAULIFFE PERKINS COIE
6100 Columbia Center 1201 Third Avenue
701 Fifth Avenue 40th Floor
Seattle, Washington 98104-7098 Seattle, Washington 98101-3099
(206) 447-0900 (206) 583-8888
</TABLE>

------------------------

Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.

If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / _________

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / _________

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
AMOUNT TO MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SHARES BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED (1) PER SHARE OFFERING PRICE FEE (2)
<S> <C> <C> <C> <C>
Common Stock.................. 5,750,000 $22.875 $131,531,250 $35,996
</TABLE>

(1) Includes 750,000 shares subject to the Underwriters' over-allotment option.

(2) Fee calculated in accordance with Rule 457(a) under the Securities Act of
1933. Includes $31,460 previously paid in connection with the filing for the
registration of 5,175,000 shares on August 22, 1996.

------------------------

THE REGISTRANT HEREBY UNDERTAKES TO AMEND THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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- --------------------------------------------------------------------------------
<PAGE>

5,000,000 SHARES

[LOGO]

COMMON STOCK

ALL THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY EAGLE
HARDWARE & GARDEN, INC. ("EAGLE HARDWARE" OR THE "COMPANY"). THE COMMON STOCK OF
THE COMPANY IS QUOTED ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "EAGL." THE
CLOSING PRICE OF THE COMMON STOCK ON SEPTEMBER 16, 1996 AS REPORTED ON THE
NASDAQ NATIONAL MARKET WAS $23.00 PER SHARE. SEE "PRICE RANGE OF COMMON STOCK."

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.

-------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC DISCOUNT (1) COMPANY (2)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE................................ $22.875 $1.11 $21.765
TOTAL (3)................................ $114,375,000 $5,550,000 $108,825,000
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</TABLE>

(1) SEE "UNDERWRITING" FOR INFORMATION CONCERNING INDEMNIFICATION OF THE
UNDERWRITERS AND OTHER MATTERS.

(2) BEFORE DEDUCTING ESTIMATED OFFERING EXPENSES OF $310,000 PAYABLE BY THE
COMPANY.

(3) THE COMPANY HAS GRANTED TO THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP
TO 750,000 ADDITIONAL SHARES OF COMMON STOCK SOLELY TO COVER
OVER-ALLOTMENTS, IF ANY. IF THE UNDERWRITERS EXERCISE THIS OPTION IN FULL,
THE PRICE TO PUBLIC WILL TOTAL $131,531,250, THE UNDERWRITING DISCOUNT WILL
TOTAL $6,382,500 AND THE PROCEEDS TO COMPANY WILL TOTAL $125,148,750. SEE
"UNDERWRITING."

THE SHARES OF COMMON STOCK ARE OFFERED BY THE SEVERAL UNDERWRITERS NAMED
HEREIN SUBJECT TO RECEIPT AND ACCEPTANCE BY THEM AND SUBJECT TO THEIR RIGHT TO
REJECT ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED THAT DELIVERY OF THE
CERTIFICATES REPRESENTING THE SHARES WILL BE MADE AGAINST PAYMENT THEREFOR AT
THE OFFICE OF MONTGOMERY SECURITIES ON OR ABOUT SEPTEMBER 20, 1996.

-------------------

MONTGOMERY SECURITIES DAIN BOSWORTH
INCORPORATED

SEPTEMBER 17, 1996

<PAGE>
[GATEFOLD COVERS (ON FRONT AND BACK OF PROSPECTUS) WITH SIX PAGES DEPICTING
EAGLE HARDWARE
STORES, EMPLOYEES, CUSTOMERS, PRODUCTS AND
A MAP SHOWING THE LOCATION OF EAGLE HARDWARE STORES

THE COVERS WILL INCLUDE THE FOLLOWING CAPTIONS:

1) Eagle Hardware & Garden stores are typically located near major freeways
or thoroughfares to provide convenient access and greater visibility.
2) A network of 17 to 26 cash registers in each Eagle Hardware store
records daily sales transactions.
3) Over 250 brand name faucets, valves and shower heads are carried in
Eagle Hardware's plumbing department.
4) Bath Displays (This will be used as a heading)
5) Kitchen Displays (This will be used as a heading)
6) Eagle Hardware Design Center (This will be used as a heading)
7) Paint Mixing Center (This will be used as a heading)
8) Design Center (This will be used as a heading)
9) An area of approximately 8,000 square feet features kitchen and bath
displays, 27 styles of kitchen cabinets and brand name appliances.
Kitchens and baths are displayed in fully accessorized real-life
settings.
10) Computer-assisted kitchen design is offered as a free service in all
Eagle Hardware stores.
11) The Company's innovative Design Center is intended to stimulate home
improvement ideas by conveying the image of a free home show every day.
Design coordinators work with customers at the Design Center to
conceptualize and plan virtually any home decorating project, using
specially programmed computers, color coordination boards and a variety
of free literature.
12) A computerized color matching service helps customers analyze and select
paint and stain colors more easily.
13) Eagle Hardware stores carry a full line of windows and doors, including
wood, aluminum and vinyl windows and exterior doors from Summit. Pella
windows are available on a special order basis.
14) Door & Window Expo (This will be used as a heading)
15) The lumber and building materials department stocks lumber up to 16 feet
in length, 400 types of decorative moldings and a wide variety of
plywood, particle board, roofing materials and roof coatings.
16) Lumber & Building Materials (This will be used as a heading)
17) Lawn & Garden (This will be used as a heading)
18) The lawn and garden department carries a broad range of seasonal nursery
plants, shrubs and bedding plants, as well as patio products.
19) Major brands of power tools, including Black & Decker, Delta, DeWalt,
Hitachi, Makita, Milwaukee, Porter Cable, Ryobi and Skil are stocked in
Eagle Hardware's tool department.
20) Lighting & Electrical (This will be used as a heading)
21) The lighting department features over 1,500 different styles of lighting
fixtures. Complementing this selection, over 260 different light bulbs
are offered in the electrical department.
22) The hardware department features over 3,700 innovative "flip bins"
filled with hardware items that are not typically offered by the
Company's competitors, from plastic tips for chair legs to bumpers, crown
corks, corrugated fasteners and metric fasteners.
23) Hard-To-Find Hardware (This will be used as a heading)
24) Specialized Services (This will be used as a heading)
25) A full-time locksmith is available for on-site consultation.
26) Customers can have a wide variety of materials custom cut at the
Company's cut shop.
27) Eagle Hardware stores offer a low-cost delivery service. Trucks are
fully equipped, including a large capacity rough terrain forklift.
28) Current and Planned Locations (This will be used as a heading)
29) Eagle Hardware stores feature an Idea Center where do-it-yourself books,
plans and video tapes are offered for purchase.]

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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN. UNLESS
OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF
THE UNDERWRITERS' OVER-ALLOTMENT OPTION. SEE "UNDERWRITING." REFERENCES TO
FISCAL YEARS BY DATE REFER TO THE FISCAL YEAR THAT COMMENCES IN SUCH YEAR; FOR
EXAMPLE, THE FISCAL YEAR COMMENCING JANUARY 27, 1996 AND ENDING JANUARY 31, 1997
IS REFERRED TO AS "FISCAL 1996."

THE COMPANY

Eagle Hardware & Garden, Inc. ("Eagle Hardware" or the "Company") is a
leading operator of customer-friendly home improvement centers in the western
United States. Since opening its first store in Spokane, Washington in November
1990, the Company has grown to 25 stores with over three million square feet of
selling space. Eagle Hardware stores generated average annual sales per store of
$28.2 million in 1995, the second highest in the industry. The Company's stores
average approximately 123,000 square feet and feature a product assortment of
over 60,000 stock keeping units ("SKUs"), significantly more than the Company's
principal competitors, while maintaining an average in-stock position of over
98%. Since its inception, the Company has focused on creating the best home
improvement shopping experience for its customers by combining the selection and
value associated with traditional warehouse-format home centers with the
comfortable atmosphere and service orientation of specialty retailers.

The Company's goal is to be the premier operator of customer-oriented home
improvement centers in the United States. To achieve this goal, Eagle Hardware
has applied a business strategy designed to satisfy the preferences expressed by
its target do-it-yourself customers. The Company's business strategy consists of
five key elements: (i) present a customer-friendly shopping environment that is
clean, attractive, thoughtfully designed and "easy-to-shop;" (ii) offer "More of
Everything-Registered Trademark-," with one of the broadest and deepest
selections of brand name home improvement products available in the United
States; (iii) provide exceptional customer service as the "Nordstrom" of the
home improvement business, through knowledgeable and highly trained sales
associates, Eagle Experts-TM- and Eagle Service Specialists-TM-, and a
"no-hassle" return policy; (iv) operate stores in locations that maximize
convenience and accessibility; and (v) offer everyday low prices. The Company
believes the successful implementation of its business strategy has made Eagle
Hardware a more appealing destination for home improvement shoppers, including
female customers, who favor the customer-oriented shopping environment of the
Company's stores over the often confusing atmosphere of traditional
warehouse-format home centers.

The Company's expansion strategy is two-fold. The first element of the
Company's strategy is to cluster multiple home centers in metropolitan areas
such as Seattle, Salt Lake City and Denver. This clustering strategy is designed
to saturate larger markets in order to increase market share and operating
leverage. The Company believes this strategy has enabled it to achieve the
largest market share in the greater Seattle area based on a recent independent
consumer survey which indicated that over 27% of the do-it-yourself consumers
surveyed named Eagle Hardware as their primary store for home improvement
purchases. The second element of the Company's strategy is to operate home
centers in single-store markets such as Kennewick and Yakima, Washington,
Medford, Oregon and Billings, Montana. This strategy is designed to establish
favorable market positions in small markets in which the Company believes
operating costs are typically lower and competition is less intense. The Company
recently developed a modified version of its store model to serve as a prototype
for certain of these small markets. This prototype consists of a main store of
approximately 95,000 square feet with an attached drive-through lumber and
building materials yard of approximately 60,000 square feet. The Company has
opened one store and plans to open two additional stores utilizing this new
prototype by the end of fiscal 1997.

3
<PAGE>
RECENT DEVELOPMENTS

For the 13 weeks ended July 26, 1996, the Company had net sales of $209.1
million compared to net sales of $167.8 million in the comparable period of
fiscal 1995. This 25% increase in net sales resulted from a 14% increase in
store weeks related to the opening of five stores during fiscal 1995 and a 12%
increase in same store sales over the prior year period. Net income increased to
$8.1 million in the second quarter from $4.6 million in the prior year period.
This 77% increase in net income was a result of strong same store sales, gross
margin improvements and continued leveraging of the Company's fixed costs.

Ernst Home Centers, a significant competitor in most of the Company's
markets, filed for relief under Chapter 11 of the U.S. Bankruptcy Code in July
1996 and has closed a number of stores in Eagle Hardware's markets. The Company
believes this has positively impacted its performance and may continue to do so
in the future.

The Company opened a store in August 1996 in the single-store market of
Wenatchee, Washington utilizing its new store prototype. The Company currently
plans to open two additional stores during fiscal 1996, five stores during
fiscal 1997 and four to six stores in fiscal 1998 in both major metropolitan and
small markets in the western United States. Sites for seven stores expected to
be opened before the end of fiscal 1997 are either owned or under contract.

The Company's principal executive offices are located at 981 Powell Avenue
S.W., Renton, Washington 98055, and its telephone number is (206) 227-5740. The
Company was incorporated in Washington in November 1989.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered.............................. 5,000,000 shares
Common Stock to be outstanding after the
offering.......................................... 28,095,613 shares (1)
Use of proceeds................................... To repay outstanding bank debt; to
finance new store openings; and for
general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol..................... EAGL
</TABLE>

- ------------------------------

(1) Excludes (a) 1,636,200 shares of Common Stock reserved for issuance upon
exercise of options under the Company's stock option plans, of which options
to purchase 1,271,250 shares were outstanding as of September 16, 1996 at a
weighted average exercise price of $8.50 per share and (b) 4,791,667 shares
of Common Stock reserved for issuance upon conversion of outstanding
subordinated debentures.

------------------------------

MORE OF EVERYTHING-Registered Trademark- is a federally registered trademark
of the Company and EAGLE HARDWARE & GARDEN-REGISTERED TRADEMARK- is a federally
registered service mark of the Company. In addition, the Company claims common
law rights to the foregoing and various other trademarks and service marks. All
other trademarks or registered trademarks appearing in this Prospectus are
trademarks or registered trademarks of the respective companies that utilize
them.

4
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)

<TABLE>
<CAPTION>
YEAR ENDED 26 WEEKS ENDED
--------------------------------------------------------------- --------------------
JANUARY 31, JANUARY 29, JANUARY 28, JANUARY 27, JANUARY 26, JULY 28, JULY 26,
1992 1993 1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- ----------- --------- ---------
(53 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>

STORE WEEKS IN PERIOD
(1)...................... 101 266 492 850 1,135 521 624

RESULTS OF OPERATIONS
DATA:

Net sales............... $ 51,130 $ 147,281 $ 322,938 $ 518,755 $ 615,674 $ 297,981 $ 370,184
Gross margin............ 14,910 42,224 93,940 139,282 165,809 80,067 103,595
Loss on sale of
Canadian subsidiary.... -- -- -- 12,715 -- -- --
Operating income........ 741 6,339 16,029 4,869 22,596 11,521 21,830
Net income (loss)....... $ 1,109 $ 4,160 $ 10,759 $ (6,284) $ 11,335 $ 7,233 $ 11,029
Net income (loss) per
share,
primary................ $ 0.09 $ 0.26 $ 0.50 $ (0.28) $ 0.49 $ 0.31 $ 0.47
Net income (loss) per
share, fully diluted
(2).................... $ 0.46

SELECTED OPERATING DATA:
Number of stores open at
end of period.......... 4 7 13 19 24 22 24
Selling square footage
at end of period (in
thousands) (3)......... 437 801 1,520 2,248 2,861 2,610 2,904
Average weekly net sales
per
store (in thousands)... $ 506 $ 554 $ 656 $ 610 $ 542 $ 572 $ 593
Average net sale per
transaction............ $ 37.24 $ 38.69 $ 40.21 $ 38.44 $ 37.92 $ 37.45 $ 38.46
Same store sales
increase (4)........... 28% 23% 12% (2)% (7)% (7)% 7%
</TABLE>

<TABLE>
<CAPTION>
JULY 26, 1996
--------------------------
ACTUAL AS ADJUSTED (5)
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<S> <C> <C>
BALANCE SHEET DATA:

Working capital..................................................................... $ 48,784 $ 157,299
Total assets........................................................................ 409,944 481,559
Note payable to bank................................................................ 36,900 --
Long-term debt, excluding current portion........................................... 109,203 109,203
Shareholders' equity................................................................ 167,634 276,149
</TABLE>

- ------------------------------
(1) "Store Weeks in Period" represents the aggregate number of full weeks in
which stores were open during the reporting period.

(2) The Company's 6.25% convertible subordinated debentures were dilutive for
the first time in the 26 weeks ended July 26, 1996, and accordingly are
assumed to be converted into 4,791,667 shares of Common Stock for purposes
of calculating fully diluted net income per share.

(3) The calculation of selling square footage excludes storage and exterior lawn
and garden (including covered greenhouses).

(4) Stores enter the same store sales base at the beginning of their fourteenth
month of operation.

(5) As adjusted to reflect the estimated net proceeds from the sale of the
Common Stock offered hereby. A portion of the net proceeds will be used to
repay short-term bank borrowings, which are expected to be approximately
$40,000,000 as of the closing of this offering.

------------------------------

THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WHICH INVOLVE
KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY OR INDUSTRY TRENDS TO DIFFER
MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS.
SUCH FACTORS INCLUDE, AMONG OTHERS, THOSE DISCUSSED IN "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS AND IN DOCUMENTS INCORPORATED BY REFERENCE HEREIN.

5
<PAGE>
RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING ANY OF THE COMMON STOCK OFFERED HEREBY.

COMPETITION

The home improvement, hardware and garden businesses are all highly
competitive. The Company competes against traditional hardware, plumbing,
electrical and home supply retailers, as well as warehouse-format and discount
retail stores and catalog companies. Sixteen of the Company's 25 stores compete
in markets where Home Depot, a warehouse-format home center with approximately
450 stores in the United States, also operates stores. Three of these stores are
located next to existing Eagle Hardware stores. The Company's gross margin and
operating income are generally lower for stores located in markets where Home
Depot also operates stores. The Company also currently competes against a number
of other companies in the western United States, including Fred Meyer, Ernst
Home Centers ("Ernst"), HomeBase, Builders' Square and Hugh M. Woods (a unit of
Payless Cashways). Many of the Company's competitors have substantially greater
resources than the Company. In addition, there has been increasing consolidation
within the home improvement industry, which may provide certain entities with
even stronger competitive advantages over the Company. Moreover, the Company's
ability to expand into and operate profitably in new markets, particularly small
markets, may be adversely affected by the existence or entry of competing
warehouse-format home centers.

Should Home Depot or any of the Company's other competitors reduce prices in
any of Eagle Hardware's markets, the Company may be required to implement price
reductions in order to remain competitive. In addition, although the Company
believes that alternative sources of merchandise are available, some of the
Company's competitors may attempt to negotiate exclusive supply arrangements
with certain of the Company's vendors, which could result in the loss of
individual sources of merchandise. The implementation of price reductions or the
loss of certain key vendors could have a material adverse effect on the
Company's business, financial condition and operating results. See "Business --
Expansion Strategy" and "-- Competition."

EXPANSION PLANS

The Company opened its first store in November 1990 and currently operates
25 home improvement centers, averaging 123,000 square feet (excluding storage
and exterior garden square footage). The Company's expansion strategy is to
cluster multiple home centers in metropolitan areas such as Seattle, Salt Lake
City and Denver, and to open single home centers in small markets. In the
Company's experience, the opening of additional stores in existing markets tends
to negatively impact same store sales at existing stores. The Company expects
this trend, commonly referred to as "sales cannibalization," to continue as a
result of its planned expansion program. Further, the Company's ability to
successfully execute its expansion strategy will depend, in large part, on its
ability to obtain suitable store sites at acceptable prices, particularly sites
meeting the large space requirements of Eagle Hardware stores. In addition, the
Company has encountered, and may continue to encounter, substantial delays,
increased expenses or loss of potential sites due to the complexities associated
with the regulatory and permitting process in markets in which the Company
intends to locate its stores. There can be no assurance that the Company will be
able to open the planned number of new stores according to its store opening
schedule; failure to do so could have a material adverse effect on the Company's
business, financial condition and operating results.

The Company recently augmented its expansion strategy to include a new store
prototype designed for selected single-store small markets. This prototype
consists of a main store of approximately 95,000 square feet and includes
certain features intended to cater to the unique needs of do-it-yourself and
professional customers in small markets, including an attached drive-through
lumber and building materials yard of approximately 60,000 square feet. The
Company is utilizing this prototype in Wenatchee, Washington, and plans to use
it in Pueblo, Colorado and Kahului (Maui), Hawaii. Although the Company
currently operates stores in small markets, the first Eagle Hardware store based
on this

6
<PAGE>
new prototype was opened in August 1996; therefore, the Company's experience
with the new prototype is extremely limited. The Company anticipates that
average annual sales levels achieved by stores located in small markets will be
lower than those obtained by stores operated in large metropolitan markets. In
addition, there can be no assurance that the Company's future stores, including
those based on this new prototype, will achieve anticipated sales and gross
margin levels or that they will prove to be profitable. Should any new store be
unprofitable or should any existing store experience a decline in profitability,
the effect on the Company's results of operations could be more significant than
would be the case with a larger company.

The construction of new store facilities and the conversion of existing
structures into Eagle Hardware stores are also subject to unexpected delays,
which could lead to higher costs. The Company's expansion further depends on its
ability to complete the improvements at its home centers in a timely manner, to
hire and train competent store managers and staff, and to integrate these
employees and new home centers into its overall systems and operations. Because
the Company will be expanding into geographic markets in which it has no
previous operating experience, it may face competitive challenges, delays or
other problems that are different from those encountered to date. There can be
no assurance that the Company will be able to enter new geographic markets
successfully.

The Company currently owns or has signed agreements to purchase the land for
seven stores scheduled to be opened during fiscal 1996 and 1997. As a result,
the Company will be required to finance the construction of the new store
buildings on these sites, and will incur significant inventory and capital
expenditures and preopening costs. The Company believes the net proceeds from
this offering, cash generated from operations, in combination with anticipated
bank borrowings under the existing line of credit and the proceeds of fixed-term
capital asset loans and/or sale-leaseback transactions, will be sufficient to
satisfy its anticipated working capital, capital expenditure, interest and debt
service requirements through fiscal 1997. However, in the past the Company has
occasionally exceeded its capital expenditure budget substantially as a result
of project delays, construction cost overruns and other factors, and the Company
may be required to seek additional sources of funds for its planned expansion.
There can be no assurance that such funds will be available on satisfactory
terms. Failure to obtain such financing could delay or prevent the Company's
planned expansion, which could adversely affect the Company's business,
financial condition and operating results. In addition, there can be no
assurance that there will not be a decline in the market value of the Company's
properties, which could also have an adverse effect on the Company's business,
financial condition and operating results. See "Business -- Expansion Strategy"
and "-- Properties."

ABILITY TO MANAGE GROWTH; DEPENDENCE ON ACCOUNTING AND MANAGEMENT INFORMATION
SYSTEMS

The Company has experienced significant growth in recent years and intends
to continue its growth strategy. This strategy will require an increase in
Company personnel, particularly store managers and sales associates, who possess
the training and experience necessary to operate the Company's new stores. There
can be no assurance that the Company will be able to continue to attract,
develop and retain the personnel necessary to pursue its growth strategy. In
addition, Eagle Hardware's rapid growth has placed significant pressure on its
accounting systems and internal controls. During fiscal 1991 and fiscal 1992,
the Company experienced an inventory shortage and other accounting problems that
were due in part to weaknesses in accounting systems and internal controls. The
Company has taken a number of steps over the past several years to improve its
accounting systems and internal controls. However, there can be no assurance
that additional problems associated with the Company's rapid growth will not
occur in the future. Any such additional problems could have a material adverse
impact on the Company's business, financial condition and results of operation.
The Company will also need to continually evaluate the adequacy of its
management information systems, including its inventory control and distribution
systems, and in the future will need to upgrade or reconfigure its management
information systems to support its planned expansion. While the Company has
taken a number of precautions against certain events that could disrupt the
operation of its management information systems, including in connection with
its planned systems revisions, there can be no assurance that the Company will
not experience systems failures or interruptions, which could have a material
adverse

7
<PAGE>
effect on its business, financial condition and operating results. Further, the
Company currently relies on a single outside vendor for the software and support
of its management information systems. Although the Company believes that
alternative information systems vendors are available, in the event it were to
change vendors, the Company could experience systems delays or interruptions,
which could have a material adverse effect on the Company's business, financial
condition and operating results. Moreover, as the Company grows, it will need to
continually analyze the sufficiency of its warehouse and distribution space and
will require additional facilities in order to support such growth. See
"Business -- Purchasing and Distribution" and "-- Management Information
Systems."

FLUCTUATIONS IN SAME STORE SALES

A variety of factors affect the Company's same store sales, including, among
others, actions of competitors (including the opening of additional stores in
the Company's markets), the retail sales environment, general economic
conditions, weather conditions and the Company's ability to execute its business
strategy effectively. In addition, the Company's expansion plans include the
opening of additional stores in market areas where the Company has already
opened stores. The Company's experience has been that opening such additional
stores in the same market area reduces sales at existing Company stores located
in that area and the Company expects this sales cannibalization to continue in
the future. Moreover, one of the Company's competitors, Ernst, has recently held
liquidation sales in connection with closing a number of its stores in the
Company's markets, and may continue to do so in the future. These liquidation
sales could have a short-term negative impact on the Company's same store sales
in market areas containing Ernst stores. Should Ernst emerge from bankruptcy or
should a new competitor replace Ernst, the Company's same store sales, business,
financial condition and operating results could be adversely affected. The
Company's quarterly same store sales have fluctuated significantly in the past
and may do so in the future. The Company's same store sales increases
(decreases) over the prior year were 12%, (2%) and (7%) in fiscal years 1993,
1994 and 1995, respectively, and 1% and 12% in the first and second quarters of
fiscal 1996, respectively. New store openings by the Company in existing markets
and significant same store sales increases to date in 1996, combined with other
factors such as competition and economic trends in the Company's markets, may
result in future same store sales increases lower than those experienced in
fiscal 1996. Moreover, there can be no assurance that same store sales for any
particular period will not decrease in the future. Changes in the Company's same
store sales have in the past and could in the future cause the price of the
Common Stock to fluctuate substantially.

FLUCTUATIONS IN QUARTERLY RESULTS AND SEASONALITY

The Company's quarterly operating results have fluctuated in the past and
are expected to fluctuate in the future as a result of a variety of factors,
including the timing of store openings and related preopening expenses, weather
conditions, price increases by suppliers, actions by competitors, conditions in
the home improvement market and the hardware industry in general, regional and
national economic conditions and other factors. Moreover, the Company expects
its business to exhibit some measure of seasonality, which the Company believes
is typical of the retail home center industry. The Company anticipates that its
gross margin percentage will generally be lower in the second and third quarters
of each fiscal year, when sales of lower-margin products are proportionately
greater. The Company also expects that, in general, individual stores will
experience lower net sales and operating income and that cash flow from
operations will be lower in the fourth quarter than in any other quarter, due
primarily to the effect of winter weather on home improvement projects and the
lack of significant sales of lawn and garden items during the quarter.

GENERAL ECONOMIC CONDITIONS

The success of the Company's operations depends on a number of economic
conditions. In particular, higher mortgage interest rates and slower housing
turnover will generally have an adverse effect on the Company's sales and
earnings. The Company cannot predict with certainty the effect on its future
earnings if either the national or regional economies of the United States face
a downturn or encounter periods of high inflation and rising interest rates.

8
<PAGE>
GEOGRAPHIC CONCENTRATION

As its operations are located entirely in the western United States, the
Company is subject to regional risks, such as the economy, weather conditions,
natural disasters and government regulations. If the region were to suffer an
economic downturn or other adverse regional events occur, there may be an
adverse impact on the Company's sales and profitability and its ability to
implement its planned expansion program. Some of the Company's competitors,
including Home Depot, operate stores across the United States and thus are not
as vulnerable as the Company to such regional risks.

DEPENDENCE ON KEY INDIVIDUALS

The Company's success depends in large part on the abilities and continued
service of its executive officers and other key employees, including David J.
Heerensperger, the Company's founder, Chairman and Chief Executive Officer, and
Richard T. Takata, the Company's President and Chief Operating Officer. Most of
these individuals, including Messrs. Heerensperger and Takata, are not subject
to employment agreements that would prevent them from leaving the Company. There
can be no assurance that the Company will be able to retain the services of such
executive officers and other key employees. The loss of key personnel could have
a material adverse effect on the Company's business, financial condition and
operating results. See "Management."

VOLATILITY OF STOCK PRICE

The market price of the Common Stock has fluctuated substantially since the
Company's initial public offering in July 1992. There can be no assurance that
the market price of the Common Stock will not fluctuate significantly from its
current level. Future announcements concerning the Company or its competitors,
quarterly variations in operating results or same store sales, changes in
product mix or prices by the Company or its competitors, weather patterns or
economic trends that may be perceived to affect the demand for the Company's
products, changes in earnings estimates by analysts or changes in accounting
policies, among other factors, could cause the market price of the Common Stock
to continue to fluctuate substantially. In addition, stock markets have
experienced extreme price and volume volatility in recent years. This volatility
has had a substantial effect on the market prices of securities of many public
companies for reasons frequently unrelated to the operating performance of the
specific companies. These broad market fluctuations may adversely affect the
market price of the Common Stock.

ANTITAKEOVER CONSIDERATIONS

Certain provisions of the Company's Restated Articles of Incorporation and
Restated Bylaws, as well as the Washington Business Corporation Act, could
discourage a third party from attempting to acquire, or make it more difficult
for a third party to acquire, control of the Company without approval of the
Company's Board of Directors. Such provisions could also limit the price that
certain investors might be willing to pay in the future for the Common Stock.
Certain of such provisions allow the Board of Directors to authorize the
issuance of preferred stock with rights superior to those of the Common Stock.
Additionally, the Company's Restated Bylaws provide for staggered terms for the
Board of Directors. The Company is also subject to the provisions of Chapter
23B.19 of the Washington Business Corporation Act, which generally prohibits any
"significant business transactions" within five years of the date a person
acquires 10% or more of the outstanding voting shares of a Washington
corporation unless the transaction or the acquisition is approved prior to the
acquisition date by a majority of a company's then board of directors. After the
five-year period, a "significant business transaction" may take place as long as
it complies with certain "fair price" provisions of the statute which generally
prohibits "interested shareholder transactions" (such as a merger, sale of
assets or liquidation) with a person who beneficially owns 20% or more of a
corporation's outstanding voting securities, unless approved by a majority vote
of disinterested directors or a two-thirds vote of disinterested shareholders. A
corporation may not "opt out" of this statute. This provision may have the
effect of delaying, deferring or preventing a change in control of the Company.

9
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

The sale of a substantial number of shares of Common Stock in the public
market following this offering could adversely affect the market price of the
Common Stock. Approximately 6,132,000 shares beneficially owned by the Company's
executive officers and directors will be eligible for sale in the public market
beginning 90 days after the date of this Prospectus upon the expiration of
lock-up agreements with the Underwriters and subject to the provisions of Rule
144 of the Securities Act of 1933, as amended (the "Securities Act"). In
addition, certain existing shareholders possess registration rights with respect
to shares of Common Stock.

USE OF PROCEEDS

The net proceeds from the sale of the 5,000,000 shares of Common Stock
offered by the Company hereby (after deducting the underwriting discount and
estimated offering expenses payable by the Company) are estimated to be
approximately $108.5 million (approximately $124.8 million if the Underwriters'
over-allotment option is exercised in full), based on the public offering price
of $22.875 per share. The Company intends to use approximately $40.0 million of
the net proceeds to repay the balance anticipated to be outstanding at the close
of this offering on a revolving working capital line bearing interest at an
average rate of 7.02% as of July 26, 1996, and the remainder to finance new
store openings and for general corporate purposes. Pending such uses, the net
proceeds will be invested in short-term, interest-bearing, investment grade
securities.

DIVIDEND POLICY

The Company has not declared or paid any cash dividends on the Common Stock.
The Company intends to retain its earnings, if any, to finance the growth and
development of its business and does not anticipate paying cash dividends on its
capital stock in the foreseeable future. The payment of any future dividends
will be at the discretion of the Company's Board of Directors and will depend
upon, among other things, future earnings, operations, capital requirements, the
general financial condition of the Company and general business conditions. In
addition, under the terms of the Company's current revolving line of credit, the
Company is prohibited from paying dividends without the lender's prior written
consent.

PRICE RANGE OF COMMON STOCK

The Common Stock is traded on the Nasdaq National Market under the symbol
"EAGL." The following table sets forth, for the Company's fiscal periods
indicated, the high and low closing prices per share for the Common Stock, as
reported on the Nasdaq National Market.

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL 1994
First Quarter.................................................................... $ 16.50 $ 12.00
Second Quarter................................................................... 15.63 9.00
Third Quarter.................................................................... 13.50 9.38
Fourth Quarter................................................................... 10.13 7.75
FISCAL 1995
First Quarter.................................................................... $ 8.63 $ 6.88
Second Quarter................................................................... 7.88 6.13
Third Quarter.................................................................... 9.88 7.00
Fourth Quarter................................................................... 8.88 7.13
FISCAL 1996
First Quarter.................................................................... $ 11.63 $ 8.38
Second Quarter................................................................... 18.50 9.38
Third Quarter (through September 16, 1996)....................................... 23.75 17.00
</TABLE>

On September 16, 1996, the closing price of the Common Stock as reported on
the Nasdaq National Market was $23.00 per share. As of September 16, 1996, there
were approximately 1,210 holders of record of the Common Stock.

10
<PAGE>
CAPITALIZATION

The following table sets forth the short-term borrowings and capitalization
of the Company at July 26, 1996 on an actual basis and as adjusted to give
effect to the sale of the 5,000,000 shares of Common Stock offered by the
Company hereby at the public offering price of $22.875 per share and the
application of the net proceeds therefrom as described under "Use of Proceeds."

<TABLE>
<CAPTION>
JULY 26, 1996
----------------------------
ACTUAL AS ADJUSTED (1)
----------- ---------------
(IN THOUSANDS)

<S> <C> <C>
Note payable to bank................................................................ $ 36,900 $ --
----------- ---------------
----------- ---------------
Long-term debt, excluding current portion:
Senior mortgage indebtedness and capital leases................................... 22,953 22,953
6.25% Convertible Subordinated Debentures Due 2001................................ 86,250 86,250
----------- ---------------
Total long-term debt............................................................ 109,203 109,203
Shareholders' equity:
Preferred Stock, without par value, 10,000,000 shares authorized, no shares
outstanding...................................................................... -- --
Common Stock, without par value, 50,000,000 shares authorized, 23,019,413 shares
issued and outstanding (2);
28,019,413 shares issued and outstanding, as adjusted............................ 136,725 245,240
Retained earnings................................................................. 30,909 30,909
----------- ---------------
Total shareholders' equity...................................................... 167,634 276,149
----------- ---------------
Total capitalization............................................................ $ 276,837 $ 385,352
----------- ---------------
----------- ---------------
</TABLE>

- ------------------------------
(1) As adjusted to reflect the estimated net proceeds from the sale of Common
Stock offered by the Company hereby.

(2) Shares issued and outstanding exclude (a) 1,712,400 shares of Common Stock
reserved for issuance upon exercise of options under the Company's stock
option plans, of which options to purchase 1,081,750 shares were outstanding
as of July 26, 1996 and (b) 4,791,667 shares of Common Stock reserved for
issuance upon the conversion of outstanding subordinated debentures.

11
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)

The following results of operations and balance sheet data as of the end of
and for fiscal 1991, 1992, 1993, 1994 and 1995 have been derived from the
Company's audited consolidated financial statements. The selected financial data
for the 26 weeks ended July 28, 1995 and July 26, 1996 have been derived from
unaudited consolidated financial statements of the Company. In the opinion of
the Company, the unaudited financial information contains all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information for the periods presented. The results for the
26 weeks ended July 26, 1996 may not be indicative of the results to be achieved
for the entire fiscal year. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Company's consolidated financial statements and
related notes and other financial information included elsewhere in this
Prospectus or incorporated by reference herein.

RESULTS OF OPERATIONS DATA:
Net sales........................ $ 51,130 $ 147,281 $ 322,938 $ 518,755 $ 615,674 $ 297,981 $ 370,184
Cost of sales.................... 36,220 105,057 228,998 379,473 449,865 217,914 266,589
----------- ----------- ----------- ----------- ----------- --------- ---------
Gross margin................. 14,910 42,224 93,940 139,282 165,809 80,067 103,595
Operating expenses............... 13,034 34,337 72,686 117,159 140,279 66,878 81,765
Preopening expenses.............. 1,135 1,548 5,225 4,539 2,934 1,668 --
Loss on sale of Canadian
subsidiary . -- -- -- 12,715 -- -- --
----------- ----------- ----------- ----------- ----------- --------- ---------
Operating income............. 741 6,339 16,029 4,869 22,596 11,521 21,830
Net interest income (expense).... 321 (59) 470 (4,652) (7,398) (2,881) (4,615)
Other income..................... 47 80 264 309 1,860 2,028 145
----------- ----------- ----------- ----------- ----------- --------- ---------
Income before income tax..... 1,109 6,360 16,763 526 17,058 10,668 17,360
Income taxes..................... 0 2,200 6,004 6,810 5,723 3,435 6,331
----------- ----------- ----------- ----------- ----------- --------- ---------
Net income (loss)............ $ 1,109 $ 4,160 $ 10,759 $ (6,284) $ 11,335 $ 7,233 $ 11,029
----------- ----------- ----------- ----------- ----------- --------- ---------
----------- ----------- ----------- ----------- ----------- --------- ---------
Net income (loss) per share,
primary......................... $ 0.09 $ 0.26 $ 0.50 $ (0.28) $ 0.49 $ 0.31 $ 0.47
----------- ----------- ----------- ----------- ----------- --------- ---------
----------- ----------- ----------- ----------- ----------- --------- ---------
Net income (loss) per share,
fully diluted (2)............... $ 0.46
---------
---------
SELECTED OPERATING DATA:
Number of stores open at end of
period.......................... 4 7 13 19 24 22 24
Selling square footage at end of
period (in thousands) (3)....... 437 801 1,520 2,248 2,861 2,610 2,904
Average weekly net sales per
store (in thousands)............ $ 506 $ 554 $ 656 $ 610 $ 542 $ 572 $ 593
Average net sale per
transaction..................... $ 37.24 $ 38.69 $ 40.21 $ 38.44 $ 37.92 $ 37.45 $ 38.46
Same store sales increase (4).... 28% 23% 12% (2)% (7)% (7)% 7%

BALANCE SHEET DATA:
Working capital.................. $ 7,998 $ 22,239 $ 56,160 $ 79,031 $ 55,391 $ 55,105 $ 48,784
Total assets..................... 38,826 102,635 211,860 321,865 366,567 353,298 409,944
Note payable to bank............. 2,025 5,700 9,500 6,000 34,500 23,100 36,900
Long-term debt, excluding current
portion......................... -- 138 4,915 103,807 101,542 98,386 109,203
Shareholders' equity............. 22,529 71,724 149,309 143,849 155,601 151,170 167,634
</TABLE>

- ------------------------------
(1) "Store Weeks in Period" represents the aggregate number of full weeks in
which stores were open during the reporting period.

(3) The calculation of selling square footage excludes storage and exterior lawn
and garden (including covered greenhouses).

(4) Stores enter the same store sales base at the beginning of their fourteenth
month of operation.

12
<PAGE>
FORWARD-LOOKING INFORMATION

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED FINANCIAL DATA" AND THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED BY
REFERENCE HEREIN.

GENERAL

Eagle Hardware & Garden (the "Company" or "Eagle Hardware") was incorporated
in November 1989 and opened its first home improvement center in Spokane,
Washington in November 1990. The Company currently operates 25 stores in the
western United States, including 15 stores in the state of Washington. The
Company's merchandising strategy is to provide its target do-it-yourself
customers as well as professional contractors with a broad selection of home
improvement items. The Company focuses on creating the best home improvement
shopping experience for its customers by combining the selection and value
associated with traditional warehouse-format home centers with the comfortable
atmosphere and service orientation of specialty retailers. The Company's product
categories include plumbing, garden, lumber, tools, electrical, hardware, paint
and decor.

The Company opened a new store in Wenatchee, Washington in August 1996 and
currently plans to open two additional stores in fiscal 1996, five stores in
fiscal 1997 and four to six stores in fiscal 1998. Based on its past experience,
the Company expects that preopening expenses, which are expensed in the quarter
in which the related store opens, will be approximately $700,000 per store.

A significant element of the Company's overall expansion strategy is to
provide more convenient access to its stores, expand its total market share and
achieve economies of scale by clustering stores in metropolitan markets. In
general, the opening of additional stores by the Company in existing markets
results in sales cannibalization. The Company opened two additional stores in
the Seattle metropolitan market and one additional store in the Salt Lake
metropolitan market during fiscal 1995. Fiscal 1996 and 1997 store opening plans
include two stores in the Seattle metropolitan market and three stores in the
Denver metropolitan market.

The Company's same store sales increases (decreases) over the prior year
were 12%, (2%) and (7%) in fiscal years 1993, 1994 and 1995, respectively, and
1% and 12% in the first and second quarters of fiscal 1996, respectively. New
store openings by the Company in existing markets and significant same store
sales increases to date in 1996, combined with other factors such as competition
and economic trends in the Company's markets, may result in future same store
sales increases lower than those experienced in fiscal 1996. Moreover, there can
be no assurance that same store sales for any particular period will not
decrease in the future.

13
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth the Company's results of operations for the
fiscal years ended January 28, 1994, January 27, 1995, and January 26, 1996, and
for the 26-week periods ended July 28, 1995 and July 26, 1996 expressed as
percentages of net sales. Percentage amounts may not accumulate to 100% as a
result of rounding.

<TABLE>
<CAPTION>
26 WEEKS ENDED
FISCAL YEAR ----------------------
---------------------------------- JULY 28, JULY 26,
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales.................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.............................................. 70.9 73.2 73.1 73.1 72.0
----- ----- ----- ----- -----
Gross margin............................................. 29.1 26.8 26.9 26.9 28.0
Operating expenses......................................... 22.5 22.6 22.8 22.4 22.1
Preopening expenses........................................ 1.6 0.9 0.5 0.6 --
Loss on sale of Canadian subsidiary........................ -- 2.5 -- -- --
----- ----- ----- ----- -----
Operating income......................................... 5.0 0.9 3.7 3.9 5.9
Net interest income (expense).............................. 0.1 (0.9) (1.2) (1.0) (1.2)
Other income............................................... 0.1 0.1 0.3 0.7 --
----- ----- ----- ----- -----
Income before income tax................................. 5.2 0.1 2.8 3.6 4.7
Income taxes............................................... 1.9 1.3 0.9 1.2 1.7
----- ----- ----- ----- -----
Net income (loss)........................................ 3.3% (1.2)% 1.8% 2.4% 3.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>

26 WEEKS ENDED JULY 26, 1996 VS. 26 WEEKS ENDED JULY 28, 1995

NET INCOME. Net income for the first 26 weeks of fiscal 1996 was
$11,029,000, or $0.46 per share, fully diluted, compared to $7,233,000, or $0.31
per share, during the first 26 weeks of fiscal 1995. The Company's 6.25%
convertible subordinated debentures were dilutive for the first time in the 26
weeks ended July 26, 1996, and accordingly are assumed to be converted into
4,791,667 shares of Common Stock for purposes of calculating fully diluted net
income per share. Had the debentures not been dilutive, net income per share for
the 26 weeks ended July 26, 1996, would have been $0.47. The 52% increase in net
income was due to the factors discussed below.

NET SALES. Net sales for the first 26 weeks of fiscal 1996 were
$370,184,000 as compared to net sales of $297,981,000 for the comparable prior
year period. This 24% increase in net sales over the prior year 26-week period
was due primarily to a 20% increase in store weeks of operations from 521 store
weeks during the prior year period to 624 in the current year and a 7% increase
in same store sales for the period (for stores open one year or more). Same
store sales increased 7% primarily as a result of a 5% increase in the number of
sales transactions and an increase in the average net sale per transaction for
comparable stores from $37.45 to $38.20. The increase of 7% in same store sales
during the current 26-week period compares to a decrease of 7% for stores open
one year or more during the first 26 weeks of fiscal 1995. Management attributes
the increase in same store sales to a number of factors, including continued
increases in housing turnover and favorable economic conditions in most of the
Company's markets and the declining performance of a primary competitor that
filed for Chapter 11 bankruptcy protection in July 1996.

GROSS MARGIN. The Company's gross margin was $103,595,000 for the first 26
weeks of fiscal 1996. This represents an increase of $23,528,000, or 29%, over
the first 26 weeks of fiscal 1995. As a percentage of net sales, gross margin
was 28.0% in the first 26 weeks of fiscal 1996 versus 26.9% in the comparable
prior period. Management attributes the improvement in gross margin as a
percentage of net sales to a combination of factors, including volume-related
buying efficiencies, a reduction in realized inventory shrinkage (attributed
primarily to continuing loss prevention programs) and less promotional pricing
by competitors. In addition, the prior year gross margin was lower due to the
opening of three new stores during the first half of fiscal 1995 and related
grand opening promotional pricing.

14
<PAGE>
OPERATING EXPENSES. Operating expenses as a percentage of net sales
decreased from 22.4% in the first 26 weeks of fiscal 1995 to 22.1% in the first
26 weeks of fiscal 1996. Economies of scale generated by a larger store base and
additional leveraging of operating expenses attributable to the 7% increase in
same store sales were the primary factors leading to the decrease in operating
expenses as a percentage of sales. The dollar amount of operating expenses
increased by $14,887,000, or 22%, from the comparable prior year period,
primarily as a result of the 20% increase in store weeks of operations.
Operating expenses would have been lower in the first half of fiscal 1996 had it
not been for the Company's decision to increase staffing on the sales floor.

PREOPENING EXPENSES. There were no preopening expenses in the first 26
weeks of fiscal 1996 because there were no store openings. In the comparable
prior year period, the Company opened three stores and incurred preopening
expenses of $1,668,000, or 0.6% of net sales.

OPERATING INCOME. For the reasons explained above, operating income
increased 89%, from $11,521,000 to $21,830,000, in the respective 26-week
periods. Expressed as a percentage of net sales, operating income improved from
3.9% in the first 26 weeks of fiscal 1995 to 5.9% in the comparable current year
period.

INTEREST EXPENSE. Net interest expense during the first 26 weeks of fiscal
1996 was $4,615,000, compared to $2,881,000 during the comparable prior year
period. This increase was due primarily to interest on additional long-term
borrowings made during the latter half of 1995 and higher average borrowings on
the Company's bank line of credit compared to the prior year. During both
periods, interest incurred was partially offset by interest capitalized on
construction projects.

INCOME TAXES. The Company recorded a combined federal and state tax
provision of $6,331,000 for the first 26 weeks of fiscal 1996, compared to a
provision of $3,435,000 during the comparable prior year period. The effective
tax rate for the first 26 weeks of fiscal 1996 was 36.5% versus 32.2% in the
first 26 weeks of fiscal 1995. The prior year effective tax rate for the first
26 weeks was lower than the combined federal and state statutory tax rates due
primarily to the utilization of a portion of the Company's capital loss
carryforward incurred in the fourth quarter of fiscal 1994. The capital loss
carryforward was used to offset capital gains realized on the sale of surplus
land in Utah and the recovery of a previously reserved receivable relating to
the sale of land in Canada.

FISCAL 1995 VS. FISCAL 1994

NET INCOME (LOSS). During fiscal 1995, the Company recorded net income of
$11,335,000, or $0.49 per share. This compared to a net loss of $6,284,000, or
$0.28 per share, during fiscal 1994, attributable to a significant loss recorded
on the sale of the Company's Canadian subsidiary. The change in net income was
due to the factors discussed below.

NET SALES. Net sales during fiscal 1995 were $615,674,000, compared to net
sales of $518,755,000 during fiscal 1994. The increase of $96,919,000, or 19%,
in net sales over fiscal 1994 was due primarily to having 1,135 store weeks of
operations during the year versus 850 store weeks during the prior year. Same
store sales for the year (for stores open one year or more) decreased 7% as a
result of a 4% decline in the average net sale per transaction (from $39.62 to
$37.86) for comparable stores and a 2% decline in the number of sales
transactions.

The decrease of 7% in same store sales during fiscal 1995 followed a
decrease of 2% during the prior year. The additional decline in same store sales
was primarily attributable to planned sales cannibalization by new Eagle
Hardware stores, increased competition in the Puget Sound market, normal store
maturation and slow economic growth in many of the Company's markets during
fiscal 1995.

GROSS MARGIN. The Company's gross margin was $165,809,000 during fiscal
1995. This represented an increase of $26,527,000, or 19%, over the prior year.
As a percentage of net sales, gross margin was 26.9% during fiscal 1995 versus
26.8% in the prior year. The slight improvement in gross margin

15
<PAGE>
percentage versus the prior year was due primarily to the beneficial effect of
selling the lower margin Canadian subsidiary in 1994, offset in part by an
increase in the number of stores operating in more competitive markets.

OPERATING EXPENSES. Operating expenses as a percentage of net sales
increased from 22.6% in fiscal 1994 to 22.8% in fiscal 1995. The primary factor
in this slight reduction in operating expense leverage was an 11% decline in
sales per store week, from $610,000 in fiscal 1994 to $542,000 in fiscal 1995,
related to the previously described decline in same store sales and to the
increase in the number of lower volume stores now included in the 24-store base.
As of January 26, 1996, 50% of the Company's stores had been in operation for
less than 24 months.

PREOPENING EXPENSES. Preopening expenses were $2,934,000, or 0.5% of net
sales, during fiscal 1995, when the Company opened five stores. The Company
opened eight stores and incurred preopening expenses of $4,539,000, or 0.9% of
net sales, during fiscal 1994. Preopening expenses vary directly with the number
of stores opened during a particular period, as such costs are normally expensed
in the period when the related store opens.

OPERATING INCOME. For the reasons explained above, income from operations
increased 364% from $4,869,000 during fiscal 1994 to $22,596,000 during fiscal
1995. Excluding the loss on the sale of the Canadian subsidiary from the 1994
amounts, income from operations increased 29%. Expressed as a percentage of net
sales, income from operations increased from 0.9% (3.4% excluding the loss on
the sale of the Canadian subsidiary) during fiscal 1994 to 3.7% during fiscal
1995.

INTEREST EXPENSE. Net interest expense during fiscal 1995 was $7,398,000,
compared to net interest expense of $4,652,000 during fiscal 1994. This increase
was due primarily to interest on the Company's $86,250,000 convertible
debentures issued in March 1994, other long-term borrowings made during 1994 and
1995 and higher average borrowings on the Company's bank line of credit at
higher rates of interest. In the prior year, the debentures were outstanding for
approximately 46 weeks and interest incurred was partially offset by interest
earned through temporary investment of the offering proceeds. During both years,
interest incurred was partially offset by interest capitalized on construction
projects.

OTHER INCOME. Other income during fiscal 1995 was $1,860,000, compared to
$309,000 during fiscal 1994. Other income in fiscal 1995 included $1,125,000
related to the settlement of securities litigation and $818,000 in capital gains
recognized on the sale of surplus property in Utah.

INCOME TAXES. The Company recorded an income tax provision of $5,723,000,
or 0.9% of net sales, during fiscal 1995, compared to a provision of $6,810,000,
or 1.3% of net sales, during fiscal 1994. The effective tax rate for fiscal 1995
was 33.6%. The 1995 effective tax rate was lower than the combined federal and
state statutory tax rates due primarily to the utilization of a portion of the
Company's capital loss carryforward incurred in the fourth quarter of fiscal
1994. The capital loss carryforward was used to offset capital gains realized on
the sale of surplus land in Utah and the recovery of a previously reserved
receivable relating to the sale of land in Canada. For 1994, refer to the
reconciliation between the U.S. statutory income tax rate and the effective tax
rate in Note 4 of notes to consolidated financial statements.

FISCAL 1994 VS. FISCAL 1993

NET INCOME (LOSS). During fiscal 1994, the Company incurred a net loss of
$6,284,000, or $0.28 per share, attributable to a significant loss recorded on
the sale of the Company's Canadian subsidiary. This compared to net income of
$10,759,000, or $0.50 per share, during fiscal 1993. The change in net income
was due to the factors discussed below.

NET SALES. Net sales during fiscal 1994 were $518,755,000, compared to net
sales of $322,938,000 during fiscal 1993. The increase of $195,817,000, or 61%,
in net sales over fiscal 1993 was due primarily to having 850 store weeks of
operations during the year versus 492 store weeks during the prior year.

16
<PAGE>
Same store sales for the year (for stores open one year or more) decreased 2% as
a result of a 4% decline in the average net sale per transaction (from $40.30 to
$38.66) for comparable stores, partially offset by a 2% increase in the number
of sales transactions.

The decrease of 2% in same store sales during fiscal 1994 compares to an
increase of 12% during the prior year. This shift was primarily attributable to
planned sales cannibalization by new Eagle Hardware stores, increased
competition in the Puget Sound market, normal store maturation and a general
softening of consumer demand in many of the Company's markets during fiscal
1994.

GROSS MARGIN. The Company's gross margin was $139,282,000 during fiscal
1994. This represented an increase of $45,342,000, or 48%, over the prior year.
As a percentage of net sales, gross margin was 26.8% during fiscal 1994 versus
29.1% in the prior year. The decline in gross margin percentage versus the prior
year was due primarily to a gradual increase in the Company's provision for
estimated inventory shrinkage during the year, new customer service programs
which affected gross margin and the effect of increased competition,
particularly in the Canadian market from which the Company withdrew during the
fourth quarter.

OPERATING EXPENSES. Operating expenses as a percentage of net sales
increased from 22.5% in fiscal 1993 to 22.6% in fiscal 1994. The primary factor
in this slight deterioration in operating expense leverage was a 7% decline in
sales per store week, from $656,000 in fiscal 1993 to $610,000 in fiscal 1994,
related to the previously described decline in same store sales and to the
increase in the number of lower volume stores included in the 19-store base. As
of January 27, 1995, 63% of the Company's stores had been in operation for less
than 24 months.

PREOPENING EXPENSES. Preopening expenses were $4,539,000, or 0.9% of net
sales, during fiscal 1994 when the Company opened eight stores. The Company
opened six stores and incurred preopening expenses of $5,225,000, or 1.6% of net
sales, during fiscal 1993. Preopening expenses vary directly with the number of
stores opened during a particular period, as such costs are normally expensed in
the period when the related store opens.

LOSS ON SALE OF CANADIAN SUBSIDIARY. During the fourth quarter of fiscal
1994, the Company sold its Canadian subsidiary, Eagle Hardware & Garden (Canada)
Limited ("Eagle/Canada") to West Fraser Timber Co. Ltd. At the time of the sale,
Eagle/Canada operated two stores in Edmonton, Alberta and had two additional
sites under development in Vancouver, British Columbia. Net cash proceeds from
the sale were $19,711,000; inventory, fixtures and equipment valued at
approximately $8,300,000 were also returned to the United States for use in
domestic operations. A pretax loss of $12,715,000 was recorded on the sale in
the fourth quarter of fiscal 1994, and the fourth quarter tax provision was
increased $1,616,000 to reflect the writeoff of previously recognized foreign
deferred tax benefits, of which $677,000 had been recognized in the first two
quarters of fiscal 1994.

Eagle/Canada had been organized and commenced operations during fiscal 1993.
When its first store opened in November 1993, there were no other warehouse home
improvement centers operating in western Canada. Within months, however, two
additional competitors entered the Edmonton market, which rapidly became
over-stored and unprofitable at the store level. In view of the significant
capital expenditures which would have been required to establish an effective
presence in the Vancouver market, the unfavorable long term outlook for the
Edmonton market, the overhead required to operate a separate Canadian
subsidiary, the Company's relatively limited funds for expansion, the existence
of more attractive investment opportunities under an existing overhead structure
in the United States and the presence of a qualified buyer interested in
obtaining the Eagle/Canada sites, the decision was made to withdraw entirely
from the Canadian market during the fourth quarter of fiscal 1994. A letter of
intent for the sale was signed on November 10, 1994, and payment was received on
January 3, 1995.

OPERATING INCOME. For the reasons explained above, income from operations
declined 70% from $16,029,000 during fiscal 1993 to $4,869,000 during fiscal
1994. Expressed as a percentage of net sales, income from operations declined
from 5.0% during fiscal 1993 to 0.9% during fiscal 1994.

17
<PAGE>
INTEREST INCOME (EXPENSE). Net interest expense during fiscal 1994 was
$4,652,000, compared to net interest income of $470,000 during fiscal 1993. This
change was due primarily to the Company's issuance of $86,250,000 of 6.25%
convertible subordinated debentures during the first quarter of fiscal 1994 and
to long-term debt incurred during fiscal 1994 to finance Company-owned real
estate.

INCOME TAXES. The Company recorded an income tax provision of $6,810,000,
or 1.3% of net sales, during fiscal 1994, compared to a provision of $6,004,000,
or 1.9% of net sales, during fiscal 1993. Because the $16,104,000 capital loss
for tax purposes incurred on the sale of the Company's Canadian subsidiary could
not be deducted in fiscal 1994, and because of the writeoff of previously
recognized foreign deferred tax benefits necessitated by the sale, the Company's
effective tax rate was 1,294.7% in fiscal 1994, compared to 35.8% in fiscal 1993
(see reconciliation between the U.S. statutory income tax rate and the effective
tax rate in Note 4 of notes to consolidated financial statements). The deferred
tax benefit of the non-deductible capital loss carryforward related to the loss
on the sale of the Canadian subsidiary has been fully offset by a valuation
allowance, and will expire at the end of fiscal 1999. This capital loss
carryforward can only be used to offset future capital gains.

QUARTERLY RESULTS OF OPERATIONS

Quarterly results of operations may fluctuate materially depending on a
number of factors, including seasonality and the timing of new store openings
and related preopening expenses. The Company expects that its business will
exhibit some measure of seasonality, which the Company believes is typical of
the retail home center industry. The Company expects that its gross margin
percentage will generally be lower in the second and third quarters of each
fiscal year, when sales of lower margin products are proportionately greater.
The Company also expects that, in general, individual stores will experience
lower net sales and operating income and that cash flow from operations will be
lower in the fourth quarter of the fiscal year than in any of the other
quarters, due primarily to the effect of winter weather on home improvement
projects and the lack of significant sales of lawn and garden items during the
period.

The following table sets forth the Company's unaudited quarterly results of
operations for each of the four quarters in fiscal years 1994 and 1995 and for
the first two quarters of fiscal 1996. This quarterly information is unaudited,
but has been prepared on the same basis as the annual financial information and,
in the opinion of management, reflects all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
information for the periods presented. The results of operations for any quarter
are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
FISCAL 1994 FISCAL 1995
-------------------------------------------------- -------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales....................... $ 104.0 $ 144.8 $ 148.2 $ 121.8 $ 130.1 $ 167.9 $ 159.8
Gross margin.................... 28.5 38.2 39.5 33.1 35.7 44.3 43.2
Loss on sale of Canadian
subsidiary..................... -- -- -- 12.7 -- -- --
Operating income (loss)......... 3.6 6.5 5.2 (10.4) 4.4 7.2 5.8
Net income (loss)............... $ 2.2 $ 3.4 $ 2.0 $ (13.9) $ 2.7 $ 4.5 $ 2.5

<CAPTION>
FISCAL 1996
------------------------
FOURTH FIRST SECOND
QUARTER QUARTER QUARTER
----------- ----------- -----------

<S> <C> <C> <C>
Net sales....................... $ 157.9 $ 161.1 $ 209.1
Gross margin.................... 42.6 45.3 58.3
Loss on sale of Canadian
subsidiary..................... -- -- --
Operating income (loss)......... 5.2 6.9 14.9
Net income (loss)............... $ 1.6 $ 2.9 $ 8.1
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

Historically, the Company's principal sources of funds to finance its
expansion plans, working capital, interest and debt service requirements have
been cash flow from operations, bank credit lines, mortgages on owned stores and
equity and debt offerings. The Company used cash of $45.9 million and $37.2
million during fiscal 1995 and the first 26 weeks of fiscal 1996, respectively,
to fund its capital expenditure program. Fiscal 1996 expenditures have related
primarily to the three stores scheduled to open in fiscal 1996 and the
acquisition of sites for future store openings.

During the first 26 weeks of fiscal 1996, operating activities provided
$25.3 million to fund the Company's continued expansion. Net income adjusted for
noncash items provided $15.9 million which

18
<PAGE>
was used in part to finance a seasonal increase of $13.2 million in inventory
levels during the period. Additional cash was provided by a $16.2 million
increase in accounts payable and checks drawn in excess of bank balances under
the Company's integrated cash management program and an $8.2 million increase in
accrued liabilities and income taxes payable.

The primary financing activities used to provide additional support for the
Company's continued expansion in the first 26 weeks of fiscal 1996 were net
borrowings of approximately $2.4 million on the Company's line of credit and a
$9.0 million mortgage note payable signed during the second quarter.

On May 28, 1996, the Company signed an amendment to its credit agreement
with U.S. Bank of Washington, N.A., extending the expiration date applicable to
the existing $75 million revolving working capital line of credit to November
30, 1997. The May 28 amendment also reduced the rate of interest applicable to
IBOR borrowings from IBOR plus 2.00% to a range of IBOR plus 1.25% to IBOR plus
2.00%, depending on the Company's capital ratio and level of borrowings (if
borrowings exceed $50 million, an additional 0.25% is added to the rate
applicable to all borrowings under the line). Borrowings are secured by the
Company's accounts receivable and inventory. Advances are limited to a base of
eligible accounts receivable and inventory plus $10 million. The line imposes
certain requirements on the Company in terms of working capital, current ratio,
capital ratio, tangible net worth, debt service coverage ratio and fixed charge
coverage ratio. The line also restricts payment of dividends and includes a
provision that limits annual capital expenditures. At July 26, 1996, $36.9
million was outstanding under the working capital line at varying rates of
interest (7.02% average rate), and there was approximately $4.7 million in
letter of credit commitments under the line. Under the borrowing base, an
additional $24.7 million was available for borrowing as of July 26, 1996.

The Company currently owns ten of its 25 stores in operation and has
completed the purchase of property for four future stores. As of July 26, 1996
the Company was obligated in the amount of approximately $22.0 million on
mortgages for three of its currently owned stores. The mortgage notes require
monthly payments of principal and interest. The other seven owned stores and the
four future sites are available for financing through either fixed-term capital
asset loans and/or sale-leaseback transactions.

In addition to the mortgage notes, the Company's primary long-term
commitments are its store operating leases and $86.3 million in 6.25%
convertible subordinated debentures. The debentures, which mature in March 2001,
require semi-annual interest payments.

FUTURE CASH FLOW PLANS AND EXPECTATIONS

The Company's future cash requirements and cash flow expectations are
closely related to its expansion plans. The Company recently opened one store
and currently plans to open two additional stores during fiscal 1996, five
stores during fiscal 1997 and four to six stores in fiscal 1998. Seven of the
stores scheduled to open during fiscal years 1996 and 1997 will be owned by the
Company. Historically, the Company has not intended to own the land and
buildings for its stores. However, in light of current economic conditions and
other strategic factors, the Company has increasingly elected to purchase land
for new store sites and finance the construction of new store buildings in order
to proceed expeditiously with its expansion program. In such cases, the Company
will typically use its bank credit line or cash and may secure permanent
financing from either fixed-term capital asset loans and/or sale-leaseback
transactions after the store is opened.

Historically, capital expenditures have averaged approximately $14 million
for owned stores and $4 million for leased stores. Future capital expenditures
will vary significantly, depending on such factors as store location; whether
the store will be owned or leased; local permitting and regulatory requirements;
whether the project involves new construction or remodeling of an existing
structure; and if remodeling is involved, the extent of that work. The Company
currently expects fiscal 1996 capital expenditures to be in the range of $55
million to $65 million for the purpose of constructing the one store already
opened and the two additional stores planned for opening during fiscal 1996,
acquiring and improving sites for planned future expansion and updating certain
existing stores. Fiscal 1997 capital expenditures are currently expected to be
in the range of $40 million to $50 million.

19
<PAGE>
The Company expects to maintain store level inventories during fiscal 1996
of approximately $4.6 million to $7.5 million, and to incur preopening expenses
of approximately $700,000 per store. When the Company opens a new store, it
expects that its vendors will finance approximately 60% of the opening
merchandise inventory cost, and that on an ongoing basis, vendor credit terms
will finance approximately 20% to 30% of the inventory cost. In addition, under
the terms of its bank line of credit, the Company may finance a portion of the
cost of merchandise inventory by borrowing against its working capital line of
credit. Although the Company believes it can finance a significant portion of
its merchandise inventory cost through vendor and bank financing as described,
there can be no assurance that this level of financing will be available in the
future on terms acceptable to the Company.

The Company believes the net proceeds from this offering, cash generated
from operations, anticipated bank borrowings under the existing line of credit
and the proceeds of fixed-term capital asset loans and/or sale-leaseback
transactions will be sufficient to satisfy its anticipated working capital,
capital expenditure, interest and debt service requirements through fiscal 1997.

IMPACT OF INFLATION AND CHANGING PRICES

Although the Company cannot accurately anticipate the effect of inflation,
it does not believe inflation has had or is likely to have a material effect on
its results of operations.

ADOPTION OF ACCOUNTING STANDARDS

Effective January 27, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," which requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. The adoption of
Statement No. 121 had no effect on the Company's financial position and results
of operations as of the date of adoption and for the 26 weeks ended July 26,
1996.

Effective January 27, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," using
the intrinsic-value method prescribed by APB Opinion No. 25, as allowed for in
the Statement. The adoption of Statement No. 123 had no effect on the Company's
financial position and results of operations as of the date of adoption and for
the 26 weeks ended July 26, 1996.

20
<PAGE>
BUSINESS

GENERAL

The Company has differentiated its stores from those of other warehouse home
improvement retailers by providing a bright, clean and well-organized
customer-friendly shopping environment and by offering "More of
Everything-Registered Trademark-," with one of the broadest and deepest
selections of brand name home improvement products available in the United
States. Through its highly trained sales associates, Eagle Experts-TM- and Eagle
Service Specialists-TM-, the Company provides exceptional customer service to
both its target do-it-yourself customers, as well as professional contractors.
The Company believes the successful implementation of its business strategy has
made Eagle Hardware a more appealing destination for home improvement shoppers,
including female customers, who favor the customer-oriented shopping environment
of the Company's stores over the often confusing atmosphere of traditional
warehouse-format home centers.

INDUSTRY OVERVIEW

According to industry publications, the do-it-yourself home improvement
industry in the United States generated aggregate revenues of approximately $131
billion in 1995. Over the last 10 years, the industry has undergone significant
changes, with the warehouse-format home center retailers gaining significant
market share in a number of markets in the United States relative to traditional
home center, hardware and lumber yard operators, by offering lower prices and
taking advantage of economies created by larger sales volumes. Although the home
improvement industry remains fragmented, it has experienced increasing
consolidation during recent years, with the sales of the five largest operators
representing approximately 23% of the estimated overall market in 1995 as
compared to 15% of the overall market in 1991. The Company believes this trend
will continue, and that opportunities exist for service-oriented home
improvement retailers to benefit from this continuing consolidation.

BUSINESS STRATEGY

The Company's goal is to be the premier operator of customer-oriented home
improvement centers in the United States. To achieve this goal, Eagle Hardware
has developed and is implementing a business strategy designed to satisfy the
preferences expressed by its target do-it-yourself customers by combining
selection and value with exceptional customer service and convenience. The key
elements of the Company's strategy are as follows:

CUSTOMER-FRIENDLY STORE ENVIRONMENT. The Company strives to create the
best shopping experience by providing a customer-friendly store environment
that is clean, attractive and "easy to shop," with bold signage, wide,
brightly lit aisles and well-marked departments designed to help customers
easily find desired merchandise categories. For ease of access, the
Company's innovative Design Center is typically positioned centrally within
the store and adjacent to 8,000 square feet of fully furnished and
accessorized kitchen and bath displays to allow customers to view products
in real-life settings. A tiled "racetrack" aisle encircles the Design Center
and related departments for easy customer access to the other merchandise
departments within the store. Seventeen to 26 cash

21
<PAGE>
registers are positioned at various places in each store to facilitate rapid
check-out. These and other features provide Eagle Hardware customers with an
enjoyable shopping experience in a specialty-store environment.

"MORE OF EVERYTHING -REGISTERED TRADEMARK-" MERCHANDISING
PHILOSOPHY. Eagle Hardware offers one of the broadest and deepest
selections of virtually every category of home improvement merchandise in
the United States, providing one-stop shopping for its target do-it-yourself
customers as well as professional contractors. In addition to serving the
major project needs of its customers, the Company also targets "fix-it"
repair and maintenance customers. The Company's home centers average
approximately 123,000 square feet (excluding storage and exterior garden
square footage) of retail floor space and the product selection of each
Eagle Hardware home center consists of over 60,000 SKUs. According to
NATIONAL HOME CENTER NEWS, this amount is more than twice the average number
of SKUs carried by the 30 largest domestic hardware and home improvement
stores. The Company's home centers also carry significantly more SKUs than
its principal competitors, while maintaining an average in-stock position of
over 98%.

EXCEPTIONAL SERVICE. To further enhance the Eagle Hardware shopping
experience, the Company is committed to providing outstanding customer
service. To best serve the needs of its do-it-yourself and professional
customers, all Eagle Hardware associates are trained to provide the in-depth
product knowledge and high levels of service typically associated with
specialty stores. To support this level of service, the Company has
developed and implemented a comprehensive training program, administered by
each store's training director, which includes weekly training sessions for
all associates focusing on service, selling and product knowledge. Through
independent study and testing on product knowledge, these associates can
achieve Eagle Expert-TM- certification and qualify for higher compensation.
To complement the Company's commitment to customer service, each Eagle
Hardware store has two Eagle Service Specialists-TM- who work directly with
customers to furnish unique and personalized solutions for special orders,
installation, major projects and other requests. In addition, in its effort
to be the "Nordstrom" of the home improvement industry in terms of customer
service, the Company maintains a "no-hassle" return policy to make it easy
for customers to return or exchange products.

CONVENIENT LOCATIONS. Recognizing the importance of convenience in the
customer's decision-making process, the Company places a priority on
developing new stores in locations that maximize convenience and
accessibility. Management's experience in the western United States has
allowed the Company to develop an in-depth understanding of its existing and
targeted new markets, which the Company believes has allowed it to identify
and secure favorable sites for new stores. The Company typically locates its
stores near major freeways or thoroughfares to provide convenient access and
greater visibility.

EVERYDAY LOW PRICES. Eagle Hardware has a policy of maintaining
everyday low prices on products carried by other home centers and generally
does not engage in promotional sale pricing. The Company will match prices
on products carried by competing home centers. At the same time, the Company
benefits from higher margins on hard-to-find merchandise and on products not
carried by its competitors.

EXPANSION STRATEGY

The Company's expansion strategy is two-fold. The first element of the
Company's strategy is to cluster multiple home centers in metropolitan areas.
This clustering strategy is designed to saturate larger markets in order to
increase market share and operating leverage. The second element of the
Company's strategy is to operate home centers in single-store markets. This
strategy is designed to establish favorable market positions in small markets in
which the Company believes operating costs are typically lower and competition
is less intense.

CLUSTER STORES IN METROPOLITAN MARKETS. To provide more convenient
access to its stores, expand its total market share and achieve economies of
scale, the Company's strategy is to continue clustering stores in its
existing metropolitan markets, such as Seattle, Salt Lake City and Denver
and

22
<PAGE>

enter additional metropolitan markets in the western United States. The
Company believes this strategy has enabled it to achieve the largest market
share in the greater Seattle area. Consistent with this strategy, the
Company, which currently operates ten stores in the greater Seattle area and
two stores in the Denver area, intends to open two new stores in the Seattle
market and three new stores in the Denver market during fiscal 1996 and
1997. The Company is currently exploring the possibility of entering the
Portland, Oregon market and intends to continue to apply its clustering
strategy in additional metropolitan areas over time.

OPEN HOME CENTERS IN SINGLE-STORE MARKETS. The second element of the
Company's strategy is to open home centers in single-store markets. The
Company believes that these markets typically have less competition from
other home centers, provide lower operating costs, such as rent and
advertising, and represent numerous expansion opportunities. The Company
currently operates home centers in single-store markets such as Kennewick
and Yakima, Washington, Medford, Oregon and Billings, Montana. The Company
believes that there are a substantial number of single-store market
opportunities in the western United States, including certain smaller
markets in California. To augment this expansion strategy, the Company has
recently designed a new store prototype for selected single-store markets.

In choosing specific sites within a market, the Company takes into account
numerous factors, including local demographics and spending patterns, the
average age of the homes in the area, traffic patterns, the location of
competitors and overall retail activity. The following table shows the location,
anticipated opening, size and status of each of the Company's currently planned
store openings for fiscal 1996 and 1997:

<TABLE>
<CAPTION>
SELLING SQUARE
STORE LOCATION ANTICIPATED OPENING FEET SITE STATUS
- --------------------------------- -------------------------------- ------------------ -----------------------
<S> <C> <C> <C>
GREATER SEATTLE:
N. Seattle, Washington First Fiscal Quarter 1997 120,100 Under Construction
Tacoma, Washington Second Fiscal Quarter 1997 132,078 Under Construction
GREATER DENVER:
Louisville (Boulder), Colorado Fourth Fiscal Quarter 1996 123,461 Under Construction
Lakewood, Colorado Third Fiscal Quarter 1997 121,900 Under Contract
Northglenn, Colorado Third Fiscal Quarter 1997 123,461 Under Contract
SINGLE-STORE MARKETS:
Wenatchee, Washington Opened August 22, 1996 159,725(1) Open
Pueblo, Colorado Fourth Fiscal Quarter 1996 161,200(1) Under Construction
Kahului (Maui), Hawaii First Fiscal Quarter 1997 122,839(1) Under Construction
</TABLE>

- ------------------------------
(1) Includes an attached drive-through lumber and building materials yard
consisting of 61,035, 61,035 and 30,825 square feet for the three stores,
respectively.

STORE DESIGN

Since its inception, the Company has focused on creating the best home
improvement shopping experience for its customers by combining the selection and
value associated with traditional warehouse-format home centers with the
comfortable atmosphere and service orientation of specialty retailers. The
Company's home centers are constructed based on a standardized plan developed
from management's research and extensive industry experience. The focal point of
the Company's home centers is an innovative Design Center, which is intended to
stimulate home improvement ideas by conveying the image of a free home show
every day. The Design Center is typically adjacent to an area of approximately
8,000 square feet featuring kitchen and bath displays in fully accessorized
real-life

23
<PAGE>
settings and a wide assortment of countertops, wallpaper, floor coverings and
window treatments. Eagle Hardware's design coordinators work with customers at
the Design Center to conceptualize and plan virtually any home decorating
project.

The Design Center is surrounded by a tiled "racetrack" aisle, providing
convenient access to the store's various departments, which are located in
well-defined areas around the central core. Related departments are located
adjacent to one another and merchandise is displayed in a consistent manner
according to centrally developed plan-o-grams. Each department is designed for
effective product presentation to appeal to specific customer needs. High
warehouse-style racking is blended with attractive displays and wide, brightly
lit aisles.

Most Eagle Hardware stores have an additional entrance and exit, cashier and
loading area conveniently located near the lumber and building materials
department. This separate access enables customers to obtain their lumber and
building supplies quickly and comfortably, without having to carry merchandise
through other departments. Employees are available to help customers load their
vehicles. The Company believes that its customer-friendly store format, with
well-defined departments, provides customers with an attractive shopping
environment, as well as the ability to locate merchandise easily and check out
quickly.

TYPICAL EAGLE HARDWARE STORE LAYOUT

[PICTURE OF TYPICAL EAGLE HARDWARE STORE LAYOUT]

The Company has recently augmented its expansion strategy by designing a new
store prototype for selected single-store markets. This prototype consists of a
main store of approximately 95,000 square feet and includes certain features
intended to cater to the unique needs of do-it-yourself and professional
customers in small markets, including an attached drive-through lumber and
building materials yard of approximately 60,000 square feet. Further, the new
prototype offers the professional customer a wider range of products and
services, including a contractor's office with phone and fax capabilities, in
addition to job site delivery. As with the larger Eagle Hardware stores, the new
prototype will continue to offer "More of Everything-Registered Trademark-" with
a product assortment of over 60,000 SKUs. The Company has opened one store and
currently plans to open two additional stores utilizing this new prototype by
the end of fiscal 1997.

MERCHANDISING

PRODUCT SELECTION AND DISPLAY. Through its broad merchandising selection,
Eagle Hardware seeks to offer "More of Everything-Registered Trademark-" to its
customers and create a one-stop shopping environment where do-it-yourself
customers and professional contractors can purchase all necessary items in a
highly efficient manner. The Company's merchandise selection is broad enough to
allow both do-it-yourself customers and professional contractors to purchase
virtually every item needed to build an entire house, including many items not
generally carried by competitors. The Company believes that its SKU count of
over 60,000 items is broader than its primary warehouse home center competitors.
According to NATIONAL HOME CENTER NEWS, this amount is more than twice the
average number of items carried by the 30 largest domestic hardware and home
improvement stores. The Company's home centers also maintain an average in-stock
position of over 98%.

24
<PAGE>
The major departments in each Eagle Hardware home center are plumbing,
electrical and lighting; lumber and building materials; paint and decor; tools
and hardware; and lawn and garden supplies. The Company's percentages of net
sales by product categories have been fairly stable over time. The following
table sets forth the Company's percentage of net sales by product categories for
fiscal 1995:

<TABLE>
<CAPTION>
CATEGORIES PERCENT
- --------------------------------------------------------------------------- ------------
<S> <C>
Plumbing, electrical and lighting.......................................... 27%
Lumber and building materials.............................................. 23
Paint and decor............................................................ 19
Tools and hardware......................................................... 17
Lawn and garden supplies................................................... 14
---
Total net sales........................................................ 100%
---
---
</TABLE>

The number of items described below may vary slightly from store to store
based on local market characteristics.

EAGLE HARDWARE'S DESIGN CENTER is the focal point of the central core of
each of the Company's home centers. The central core features different kitchen
and bathroom displays, approximately 27 styles of kitchen cabinets, brand name
appliances such as Jenn-Air and Whirlpool and a large selection of bathroom
fixtures. The Company is in the process of adding G.E., Hotpoint By G.E.,
Kitchen Aid and Panasonic appliances. Many of the kitchen and bath displays are
arranged in fully accessorized real-life settings. A wide assortment of
countertops, wallpaper, floor coverings and window treatments is also offered.
Eagle Hardware's design coordinators, using specially programmed computers,
color coordination boards and a variety of free literature, work with customers
to conceptualize and plan virtually any home decorating project. The Design
Center is supported and complemented by the surrounding departments, which are
designed in part to provide customers with one-stop shopping to implement
projects conceived in the Design Center.

EAGLE HARDWARE'S PAINT AND DECOR DEPARTMENT carries a wide variety of indoor
and outdoor paints and stains. A computerized color matching service helps
customers analyze and select paint and stain colors more easily. The Company's
paint inventory includes competitively priced private label paints as well as
high-quality, brand name products. In addition to its large selection of paints,
stains and accessories, this department also carries a full line of window
coverings, carpet and other floor coverings, ceramic tiles, mirrors and
approximately 650 different wallpaper patterns and borders in stock. There is
also an extensive offering of wallpaper available by special order. The
department also stocks more than 70 kinds of ladders and over 600 SKUs of closet
and storage materials and accessories.

EAGLE HARDWARE'S PLUMBING DEPARTMENT carries over 250 brand name faucets,
valves and shower heads, from manufacturers such as Delta, Moen and Price
Pfister, as well as imports from Europe, such as Grohe, which are not generally
carried by other home centers. Hundreds of other models, including those from
Kohler and Chicago Faucet, are available through special order. This department
stocks lines from three major domestic manufacturers of plumbing fixtures,
including American Standard, Briggs and Kohler and offers a complete line of
Jacuzzi equipment. Eagle Hardware carries full lines of plastic, galvanized and
copper pipe products, ranging from 1/8-inch to six-inch diameters. This
department also stocks over 1,320 different gaskets, stems and miscellaneous
parts for faucets and valves, and is equipped to custom cut and thread steel
pipe for customers, from 1/2-inch diameter to four-inch diameter.

EAGLE HARDWARE'S TOOLS AND HARDWARE DEPARTMENT not only carries major brands
of do-it-yourself tools and accessories, but also a wide selection of commercial
tools for contractors. As an example of the breadth of selection in this
department, the Company stocks more than 125 types of hammers, over 75 different
files and more than 120 types of circular saw blades. The Company also carries a
wide range of contractors' tools such as generators, concrete saws, tile and
brick saws, table saws, drill presses, welding equipment, pressure washers and
trash pumps. The Company stocks a variety of brand name power tools, including
Black & Decker, Delta, DeWalt, Hitachi, Homelite, MK Diamond, Makita, Milwaukee,

25
<PAGE>
Porter Cable, Ryobi, Senco, Skil, Stanley Bostitch, Wen and Wissota. Many
harder-to-find specialty tools are also offered. This department features over
3,700 innovative "flip bins" filled with hardware items that are not typically
offered by the Company's competitors, from plastic tips for chair legs to
bumpers, crown corks, corrugated fasteners and metric fasteners. The fastener
selection ranges from common nuts and bolts to industrial grade 150,000-pound
tensile strength fasteners. The Company carries over 95 varieties of chain, more
than 180 types of rope and over 350 kinds of hinges, as well as hard-to-find
items such as horseshoes and industrial hose sold by the foot.

EAGLE HARDWARE'S ELECTRICAL DEPARTMENT carries 100 different heaters and
fans, more than 260 different telephones and accessories, over 360 different
switch plates and more than 260 different light bulbs, many of which are not
carried by competing home centers. This department stocks virtually every kind
of conduit and circuit breaker commonly used in residential structures in the
western United States and also carries specialized tools for professional
electricians.

EAGLE HARDWARE'S LIGHTING DEPARTMENT displays more lighting fixtures than
any other major home center in the United States of which the Company is aware.
This department features over 1,500 different styles of lighting fixtures,
priced from under $10 to over $2,500, more than 450 kinds of lamp parts, over
120 styles of lamp shades and over 150 types of replacement glass for light
fixtures.

EAGLE HARDWARE'S LAWN AND GARDEN DEPARTMENT carries a broad selection of
hand and power gardening and lawn tools, as well as a wide variety of brand name
fertilizers, sprays and other chemicals. The lawn and garden department also
carries a broad range of seasonal nursery plants, shrubs and bedding plants, as
well as patio products. The Company carries a full line of lawn and garden
supplies and products including such brand names as Ames Tools, Black & Decker,
Homelite, Ortho, Scotts, Toro and Weedeater. To build the plant section of the
Company's lawn and garden department into a year-round business, most stores
have an indoor plant trellis and display area ranging in size from approximately
1,200 to 1,500 square feet. In certain markets, covered outdoor greenhouses have
been added to further establish the lawn and garden department as a year-round
business. The Company carries a large inventory of live indoor plants,
supplemented by a full line of silk flowers and greenery.

EAGLE HARDWARE'S LUMBER AND BUILDING MATERIALS DEPARTMENT carries a full
line of windows and doors, including wood, aluminum and vinyl windows and
exterior doors from Summit. On a special order basis, Eagle Hardware offers the
Pro-Line, Designer and Architectural Series of wood windows from Pella. This
department stocks lumber up to 16 feet in length and from two to 12 inches in
width, 400 types of decorative moldings, a full line of Armstrong ceiling tile,
a wide variety of plywood, particle board, metal fencing and roofing materials,
including roll, three-tab, metal and fiberglass, and a large selection of roof
coatings.

PRICING. Eagle Hardware emphasizes its policy of maintaining everyday low
prices on products carried by competitors and does not generally engage in
promotional advertising that emphasizes sale pricing. The Company will match
prices on products carried by competing home centers. At the same time, the
Company benefits from higher margins on hard-to-find merchandise and on products
not carried by its competitors. Although Eagle Hardware's goal is to be
perceived as very price competitive by its customers, the Company believes that
enabling customers to purchase all of the items needed for a particular project
at one place is more important than offering the lowest price on any single
item.

MARKETING. The Company's marketing programs are designed to create an
awareness of Eagle Hardware's comprehensive selection of brand name merchandise,
superior customer service and everyday low prices. The Company's marketing
department develops all aspects of the Company's advertising, marketing and new
promotional programs. The Company's primary advertising vehicle in each of its
markets consists of four-color newspaper inserts designed by the Company's
in-house graphics department. The Company also utilizes television and limited
radio and billboard advertising.

A number of Eagle Hardware television advertisements in the Seattle market
area feature local professional athletes such as Randy Johnson, Jay Buhner and
Edgar Martinez of the Seattle Mariners

26
<PAGE>
major league baseball team. The Company also sponsors promotional activities at
professional sporting events from time to time. The Company believes that these
marketing programs both enhance customer awareness of the Eagle Hardware &
Garden-Registered Trademark- name and foster support in the local community.

CUSTOMER SERVICE

Eagle Hardware is committed to providing superior customer service.
Carefully selected Eagle Experts-TM-, many with extensive experience in their
respective fields, are available throughout the store to provide specialized
advice to do-it-yourself customers and professional contractors. Additional
specialized personnel are available in every department, including the Design
Center and the Project Service Center, to help customers conceptualize and plan
virtually any home improvement project. To complement the Company's commitment
to customer service, each Eagle Hardware store has two Eagle Service
Specialists-TM-. These Service Specialists work directly with customers to
furnish unique and personalized solutions for special orders, installation,
major projects and other requests.

In an effort to enhance its shopping environment, Eagle Hardware employees
perform all store restocking after hours in order to keep the aisles clear and
minimize customer disruption during business hours. Each of the Company's stores
has from 17 to 26 cash registers, enabling customers to pay for their
merchandise quickly. Customer questions, problems, returns and exchanges are
handled at a convenient service desk near the main entrance of the store. A
"no-hassle" return policy makes it easy for customers to return or exchange
products.

Most Eagle Hardware stores have a lounge area which contains convenient
seating, telephones and vending machines. The Company offers free electric carts
and wheelchairs for the disabled, three-wheeled baby strollers and a baby
changing area. The Company offers a credit card to qualified contractors,
businesses and retail customers under a program owned and operated by a third
party. Eagle Hardware customers can also pay by Visa, MasterCard, Discover and
American Express. Eagle Hardware home centers are open seven days a week and
most stores operate Monday through Saturday from 7:00 a.m. to 9:00 p.m. and on
Sunday from 9:00 a.m. to 7:00 p.m.

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<PAGE>
SPECIALIZED SERVICES. Eagle Hardware offers a number of specialized
services, many of which are not offered by its competitors. These services
include a cut shop, an on-site locksmith, an Idea Center, a delivery service, a
Project Service Center and a separate lumber and building materials cashier and
loading area. In addition, the Company has a product installation service.

CUT SHOP. Eagle Hardware stores offer a cut shop where customers can have
window screen, fencing, glass, netting, chain, cable, hose, rope and a variety
of other materials custom cut and, in some instances, custom made. Custom
cutting is done free of charge or, on large projects, for a competitive fee.
Lumber cutting is complimentary for up to two pieces of material and is done in
the lumber and building materials department.

LOCKSMITH SERVICE. All Eagle Hardware stores have a full-time locksmith
available for on-site consultation and assistance with locks, keys and home and
commercial security systems. The locksmith is also available for field calls.

IDEA CENTER. Each of the Company's home centers features an Idea Center
where do-it-yourself books, plans and video tapes are offered for purchase. Free
product literature and do-it-yourself pamphlets are also available. Eagle
Hardware personnel conduct workshops on a variety of subjects, ranging from
basic electrical wiring to wallpaper hanging and ceramic tile installation.

DELIVERY SERVICE. The Company offers a low cost delivery service at each of
its stores. Each truck is fully equipped, including a large capacity, rough
terrain forklift.

PROJECT SERVICE CENTER. To assist do-it-yourself customers and contractors,
Eagle Experts-TM- and other specially trained personnel are available at the
Project Service Center, located in the lumber and building materials department,
to assist in designing and planning projects, and to help select the appropriate
materials. Free estimates for customer projects are prepared at the Project
Service Center.

LUMBER AND BUILDING MATERIALS CASHIER AND LOADING AREA. Most Eagle Hardware
stores have an additional entrance and exit, cashier and loading area
conveniently located near the lumber and building materials department. This
separate access enables customers to obtain their lumber and building supplies
quickly and comfortably, without having to carry merchandise through other
departments. In addition, the Company's employees assist customers in loading
their vehicles.

PRODUCT INSTALLATION SERVICE. Most Eagle Hardware stores offer professional
product installation services. The Company has an agreement with a regional
installation company to provide basic installation for a number of the products
that the Company sells. This service is coordinated by Eagle Hardware personnel
to ensure customer satisfaction and a competitive fee structure.

EMPLOYEE TRAINING AND COMPENSATION

Eagle Hardware strives to develop the technical and interpersonal skills of
its store personnel to ensure that customers consistently receive knowledgeable
and courteous assistance. The Company provides extensive training for its entry
level store personnel through a comprehensive in-house training program that
combines on-the-job training with formal seminars and meetings. On an ongoing
basis, store personnel attend frequent in-house training sessions conducted by
the Company's training staff or by manufacturers' representatives, and receive
sales, product and other information in frequent manager meetings. Through
independent study and testing of product knowledge, sales associates can achieve
Eagle Expert-TM- certification and qualify for higher compensation.

Detailed training records are kept on all Eagle Hardware store personnel,
including the date and subject of each training session. To further develop the
professional skills of store personnel, the Company has appointed an on-site
training director for each store. The store training director is responsible for
supervising, organizing and scheduling all store training activities and
customer workshops. Working in conjunction with the store manager, the store
training director ensures that all store personnel attend weekly training
meetings and that training records are kept up to date. Additionally,

28
<PAGE>
the store training director is responsible for instructing store personnel in
the Company's policies and procedures. The Company's training program is
supervised by a Vice President who has over 20 years of experience training home
center employees.

As part of its commitment to exceptional customer service, Eagle Hardware
strives to attract experienced and qualified personnel by paying competitive
wages in each of its markets. The Company expects that certain of its store
managers will receive total compensation of over $125,000 in the current fiscal
year, which the Company believes is more than the compensation received by store
managers for many other home center chains. Most of Eagle Hardware's store
personnel are paid on an hourly basis. All store sales and sales support
personnel are eligible to receive quarterly discretionary bonuses that are
determined on the basis of customer service and overall store sales. Store
managers and assistant managers are paid bonuses based on certain criteria,
including sales, gross margin, inventory turns, controllable expenses and
in-stock position. Corporate buyers are paid bonuses based on the attainment of
certain sales and gross margin goals. Certain other corporate management
personnel are paid bonuses based on total Company pretax income. The Company
believes that its bonus plan is both unique in its industry and highly
motivational, in part because store manager bonuses can equal up to 100% of base
compensation.

In addition to competitive wages, Eagle Hardware offers its employees a
comprehensive benefits program. Full-time employees are eligible to participate
in an Employee Stock Ownership Plan ("ESOP") after 24 months of service. Under
the ESOP, an employee may be credited with a maximum annual contribution of 10%
of annual salary up to a maximum contribution of $3,500. Funds credited to
individual accounts in the ESOP will be invested primarily in the Common Stock
of the Company. The Company also maintains a 401(k) retirement savings plan.

Eagle Hardware also offers a stock option plan under which certain employees
are granted options to purchase the Company's Common Stock at its fair market
value on the date of grant. Options generally vest over a five-year period and
are exercisable for a period of 10 years.

Eagle Hardware believes that its total compensation plan and the
opportunities it offers employees for advancement within the Company are key to
employee performance, motivation and retention. Management believes that it has
a lower-than-average employee turnover rate, due, in part, to its comprehensive
compensation benefits plan.

PURCHASING AND DISTRIBUTION

The Company purchases most of its merchandise directly from manufacturers.
Eagle Hardware has a staff of eight buyers, each of whom has responsibility for
specified product categories. The Company is not dependent on any single vendor
and believes that alternative sources are available for virtually all of its
products. The Company operates principally on a purchase order basis and
typically does not maintain long-term purchase contracts with its vendors.

Approximately 80% of the merchandise purchased by the Company is shipped by
the vendors directly to its stores. In order to help maintain a high in-stock
position and to improve inventory management and distribution efficiencies as
the number of its stores increases, the Company operates a 214,000 square foot
warehouse and distribution facility in the Puget Sound area. This facility is
used for stocking and distributing merchandise purchased overseas and from
certain domestic vendors, for cross-docking merchandise transferred between
stores and for the consolidation of freight for the Anchorage, Alaska and
Waipahu (Honolulu), Hawaii stores. The distribution center ships merchandise to
most of the Company's stores at least weekly using a combination of
Company-owned equipment and common carriers. In addition to its primary
warehouse and distribution facility, as of July 26, 1996, the Company also
leased additional warehouse space totaling approximately 40,000 square feet. As
the Company grows, it will need to continually analyze the sufficiency of its
warehouse and distribution space and will require additional facilities to
support its planned growth.

29
<PAGE>
MANAGEMENT INFORMATION SYSTEMS

The primary component of the Company's management information systems is the
JDA Retail Software package, which operates on an IBM AS/400 computer. Corporate
buyers utilize the JDA system to set up new items, order the initial inventory
for new stores and maintain store level prices. Each store is also networked to
the AS/400 for real-time receiving and replenishment. As an additional component
of the management information systems, each store is equipped with point-of-sale
scanning, price lookup and sales polling capabilities utilizing a network of 17
to 26 registers per store. The Company maintains its accounting information
primarily on the IBM AS/400, utilizing certain financial modules of the JDA
system. In addition, the warehouse/distribution center utilizes the JDA system
in its daily operations. The Company is currently refining its implementation of
the perpetual inventory reporting module of JDA. The Company will also need to
continually evaluate the adequacy of its management information systems,
including its inventory control and distribution systems, and in the future will
need to upgrade or reconfigure its management information systems to support its
planned expansion. While the Company has taken a number of precautions against
certain events that could disrupt the operation of its management information
systems, including in connection with its planned systems revisions, there can
be no assurance that the Company will not experience systems failures or
interruptions, which could have a material adverse effect on its business,
financial condition and operating results. Further, the Company currently relies
on a single outside vendor for the software and support of its management
information systems. Although the Company believes that alternative information
systems vendors are available, in the event it were to change vendors, the
Company could experience systems delays or interruptions, which could have a
material adverse effect on the Company's business, financial condition and
operating results.

COMPETITION

The home improvement, hardware and garden businesses are highly competitive.
The Company competes against traditional hardware, plumbing, electrical and home
supply retailers, as well as warehouse-format and discount retail stores and
catalog companies. Eagle Hardware's two-fold expansion strategy is to cluster
home centers in large metropolitan areas such as Seattle, Salt Lake City and
Denver, and to open single home centers in smaller markets.

Ten of the Company's 25 existing stores are located in the greater Seattle
metropolitan market. Eagle Hardware's principal competitors in this market have
been Home Depot, Ernst, Fred Meyer and HomeBase. Home Depot, a warehouse-format
home center with approximately 450 stores in the United States, currently
operates nine stores in the Seattle metropolitan market. Two of these stores are
located next to existing Eagle Hardware stores. Home Depot currently has at
least one additional store under construction in the greater Seattle market that
is expected to open in fiscal 1996. The Company's gross margin and operating
income are generally lower for stores located in markets where Home Depot also
operates stores.

Four of the Company's existing stores are located in the Salt Lake City
metropolitan market. The Company's principal competitors in this market have
been Home Depot, Ernst, Fred Meyer and HomeBase. Home Depot operates three
stores in the Salt Lake City market. Two of the Company's existing stores are
located in the Denver metropolitan market and the Company intends to open
additional stores in this market. The Company's principal competitors in the
Denver market are Home Depot, Builders' Square, HomeBase and Hugh M. Woods (a
unit of Payless Cashways).

Nine of the Company's existing stores are located in smaller markets. The
Company's principal competitors in these markets have included Ernst, Fred Meyer
and HomeBase, as well as traditional hardware, plumbing, electrical and home
supply retailers. According to published reports, Home Depot has an option to
purchase a location in Spokane, Washington, where the Company operates two
stores. The Company's ability to expand into and operate profitably in new
markets, particularly small markets, may be adversely affected by the existence
or entry of competing warehouse-format home centers.

In June 1996, Ernst filed a voluntary petition for Chapter 11 bankruptcy and
has recently held liquidation sales in connection with closing a number of its
stores in the Company's markets, and may

30
<PAGE>
continue to do so in the future. For a period of time prior to its bankruptcy,
the Company operated 20 stores in markets with Ernst stores. The Company
believes that the liquidation sales could have a short-term negative impact on
its operating results in market areas containing Ernst stores; however, the
Company believes that such impact has been offset, and may continue to be offset
in the future, by the positive effects of Ernst's high out-of-stock position and
decreased competition resulting from the closure of Ernst stores. Should Ernst
emerge from bankruptcy or should a new competitor replace Ernst, the Company's
same store sales, business, financial condition and operating results could be
adversely affected.

EMPLOYEES

Each Eagle Hardware home center employs approximately 120 to 250 full- and
part-time personnel, depending on the sales volume of the store and the time of
the year. Store management includes the store manager, a store
manager-in-training, four to five assistant store managers, department managers
and sales supervisors. As of July 26, 1996, the Company employed approximately
4,600 persons, of whom approximately 170 were in corporate administration. Of
these 4,600 persons, approximately 83% were full-time employees. Eagle Hardware
is not a party to any collective bargaining agreements and is not aware of any
efforts to unionize its employees. The Company considers its relations with its
employees to be good.

PROPERTIES

The Company's headquarters consists of approximately 48,000 square feet of
leased office space in Renton, Washington. The Company leases warehouse and
distribution center space of approximately 254,000 square feet in Auburn,
Washington. The Company believes that such facilities will be sufficient to meet
the Company's needs through the end of fiscal 1997.

The Company leases 15 of its 25 existing stores under various lease terms
which, including renewal options, range from 21 to 51 years. The leases
generally provide for minimum annual rental amounts, with additional rental
payments based upon a percentage of gross store sales. These additional payments
range from 1.5% to 3.0% of annual gross sales in excess of a specified amount,
which ranges from $24.0 million to $50.0 million per store. One store lease
provides for additional payments of 0.75% of gross sales, with a specified
minimum dollar amount. In most cases, lease payments do not begin until a store
is operational.

The Company owns ten of its existing stores and has purchased the sites for
four future stores. In light of current economic conditions and other strategic
factors, the Company has increasingly elected to purchase land for new store
sites and finance the construction of new stores in order to proceed
expeditiously with its expansion program.

TRADEMARKS AND SERVICE MARKS

The Company holds a federal trademark registration for MORE OF
EVERYTHING-Registered Trademark- (and design) and a concurrent federal service
mark for EAGLE HARDWARE & GARDEN-Registered Trademark- (and design) for the
western United States. Eagle Food Centers, Inc., a grocery store chain in the
midwest, holds a concurrent federal registration covering the eastern United
States, and, with certain limited geographic exceptions, the parties
cross-license each other for use of the word "Eagle" in the other party's
geographic markets. The Company does not expect that this arrangement will
impact its ability to use the EAGLE HARDWARE & GARDEN-Registered Trademark- (and
design) mark in any states in which it currently operates or anticipates opening
stores. In addition, the Company claims common law rights to the foregoing and
various other trademarks and service marks.

LEGAL PROCEEDINGS

The Company is involved in various routine legal proceedings incident to the
ordinary course of its business. Management believes that the outcome of all
pending legal proceedings in the aggregate will not have a material adverse
effect on the Company's business, financial condition and operating results.

31
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY PERSONNEL

The executive officers, directors and key personnel of the Company are as
follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- -------------------------------------------------------------------
<S> <C> <C>
David J. Heerensperger 60 Chairman and Chief Executive Officer
Richard T. Takata 46 President, Chief Operating Officer and Director
Ronald P. Maccarone 48 Executive Vice President -- Finance and Chief Financial Officer
Dale W. Craker 49 Executive Vice President -- Store Operations
John P. Foucrier 54 Executive Vice President -- Administration and Human Resources
Larry E. Elliott 50 Executive Vice President -- Merchandising
Robert M. Cleveland 65 Vice President -- Marketing
Calvin E. Karbowski 59 Vice President -- Distribution
George E. Smith 60 Vice President -- Training
Steven R. Crossley 35 Vice President -- Store Merchandising
Peter G. Erdos 57 Vice President -- Management Information Systems
Paul B. Morris 55 Vice President -- Store Planning and Design
Earl E. Robicheaux 51 Vice President and Controller
Steven M. Stenberg 31 Treasurer
Ronald D. Crockett (1) 57 Director
Harlan D. Douglass (1) 59 Director
Herman Sarkowsky (2) 71 Director
Theodore M. Wight (1)(2) 53 Director
</TABLE>

- ------------------------------
(1) Member of the audit committee

(2) Member of the compensation committee

The directors of the Company are divided, as equally as possible, into three
classes, designated Class I, Class II and Class III. At each annual meeting of
shareholders, successors of the class of directors whose term expires at that
annual meeting are elected for a three-year term. If the number of directors is
changed, any increase or decrease is to be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal as possible.

DAVID J. HEERENSPERGER was appointed Chairman in January 1992 and has been
Chief Executive Officer of the Company since its inception. From November 1989
to January 1992, Mr. Heerensperger also served as the Company's President. Mr.
Heerensperger's retail hardware, home and garden sales career began in 1954 with
T&T Electric in Longview, Washington. He founded Eagle Electric and Plumbing,
Inc. in Spokane, Washington, in 1959. In 1969, Eagle Electric and Plumbing
merged with another chain to form Pay 'N Pak, and, in 1970, Mr. Heerensperger
became Pay 'N Pak's Chairman and Chief Executive Officer. In 1987 and 1988, Mr.
Heerensperger and other members of management, together with Citicorp Venture
Capital, participated in a leveraged buyout of Pay 'N Pak in response to a
hostile takeover attempt. At the end of July 1989, Mr. Heerensperger retired
from Pay 'N Pak, and in November 1989 he founded the Company.

RICHARD T. TAKATA was appointed President, Chief Operating Officer and a
director of the Company in January 1992. From September 1991 to January 1992,
Mr. Takata was the President of Worldwide

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<PAGE>
Consumer Products, Ltd., a sole proprietorship engaged in marketing consulting
and the sale of consumer products. Mr. Takata was employed by Pay 'N Pak from
1986 to 1991, serving as Executive Vice President from March 1988 to August
1991, and as Senior Vice President -- Merchandising from July 1986 to March
1988.

RONALD P. MACCARONE was appointed Executive Vice President -- Finance and
Chief Financial Officer in August 1995. In this position, he is responsible for
all financial activity of the Company. Prior to joining the Company, Mr.
Maccarone was Senior Vice President -- Chief Financial Officer of KIDSource,
Inc. from December 1993 to January 1995. Mr. Maccarone began his retail hardware
career at Builders Emporium in 1970 and served in positions of increasing
responsibility with that company until January 1993, most recently as Senior
Vice President -- Chief Financial Officer.

DALE W. CRAKER was appointed Executive Vice President -- Store Operations in
January 1995. In this position, he is responsible for all store operations,
including personnel training. Mr. Craker had previously been Vice President --
Store Operations of the Company since May 1992. From October 1991 to May 1992,
Mr. Craker was employed in the corporate buying department and was involved in
the implementation of certain aspects of the Company's Management Information
System. Mr. Craker began his retail hardware career at Pay 'N Pak in 1970 and
served in positions of increasing responsibility with that company until August
1991, most recently as District Manager of its southwestern Washington and
Alaska stores.

JOHN P. FOUCRIER was appointed Executive Vice President -- Administration
and Human Resources in January 1995. In this position, he is responsible for the
Company's training, loss prevention and human resources and other administrative
functions. Mr. Foucrier had previously been Executive Vice President --
Operations of the Company since March 1992. Prior to joining the Company, Mr.
Foucrier was Senior Vice President -- Operations and Administration at Pay 'N
Pak from August 1991 to January 1992, and Senior Vice President --
Administration and Human Resources at that company from February 1990 to August
1991.

LARRY E. ELLIOTT was appointed Executive Vice President -- Merchandising in
January 1996. In this position, he is responsible for all of the Company's
buying and merchandising activities. Mr. Elliott had previously been the
Hardware Buyer of the Company since November 1993. Mr. Elliott joined the
Company as a Sales Manager in November 1992. Prior to working for the Company,
Mr. Elliott was employed for 20 years as a buyer for Pay 'N Pak.

ROBERT M. CLEVELAND was appointed Vice President -- Marketing in August
1990. He had been the Company's Advertising Director since June 1990. Mr.
Cleveland is responsible for the Company's marketing department as well as its
public relations activities. He has owned and operated advertising agencies in
Spokane, Los Angeles and Seattle during the past 25 years.

CALVIN E. KARBOWSKI was appointed Vice President -- Distribution in August
1991. Mr. Karbowski had been the Company's Warehouse Manager since August 1990.
From 1980 to July 1990, Mr. Karbowski was Vice President -- Distribution and
Traffic of Pay 'N Pak.

GEORGE E. SMITH was appointed Vice President -- Training in November 1991.
Mr. Smith had been the Company's Training Director since January 1991. From June
1983 to August 1990, Mr. Smith was Vice President -- Training of Pay 'N Pak.

STEVEN R. CROSSLEY was appointed Vice President -- Store Merchandising in
March 1994. From March 1991 through February 1994, Mr. Crossley worked as a
Merchandising Supervisor for the Company. From March 1982 through February 1991,
Mr. Crossley held a variety of merchandising positions at Pay 'N Pak, most
recently Director -- Store Merchandising.

PETER G. ERDOS was appointed Vice President -- Management Information
Systems ("MIS") in March 1994. Mr. Erdos joined the Company as MIS Director in
July 1991. From October 1988 to July 1991, Mr. Erdos was the Vice President --
Management Information Systems and Distribution for Starbucks Corporation, a
Seattle-based specialty coffee company. From October 1985 to October 1988,

33
<PAGE>
Mr. Erdos was the Director of Development for Pay-N-Save Corporation, a chain of
retail drug stores. From August 1987 to August 1988, Mr. Erdos also served as
Pay-N-Save's Director of Warehousing and Distribution.

PAUL B. MORRIS was appointed Vice President -- Store Planning and Design of
Eagle Hardware in March 1994. From October 1991 through February 1994, Mr.
Morris worked as a Store Designer for the Company. From February 1990 through
September 1991, he worked as an Operations Manager for Custom Craft Fixtures, a
custom woodworking plant. Mr. Morris served in various store planning and design
capacities at Pay 'N Pak from June 1971 through January 1990, most recently as
Vice President -- Store Planning and Design.

EARL E. ROBICHEAUX was appointed Vice President and Controller of Eagle
Hardware in March 1994. Mr. Robicheaux joined the Company as Controller in June
1992. Prior to joining the Company, Mr. Robicheaux served as Chief Financial
Officer of Club Wholesale Corporation, a membership warehouse club, from March
1990 through October 1991. Mr. Robicheaux also served as Chief Financial Officer
of two startup ventures, O.P. Club, Inc. (an office supply superstore) and
Martco., Inc. (a membership warehouse club), during the period January 1987
through November 1989. From June 1984 through December 1986, Mr. Robicheaux was
an Assistant Controller of Costco Wholesale Corporation. From March 1976 through
April 1984, he served in various accounting capacities with Burlington Northern
Inc., most recently as Director of Accounting. In 1991, Club Wholesale
Corporation filed a voluntary petition for relief under Chapter 11 of the United
States Bankruptcy Code.

STEVEN M. STENBERG was appointed Treasurer in August 1996. He had previously
served in capacities of Financial Analyst and Assistant Treasurer since joining
the Company in August 1992. From September 1987 through July 1992, Mr. Stenberg
was employed by Ernst & Young, most recently as an Audit Manager.

RONALD D. CROCKETT has been a director of the Company since July 1991. Since
October 1992, Mr. Crockett has been President and the General Partner of Emerald
Downs, a thoroughbred racetrack company which commenced operations in June 1996.
In 1970, Mr. Crockett founded Tramco, a commercial aircraft overhaul company
which was acquired by B.F. Goodrich Corporation in 1988. From 1970 to March
1995, he served as the Board Chairman and Chief Executive Officer of Tramco and
its successor entity, B.F.G. Corporation.

HARLAN D. DOUGLASS has been a director since March 1990. Mr. Douglass is
President of Harlan D. Douglass, Inc., a private building and real estate
development company. Mr. Douglass has served as a director of The Bank of
Spokane, Spider Corporation, First American Title of Spokane and currently
serves on the board of directors of Inland Northwest Bank, a regional bank.

HERMAN SARKOWSKY has been a director of the Company since June 1990. Mr.
Sarkowsky is President of Sarkowsky Investment Corp., a private investment
company, and is a real estate developer, private investor and philanthropist. He
served as a director of Egghead, Inc., a retail software distributor, from June
1984 to September 1993 and Medco Containment Services, Inc., a mail-order
prescription business, until it was acquired by Merck Drug Company in November
1993. Mr. Sarkowsky currently serves on the board of directors of Synetic, Inc.,
a manufacturer of plastic products, Hollywood Park Operating Company, an
operator of a thoroughbred racetrack in Inglewood, California, and Seattle First
National Bank, a subsidiary of Bank of America.

THEODORE M. WIGHT has been a director of the Company since June 1990. Since
1983, Mr. Wight has been a general partner of the general partner of Walden
Investors. He is also a general partner of the general partner of Pacific
Northwest Partners SBIC L.P. Both entities are venture capital partnerships. Mr.
Wight also serves as a director of RehabCare Corporation, an acute medical
rehabilitation services company, and Interlinq Software Corporation, a developer
and marketer of residential mortgage loan software, and a number of private
companies.

Seven of the Company's nine executive officers were previously employed by
Pay 'N Pak. In September 1991, Pay 'N Pak filed a voluntary petition for relief
under Chapter 11 of the U.S. Bankruptcy Code.

34
<PAGE>
PRINCIPAL SHAREHOLDERS

The following table sets forth as of September 16, 1996, and as adjusted to
reflect the sale of shares of Common Stock offered hereby, certain information
regarding the beneficial ownership of the Common Stock of the Company with
respect to (i) each person known by the Company to own beneficially more than 5%
of the outstanding Common Stock, (ii) each of the Company's directors and
executive officers, and (iii) all directors and executive officers of the
Company as a group. Unless otherwise indicated, management believes that the
beneficial owners of the Common Stock listed below, based on information
furnished by such owners, have sole investment and voting power with respect to
all shares of Common Stock owned by each person, subject to community property
laws where applicable and the information set forth in the footnotes to the
table below. Pursuant to the rules of the Securities and Exchange Commission
(the "Commission"), in calculating percentage ownership, each person is deemed
to beneficially own shares which he is entitled to purchase pursuant to options
which are exercisable within 60 days after the date of this Prospectus, but
options held by others (even if exercisable within 60 days) are deemed not to be
outstanding shares.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING AFTER THE OFFERING
-------------------------- --------------------------
NAME OF BENEFICIAL OWNER SHARES PERCENTAGE SHARES PERCENTAGE
- ------------------------------------------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David J. Heerensperger ............................... 3,937,400 17.1% 3,937,400 14.0%
c/o Eagle Hardware & Garden, Inc.
981 Powell Avenue S.W.
Renton, Washington 98055
Richard T. Takata..................................... 404,900(1) 1.8% 404,900 1.4%
John P. Foucrier...................................... 45,000(2) * 45,000 *
Dale W. Craker........................................ 27,400(3) * 27,400 *
Ronald P. Maccarone................................... 10,000(4) * 10,000 *
Harlan D. Douglass.................................... 811,592(5) 3.5% 811,592 2.9%
Theodore M. Wight..................................... 24,407(6) * 24,407 *
Herman Sarkowsky...................................... 461,865(7) 2.0% 461,865 1.6%
Ronald D. Crockett.................................... 282,550(8) 1.2% 282,550 1.0%
All directors and executive officers as a group (13
persons)............................................. 6,131,314(9) 26.1% 6,131,314 21.5%
</TABLE>

- ------------------------------
* Less than 1%.

(1) Includes 9,900 shares of Common Stock held by Mr. Takata's two minor
children. Also includes outstanding options to purchase 50,000 shares of
Common Stock, which, by their terms, are exercisable within 60 days.

(2) Represents outstanding options to purchase 45,000 shares of Common Stock,
which, by their terms, are exercisable within 60 days.

(3) Includes outstanding options to purchase 24,000 shares of Common Stock,
which, by their terms, are exercisable within 60 days.

(4) Represents outstanding options to purchase 10,000 shares of Common Stock,
which, by their terms, are exercisable within 60 days.

(5) Includes 112,000 shares of Common Stock owned by Harlan D. and Maxine H.
Douglass and 6,000 shares of Common Stock owned by Stacey Douglass, Mr.
Douglass' daughter. Beneficial ownership of the 6,000 shares of Common Stock
owned of record by Stacey Douglass is disclaimed by Mr. Douglass. Also
includes outstanding options to purchase 40,000 shares of Common Stock,
which, by their terms, are exercisable within 60 days.

(6) Includes outstanding options to purchase 10,000 shares of Common Stock,
which, by their terms, are exercisable within 60 days.

(7) Includes 261,365 shares of Common Stock owned of record by the Sarkowsky
Family Limited Partnership, 4,000 shares held by Steven William Sarkowsky,
6,000 shares held by Faye Sarkowsky, 6,000 shares held by Cathy Ann
Sarkowsky, 3,000 shares held by Fred Sarkowsky and 1,500 shares held by Leo
Sarkowsky. Also includes outstanding options to purchase 40,000 shares of
Common Stock, which, by their terms, are exercisable within 60 days. Mr.
Sarkowsky disclaims beneficial ownership of the shares held by Steven
William, Faye, Cathy Ann, Fred and Leo Sarkowsky.

(8) Includes outstanding options to purchase 40,000 shares of Common Stock,
which, by their terms, are exercisable within 60 days.

(9) Includes outstanding options to purchase 375,000 shares of Common Stock,
which, by their terms, are exercisable within 60 days.

35
<PAGE>
UNDERWRITING

The Underwriters, Montgomery Securities and Dain Bosworth Incorporated, have
severally agreed, subject to the terms and conditions contained in the
Underwriting Agreement, to purchase from the Company the number of shares of
Common Stock indicated below opposite their respective names, at the public
offering price less the underwriting discount set forth on the cover page of
this Prospectus. The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of the shares of Common Stock if they
purchase any.

<TABLE>
<CAPTION>
NUMBER
NAME OF UNDERWRITER OF SHARES
- ------------------------------------------------------------------------------------------- -----------
<S> <C>
Montgomery Securities...................................................................... 2,500,000
Dain Bosworth Incorporated................................................................. 2,500,000
-----------
Total.................................................................................. 5,000,000
-----------
-----------
</TABLE>

The Underwriters have advised the Company that they propose initially to
offer the Common Stock to the public on the terms set forth on the cover page of
this Prospectus. The Underwriters may allow to selected dealers a concession of
not more than $0.63 per share; and the Underwriters may allow, and such dealers
may reallow, a concession of not more than $0.10 per share to certain other
dealers. After this offering, the offering price and other selling terms may be
changed by the Underwriters. The Common Stock is offered subject to receipt and
acceptance by the Underwriters, and to certain other conditions, including the
right to reject orders in whole or in part.

The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 750,000 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise this option, the
Underwriters will be committed, subject to certain conditions, to purchase such
additional shares in approximately the same proportion as set forth in the above
table. The Underwriters may purchase such shares only to cover over-allotments
made in connection with this offering.

The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof.

The Company and its directors and executive officers have agreed that they
will not directly or indirectly offer to sell, sell or otherwise dispose of any
shares of Common Stock of the Company owned by them without the prior written
consent of Montgomery Securities, for a period of 90 days after the date of this
Prospectus, except that the Company may, without consent, issue shares of Common
Stock upon exercise of outstanding stock options or upon conversion of
outstanding debentures.

In connection with this offering, certain Underwriters and selling group
members (if any) or their respective affiliates who are qualified registered
market makers on the Nasdaq National Market may engage in passive market making
transactions in the Common Stock on the Nasdaq National Market in accordance
with Rule 10b-6A under the Securities Exchange Act of 1934 during the two
business day period before commencement of offers or sales of the Common Stock.
The passive market making transactions must comply with applicable volume and
price limits and be identified as such. In general, a passive market maker may
display its bid at a price not in excess of the highest independent bid for the
security. However, if all independent bids are lowered below the passive market
maker's bid, such bid must then be lowered when certain purchase limits are
exceeded. Passive market making may stabilize the market price of the Common
Stock at a level above that which might otherwise prevail and, if commenced, may
be discontinued at any time.

36
<PAGE>
LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Heller, Ehrman, White & McAuliffe, Seattle, Washington. Certain legal
matters relating to this offering will be passed upon for the Underwriters by
Perkins Coie, Seattle, Washington.

EXPERTS

The consolidated financial statements of the Company incorporated by
reference in the Company's Annual Report (Form 10-K) for the year ended January
26, 1996, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon incorporated by reference therein and incorporated
herein by reference. Such consolidated financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy and information statements
and other information with the Commission. Such reports, proxy and information
statements and other information filed by the Company may be inspected and
copied at the public reference facilities of the Commission located at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at 7 World Trade Center, 13th Floor, New York, New York 10048, and at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such information can also be obtained from the Public Reference
Section of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Common Stock is quoted on the Nasdaq National
Market. Reports and other information concerning the Company may be inspected
and copied at the National Association of Securities Dealers, Inc., 9513 Key
West Avenue, Rockville, Maryland 20850. The Commission maintains a Web site that
contains reports, proxy and information statements and other information of the
Company at http://www.sec.gov.

The Company has filed with the Commission a Registration Statement on Form
S-3, including amendments thereto, under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits thereto,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit or incorporated by reference into the
Registration Statement, each such statement being qualified in all respects by
such reference. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement and
the exhibits thereto. Copies of the Registration Statement and the exhibits
thereto may be inspected, without charge, at the offices of the Commission, or
obtained at prescribed rates from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Commission are hereby
incorporated by reference in this Prospectus: (1) the Company's Annual Report on
Form 10-K for the fiscal year ended January 26, 1996; (2) the Company's
Quarterly Reports on Form 10-Q for the quarters ended April 26, 1996 and July
26, 1996; (3) the Company's Proxy Statement for its Annual Meeting of
Shareholders held on May 28, 1996; and (4) the description of the Company's
Common Stock contained in its Registration Statement on Form 8-A filed with the
Commission on February 4, 1992. All documents filed by the Company with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
after

37
<PAGE>
the date of this Prospectus and prior to the termination of the offering covered
by this Prospectus will be deemed to be incorporated by reference into this
Prospectus and to be a part hereof from the date of filing such documents.

Any statement contained herein or in any document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.

The Company will provide, without charge to each person to whom this
Prospectus is delivered, upon written or oral request, a copy of any and all
information that has been or may be incorporated by reference into this
Prospectus, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Such requests
should be directed to Eagle Hardware & Garden, Inc., 981 Powell Avenue S.W.,
Renton, Washington 98055, Attn: Investor Relations, phone number: (206)
227-5740.

38
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------

NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES
OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO, OR A
SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

----------------------

TABLE OF CONTENTS

----------------------

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUMMARY............................. 3
RISK FACTORS................................... 6
USE OF PROCEEDS................................ 10
DIVIDEND POLICY................................ 10
PRICE RANGE OF COMMON STOCK.................... 10
CAPITALIZATION................................. 11
SELECTED FINANCIAL DATA........................ 12
FORWARD-LOOKING INFORMATION.................... 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................... 13
BUSINESS....................................... 21
MANAGEMENT..................................... 32
PRINCIPAL SHAREHOLDERS......................... 35
UNDERWRITING................................... 36
LEGAL MATTERS.................................. 37
EXPERTS........................................ 37
AVAILABLE INFORMATION.......................... 37
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE..................................... 37
</TABLE>

5,000,000 SHARES

[LOGO]

COMMON STOCK

-------------------

PROSPECTUS

-------------------

MONTGOMERY SECURITIES

DAIN BOSWORTH
INCORPORATED

SEPTEMBER 17, 1996

- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expenses, other than
underwriting discounts payable by the Registrant in connection with the issuance
and distribution of the securities being registered. All the amounts shown are
estimated, except the Securities and Exchange Commission registration fee, the
NASD filing fee and the Nasdaq Additional Listing Fee.

<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.............. $ 35,996
NASD Filing Fee.................................................. 10,940
Nasdaq Additional Listing Fee.................................... 29,000
Blue Sky Fees and Expenses (includes fees and expenses of
counsel)........................................................ 10,000
Accounting Fees and Expenses..................................... 60,000
Legal Fees and Expenses.......................................... 80,000
Printing and Delivery Expenses................................... 75,000
Miscellaneous.................................................... 9,064
---------
Total........................................................ $ 310,000
---------
---------
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act (the "WBCA") authorize a corporation to indemnify its directors,
officers, employees and agents against certain liabilities they may incur in
such capacities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"), provided they acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of the
corporation. The Registrant's Restated Bylaws require the Registrant to
indemnify its officers and directors to the fullest extent permitted by
Washington law.

Section 23B.08.320 of the WBCA authorizes a corporation to limit or
eliminate its directors' liability to the corporation or its shareholders for
monetary damages for breaches of fiduciary duties, other than for (1) acts or
omissions that involve intentional misconduct or a knowing violation of law, (2)
improper declaration of dividends, or (3) transactions from which a director
derives an improper personal benefit. The Registrant's Restated Articles of
Incorporation contain provisions limiting the liability of the Registrant's
directors and its shareholders to the fullest extent permitted by Washington
law.

The above discussion of the WBCA and the Registrant's Restated Bylaws and
Restated Articles of Incorporation is not intended to be exhaustive and is
qualified in its entirety by reference to such statute, the Bylaws and the
Amended and Restated Articles of Incorporation, respectively.

The Registrant maintains directors' and officers' liability insurance on its
directors and officers. In addition, the Underwriting Agreement (Exhibit 1.1
hereto) will contain provisions for the indemnification of, among others,
controlling persons of the Registrant and the Registrant's directors and
officers for certain liabilities.

ITEM 16. EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
*1.1 Form of Underwriting Agreement.
+5.1 Opinion of Heller, Ehrman, White & McAuliffe, counsel to the Registrant, regarding the legality of the
Common Stock.
+23.1 Consent of Ernst & Young LLP, Independent Auditors (contained on page II-4).
+23.2 Consent of Heller, Ehrman, White & McAuliffe (contained in Exhibit 5.1).
*24.1 Power of attorney (contained on page II-3).
</TABLE>

II-1
<PAGE>
- ------------------------

* Previously filed.

+ Replaces previously filed exhibit.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.

The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-2
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Seattle, State of Washington, on
September 16, 1996.

EAGLE HARDWARE & GARDEN, INC.

By: /s/ DAVID J. HEERENSPERGER
-------------------------------------
David J. Heerensperger
Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated below on the 16th day of September, 1996.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ---------------------------------------------------------

<C> <S>
/s/ DAVID J. HEERENSPERGER
------------------------------------------- Chairman and Chief Executive Officer
David J. Heerensperger (Principal Executive Officer)

* RICHARD T. TAKATA
------------------------------------------- President, Chief Operating Officer and Director
Richard T. Takata

* RONALD P. MACCARONE Executive Vice President--Finance and Chief Financial
------------------------------------------- Officer
Ronald P. Maccarone (Principal Financial and Accounting Officer)

* RONALD D. CROCKETT
------------------------------------------- Director
Ronald D. Crockett

* HARLAN D. DOUGLASS
------------------------------------------- Director
Harlan D. Douglass

* HERMAN SARKOWSKY
------------------------------------------- Director
Herman Sarkowsky

* THEODORE M. WIGHT
------------------------------------------- Director
Theodore M. Wight

*By /s/ DAVID J. HEERENSPERGER
--------------------------------------
David J. Heerensperger
as Attorney-in-Fact
</TABLE>

II-3
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (Form S-3) and related Prospectus
of Eagle Hardware & Garden, Inc. for the registration of 5,750,000 shares of its
common stock and to the incorporation by reference therein of our report dated
March 9, 1996, with respect to the consolidated financial statements of Eagle
Hardware & Garden, Inc. incorporated by reference in its Annual Report (Form
10-K) for the year ended January 26, 1996, filed with the Securities and
Exchange Commission.

ERNST & YOUNG LLP

Seattle, Washington
September 16, 1996

II-4
<PAGE>
EXHIBIT INDEX

<TABLE>
<S> <C>
*1.1 Form of Underwriting Agreement.
+5.1 Opinion of Heller, Ehrman, White & McAuliffe, counsel to the Registrant, regarding
the legality of the Common Stock.
+23.1 Consent of Ernst & Young LLP, Independent Auditors (contained on page II-4).
+23.2 Consent of Heller, Ehrman, White & McAuliffe (contained in Exhibit 5.1).
*24.1 Power of attorney (contained on page II-3).
</TABLE>

- ------------------------

* Previously filed.

+ Replaces previously filed exhibit.

<PAGE>

[Heller, Ehrman, White & McAuliffe Letterhead]

September 16, 1996

Eagle Hardware & Garden, Inc.
981 Powell Avenue S.W.
Renton, Washington 98055

Re: Amendment No. 1 to Registration Statement on Form S-3
-----------------------------------------------------

Ladies and Gentlemen:

This opinion is furnished to Eagle Hardware & Garden, Inc. (the "Company")
in connection with the filing of Amendment No. 1 to Registration Statement on
Form S-3 (the "Registration Statement") with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, covering 5,750,000
shares (the "Shares") of Common Stock, without par value, of the Company, which
includes 750,000 shares that may be offered by the Company upon exercise of an
option granted to the underwriters to cover over-allotments, if any.

We have based our opinion upon our review of the following records,
documents, instruments and certificates:

a. the Articles of Incorporation of the Company, as certified by the
President of the Company as being in effect as of the date of this
opinion;

b. the Bylaws of the Company, as certified by the President of the
Company as being in effect as of the date of this opinion;

c. records certified to us by the President of the Company as
constituting all records of proceedings and of actions of the Board of
Directors relating to the issuance of the Shares; and

d. a certificate from the transfer agent regarding the number of shares
of Common Stock outstanding.

<PAGE>

Eagle Hardware & Garden, Inc.
September 16, 1996
Page 2

In connection with this opinion, we have, with your consent, assumed the
authenticity of all records, documents and instruments submitted to us as
originals, the genuineness of all signatures, the legal capacity of natural
persons and the authenticity and conformity to the originals of all records,
documents and instruments submitted to us as copies.

Based upon the foregoing and our examination of such questions of law as we
have deemed necessary or appropriate for the purpose of this opinion, and
subject to the assumptions and qualifications expressed herein, it is our
opinion that the Shares, when issued and sold in the manner described in the
Registration Statement and in accordance with resolutions adopted by the Board
of Directors of the Company, and when payment shall have been received by the
Company for the Shares to be issued by the Company, will be validly issued,
fully paid and non-assessable.

This opinion is limited to federal laws and the laws of the State of
Washington. We disclaim any opinion as to any statute, rule, regulation,
ordinance, order or other promulgation of any other jurisdiction or any regional
or local governmental body.

We expressly disclaim any obligation to advise you of any developments in
areas covered by this opinion that occur after the date of this opinion.

We hereby authorize and consent to the use of this opinion as Exhibit 5.1
to the Registration Statement.

Very truly yours,

/s/Heller Ehrman White & McAuliffe