<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:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
BEST BUY CO., INC.
7075 FLYING CLOUD DRIVE
EDEN PRAIRIE, MINNESOTA 55344
[LOGO]
NOTICE OF REGULAR MEETING OF SHAREHOLDERS
The 1999 Regular Meeting of the Shareholders of Best Buy Co., Inc., a
Minnesota corporation (the "Company"), will be held at The Minneapolis Institute
of Arts at 2400 Third Avenue South, Minneapolis, Minnesota, on Thursday, June
24, 1999, 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 one Class 1 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 approve the Company's EVA Incentive Program.
5. To transact such other business as may properly come before the meeting.
Only Shareholders of record at the close of business on Friday, May 7, 1999,
the record date, are entitled to notice of and to vote at the meeting and any
adjournments thereof.
This year, shareholders have the option to vote their shares via the
Internet, by telephone or by submitting a traditional proxy card. If you are
eligible for voting via the Internet or by telephone, instructions are provided
on the enclosed proxy card. Internet and telephone voting are not available if
you hold your shares through your broker in "street name."
Whether or not you expect to attend the meeting in person, please complete,
sign and promptly return the enclosed proxy card or complete your voting via the
Internet or by telephone, if applicable.
By Order of the Board of Directors
/s/ ELLIOT S. KAPLAN
Elliot S. Kaplan
SECRETARY
Minneapolis, Minnesota
May xx, 1999
<PAGE>
PROXY STATEMENT
BEST BUY CO., INC.
7075 FLYING CLOUD DRIVE
EDEN PRAIRIE, MINNESOTA 55344
REGULAR MEETING OF SHAREHOLDERS--JUNE 24, 1999
INFORMATION CONCERNING SOLICITATION AND VOTING
The enclosed Proxy is solicited by the Board of Directors and management of
Best Buy Co., Inc. (the "Company"), for use at the Regular Meeting of
Shareholders to be held Thursday, June 24, 1999, at 3:00 p.m., local time, at
The Minneapolis Institute of Arts at 2400 Third Avenue South, Minneapolis,
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 xx, 1999.
As of May 7, 1999, 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 ________ shares of Common Stock, which is the only class
of the capital stock of the Company outstanding. On February 19, 1999, the Board
of Directors approved a two-for-one stock split payable on March 18, 1999, in
the form of a stock dividend of one share for every share outstanding as of the
close of business on March 4, 1999 (the "Stock Split"). SHARE INFORMATION
INCLUDED IN THE PROXY STATEMENT REFLECTS THE STOCK SPLIT UNLESS EXPRESSLY
INDICATED.
Each Shareholder will be entitled to one vote per share on all matters acted
upon at the Meeting. This year, certain shareholders will have the option of
voting via the Internet, by telephone or by submitting a traditional proxy card.
Internet and telephone voting are not available if you hold your shares through
your broker in "street name." Please check the enclosed proxy card to see if
Internet and telephone voting are available to you. 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
<PAGE>
solicitation materials and annual reports to the beneficial owners of shares in
accordance with the New York Stock Exchange schedule of charges.
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 October 2, 1998, the Board of
Directors, upon the recommendation of the Nominating and Public Policy
Committee, appointed David H. Starr as a Class 1 director to fill a previously
vacant position. By reason of the Meeting, the Shareholders are empowered to
elect a director to fill the vacancy.
Management and the Board of Directors recommend that Elliot S. Kaplan,
Richard M. Schulze, and Hatim A. Tyabji be re-elected as Class 2 directors, each
to hold office until the 2001 Regular Meeting of Shareholders and until his
successor is duly elected and qualified. Management and the Board of Directors
further recommend that the Shareholders ratify the appointment of David H. Starr
as a Class 1 director to hold office until the 2000 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.
Culver Davis, Jr., an incumbent Class 2 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. Davis'
retirement. The Board intends to consider suitable candidates and reserves the
right to fill the vacancy prior to the 2000 Regular Meeting of Shareholders if,
in the Board's judgement, it is advisable to appoint the candidate before such
meeting.
The Board of Directors held four regular meetings and three special meetings
during the fiscal year ended February 27, 1999. All directors attended at least
75% of the total number of meetings of the Board and of their respective
committees of the Board during the period in which they served, with the
exception of Yvonne R. Jackson who attended 2 of 6 Board meetings and 1 of 2 of
her committee meetings since she began serving on the Board.
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. This committee has been
authorized by the Board to approve stock option grants without full Board
approval.
2
<PAGE>
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, real estate holdings,
and business insurance coverages.
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 27, 1999.
<TABLE>
<CAPTION>
NUMBER OF
MEETINGS DURING
COMMITTEE DATE ESTABLISHED LAST FISCAL YEAR MEMBERS
- ------------------------------------------ -------------------- ----------------- -------------------------
<S> <C> <C> <C>
Audit June 1, 1984 2 Frank D. Trestman*
Culver Davis, Jr.
David H. Starr
Compensation and Human Resources February 13, 1997 1 Frank D. Trestman*
James C. Wetherbe
Yvonne R. Jackson
Finance and Investment Policy February 13, 1997 1 Culver Davis, Jr.*
Bradbury H. Anderson
Hatim A. Tyabji
Long-Range and Strategic Planning February 13, 1997 2 James C. Wetherbe*
Bradbury H. Anderson
Elliot S. Kaplan
Richard M. Schulze
Hatim A. Tyabji
Nominating and Public Policy February 13, 1997 2 Elliot S. Kaplan*
Richard M. Schulze
Yvonne R. Jackson
</TABLE>
- ------------------------
* Committee chairperson
3
<PAGE>
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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides certain information as of March 31, 1999, 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 ........................................ 58 37,650,879(1) 18.41%
Chairman, Chief Executive Officer and Director
Bradbury H. Anderson ...................................... 49 2,083,312(2) 1.02%
President, Chief Operating Officer and Director
Allen U. Lenzmeier ........................................ 55 1,132,880(3) *
Executive Vice President and Chief Financial Officer
Wade R. Fenn .............................................. 40 502,106(4) *
Executive Vice President--Marketing
Kenneth R. Weller ......................................... 50 121,650(5) *
Senior Vice President--Sales
Michael P. Keskey ......................................... 44 155,570(6) *
Senior Vice President--Sales
Elliot S. Kaplan .......................................... 62 404,708(7) *
Secretary and Director
Frank D. Trestman ......................................... 64 431,100(8) *
Director
Culver Davis, Jr. ......................................... 60 248,000(9) *
Director
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENT OF SHARES
NAME AGE OWNED BENEFICIALLY OWNED
- ----------------------------------------------------------- --- ----------------- -------------------
<S> <C> <C> <C>
James C. Wetherbe ......................................... 50 71,552(10) *
Director
Yvonne R. Jackson ......................................... 49 10,400(11) *
Director
Hatim A. Tyabji ........................................... 54 10,000(12) *
Director
David H. Starr ............................................ 48 10,000(13) *
Director
All directors and executive officers, as a group
(27 individuals) ........................................ -- 43,757,133(14) 21.41%
FLA Asset Management ...................................... -- 28,926,800(15) 14.21%
590 Madison Avenue
New York, NY 10022
FMR Corp. ................................................. -- 19,427,252(15) 9.54%
82 Devonshire Street
Boston, MA 02109
</TABLE>
- ------------------------
* Less than 1%.
(1) The figure represents (a) 33,321,970 outstanding shares owned by Mr.
Schulze; (b) 915,590 outstanding shares owned by Mr. Schulze and his wife
as joint tenants; (c) 202,652 outstanding shares owned by Mr. Schulze's
wife; (d) 240 outstanding shares held in Mr. Schulze's individual
retirement account; (e) 529,756 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; (f) 1,200,000 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); (g) 529,756 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); (h) 20,000 outstanding shares owned by a partnership in which
Mr. Schulze is a partner; (i) 31,495 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; (j)
38,420 outstanding shares registered in the name of the Best Buy Children's
Foundation, a charitable foundation of which Mr. Schulze is a Board member;
and (k) options granted to Mr. Schulze, available for exercise within 60
days, to purchase 861,000 shares.
(2) The figure represents (a) 1,461,180 outstanding shares owned by Mr.
Anderson; (b) 5,332 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; (c) 800 outstanding shares
registered in the name of Mr. Anderson and held by him as custodian for the
benefit of his children (Mr. Anderson has disclaimed beneficial ownership
of such shares); and (d) options granted to Mr. Anderson, available for
exercise within 60 days, to purchase 616,000 shares.
5
<PAGE>
(3) The figure represents (a) 865,880 outstanding shares owned by Mr.
Lenzmeier; and (b) options granted to Mr. Lenzmeier, available for exercise
within 60 days, to purchase 267,000 shares.
(4) The figure represents (a) 187,708 outstanding shares owned by Mr. Fenn; (b)
34,374 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) 3,320 outstanding shares owned by Mr.
Fenn's wife; (d) 704 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 276,000 shares.
(5) The figure represents (a) 5,550 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) 600 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 115,500 shares.
(6) The figure represents (a) 20,300 outstanding shares owned by Mr. Keskey;
(b) 9,770 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 125,500 shares.
(7) The figure represents (a) 304,708 outstanding shares owned by Mr. Kaplan;
and (b) options granted to Mr. Kaplan, available for exercise within 60
days, to purchase 100,000 shares.
(8) The figure represents (a) 223,100 outstanding shares owned by Mr. Trestman;
(b) 72,000 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 136,000
shares.
(9) The figure represents (a) 168,000 outstanding shares owned by Mr. Davis;
and (b) options granted to Mr. Davis, available for exercise within 60
days, to purchase 80,000 shares.
(10) This figure represents (a) 69,128 outstanding shares owned by Mr.
Wetherbe; and (b) 2,424 outstanding shares registered in the name of Mr.
Wetherbe and held by him as custodian for the benefit of his children (Mr.
Wetherbe has disclaimed beneficial ownership of such shares.)
(11) This figure represents (a) 400 outstanding shares owned by Ms. Jackson;
and (b) options granted to Ms. Jackson, available for exercise within 60
days, to purchase 10,000 shares.
(12) This figure represents options granted to Mr. Tyabji, available for
exercise within 60 days, to purchase 10,000 shares.
(13) This figure represents options granted to Mr. Starr, available for
exercise within 60 days, to purchase 10,000 shares.
(14) The figure represents (a) outstanding shares and options described in the
preceding footnotes; (b) 239,532 outstanding shares owned by, and options,
available for exercise within 60 days, to purchase 651,500 shares granted
to, the Company's other executive officers; (c) 34,608 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) 1,760 outstanding shares held by
family members of other executive officers.
6
<PAGE>
(15) As reported on the beneficial owners' respective Schedules 13G, reporting
beneficial ownership as of December 31, 1998, as adjusted for the Stock
Split.
NOMINEES AND DIRECTORS
NOMINEES FOR CLASS 2 DIRECTORS
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 infoUSA, 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.
HATIM A. TYABJI has served as a director of the Company since April 1998.
Since September 1998, Mr. Tyabji has been Chairman and Chief Executive Officer
of Saraide, Inc., a provider of internet and wireless data services. From 1986
until 1998, Mr. Tyabji served as President and Chief Executive Officer (and as
Chairman from 1992 until 1998) of VeriFone, Inc., which was acquired by Hewlett
Packard Company in June 1997. Mr. Tyabji is also a director of PubliCARD, Inc.;
Deluxe Corporation; Ariba Technologies, Inc.; and Novatel Wireless, Inc.
NOMINEE FOR CLASS 1 DIRECTOR
DAVID H. STARR has served as a director of the Company since October 1998.
Mr. Starr has been Chief Information Officer of Knight-Ridder, Inc. since June
1998. Prior to that, he was Chief Information Officer for ITT Corporation since
May 1993. Mr. Starr also serves on the Board of Directors of Boys Hope/Girls
Hope.
CLASS 1 DIRECTORS--TERMS EXPIRE IN 2000
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 has served as a director of the Company since April 1998.
She has been Senior Vice President of Human Resources Worldwide for Burger King
Corporation since 1993. Previously, 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.
Mr. Trestman is also a director of Insignia Systems, Inc. and Metris Companies.
7
<PAGE>
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 18 books and
over 200 articles in the field of management and information systems.
CERTAIN TRANSACTIONS
The Company leases two of its current 311 stores (Burnsville and Edina,
Minnesota) from Richard M. Schulze and leases one of its stores (Maplewood,
Minnesota) from a partnership in which he is a partner. The lease for the
Burnsville store expires in 2006. Annual rent is $349,968 and includes
escalation clauses. The lease for the Edina store expires in 2002, and provides
for base rent of $183,816 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 2014, includes escalation
clauses and renewal options, and provides for annual rent of $294,147. Aggregate
rents paid and accrued by the Company to Mr. Schulze or partnerships in which he
is a partner during the fiscal year ended February 27, 1999, were $1,216,115, 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 and partnerships in which he is a partner
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.
Pursuant to a lease, the Company has use of an airplane owned by a
corporation of which Mr. Schulze and his wife are the sole shareholders. The
airplane is generally used by the Company when it is more economical or
practical than flying commercial airlines. The Company pays rent to the
corporation for use of the plane at an hourly rate, which rent is used by the
corporation to service debt and pay for aircraft maintenance and storage. The
total amount paid by the Company to the corporation during the fiscal year ended
February 27, 1999, was $401,572.
8
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION AND HUMAN RESOURCES 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 and increases in
shareholder value.
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, 1999, 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, and the Company's new Deferred
Compensation Plan.
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 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.
INCENTIVE COMPENSATION. In fiscal 1999, the Company offered an annual
incentive for selected management employees including executive officers
pursuant to a Shareholder-approved bonus program. The purpose of the program was
to provide a direct financial incentive in the form of an annual cash bonus to
eligible employees to achieve or exceed the Company's annual goals. Bonus
amounts were equal to a percentage of an eligible employee's base salary,
subject to an individual maximum of $5 million per year. The percentages used
for determining bonuses were established annually to provide total cash
compensation to eligible employees, assuming certain levels of the Company's
annual performance goals
9
<PAGE>
were achieved, at a level that was comparable to the midpoint of those of the
surveyed managers. Under the program, eligible employees were entitled to
bonuses for the fiscal year ended February 27, 1999, based upon the Company's
actual net earnings compared to budget. Potential bonuses for fiscal 1999 ranged
from 35% to 55% of base salary if 90% of budgeted net earnings was achieved to
maximums of 165% to 195% of base salary if fiscal 1999 actual net earnings were
170% or more of budget. The bonus percentages varied based upon the position of
the eligible employee. The relationship between net earnings and the bonus
percentage was determined by the Committee at the beginning of fiscal 1999.
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 was intended to meet the requirements of a qualifying
performance-based compensation plan. In addition, the Board of Directors has the
authority to award discretionary bonuses.
Effective for fiscal 2000, the Board of Directors adopted the EVA-Registered
Trademark- Incentive Program. This program replaces the previous bonus program.
The EVA Incentive Program is described under "Approval of EVA Incentive
Program." The Board recommends that the Shareholders approve the EVA Incentive
Program at the Meeting.
STOCK OPTIONS. The Company utilizes stock options as a long-term incentive
for executive officers, as well as certain other employees as described below.
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, as amended (the "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 Employee Plan authorizes the Company to grant to certain
categories of employees options to purchase in the aggregate not more than
40,000,000 shares of the Company's Common Stock. Stock options granted pursuant
to the 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 prices for the Company's
Common Stock, as quoted on the New York Stock Exchange, on the dates of grant.
Awards under the 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 Employee Plan, numbering approximately 7,200, 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.
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.
10
<PAGE>
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, the outstanding results achieved in fiscal 1998 and
his anticipated efforts in fiscal 1999 as the Company continued to advance key
strategic initiatives to improve the Company's profitability. The Committee set
Mr. Schulze's base salary for the period April 1, 1998 to March 31, 1999 at
$950,000, an increase from the $783,500 base salary in previous year.
Mr. Schulze received a bonus of $1,510,500 for fiscal 1999. The bonus was
determined by comparing the Company's net earnings for fiscal 1999 of $224.4
million to the budgeted net earnings established at the beginning of the year.
Mr. Schulze received options during fiscal 1999 under the Employee Plan to
purchase 300,000 shares of the Company's Common Stock at $17.19 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 significant turnaround in the Company's
financial performance and increase in shareholder value as earnings improved
from $1.7 million in fiscal 1997 to $94.5 million in fiscal 1998 and the market
price of the Company's Common Stock rose over 600% during fiscal 1998.
COMPENSATION AND HUMAN RESOURCES
COMMITTEE
FRANK D. TRESTMAN (CHAIRMAN)
JAMES C. WETHERBE
YVONNE R. JACKSON
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation and Human Resources Committee consists of Frank
D. Trestman (Chairman), James C. Wetherbe, and Yvonne R. Jackson. No executive
officer of the Company is a member of the Compensation and Human Resources
Committee.
11
<PAGE>
SUMMARY COMPENSATION TABLE
The following table shows 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
officers of the Company.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
------------------------ UNDERLYING ALL OTHER
FISCAL YEAR SALARY(1) BONUS(1) OPTIONS(2) COMPENSATION(3)
----------- ---------- ------------ ------------- ----------------
<S> <C> <C> <C> <C> <C>
Richard M. Schulze 1999 $ 950,000 $ 1,510,500 300,000 $ 25,353
Founder, Chairman, Chief Executive Officer 1998 783,500 803,250 500,000 24,045
1997 750,000 -- -- 23,910
Bradbury H. Anderson 1999 695,000 1,035,550 240,000 11,053
President, Chief Operating Officer 1998 590,300 504,260 400,000 9,745
1997 565,000 -- -- 9,610
Allen U. Lenzmeier 1999 495,000 688,050 150,000 9,053
Executive Vice President, Chief Financial 1998 454,500 349,400 100,000 7,745
Officer 1997 435,000 -- -- 7,610
Wade R. Fenn 1999 485,000 674,150 150,000 4,053
Executive Vice President--Marketing 1998 403,800 311,050 100,000 2,745
1997 380,000 -- 63,200 2,610
Kenneth R. Weller 1999 318,000 410,220 90,000 2,773
Senior Vice President--Sales 1998 299,100 153,000 60,000 2,745
1997 268,800 10,000 -- 2,610
Michael P. Keskey 1999 318,000 410,220 90,000 4,053
Senior Vice President--Sales 1998 295,700 153,000 60,000 2,745
1997 258,800 5,000 -- 2,610
</TABLE>
- ------------------------
(1) The Company's Deferred Compensation Plan allows for the deferral of an
employee's base salary and cash bonuses. This plan also provides for an
employer matching contribution which, combined with the employer match under
the Company's Retirement Savings Plan, does not exceed the maximum allowable
employer contribution under federal tax law. Amounts shown as base salary
and bonus are before any deferrals.
(2) Fiscal 1997 does not include options issued in February 1997 in connection
with a repricing of options previously granted.
12
<PAGE>
(3) 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"), the officers' shares of
the Company's contribution to its Deferred Compensation Plan ("C"), and for
Messrs. Schulze, Anderson and Lenzmeier, the premiums paid by the Company
for split-dollar life insurance ("D"), as follows:
<TABLE>
<CAPTION>
FISCAL YEAR "A" "B" "C" "D"
------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Richard M. Schulze........................ 1999 $ 213 $ 2,560 $ 1,280 $ 21,300
1998 185 2,560 -- 21,300
1997 210 2,400 -- 21,300
Bradbury H. Anderson...................... 1999 213 2,560 1,280 7,000
1998 185 2,560 -- 7,000
1997 210 2,400 -- 7,000
Allen U. Lenzmeier........................ 1999 213 2,560 1,280 5,000
1998 185 2,560 -- 5,000
1997 210 2,400 -- 5,000
Wade R. Fenn.............................. 1999 213 2,560 1,280 --
1998 185 2,560 -- --
1997 210 2,400 -- --
Kenneth R. Weller......................... 1999 213 2,560 -- --
1998 185 2,560 -- --
1997 210 2,400 -- --
Michael P. Keskey......................... 1999 213 2,560 1,280 --
1998 185 2,560 -- --
1997 210 2,400 -- --
</TABLE>
13
<PAGE>
OPTIONS AND GRANTS
The following tables summarize option grants and exercises during the fiscal
year ended February 27, 1999, 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 all options held by such persons at
the end of fiscal 1999.
OPTION GRANTS IN FISCAL 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED ANNUAL
------------------------------------------------------ RATES OF STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION FOR OPTION
SECURITIES OPTIONS GRANTED EXERCISE TERM
UNDERLYING TO EMPLOYEES IN PRICE EXPIRATION ------------------------
OPTIONS FISCAL 1999 ($/SHARE) DATE 5% 10%
----------- --------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Schulze.................... 20,000(1) .21% $ 17.19 4-23-08 $ 216,000 $ 548,000
300,000(2) 3.21 17.19 4-23-08 3,243,000 8,219,000
Bradbury H. Anderson.................. 20,000(1) .21 17.19 4-23-08 216,000 548,000
240,000(2) 2.57 17.19 4-23-08 2,595,000 6,575,000
Allen U. Lenzmeier.................... 150,000(2) 1.61 17.19 4-23-08 1,622,000 4,109,000
Wade R. Fenn.......................... 150,000(2) 1.61 17.19 4-23-08 1,622,000 4,109,000
Kenneth R. Weller..................... 90,000(2) .96 17.19 4-23-08 973,000 2,466,000
Michael P. Keskey..................... 90,000(2) .96 17.19 4-23-08 973,000 2,466,000
</TABLE>
- --------------------------
The price of one share of the Company's Common Stock acquired at $17.19 would
equal approximately $28.00 and $44.59 when compounded at 5% and 10% over a ten
year term.
(1) Number of shares issuable upon the exercise of options granted on April 24,
1998, pursuant to the Company's 1997 Directors' Non-Qualified Stock Option
Plan as amended. The options are exercisable as of the date of grant and
have a ten year term.
(2) Number of shares issuable upon the exercise of options granted on April 24,
1998, pursuant to the Company's 1997 Employee Non-Qualified Stock Option
Plan as amended. Options become exercisable 25% per year beginning one year
after the date of grant and have a ten year term.
OPTION EXERCISES DURING FISCAL 1999 AND VALUE OF OPTIONS AT END OF FISCAL 1999
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT END OF FISCAL IN-THE-MONEY OPTIONS AT END
SHARES 1999 OF FISCAL 1999(1)
ACQUIRED ON REALIZED -------------------------- ---------------------------
NAME EXERCISE VALUE(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ----------- ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Schulze............. 224,000 $ 7,555,000 561,000 775,000 $ 23,047,000 $29,011,000
Bradbury H. Anderson........... 284,000 9,753,000 376,000 620,000 15,474,000 23,209,000
Allen U. Lenzmeier............. 129,500 3,256,000 179,500 409,000 7,640,000 15,665,000
Wade R. Fenn................... 40,000 890,000 190,600 370,600 8,240,000 13,966,000
Kenneth R. Weller.............. 90,000 3,236,000 63,000 213,000 2,786,000 7,966,000
Michael P. Keskey.............. -- -- 81,500 192,500 3,486,000 7,057,000
</TABLE>
- --------------------------
(1) Value based on the market value of the Company's Common Stock on the date of
exercise or at the end of fiscal 1999, 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
published by Standard & Poors (the "Broad Market Index") 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>
1994 1995 1996 1997 1998 1999
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BEST BUY CO., INC................ $ 100.00 $ 87.04 $ 62.04 $ 34.26 $ 220.60 $ 687.07
INDUSTRY INDEX................... $ 100.00 $ 103.06 $ 115.03 $ 138.65 $ 221.86 $ 245.31
BROAD MARKET INDEX............... $ 100.00 $ 101.64 $ 128.99 $ 150.83 $ 205.92 $ 202.03
</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
The Company has a retirement savings plan intended 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 27, 1999, the Company matched 40% of
the first 5% of participating employees' pre-tax earnings, or $3,091,048,
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.
DEFERRED COMPENSATION PLAN
Effective April 1, 1998, the Company adopted a non-qualified, unfunded
deferred compensation plan (the "Deferred Compensation Plan"). Participation in
the Deferred Compensation Plan is limited to certain management employees,
highly compensated employees and members of the Board of Directors, as
determined by the Company in its sole discretion. A participant may elect to
defer up to 75% of base salary and 100% of bonus and director fees. Amounts
deferred under the Deferred Compensation Plan are credited or charged with the
performance of the investment options offered under the plan and elected by the
participants. Investment options do not represent actual investments, rather a
measurement of
15
<PAGE>
performance. Participants in the Deferred Compensation Plan can elect to receive
distributions from the plan at retirement or earlier as permitted by the plan.
Participants are fully vested in their contributions and become vested in the
Company contribution according to a five-year vesting schedule provided in the
Deferred Compensation Plan. During the fiscal year ended February 27, 1999, the
Company matched 40% of the first 5% of participating employees' pre-tax
earnings, or $101,545, including $6,400 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 Deferred Compensation Plan, expressed its
intention to continue the plan for an indefinite period of time, the Board of
Directors may terminate the plan at will.
DIRECTORS' COMPENSATION
Each non-employee director of the Company received $15,000 plus expenses for
his or her services as a director in fiscal 1999 and each committee chairperson
received an additional fee of $3,000. Beginning with fiscal 2000, the annual
director fee has been increased to $25,000 and an additional $500 fee will be
paid for each committee meeting attended. On April 24, 1998, the Company granted
to each director an option to purchase 20,000 shares of Common Stock at an
exercise price of $17.19 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, 1999, to purchase 634,000
shares of the Company's Common Stock at exercise prices per share ranging from
$3.19 to $19.56 have been granted under both the 1997 Directors' Plan and the
Company's 1987 Directors' Non-Qualified Stock Option Plan, as amended (the "1987
Directors' Plan"), described below, 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 and 1997 Directors' Plan as follows: Culver
Davis, Jr., $3,303,400; Elliot Kaplan, $926,400; Frank Trestman, $894,720; and
James Wetherbe, $3,621,880. David Stanley, a former director who retired June
25, 1998, realized a net value of securities of $1,286,600 pursuant to the
exercise of options in fiscal 1999 while he was a director.
DIRECTORS' NON-QUALIFIED STOCK OPTION PLANS
Options granted pursuant to the 1987 Directors' Plan, which expired May 1,
1997, vest immediately and are exercisable for a period of five years after the
date of grant. Options to purchase 2,392,000 shares of the Company's Common
Stock had been granted pursuant to the 1987 Directors' Plan and, as of March 31,
1999, 284,000 remain outstanding.
The 1997 Directors' Plan was adopted by the Board of Directors and approved
by the Shareholders. The number of shares subject to the 1997 Directors' Plan is
2,800,000 shares. The number of options granted to directors is discretionary as
determined by the Compensation and Human Resources Committee and not subject to
specific criteria. These options vest immediately and are exercisable for a
period of ten years. The exercise price for the options granted pursuant to the
1997 Directors' Plan equals the closing prices of the Company's Common Stock, as
quoted on the New York Stock Exchange, on the dates of grant. As of March 31,
1999, options to purchase 450,000 shares of the Company's Common Stock had been
granted pursuant to the 1997 Directors' Plan, and 350,000 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
16
<PAGE>
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
regulations 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 27, 1999, except for (i) a late Form 4 filing
reporting an indirect sale of shares and several gifts and transfers of shares
involving Chairman and Chief Executive Officer Richard M. Schulze; (ii) a late
Form 5 filing reporting a gift of shares by Director James C. Wetherbe; and
(iii) a late Form 4 filing reporting a sale of shares by Wayne R. Inouye, Senior
Vice President--Merchandising.
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 February 28, 1999. 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 EVA-REGISTERED TRADEMARK- INCENTIVE PROGRAM
Effective for fiscal 2000 (the fiscal year ending February 26, 2000), the
Board of Directors has adopted the EVA-Registered Trademark- Incentive Program
that provides for incentive compensation to selected management employees,
numbering approximately 150 employees, based on a measure of "Economic Value
Added," or "EVA," of the Company. The EVA Incentive Program replaces the
Company's existing bonus program. The purpose of the EVA Incentive Program is to
motivate performance through incentive compensation that rewards participating
employees for increasing shareholder value over the long term.
The Board of Directors adopted the EVA Incentive Program in April 1999.
Shareholder approval of the EVA Incentive Program will allow payments made under
the program to be tax deductible as "performance-based" compensation under
Section 162(m) of the Internal Revenue Code (the "Code"). Section 162(m) of the
Code disallows a corporate tax deduction for compensation in excess of $1
million per year paid to certain executive officer. However, certain
compensation, including compensation based on the attainment of performance
goals, is excluded from this deduction limit if, among other things, the
material terms of a program, such as the EVA Incentive Program, are approved by
a corporation's shareholders. If the EVA Incentive Program is not approved by
the Company's Shareholders, amounts paid pursuant to the program may not be
deductible for federal income tax purposes.
17
<PAGE>
PURPOSE OF THE EVA INCENTIVE PROGRAM
The purpose of the EVA Incentive Program is to motivate performance by
linking incentive pay to improvements in the Company's EVA. EVA is a measurement
of the amount by which the Company's after tax profits, after certain
adjustments, exceed the cost of capital employed by the Company. The use of EVA
as a performance measurement for incentive compensation is designed to help
managers in making decisions that lead to overall improvement in shareholder
value, taking into account not only profits generated, but the economic cost of
capital to generate the profits.
PRINCIPAL FEATURES OF THE EVA INCENTIVE PROGRAM
The EVA Incentive Program is administered by the Compensation and Human
Resources Committee of the Board of Directors. The Committee will determine in
the first quarter of each fiscal year which employees are eligible to
participate for a particular program year. The Committee will determine target
incentive compensation awards available to each participant in the EVA Incentive
Program for a program year, expressed as a percentage of the individual's annual
base salary. The percentage is based upon the participant's job responsibilities
and competitive levels of incentive compensation for comparable positions in the
marketplace. During the first quarter of each year, the Committee will approve a
target level of EVA performance for all participants for the program year. The
actual incentive compensation accrued for a participant under the EVA Incentive
Program is determined by adjusting the participant's target incentive
compensation for the year upwards or downwards based upon the actual EVA for the
year relative to the target EVA. If actual EVA for any program year falls below
a minimum level established by the Committee, no incentive compensation will be
accrued for participants for that program year.
The amount of annual incentive compensation accrued for a participant based
upon levels of EVA improvement achieved may be reduced for a participant's
failure to achieve individual performance objectives. These individual
objectives may be financial or non-financial in nature. After the accrued amount
of incentive compensation, if any, for a participant has been determined under
the EVA Incentive Program for a program year, it will be credited to the
participant's "bonus bank." The participant will be paid from the bonus bank for
such year up to the target incentive pay amount, plus one-third of any remaining
bonus bank balance for such year and prior program years. Upon termination of
employment, a participant's bonus bank will be reduced to zero and no further
payments will be made to the participant under the EVA Incentive Program. The
maximum amount of the compensation under the EVA Incentive Program that may be
paid to a participant during any one calendar year is $5 million.
The EVA Incentive Program may be amended at any time by the Board of
Directors or the Committee, and Shareholder approval of amendments may be sought
if required to maintain compliance with Section 162(m) of the Code. The EVA
Incentive Program will remain in effect until replaced by another incentive
compensation program.
The following table represents the approximate incentive compensation that
would be accrued and credited to the bonus bank for fiscal 2000 under the EVA
Incentive Program at varying levels of EVA improvement. The amount of incentive
compensation that may be accrued is uncapped and varies
18
<PAGE>
proportionately with the level of EVA achieved relative to target. Amounts
actually paid would be in accordance with the limitations on payments from the
bonus bank described above.
EVA INCENTIVE PROGRAM BENEFITS
<TABLE>
<CAPTION>
PERCENTAGE OF EVA TARGET ACHIEVED
-----------------------------------------------------
NAME 50% 100% 150% 200%
- ---------------------------------------------------------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Richard M. Schulze ....................................... $ 69,000 $ 1,250,000 $ 1,913,000 $ 2,575,000
Chairman and Chief Executive Officer
Bradbury H. Anderson ..................................... 30,000 548,000 838,000 1,128,000
President and Chief Operating Officer
Allen U. Lenzmeier ....................................... 19,000 341,000 522,000 703,000
Executive Vice President and Chief Financial Officer
Wade R. Fenn ............................................. 19,000 341,000 522,000 703,000
Executive Vice President--Marketing
Kenneth R. Weller ........................................ 10,000 183,000 280,000 377,000
Senior Vice President--Sales
Michael P. Keskey ........................................ 10,000 183,000 280,000 377,000
Senior Vice President--Sales
All executive officers, as a group (20 individuals) ...... 278,000 4,994,000 7,640,000 10,287,000
All non-executive officer directors, as a group
(7 individuals) ........................................ 0 0 0 0
All non-executive officer employees, as a group .......... 356,000 6,396,000 9,786,000 13,175,000
</TABLE>
The Board of Directors recommends a vote FOR the proposal to approve the EVA
Incentive Program. 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 approve the EVA Incentive Program.
IT IS INTENDED THAT, UNLESS OTHERWISE INSTRUCTED, THE SHARES REPRESENTED BY
THE PROXY WILL BE VOTED IN FAVOR OF THE APPROVAL OF THE EVA INCENTIVE PROGRAM.
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.
19
<PAGE>
PROPOSALS FOR THE NEXT REGULAR MEETING
Any proposals by a Shareholder to be presented at the 2000 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
14, 2000.
By Order of the Board of Directors
/s/ ELLIOT S. KAPLAN
Elliot S. Kaplan
SECRETARY
Dated: May xx, 1999
20
<PAGE>
PROXY 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 24, 1999
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 all of the shares of Common Stock of Best Buy Co., Inc. (the
"Company"), held of record by the undersigned as of the close of business on
Friday, May 7, 1999, at the Regular Meeting of Shareholders to be held on
Thursday, June 24, 1999, 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 of
Shareholders and the Proxy Statement in support of the Board of Directors' and
Management's solicitation of proxies dated May xx, 1999.
MAIL IN VOTING: PLEASE MARK, SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
INTERNET/TELEPHONE VOTING: INSTRUCTIONS TO VOTE VIA THE INTERNET OR
BY TELEPHONE ARE ON THE REVERSE SIDE.
(Continued on the reverse side)
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
/X/ PLEASE MARK YOUR 2406
VOTES AS IN THIS EXAMPLE.
FOR ALL WITHHOLD ALL FOR ALL
NOMINEES NOMINEES EXCEPT*
1. Election of three Class 2 Directors -- / / / / / /
ELLIOT S. KAPLAN, RICHARD M. SCHULZE
and HATIM A. TYABJI
*EXCEPT NOMINEE(S) WRITTEN BELOW
- -----------------------------------
FOR AGAINST ABSTAIN
2. Proposal to ratify the appointment of / / / / / /
one Class 1 Director -- DAVID H. STARR
FOR AGAINST ABSTAIN
3. Proposal to ratify the appointment of / / / / / /
Ernst & Young LLP as the Company's
independent auditor for the current
fiscal year.
FOR AGAINST ABSTAIN
4. Proposal to approve the Company's / / / / / /
EVA Incentive Program.
5. In their discretion, the Proxy Agents are authorized to vote upon such
other business as may properly come before the meeting.
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 and 4.
Dated:_____________________, 1999
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.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE IF YOU ARE RETURNING YOUR VOTED PROXY CARD BY MAIL
BEST BUY CO., INC.
INTERNET AND TELEPHONE VOTING
Dear Shareholder:
Best Buy Co., Inc. encourages you to take advantage of new and convenient
ways to vote your shares prior to the Thursday, June 24, 1999 Regular Meeting
of Shareholders. You can vote your shares electronically through the Internet
or by telephone 24 hours a day, 7 days a week. This eliminates the need to
return the proxy card.
To vote your shares electronically you must use the control number printed in
the box above, just below the perforation. The series of numbers that appear
in the box above must be used to access the system.
1. To vote over the Internet:
- Log on the Internet and go to the Web site: http://www.vote-by-net.com.
- Have this proxy card in hand when you log-on.
2. To vote over the telephone:
- On a touch-tone telephone, call (800) OK2-Vote (1-800-652-8683).
- Outside of the U.S. and Canada, call (201) 324-0377.
- Have this proxy card in hand when you call.
Your electronic vote authorizes the named Proxy Agents in the same manner as
if you marked, signed, dated and returned the proxy card.
If you choose to vote your shares electronically, there is no need for you to
mail back your proxy card.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.
<PAGE>
CERTIFICATE OF RESOLUTIONS
I, Elliot S. Kaplan, the Secretary of Best Buy Co., Inc., a Minnesota
corporation, do hereby certify that the following resolutions were duly adopted
by the Directors of this corporation at a meeting held April 16, 1999, and that
said resolutions are still in full force and effect:
RESOLVED:
The Board of Directors of this corporation hereby adopts the EVA
Incentive Program to provide annual incentive compensation to management
employees of the corporation for increasing shareholder value over the
long term. Under the program, incentive compensation is linked to
improvements in the corporation's "economic value added," or "EVA," a
measurement of the amount by which the corporation's after-tax profits,
after certain adjustments, exceed the cost of capital employed by the
corporation. The amount of incentive compensation which may be accrued
for a participating employee in respect of a particular fiscal year will
be equal to a percentage of such individual's base salary as determined
by the corporation's actual improvement in EVA for such fiscal year,
which EVA target levels and incentive pay percentages shall be
established annually by the Compensation and Human Resources Committee
of the Board. In addition, the amount of annual incentive compensation
accrued for a participating employee as determined by the level of EVA
improvement achieved may be reduced if the participant fails to achieve
individual performance objectives. Nothwithstanding the foregoing, in no
event shall more than $5 million be paid to any participating employee
under the EVA Incentive Program in a calendar year.
RESOLVED
FURTHER:
The Board of Directors does hereby delegate to the Compensation
and Human Resources Committee of the Board the authority to administer
the EVA Incentive Program in accordance with these resolutions,
including but not limited to establishing procedures for deferral and
payment of the incentive pay accrued and the rules for forfeiture of
accrued amounts by terminating employees, such committee being hereby
authorized to take any and all action which may be deemed reasonably
necessary or incidental to accomplishing the foregoing, all of such
actions and undertakings being hereby authorized, approved and confirmed
and declared to be binding upon this corporation as though each had been
specifically authorized and approved, in advance, by this Board of
Directors.
RESOLVED
FURTHER:
For purposes of the foregoing resolutions, the "base salary" for
any employee participating in the EVA Incentive Program shall be the
base salary established for such employee effective as of April 1 of the
particular fiscal year (or, if later, the date of hire), notwithstanding
any change in an individual's base salary during such fiscal year.
RESOLVED
FURTHER:
The Board of Directors of this corporation hereby orders that the
foregoing EVA Incentive Program be submitted to the shareholders when
convened in their next meeting and recommends approval of such program by
the shareholders when so presented to them for consideration.
Dated: April 27, 1999.
/s/ Elliot S. Kaplan
--------------------------------------
Elliot S. Kaplan
Secretary
