Exhibit 10-7
Rebate and Marketing Fund
Addendum to The 1993/1994 Microsoft Channel Agreement
(July - December, 1993)
This Addendum ("Addendum") entered into as of the 1st day of November, 1993,
modifies that certain Microsoft 1993/1994 Channel Agreement ("Agreement")
between MICROSOFT CORPORATION ("MS") having its principal place of business at
One Microsoft Way Redmond, WA 98052 and DJ&J SOFTWARE CORPORATION d.b.a.
EGGHEAD SOFTWARE ("CUSTOMER") having its principal place of business at 22011
SE 51st Street, Issaquah, WA 98027. The Agreement is hereby supplemented -is
follows:
1. Purpose
The purpose of this Addendum is to set forth the framework by which CUSTOMER
may earn Rebates and Marketing Funds. For purposes of this Addendum,
capitalized terms not otherwise defined herein, shall have the same
definitions as set forth in the Agreement.
2. Term and Termination
This Addendum shall be effective as of the date executed by MS below, and
shall expire on December 31, 1993. Either party may terminate this Addendum,
with or without cause. upon thirty (30) days prior written notice,
3. Definitions
3.1 "Account Management Systems Reporting" or "AMS Reporting" is
defined as the reporting of all Product specific End User sales.
3.2 "Inventory Reporting" is defined as the reporting of Product
specific month end inventory. If CUSTOMER has multiple locations, inventory
reporting shall be by location, and shall include the name, street address,
city, state and zip code for each location.
3.3 "Marketing, Funds" is defined is the dollar amount accrued by
CUSTOMER as a percentage Qualified Purchases, and used to fund CUSTOMER's pre-
approved MS marketing activities.
3.4 "Microsoft Marketing Funds guidelines" is defined as MS' then
current terms and conditions, available from the Microsoft Reseller Account
Representative, for the use. of Marketing Funds.
3.5 "Microsoft Prior Authorization/Claim Form" is defined as the
documentation, available from the Microsoft Reseller Account Representative,
necessary for use of Marketing Funds for marketing activities.
3.6 "Qualified Purchases" is defined as net purchases made during the
Rebate and Marketing Fund Period; provided, however, that Qualified Purchases
shall include only those purchases which are shipped to CUSTOMER during the
Rebate and Marketing Fund Period, less returns, and credits, and for which
payment in full has been received by MS from CUSTOMER within ----- (-----)
days after the end of the Rebate and Marketing Fund Period; and provided
further that Microsoft ----- purchases shall not be included in calculating
Qualified Purchases for rebate payment.
3.7 "Rebate" is defined as the dollar amount paid to CUSTOMER by MS in
the form of a purchase credit for achieving of specific rebate program goals
as set forth herein.
3.8 "Rebate and Marketing Fund Period" is defined as the six (6)
calendar months, from July 1, 1993 through December 31, 1993, during which
CUSTOMER shall earn Rebates and Marketing Funds.
3.9 "Salesout" or "Sell Through Reporting" is defined as the reporting
of the number of Product units that CUSTOMER location distributes to its
customers.
4. Rebate
CUSTOMER is eligible to receive up to a ----- percent (-----%) Rebate during
the Rebate and Marketing Fund Period. The Rebate shall be paid provided
CUSTOMER complies with the reporting and program guidelines outlined in
Attachments A-B. CUSTOMER shall submit reports to MS in the electronic
format, as provided by MS, by the 10th day of the month following the
applicable reporting month.
5. Marketing Funds
5.1 Establishment of Marketing Fund and Purchase Forecast
In partial consideration for CUSTOMER's Qualified Purchases, MS hereby grants
to CUSTOMER the use of Marketing Funds equivalent to ----- percent (-----%) of
Qualified Purchases of eligible MS Product during the Rebate and Marketing
Fund Period. Marketing Funds accrue monthly and can be used for up to -----
(-----) months from the last day of the Rebate and Marketing Fund Period. In
order to estimate CUSTOMER's total Marketing Funds, CUSTOMER hereby forecasts
that it will purchase ----- US dollars (US $-----) of MS Product during the
Rebate and Marketing Fund Period.
$----- $-----
Qualified Purchase Forecast Marketing Funds @ -----%
5.2 Marketing Plan
Use of the Marketing Funds provided herein is contingent upon prior written
approval by MS of a marketing plan detailing the approximate times and
activities for which the Marketing Funds are to be used. The marketing plan
will be developed and documented by your Microsoft Reseller Account
Representative. The marketing plan must be signed by CUSTOMER and submitted
by July 31, 1993 to your Microsoft Reseller Account Representative for
approval by MS.
5.3 Marketing Fund Guidelines
Use of Marketing Funds and proof of Marketing Fund expenditures shall be in
accordance with the provisions of the then current "Microsoft Reseller
Marketing Fund Guidelines".
5.4 Marketing Fund Claims
Claims for reimbursement of Marketing Funds must be submitted to MS c/o
Pinpoint Marketing no later than ----- (-----) days after the end of the
Rebate and Marketing Fund Period. Claims submitted shall be accompanied by a
Microsoft Prior Authorization/Claim Form approved by your Microsoft Reseller
Account Representative, with the supporting documentation for reimbursement as
described on the form. Forms may be obtained from your Microsoft Reseller
Account Representative of Pinpoint Marketing.
IN WITNESS WHEREOF, the parties have signed this Addendum on the date
indicated below. This Addendum is hereby made part of the Agreement. All
terms and conditions of the Agreement not supplemented herein shall remain in
full force and effect. This Addendum is not binding until executed by MS.
AGREED AND ACCEPTED TO BY AGREED AND ACCEPTED TO BY
MICROSOFT CORPORATION ("MS"): DJ&J SOFTWARE CORPORATION d.b.a.
EGGHEAD SOFTWARE ("CUSTOMER"):
By By
Name Name
Title Title
Date Date
ATTACHMENT A
SALES REPORTING FORMATS
Salesout, Sell-Through and Inventory Report Format
Field Field Description Max Size
1 Distributor's Customer or Outlet X(20)
Number
2 Customer or Outlet Name X(40)
3 Customer or Outlet Address I X(40)
4 Customer or Outlet Address 2 X(40)
5 Customer or Outlet City X(40)
6 Customer or Outlet State X(02)
7 Customer or Outlet Zip X(10)
8 Customer or Outlet Phone X(14)
9 Distributor Part Number X(20)
10 Part Description X(50)
11 Salesout Quantity 9(11)
12 Sell-Through Quantity 9(11)
13 Ending Inventory Quantity 9(11)
14 Unit Price 9(11).99
15 Calendar Year Shipped X(02)
16 Calendar Month Shipped X(02)
ATTACHMENT A
SALES REPORTING FORMATS
AMS Report Format
Field Field Name Comments Optional?
1 Reseller Outlet ID
2 Outlet Name
3 Outlet Address 1
4 Outlet Address 2
5 Outlet Phone Yes
6 Outlet Fax Yes
7 Outlet City
8 Outlet State
9 Outlet Zip
10 Bill-to Customer ID Yes, if end user
11 Bill-to Name Yes, if end user
12 Bill-to State Yes, if end user
13 Bill-to Zip Yes, if end user
14 Ship-to Customer ID Yes, if end user
15 Ship-to Name Yes, if end user
16 Ship-to State Yes, if end user
17 Ship-to Zip If Null and end user,
Outlet Zip will be used Yes, if end user
18 Invoice Number Yes, if end user
19 Invoice Date Yes, if end user
20 Vendor- Part One of Microsoft, Merisel,
Ingram,Techdata, Handelman,
NACSCORP, Microage, Computerland,
or Intelligent Electronics
21 Reseller Part Number
22 Part Description
23 Quantity Sold
24 Agreement Number Yes
25 Agreement Type List to be provided Yes
(ex., 1 = MSM, 2 = Select, ...)
26 Sale Type "E" for End User,
"A" for Academic,
"G" forGovernment,
"C" for Corporate Account.
ATTACHMENT B
REBATE PROGRAM GUIDELINES
Attachment B - July/December 1993 Major Chains Rebate Programs
Programs The July - December 1993 Rebate period has three rebate programs
for Major Chains. Rebate percentages available are listed in the
table below. Details on each of the programs are included in this
document
Rebate Incentive Maximum Percentage Available
Sell-through Program -----%
Mass Merchandiser Program -----%
Total -----%
Sell-Through Rebate Program
Program
Objective The objective of the Sell-Through Rebate Program is to increase
sales of Microsoft products by rewarding the resellers for
increasing their total sell-through revenues while allowing
the reseller to focus on the best product mix for their customer
segments.
Goal
Definitions The program sell-through goals are based on the following factors:
* Fiscal year 1993 projected and actual sell-through revenues by reseller.
* Microsoft US Finished Goods (referred to as "USFG" throughout the
remainder of this document) fiscal year 1994 revenue growth
percentage goals.
* Reseller revenue growth as a percentage of total Microsoft USFG
revenue growth.
* Reseller projected revenue growth for fiscal year 1994.
Goal
Calculation The formula used to derive the goal is:
July/December July/December 1993
1992 Revenues (1 + -----%) Sell-Through Revenue Goal
Components of this formula are outlined below.
July/December 1992 Sell-Through Revenues - July/December 1992
ending sell-through revenues reflect reseller sell-through units
at fiscal 1994 reseller discounts. It also includes Special
Agreement, Maintenance, and Select sales for July/December 1992
semester.
Growth Rate - The major chain reseller growth percentage was
derived by weighting and scaling the following factors:
1. Reseller's projected growth for fiscal 1994 based on
historical analysis by Microsoft.
2. Microsoft USFG projected fiscal year 1994 growth.
3. Major Chain Reseller projected fiscal 1994 growth.
Major Chain Reseller projected fiscal 1994 growth was derived by
examining revenue growth for all major chain resellers from fiscal
year 1992 to fiscal 1993 as it relates to Microsoft USFG growth.
Major Chain's fiscal year 1993 growth over fiscal 1992 was -----%.
Based on that growth, Microsoft projects Major Chain fiscal 1994
growth to be -----%.
Formula Calculation: The sell-through revenue goals are derived by
taking July/December 1992 ending sell-through revenues and
multiplied by the Major Chain reseller growth rate.
The table below gives an example of the use of the formula for a
reseller with a growth rate of _____% and July/December fiscal
1992 revenue of $20,000,000.
July/December 1992 Sell- July - December 1993
Through Growth Goal
Reseller (A) (B) = A *(1+ -----%)
Reseller X $20,000,000 $-----
Rebate
Sliding
Scale Resellers are rebated based on a sliding rebate scale, with -----%
being the total rebate percentage attainable. The purpose of this
scale is to offer an incentive for resellers to meet a portion of
their goal in the event they cannot achieve the full sell-through
revenue forecast. In order to earn the full -----% rebate, the
reseller must grow total sellthrough revenue dollars by -----%.
The following table outlines the rebate scale for major chain
resellers for July/December 1993. Individual reseller rebate
scales can be found on page 6 of this attachment.
If reseller achieves this growth in
July/December 1993, then they will earn the respective rebate
-----% -----%
-----% -----%
-----% -----%
-----% -----%
-----% -----%
-----% -----%
-----% -----%
The table below is an example of how the rebate scale would work
for a reseller experiencing -----% growth in sell-through
($25,000,000) for July/December 1993. Based on the scale, the
reseller will earn a -----% rebate.
July/December 1993 July/December Growth %
Sell-through Achieved Rebate %
$25,400,000 -----% -----%
$25,000,000 -----% -----%
$24,600,000 -----% -----%
$24,200,000 -----% -----%
$23,800,000 -----% -----%
$23,400,000 -----% -----%
$23,000,000 -----% -----%
Reporting
Revenues Sell-through revenues will not be included if they are due to the
acquisition of another reseller during the period. Revenues
generated from internal expansion, new store openings, will be
included. Revenues from three-way special agreements with
Microsoft will also be included when the Major Chain reseller is
selected as the "reseller of choice" by the end user account.
This revenue will include Microsoft net revenues from end user
account based on shipments, not contractual commitments. Sell-
through data sources are outlined below.
Sell-through
Measurement Each Major Chain Reseller's total sell-through includes reseller
reported sell-through, Special Agreement Sales, Maintenance Sales,
and Select Sales. The definitions, sources, and computations for
Sell-through are is as follows:
Sell-through: Those full packaged product units sold through
reseller outlet locations to an end user. Sell-through is
reported by each reseller to Microsoft. The full package product
sell-through excludes Select (license only), Maintenance, Special
Agreements, and miscellaneous unloaded part sales (please refer to
Page 5 of Attachment B for a list of these parts). A price
leveling factor is applied to each reseller's loaded units in
order to provide an equitable measuring system. Sell-through is
computed as follows:
Sell-through = Reported Sell-through units * SRP * (price leveling
factor)
.----- price level factor applied to full package product units
.----- price level factor applied to hardware
.----- price level factor applied to upgrades
Promotional pricing is used instead of SRP during the promotion
period
Promotional pricing is defined as any special price offered for a
limited time only. For example, Microsoft AccessTM was offered at
$99.00 from November 1992 - December 1992. The price, using the
pricing schematic listed above, would be $----- ($99.00 * .-----)
rather than $----- ($----- * .-----).
Special Agreement Sales: The product unit license sales between Microsoft and
the Corporate Account named in each contract. Each Special Agreement has a
reseller designated, for whom qualifies to receive credit for Special
Agreements Sales. Those special agreement rebate credits issued during the
July/December 1993 semester qualify as Special Agreement sales that will
included in each semester's sell-through totals. For example, the sell-
through for the semester ending December 30, 1993 will capture those special
agreement revenues for which rebate credits were issued between July 1, 1993
and December 31, 1993. Qualifying sales are those license sales
reported and recognized by Microsoft. The source of this data is Microsoft's
financial system.
Microsoft Maintenance Sales: Those maintenance sales recognized by Microsoft.
Billing occurs at the beginning of a quarter, and revenue is recognized
appropriately. Therefore, the maintenance sales to be included are those
maintenance sales recognized as revenue by Microsoft during each semester.
For example, those maintenance sales recognized for the quarters ending
September 1993 and December 1993 will be included in total sell-through for
the July/December 1993 semester. The source of this data is Microsoft's
financial systems.
Select Sales: Select agreement sales will be included in the resellers sell-
through totals. Select sales will come from two sources:
Reseller electronic reporting, and
Microsoft Select database.
The Select program sales, MLP and MMLP's, will be reported by the resellers in
their monthly electronic reporting. Similar to sell-through, these units are
loaded in Microsoft's Marketing Business System, and price leveling is
applied. Price leveling is applied to each reseller's loaded units in order
to provide an equitable measuring system.
The Select program sales, MELP and MVLP, will be captured from the Microsoft
financial systems as recognized revenue. The two current quarter's recognized
will be included in semester sell-through and qualified purchase totals. For
example, the quarters ending September 1993 and December 1993 will be included
in July/December 1993 semester sell-through totals.
Those disks, purchased by Major Chain resellers from RR Donnelley for
fulfillment in Select Agreements, will be not be included in sell-through or
qualified purchases.
Sell-through Exclusions: The following list of product sales are not included
in sellthrough totals for rebate measurement purposes:
Manuals/documents
Resource Kits
XLA units
Mouse extension cables
Device drivers
Mouse pads
International sales
Select Disk and Documentation sales (purchases from RR Donnelley)
Reporting
Requirement Microsoft must receive timely and accurate electronic LVA, sell-
through, and ending inventory reporting monthly by the 10th of the
following month. In the event this requirement is not met, net
revenues for the month in question will not be counted in the
Sell-Through rebate program. The reseller will also be penalized
1/6 (1.5%) of their total rebate for each month the reporting
requirement is not met. Reporting details are outlined in each
reseller's semester agreements.
Rebate
Calculations
& Payment The total rebate possible for achieving the sell-through revenue
goal is -----% of qualified purchases. Rebates are paid in the
form of a purchase credits at Microsoft ----- days after the end
of the semester rebate period, ----- for July/December 1993
semester. Rebates are calculated by taking the achieved rebate
percentage times qualified purchases. Qualified purchases is
defined on the next page.
Qualified purchases includes the following:
* Net qualified purchases from Microsoft (Net qualified purchases
are defined as: Purchased product shipped during the rebate
period for which payment has been received by ----- days after
the end of the rebate period. This excludes all returns,
credits, and promotional product).
* Special Agreement revenues for those special agreement rebate
credits that were issued during the July/December 1993 semester
(see "Sell-through Measurement" section for further
explanation).
* Microsoft Maintenance revenues (see 'Sell-through Measurement"
section for further explanation).
* Microsoft Select Program revenues (see "Sell-through
Measurement" section for further explanation).
* Qualifying purchases through distribution (see "Product
Availability" section below for further explanation).
Any issues surrounding rebates should be sent, in writing, to Amy
Harry no later than 30 days following receipt of rebate payment If
no issues are received, that rebate period will be closed for any
later issues that may be brought to our attention.
Product
Availability Should Microsoft be unable to ship a product for any
consecutive ten business day period, all Resellers who have that
product on order will need to submit purchase order copies and a
summary for those products purchased through distribution. This
excludes promotional product orders. If resellers do not order
promotional products by the Microsoft announced date and the
reseller purchases product through distribution for Microsoft out
of stock product, then those promotional product orders will not
qualify to be included in qualified purchases for rebate purposes.
All purchase order copies and a summary of those sales they wish
to qualify should be sent no later than 15 days following the end
of the semester. Those qualifying purchases will be included in
the semester qualified purchase total to be rebated on. Please
send purchase order copies, and summary of the qualifying
purchases to the following address:
Microsoft Corporation
One Microsoft Way
Bldg 22/3088
Redmond, Washington 98052-6399
Attention: Amy Harry, Sales Support
Auditing Microsoft reserves the right to randomly audit resellers on
reported sell-through information.
July/December
1993 Rebate Scale
July - December Achieve this
1993 Sell-Through Percentage Receive this
Reseller Goals Growth Rebate Percentage
Egghead $----- -----% -----%
Egghead $----- -----% -----%
Egghead $----- -----% -----%
Egghead $----- -----% -----%
Egghead $----- -----% -----%
Egghead $----- -----% -----%
Egghead $----- -----% -----%
Mass Merchandising Rebate Program
Program
Objective The objectives of the Mass Merchandising Rebate Program for
July/December 1993 are to reward Major Chain resellers a total of
-----% rebate for maximizing merchandising presence of Microsoft
products and for obtaining reseller support for all new Microsoft
product introductions. The program allows each reseller the
flexibility in developing their own mass merchandise plan to
achieve these objectives.
Goal
Definitions Each reseller's Mass Merchandising goals will be established and
measured based on the semi-annual mass merchandising plan
submitted (mass merchandising plan requirements are outlined
below). The goals established will represent the following:
* Major Chain's goals and objectives outlined in mass
merchandising plan.
* Microsoft's goals and objectives for mass merchandising.
* Each major chain's mass merchandising history.
Rebate
Requirements To receive the -----% merchandising rebate, major chains must
develop a semi-annual merchandising plan, which includes the
following sections:
1. Objectives covering the following areas:
* Microsoft Product Assortment
* Plans for eliminating/reducing Microsoft product stock-outs
* Shelf-management plans
* Incremental displays.
2. Strategies for achieving each objective listed above (this should be
quantifiable/specific).
3. Measurement: define how each objective will be measured.
4. Designated Sales Representative Communication Plan
The template for submitting Mass Merchandising Plan can be found on Page
8 of Attachment B, and will also be provided to each resellers account
manager. This template must be used in submitting mass merchandising
plan for July/December 1993.
Microsoft will evaluate each plan. Once a plan has been approved and
agreed upon by Microsoft and the reseller, the plan will implemented on
August 1, 1993.
Measurement At the end of July/December 1993 Semester, each reseller's
performance will be measured against the measurement system
outlined in each reseller's mass merchandising plan.
Mass
Merchandising
Plan Each Microsoft Account Manager will work closely with each
reseller in creating a mass merchandising plan. Plans must be
submitted by July 30, 1993 to the following address:
Microsoft Corporation
One Microsoft Way
Bldg 22/3088
Redmond, Washington 98052-6399
Attention: Amy Harry, Sales Support
Rebate
Calculation In order to receive the -----% Mass Merchandising Rebate for
July/December 1993, each reseller must accomplish 100% of each
objective outlined in their mass merchandise plan. If a reseller
fails to complete/accomplish each objective, then they will not be
awarded the -----% Mass Merchandising Rebate.
Rebate
Payment Total rebate possible for achieving the mass merchandising goal is
-----% of net qualified purchases. Rebates will be paid in the
form of a purchase credit from Microsoft no later than 45 days
after the end of the rebate period July/December, February 15.
Reporting
Requirement Microsoft must receive timely and accurate electronic LVA, sell-
through, and ending inventory reporting monthly by the 10th of the
following month. The reseller will also be penalized ----- (-----
%) of their total rebate for each month the reporting requirement
is not met. Reporting details are outlined in each reseller's
semester agreements.
Mass Merchandising Plan Template
Objectives/Strategies:
Number I Objective #1
Strategy #1
Number 2 Objective #2
Strategy #2
Number 3 Objective #3
Strategy #3
Stock-out Plans:
Shelf-management
Plans:
Incremental
Display Plans: