<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 1998 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 Thursday, June
25, 1998, at 3:00 p.m., for the following purposes:
1. To elect four Class 1 directors to serve on the Board of Directors for a
term of two years.
2. To ratify the appointment of one new Class 2 director.
3. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditor for the Company's current fiscal year.
4. To increase the number of authorized shares of Common Stock to
400,000,000 shares.
5. To approve an amendment to the Company's 1997 Employee Non-Qualified
Stock Option Plan to increase the number of shares subject to the plan to
10,000,000 shares (20,000,000 shares on a post-Stock Split basis).
6. To approve an amendment to the bonus compensation program for the
Company's senior officers to increase the maximum amount of annual
compensation under the program per person to $5 million.
7. To transact such other business as may properly come before the meeting.
Only Shareholders of record at the close of business on Wednesday, May 6,
1998, 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 22, 1998
<PAGE>
PROXY STATEMENT
BEST BUY CO., INC.
7075 FLYING CLOUD DRIVE
EDEN PRAIRIE, MINNESOTA 55344
REGULAR MEETING OF SHAREHOLDERS -- JUNE 25, 1998
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
Thursday, June 25, 1998, 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 22, 1998.
As of May 6, 1998, 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 50,104,102 shares of Common Stock, which is the only
class of the capital stock of the Company outstanding. On April 24, 1998, the
Board of Directors approved a two-for-one stock split payable on May 26, 1998 in
the form of a stock dividend of one share for every share outstanding as of the
close of business on May 11, 1998 (the "Stock Split"). SHARE INFORMATION HEREIN
DOES NOT REFLECT THE STOCK SPLIT UNLESS EXPRESSLY INDICATED.
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
The Company's By-Laws provide that the Board of Directors shall consist of
nine directors, 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. On April 24, 1998, the Board of
Directors, upon the recommendation of the Nominating and Public Policy
Committee, appointed Yvonne R. Jackson as a Class 1 director and Hatim A. Tyabji
as a Class 2 director to fill two previously vacant positions. By reason of the
Meeting, the Shareholders are empowered to elect directors to fill the
vacancies.
Management and the Board of Directors recommend that Bradbury H. Anderson,
Yvonne R. Jackson, Frank D. Trestman, and James C. Wetherbe be re-elected as
Class 1 directors, each to hold office until the 2000 Regular Meeting of
Shareholders and until his or her successor is duly elected and qualified.
Management and the Board of Directors further recommend that the Shareholders
ratify the appointment of Hatim A. Tyabji as a Class 2 director 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. David Stanley, an incumbent Class 1 director, is
retiring from the Board effective with the Meeting, the expiration of his
current term. The Board is not currently nominating another person to fill the
vacancy created by Mr. Stanley's retirement. The Board intends to consider
suitable candidates and exercise its right to fill the vacancy prior to the 1999
Regular Meeting of Shareholders if, in the Board's judgment, it is advisable to
appoint the candidate before such meeting.
The Board of Directors held four meetings during the fiscal year ended
February 28, 1998. All directors (other than Ms. Jackson and Mr. Tyabji who were
not then 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 five committees of the Board have responsibilities 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 also reviews 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 also has responsibility for
reviewing the general parameters of the Company's leases and real estate
holdings.
2
<PAGE>
Long-Range and Strategic Planning -- This committee works 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 also
reviews policies and programs that will assist the Board and management in
operating a business that is sensitive to significant public policy issues.
The following table shows the date each committee was established and the
names of the directors serving thereon as of February 28, 1998.
<TABLE>
<CAPTION>
NUMBER OF
MEETINGS
DURING LAST
COMMITTEE DATE ESTABLISHED FISCAL YEAR MEMBERS
- -------------------------------------------- ---------------------- ----------------- ---------------------------
<S> <C> <C> <C>
Audit June 1, 1984 2 Frank D. Trestman *
Culver Davis, Jr.
Compensation and Human Resources February 13, 1997 1 David Stanley *
Frank D. Trestman
James C. Wetherbe
Finance and Investment Policy February 13, 1997 1 Culver Davis, Jr. *
Bradbury H. Anderson
Frank D. Trestman
Long-Range and Strategic Planning February 13, 1997 0 James C. Wetherbe *
Bradbury H. Anderson
Elliot S. Kaplan
Richard M. Schulze
Nominating and Public Policy February 13, 1997 1 Elliot S. Kaplan *
Richard M. Schulze
David Stanley
</TABLE>
- ------------------------
* Committee chairperson
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
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<PAGE>
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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides certain information as of March 31, 1998, as to
the Chief Executive Officer and each of the next five most highly compensated
executive officers during the most recent fiscal year, each director including
the nominees for election as Class 1 and 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
BENEFICIALLY PERCENT OF SHARES
NAME AGE OWNED BENEFICIALLY OWNED
- ------------------------------------------------ --- ----------------- -------------------
<S> <C> <C> <C>
Richard M. Schulze 57 9,557,909(1) 21.30%
Chairman, Chief Executive
Officer and Director
Bradbury H. Anderson 48 527,503(2) 1.18%
President, Chief Operating Officer
and Director
Allen U. Lenzmeier 54 276,345(3) *
Executive Vice President and Chief
Financial Officer
Wade R. Fenn 39 99,973(4) *
Executive Vice President -- Marketing
Kenneth R. Weller 49 31,970(5) *
Senior Vice President -- Sales
Michael P. Keskey 43 20,214(6) *
Senior Vice President -- Sales
Elliot S. Kaplan 61 120,177(7) *
Secretary and Director
Frank D. Trestman 63 133,000(8) *
Director
Culver Davis, Jr. 59 86,000(9) *
Director
David Stanley 62 59,050(10) *
Director
James C. Wetherbe 49 61,888(11) *
Director
Yvonne R. Jackson 48 0 0
Director
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENT OF SHARES
NAME AGE OWNED BENEFICIALLY OWNED
- ------------------------------------------------ --- ----------------- -------------------
<S> <C> <C> <C>
Hatim A. Tyabji 53 0 0
Director
All directors and executive officers, -- 11,110,097(12) 24.48%
as a group (22 individuals)
FLA Asset Management -- 6,498,200(13) 14.56%
590 Madison Avenue
New York, NY 10022
FMR Corp. -- 6,295,000(13) 14.34%
82 Devonshire Street
Boston, MA 02109
Goldman Sachs & Co. -- 2,617,100(13) 5.86%
85 Broad Street
New York, NY 10004
</TABLE>
- ------------------------
* Less than 1%.
(1) The figure represents (a) 8,215,000 outstanding shares owned by Mr.
Schulze; (b) 379,400 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
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) 7,938 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 the Best
Buy Children's 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 191,250 shares; and (k) preferred securities
owned by Mr. Schulze, available for conversion within 60 days into 58,883
shares.
(2) The figure represents (a) 366,170 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 160,000 shares.
(3) The figure represents (a) 218,970 outstanding shares owned by Mr.
Lenzmeier; and (b) options granted to Mr. Lenzmeier, available for exercise
within 60 days, to purchase 57,375 shares.
(4) The figure represents (a) 47,002 outstanding shares owned by Mr. Fenn; (b)
8,665 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
5
<PAGE>
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 43,300 shares.
(5) The figure represents (a) 1,445 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. Weller, (b) 150 outstanding
shares registered in the name of Mr. Weller as trustee of a trust for the
benefit of his child (Mr. Weller has disclaimed beneficial ownership of
such shares); and (c) options granted to Mr. Weller, available for exercise
within 60 days, to purchase 30,375 shares.
(6) The figure represents (a) 1,575 outstanding shares owned by Mr. Keskey; (b)
2,514 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. Keskey; and (c) options granted to Mr. Keskey,
available for exercise within 60 days, to purchase 16,125 shares.
(7) The figure represents (a) 85,177 outstanding shares owned by Mr. Kaplan;
and (b) options granted to Mr. Kaplan, available for exercise within 60
days, to purchase 35,000 shares.
(8) The figure represents (a) 80,000 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 35,000 shares.
(9) 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 44,000 shares.
(10) The figure represents (a) 24,050 outstanding shares owned by Mr. Stanley;
and (b) options granted to Mr. Stanley, available for exercise within 60
days, to purchase 35,000 shares.
(11) 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 44,000 shares; and (c) preferred securities owned by Dr.
Wetherbe, available for conversion within 60 days into 8,888 shares.
(12) The figure represents (a) outstanding shares and options described in the
preceding footnotes; (b) 53,270 outstanding shares owned by, and options,
available for exercise within 60 days, to purchase 74,787 shares granted
to, the Company's other executive officers; and (c) 8,011 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.
(13) As reported on the beneficial owners' respective Schedules 13G.
NOMINEES AND DIRECTORS
NOMINEES FOR CLASS 1 DIRECTORS
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.
YVONNE R. JACKSON was appointed as a Class 1 director in April 1998. She has
been Senior Vice President of Human Resources Worldwide for Burger King
Corporation since 1993. Previously,
6
<PAGE>
Ms. Jackson had been Vice President of Human Resources at Avon Products, Inc.
and had held several marketing positions for Sears Roebuck & Co. In addition,
Ms. Jackson serves on the Board of Trustees at Spelman College.
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 a subsidiary of McKesson Corporation. Mr. Trestman is also a director of
Insignia Systems, Inc. and Metris Companies.
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 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.
NOMINEE FOR CLASS 2 DIRECTOR
HATIM A. TYABJI was appointed as a Class 2 director in April 1998. Since
1986, he served as President and Chief Executive Officer of VeriFone, Inc., a
global provider of transaction automation systems and internet commerce
solutions. VeriFone was acquired by Hewlett-Packard Company in June 1997. Mr
Tyabji is also a director of Deluxe Corporation.
CLASS 2 DIRECTORS -- TERMS EXPIRE IN 1999
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 1968, where he had been Chairman and Chief Executive Officer since
1992 and, prior to that, President and Chief Executive Officer since 1985.
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.
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., is a Trustee of the University of St. Thomas and serves as a
member of the Board of Overseers at the Carlson School of Management at the
University of Minnesota.
7
<PAGE>
CERTAIN TRANSACTIONS
The Company leases two of its current 289 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, through January
1998, leased one of its stores (Minneapolis, Minnesota) from his wife. The lease
for the Burnsville store expires in 2006. Annual rent is $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 expired in January 1998, and provided 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 February 28, 1998, were $1,311,834,
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 Finance and Investment Policy Committee (formerly, the
Lease Committee) of the Board of Directors, 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 practical than flying commercial
airlines. The Company pays charter fees at an hourly rate for usage of the
plane. A portion of the charter fees are used by the corporation to purchase
fuel and pay pilots for the chartered trips, as well as service debt on the
plane and pay for aircraft maintenance and storage. Total charter fees paid by
the Company to the corporation during the fiscal year ended February 28, 1998,
were $321,491.
8
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY
The Compensation and Human Resources Committee of the Board of Directors
(the "Committee"), 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
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 this 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 for the twelve
month period ended March 31, 1998, the Committee considered the results of a
survey conducted for the Company by its independent auditors, as well as
information about the executive compensation of key competitors as set forth in
their proxy statements. The Company also subscribes to services that report on
developments in executive salary and benefits, and the Committee has considered
the relevant material from such services.
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 an annual 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 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. The Committee
determined that an increase in officers' base salaries was warranted in fiscal
1998, since there had been no general salary increase in the past two years. The
salary levels for the Company's executive officers were approximately equal to
the midpoint of the range of executive officers included in the surveys,
adjusted based on individual performance.
Bonus Incentive Program. The Company offers an annual incentive for senior
officers pursuant to a Shareholder-approved program. The purpose of the program
is to provide a direct financial incentive in the form of an annual cash bonus
to senior officers to achieve or exceed the Company's annual goals. Bonus
amounts, currently subject to an individual maximum of $1 million per year, are
equal to a percentage of the senior officer's base salary. The percentages used
for determining bonuses
9
<PAGE>
are established annually to provide total cash compensation to the Company's
senior officers, assuming certain levels of the Company's annual goals are
achieved, at a level that is comparable to the midpoint of those of the surveyed
executives. Under the program, senior officers are entitled to bonuses based
upon the Company's actual net earnings compared to budget. Potential bonuses for
fiscal 1998 ranged from 20% to 40% of base salary if 80% of budgeted net
earnings was achieved to maximums of 57% to 114% of base salary if fiscal 1998
actual net earnings were 190% or more of budget. The bonus percentages vary
based upon the position of the individual senior officer. The relationship
between net earnings and the bonus percentage was determined by the Committee at
the beginning of fiscal 1998. 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 senior officers is intended to meet the
requirements of a qualifying performance-based compensation plan. The Board of
Directors has amended the bonus program for senior officers to increase the
maximum potential bonus that could be paid to any individual in a given year
from $1 million to $5 million, and recommends that the Shareholders approve the
amendment at the Meeting.
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 1997 Employee Non-Qualified Stock Option
Plan (the "1997 Employee Plan") gives the Committee discretion to award stock
options to executive officers and certain other employees of the Company and its
subsidiaries. The award levels are subjective and not subject to specific
criteria. The 1997 Employee Plan, as originally adopted, authorizes the Company
to grant to certain categories of employees options to purchase in the aggregate
not more than 4,300,000 shares of the Company's Common Stock. The Board of
Directors has amended the 1997 Employee Plan to increase the number of shares
subject to such plan to 10,000,000 shares (20,000,000 shares on a post-Stock
Split basis), and recommends that the Shareholders approve the amendment at the
Meeting. Stock options granted pursuant to the 1997 Employee Plan have ten-year
terms and have exercise restrictions that lapse ratably over four years
beginning one year after the date of grant. The exercise prices for such options
equal the closing price for the Company's Common Stock, as quoted on the New
York Stock Exchange, on the date of grant. Awards under the 1997 Employee Plan
are 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 1997 Employee Plan, numbering
approximately 6,400, include: (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.
10
<PAGE>
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.
The Committee determined that an increase in Mr. Schulze's base salary was
warranted for the twelve months ended March 31, 1998, since his salary had been
unchanged since 1995. In determining Mr. Schulze's compensation, the Committee
considered Mr. Schulze's performance over the last several years in managing the
Company through a difficult period, and his anticipated efforts in the coming
year as the Company continues to advance key strategic initiatives to improve
the Company's profitability. The Committee set Mr. Schulze's base salary for the
period April 1, 1997 to March 31, 1998 at $783,500, an increase from the
$750,000 base salary of the previous years.
Mr. Schulze's performance bonus of $803,250 for fiscal 1998 was calculated
in accordance with the Company's bonus program for senior officers. The bonus
was determined by comparing the Company's net earnings of $94.5 million to the
budgeted net earnings established at the beginning of the year.
Mr. Schulze received options during fiscal 1998 under the 1997 Employee Plan
to purchase 125,000 shares of the Company's Common Stock at $12.75 per share,
the market price at the time of the grant. The determination of the number of
options awarded is subjective and not subject to specific criteria. However, in
determining the number of options to grant, the Committee considered Mr.
Schulze's contributions in leading the Company through a difficult period, the
anticipated effort required to significantly improve the Company's financial
performance and the fact that he, along with Bradbury H. Anderson, did not
participate in the stock option repricing in February 1997 effected for all
other employees.
COMPENSATION AND HUMAN RESOURCES
COMMITTEE
DAVID STANLEY (CHAIRMAN)
FRANK D. TRESTMAN
JAMES C. WETHERBE
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation and Human Resources 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 and Human Resources
Committee.
11
<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 five most highly compensated
individuals serving as executive officers of the Company.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
ANNUAL COMPENSATION NUMBER OF
SECURITIES
FISCAL -------------------- UNDERLYING ALL OTHER
YEAR SALARY BONUS OPTIONS (1) COMPENSATION (2)
----------- --------- --------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Richard M. Schulze................................ 1998 $ 783,500 $ 803,250 125,000 $ 24,045
Founder, Chairman, Chief Executive Officer 1997 750,000 -- -- 23,910
1996 750,000 -- 100,000 23,852
Bradbury H. Anderson.............................. 1998 590,300 504,260 100,000 9,745
President, Chief Operating Officer 1997 565,000 -- -- 9,610
1996 565,000 -- 80,000 10,122
Allen U. Lenzmeier................................ 1998 454,500 349,400 25,000 7,745
Executive Vice President, 1997 435,000 -- -- 7,610
Chief Financial Officer 1996 435,000 -- 50,000 8,522
Wade R. Fenn...................................... 1998 403,800 311,050 25,000 2,745
Executive Vice President -- Marketing 1997 380,000 -- 15,800 2,610
1996 343,100 20,000 30,000 3,568
Kenneth R. Weller................................. 1998 299,100 153,000 15,000 2,745
Senior Vice President -- Sales 1997 268,800 10,000 -- 2,610
1996 260,000 -- 30,000 3,180
Michael P. Keskey................................. 1998 295,700 153,000 15,000 2,745
Senior Vice President -- Sales 1997 258,800 5,000 -- 2,610
1996 211,400 -- 22,000 3,034
</TABLE>
- ------------------------------
(1) Fiscal 1997 does not include options issued in February 1997 in connection
with a repricing of options previously granted.
NOTE 2 ON FOLLOWING PAGE
12
<PAGE>
(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
ENDED "A" "B" "C"
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Richard M. Schulze..................................... 1998 $ 185 $ 2,560 $ 21,300
1997 210 2,400 21,300
1996 60 2,492 21,300
Bradbury H. Anderson................................... 1998 185 2,560 7,000
1997 210 2,400 7,000
1996 60 3,062 7,000
Allen U. Lenzmeier..................................... 1998 185 2,560 5,000
1997 210 2,400 5,000
1996 60 3,462 5,000
Wade R. Fenn........................................... 1998 185 2,560 --
1997 210 2,400 --
1996 60 3,508 --
Kenneth R. Weller...................................... 1998 185 2,560 --
1997 210 2,400 --
1996 60 3,120 --
Michael P. Keskey...................................... 1998 185 2,560 --
1997 210 2,400 --
1996 25 3,009 --
</TABLE>
OPTIONS AND GRANTS
The tables on the following page summarize option grants and exercises
during the fiscal year ended February 28, 1998, to or by the Chief Executive
Officer and the next five 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.
13
<PAGE>
OPTION GRANTS IN FISCAL 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------ ANNUAL RATES OF STOCK
NUMBER OF PRICE APPRECIATION FOR
SECURITIES % OF TOTAL OPTIONS EXERCISE OPTION TERM
UNDERLYING GRANTED TO EMPLOYEES PRICE EXPIRATION ----------------------
OPTIONS IN FISCAL 1998 ($/SHARE) DATE 5% 10%
----------- --------------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Schulze.............. 5,000(1) .26% $ 12.75 4-17-02 $ 17,600 $ 38,900
10,000(2) .51 12.75 4-17-07 80,200 203,200
125,000(3) 6.44 12.75 4-17-07 1,002,300 2,539,800
Bradbury H. Anderson............ 5,000(1) .26 12.75 4-17-02 17,600 38,900
10,000(2) .51 12.75 4-17-07 80,200 203,200
100,000(3) 5.15 12.75 4-17-07 801,800 2,031,800
Allen U. Lenzmeier.............. 25,000(3) 1.29 12.75 4-17-07 200,500 508,000
Wade R. Fenn.................... 25,000(3) 1.29 12.75 4-17-07 200,500 508,000
Kenneth R. Weller............... 15,000(3) .77 12.75 4-17-07 120,300 304,800
Michael P. Keskey............... 15,000(3) .77 12.75 4-17-07 120,300 304,800
</TABLE>
- ------------------------------
The price of one share of the Company's Common Stock acquired at $12.75 would
equal approximately $16.27 and $20.53 when compounded at 5% and 10%,
respectively, over a five year term, and $20.77 and $33.07 over a ten year term.
(1) Number of shares issuable upon the exercise of options granted on April 18,
1997, pursuant to the Company's 1987 Directors' Non-Qualified Stock Option
Plan. The options are exercisable as of the date of grant and have a five
year term.
(2) Number of shares issuable upon the exercise of options granted on April 18,
1997, pursuant to the Company's 1997 Directors' Non-Qualified Stock Option
Plan. The options are exercisable as of the date of grant and have a ten
year term.
(3) Number of shares issuable upon the exercise of options granted on April 18,
1997, pursuant to the Company's 1997 Employee Non-Qualified Stock Option
Plan. Options become exercisable 25% per year beginning one year after date
of grant and have a ten year term.
OPTION EXERCISES DURING FISCAL 1998 AND VALUE OF OPTIONS AT END OF FISCAL 1998
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT END IN-THE-MONEY OPTIONS
SHARES ACQUIRED VALUE OF FISCAL 1998 AT END OF FISCAL 1998
NAME ON EXERCISE REALIZED (1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE (1)
- ------------------------------ ------------------ ------------ ------------------------- -----------------------------
<S> <C> <C> <C> <C>
Richard M. Schulze............ 273,000 $5,407,087 122,500/187,500 $4,238,786/$8,010,218
Bradbury H. Anderson.......... 222,000 4,989,345 105,000/150,000 3,671,242/6,408,175
Allen U. Lenzmeier............ 109,500 1,705,665 41,750/100,250 1,721,911/4,747,423
Wade R. Fenn.................. 54,000 1,298,241 29,450/83,350 1,239,025/3,934,213
Kenneth R. Weller............. 9,000 329,994 21,000/48,000 826,830/2,229,502
Michael P. Keskey............. 4,200 138,737 8,875/37,125 389,004/1,733,140
</TABLE>
- ------------------------------
(1) Value based on market value of the Company's Common Stock on the date of
exercise or at the end of fiscal 1998, as applicable, minus the exercise
price.
14
<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 (the "Industry Index") and the S&P Mid-Cap Companies Index (the
"Broad Market Index"), published by Standard & Poors over the same period.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN OF COMPANY,
INDUSTRY INDEX AND BROAD MARKET INDEX *
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BEST BUY CO.,
INC. INDUSTRY INDEX BROAD MARKET INDEX
<S> <C> <C> <C>
1993 $ 100.00 $ 100.00 $ 100.00
1994 $ 196.86 $ 114.84 $ 114.93
1995 $ 171.34 $ 117.28 $ 116.81
1996 $ 122.13 $ 129.33 $ 148.24
1997 $ 67.44 $ 155.18 $ 173.34
1998 $ 434.28 $ 247.39 $ 236.65
</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 Market 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 provided in the Retirement Savings
Plan. During the fiscal year ended February 28, 1998, the
15
<PAGE>
Company matched 40% of the first 5% of participating employees' pre-tax
earnings, or $2,130,512, including $15,360 in the aggregate on behalf of the
Chief Executive Officer and the other five 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 plus expenses for
his services as a director in fiscal 1998. In addition to the annual director
fee, there is a $3,000 annual fee payable to each committee chairperson. On
April 18, 1997, the Company granted to each director an option to purchase 5,000
shares of Common Stock at an exercise price of $12.75 per share, pursuant to the
Company's 1987 Directors' Non-Qualified Stock Option Plan, as amended (the "1987
Directors' Plan"), described below. In addition, on April 18, 1997, the Company
granted to each director an option to purchase 10,000 shares of Common Stock at
an exercise price of $12.75 per share, pursuant to the Company's 1997 Directors'
Non-Qualified Stock Option Plan, as amended (the "1997 Directors' Plan"),
described below. Options, outstanding as of March 31, 1998, to purchase 263,000
shares of the Company's Common Stock at exercise prices per share ranging from
$12.00 to $32.40 have been granted under both plans to the Company's directors
for their services as directors, including directors who are employees of the
Company. During the last fiscal year, directors realized a net value of
securities (market value less exercise price) pursuant to the exercise of
options granted under the 1987 Directors' Plan as follows: Elliot Kaplan,
$164,250; David Stanley, $21,375; and Frank Trestman, $123,188.
DIRECTORS' NON-QUALIFIED STOCK OPTION PLANS
The 1987 Directors' Plan was adopted by the Board of Directors and approved
by the Shareholders. This plan expired May 1, 1997. The number of shares subject
to the 1987 Directors' Plan was 900,000 shares. The 1987 Directors' Plan
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 "1987 Exercise Price"). The 1987 Directors' Plan also
provided that an option to purchase 5,000 shares of the Company's Common Stock
at the 1987 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. Options to purchase 598,000 shares of the Company's Common Stock had been
granted pursuant to the 1987 Directors' Plan and, as of March 31, 1998, 193,000
remain outstanding.
In June 1997, the Shareholders approved the 1997 Directors' Plan that had
been adopted by the Board of Directors in April 1997. The number of shares
subject to the 1997 Directors' Plan is 700,000 shares. The number of options
granted to directors is discretionary as determined by the Committee and not
subject to specific criteria. Such options are fully vested upon grant and have
ten-year terms. The exercise price for the options granted pursuant to the 1997
Directors' Plan equals the closing
16
<PAGE>
price of the Company's Common Stock, as quoted on the New York Stock Exchange,
on the date of grant. As of March 31, 1998, options to purchase 70,000 shares of
the Company's Common Stock had been granted pursuant to the 1997 Directors'
Plan, all of which remain outstanding.
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
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 equity securities were complied with during the fiscal
year ended February 28, 1998.
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 1, 1998. 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.
ADOPTION OF AMENDMENT TO
INCREASE THE NUMBER OF AUTHORIZED SHARES
Article IV of the Company's Articles of Incorporation provides that the
aggregate number of shares of all classes of stock which the Company shall have
authority to issue is One Hundred Twenty Million Four Hundred Thousand
(120,400,000) shares: One Hundred Twenty Million (120,000,000) shares of Common
Stock and Four Hundred Thousand (400,000) shares of Preferred Stock. Upon
management's recommendation, the Board of Directors recommends to the
Shareholders that Article IV of the Company's Articles of Incorporation be
amended to increase the number of authorized shares of Common Stock to Four
Hundred Million (400,000,000) shares, thereby increasing to Four Hundred Million
Four Hundred Thousand (400,400,000) the aggregate number of shares of all
classes of stock which the Company shall have authority to issue. No Shareholder
of the Company has any preferential, preemptive or other rights of subscription
to any shares of the Company allotted or sold or to be allotted or sold, or to
any obligations or securities convertible into stock of the Company.
17
<PAGE>
Of the One Hundred Twenty Million (120,000,000) shares of the Company's
Common Stock now authorized for issuance, 50,088,010 shares were issued and
outstanding as of April 30, 1998, and an additional 8,479,022 shares of Common
Stock were reserved for issuance pursuant to the Company's stock option plans.
In addition, the Company has announced the two-for-one Stock Split, effective
May 26, 1998. The Stock Split leaves the Company with only 2,865,936 authorized
but unissued, unreserved, and uncommitted shares of Common Stock available for
issuance. Management and the Board of Directors believe that it is desirable to
increase the number of authorized shares of Common Stock available for issuance
as recommended to enable the Company to finance its business through issuance
and sale of shares of Common Stock, for issuance in respect of stock dividends
that may subsequently be declared, for issuance in respect of acquisition
opportunities which may subsequently become available (management knows of none
as of the date hereof), for issuance in respect of employee stock option plans
and for general corporate purposes.
Accordingly, the Board of Directors recommends adoption by the Shareholders
of the following amended Article IV of the Articles of Incorporation.
ARTICLE IV
CAPITAL
The aggregate number of shares of all classes of stock which this
corporation shall have the authority to issue is Four Hundred Million Four
Hundred Thousand (400,400,000) shares consisting of:
(1) 400,000,000 shares of Common Stock, par value $0.10 per share; and
(2) 400,000 shares of Preferred Stock, par value $1.00 per share.
The holders of shares of Common Stock shall have one (1) vote for each share
of Common Stock held of record on each matter submitted to the holders of shares
of Common Stock.
It should be noted that the additional shares of Common Stock could be used
to dilute the percentage stock ownership of persons seeking to obtain control of
the Company. In this sense, the proposal to increase the number of authorized
shares of Common Stock may have an anti-takeover effect.
The affirmative vote of the holders of the majority of the voting power of
the shares present, in person or by Proxy, and entitled to vote is required to
adopt the amendment to Article IV of the Company's Articles of Incorporation.
IT IS INTENDED THAT, UNLESS OTHERWISE INSTRUCTED, THE SHARES REPRESENTED BY
THE PROXY WILL BE VOTED IN FAVOR OF THE ADOPTION OF THE AMENDED ARTICLE IV OF
THE ARTICLES OF INCORPORATION OF THE COMPANY.
APPROVAL OF AN AMENDMENT TO
THE 1997 EMPLOYEE NON-QUALIFIED STOCK OPTION PLAN
Stock options have been granted to certain key employees of the Company to
further the growth and general prosperity of the Company. Stock options enable
employees to acquire shares of the Common Stock of the Company, thereby
increasing their personal involvement in the Company. Stock options also enable
the Company to obtain and retain the services of certain employees and are a
18
<PAGE>
means of compensating employees of the Company without depleting the cash
resources of the Company.
The Company's 1997 Employee Non-Qualified Stock Option Plan (the "1997
Employee Plan") was adopted by the Board of Directors and approved by the
Shareholders effective as of April 18, 1997. The 1997 Employee Plan authorizes
the Company to grant to eligible employees of the Company, currently numbering
approximately 6,400, options to purchase in the aggregate not more than
4,300,000 (8,600,000 on a post-Stock Split basis) shares of the Company's Common
Stock. Subject to the terms and conditions described on page 10 and below,
options may be granted pursuant to the 1997 Employee Plan with such terms and
conditions as the Committee determines from time to time.
A participant who is granted an option under the 1997 Employee Plan
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 the exercise exceeds the exercise price is treated as
compensation received by the participant in the year of exercise. The Company
will generally be entitled to a corresponding tax deduction at the time that the
participant realizes compensation income. If the optionee sells shares which he
or she has purchased pursuant to the exercise of an option granted under the
Employee Plan, the difference between any amount realized and the optionee's
basis in the shares may be classified as a capital gain or loss item.
As of March 31, 1998, options to purchase approximately 1,626,000 shares
granted pursuant to the 1997 Employee Plan to existing employees were
outstanding, none of which had been exercised as of such date. On April 24,
1998, options to purchase approximately 2,400,000 additional shares were
authorized by the Board of Directors to be granted to employees under the 1997
Employee Plan. Therefore, pursuant to the terms of the 1997 Employee Plan, the
Company would be able to grant additional options to purchase no more than
274,000 shares. Management believes it is important for the growth and general
prosperity of the Company that the Company be able to grant to its employees
options to purchase a greater number of shares than the number remaining subject
to the 1997 Employee Plan. Upon the recommendation of management, the Board of
Directors amended the 1997 Employee Plan to increase the number of shares
subject to the plan to 10,000,000 shares (or 20,000,000 shares on a post-Stock
Split basis), and recommends to the Shareholders that they vote FOR the
amendment.
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 the 1997 Employee Plan to increase the number of shares
subject to the plan to 10,000,000 shares (or 20,000,000 shares on a post-Stock
Split basis).
IT IS INTENDED THAT, UNLESS OTHERWISE INSTRUCTED, THE SHARES REPRESENTED BY
THE PROXY WILL BE VOTED IN FAVOR OF THE APPROVAL OF THE AMENDMENT TO THE 1997
EMPLOYEE PLAN.
19
<PAGE>
STOCK OPTION PLAN BENEFITS
The following table shows the number of shares of Common Stock subject to
options awarded from the date of adoption of the 1997 Employee Plan (April 18,
1997) through April 24, 1998. The exercise prices for the options indicated
range from $12.75 to $73.37 per share.
<TABLE>
<CAPTION>
NUMBER OF SHARES SUBJECT
TO OPTIONS AWARDED
------------------------
<S> <C>
Richard M. Schulze
Founder, Chairman, Chief Executive Officer............................................ 200,000
Bradbury H. Anderson
President, Chief Operating Officer.................................................... 160,000
Allen U. Lenzmeier
Executive Vice President, Chief Financial Officer..................................... 62,500
Wade R. Fenn
Executive Vice President -- Marketing................................................. 62,500
Kenneth R. Weller
Senior Vice President -- Sales........................................................ 37,500
Michael P. Keskey
Senior Vice President -- Sales........................................................ 37,500
All executive officers, as a group
(19 individuals)...................................................................... 1,082,500
All non-executive officer directors, as a group
(7 individuals)....................................................................... 0
All non-executive officer employees, as a group
(approximately 6,400 individuals)..................................................... 2,943,500
</TABLE>
APPROVAL OF AN AMENDMENT TO THE BONUS COMPENSATION
PROGRAM FOR SENIOR OFFICERS
In 1994, the Company's Board of Directors adopted, and the Shareholders
approved, the Company's Bonus Program for Senior Officers (the "Bonus Program")
in order to qualify the amount of bonuses paid to such officers for deduction
under Section 162(m) of the Internal Revenue Code. Section 162(m), which was
added to the Code in 1993, places a limit of $1,000,000 on the amount of
compensation that may be deducted by the Company in any tax year with respect to
each of the Company's five most highly paid executives. However, certain
performance-based compensation that has been approved by shareholders is not
subject to the deduction limit. The Bonus Program is intended to provide this
type of performance-based compensation.
Pursuant to an amendment to the Bonus Program in 1995, the maximum potential
bonus that could be paid to any individual in a given year was fixed at $1
million. In April 1998, the Board of Directors amended the Bonus Program,
subject to approval by the Shareholders, to increase the maximum potential bonus
under the Bonus Program that could be earned to $5 million (the "1998
Amendment"). As a result of the Company's improved financial performance and in
order to provide
20
<PAGE>
competitive compensation for the Company's senior officers, the Board determined
that it was appropriate to increase the Bonus Program's maximum. Bonuses under
the Bonus Program will continue to be based upon objective performance measures,
and the Bonus Program will continue to make total executive compensation
variable with the net earnings of the Company. The 1998 Amendment would have had
no effect on bonuses under the Bonus Program for fiscal 1998 as the maximum
bonus earned by any individual did not exceed $1 million. Potential bonuses for
fiscal 1999 range from 35% to 55% of base salary if 90% of budgeted net earnings
is achieved, to maximums of 165% to 195% of base salary if fiscal 1999 actual
net earnings are 170% or more of budget. The specific percentage for each level
of net earnings vary based upon the position of the individual officer. Selected
potential Bonus Program benefits under varying levels of actual net earnings
relative to the Company's fiscal 1999 budget are as follows.
BONUS PROGRAM BENEFITS
<TABLE>
<CAPTION>
PERCENTAGES REFLECT ACTUAL NET EARNINGS AS A PERCENTAGE OF BUDGET
----------------------------------------------------------------------------------
NAME 90% 100% 110% 130% 150% 170%
- ------------------------------------- ----------- ----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Schulze
Chairman and Chief Executive
Officer............................ $ 522,500 $ 712,500 $ 826,500 $ 1,092,500 $ 1,472,500 $ 1,852,500
Bradbury H. Anderson
President and Chief Operating
Officer............................ 340,600 451,800 535,200 729,800 1,007,800 1,285,800
Allen U. Lenzmeier
Executive Vice
President and Chief Financial
Officer............................ 193,000 272,300 331,700 470,300 668,300 866,250
Wade R. Fenn
Executive Vice
President -- Marketing............. 189,200 266,800 325,000 460,800 654,800 848,800
Kenneth R. Weller
Senior Vice
President -- Sales................. 111,300 143,100 181,300 270,300 397,500 524,700
Michael P. Keskey
Senior Vice
President -- Sales................. 111,300 143,100 181,300 270,300 397,500 524,700
All executive officers, as a group
(19 individuals)................... 2,690,400 3,561,300 4,371,800 6,263,000 8,964,600 11,666,300
All non-executive officer directors,
as a group (7 individuals)......... 0 0 0 0 0 0
All non-executive officer employees,
as a group......................... 0 0 0 0 0 0
</TABLE>
21
<PAGE>
The Board of Directors recommends a vote FOR the proposal to approve the
1998 Amendment. 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 1998 Amendment.
IT IS INTENDED THAT, UNLESS OTHERWISE INSTRUCTED, THE SHARES REPRESENTED BY
THE PROXY WILL BE VOTED IN FAVOR OF THE APPROVAL OF THE 1998 AMENDMENT.
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 1999 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
15, 1999.
By Order of the Board of Directors
[SIGNATURE]
Elliot S. Kaplan
SECRETARY
Dated: May 22, 1998
22
<PAGE>
BEST BUY CO., INC.
SECOND AMENDED AND RESTATED
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, supervisors and their functional equivalents; and (iv) any
employee having served the Companies continuously
<PAGE>
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
10,000,000 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 (a) if payment is made by check payable to the Company, at the time
the shares are sold hereunder, or (b) if payment is made pursuant to an
irrevocable election to surrender 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,
no later than the settlement date for the shares sold in the market to
cover the Exercise Price, or (c) by a combination thereof, UNLESS an option
is exercised in connection with a deferral election pursuant to the
Deferred Compensation Plan, defined below, in which case payment of the
Exercise Price shall be made as provided in Section N herein.
2
<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 UNLESS the optionee is precluded,
pursuant to the Deferred Compensation Plan, defined below, from exercising
the minimum portion of the option because the optionee is unable to deliver
enough shares of common stock to cover the full Exercise Price therefor, in
which case the optionee may exercise the option 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, death or normal retirement,
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, death or normal retirement,
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, death or normal retirement, an option granted
hereunder held by the disabled, deceased or retired employee may be
exercised to the extent of all shares subject to the option (or, with
respect to a disabled, deceased or retired 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 or five (5) years following the date of normal
retirement, but in no event later than ten (10) years after the date of
grant of such option, by the disabled or retired employee or
3
<PAGE>
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, (a) 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, and (b) "normal retirement" shall
mean retirement on or after age 60 so long as the employee has served the
Companies continuously for at least the three (3) years immediately
preceding retirement. Notwithstanding the foregoing, the changes made
in Sections F(4) and (5) pursuant to the amendments hereto adopted on
April 24, 1998 (relating to the vesting of options in the event of normal
retirement), shall be effective only for options granted hereunder on
and after April 24, 1998.
(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.
4
<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. 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. DEFERRAL OF OPTION GAIN.
Participants in the Company's Deferred Compensation Plan, effective as of
April 1, 1998 (the "Deferred Compensation Plan"), may be able to defer the gain,
if any, upon exercise of options granted hereunder pursuant to and in accordance
with the terms of the Deferred Compensation Plan. The Deferred Compensation
Plan provides, among other things, that to defer any gain with respect
5
<PAGE>
to an option, the Exercise Price must be satisfied utilizing shares of the
Company's common stock held at least six months prior to exercise. In the event
any deferral election is made with respect to an option, if the optionee is
unable to deliver the requisite number of shares of the Company's common stock
to cover the full Exercise Price prior to the expiration of such option, the
portion of the option that corresponds to the portion of the full Exercise Price
not covered shall be forfeited.
O. FORM OF OPTION.
Options shall be issued in substantially the form as the Committee or the
Board may approve.
6
<PAGE>
CERTIFICATE OF RESOLUTIONS
I, Elliot S. Kaplan, the Secretary of Best Buy Co., Inc., a Minnesota
corporation, do hereby certify that the following recitals and resolutions were
duly adopted by the Directors of this corporation in writing as of April 1,
1998, and that said recitals and resolutions are still in full force and effect:
WHEREAS, in 1995, to comply with tax law changes that required
performance-based compensation programs such as the Corporation's bonus program
for senior officers (the "Bonus Program") to include as a term thereof a maximum
amount of performance-based compensation that can be earned by an individual in
a particular year, the Bonus Program was amended to fix such maximum at
$1,000,000, and
WHEREAS, Board of Directors believes that it is in the Corporation's best
interests to increase the maximum amount of performance-based compensation that
can be earned by an individual in a particular year;
NOW, THEREFORE,
BE IT RESOLVED:
The Board of Directors of this Corporation hereby amends, subject to
shareholder approval, the bonus program for the senior officers of the
Corporation to include as a term thereof a limitation on the amount of
bonus compensation that can be earned pursuant to the program by an
individual senior officer in a particular year, such maximum amount being
$5,000,000.
RESOLVED
FURTHER:
The Board of Directors of this Corporation hereby orders that the
foregoing amendment to the bonus program for senior officers be submitted
to the shareholders when convened in their next meeting and recommends
approval of such amendment by the shareholders when so presented to them
for consideration.
Dated: April 29, 1998.
/s/ Elliot S. Kaplan
-------------------------------------
Elliot S. Kaplan
Secretary
<PAGE>
PROXY
BEST BUY CO., INC.
7075 FLYING CLOUD DRIVE
EDEN PRAIRIE, MINNESOTA 55344
THIS PROXY IS SOLICITED ON BEHALF OF MANAGEMENT
FOR THE REGULAR MEETING OF SHAREHOLDERS - JUNE 25, 1998
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 Thursday, May 6, 1998, at
the Regular Meeting of Shareholders to be held on Thursday, June 25, 1998, at
3:00 p.m., and an 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 xx, 1998.
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, 5 AND 6.
PLEASE MARK, SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
<PAGE>
1. ELECTION OF FOUR CLASS 1 DIRECTORS -
NOMINEES: Bradbury H. Anderson, Yvonne R. Jackson, Frank D. Trestman and
James C. Wetherbe.
---------------------------------
* EXCEPT NOMINEE(S) WRITTEN ABOVE
2. Proposal to ratify the appointment of Hatim A. Tyabji as a Class 2
Director.
3. Proposal to ratify the appointment of Ernst & Young LLP as the Company's
independent auditor for the current fiscal year.
4. Proposal to increase the number of authorized shares of the Company's
Common Stock to 400 million.
5. Proposal to approve an amendment to and restatement of the Company's 1997
Employee Non-Qualified Stock Option Plan.
6. Proposal to amend the Company's bonus program for senior officers to
increase the annual maximum thereunder per person to $5 million.
7. In their discretion, the Proxy Agents are authorized to vote upon such
other business as may properly come before the meeting.
Dated: ,1998
----------------------------
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.
