<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
BEST BUY Co., Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
BEST BUY CO., INC.
7075 FLYING CLOUD DRIVE
EDEN PRAIRIE, MINNESOTA 55344
[LOGO]
NOTICE OF REGULAR MEETING OF SHAREHOLDERS
The 1997 Regular Meeting of the Shareholders of Best Buy Co., Inc., a
Minnesota corporation (the "Company"), will be held at the Company's corporate
offices at 7075 Flying Cloud Drive, Eden Prairie, Minnesota, on Wednesday, June
25, 1997, at 3:00 p.m., for the following purposes:
1. To elect three Class 2 directors to serve on the Board of Directors for
a term of two years.
2. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditor for the Company's current fiscal year.
3. To approve the Company's 1997 Employee Non-Qualified Stock Option Plan.
4. To approve the Company's 1997 Directors' Non-Qualified Stock Option
Plan.
5. To approve an amendment to and restatement of the Company's 1994
Full-Time Employee Non-Qualified Stock Option Plan.
6. To transact such other business as may properly come before the meeting.
Only Shareholders of record at the close of business on Wednesday, April 30,
1997, the record date, are entitled to notice of and to vote at the meeting and
any adjournments thereof.
Whether or not you expect to attend the meeting in person, please complete,
sign and promptly return the enclosed form of Proxy.
By Order of the Board of Directors
[SIGNATURE]
Elliot S. Kaplan
SECRETARY
Minneapolis, Minnesota
May 14, 1997
<PAGE>
PROXY STATEMENT
BEST BUY CO., INC.
7075 FLYING CLOUD DRIVE
EDEN PRAIRIE, MINNESOTA 55344
REGULAR MEETING OF SHAREHOLDERS -- JUNE 25, 1997
INFORMATION CONCERNING SOLICITATION AND VOTING
The enclosed Proxy is solicited by the Board of Directors of Best Buy Co.,
Inc. (the "Company"), for use at the Regular Meeting of Shareholders to be held
Wednesday, June 25, 1997, at 3:00 p.m., local time, at the Company's corporate
headquarters at 7075 Flying Cloud Drive, Eden Prairie, Minnesota, or any
adjournments thereof (the "Meeting"), for the purposes set forth herein and in
the accompanying Notice of Regular Meeting of Shareholders. Proxies will be
voted in accordance with the directions specified therein. ANY PROXY IN WHICH NO
DIRECTION IS SPECIFIED WILL BE VOTED IN FAVOR OF EACH OF THE MATTERS TO BE
CONSIDERED. These proxy solicitation materials are first being sent to
Shareholders on or about May 14, 1997.
As of April 30, 1997, the record date fixed for the determination of
Shareholders of the Company entitled to notice of and to vote at the Meeting,
there were outstanding 43,803,284 shares of Common Stock, which is the only
class of the capital stock of the Company outstanding.
Each Shareholder will be entitled to one vote per share on all matters acted
upon at the Meeting. The aggregate number of votes cast by all Shareholders
present in person or by proxy at the Meeting will be used to determine whether a
motion is carried. Thus, an abstention from voting on a matter by a Shareholder,
while included for purposes of calculating a quorum for the Meeting, has no
effect on the item on which the Shareholder abstained from voting. In addition,
although broker "non-votes" will be counted for purposes of attaining a quorum,
they will have no effect on the vote.
Any Proxy given pursuant to this solicitation may be revoked by the person
giving it at any time prior to its use by (i) delivering to the principal office
of the Company a written notice of revocation, (ii) filing with the Company a
duly executed Proxy bearing a later date or (iii) attending the Meeting and
voting in person.
The costs of this solicitation will be borne by the Company. Proxies may be
solicited by the Company's directors, officers and regular employees, without
extra compensation, by mail, telegram, telephone and personal solicitation. The
Company will request brokerage houses, banks and other custodians, nominees and
fiduciaries to forward soliciting material to beneficial owners of the Company's
Common Stock. The Company will reimburse brokerage firms, banks and other
custodians, nominees, fiduciaries and other persons representing beneficial
owners for reasonable expenses incurred by them in forwarding proxy solicitation
materials and annual reports to the beneficial owners of shares in accordance
with the New York Stock Exchange schedule of charges.
<PAGE>
ELECTION OF DIRECTORS
GENERALLY
Prior to February 1997, the Company's By-laws provided that the Board of
Directors shall consist of seven directors. On February 13, 1997, the Board of
Directors amended the Company's By-laws to increase the number of directors to
nine, five of whom are Class 1 directors and four of whom are Class 2 directors.
Directors are elected for a term of two years and the terms are staggered so
that Class 1 directors are elected in even-numbered years and Class 2 directors
are elected in odd-numbered years. No individuals have been appointed or
nominated to fill the two newly created positions.
Management and the Board of Directors recommend that Richard M. Schulze,
Elliot S. Kaplan and Culver Davis, Jr. be re-elected as Class 2 directors, each
to hold office until the 1999 Regular Meeting of Shareholders and until his
successor is duly elected and qualified. All of the nominees are members of the
Board of Directors of the Company and have served in that capacity since
originally elected or designated as indicated below.
The Board of Directors held five meetings during the fiscal year ended March
1, 1997. All directors attended at least 75% of the total number of meetings of
the Board and of committees of the Board on which they served.
There is no family relationship among the nominees or between any nominee
and any of the Company's other directors.
The Board of Directors of the Company has had four standing committees. The
Personnel Committee was established to identify, select and evaluate officers
and key employees for the Company. The Compensation Committee was established to
determine and periodically evaluate various levels and methods of compensation
for directors, officers and employees of the Company. The Lease Committee
reviewed the general parameters of the Company's leases. The Audit Committee was
established to review and monitor all matters pertaining to the accounting
activities of the Company and the relationship of the Company with its
independent auditor. The following table shows the date each committee was
established and the names of the directors serving thereon as of March 1, 1997.
<TABLE>
<CAPTION>
NUMBER OF MEETINGS
DURING LAST FISCAL
COMMITTEE DATE ESTABLISHED YEAR MEMBERS
- ----------------- ----------------- --------------------- ---------------------------
<S> <C> <C> <C>
Personnel June 1, 1984 2 Richard M. Schulze
Bradbury H. Anderson
Audit June 1, 1984 3 Frank D. Trestman*
Culver Davis, Jr.
James C. Wetherbe
Compensation March 6, 1985 1 David Stanley*
Frank D. Trestman
James C. Wetherbe
Lease March 6, 1985 0 Elliot S. Kaplan*
Culver Davis, Jr.
Frank D. Trestman
</TABLE>
- ------------------------
* Committee chairperson
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<PAGE>
On February 13, 1997, the committees of the Board were reconstituted to
better reflect the Company's needs and complexity. The Board now has five
standing committees, as follows:
Audit -- The purpose of this committee is to provide reasonable assurance
that management has prescribed effective financial controls that are designed to
ensure that the reported financial information regarding the Company's financial
performance is materially accurate, complete and timely.
Compensation and Human Resources -- The purpose of this committee is to
periodically review and evaluate the Company's compensation, stock and benefit
plans, and develop recommendations with respect thereto to be submitted to the
Board for approval. This committee will also review the Company's practices and
policies pertaining to the recruitment, hiring, development and promotion of
employees generally and officers in particular.
Finance and Investment Policy -- The purpose of this committee is to assure
that the financial policies and financial condition of the Company and the
investment policies for qualified employee benefit plans will enable the Company
to achieve its long-range goals. This committee will also have responsibility
for reviewing the general parameters of the Company's leases and real estate
holdings.
Long-Range and Strategic Planning -- This committee will work with the
Company's management to discuss and formulate long-range plans for the Company,
including acquisitions, product diversification, elimination or addition of
product categories, geographic expansion, line extensions, long-term financial
objectives and long-term product and services development concepts.
Nominating and Public Policy -- The purpose of this committee is to identify
and present qualified persons for election and re-election to the Board of
Directors and to monitor the participation of directors. The committee does not
intend to consider nominees recommended by Shareholders. The committee will also
review policies and programs that will assist the Board and management in
operating a business that is sensitive to significant public policy issues.
The membership of these new committees had not been designated as of March
1, 1997.
VOTING INFORMATION
A Shareholder submitting a Proxy may vote for all or any of the nominees for
election to the Board of Directors or may withhold his or her vote from any such
nominee. Proxies may not be voted for a greater number of persons than the
number of nominees named. IF A SUBMITTED PROXY IS PROPERLY SIGNED BUT UNMARKED
IN RESPECT OF THE ELECTION OF DIRECTORS, THE PROXY AGENTS NAMED IN THE PROXY
WILL VOTE THE SHARES REPRESENTED THEREBY FOR THE ELECTION OF ALL OF THE
NOMINEES. Each of the nominees has agreed to continue serving the Company as a
director if elected; however, should any nominee become unwilling or unable to
serve if elected, the Proxy Agents named in the Proxy will exercise their voting
power in favor of such other person as the Board of Directors of the Company may
recommend. The Company's Articles of Incorporation prohibit cumulative voting
and each director will be elected by a majority of the voting power of the
shares present and entitled to vote at the Meeting. Shareholders entitled to
vote for the election of directors can withhold authority to vote for all or
certain nominees for director.
3
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides certain information as of March 31, 1997, as to
the Chief Executive Officer and each of the next four most highly compensated
executive officers during the most recent fiscal year, each director including
the nominees for election as Class 2 directors, all directors and executive
officers as a group, and each person known to the Company to be the beneficial
owner of more than 5% of the outstanding shares of Common Stock of the Company:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF SHARES
NAME AGE BENEFICIALLY OWNED BENEFICIALLY OWNED
- -------------------------------------------------- --- ------------------ ------------------
<S> <C> <C> <C>
Richard M. Schulze 56 9,625,056(1) 22.00%
Chairman, Chief Executive
Officer and Director
Bradbury H. Anderson 47 620,503(2) 1.42%
President, Chief Operating Officer and Director
Allen U. Lenzmeier 53 316,165(3) *
Executive Vice President and Chief Financial
Officer
Wade R. Fenn 38 106,594(4) *
Executive Vice President -- Marketing
James P. Mixon 52 22,221(5) *
Senior Vice President -- Logistics
Elliot S. Kaplan 60 120,627(6) *
Secretary and Director
Frank D. Trestman 62 161,000(7) *
Director
Culver Davis, Jr. 58 71,000(8) *
Director
David Stanley 61 46,450(9) *
Director
James C. Wetherbe 48 46,888(10) *
Director
All directors and executive officers, as a group -- 11,305,687(11) 25.44%
(15 individuals)
</TABLE>
- ------------------------
* Less than 1%.
(1) The figure represents (a) 8,215,000 outstanding shares owned by Mr.
Schulze; (b) 257,900 outstanding shares owned by Mr. Schulze and his wife as
joint tenants; (c) 60 outstanding shares held in Mr. Schulze's individual
retirement account; (d) 185,328 outstanding shares registered in the name of
Mr. Schulze and a co-trustee and held by them as trustees of a trust for the
benefit of Mr. Schulze; (e) 300,000 outstanding shares registered in the
name of Mr. Schulze and held by him as trustee of a trust for the benefit of
his children (Mr. Schulze has disclaimed beneficial
4
<PAGE>
ownership of such shares); (f) 185,328 outstanding shares registered in the
name of Mrs. Schulze and a co-trustee and held by them as trustees of a
trust for the benefit of Mrs. Schulze (Mr. Schulze has disclaimed beneficial
ownership of such shares); (g) 26,122 outstanding shares owned by a
partnership in which Mr. Schulze is a partner; (h) 7,335 outstanding shares
registered in the name of Wilmington Trust Company, and held by it as
trustee of the Company's Retirement Savings Plan for the benefit of Mr.
Schulze; (i) 8,600 outstanding shares registered in the name of Best Buy
Foundation, a charitable foundation of which Mr. Schulze is a Board member;
(j) options granted to Mr. Schulze, available for exercise within 60 days,
to purchase 380,500 shares; and (k) preferred securities owned by Mr.
Schulze, available for conversion within 60 days into 58,883 shares.
(2) The figure represents (a) 307,170 outstanding shares owned by Mr. Anderson;
(b) 1,333 outstanding shares registered in the name of Wilmington Trust
Company, and held by it as trustee of the Company's Retirement Savings Plan
for the benefit of Mr. Anderson; and (c) options granted to Mr. Anderson,
available for exercise within 60 days, to purchase 312,000 shares.
(3) The figure represents (a) 184,790 outstanding shares owned by Mr.
Lenzmeier; and (b) options granted to Mr. Lenzmeier, available for exercise
within 60 days, to purchase 131,375 shares.
(4) The figure represents (a) 28,262 outstanding shares owned by Mr. Fenn; (b)
8,226 outstanding shares registered in the name of Wilmington Trust Company,
and held by it as trustee of the Company's Retirement Savings Plan for the
benefit of Mr. Fenn; (c) 830 outstanding shares owned by Mr. Fenn's wife;
(d) 176 outstanding shares registered in the name of Mr. Fenn as trustee of
a trust for the benefit of his son (Mr. Fenn has disclaimed beneficial
ownership of such shares); and (e) options granted to Mr. Fenn, available
for exercise within 60 days, to purchase 69,100 shares.
(5) The figure represents (a) 5,000 outstanding shares owned by Mr. Mixon; (b)
721 outstanding shares registered in the name of Wilmington Trust Company,
and held by it as trustee of the Company's Retirement Savings Plan for the
benefit of Mr. Mixon; and (c) options granted to Mr. Mixon, available for
exercise within 60 days, to purchase 16,500 shares.
(6) The figure represents (a) 82,627 outstanding shares owned by Mr. Kaplan;
and (b) options granted to Mr. Kaplan, available for exercise within 60
days, to purchase 38,000 shares.
(7) The figure represents (a) 114,000 outstanding shares owned by Mr. Trestman;
(b) 18,000 outstanding shares registered in the name of Mr. Trestman's wife
as trustee of an irrevocable family trust (Mr. Trestman has disclaimed
beneficial ownership of such shares); and (c) options granted to Mr.
Trestman, available for exercise within 60 days, to purchase 29,000 shares.
(8) The figure represents (a) 42,000 outstanding shares owned by Mr. Davis; and
(b) options granted to Mr. Davis, available for exercise within 60 days, to
purchase 29,000 shares.
(9) The figure represents (a) 8,450 outstanding shares owned by Mr. Stanley;
and (b) options granted to Mr. Stanley, available for exercise within 60
days, to purchase 38,000 shares.
(10) The figure represents (a) 9,000 outstanding shares owned by Dr. Wetherbe;
(b) options granted to Dr. Wetherbe, available for exercise within 60 days,
to purchase 29,000 shares; and (c) preferred securities owned by Dr.
Wetherbe, available for conversion within 60 days into 8,888 shares.
5
<PAGE>
(11) The figure represents (a) outstanding shares and options described in the
preceding footnotes; (b) 78,820 outstanding shares owned by, and options,
available for exercise within 60 days, to purchase 82,000 shares granted to,
the Company's other executive officers; (c) 7,613 outstanding shares
registered in the name of Wilmington Trust Company, and held by it as
trustee of the Company's Retirement Savings Plan for the benefit of certain
other executive officers; and (d) 750 outstanding shares owned by certain
other executive officers as custodian for the benefit of their children
(where appropriate, such officers have disclaimed beneficial ownership of
such shares).
NOMINEES AND DIRECTORS
NOMINEES FOR CLASS 2 DIRECTORS
RICHARD M. SCHULZE is a founder of the Company. He has served as an officer
and director of the Company from its inception in 1966 and currently serves as
its Chairman and Chief Executive Officer. Mr. Schulze is also a director of
Pentair Inc.
ELLIOT S. KAPLAN has served as a director and Secretary of the Company since
January 1971. Since 1961, he has been an attorney with the law firm of Robins,
Kaplan, Miller & Ciresi L.L.P, Minneapolis, Minnesota, which serves as outside
general counsel to the Company. Mr. Kaplan is also a director of American
Business Information, Inc.
CULVER DAVIS, JR. has served as a director of the Company since August 1986.
Mr. Davis retired in January 1997 from Galyan's Trading Company, Plainfield,
Indiana, where he had been Director of Sales since January 1996. Mr. Davis had
retired in 1994 from CUB Foods, a warehouse style supermarket chain which he
co-founded in 1960, where he had been Chairman and Chief Executive Officer since
1992 and, prior to that, President and Chief Executive Officer since 1985.
CLASS 1 DIRECTORS -- TERMS EXPIRE IN 1998
BRADBURY H. ANDERSON has served as a director of the Company since August
1986. He has been the Company's President and Chief Operating Officer since
April 1991. Mr. Anderson has been employed in various capacities with the
Company since 1973, including retail salesperson, store manager and sales
manager.
FRANK D. TRESTMAN has served as a director of the Company since December
1984. He is President of Trestman Enterprises, an investment and business
development firm. He had been a consultant to McKesson Corporation and is the
former Chairman of the Board and Chief Executive Officer of Mass Merchandisers,
Inc., a distributor of non-food products to retailers in the grocery business
and now a subsidiary of McKesson Corporation. Mr. Trestman is also a director of
Insignia Systems, Inc.
DAVID STANLEY has served as a director of the Company since August 1990. He
is Chairman of the Board of Directors and Chief Executive Officer of Payless
Cashways, Inc., a building materials specialty retailer, where he has been an
officer since 1980. Mr. Stanley is also a director of Piper Jaffray Inc. and
Digi International, Inc.
JAMES C. WETHERBE has served as a director of the Company since July 1993.
He has been a professor at the University of Minnesota since 1980 and is
currently Professor of Management Information Systems and Director of the
University of Minnesota MIS Research Center. In addition, he has been the
Federal Express Professor and Director of the Fedex Center for Cycle Time
Research
6
<PAGE>
at the University of Memphis since August 1993. He is a leading consultant and
lecturer on information technology and the author of 15 books and over 200
articles in the field of management and information systems.
CERTAIN TRANSACTIONS
The Company leases two of its current 272 stores (Burnsville and Edina,
Minnesota) from Richard M. Schulze, leases one of its stores (Maplewood,
Minnesota) from a partnership in which he is a partner, and leases one of its
stores (Minneapolis, Minnesota) from his wife. The lease for the Burnsville
store expires in 2006. The lease provides for annual rent of $349,375 and
includes escalation clauses. The lease for the Edina store expires in 2002, and
provides for the payment to Mr. Schulze of base rent of $183,820 and percentage
rent equal to 4% of gross sales made on the premises, but in no event more than
$572,000 in the aggregate in any lease year. The lease for the Maplewood store
expires in 2008, includes renewal options and fixed minimum rent of $243,311.
The lease for the Minneapolis store expires in 1998, includes renewal options,
and provides for the payment of rent to Mrs. Schulze of $210,600 per year.
Aggregate rents paid and accrued by the Company to Mr. Schulze, partnerships in
which he is a partner or Mrs. Schulze during the fiscal year ended March 1,
1997, were $1,375,286, a portion of which was used to service debt on the
properties where the stores are located and, for some of such stores, to pay
certain property related expenses.
All of the leases with Mr. Schulze, partnerships in which he is a partner
and Mrs. Schulze were negotiated and approved by the Board of Directors with Mr.
Schulze abstaining, the Board of Directors acting in reliance upon one or more
of its disinterested members with respect to the determination of market
comparisons, alternative rental agreements and negotiations with Mr. Schulze.
The leases were determined to be in the best interests of the Company. It is the
Company's policy that the Company not engage in real estate transactions with
officers, directors, controlling persons and others affiliated with them unless
a determination is made by the disinterested members of the Board of Directors,
on recommendation by the Lease Committee, that any such transaction is on terms
more favorable to the Company than could be obtained from unaffiliated third
parties.
The Company periodically charters an airplane owned by a corporation of
which Mr. Schulze and his wife are the sole shareholders. The plane is generally
chartered when it is more economical or convenient than flying commercial
airlines. The Company pays charter fees for the use of the plane at a discounted
hourly rate as compared to other unrelated parties that also charter the plane.
A portion of the charter fees are used by the corporation to purchase fuel and
pay pilots for the chartered trips. Total charter fees paid to the corporation
in fiscal 1997 were $102,320.
7
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY
The Compensation Committee of the Board of Directors, composed of three
non-employee directors, is responsible for determining and periodically
evaluating various levels and methods of compensating the Company's directors
and officers. In accordance therewith, the Compensation Committee determines, on
an annual basis, the compensation to be paid to the Chief Executive Officer and
each of the other executive officers of the Company. The objective of the
Compensation Committee is to establish a compensation program for executive
officers that will attract and retain superior management talent, recognize and
reward individual performance, and align the financial interests of the
executive officers with the success of the Company.
The Company's compensation program for executive officers provides
compensation opportunities that approximate the mid-point of compensation levels
for similarly situated executives within the retail industry, as well as within
a broader group of companies of comparable size. Actual compensation levels may
be greater or less than average competitive levels in comparable companies
because of annual and long-term Company performance as well as individual
performance. In setting the levels of executive compensation, the Committee has
historically considered information provided by a nationally recognized
compensation and benefits firm, including the results of salary surveys of
comparably sized companies generally including national retailers. In addition,
the Committee has also considered information provided by the consulting firm
with respect to the compensation of the executive officers of a self-selected,
relevant peer group of national retail companies, as disclosed in their proxy
statements.
EXECUTIVE OFFICER COMPENSATION PROGRAM
The three components of the Company's executive officer compensation program
are base salary, annual incentive compensation in the form of a cash bonus and
long-term incentive compensation in the form of stock options. Executive
officers are also entitled to various benefits including participation in the
Company's health plan and Retirement Savings Plan, which are generally available
to employees of the Company.
Base Salary. Base salary levels for the Company's executive officers are
determined by the Compensation Committee early in the fiscal year. Members of
the Committee consider individual experience, performance and annual
expectations for the officer, as well as the base salaries of executive officers
in comparable companies. The base salaries of executive officers have generally
been set to be comparable to the midpoint of those of the surveyed executives.
In light of the Company's financial performance in fiscal 1996, the Compensation
Committee determined that, for the second consecutive year, there would
generally be no change in executive officer base salary in fiscal 1997. For that
reason, the comparative research referred to in "Overview and Philosophy,"
above, was not updated for purposes of determining base salaries in fiscal 1997,
although the Committee believes that updated information would have indicated an
increase in executive compensation.
Bonus Incentive Program. The Company offers an annual incentive for
executive officers pursuant to a program that was approved by Shareholders in
1994 and 1995. The purpose of the program is to provide a direct financial
incentive in the form of an annual cash bonus to executive officers to
8
<PAGE>
achieve or exceed the Company's annual goals. Bonus amounts are equal to a
percentage of the executive officer's base salary up to $1,000,000. The
percentages used for determining bonuses are established annually to provide
total cash compensation to the Company's executive officers, assuming certain
levels of the Company's annual goals are achieved, at a level that is comparable
to the midpoint of the previously surveyed executives. In fiscal 1997, executive
officers were entitled to bonuses ranging from 30% of base salary if the
Company's budgeted net income was achieved, which percentage could be increased
to 120% if net income for the year was at least 150% of budget. The relationship
between net income and the bonus percentage was determined by the Compensation
Committee at the beginning of fiscal 1997. Federal tax laws limit the amount of
individual compensation that can be deducted by the Company for tax purposes to
$1,000,000. Qualifying performance-based compensation is not subject to the
deduction limit. The Company's bonus program for executive officers is intended
to meet the requirements of a qualifying performance-based compensation plan.
Stock Options. The Company utilizes stock options as a long-term incentive
for executive officers. The objectives of a stock option plan are to further the
growth and general prosperity of the Company by enabling current executive
officers who have been or will be given responsibility for the administration of
the affairs of the Company and upon whose judgment, initiative and effort the
Company was or is largely dependent for the successful conduct of its business,
to acquire shares of the Company's Common Stock, thereby increasing their
personal involvement in the Company.
The Company's Shareholder-approved 1987 Employee Non-Qualified Stock Option
Plan (the "1987 Employee Plan") gave the Compensation Committee discretion to
award stock options to executive officers and certain other employees. The award
levels are subjective and not subject to specific criteria. The 1987 Employee
Plan, as amended, authorized the Company to grant to certain categories of
employees options to purchase in the aggregate not more than 7,250,000 shares of
the Company's Common Stock. This plan expired May 1, 1997. The Board of
Directors has adopted the 1997 Employee Non-Qualified Stock Option Plan covering
4,300,000 shares, and recommends that the Shareholders approve it at the
Meeting.
Stock options that were granted pursuant to the 1987 Employee Plan have
five-year terms and have exercise restrictions that lapse ratably over the last
four years of the term. The exercise prices for such options equal the average
of the closing price for the Company's Common Stock, as quoted on the New York
Stock Exchange, on the date preceding the date of grant and the closing price on
the date of grant. Awards were made to eligible employees at levels calculated
to be competitive within the retail industry as well as within a broader group
of comparable companies. Employees eligible to receive options under the 1987
Employee Plan included: (i) key executive personnel, including officers, senior
management employees and members of the Board of Directors who are employees of
the Company; (ii) staff management employees, including managers, supervisors
and their functional equivalents for warehousing, service, merchandising,
leaseholds, installation, and finance and administration; (iii) line management
employees, including retail stores and field managers, supervisors and their
functional equivalents; and (iv) any employee having served continuously for a
period of not less than ten years.
On February 13, 1997, the Board of Directors determined that, in light of
the fact that the exercise prices of a majority of the outstanding options
issued to employees under the 1987 Employee Plan were significantly above the
current market price of the Company's Common Stock, it would be in the best
interests of the Company to cancel and reissue 50% of the options granted under
this plan since April 1993. The Board concluded that to provide an incentive and
motivation for employees to improve
9
<PAGE>
the overall performance of the Company, an option repricing was warranted. The
Board also determined that the outstanding options held by the Company's two top
executives, Messrs. Schulze and Anderson, would not be repriced.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Schulze has served as an officer and director of the Company since its
inception in 1966 and currently serves as its Chairman and Chief Executive
Officer.
Mr. Schulze's base salary has been unchanged since fiscal 1995, including
for the period from April 1, 1996 to March 31, 1997. In determining Mr.
Schulze's compensation for fiscal 1995, the Compensation Committee used as a
guide the results of a study performed for the Company by a nationally
recognized firm of compensation and benefits consultants. The study included a
review of executive level compensation for eleven national retailers (the "Proxy
Group") as disclosed in their proxy statements for their respective fiscal years
ended between December 1992 and January 1994. Four of the companies in the Proxy
Group are also included in the Industry Index in the Comparative Stock
Performance graph below. The Company considers three of the companies in the
Proxy Group to be direct competitors of the Company. The study also included the
results of two national executive compensation surveys which included national
retailers such as the Company (the "Survey Group"). The Compensation Committee
determined that since the fiscal 1996 annual goals had not been achieved, there
would be no increase in fiscal 1997 in Mr. Schulze's base salary of $750,000.
Mr. Schulze did not earn a bonus for fiscal 1997. The Company's bonus
program for executive officers provides for bonuses to be earned based upon the
level of the Company's net income. The net income level required for payment of
bonuses was not achieved and, therefore, no bonus was paid to Mr. Schulze for
fiscal 1997. Additionally, no stock options were granted to Mr. Schulze in
fiscal 1997 under the 1987 Employee Plan.
COMPENSATION COMMITTEE
DAVID STANLEY (CHAIRMAN)
FRANK D. TRESTMAN
JAMES C. WETHERBE
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of David Stanley (Chairman),
Frank D. Trestman and James C. Wetherbe. No executive officer of the Company is
a member of the Compensation Committee.
10
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation for each
of the last three fiscal years awarded to or earned during the period by the
Chief Executive Officer of the Company and the next four most highly compensated
individuals serving as executive officers of the Company.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
ANNUAL COMPENSATION NUMBER OF
SECURITIES
-------------------- UNDERLYING ALL OTHER
FISCAL YEAR SALARY BONUS OPTIONS (1) COMPENSATION (2)
----------- --------- --------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Richard M. Schulze 1997 $ 750,000 $ -- -- $ 23,910
Chairman, Chief Executive Officer 1996 750,000 -- 100,000 23,852
1995 727,528 -- 50,000 25,388
Bradbury H. Anderson 1997 565,000 -- -- 9,610
President, Chief Operating Officer 1996 565,000 -- 80,000 10,122
1995 548,317 -- 40,000 11,273
Allen U. Lenzmeier 1997 435,000 -- -- 7,610
Executive Vice President, 1996 435,000 -- 50,000 8,522
Chief Financial Officer 1995 421,760 -- 25,000 9,162
Wade R. Fenn 1997 380,000 -- 15,800 2,610
Executive Vice President -- Marketing 1996 343,077 20,000 30,000 3,568
1995 294,873 -- 15,000 3,904
James P. Mixon 1997 279,161 -- -- 2,610
Senior Vice President -- Logistics 1996 265,000 -- 30,000 2,460
1995 222,192 -- 15,000 --
</TABLE>
- ------------------------------
(1) Does not include options issued in February 1997 in connection with a
repricing. See "Executive Compensation -- Stock Options" above.
(2) Includes the portions of premiums paid by the Company for life insurance
coverage exceeding $50,000 ("A"), the officers' shares of the Company's
contribution to its Retirement Savings Plan ("B"), and for Messrs. Schulze,
Anderson and Lenzmeier, the premiums paid by the Company for split-dollar
life insurance ("C"), as follows:
<TABLE>
<CAPTION>
FISCAL YEAR "A" "B" "C"
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Richard M. Schulze......................................... 1997 $ 210 $ 2,400 $ 21,300
1996 60 2,492 21,300
1995 60 4,028 21,300
Bradbury H. Anderson....................................... 1997 210 2,400 7,000
1996 60 3,062 7,000
1995 60 4,213 7,000
Allen U. Lenzmeier......................................... 1997 210 2,400 5,000
1996 60 3,462 5,000
1995 60 4,102 5,000
Wade R. Fenn............................................... 1997 210 2,400 --
1996 60 3,508 --
1995 60 3,844 --
James P. Mixon............................................. 1997 210 2,400 --
1996 60 2,400 --
1995 -- -- --
</TABLE>
11
<PAGE>
OPTIONS AND GRANTS
The following tables summarize option grants and exercises during the fiscal
year ended March 1, 1997, to or by the Chief Executive Officer and the next four
most highly compensated executive officers of the Company at the end of the
Company's last fiscal year, and the value of the options held by such persons at
the end of such fiscal year.
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
INDIVIDUAL GRANTS STOCK
------------------------------------------------------------ PRICE APPRECIATION
NUMBER OF FOR
SECURITIES % OF TOTAL OPTIONS EXERCISE OPTION TERM
UNDERLYING GRANTED TO EMPLOYEES PRICE EXPIRATION --------------------
OPTIONS IN FISCAL 1997 ($/SHARE) DATE 5% 10%
----------- --------------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Schulze................. 5,000(1) .19% $ 17.87 4-18-01 $ 23,920 $ 53,583
Bradbury H. Anderson............... 5,000(1) .19 17.87 4-18-01 23,920 53,583
Allen U. Lenzmeier................. 79,500(2) 2.98 8.62 2-12-02 189,840 419,017
Wade R. Fenn....................... 57,400(2) 2.15 8.62 2-12-02 137,067 302,535
15,800(3) .59 17.87 4-18-01 75,587 169,376
James P. Mixon..................... 27,000(2) 1.13 8.62 2-12-02 64,474 142,308
</TABLE>
- ------------------------------
The price of one share of the Company's Common Stock acquired at $17.87 would
equal approximately $22.66 and $28.59 when compounded at 5% and 10%,
respectively, over the term of the option.
The price of one share of the Company's Common Stock acquired at $8.62 would
equal approximately $11.01 and $13.89 when compounded at 5% and 10%,
respectively, over the term of the option.
(1) Number of shares issuable upon the exercise of options granted on April 19,
1996, pursuant to the Company's 1987 Directors' Non-Qualified Stock Option
Plan. The options are exercisable as of the date of grant.
(2) Number of shares issuable upon the exercise of options granted as part of
the February 13, 1997 repricing, pursuant to the Company's 1987 Employee
Non-Qualified Stock Option Plan. Options become exercisable 25% per year
beginning one year after date of grant.
(3) Number of shares issuable upon the exercise of options granted on April 19,
1996, pursuant to the Company's 1987 Employee Non-Qualified Stock Option
Plan. Options become exercisable 25% per year beginning one year after date
of grant. The Company subsequently canceled 50% of the shares pursuant to
this option grant and reissued them as part of the February 13, 1997
repricing.
OPTION EXERCISES DURING FISCAL 1997 AND VALUE OF OPTIONS AT END OF FISCAL 1997
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
VALUE OPTIONS AT END AT END OF FISCAL 1997
SHARES ACQUIRED REALIZED OF FISCAL 1997 EXERCISABLE/UNEXERCISABLE
NAME ON EXERCISE (1) EXERCISABLE/UNEXERCISABLE (1)
- -------------------------- ------------------- ----------- ----------------------- --------------------------
<S> <C> <C> <C> <C>
Richard M. Schulze........ -- $ -- 307,375/135,625 $ 345,150/ -0-
Bradbury H. Anderson...... 69,000 1,000,500 253,500/108,500 278,595/ -0-
Allen U. Lenzmeier........ 45,000 669,375 111,500/115,000 199,625/50,085
Wade R. Fenn.............. 16,876 240,483 54,750/87,050 79,866/36,162
James P. Mixon............ -- -- 9,750/44,250 -0- /17,010
</TABLE>
- ------------------------------
(1) Value based on market value of the Company's Common Stock on the date of
exercise or at the end of fiscal 1997, as applicable, minus the exercise
price.
12
<PAGE>
The following table sets forth certain information with respect to all
current executive officers of the Company regarding options that have been
repriced, as adjusted for subsequent stock splits, from October 28, 1987 through
and including February 13, 1997. See "Executive Compensation -- Stock Options,"
above, regarding the 1997 stock option repricing.
TEN YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF MARKET ORIGINAL OPTION
SECURITIES PRICE OF EXERCISE TERM REMAINING AT
UNDERLYING STOCK AT PRICE AT NEW DATE OF REPRICING
REPRICE OPTIONS TIME OF TIME OF EXERCISE (REPRESENTED IN
NAME DATE REPRICED REPRICING REPRICING PRICE YEARS)
- ------------------------------------------ ---------- ----------- ----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Schulze........................ 10/28/87 6,000 $ 2.75 $ 4.58 $ 2.75 4.5
Chairman, Chief Executive Officer 10/28/87 75,000 2.75 4.58 2.75 4.5
Bradbury H. Anderson...................... 10/28/87 6,000 2.75 4.58 2.75 4.5
President, Chief Operating Officer 10/28/87 60,000 2.75 4.58 2.75 4.5
Allen U. Lenzmeier........................ 10/28/87 45,000 2.75 4.58 2.75 4.5
Executive Vice President, Chief 02/13/97 42,000 8.62 12.00 8.62 1.2
Financial Officer 02/13/97 12,500 8.62 32.40 8.62 2.1
02/13/97 25,000 8.62 23.18 8.62 3.2
Wade R. Fenn.............................. 10/28/87 12,000 2.75 4.58 2.75 4.5
Executive Vice President -- 02/13/97 27,000 8.62 12.00 8.62 1.2
Marketing 02/13/97 7,500 8.62 32.40 8.62 2.1
02/13/97 15,000 8.62 23.18 8.62 3.2
02/13/97 7,900 8.62 17.87 8.62 4.2
James P. Mixon............................ 02/13/97 12,000 8.62 33.56 8.62 2.2
Sr. Vice President -- Logistics 02/13/97 15,000 8.62 23.18 8.62 3.2
Julie M. Engel............................ 10/28/87 9,000 2.75 4.58 2.75 4.5
Sr. Vice President -- Advertising 02/13/97 7,500 8.62 12.00 8.62 1.2
02/13/97 2,500 8.62 32.40 8.62 2.1
02/13/97 10,000 8.62 23.18 8.62 3.2
Robert C. Fox............................. 10/28/87 9,000 2.75 4.58 2.75 4.5
Sr. Vice President -- Finance & 02/13/97 7,500 8.62 12.00 8.62 1.2
Treasurer 02/13/97 5,000 8.62 32.40 8.62 2.1
02/13/97 15,000 8.62 23.18 8.62 3.2
Wayne R. Inouye........................... 02/13/97 7,500 8.62 27.12 8.62 3.5
Sr. Vice President -- Marketing 02/13/97 7,500 8.62 20.87 8.62 4.7
Philip J. Schoonover...................... 02/13/97 5,000 8.62 23.18 8.62 3.2
Sr. Vice President -- Marketing 02/13/97 2,500 8.62 26.50 8.62 3.5
02/13/97 7,500 8.62 20.87 8.62 4.7
Kenneth R. Weller......................... 02/13/97 9,000 8.62 12.46 8.62 1.3
Sr. Vice President -- Sales 02/13/97 7,500 8.62 32.40 8.62 2.1
02/13/97 15,000 8.62 23.18 8.62 3.2
</TABLE>
13
<PAGE>
COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total shareholder return on the
Common Stock of the Company for the last five fiscal years with the cumulative
total return on a self-constructed index which includes specialty retailers such
as the Company which previously comprised the S&P Industry Group 450-Retail
(Specialty) Index used in the previous year (the "Industry Index") and the S&P
Mid-Cap Companies Index (the "Broad Index"), published by Standard & Poors over
the same period.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN OF COMPANY,
INDUSTRY INDEX AND BROAD INDEX *
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BEST BUY CO.,
INC. INDUSTRY INDEX BROAD MARKET
<S> <C> <C> <C>
1992 100.00 100.00 100.00
1993 188.00 120.37 107.95
1994 370.10 118.90 124.06
1995 322.13 117.63 126.09
1996 229.60 111.98 160.02
1997 126.79 137.33 187.11
</TABLE>
Assumes $100 invested at the close of trading on the last trading day preceding
the first day of the fifth preceding year in Best Buy Common Stock, the Industry
Index and the Broad Index.
* Cumulative Total Return assumes reinvestment of dividends.
Source: Media General Financial Services
RETIREMENT SAVINGS PLAN
Effective October 1, 1990, the Company adopted a retirement savings plan
intending to meet the requirements of Internal Revenue Code Section 401(k) (the
"Retirement Savings Plan"). Employees who have been employed by the Company for
at least six months, worked 500 hours and attained age 21, may elect to save up
to 15% of their pre-tax earnings. The Company will match employee contributions
after one year of employment in which the employee worked 1,000 hours, at a rate
determined by the Board of Directors annually. Participants are fully vested in
their contributions and become vested in the Company's matching contributions
according to a five-year vesting schedule
14
<PAGE>
provided in the Retirement Savings Plan. During the fiscal year ended March 1,
1997, the Company matched 40% of the first 5% of participating employees'
pre-tax earnings, or $2,034,519, including $12,000 in the aggregate on behalf of
the Chief Executive Officer and the other four most highly compensated executive
officers. Although the Company, in adopting the Retirement Savings Plan,
expressed its intention to continue funding the trust created by the plan on a
permanent basis, the Retirement Savings Plan may be terminated by the Board of
Directors at will. Upon a termination of the Retirement Savings Plan, each
participant becomes 100% vested. The trustee for the Retirement Savings Plan is
Wilmington Trust Company.
DIRECTORS' COMPENSATION
Each non-employee director of the Company received $15,000 per year plus
expenses for his services as a director in fiscal 1997. In addition to the
annual director fee, there is a $3,000 annual fee payable to each committee
chairperson. On April 19, 1996, the Company granted to each director an option
to purchase 5,000 shares of Common stock at an exercise price of $17.87 per
share. All of the options were granted pursuant to the Company's 1987 Directors'
Non-Qualified Stock Option Plan (the "Directors' Plan"), described below.
Options, outstanding as of March 31, 1997, to purchase 239,000 shares of the
Company's Common Stock at exercise prices ranging from $7.875 to $32.40 have
been granted to the Company's directors for their services as directors,
including directors who are employees of the Company. During the last fiscal
year, David Stanley realized a net value of securities (market value less
exercise price) of $128,250 pursuant to the exercise of options granted under
the Directors' Plan.
1987 DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN
In 1987, the 1987 Directors' Non-Qualified Stock Option Plan (the "1987
Directors' Plan") was adopted by the Board of Directors and approved by the
Shareholders. The number of shares subject to the 1987 Directors' Plan was
900,000 shares. The 1987 Directors' Plan, as amended, provided that annually, at
the first regular meeting of the Company's Board of Directors each year, each
director would be given an option to purchase 5,000 shares of the Company's
Common Stock at an exercise price equal to the average of the closing price for
the stock, as quoted on the New York Stock Exchange, on the date preceding the
date of grant and the closing price of the stock on the date of grant (the
"Exercise Price"). The Directors' Plan also provided that an option to purchase
5,000 shares of the Company's Common Stock at the Exercise Price would be
granted to each new director at such time as he or she became a director of the
Company. Options granted pursuant to the 1987 Directors' Plan are exercisable
for a period of five years after the date of grant. As of March 31, 1997,
options to purchase 563,000 shares of the Company's Common Stock have been
granted pursuant to the Directors' Plan and 239,000 remain outstanding. This
plan expired May 1, 1997. The Board of Directors adopted the 1997 Directors'
Non-Qualified Stock Option Plan covering 700,000 shares, and recommends that the
Shareholders approve it at the Meeting.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
the Company's equity securities, to file with the Securities and Exchange
Commission (the "SEC") and the New York Stock Exchange initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
15
<PAGE>
securities of the Company. Such persons are required by SEC regulation to
furnish the Company with copies of all Section 16(a) reports they file. To the
Company's knowledge, based solely on its review of the copies of such reports
furnished to the Company and written representations that no other reports were
required to be filed, all Section 16(a) filing requirements applicable to its
officers, directors and beneficial owners of more than ten percent of the
Company's outstanding stock were complied with during the fiscal year ended
March 1, 1997.
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has appointed Ernst & Young LLP as the Company's
independent auditor for the fiscal year which began March 2, 1997. A proposal to
ratify that appointment will be presented at the Meeting. Ernst & Young LLP has
served as the Company's auditor since August 1994. Ernst & Young LLP has no
relationship with the Company other than that arising from its engagement as
independent auditor. Representatives of Ernst & Young LLP are expected to be
present at the Meeting, will have an opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions from
Shareholders.
The Board of Directors recommends a vote FOR the proposal to ratify the
appointment of Ernst & Young LLP. If the appointment is not ratified by the
Shareholders, the Board of Directors is not obligated to appoint other auditors,
but the Board of Directors will give consideration to an unfavorable vote.
APPROVAL OF THE 1997 EMPLOYEE
NON-QUALIFIED STOCK OPTION PLAN
Stock options enable the Company to obtain and retain the services of
employees without depleting the cash resources of the Company. Stock options
also enable employees to acquire shares of the Common Stock of the Company,
thereby increasing their personal interest in the success of the Company.
The Company's 1997 Employee Non-Qualified Stock Option Plan (the "1997
Employee Plan"), which replaces the Company's 1987 Employee Non-Qualified Stock
Option Plan which expired on May 1, 1997, was adopted by the Board of Directors
on April 18, 1997, subject to Shareholder approval. The 1997 Employee Plan
authorizes the Company to grant options to purchase up to 4,300,000 shares of
the Company's Common Stock to certain employees of the Company and its
subsidiaries, numbering approximately 5,000, including: (i) key executive
personnel, including officers, senior management employees and members of the
Board of Directors who are employees of the Company; (ii) staff management
employees, including managers, supervisors and their functional equivalents;
(iii) line management employees, including retail store and field managers,
supervisors and their functional equivalents; and (iv) any employee having
served continuously for a period of not less than 10 years. Options granted
under the 1997 Employee Plan have ten-year terms and have exercise restrictions
that lapse ratably over four years after the first year. The exercise price for
the options granted pursuant to this plan equals the closing price of the
Company's Common Stock, as quoted on the New York Stock Exchange, on the date of
grant. Awards are made to each eligible employee at a level calculated to be
competitive within the retail industry as well as within a broader group of
comparable companies. Subject to the approval of the 1997 Employee Plan by the
Shareholders at the Meeting, on April 18, 1997, the Company granted options
pursuant to the plan to purchase approximately 1,900,000 shares of Common Stock
with an exercise price of $12.75 per share.
16
<PAGE>
Upon the recommendation of management, the Board of Directors adopted the
1997 Employee Plan and recommends to the Shareholders that they vote FOR the
approval of this plan.
The affirmative vote of the holders of a majority of the voting power of the
shares present, in person or by Proxy, and entitled to vote is required to
approve the 1997 Employee Non-Qualified Stock Option Plan.
IT IS INTENDED THAT, UNLESS OTHERWISE INSTRUCTED, THE SHARES REPRESENTED BY
THE PROXY WILL BE VOTED IN FAVOR OF THE APPROVAL OF THE ADOPTION OF THE 1997
EMPLOYEE NON-QUALIFIED STOCK OPTION PLAN.
APPROVAL OF THE 1997 DIRECTORS'
NON-QUALIFIED STOCK OPTION PLAN
Stock options enable the Company to obtain the services of qualified
directors by supplementing the annual directors' fees. Stock options also enable
directors to acquire shares of the Common Stock of the Company, thereby
increasing their personal interest in the success of the Company.
The Company's 1997 Directors' Non-Qualified Stock Option Plan (the "1997
Directors' Plan"), which replaces the 1987 Directors' Non-Qualified Stock Option
Plan which expired on May 1, 1997, was adopted by the Board of Directors on
April 18, 1997, subject to Shareholder approval. The 1997 Directors' Plan
authorizes the purchase of up to 700,000 shares of the Company's Common Stock by
members of the Company's Board of Directors, currently numbering seven. The
number of options granted to directors is discretionary and not subject to
specific criteria. Such options are fully vested upon granting and have ten-year
terms. The exercise price for the options granted pursuant to this plan equals
the closing price of the Company's Common Stock, as quoted on the New York Stock
Exchange, on the date of grant. Subject to the approval of the 1997 Directors'
Plan by the Shareholders at the Meeting, on April 18, 1997, the Company granted
options pursuant to the plan to purchase 70,000 shares of Common Stock with an
exercise price of $12.75 per share.
The Board of Directors adopted the 1997 Directors' Non-Qualified Stock Plan
and recommends to the Shareholders that they vote FOR the approval of this plan.
The affirmative vote of the holders of a majority of the voting power of the
shares present, in person or by Proxy, and entitled to vote is required to
approve the 1997 Directors' Non-Qualified Stock Option Plan.
IT IS INTENDED THAT, UNLESS OTHERWISE INSTRUCTED, THE SHARES REPRESENTED BY
THE PROXY WILL BE VOTED IN FAVOR OF THE APPROVAL OF THE ADOPTION OF THE 1997
DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN.
APPROVAL OF AN AMENDMENT TO AND RESTATEMENT OF THE 1994 FULL-TIME EMPLOYEE
NON-QUALIFIED STOCK OPTION PLAN
The Company's 1994 Full-Time Employee Non-Qualified Stock Option Plan (the
"1994 Employee Plan") authorizes the granting of options to full-time employees
who are not officers of the Company. The Company has reserved 1,500,000 shares
of its Common Stock for issuance in connection with the 1994 Employee Plan to
approximately 17,000 employees. On April 18, 1997, the Board of Directors
amended and restated the 1994 Employee Plan, subject to Shareholder approval, to
make the terms thereof consistent with the terms of the newly adopted stock
option plans. Pursuant to the prospective
17
<PAGE>
changes to the 1994 Employee Plan, among other things, (i) the term of the
options will be increased from four years to ten years; (ii) the exercise price
of options granted under the plan will be the closing price of the Company's
Common Stock, as quoted on the New York Stock Exchange, on the date of grant;
(iii) an optionee will have 30 days following termination of employment during
which he or she may continue to exercise options; (iv) the exercisability of
options in the event of a change in employment status will be based on the type
of change in status; and (v) exercise prices may be paid in cash or upon the
exchange of outstanding shares.
Upon the recommendation of management, the Board of Directors adopted the
amendment to and restatement of the 1994 Employee Plan and recommends to the
Shareholders that they vote FOR the amendment and restatement.
The affirmative vote of the holders of a majority of the voting power of the
shares present, in person or by Proxy, and entitled to vote is required to
approve the amendment to and restatement of the 1994 Employee Plan.
IT IS INTENDED THAT, UNLESS OTHERWISE INSTRUCTED, THE SHARES REPRESENTED BY
THE PROXY WILL BE VOTED IN FAVOR OF THE APPROVAL OF THE ADOPTION OF THE
AMENDMENT TO AND RESTATEMENT OF THE 1994 FULL-TIME EMPLOYEE NON-QUALIFIED STOCK
OPTION PLAN.
FEDERAL TAX TREATMENT OF STOCK OPTIONS
An employee or director who is granted an option under any of the above
stock option plans generally will not realize any taxable income upon grant of
the option. Upon exercise of the option, the amount by which the fair market
value of the shares at the time of exercise exceeds the exercise price is
treated as compensation received by the individual in the year of exercise. The
Company will generally be entitled to a corresponding tax deduction at the time
that the individual realizes compensation income. When the individual sells
shares which he has purchased pursuant to the exercise of an option granted
under the plans, the difference between any amount realized and the individual's
basis in the shares may be classified as a capital gain or loss item.
18
<PAGE>
STOCK OPTION PLAN BENEFITS
The following table shows the number of shares of Common Stock subject to
options awarded on April 18, 1997, pursuant to the plans as listed below,
subject to Shareholder approval of the plans or the amendment and restatement
thereof, as applicable. The exercise price for all options indicated is
$12.75 per share.
NUMBER OF SHARES SUBJECT TO OPTIONS AWARDED
<TABLE>
<CAPTION>
1997 1997 1994
EMPLOYEE DIRECTORS' EMPLOYEE
NON-QUALIFIED NON-QUALIFIED FULL-TIME
STOCK OPTION STOCK OPTION NON-QUALIFIED
PLAN PLAN STOCK OPTION PLAN
------------- ------------- -----------------------
<S> <C> <C> <C>
Richard M. Schulze
Chairman, Chief Executive Officer.............................. 125,000 10,000 0
Bradbury H. Anderson
President, Chief Operating Officer............................. 100,000 10,000 0
Allen U. Lenzmeier
Executive Vice President, Chief Financial Officer.............. 25,000 0 0
Wade R. Fenn
Executive Vice President -- Marketing.......................... 25,000 0 0
James P. Mixon
Senior Vice President -- Logistics............................. 15,000 0 0
All executive officers,
as a group (13 individuals).................................... 410,000 20,000 0
Nominees for election as Class 2 directors
Richard M. Schulze............................................. (A) (A) 0
Elliot S. Kaplan............................................... 0 10,000 0
Culver Davis, Jr............................................... 0 10,000 0
All non-executive officer directors, as a group
(5 individuals)................................................ 0 50,000 0
All non-executive officer employees, as a group
(approximately 5,000 individuals).............................. 1,486,950 0 0
</TABLE>
- ------------------------
(A) Included in figures above for Mr. Schulze.
19
<PAGE>
OTHER BUSINESS
The Company knows of no other matters to be acted upon at the Meeting. If
any other matters properly come before the Meeting it is the intention of the
persons named in the enclosed Proxy to vote the shares they represent as the
Board of Directors may recommend.
PROPOSALS FOR THE NEXT REGULAR MEETING
Any proposals by a Shareholder to be presented at the 1998 Regular Meeting
of Shareholders must be received at the Company's principal executive offices at
7075 Flying Cloud Drive, Eden Prairie, Minnesota 55344, no later than January
22, 1998.
By Order of the Board of Directors
[SIGNATURE]
Elliot S. Kaplan
SECRETARY
Dated: May 14, 1997
20
<PAGE>
BEST BUY CO., INC.
1997
DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN
A. PURPOSE.
The purpose of this Directors' Non-Qualified Stock Option Plan ("Plan")
is to further the growth and general prosperity of Best Buy Co., Inc. (the
"Company"), and its directly and indirectly wholly-owned subsidiaries
(collectively, the "Companies") by enabling current directors of the Company,
who have been or are serving on the Company's Board of Directors (the
"Board") and upon whose judgment, initiative and effort the Companies were or
are largely dependent for the successful conduct of their business, to
acquire shares of the common stock of the Company under the terms and
conditions and in the manner contemplated by this Plan, thereby increasing
their personal involvement in the Companies. Options granted under the Plan
are intended to be options which do not meet the requirements of Section 422A
of the Internal Revenue Code of 1986, as amended (the "Code").
B. ADMINISTRATION.
This Plan shall be administered by the Compensation and Human Resources
Committee (the "Committee") of the Board. Subject to such orders and
resolutions not inconsistent with the provisions of this Plan as may from
time to time be issued or adopted by the Board, the Committee shall have full
power and authority to interpret the Plan.
All decisions and determinations made by the Committee pursuant to the
provisions of the Plan and applicable orders and resolutions of the Board
shall be final. Each option granted shall be evidenced by a written
agreement containing such terms and conditions as may be approved by the
Committee and which shall not be inconsistent with the Plan and the orders
and resolutions of the Board with respect thereto.
C. ELIGIBILITY, PARTICIPATION AND GRANTS.
Options shall be granted under the Plan to current members of the Board.
The Committee shall grant to each director options to purchase shares in such
amounts as the Committee shall from time to time determine.
D. SHARES SUBJECT TO THE PLAN.
Subject to adjustment as provided below, an aggregate of 700,000 shares of
$0.10 par value common stock of the Company shall be subject to this Plan from
authorized but unissued shares of the Company. Such number and kind of shares
shall be appropriately adjusted in the event of any one or more stock splits,
reverse stock splits or stock dividends hereafter paid or declared
<PAGE>
with respect to such stock. If, prior to the termination of the Plan, shares
issued pursuant hereto shall have been repurchased by the Company pursuant to
this Plan, such repurchased shares shall again become available for issuance
under the Plan.
Any shares which, after the effective date of this Plan, shall become
subject to valid outstanding options under this Plan may, to the extent of
the release of any such shares from option by termination or expiration of
option(s) without valid exercise, be made the subject of additional options
under this Plan.
E. NO ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
Except as expressly provided herein, in the event of a merger,
consolidation, reorganization, stock dividend, stock split, or other change
in corporate structure or capitalization affecting the common stock of the
Company, there shall be no change in the number of shares subject to options
to be granted thereafter pursuant to the Plan; provided, however, that in
such event, an appropriate adjustment may be made in the number and kind of
shares subject to and the exercise prices of outstanding options granted
under the Plan as determined by the Committee.
F. TERMS AND CONDITIONS OF OPTIONS.
The Committee shall have the power, subject to the limitations contained
in this Plan, to prescribe any terms and conditions in respect of the
granting or exercise of any option under this Plan and, in particular, shall
prescribe the following terms and conditions:
(1) Each option shall state the number of shares to which it
pertains.
(2) The price at which shares shall be sold to directors
hereunder (the "Exercise Price") shall be the Fair Market Value of the
Company's common stock on the date of grant. Payment of the Exercise
Price shall be made at the time the shares are sold hereunder by check
payable to the Company, or by surrender of outstanding shares of common
stock of the Company which have a Fair Market Value on the date of
surrender equal to the Exercise Price of the shares as to which the
option is being exercised, or by a combination thereof.
(3) An option shall be exercisable in whole or in part (but
not as to less than twenty-five percent of the original aggregate amount
of shares of common stock made subject to the option) with respect to
the shares included therein until the earlier of (a) the close of
business on the tenth day prior to the proposed effective date of (i)
any merger or consolidation of the Company with any other corporation or
entity as a result of which the holders of the common stock of the
Company will own less than a majority voting control of the surviving
corporation; (ii) any sale of substantially all of the assets of the
Companies or (iii) any sale of common stock of the Company to a person
not a shareholder on the date of issuance of the option who thereby
acquires majority voting control of the Company,
<PAGE>
subject to any such transaction actually being consummated, or (b) the
close of business on the date ten (10) years after the date the option
was granted. The Company shall give written notice to the optionee not
less than 30 days prior to the proposed effective date of any of the
transactions described in (a) above.
(4) An option shall be exercised when written notice of such
exercise has been given to the Company at its principal business office
by the person entitled to exercise the option and full payment for the
shares with respect to which the option is exercised has been received
by the Company. Until the stock certificates are issued, no right to
vote or receive dividends or any other rights as a shareholder shall
exist with respect to optioned shares, notwithstanding the exercise of
the option.
G. OPTIONS NOT TRANSFERABLE.
Options under the Plan may not be sold, pledged, assigned or transferred
in any manner, whether by operation of law or otherwise, except by will, the
laws of descent or a qualified domestic relations order.
H. AMENDMENT OR TERMINATION OF THE PLAN.
The Board may amend this Plan from time to time as it may deem advisable
and may at any time terminate the Plan, provided that any such termination of
the Plan shall not adversely affect options already granted and such options
shall remain in full force and effect as if the Plan had not been terminated.
I. AGREEMENT AND REPRESENTATIONS OF PARTICIPANTS.
As a condition precedent to the exercise of any option or portion
thereof, the Company may require the person exercising such option to
represent and warrant at the time of any such exercise that the shares are
being purchased only for investment and without any present intention to sell
or distribute such shares if, in the opinion of counsel for the Company, such
a representation is required under the Securities Act of 1933 or any other
applicable law, regulation or rule of any governmental agency.
In the event legal counsel to the Company renders an opinion to the
Company that shares for options exercised pursuant to this Plan cannot be
issued to the optionee because such action would violate any applicable
federal or state securities laws, then in that event the optionee agrees that
the Company shall not be required to issue said shares to the optionee and
shall have no liability to the optionee other than the return to optionee of
amounts tendered to the Company upon exercise of the option.
<PAGE>
J. EFFECTIVE DATE AND TERMINATION OF THE PLAN.
The Plan shall become effective as of April 18, 1997 if approved
thereafter by the Company's shareholders. The Plan shall terminate on the
earliest of:
(1) The date when all the shares available under the Plan shall
have been acquired through the exercise of options granted under the Plan;
or
(2) Ten (10) years after the date of approval of the Plan by
the Company's shareholders; or
(3) Such other earlier date as the Board may determine.
K. FAIR MARKET VALUE.
"Fair Market Value" shall mean the last reported sale price of the
Company's common stock on the date of grant, as quoted on by the New York
Stock Exchange. If the Company's common stock ceases to be listed for
trading on the New York Stock Exchange, "Fair Market Value" shall mean the
value determined in good faith by the Board.
L. COMPLIANCE WITH RULE 16B-3 AND SECTION 162(M).
Transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 under the Securities Exchange Act of 1934, as
amended, and avoid loss of the deduction referred to in paragraph (1) of
Section 162(m) of the Code. Anything in the Plan to the contrary
notwithstanding, to the extent any provision of the Plan or action by the
Committee fails to so comply or avoid the loss of such deduction, it shall be
deemed null and void, to the extent permitted by law and deemed advisable by
the Committee.
M. FORM OF OPTION.
Options shall be issued in substantially the same form as the Committee
or the Board may approve.
<PAGE>
BEST BUY CO., INC.
1997
EMPLOYEE NON-QUALIFIED
STOCK OPTION PLAN
A. PURPOSE.
The purpose of this Employee Non-Qualified Stock Option Plan ("Plan") is
to further the growth and general prosperity of Best Buy Co., Inc. (the
"Company"), and its directly and indirectly wholly-owned subsidiaries
(collectively, the "Companies") by enabling current key employees of the
Companies, who have been or will be given responsibility for the
administration of the affairs of the Companies and upon whose judgment,
initiative and effort the Companies were or are largely dependent for the
successful conduct of their business, to acquire shares of the common stock
of the Company under the terms and conditions and in the manner contemplated
by this Plan, thereby increasing their personal involvement in the Companies
and enabling the Companies to obtain and retain the services of such
employees. Options granted under the Plan are intended to be options which
do not meet the requirements of Section 422A of the Internal Revenue Code of
1986, as amended (the "Code").
B. ADMINISTRATION.
This Plan shall be administered by the Compensation and Human Resources
Committee (the "Committee") of the Company's Board of Directors (the
"Board"). Options may not be granted to any person while serving on the
Committee unless approved by a majority of the disinterested members of the
Board. Subject to such orders and resolutions not inconsistent with the
provisions of this Plan as may from time to time be issued or adopted by the
Board, the Committee shall have full power and authority to interpret the
Plan and, to the extent contemplated herein, shall exercise the discretion
granted to it regarding participation in the Plan and the number of shares to
be optioned and sold to each participant.
All decisions, determinations and selections made by the Committee
pursuant to the provisions of the Plan and applicable orders and resolutions
of the Board shall be final. Each option granted shall be evidenced by a
written agreement containing such terms and conditions as may be approved by
the Committee and which shall not be inconsistent with the Plan and the
orders and resolutions of the Board with respect thereto.
C. ELIGIBILITY AND PARTICIPATION.
Options may be granted under the Plan to (i) key executive personnel,
including officers, senior management employees and members of the Board who
are employees of any of the Companies; (ii) staff management employees,
including managers, supervisors, and their functional equivalents for:
warehousing, service, merchandising, leaseholds, installation, and finance
and administration; (iii) line management employees, including retail store
and field managers,
<PAGE>
supervisors and their functional equivalents; and (iv) any employee having
served the Companies continuously for a period of not less than ten (10)
years. The Committee shall grant to such participants options to purchase
shares in such amounts as the Committee shall from time to time determine.
D. SHARES SUBJECT TO THE PLAN.
Subject to adjustment as provided in Section E. herein, an aggregate of
4,300,000 shares of $0.10 par value common stock of the Company shall be
subject to this Plan from authorized but unissued shares of the Company.
Such number and kind of shares shall be appropriately adjusted in the event
of any one or more stock splits, reverse stock splits or stock dividends
hereafter paid or declared with respect to such stock. If, prior to the
termination of the Plan, shares issued pursuant hereto shall have been
repurchased by the Company pursuant to this Plan, such repurchased shares
shall again become available for issuance under the Plan.
Any shares which, after the effective date of this Plan, shall become
subject to valid outstanding options under this Plan may, to the extent of
the release of any such shares from option by termination or expiration of
option(s) without valid exercise, be made the subject of additional options
under this Plan.
E. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
In the event of a merger, consolidation, reorganization, stock dividend,
stock split, or other change in corporate structure or capitalization
affecting the common stock of the Company, an appropriate adjustment may be
made in the number and kind of shares subject to and the exercise prices of
options granted under the Plan as determined by the Committee.
F. TERMS AND CONDITIONS OF OPTIONS.
The Committee shall have the power, subject to the limitations contained
in this Plan, to prescribe any terms and conditions in respect of the
granting or exercise of any option under this Plan and, in particular, shall
prescribe the following terms and conditions:
(1) Each option shall state the number of shares to which it
pertains.
(2) The price at which shares shall be sold to participants
hereunder (the "Exercise Price") shall be the Fair Market Value of the
Company's common stock on the date of grant. Payment of the Exercise
Price shall be made at the time the shares are sold hereunder by check
payable to the Company, or by surrender of outstanding shares of common
stock of the Company which have a Fair Market Value on the date of
surrender equal to the Exercise Price of the shares as to which the
option is being exercised, or by a combination thereof.
<PAGE>
(3) An option shall be exercisable in whole or in part (but
not as to less than twenty-five percent of the original aggregate
amount of shares of common stock made subject to the option) with
respect to the shares included therein until the earlier of (a) the
close of business on the tenth day prior to the proposed effective date
of (i) any merger or consolidation of the Company with any other
corporation or entity as a result of which the holders of the common
stock of the Company will own less than a majority voting control of the
surviving corporation; (ii) any sale of substantially all of the assets
of the Companies or (iii) any sale of common stock of the Company to a
person not a shareholder on the date of issuance of the option who
thereby acquires majority voting control of the Company, subject to any
such transaction actually being consummated, or (b) the close of
business on the date ten (10) years after the date the option was
granted. The Company shall give written notice to the optionee not less
than 30 days prior to the proposed effective date of any of the
transactions described in (a) above.
(4) Except in the event of disability or death, an option
shall be exercisable with respect to the shares included therein not
earlier than the date one (1) year following the date of grant of the
option, nor later than the date ten (10) years following the date of
grant of the option; provided, however, that during the second through
fourth years following the date of grant, the optionee may exercise such
optionee's right to acquire only twenty-five percent (25%) of the shares
subject to such option together with any shares that the optionee had
previously been able to acquire; and provided further, however, that in
the event of a change in status of an employee from full-time to
part-time or seasonal, such employee shall continue to have the right to
exercise an option following such change in status but only to the
extent of the shares available for acquisition on the date of such
change in status (the "Change in Status Date").
(5) Except as in the event of disability or death, an option
may be exercised only by the optionee while such optionee is, and has
continually been, since the date of the grant of the option, an employee
of any of the Companies; provided, however, that a former employee shall
continue to have the right to exercise an option for a period of thirty
(30) days following such termination to the extent of the shares
available for acquisition on the date of such former employee's
termination. If the continuous employment of an optionee terminates by
reason of disability or death, an option granted hereunder held by the
disabled or deceased employee may be exercised to the extent of all
shares subject to the option (or, with respect to a disabled or deceased
part-time or seasonal employee, to the extent of the shares available
for acquisition on the Change in Status Date) within one (1) year
following the date of disability or death, but in no event later than
ten (10) years after the date of grant of such option, by the disabled
employee or the person or persons to whom the deceased employee's rights
under such option shall have passed by will or by the applicable laws of
descent and distribution. For purposes of this Plan only, an employee
shall be deemed "disabled" if the employee is unable to perform his or
her usual duties for the Companies as a result of physical or mental
disability, and such inability to perform continues or is expected to
continue for at least twelve (12) consecutive months.
<PAGE>
(6) An option shall be exercised when written notice of such
exercise has been given to the Company at its principal business office
by the person entitled to exercise the option and full payment for the
shares with respect to which the option is exercised has been received
by the Company. Until the stock certificates are issued, no right to
vote or receive dividends or any other rights as a shareholder shall
exist with respect to optioned shares, notwithstanding the exercise of
the option.
G. OPTIONS NOT TRANSFERRABLE.
Options under the Plan may not be sold, pledged, assigned or transferred
in any manner, whether by operation of law or otherwise except by will or the
laws of descent, and may be exercised during the lifetime of an optionee only
by such optionee.
H. AMENDMENT OR TERMINATION OF THE PLAN.
The Board may amend this Plan from time to time as it may deem advisable
and may at any time terminate the Plan, provided that any such termination of
the Plan shall not adversely affect options already granted and such options
shall remain in full force and effect as if the Plan had not been terminated.
I. AGREEMENT AND REPRESENTATIONS OF OPTIONEES.
As a condition precedent to the exercise of any option or portion
thereof, the Company may require the person exercising such option to
represent and warrant at the time of any such exercise that the shares are
being purchased only for investment and without any present intention to sell
or distribute such shares if, in the opinion of counsel for the Company, such
a representation is required under the Securities Act of 1933 or any other
applicable law, regulation or rule of any governmental agency.
In the event legal counsel to the Company renders an opinion to the
Company that shares for options exercised pursuant to this Plan cannot be
issued to the optionee because such action would violate any applicable
federal or state securities laws, then in that event the optionee agrees that
the Company shall not be required to issue said shares to the optionee and
shall have no liability to the optionee other than the return to optionee of
amounts tendered to the Company upon exercise of the option.
J. EFFECTIVE DATE AND TERMINATION OF THE PLAN.
The Plan shall become effective as of April 18, 1997, if approved
thereafter by the Company's shareholders. The Plan shall terminate on the
earliest of:
(1) The date when all the shares available under the Plan
shall have been acquired through the exercise of options granted under
the Plan; or
<PAGE>
(2) Ten (10) years after the date of approval of the Plan by the
Company's shareholders; or
(3) Such other earlier date as the Board may determine.
K. WITHHOLDING TAXES.
The Companies shall have the right to take any action that may be
necessary in the opinion of the Companies to satisfy all obligations for the
payment of any federal, state or local taxes of any kind, including FICA
taxes, required by law to be withheld with respect to the exercise of an
option granted hereunder. If stock is withheld or surrendered to satisfy tax
withholding, such stock shall be the Fair Market Value of the Company's
common stock on the date of exercise.
L. FAIR MARKET VALUE.
"Fair Market Value" shall mean the last reported sale price of the
Company's common stock on the date of grant, as quoted on by the New York
Stock Exchange. If the Company's common stock ceases to be listed for
trading on the New York Stock Exchange, "Fair Market Value" shall mean the
value determined in good faith by the Board.
M. COMPLIANCE WITH RULE 16B-3 AND SECTION 162(m).
With respect to employees subject to Section 16 of the Securities
Exchange Act of 1934, as amended, or Section 162(m) of the Code, transactions
under the Plan are intended to comply with all applicable conditions of such
Rule 16b-3 and avoid loss of the deduction referred to in paragraph (1) of
such Section 162(m). Anything in the Plan to the contrary notwithstanding,
to the extent any provision of the Plan or action by the Committee fails to
so comply or avoid the loss of such deduction, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee.
N. FORM OF OPTION.
Options shall be issued in substantially the form as the Committee or
the Board may approve.
<PAGE>
BEST BUY CO., INC.
1994
FULL-TIME EMPLOYEE NON-QUALIFIED
STOCK OPTION PLAN
1997 AMENDMENT AND RESTATEMENT
A. PURPOSE.
The purpose of this Full-Time Employee Non-Qualified Stock Option Plan
("Plan") is to further the growth and general prosperity of Best Buy Co.,
Inc. (the "Company"), and its directly and indirectly wholly-owned
subsidiaries (collectively, the "Companies") by enabling full-time employees
of the Companies to acquire shares of the common stock of the Company under
the terms and conditions and in the manner contemplated by this Plan, thereby
increasing their personal interest in the success of the Companies and
enabling the Companies to obtain and retain the services of such employees.
Options granted under the Plan are intended to be options which do not meet
the requirements of Section 422A of the Internal Revenue Code of 1986, as
amended.
B. ADMINISTRATION.
This Plan shall be administered by the Compensation and Human Resources
Committee (the "Committee") of the Company's Board of Directors (the
"Board"). Options may not be granted to any person while serving on the
Committee unless approved by a majority of the disinterested members of the
Board. Subject to such orders and resolutions not inconsistent with the
provisions of this Plan as may from time to time be issued or adopted by the
Board, the Committee shall have full power and authority to interpret the
Plan and, to the extent contemplated herein, shall exercise the discretion
granted to it regarding participation in the Plan and the number of shares to
be optioned and sold to each participant.
All decisions, determinations and selections made by the Committee
pursuant to the provisions of the Plan and applicable orders and resolutions of
the Board shall be final. Each option granted shall be evidenced by a written
agreement containing such terms and conditions as may be approved by the
Committee and which shall not be inconsistent with the Plan and the orders and
resolutions of the Board with respect thereto.
C. ELIGIBILITY AND PARTICIPATION.
Options may be granted under the Plan to any full-time employee of the
Companies who is not an officer of the Companies. The Committee shall grant to
such participants options to purchase shares in such amounts as the Committee
shall from time to time determine.
<PAGE>
D. SHARES SUBJECT TO THE PLAN.
Subject to adjustment as provided in Section E. herein, an aggregate of
1,500,000 shares of $0.10 par value common stock of the Company shall be
subject to this Plan from authorized but unissued shares of the Company.
Such number and kind of shares shall be appropriately adjusted in the event
of any one or more stock splits, reverse stock splits or stock dividends
hereafter paid or declared with respect to such stock. If, prior to the
termination of the Plan, shares issued pursuant hereto shall have been
repurchased by the Company pursuant to this Plan, such repurchased shares
shall again become available for issuance under the Plan.
Any shares which, after the effective date of this Plan, shall become
subject to valid outstanding options under this Plan may, to the extent of
the release of any such shares from option by termination or expiration of
option(s) without valid exercise, be made the subject of additional options
under this Plan.
E. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
In the event of a merger, consolidation, reorganization, stock dividend,
stock split, or other change in corporate structure or capitalization
affecting the common stock of the Company, an appropriate adjustment may be
made in the number and kind of shares subject to and the exercise prices of
options granted under the Plan as determined by the Committee.
F. TERMS AND CONDITIONS OF OPTIONS.
The Committee shall have the power, subject to the limitations contained
in this Plan, to prescribe any terms and conditions in respect of the granting
or exercise of any option under this Plan and, in particular, shall prescribe
the following terms and conditions:
(1) Each option shall state the number of shares to which it
pertains.
(2) The price at which shares shall be sold to participants
hereunder (the "Exercise Price") shall be the Fair Market Value of the
Company's common stock on the date of grant. Payment of the Exercise
Price shall be made at the time the shares are sold hereunder by check
payable to the Company, or by surrender of outstanding shares of common
stock of the Company which have a Fair Market Value on the date of
surrender equal to the Exercise Price of the shares as to which the option
is being exercised, or by a combination thereof.
(3) An option shall be exercisable in whole or in part (but not as
to less than twenty-five percent of the original aggregate amount of
shares of common stock made subject to the option) with respect to the
shares included therein until the earlier of (a) the close of business on
the tenth day prior to the proposed effective date of (i) any merger or
consolidation of the Company with any other corporation or entity as a
result of which the holders of the common stock of the Company will own
less than a majority voting control of the surviving corporation; (ii) any
sale of substantially all of the assets of the Companies or (iii) any sale
of common stock of the Company to a person not a shareholder on the date
<PAGE>
of issuance of the option who thereby acquires majority voting control of
the Company, subject to any such transaction actually being consummated,
or (b) the close of business on the date ten (10) years after the date
the option was granted. The Company shall give written notice to the
optionee not less than 30 days prior to the proposed effective date of any
of the transactions described in (a) above.
(4) Except in the event of disability or death, an option shall be
exercisable with respect to the shares included therein not earlier than
the date one (1) year following the date of grant of the option, nor later
than the date ten (10) years following the date of grant of the option;
provided, however, that during the first year that the option may be
exercised, the optionee may exercise such optionee's right only to the
extent of fifty percent (50%) of the shares subject to such option; and
provided further, however, that in the event of a change in status of an
employee from full-time to part-time or seasonal, such employee shall
continue to have the right to exercise an option following such change in
status but only to the extent of the shares available for acquisition on
the date of such change in status (the "Change in Status Date").
(5) Except in the event of disability or death, an option may be
exercised only by the optionee while such optionee is, and has continually
been, since the date of the grant of the option, an employee of any of the
Companies; provided, however, that a former employee shall continue to
have the right to exercise an option for a period of thirty (30) days
following such termination to the extent of the shares available for
acquisition on the date of such former employee's termination. If the
continuous employment of an optionee terminates by reason of disability or
death, an option granted hereunder held by the disabled or deceased
employee may be exercised to the extent of all shares subject to the
option (or, with respect to a disabled or deceased part-time or seasonal
employee, to the extent of the shares available for acquisition on the
Change in Status Date) within one (1) year following the date of
disability or death, but in no event later than ten (10) years after the
date of grant of such option, by the disabled employee or the person or
persons to whom the participant's rights under such option shall have
passed by will or by the applicable laws of descent and distribution. For
purposes of this Plan only, an employee shall be deemed "disabled" if the
employee is unable to perform his or her usual duties for the Companies as
a result of physical or mental disability, and such inability to perform
continues or is expected to continue for at least twelve (12) consecutive
months.
(6) An option shall be exercised when written notice of such
exercise has been given to the Company at its principal business office by
the person entitled to exercise the option and full payment for the shares
with respect to which the option is exercised has been received by the
Company. Until the stock certificates are issued, no right to vote or
receive dividends or any other rights as a shareholder shall exist with
respect to optioned shares, notwithstanding the exercise of the option.
<PAGE>
G. OPTIONS NOT TRANSFERRABLE.
Options under the Plan may not be sold, pledged, assigned or transferred
in any manner, whether by operation of law or otherwise except by will or the
laws of descent, and may be exercised during the lifetime of an optionee only
by such optionee.
H. AMENDMENT OR TERMINATION OF THE PLAN.
The Board may amend this Plan from time to time as it may deem advisable
and may at any time terminate the Plan, provided that any such termination of
the Plan shall not adversely affect options already granted and such options
shall remain in full force and effect as if the Plan had not been terminated.
I. AGREEMENT AND REPRESENTATIONS OF OPTIONEES.
As a condition precedent to the exercise of any option or portion
thereof, the Company may require the person exercising such option to
represent and warrant at the time of any such exercise that the shares are
being purchased only for investment and without any present intention to sell
or distribute such shares if, in the opinion of counsel for the Company, such
a representation is required under the Securities Act of 1933 or any other
applicable law, regulation or rule of any governmental agency.
In the event legal counsel to the Company renders an opinion to the
Company that shares for options exercised pursuant to this Plan cannot be
issued to the optionee because such action would violate any applicable federal
or state securities laws, then in that event the optionee agrees that the
Company shall not be required to issue said shares to the optionee and shall
have no liability to the optionee other than the return to optionee of amounts
tendered to the Company upon exercise of the option.
J. EFFECTIVE DATE AND TERMINATION OF THE PLAN.
The Plan is effective as of April 4, 1994. The Plan shall terminate on
the earliest of:
(1) The date when all the shares available under the Plan shall have
been acquired through the exercise of options granted under the Plan; or
(2) Ten (10) years after the date of approval of the Plan by the
Shareholders of the Company; or
(3) Such other earlier date as the Board may determine.
<PAGE>
K. WITHHOLDING TAXES.
The Companies shall have the right to take any action that may be
necessary in the opinion of the Companies to satisfy all obligations for the
payment of any federal, state or local taxes of any kind, including FICA
taxes, required by law to be withheld with respect to the exercise of an
option granted hereunder. If stock is withheld or surrendered to satisfy tax
withholding, such stock shall be the Fair Market Value of the Company's
common stock on the date of exercise.
L. FAIR MARKET VALUE.
"Fair Market Value" shall mean the last reported sale price of the
Company's common stock on the date of grant, as quoted on by the New York Stock
Exchange. If the Company's common stock ceases to be listed for trading on the
New York Stock Exchange, "Fair Market Value" shall mean the value determined in
good faith by the Board.
M. COMPLIANCE WITH RULE 16B-3 AND SECTION 162(M).
With respect to employees subject to Section 16 of the Securities Exchange
Act of 1934, as amended, or Section 162(m) of the Code, transactions under the
Plan are intended to comply with all applicable conditions of such Rule 16b-3
and avoid loss of the deduction referred to in paragraph (1) of such Section
162(m). Anything in the Plan to the contrary notwithstanding, to the extent
any provision of the Plan or action by the Committee fails to so comply or
avoid the loss of such deduction, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Committee.
N. FORM OF OPTION.
Options shall be issued in substantially the form as the Committee or the
Board may approve.
<PAGE>
BEST BUY CO., INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /X/
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
For Withhold
1. ELECTION OF THREE CLASS 2 DIRECTORS -- All All For All 3. Proposal to approve the For Against Abstain
NOMINEES: Richard M. Schulze, Nominees Nominees Except* Company's 1997 Employee / / / / / /
Elliot S. Kaplan and / / / / / / Non-Qualified Stock
Culver Davis, Jr. Option Plan.
--------------------------------------
*EXCEPT NOMINEE(S) WRITTEN ABOVE 4. Proposal to approve the
For Against Abstain Company's 1997 Directors' / / / / / /
2. Proposal to ratify the appointment of / / / / / / Non-Qualified Stock
Ernst & Young LLP as the Company's Option Plan.
independent auditor for the current
fiscal year. 5. Proposal to approve an
amendment to and
restatement of the
Company's 1994 Full-time / / / / / /
Employee Non-Qualified
Stock Option Plan.
6. In their discretion, the Proxy Agents are authorized
to vote upon such other business as may properly come
before the meeting.
Dated: ____________________, 1997
Signature(s) ___________________________________________
________________________________________________________
Please date and sign exactly as name(s) appears hereon
and return promptly in the accompanying postpaid
envelope. If shares are held by joint tenants or as
community property, both shareholders should sign.
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</TABLE>
-TRIANGLE- FOLD AND DETACH HERE -TRIANGLE-
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
<PAGE>
PROXY BEST BUY CO., INC. PROXY
7075 FLYING CLOUD DRIVE
EDEN PRAIRIE, MINNESOTA 55344
THIS PROXY IS SOLICITED ON BEHALF OF MANAGEMENT
FOR THE REGULAR MEETING OF SHAREHOLDERS -- JUNE 25, 1997
The undersigned hereby appoint(s) Richard M. Schulze and Elliot S. Kaplan,
or either of them, each with the power of substitution, as proxies and agents
("Proxy Agents"), in the name of the undersigned to represent and to vote as
designated below all of the shares of Common Stock of Best Buy Co., Inc. (the
"Company"), held of record by the undersigned on Wednesday, April 30, 1997, at
the Regular Meeting of Shareholders to be held on Wednesday, June 25, 1997, at
3:00 p.m., and any adjournment(s) thereof, the undersigned herewith ratifying
all that the said Proxy Agents may so do. The undersigned further acknowledges
receipt of the Notice of Regular Meeting and the Proxy Statement in support of
Management's solicitation of proxies dated May 14, 1997.
THIS PROXY WHEN PROPERLY EXECUTED AND RETURNED TO THE COMPANY WILL BE VOTED
IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4 AND 5.
PLEASE MARK, SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
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