<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
Filed by the registrant [X]
</TABLE>
Filed by a party other than the registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary proxy statement [ ] Confidential, For use of
[X] Definitive proxy statement the Commission Only (as
[ ] Definitive additional materials permitted by Rule 14a-6(e)(2))
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
The Good Guys, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
The Good Guys, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
<TABLE>
<C> <S>
[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:
-----------------------------------------------------------------------------------
(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
</TABLE>
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.
<TABLE>
<C> <S>
(1) Amount previously paid:
-----------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
-----------------------------------------------------------------------------------
(3) Filing party:
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(4) Date filed:
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</TABLE>
<PAGE> 2
THE GOOD GUYS, INC,
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 13, 1998
The Annual Meeting of Shareholders of The Good Guys, Inc. will be held at
the A.P. Giannini Auditorium, Bank of America Building, located at 555
California Street, San Francisco, California on Friday, February 13, 1998, at
10:30 A.M., for the following purposes:
1. To elect Directors to serve for the ensuing year and until their
successors are duly elected and qualified.
2. To approve the Amended and Restated 1994 Stock Incentive Plan.
3. To ratify the selection of Deloitte & Touche LLP as independent
certified public accountants for the Company.
4. To transact such other business as may properly come before the meeting.
Only shareholders of record at the close of business on December 19, 1997
are entitled to notice of and to vote at the meeting and any adjournment
thereof.
BY ORDER OF THE BOARD OF DIRECTORS
LOGO
Robert A. Gunst
President and Chief Executive Officer
Brisbane, California
January 5, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING PLEASE SIGN AND RETURN THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POST-PAID ENVELOPE.
IF YOU ARE ABLE TO ATTEND THE MEETING, AND WISH TO VOTE YOUR SHARES
PERSONALLY, YOU MAY DO SO AT ANY TIME BEFORE THE PROXY IS EXERCISED.
<PAGE> 3
THE GOOD GUYS, INC.
7000 MARINA BOULEVARD
BRISBANE, CALIFORNIA 94005-1840
PROXY STATEMENT
The enclosed proxy is solicited on behalf of the Board of Directors of The
Good Guys, Inc., a Delaware corporation (the "Company"), for use at the Annual
Meeting of Shareholders to be held at the A.P. Giannini Auditorium, Bank of
America Building, located at 555 California Street, San Francisco, California,
on Friday, February 13, 1998, at 10:30 A.M.
Any proxy given may be revoked by a shareholder at any time before it is
voted by filing with the Secretary of the Company a notice in writing revoking
it, or by duly executing a proxy bearing a later date. Proxies may also be
revoked by any shareholder present at the meeting who expresses a desire to vote
his or her shares in person. Subject to any such revocation, all shares
represented by properly executed proxies which are received prior to the meeting
will be voted in accordance with the specifications on the proxy. If no
specification is made with regard to a proposal set forth in the proxy, the
shares will be voted in favor of the proposal.
A copy of the Annual Report of the Company for its fiscal year ended
September 30, 1997 is being mailed to shareholders with this proxy statement.
The approximate date on which this proxy statement and the accompanying proxy
are being sent to shareholders is January 5, 1998.
VOTING
Only shareholders of record on December 19, 1997 (the "Record Date") will
be entitled to notice of and to vote at the meeting. At the close of business on
the Record Date, the Company had 13,810,310 shares of Common Stock outstanding.
Each holder of record of Common Stock on the Record Date is entitled to one vote
per share on each matter to be considered at the Annual Meeting of Shareholders.
A majority of all shares represented in person or by proxy at the Annual Meeting
constitutes a quorum for the transaction of business at the meeting. Abstentions
are considered as shares present and entitled to vote and therefore will have
the same effect as a vote against a matter presented at the meeting. Brokers who
hold shares in street name for customers have the authority to vote on certain
matters; with respect to any other matters, shares as to which brokers have not
received discretionary voting authority from their customers are considered as
shares not entitled to vote with respect to such matters, but are counted toward
the establishment of a quorum.
Each participant in The Good Guys! Profit-Sharing Plan and The Good Guys!
Deferred Pay Plan is entitled to instruct the respective Plan's Trustee to vote
the shares of Common Stock allocated to such participant's account on each
matter to be considered at the Annual Meeting of Shareholders. If a participant
does not give voting instructions to the Trustee, the shares of Common Stock as
to which he or she was entitled to provide instructions shall be voted by the
Trustee in the manner directed by the respective Plan's Administrative
Committee. Unallocated shares of Common Stock shall be voted in the same
proportion as the allocated shares of Common Stock in each respective Plan.
ELECTION OF DIRECTORS
Directors are elected to hold office until the next annual shareholders'
meeting or until their successors have been elected. Unless otherwise instructed
by the shareholder, it is intended that the shares represented by the enclosed
proxy will be voted for the nominees named below. Although management
anticipates that all of the nominees will be able to serve, if any nominee is
unable or unwilling to serve at the time of the meeting, the proxy may be voted
for a substitute nominee chosen by management.
All of the nominees are presently directors of the Company and no nominee
has any family relationship with any other nominee or executive officer. The
beneficial ownership of the Company's stock by the nominees is set forth under
"Certain Shareholders."
<PAGE> 4
The following table and biographical summaries set forth the names and ages
of the nominees, their principal occupations at present, the positions and
offices held by each of them with the Company in addition to the position as
director, and the period during which each of them has served as a director of
the Company.
<TABLE>
<CAPTION>
DIRECTOR
CONTINUOUSLY
NOMINEE AGE SINCE
------------------------------------------------------------------ --- ------------
<S> <C> <C>
Stanley R. Baker(1)(2)............................................ 53 1976
Robert A. Gunst................................................... 49 1986
Russell M. Solomon(1)(2).......................................... 72 1986
W. Howard Lester(1)(2)............................................ 62 1990
John E. Martin(1)(2).............................................. 52 1990
Horst H. Schulze.................................................. 58 1997
</TABLE>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Stanley R. Baker has been a director of the Company since its incorporation
in 1976 and was Secretary of the Company from 1976 until his resignation as an
employee of the Company in August 1991. Mr. Baker became Vice President, Video
Merchandising in 1986, and Vice President, Co-Head of Merchandising in 1990.
From August 1991 to the present Mr. Baker has been a private investor.
Robert A. Gunst became the President and Chief Operating Officer of the
Company in May 1990 and its Chief Executive Officer in January 1993. Mr. Gunst
is also a director of Garden Fresh Restaurant Corp., a publicly-held restaurant
chain.
Russell M. Solomon is the founder and President of MTS Incorporated (dba
Tower Records).
W. Howard Lester has been Chairman and Chief Executive Officer of
Williams-Sonoma, Inc., a publicly held specialty retailer, since 1987. Mr.
Lester is also a director of CKE Restaurant, Inc., a publicly-held restaurant
chain, and Il Fornaio (America) Corp., a publicly-held chain of Italian
restaurants and wholesale bakeries.
John E. Martin has served as Chairman of Newriders, Inc., an operator of
restaurants and apparel stores, since June 1997, and also has served as Chairman
of Diedrich Coffee, Inc., an operator of specialty coffee stores, since November
1997. From October 1996 to June 1997, he served as Chairman and Chief Executive
Officer of PepsiCo Casual Restaurants International, a subsidiary of PepsiCo.
From 1983 until October 1996, he served as Chief Executive Officer of Taco Bell,
another subsidiary of PepsiCo and he also served as Chairman of Taco Bell from
June 1994 until October 1996. Mr. Martin is also a director of Williams-Sonoma,
Inc. and Franchise Mortgage Acceptance Company.
Horst H. Schulze has been the President and Chief Operating Officer of the
Ritz-Carlton Hotel Company, L.L.C. since 1988.
The Board of Directors has established an Audit Committee and a
Compensation Committee, but has not established a Nominating Committee. The
Audit Committee met two times during fiscal 1997. Responsibilities of the Audit
Committee include (1) reviewing financial,statements and consulting with the
independent auditors concerning the Company's financial, statements, accounting
and financial policies, and internal controls, (2) reviewing the scope of the
independent auditors' activities and the fees of the independent auditors, and
(3) maintaining good communications among the Committee, the Company's
independent auditors and the Company's management on accounting matters. The
Compensation Committee met three times during fiscal 1997. The function of the
Compensation Committee is to approve stock plans and option grants and review
and make recommendations to the Board of Directors regarding executive
compensation and benefits.
2
<PAGE> 5
The total number of meetings of the Board of Directors during fiscal 1997
was six. Each of the incumbent directors attended at least 75% of the aggregate
of (1) the meetings of the Board during the year and (2) the total number of
meetings of all committees of the Board on which he served.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive additional
compensation for their service as directors. During the fiscal year ended
September 30, 1997, directors who were not employees of the Company were
compensated at the rate of $16,000 per year, plus $2,000 per day for each
meeting of the Board of Directors attended. No additional compensation is paid
to directors for their attendance at meetings of Board committees. Directors are
reimbursed for expenses incurred in attending meetings. Under the Company's 1994
Stock Incentive Plan, each person who is not an employee of the Company, upon
becoming a member of the Board of Directors for the first time, is awarded a
nonqualified option to purchase 5,000 shares of Common Stock of the Company.
Prior to amendment of the Plan in November 1997, the Plan also provided that
immediately after the completion of each annual meeting of the shareholders of
the Company, each non-employee member of the Board would be awarded a
non-qualified option to purchase 1,000 shares of Common Stock. Options granted
to directors have an exercise price per share equal to the fair market value of
the shares of Common Stock on the date of award, and vest in four equal annual
installments from the date of grant. Each of Messrs. Baker, Lester, Martin and
Solomon was granted an option to purchase 1,000 shares of Common Stock at an
exercise price of $6.625 per share on February 11, 1997, and Horst H. Schulze
was granted an option to purchase 5,000 shares of Common Stock at an exercise
price of $8.375 per share on September 11, 1997.
As discussed under "Approval of Amended and Restated 1994 Stock Incentive
Plan" below, the 1994 Stock Incentive Plan was amended in November 1997 to
eliminate the automatic annual 1,000 share option grant to non-employee
directors and to eliminate the limitations on the timing and types of awards
that can be made to non-employee directors. Subject to approval of the Amended
and Restated 1994 Stock Incentive Plan by the shareholders, each non-employee
director will receive in lieu of cash compensation and the annual option grant,
for the year commencing on the date of the Annual Meeting of Shareholders, the
number of restricted shares of Common Stock determined by dividing $40,000 by
the fair market value of the Company's Common Stock on that date. Such shares
would vest one year after the date of issuance, or, if earlier, on the death or
disability of the director.
3
<PAGE> 6
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows specific compensation information, for the fiscal
years ending September 30, 1997, 1996 and 1995, for the Company's Chief
Executive Officer and the next four most highly compensated executive officers
as of September 30, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------------------- ---------------
OTHER ANNUAL STOCK OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) (NUMBER)
- -------------------------------- ---- -------- ------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Robert A. Gunst................. 1997 $500,000 $ 0 $21,673 50,000
President and 1996 $475,000 $ 0 $10,766 50,000
Chief Executive Officer 1995 $450,000 $80,000 $18,240 50,000
Dennis C. Carroll............... 1997 $210,000 $ 0 $ 1,214 60,000
Senior Vice President and 1996 $ 80,000 $ 0 $ 539 20,000
Chief Financial Officer(2)
William B. Perlstein............ 1997 $195,000 $ 0 $ 8,883 10,000
Vice President, Sales 1996 $185,000 $ 0 $ 4,413 15,000
1995 $170,000 $20,000 $ 7,061 13,500
Gregory L. Steele............... 1997 $180,000 $ 0 $ 8,798 7,500
Vice President, 1996 $170,000 $14,000 $ 6,133 10,000
Real Estate 1995 $160,000 $38,750 $ 9,746 10,000
Geradette M. Vaz................ 1997 $175,000 $ 0 $ 7,771 7,500
Vice President, Human 1996 $165,000 $ 0 $ 5,342 10,000
Resources 1995 $155,000 $20,000 $ 7,230 10,000
</TABLE>
- ---------------
(1) Consists of perquisites and other personal benefits, including long term
disability insurance premiums paid by the Company.
(2) Mr. Carroll became an employee of the Company in April 1996.
STOCK OPTION TABLES
The following table shows information concerning stock options granted to
the individuals named in the Summary Compensation Table above during the fiscal
year ended September 30, 1997.
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
----------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL RATES OF STOCK
NUMBER OF OPTIONS PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(2)(3)
OPTIONS IN PRICE EXPIRATION -------------------
NAME GRANTED(1) FISCAL YEAR ($/SH) DATE 5% 10%
- --------------------------------- ----------- ------------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Gunst.................. 50,000 6.59% $ 7.13 12/20/06 $224,044 $567,771
Dennis C. Carroll................ 10,000 1.31% $ 7.50 11/19/06 $ 45,131 $116,289
50,000 6.59% $ 8.25 09/03/97 $259,419 $657,419
William B. Perlstein............. 10,000 1.31% $ 7.50 11/19/06 $ 45,131 $116,289
Gregory L. Steele................ 7,500 0.98% $ 7.50 11/19/06 $ 33,848 $ 87,216
Geradette M. Vaz................. 7,500 0.98% $ 7.50 11/19/06 $ 33,848 $ 87,216
</TABLE>
- ---------------
(1) All options granted in fiscal 1997 were granted under the 1994 Stock
Incentive Plan. The options are non-qualified stock options that were
granted at 100% of the fair market value of the Common Stock on
4
<PAGE> 7
the date of grant. The options expire ten years from the date of grant,
unless otherwise earlier terminated upon the occurrence of certain events
related to termination of employment. The options vest 25% per year on each
of the first four anniversaries of the option grant date. Additional vesting
of the right to exercise the options ceases when the optionee's employment
terminates.
(2) The 5% and the 10% assumed rates of appreciation applied to the option
exercise price over the ten-year option term are prescribed by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future price of Common Stock. If the Company's
Common Stock does not appreciate relative to the exercise price, the named
executive officers will receive no benefit from the options.
(3) At assumed annual rates of appreciation of 5% and 10%, the aggregate
potential realizable increase in value for shares held by all stockholders
as of September 30, 1997 for the ten-year period from November 19, 1996 to
November 19, 2006 would be $65,139,223 and $165,075,581, for the ten-year
period from December 20, 1996 to December 20, 2006, would be $61,882,262 and
$156,821,802 and for the ten-year period from September 3, 1997 to September
3, 2007, would be $71,653,145 and $181,583,139.
The following table shows the number of shares covered by both exercisable
and non-exercisable stock options held by the individuals named in the Summary
Compensation Table above as of September 30, 1997 and the value of unexercised
options as of that date.
AGGREGATE OPTIONS EXERCISED IN FISCAL 1997
AND SEPTEMBER 30, 1997 OPTION VALUES
<TABLE>
<CAPTION>
VALUE(1) OF
NUMBER OF UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT 9/30/97 AT 9/30/97
ON VALUE ----------------------------- -----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- --------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Gunst....... -- -- 326,500 125,000 $71,750 $12,500
Dennis C. Carroll..... -- -- 5,000 75,000 -- --
William B.
Perlstein........... -- -- 37,325 30,875 $ 2,187 --
Gregory L. Steele..... -- -- 33,500 22,500 $ 7,000 --
Geradette M. Vaz...... 5,800 $ 23,925 33,500 22,500 $ 7,000 --
</TABLE>
- ---------------
(1) The value of unexercised options is calculated by multiplying the number of
options outstanding by the difference between the option exercise price and
the September 30, 1997 closing price of $7.375 per share of the Company's
Common Stock as reported on the Nasdaq National Market. Options with an
exercise price in excess of the September 30, 1997 closing price were not
included in this calculation.
EMPLOYMENT AGREEMENTS
The Company may terminate the employment of Robert A. Gunst at any time
with or without cause, provided that if the termination is without cause, Mr.
Gunst would be entitled to the payment of an amount equal to his then current
annual base salary plus a pro-rated bonus amount. Mr. Gunst's present salary is
at the rate of $500,000 per year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Company are Stanley R.
Baker, W. Howard Lester, John E. Martin and Russell M. Solomon, all of whom are
outside directors. None of the members of the Committee is or was an officer of
the Company or any of its subsidiaries, with the exception of Stanley R. Baker
who resigned as an officer and employee in August 1991.
5
<PAGE> 8
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION OVERVIEW AND
PHILOSOPHY
The Compensation Committee (the "Committee") of the Board of Directors is
responsible for establishing the Company's policies and administering the
Company's programs governing stock incentive plans and executive compensation,
including annual salaries, bonuses (if any), and awards under stock and
long-term cash incentive plans.
The Committee has engaged a nationally recognized compensation and benefits
consulting firm to assist the Committee and the Company in reviewing the
compensation program of the Company's executive officers.
The objectives of the Company's executive compensation program are to
provide the following:
- Overall compensation opportunities that are competitive within the
Company's executive labor markets and that enable the Company to attract
and retain highly talented, experienced executives capable of furthering
the Company's objectives;
- Annual cash incentive compensation tied primarily to the overall
financial performance of the Company, but also recognizing business unit
and individual performance as appropriate; and
- Long term incentives which directly align the financial interests of
management with those of the shareholders and which provide an incentive
to remain in the Company's employ.
To achieve compensation opportunities that are competitive, the Company
focuses on compensation survey data for retailers of comparable size. Although
not determinative, the Company takes into consideration 75th percentile
competitive executive pay levels and average annual percentage increases in
executive compensation granted by comparable companies.
EXECUTIVE OFFICER COMPENSATION PROGRAM
The Company's executive officer compensation program is comprised of base
salary, annual cash incentive compensation, long-term incentive compensation in
the form of stock options, and various other common benefits.
BASE SALARY
Base salary levels for the Company's executive officers are competitively
set relative to companies in the Company's industry and other comparable
companies. In determining salaries, the Committee also takes into account the
Company's financial performance and the executive's demonstrated skill,
experience and performance.
ANNUAL INCENTIVE COMPENSATION
The Company's system of annual cash incentive compensation for its
executive officers takes the form of cash bonuses that are determined by overall
Company performance as measured by earnings per share in relation to budgeted
earnings per share, and, where appropriate, individual performance. The target
bonus for an executive officer (other than the Chief Executive Officer)
determined by earnings per share is multiplied by a percentage, ranging from
zero to 125%, that can be adjusted by the Chief Executive Officer based on his
assessment of the officer's job performance. For officers with responsibility
for sales, merchandising, real estate and store operations, a portion of their
annual bonus is directly tied to the achievement of specific financial or other
goals developed at the beginning of the year. No bonuses are paid under the
Company's plans (other than for bonuses based upon store openings in the case of
the Vice President, Real Estate) in the event the Company does not achieve at
least 75% of its budgeted earnings per share, which was the case in fiscal 1996
and fiscal 1997.
STOCK OPTION PROGRAM
The stock option program is the Company's principal long-term incentive
plan for executive officers and key managers. The objectives of the program are
to align executive and shareholder long-term interests by
6
<PAGE> 9
creating a strong and direct link between executive compensation and shareholder
return, and to enable executives to develop and maintain a significant long-term
ownership position in the Company's Common Stock. The Committee attempts to
grant options sufficient to deliver competitive gains assuming the Company's
stock price performance is competitive, but the Committee also considers the
dilutive impact of options granted.
Stock options are granted at an option price equal to the fair market value
of the Company's Common Stock on the date of grant, have ten-year terms and vest
ratably over a four-year period.
BENEFITS
The Company provides benefits to the executive officers that are generally
available to Company employees.
CHIEF EXECUTIVE OFFICER COMPENSATION
After reviewing Mr. Gunst's and the Company's performance during fiscal
1996 and the other factors discussed above relative to determining salaries, it
was concluded that Mr. Gunst's salary should be raised from the annual rate of
$475,000 to the annual rate of $500,000 for fiscal 1997. In addition, after
reviewing the option grants to Mr. Gunst in the past and his present
stockholdings, Mr. Gunst was granted an option to acquire 50,000 shares of
Common Stock of the Company, exercisable at a price equal to the fair market
value of the Company's stock on the date of grant. The Committee expects to
grant Mr. Gunst additional stock options in the future so that a portion of his
annual compensation each year will consist of new stock options.
The Committee has reviewed the total compensation of all executive officers
in fiscal 1997 and has concluded that their compensation is reasonable and
consistent with the Company's compensation philosophy and industry practice.
Section 162(m) of the Internal Revenue Code, enacted in 1993, limits the
amount of compensation a corporation may deduct as a business expense. Section
162(m) generally disallows deductions for compensation in excess of $1 million
to a company's Chief Executive Officer or to any of its four other most highly
compensated executive officers. Compensation that is "performance-based" is not
subject to that limit if certain requirements are met. The Committee does not
contemplate that there will be any nondeductible compensation for 1997 or for
1998 for any of the five executive positions in question.
The foregoing report of the Compensation Committee shall not be deemed
incorporated by reference by any general statement incorporating by reference
the Proxy Statement into any filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Stanley R. Baker
W. Howard Lester
John E. Martin
Russell M. Solomon
7
<PAGE> 10
PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total
returns for the Company's Common Stock, the Nasdaq Stock Market (US) Index and
the Nasdaq-Retail Trade Index, each of which assumes reinvestment of dividends.
<TABLE>
<CAPTION>
The Good Guys! Stock NASDAQ Stock Market (US) NASDAQ Retail Trade Stocks
<S> <C> <C> <C>
1992 100 100 100
1993 127 131 113
1994 139 132 111
1995 128 182 122
1996 90 216 146
1997 83 297 168
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1995, the Company opened WOW!, Multimedia Superstore, in Las
Vegas, Nevada, and in October 1996 the Company opened WOW!, Multimedia
Superstore in Long Beach, California. The 62,000 square foot facility in Las
Vegas and the 55,000 square foot facility in Long Beach are jointly operated
with Tower Records under an Operating Agreement between the Company and Tower
Records. The Company and Tower Records have separate leases for their respective
stores, and the Operating Agreement governs the joint operation of the
facilities. The Company and Tower Records share equally certain expenses in
connection with operation of these facilities, but do not share any profits on
their respective sales. Russell M. Solomon, President of MTS Incorporated (dba
Tower Records), is a member of the Company's Board of Directors.
8
<PAGE> 11
APPROVAL OF AMENDED AND RESTATED
1994 STOCK INCENTIVE PLAN
The Company believes that all key employees and directors should have a
significant stake in the Company's stock price performance under programs that
link compensation to shareholder return. There remain, however, only
approximately 133,000 shares of stock available for grant for this purpose under
the Company's 1994 Stock Incentive Plan. Rather than adopting a new stock
incentive plan at this time, the Compensation Committee and the Board of
Directors of the Company approved in November 1997 an increase in the number of
shares covered by the Plan from 1,000,000 shares of Common Stock to 1,800,000
shares of Common Stock.
The Committee and Board also approved other changes to the Plan, one of the
most important of which is to enable the Company to convert the cash
compensation paid to non-employee directors to stock based compensation for the
purpose of giving such directors a more significant stake in stock price
performance. Subject to approval of the Amended and Restated 1994 Stock
Incentive Plan ("Amended and Restated Plan"), the determination has been made
that each non-employee director will receive in lieu of cash and other annual
compensation, for the year commencing on the date of the Annual Shareholders
Meeting, the number of restricted shares determined by dividing $40,000 by the
fair market value of the Company's stock on that date, with such stock to vest
after the elapse of one year or, if earlier, on the death or disability of the
director. Other amendments that were approved are intended to either conform to
or take advantage of recent changes in the short-swing profit recovery rules
under Section 16 of the Securities Exchange Act of 1934 ("Section 16") relating
to transactions under employee benefit plans.
The affirmative vote of the holders of at least a majority of the
outstanding shares of Common Stock represented in person or by proxy is required
for approval of the Amended and Restated Plan.
The following is a summary of the proposed amendments and the material
features of the Amended and Restated Plan. The summary is qualified in its
entirety by reference to the full text of the Amended and Restated Plan which is
attached as Exhibit A to this Proxy Statement.
Summary Description of the Proposed Amendments.
The principal changes reflected in the Amended and Restated Plan are as
follows:
- The number of shares of Common Stock covered by the Plan has been
increased from 1,000,000 to 1,800,000.
- The automatic annual grant of an option covering 1,000 shares of Common
Stock of the Company to non-employee directors has been removed. The
automatic one-time grant to a non-employee director, upon becoming a
director of the Company, of an option covering 5,000 shares of Common
Stock of the Company would be retained.
- The limitations on the timing and types of awards to non-employee
directors under the Plan has been removed, with the exception that
directors remain ineligible to receive incentive stock options. Under the
Plan prior to the amendment, non-employee directors could receive only
non-qualified stock options. The Committee administering the Plan has
been given the authority to change the nature of the stock based awards
made to directors or the formula for determining the amount of the award
without further shareholder approval.
- Shareholder approval of a material amendment to a stock option plan is no
longer a condition to the exemptions from liability provided by Section
16. The Amended and Restated Plan does not require shareholder approval
of amendments other than any amendment increasing the total number of
shares covered by the Plan or any shareholder approval required to obtain
or maintain the favorable tax treatment accorded incentive stock options.
- The eligibility requirements for members of the Committee which
administers the Plan have been changed to conform to the changes in the
rules under Section 16.
9
<PAGE> 12
GENERAL
If the Amended and Restated Plan is approved, the aggregate number of
shares of Common Stock which may be issued under the Amended and Restated Plan
will be 1,800,000 shares, of which approximately 933,000 shares will remain
available for awards under the Plan. The Plan presently provides that no more
than 350,000 shares will be available for the grant of restricted shares or
restricted share units and that the maximum number of shares covered by all
grants or awards in any fiscal year of the Company to any participant cannot
exceed 100,000, subject to adjustment in the event of stock splits or similar
events. No awards may be granted under the Amended and Restated Plan after
November 13, 2004. Approximately 160 persons are eligible to participate in the
Plan.
ADMINISTRATION
The Amended and Restated Plan will be administered by the Compensation
Committee of the Board of Directors (the "Committee"). The Committee selects key
employees and directors who will receive awards, determines the amount, vesting
requirements, performance criteria, if any, and other conditions of each award,
interprets the provisions of the Amended and Restated Plan and makes all other
decisions regarding the operation of the Amended and Restated Plan.
The types of awards which the Committee will have authority to grant
consist of (1) stock options, (2) restricted shares, (3) restricted share units,
(4) performance units and (5) bonus shares. Each of these types of awards is
described below.
STOCK OPTIONS
Stock options granted by the Committee may be either "incentive stock
options" (stock options qualifying under Section 422 of Code, which may only be
granted to employees of the Company), "non-qualified stock options" (stock
options which do not so qualify) or both types of stock options (but not in
tandem), provided that the aggregate value (at the time the option is granted)
of the stock with respect to which incentive stock options are exercisable for
the first time by any Optionee during any calendar year may not exceed $100,000.
On the date on which a person who is not an employee becomes a member of
the Board for the first time, such director will be awarded a non-qualified
stock option under the Plan to purchase 5,000 shares of Common Stock.
The option price for each stock option may not be less than 100% of the
fair market value of the Common Stock on the date the stock option is granted,
with the exception that in the case of incentive stock options granted to an
employee who owns 10% or more of the total combined voting power of all classes
of stock of the Company or its subsidiaries (a "ten percent employee") the
exercise price must be not less than 110% of such fair market value. On December
19, 1997, the fair market value of a share of the Company's Common Stock, as so
computed, was $7.375.
No stock option may be exercised by an optionee during the first six months
of its term unless the exercise date has been accelerated as described under
"Additional Rights in Certain Events" below. No stock option may be exercised
after the expiration of ten years from the date of grant (five years in the case
of an incentive stock option granted to a ten percent employee). A stock option
to the extent exercisable at any time may be exercised in whole or in part.
Unless otherwise determined by the Committee in its discretion, if the
employment or directorship of an optionee terminates for any reason other than
voluntary termination with the consent of the Company or a subsidiary,
retirement under any retirement plan of the Company or a subsidiary or death,
all outstanding stock options held by the optionee at the time of such
termination will automatically terminate, unless the exercise period has been
extended as described under "Additional Rights in Certain Events" below. If an
optionee voluntarily terminates his or her employment or directorship with the
consent of the Company or a subsidiary, retires under a retirement plan of the
Company or a subsidiary or dies, the Amended and Restated
10
<PAGE> 13
Plan provides for limited periods following such termination during which stock
options held by the optionee at the time of termination may be exercised by the
optionee or his or her estate.
The option price for each stock option will be payable in full in cash at
the time of exercise; however, in lieu of cash any optionee may pay the option
price in whole or in part by delivering to the Company shares of Common Stock
having a fair market value on the date of exercise of the stock option equal to
the option price for the shares being purchased, except that any portion of the
option price representing a fraction of a share must be paid in cash and no
shares of Common Stock which have been held less than six months may be
delivered in payment of the option price of a stock option.
With the exception of certain transfers allowed for estate planning
purposes, no stock option granted under the Amended and Restated Plan is
transferable other than by will or by the laws of descent and distribution and a
stock option may be exercised during an optionee's lifetime only by the
optionee.
Subject to the foregoing and other provisions of the Amended and Restated
Plan, stock options granted under the Amended and Restated Plan may be exercised
at such times and in such amounts and be subject to such restrictions and other
terms and conditions, if any, as will be determined, in its discretion, by the
Committee. Unless otherwise specifically provided in the agreements covering
options, options granted under the Amended and Restated Plan will vest at the
rate of 25% on each of the first four anniversaries of the date of grant of the
option.
RESTRICTED SHARES OR RESTRICTED SHARE UNITS
Restricted shares of Common Stock or restricted share units awarded by the
Committee will be subject to such restrictions as the Committee may impose
thereon and will be subject to forfeiture if certain events (which may, in the
discretion of the Committee, include termination of employment and/or
performance-based events) specified by the Committee occur prior to the lapse of
the restrictions. The agreement between the Company and the grantee will set
forth the number of restricted shares or restricted share units awarded to the
grantee, the restrictions imposed thereon, the duration of such restrictions,
the events the occurrence of which would cause a forfeiture and such other terms
and conditions as the Committee in its discretion deems appropriate. Unless
otherwise provided in the agreement, restricted shares or restricted share units
will vest at the rate of 25% on each of the first four anniversaries of the date
of grant of the award.
Following a restricted share award and prior to the lapse or termination of
the applicable restrictions, share certificates for the restricted shares will
be held in escrow. Upon the lapse or termination of the restrictions, the share
certificates will be delivered to the grantee. From the date a restricted share
award is effective, however, the grantee will be a shareholder with respect to
the restricted shares and will have all the rights of a shareholder with respect
to such shares, including the right to vote the shares and to receive all
dividends and other distributions paid with respect to the shares, subject only
to the restrictions imposed by the Committee.
Restricted shares or restricted share units may be issued for no
consideration or for such consideration as shall be determined at the time of
the award by the Committee.
PERFORMANCE UNITS
The Committee may award performance units (expressed in dollars or shares)
to be earned by an awardee based on the level of performance of the Company, a
subsidiary or subsidiaries, a branch, department or other unit thereof or the
awardee individually over a specified period of not less than one year
("Performance Period"). For each Performance Period the Committee will establish
a Performance Target, and a Minimum Target which may be the same or less than
the Performance Target. Targets may be expressed in terms of earnings per share,
return on assets, return on equity, asset growth, ratio of capital to assets or
such other level or levels of performance by the Company, a subsidiary or
subsidiaries, a branch, department or other unit thereof or the awardee
individually as the Committee may establish.
An awardee will earn the performance unit in full by meeting the
Performance Target for the Performance Period. If the Minimum Target has not
been attained but the Performance Target is not
11
<PAGE> 14
attained, the portion of the performance unit earned by the awardee will be
determined on the basis of a formula established by the Committee.
Payment in respect of earned performance units, whether expressed in
dollars or shares, may be made in cash, in shares of Common Stock, or partly in
cash and partly in shares of Common Stock, as determined by the Committee at the
time of payment. For this purpose, performance units expressed in dollars will
be converted to shares, and performance units expressed in shares will be
converted to dollars, based on the fair market value of the Common Stock as of
the date the amount payable is determined by the Committee.
Except as otherwise provided below under "Additional Rights in Certain
Events," if the employment or directorship of an awardee terminates prior to the
close of a Performance Period for any reason other than voluntary termination
with the consent of the Company or a subsidiary, retirement under any retirement
plan of the Company or a subsidiary or death, the performance units of the
awardee will be deemed not to have been earned, and no portion of such
performance units may be paid. If prior to the close of the Performance Period
the employment or directorship of an awardee is voluntarily terminated with the
consent of the Company or a subsidiary or the awardee retires under any
retirement plan of the Company or a subsidiary or the awardee dies during
employment or while a director, the Committee may in its discretion determine to
pay all or any part of the performance unit based upon the extent to which the
Committee determines the Performance Target or Minimum Target has been achieved
as of the date of termination retirement or death, the period of time remaining
until the close of the Performance Period and/or such other factors as the
Committee may deem relevant.
Performance unit awards may have such other terms and conditions as the
Committee in its discretion deems appropriate.
BONUS SHARES
The Committee will have the authority in its discretion to award bonus
shares of Common Stock in recognition of the contribution of the awardee to the
performance of the Company, a subsidiary or subsidiaries, or a branch,
department or other unit, in recognition of the awardee's individual performance
or on the basis of such other factors as the Committee may deem relevant. Any
bonus shares awarded would not be subject to any restrictions or possibilities
of forfeiture.
ADDITIONAL RIGHTS IN CERTAIN EVENTS
The Amended and Restated Plan provides for certain additional rights upon
the occurrence of one or more events described in Section 9 of the Amended and
Restated Plan ("Section 9 Events"). Such an event is deemed to have occurred
when (1) the Company acquires actual knowledge that any person (other than the
Company, a subsidiary or any employee benefit plan sponsored by the Company or a
person approved under certain circumstances by the Board of Directors) has
acquired beneficial ownership, directly or indirectly, of securities of the
Company representing 20% or more of the voting power of the Company, (2) a
tender offer is made to acquire securities of the Company representing 20% or
more of the voting power of the Company, (3) a person other than the Company
solicits proxies relating to the election or removal of 50% or more of any class
of the Board of Directors or (4) the shareholders of the Company approve a
merger, consolidation, share exchange, division or sale or other disposition of
assets of the Company as a result of which the shareholders of the Company
immediately prior to the transaction will not own a majority of the voting power
of the surviving or resulting company or any company which acquires the stock of
the Company or more than 20% of its consolidated assets.
Unless the agreement between the Company and the awardee otherwise
provides, if any Section 9 Event occurs (1) all outstanding stock options will
become immediately and fully exercisable, (2) all stock options held by an
awardee whose employment with the Company or a subsidiary terminates within one
year of any Section 9 Event for any reason other than voluntary termination with
the consent of the Company or a subsidiary, retirement under any retirement plan
of the Company or subsidiary or death will be exercisable for a period of three
months from the date of such termination of employment, but in no event after
the expiration date of the stock option, (3) all restrictions applicable to
restricted shares awarded under the Amended and
12
<PAGE> 15
Restated Plan will lapse and (4) all performance units for which the Performance
Period has not yet expired will be deemed to have been fully earned as of the
date of the Section 9 Event, regardless of the attainment or nonattainment of
the Performance Target or any Minimum Target.
POSSIBLE ANTI-TAKEOVER EFFECT
The provisions of the Amended and Restated Plan providing for the
acceleration of the exercise date of stock options, the lapse of restrictions
applicable to restricted shares and the deemed earnout of performance units upon
the occurrence of a Section 9 Event and for the extension of the period during
which stock options may be exercised upon termination of employment following a
Section 9 Event may be considered as having an anti-takeover effect.
MISCELLANEOUS
The Board of Directors may amend or terminate the Amended and Restated Plan
at any time, except (1) the Board may not alter adversely or terminate any
outstanding award without the consent of the holders thereof and (2) shareholder
approval is required for any amendment that increases the total number of shares
which may be issued under the Plan or if such approval is required to maintain
the favorable tax treatment of incentive stock options granted under the Plan.
If an awardee engages in a business which is in competition with the
Company or any of its subsidiaries, the Company may immediately terminate all
outstanding stock options held by the awardee, declare forfeited all restricted
shares held by the awardee as to which the restrictions have not yet lapsed and
terminate all outstanding performance unit awards held by the awardee for which
the applicable Performance Period has not been completed. The preceding sentence
shall not apply if the exercise period of the stock option upon termination of
employment or a directorship has been extended, the lapse of the restrictions
applicable to the restricted shares has been accelerated or the performance unit
has been deemed to have been earned as a result of the occurrence of a Section 9
Event.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal Federal income tax
consequences of the grant and exercise of awards under present law.
Incentive Stock Options. An optionee will not recognize any taxable income
for Federal income tax purposes upon receipt of an incentive stock option or,
generally, at the time of exercise of any incentive stock option. The exercise
of an incentive stock option generally will result in an increase in an
optionee's taxable income for alternative minimum tax purposes.
If an optionee exercises an incentive stock option and does not dispose of
the shares received in a subsequent "disqualifying disposition" (generally, a
sale, gift or other transfer within two years after the date of grant of the
incentive stock option or within one year after the shares are transferred to
the optionee), upon disposition of the shares any amount realized in excess of
the optionee's tax basis in the shares disposed of will be treated as a
long-term capital gain, and any loss will be treated as a long-term capital
loss. In the event of a "disqualifying disposition," the difference between the
fair market value of the shares received on the date of exercise and the option
price (limited, in the case of a taxable sale or exchange, to the excess of the
amount realized upon disposition over the optionee's tax basis in the shares)
will be treated as compensation received by the optionee in the year of
disposition. Any additional gain will be taxable as a capital gain and any loss
as a capital loss, which will be long-term or short-term depending on whether
the shares were held for more than one year. Under proposed regulations, special
rules apply in determining the compensation income recognized upon a
disqualifying disposition if the option price of the incentive stock option is
paid with shares of Common Stock or, in certain limited circumstances, if the
optionee is subject to Section 16(b) of the 1934 Act. If shares of Common Stock
received upon the prior exercise of an incentive stock option are transferred to
the Company in payment of the option price of an incentive stock option within
either of the periods referred to above, the transfer will be considered a
"disqualifying disposition" of the shares transferred, but, under
13
<PAGE> 16
proposed regulations, only compensation income determined as stated above, and
no capital gain or loss, will be recognized.
Neither the Company nor any of its subsidiaries will be entitled to a
deduction with respect to shares received by an optionee upon exercise of an
incentive stock option and not disposed of in a "disqualifying disposition." If
an amount is treated as compensation received by an optionee because of a
"disqualifying disposition," the Company or one of its subsidiaries generally
will be entitled to a corresponding deduction in the same amount for
compensation paid.
Non-qualified Stock Options. An optionee will not recognize any taxable
income for Federal income tax purposes upon receipt of a non-qualified stock
option. Upon the exercise of a non-qualified stock option the amount by which
the fair market value of the shares received, determined as of the date of
exercise, exceeds the option price will be treated as compensation received by
the optionee in the year of exercise. If the option price of a non-qualified
stock option is paid in whole or in part with shares of Common Stock, no income,
gain or loss will be recognized by the optionee on the receipt of shares equal
in value on the date of exercise to the shares delivered in payment of the
option price. The fair market value of the remainder of the shares received upon
exercise of the non-qualified stock option, determined as of the date of
exercise, less the amount of cash, if any, paid upon exercise will be treated as
compensation income received by the optionee on the date of exercise of the
stock option. Special rules will apply upon the exercise of a non-qualified
stock option in certain limited circumstances by an optionee who is subject to
Section 16(b) of the 1934 Act.
The Company or one of its subsidiaries generally will be entitled to a
deduction for compensation paid in the same amount treated as compensation
received by the optionee.
Restricted Shares. A grantee of restricted shares will not recognize any
taxable income for Federal income tax purposes in the year of the award,
provided the shares are subject to restrictions (that is, they are
nontransferable and subject to a substantial risk of forfeiture). If a grantee
is subject to Section 16(b) of the 1934 Act on the date of the award, the shares
generally will be deemed to be subject to restrictions (in addition to the
restrictions imposed by the award) for at least six months following the date of
the award. However, the grantee may elect under Section 83(b) of the Code to
recognize compensation income in the year of the award in an amount equal to the
fair market value of the shares on the date of the award, determined without
regard to the restrictions. If the grantee does not make a Section 83(b)
election, the fair market value of the shares on the date the restrictions lapse
will be treated as compensation income to the grantee and will be taxable in the
year the restrictions lapse. The Company or one of its subsidiaries generally
will be entitled to a deduction for compensation paid in the same amount treated
as compensation income to the grantee.
Performance Units. An awardee of performance units will not recognize any
taxable income for Federal income tax purposes upon receipt of the award. Any
cash or shares of Common Stock received pursuant to the award will be treated as
compensation income received by the awardee generally in the year in which the
awardee receives such cash or shares of Common Stock. If performance units are
expressed in dollars but paid in whole or in part in shares of Common Stock and
the awardee is subject to Section 16(b) of the 1934 Act on the date of receipt
of such shares, the awardee generally will not recognize compensation income
until the expiration of six months from the date or receipt, unless the awardee
makes an election under Section 83(b) of the Code to recognize compensation
income on the date of receipt. In each case, the amount of compensation income
will equal the amount of cash and the fair market value of the shares of Common
Stock on the date compensation income is recognized. The Company or one of its
subsidiaries generally will be entitled to a deduction for compensation paid in
the same amount treated as compensation income to the awardee.
Bonus Shares. Any shares of Common Stock received pursuant to an award of
bonus shares will be treated as compensation income received by the awardee
generally in the year in which the awardee receives such shares. If the awardee
is subject to Section 16(b) of the 1934 Act on the date of receipt of the bonus
shares, the awardee generally will not recognize compensation income until the
expiration of six months from the date of receipt, unless the awardee makes an
election under Section 83(b) of the Code to recognize compensation income on the
date of receipt. In each case, the amount of compensation income will equal the
14
<PAGE> 17
fair market value of the shares of Common Stock on the date compensation income
is recognized. The Company or one of its subsidiaries generally will be entitled
to a corresponding deduction in the same amount for compensation paid.
Other Tax Matters. The exercise of a stock option by an awardee, the lapse
of restrictions on restricted shares, or the deemed earnout of performance units
following the occurrence of a Section 9 Event, in certain circumstances, may
result in (i) a 20% Federal excise tax (in addition to Federal income tax) to
the awardee on certain payments of Common Stock or cash resulting from such
exercise or deemed earnout of performance units or, in the case of restricted
shares, on all or a portion of the fair market value of the shares on the date
the restrictions lapse and (ii) the loss of a compensation deduction which would
otherwise be allowable to the Company or one of its subsidiaries as explained
above.
THE BOARD OF DIRECTORS RECOMMENDS THAT
THE SHAREHOLDERS VOTE "FOR" THE APPROVAL OF
THE AMENDED AND RESTATED PLAN.
1994 STOCK INCENTIVE PLAN BENEFITS
The following table sets forth the number of options granted under the 1994
Stock Incentive Plan from October 1, 1996 through September 30, 1997 to each
person named in the Summary Compensation Table, all current executive officers
as a group (including the named executive officers who are currently executive
officers), all current directors who are not executive officers as a group, and
all employees other than executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
GRANTED IN 1997
-------------------
<S> <C>
Robert A. Gunst..................................... 50,000
Dennis C. Carroll................................... 60,000
William B. Perlstein................................ 10,000
Gregory L. Steele................................... 7,500
Geradette M. Vaz.................................... 7,500
Current Executive Officer Group..................... 204,200
Non-Executive Officer Director Group(1)............. 9,000
Non-Executive Officer Employee Group................ 545,400
</TABLE>
- ---------------
(1) Subject to the approval of the Amended and Restated 1994 Stock Incentive
Plan by shareholders, for the year commencing on the date of the Annual
Meeting of Shareholders each non-employee director will receive in lieu of
cash and other annual compensation the number of restricted shares of Common
Stock determined by dividing $40,000 by the fair market value of the Common
Stock on that date.
RATIFICATION OF SELECTION OF AUDITORS
Touche Ross & Co. commenced service as the independent certified public
accountants for the Company in 1984. Deloitte, Haskins & Sells and Touche Ross &
Co. merged, effective December 3, 1989. Representatives of Deloitte & Touche LLP
are expected to be present at the shareholders' meeting with the opportunity to
make a statement if they desire to do so and are expected to be available to
respond to appropriate questions.
This matter is not required to be submitted for shareholder approval, but
the Board of Directors has elected to seek ratification of its selection of
independent public accountants by the affirmative vote of the holders of a
majority of the shares present and entitled to vote at the meeting. Management
has not determined what action it will take in the event the shareholders do not
ratify the selection of independent public accountants.
15
<PAGE> 18
CERTAIN SHAREHOLDERS
The following table sets forth information as of December 19, 1997, unless
otherwise noted, regarding securities ownership by (i) each person who is known
by the Company to own beneficially more than five percent of the Company's
Common Stock, (ii) each executive officer named in the Summary Compensation
Table, (iii) the directors and nominees individually, and (iv) all executive
officers and directors as a group.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY
OWNED(1)
---------------------
NAME NUMBER PERCENT
----------------------------------------------------------------- --------- -------
<S> <C> <C>
First Pacific Advisors(2)........................................ 2,112,100 15.3%
11400 Olympic Blvd., Suite 1200
Los Angeles, CA 90064
Ryback Management Corporation(4)................................. 1,305,900 9.5%
7711 Carondelet, Suite 700
P.O. Box 11208
St. Louis, MO 63105
Franklin Resources, Inc.(2)...................................... 1,031,800 7.5%
P.O. Box 7777
777 Mariners Island Boulevard
San Mateo, CA 90401
Dimensional Fund Advisors(3)..................................... 995,400 7.2%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Lighthouse Capital Management(2)................................. 939,958 6.8%
10000 Memorial Drive, Suite 660
Houston, TX 77024
The TCW Group, Inc.(2)........................................... 933,400 6.8%
865 South Figueroa Street
Los Angeles, CA 90017
The Good Guys! Profit-Sharing Plan............................... 781,806 5.7%
7000 Marina Boulevard
Brisbane, CA 94005
Robert A. Gunst(5)(6)............................................ 478,267 3.4%
Stanley R. Baker(7).............................................. 158,750 1.1%
John E. Martin(8)................................................ 114,500 *
William B. Perlstein(9).......................................... 65,154 *
Geradette M. Vaz(10)............................................. 64,480 *
Gregory L. Steele(11)............................................ 54,182 *
W. Howard Lester(12)............................................. 26,500 *
Russell M. Solomon(13)........................................... 14,500 *
Dennis C. Carroll(5)(14)......................................... 10,401 *
Horst H. Schulze................................................. -- --
All executive officers and directors............................. 1,060,266 7.3%
as a group (15 persons)(15)
</TABLE>
- ---------------
* Represents less than 1% of the outstanding shares.
(1) The stockholders named in the table have sole voting and investment power
with respect to all shares of stock shown as beneficially owned by them,
subject to community property laws where applicable and the information
contained in the footnotes to this table.
(2) As of September 30, 1997.
(3) As of June 30, 1997.
(4) As of March 31, 1997.
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<PAGE> 19
(5) Messrs. Gunst and Carroll are members of the administrative committees for
The Good Guys! Profit Sharing Plan, the trustee of which currently holds
781,806 shares on behalf of plan participants, and The Good Guys! Deferred
Pay Plan, the trustee of which currently holds 88,909 on behalf of plan
participants.
(6) Includes 2,044 shares held by the trustee of The Good Guys! Profit-Sharing
Plan and allocated to Mr. Gunst's account, as to which Mr. Gunst has sole
voting power; 16,392 shares held by the trustee of The Good Guys! Deferred
Pay Plan and allocated to Mr. Gunst's individual account, as to which Mr.
Gunst has sole voting power; 4,000 shares held as custodian for Mr. Gunst's
children and 376,500 shares issuable upon exercise of outstanding stock
options that are exercisable within 60 days.
(7) Includes 24,500 shares issuable upon exercise of outstanding stock options
that are exercisable within 60 days.
(8) Includes 14,500 shares issuable upon exercise of outstanding stock options
that are exercisable within 60 days.
(9) Includes 4,182 shares held by the trustee of The Good Guys! Profit-Sharing
Plan and allocated to Mr. Perlstein, as to which Mr. Perlstein has sole
voting power, and 49,825 shares issuable upon exercise of outstanding stock
options that are exercisable within 60 days.
(10) Includes 5,232 shares held by the trustee of The Good Guys! Profit-Sharing
Plan and allocated to Ms. Vaz's account, as to which Ms. Vaz has sole
voting power, and 42,875 shares issuable upon exercise of outstanding stock
options that are exercisable within 60 days.
(11) Includes 386 shares held by the trustee of The Good Guys! Profit-Sharing
Plan and allocated to Mr. Steele's account, as to which Mr. Steele has sole
voting power, and 42,875 shares issuable upon exercise of outstanding stock
options that are exercisable within 60 days.
(12) Includes 14,500 shares issuable upon exercise of outstanding stock options
that are exercisable within 60 days.
(13) Includes 14,500 shares issuable upon exercise of outstanding stock options
that are exercisable within 60 days.
(14) Includes 777 shares held by the trustee of The Good Guys! Profit-Sharing
Plan and allocated to Mr. Carroll's account, as to which Mr. Carroll has
sole voting power; and 7,500 shares issuable upon exercise of outstanding
stock options that are exercisable within 60 days.
(15) Includes 15,197 shares held by the trustee of The Good Guys! Profit-Sharing
Plan and allocated to the individual accounts of members of the group, as
to which individuals have sole voting power; 16,392 shares held by the
trustee of The Good Guys! Deferred Pay Plan and allocated to the
individuals accounts of such members, as to which such individuals have
sole voting power, and 639,850 shares issuable upon exercise of outstanding
stock options that are exercisable within 60 days.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors and
executive officers, and any persons holding more than ten percent of the
Company's Common Stock, are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in that ownership to the
Securities and Exchange Commission. Specific due dates for these reports have
been established and the Company is required to disclose in this proxy statement
any failure to file by such dates of which it becomes aware during the fiscal
year. During the last fiscal year, the initial reports on Form 3 for Horst H.
Schulze, a director of the Company, and Kevin McNeill and Cathy Stauffer, each
an officer of the Company, were filed late. Subject to the foregoing, the
Company believes that during the last fiscal year its directors and officers
filed on a timely basis all such reports required to be filed.
17
<PAGE> 20
PROPOSALS BY SHAREHOLDERS
Proposals by shareholders of the Company intended to be presented at the
next annual meeting must be received by the Company for inclusion in the
Company's proxy statement and form of proxy relating to that meeting by
September 6, 1998.
EXPENSES OF SOLICITATION
The expense of preparing, assembling, printing and mailing the forms of
proxy and the material used in the solicitation of proxies will be paid by the
Company. In addition to the solicitation of proxies by use of the mails, some of
the officers, directors and regular employees of the Company, none of whom will
receive additional compensation therefor, may solicit proxies by telephone,
telegram or personal interview, the cost of which will be borne by the Company.
Arrangements will also be made for the forwarding of soliciting material by
nominees, custodians and fiduciaries to their principals. ChaseMellon
Shareholder Services will assist the Company in obtaining the return of proxies
at an estimated cost of $5,500, plus expenses.
OTHER MATTERS
Management knows of no other matters which will be brought before the
meeting, but if such matters are properly presented, the proxies solicited
hereby will be voted in accordance with the judgment of the persons holding such
proxies.
BY THE BOARD OF DIRECTORS
LOGO
Robert A. Gunst
President and Chief Executive Officer
Brisbane, California
January 5, 1998
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EXHIBIT A
THE GOOD GUYS, INC.
AMENDED AND RESTATED
1994 STOCK INCENTIVE PLAN
1. PURPOSE.
The purposes of the 1994 Stock Incentive Plan (the "Plan") are to enable
The Good Guys, Inc. (the "Corporation") and its Subsidiaries, if any, to attract
and retain directors and key employees and to provide them with additional
incentive to advance the interests of the Corporation. For the purposes of the
Plan, the term "Subsidiary" means any corporation or other entity in which the
Corporation has, directly or indirectly, an equity interest representing 50% or
more of the capital stock thereof or equity interests therein.
2. ADMINISTRATION.
(a) The Plan shall be administered by a committee (the "Committee")
appointed by the Board of Directors of the Corporation (the "Board") and
consisting of not less than two non-employee directors (as defined under Rule
16b-3 under the Securities Exchange Act of 1934, as amended (the "1934 Act"), or
any successor rule.
(b) The Committee shall interpret the Plan and prescribe such rules,
regulations and procedures in connection with the Plan as it shall deem to be
necessary and advisable for the administration of the Plan.
3. ELIGIBILITY.
Officers, other key employees and non-employee directors of the Corporation
or any Subsidiary shall be eligible to be granted stock options and to receive
restricted share, restricted share unit, performance unit or bonus share awards
as described herein, with the exception that non-employee directors shall not be
eligible to receive incentive stock options.
4. SHARES AVAILABLE.
The aggregate number of shares of the Corporation's Common Stock, $.001 par
value ("Common Stock"), which may be issued and as to which grants or awards of
stock options, restricted shares, restricted share units, performance units or
bonus shares may be made under the Plan is 1,800,000* shares (of which no more
than 350,000 shares shall be available for the grant of restricted shares or
restricted share units), subject to adjustment and substitution as set forth in
Section 8. If any stock option granted under the Plan is cancelled by mutual
consent or terminates or expires for any reason without having been exercised in
full, the number of shares subject thereto shall again be available for purposes
of the Plan. If shares of Common Stock or the right to receive shares of Common
Stock are forfeited to the Corporation pursuant to the restrictions applicable
to restricted shares or restricted share units awarded under the Plan, the
shares so forfeited or covered by such right shall not again be available for
the purposes of the Plan. To the extent any award of performance units is not
earned or is paid in cash rather than shares, the number of shares covered
thereby shall again be available for purposes of the Plan. The shares which may
be issued under the Plan may be either authorized but unissued shares or
treasury shares or partly each, as shall be determined from time to time by the
Board.
5. GRANTS AND AWARDS.
(a) The Committee shall have authority, in its discretion, to grant
incentive stock options pursuant to Section 422 of the Code to officers and
other key employees and to grant non-qualified stock options and award
restricted shares, restricted share units, performance units and bonus shares to
officers, other key employees and non-employee directors.
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* Subject to approval by the shareholders at the Annual Meeting of Shareholders
to be held in February 1997.
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Notwithstanding any other provision contained in the Plan or in any stock
option agreement, the aggregate fair market value, determined on the date of
grant, of the shares with respect to which incentive stock options are
exercisable for the first time by an employee during any calendar year under all
plans of the corporation employing such employee, any parent or subsidiary
corporation of such corporation and any predecessor corporation of any such
corporation shall not exceed $100,000; provided, however, that all or any
portion of a stock option which cannot be exercised because of such limitation
shall be treated as a non-qualified option.
The maximum number of shares covered by all grants or awards in any fiscal
year of the Corporation to any participant shall not exceed 100,000 (subject to
adjustment and substitution as set forth in Section 8).
(b) On the date on which the Board appoints, or the shareholders of the
Corporation elect, a person who is not an employee of the Corporation as a
member of the Board for the first time, such director shall be awarded a
non-qualified option under this Plan to purchase 5,000 shares of Common Stock.
Such options shall have an exercise price per share equal to the fair market
value of the shares of the Corporation on the date of such award. Except as
otherwise specifically provided in this Section 5(b), the terms of this Plan,
including the vesting provisions of Section 6(d), shall apply to all options
granted pursuant to this Section 5(b).
(c) If a grantee of a stock option, restricted share or performance unit
engages in the operation or management of a business (whether as owner, partner,
officer, director, employee or otherwise and whether during or after termination
of employment) which is in competition with the Corporation or any of its
Subsidiaries, the Committee may immediately terminate all outstanding stock
options held by the grantee, declare forfeited all restricted shares or
restricted share units held by the grantee as to which the restrictions have not
yet lapsed and terminate all outstanding performance unit awards held by the
grantee for which the applicable Performance Period has not been completed;
provided, however, that this sentence shall not apply if the exercise period of
a stock option following termination of employment has been extended as provided
in Section 9(c), if the lapse of the restrictions applicable to restricted
shares or restricted share units has been accelerated as provided in Section
9(d), or if a performance unit has been deemed to have been earned as provided
in Section 9(e). Whether a grantee has engaged in the operation or management of
a business which is in competition with the Corporation or any of its
Subsidiaries shall be determined by the Committee in its discretion, and any
such determination shall be final and binding.
6. TERMS AND CONDITIONS OF STOCK OPTIONS.
Stock options granted under the Plan shall be subject to the following
terms and conditions:
(a) The purchase price at which each stock option may be exercised
(the "option price") shall not be less than one hundred percent (100%) of
the fair market value per share of the Common Stock covered by the stock
option on the date of grant; provided, however, that in the case of an
incentive stock option granted to an employee, who, immediately prior to
such grant, owns stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation or a
Subsidiary (a "Ten Percent Employee"), the option price shall not be less
than one hundred ten percent (110%) of such fair market value on the date
of grant. For purposes of this Section 6(a), an individual (i) shall be
considered as owning not only shares of stock owned individually but also
all shares of stock that are at the time owned, directly or indirectly, by
or for the spouse, ancestors, lineal descendants and brothers and sisters
(whether by the whole or half blood) of such individual and (ii) shall be
considered as owning proportionately any shares owned, directly or
indirectly, by or for any corporation, partnership, estate or trust in
which such individual is a shareholder, partner or beneficiary.
(b) The option price for each stock option shall be paid in full upon
exercise and shall be payable in cash in United States dollars (including
check, bank draft or money order), which may include cash forwarded through
a broker or other agent-sponsored exercise or financing program; provided,
however, that in lieu of such cash the person exercising the stock option
may pay the option price in whole or in part by delivering to the
Corporation shares of Common Stock having a fair market value on the date
of exercise of the stock option equal to the option price for the shares
being purchased; except that (i) any portion of the option price
representing a fraction of a share shall in any event be paid in cash and
(ii) no
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shares of Common Stock which have been held for less than six months may be
delivered in payment of the option price of a stock option. Notwithstanding
any procedure of a broker or other agent-sponsored exercise or financing
program, if the option price is paid in cash, the exercise of the stock
option shall not be deemed to occur and no shares of the Common Stock will
be issued until the Corporation has received full payment in cash
(including check, bank draft or money order) for the option price from the
broker or other agent. The date of exercise of a stock option shall be
determined under procedures established by the Committee, and as of the
date of exercise the person exercising the stock option shall be considered
for all purposes to be the owner of the shares with respect to which the
stock option has been exercised. Payment of the option price with shares
shall not increase the number of shares of Common Stock available for
issuance under the Plan.
(c) No stock option shall be exercisable during the first six months
of its term, except that this limitation on exercise shall not apply if
Section 9(b) becomes applicable. No stock option shall be exercisable after
the expiration of ten years (five years in the case of an incentive stock
option granted to a Ten Percent Employee) from the date of grant. To the
extent it is exercisable, a stock option may be exercised at any time in
whole or in part.
(d) The Committee shall have the power to set the time or times within
which each option shall be exercisable, and to accelerate the time or times
of exercise. Unless the stock option agreement otherwise provides, the
option shall become exercisable on a cumulative basis as to one-quarter of
the total number of shares covered thereby on each of the first, second,
third and fourth anniversary dates of the date of grant of the option.
(e) No stock option shall be transferrable by the grantee otherwise
than by will, or if the grantee dies intestate, by the laws of descent and
distribution of the state of domicile of the grantee at the time of death,
provided that a non-qualified stock option may be transferred by a grantee
to a trust or other entity established by the grantee for estate planning
purposes. Except for exercises of non-qualified stock options by trusts or
entities established by the grantee for estate tax purposes, all stock
options shall be exercisable during the lifetime of the grantee only by the
grantee.
(f) Unless the Committee, in its discretion, shall otherwise
determine:
(i) If the employment or directorship of a grantee who is not
disabled within the meaning of Section 422(c)(6) of the Code (a
"Disabled Grantee") is voluntarily terminated with the consent of the
Corporation or a Subsidiary or a grantee retires under any retirement
plan of the Corporation or a Subsidiary, any then outstanding incentive
stock option held by such grantee shall be exercisable by the grantee
(but only to the extent exercisable by the grantee immediately prior to
such termination) at any time prior to the expiration date of such
incentive stock option or within three months after the date of such
termination, whichever is the shorter period;
(ii) If the employment or directorship of a grantee who is not a
Disabled Grantee is voluntarily terminated with the consent of the
Corporation or a Subsidiary or a grantee retires under any retirement
plan of the Corporation or a Subsidiary, any then outstanding
non-qualified stock option held by such grantee shall be exercisable by
the grantee (but only to the extent exercisable by the grantee
immediately prior to such termination) at any time prior to the
expiration date of such nonstatutory stock option or within one year
after the date of termination of employment, whichever is the shorter
period;
(iii) If the employment or directorship of a grantee who is a
Disabled Grantee is voluntarily terminated with the consent of the
Corporation or a Subsidiary, any then outstanding stock option held by
such grantee shall be exercisable by the grantee in full (whether or not
so exercisable by the grantee immediately prior to such termination) by
the grantee at any time prior to the expiration date of such stock
option or within one year after the date of such termination, whichever
is the shorter period;
(iv) Following the death of a grantee during employment or while
serving as a director, any outstanding stock option held by the grantee
at the time of death shall be exercisable in full
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(whether or not so exercisable by the grantee immediately prior to the
death of the grantee) by the person entitled to do so under the will of
the grantee, or, if the grantee shall fail to make testamentary
disposition of the stock option or shall die intestate, by the legal
representative of the grantee at any time prior to the expiration date
of such stock option or within one year after the date of death,
whichever is the shorter period;
(v) Following the death of a grantee after termination of
employment or his or her directorship during a period within which a
stock option is exercisable, any outstanding stock option held by the
grantee at the time of death shall be exercisable by such person
entitled to do so under the will of the grantee or by such legal
representative (but only to the extent the stock option was exercisable
by the grantee immediately prior to the death of the grantee) at any
time prior to the expiration date of such stock option or within one
year after the date of death, whichever is the shorter period; and
(vi) Unless the exercise period of a stock option following
termination of employment or directorship has been extended as provided
in Section 9(c), if the employment or directorship of a grantee
terminates for any reason other than voluntary termination with the
consent of the Corporation or a Subsidiary, retirement under any
retirement plan of the Corporation or a Subsidiary or death, all
outstanding stock options held by the grantee at the time of such
termination shall automatically terminate.
Whether termination of employment or directorship is a voluntary
termination with the consent of the Corporation or a Subsidiary and whether a
grantee is a Disabled Grantee shall be determined in each case by the Committee
in its discretion and any such determination by the Committee shall be final and
binding.
(g) All stock options shall be confirmed by an agreement, which shall
be executed on behalf of the Corporation by the Chief Executive Officer (if
other than the President), the President or any Vice President of the
Corporation and by the grantee.
(h) The term "fair market value" for all purposes of the Plan shall
mean the market price of the Common Stock, determined by the Committee as
follows:
(i) If the Common Stock is traded on a stock exchange, then the
Fair Market Value shall be equal to the closing price reported by the
applicable composite-transactions report for such date;
(ii) If the Common Stock is traded in the Nasdaq Stock Market and
is classified as a national market issue, then the Fair Market Value
shall be equal to the last-transaction price quoted by the Nasdaq
National Market system for such date;
(iii) If the Common Stock is traded in the Nasdaq Stock Market, but
is not classified as a national market issue, then the Fair Market Value
shall be equal to the mean between the last reported representative bid
and asked prices quoted by the Nasdaq system for such date; and
(iv) If none of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good faith on
such basis as it deems appropriate.
(i) The obligation of the Corporation to issue shares of Common Stock
under the Plan shall be subject to (i) the effectiveness of a registration
statement under the Securities Act of 1933, as amended, with respect to
such shares, if deemed necessary or appropriate by counsel for the
Corporation, (ii) the condition that the shares shall have been listed (or
authorized for listing upon official notice of issuance) upon each stock
exchange, if any, on which the Common Stock may then be listed and (iii)
all other applicable laws, regulations, rules and orders which may then be
in effect.
Subject to the foregoing provisions of this Section and the other
provisions of the Plan, any stock option granted under the Plan may be exercised
at such times and in such amounts and be subject to such restrictions and other
terms and conditions, if any, as shall be determined, in its discretion, by the
Committee and set forth in the agreement referred to in Section 6(g), or an
amendment thereto.
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7. TERMS AND CONDITIONS OF RESTRICTED SHARE, RESTRICTED SHARE UNIT, PERFORMANCE
UNIT AND BONUS SHARE AWARDS.
(a) Restricted Shares and Units. Restricted share or restricted share unit
awards shall be evidenced by a written agreement in the form prescribed by the
Committee in its discretion, which shall set forth the number of restricted
shares of Common Stock or restricted share units entitling the holder to receive
shares of Common Stock awarded, the restrictions imposed thereon (including,
without limitation, restrictions on the right of the grantee to sell, assign,
transfer or encumber such shares or units while such shares or units are subject
to other restrictions imposed under this Section 7), the duration of such
restrictions, events (which may, in the discretion of the Committee, include
performance-based events) the occurrence of which would cause a forfeiture of
restricted shares or restricted share units and such other terms and conditions
as the Committee in its discretion deems appropriate. Restricted share or
restricted share unit awards shall be effective only upon execution of the
applicable restricted share or restricted share unit agreement on behalf of the
Corporation by the Chief Executive Officer (if other than the President), the
President or any Vice President, and by the grantee.
Restricted shares or restricted share units may be issued for no
consideration other than for services to be rendered or for such consideration
as shall be determined at the time of award by the Committee.
If prior to full vesting of the restricted shares or restricted share units
the employment or directorship of the holder thereof is voluntarily terminated
with the consent of the Corporation or Subsidiary or the holder retires under
any retirement plan of the Corporation or a Subsidiary or dies while being an
employee or director, the Committee may in its absolute discretion determine to
vest all or any part of the restricted shares or restricted share units except
as otherwise provided in Section 9(d). If the employment or directorship of the
holder of restricted shares or restricted share units terminates for any reason
other than voluntary termination with the consent of the Corporation or a
Subsidiary, retirement under any retirement plan of the corporation or a
Subsidiary or death, all unvested restricted shares or restricted share units
shall be forfeited. Whether the termination is voluntary with the consent of the
Corporation or a Subsidiary shall be determined by the Committee in its
discretion, and a determination by the Committee on any matter with respect to
restricted shares or restricted share units shall be final and binding on both
the Corporation and the holder of restricted shares or restricted share units.
Following a restricted share award and prior to the lapse or termination of
the applicable restrictions, the Committee shall deposit share certificates for
such restricted shares in escrow (which may be an escrow in the custody of an
officer of the Corporation). Upon the lapse or termination of the applicable
restrictions (and not before such time), the grantee shall be issued or
transferred share certificates for such restricted shares. From the date a
restricted share award is effective, the grantee shall be a shareholder with
respect to all the shares represented by such certificates and shall have all
the rights of a shareholder with respect to all such shares, including the right
to vote such shares and to receive all dividends and other distributions paid
with respect to such shares, subject only to the restrictions imposed by the
Committee. The grantee of restricted share units shall not have any rights as a
shareholder until the delivery to the grantee of shares on lapse of the
restrictions imposed.
(b) Performance Units. The Committee may award performance units which
shall be earned by an awardee based on the level of performance over a specified
period of time by the Corporation, a Subsidiary or Subsidiaries, any branch,
department or other portion thereof or the awardee individually, as determined
by the Committee. For the purposes of the grant of performance units, the
following definitions shall apply:
(i) "Performance unit" shall mean an award, expressed in dollars or
shares of Common Stock, granted to an awardee with respect to a Performance
Period. Awards expressed in dollars may be established as fixed dollar
amounts, as a percentage of salary, as a percentage of a pool based on
earnings of the Corporation, a Subsidiary or Subsidiaries or any branch,
department or other portion thereof or in any other manner determined by
the Committee in its discretion, provided that the amount thereof shall be
capable of being determined as a fixed dollar amount as of the close of the
Performance Period.
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(ii) "Performance Period" shall mean an accounting period of the
Corporation or a Subsidiary of not less than one year, as determined by the
Committee in its discretion.
(iii) "Performance Target" shall mean that level of performance
established by the Committee which must be met in order for the performance
unit to be fully earned. The Performance Target may be expressed in terms
of earnings per share, return on assets, asset growth, ratio of capital to
assets or such other level or levels of accomplishment by the Corporation,
a Subsidiary or Subsidiaries, any branch, department or other portion
thereof or the awardee individually as may be established or revised from
time to time by the Committee.
(iv) "Minimum Target" shall mean a minimal level of performance
established by the Committee which must be met before any part of the
performance unit is earned. The Minimum Target may be the same as or less
than the Performance Target in the discretion of the Committee.
An awardee shall earn the performance unit in full by meeting the
Performance Target for the Performance Period. If the Minimum Target has not
been attained at the end of the Performance Period, no part of the performance
unit shall have been earned by the awardee. If the Minimum Target is attained
but the Performance Target is not attained, the portion of the performance unit
earned by the awardee shall be determined on the basis of a formula established
by the Committee.
Payment of earned performance units shall be made to awardees following the
close of the Performance Period as soon as practicable after the time the amount
payable is determined by the Committee. Payment in respect of earned performance
units, whether expressed in dollars or shares, may be made in cash, in shares of
Common Stock, or partly in cash and partly in shares of Common Stock, as
determined by the Committee at the time of payment. For this purpose,
performance units expressed in dollars shall be converted to shares, and
performance units expressed in shares shall be converted to dollars, based on
the fair market value of the Common Stock, as of the date the amount payable is
determined by the Committee.
If prior to the close of the Performance Period the awardee of performance
units is voluntarily terminated with the consent of the Corporation or a
Subsidiary or the awardee retires under any retirement plan of the Corporation
or a Subsidiary or the awardee dies while being an employee or director, the
Committee may in its absolute discretion determine to pay all or any part of the
performance unit based upon the extent to which the Committee determines the
Performance Target or Minimum Target has been achieved as of the date of
termination, retirement or death, the period of time remaining until the close
of the Performance Period and/or such other factors as the Committee may deem
relevant. If the Committee in its discretion determines that all or any part of
the performance unit shall be paid, payment shall be made to the awardee or his
or her estate as promptly as practicable following such determination and may be
made in cash, in shares or Common Stock, or partly in cash and partly in shares
of Common Stock, as determined by the Committee at the time of payment. For this
purpose, performance units expressed in dollars shall be converted to shares,
and performance units expressed in shares shall be converted to Dollars, based
on the fair market value of the Common Stock as of the date the amount payable
is determined by the Committee.
Except as otherwise provided in Section 9(e), if the employment or
directorship of an awardee of performance units terminates prior to the close of
a Performance Period for any reason other than voluntary termination with the
consent of the Corporation or a Subsidiary or retirement under any retirement
plan of the Corporation or a Subsidiary or death, the performance units of the
awardee shall be deemed not to have been earned, and no portion of such
performance units may be paid. Whether termination is voluntary with the consent
of the Corporation or a Subsidiary shall be determined, in its discretion, by
the Committee. Any determination by the Committee on any matter with respect to
performance units shall be final and binding on both the Corporation and the
awardee.
Performance unit awards shall be evidenced by a written agreement in the
form prescribed by the Committee which shall set forth the amount or manner of
determining the amount of the performance unit, the Performance Period, the
Performance Target and any Minimum Target and such other terms and conditions as
the Committee in its discretion deems appropriate. Performance unit awards shall
be effective
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only upon execution of the applicable performance unit agreement on behalf of
the Corporation by the Chief Executive Officer (if other than the President),
the President or any Vice President, and by the awardee.
(c) Bonus Shares. The Committee shall have the authority in its discretion
to award bonus shares of Common Stock to eligible employees or directors from
time to time in recognition of the contribution of the awardee to the
performance of the Corporation, a Subsidiary or Subsidiaries, or any branch,
department or other portion thereof, in recognition of the awardee's individual
performance or on the basis of such other factors as the Committee may deem
relevant.
8. ADJUSTMENT AND SUBSTITUTION OF SHARES.
If a dividend or other distribution shall be declared upon the Common Stock
payable in shares of the Common Stock, the number of shares of the Common Stock
then subject to any outstanding stock options, restricted share units or
performance unit awards and the number of shares of the Common Stock which may
be issued under the Plan but are not then subject to outstanding stock options
or awards shall be adjusted by adding thereto the number of shares of the Common
Stock which would have been distributable thereon if such shares had been
outstanding on the date fixed for determining the shareholders entitled to
receive such stock dividend or distribution. Shares of Common Stock so
distributed with respect to any restricted shares held in escrow shall be held
by the Corporation in escrow and shall be subject to the same restrictions as
are applicable to the restricted shares on which they were distributed.
If the outstanding shares of the Common Stock shall be changed into or
exchangeable for a different number or kind of shares of stock or other
securities of the Corporation or another corporation, whether through
reorganization, reclassification, recapitalization, stock split-up, combination
of shares, merger or consolidation, then there shall be substituted for each
share of the Common Stock subject to any then outstanding stock option,
restricted share unit or performance unit award, and for each share of the
Common Stock which may be issued under the Plan but which is not then subject to
any outstanding stock option or award, the number and kind of shares of stock or
other securities into which each outstanding share of the Common Stock shall be
so changed or for which each such share shall be exchangeable. Unless otherwise
determined by the Committee in its discretion, any such stock or securities, as
well as any cash or other property, into or for which any restricted shares held
in escrow shall be changed or exchangeable in any such transaction shall also be
held by the Corporation in escrow and shall be subject to the same restrictions
as are applicable to the restricted shares in respect of which such stock,
securities, cash or other property was issued or distributed.
In case of any adjustment or substitution as provided for in this Section
8, the aggregate option price for all shares subject to each then outstanding
stock option prior to such adjustment or substitution shall be the aggregate
option price for all shares of stock or other securities (including any
fraction) to which such shares shall have been adjusted or which shall have been
substituted for such shares. Any new option price per share shall be carried to
at least three decimal places with the last decimal place rounded upwards to the
nearest whole number.
No adjustment or substitution provided for in this Section 8 shall require
the Corporation to issue or sell a fraction of a share or other security.
Accordingly, all fractional shares or other securities which result from any
such adjustment or substitution shall be eliminated and not carried forward to
any subsequent adjustment or substitution. Owners of restricted shares held in
escrow shall be treated in the same manner as owners of Common Stock not held in
escrow with respect to fractional shares created by an adjustment or
substitution of shares, except that, unless otherwise determined by the
Committee in its discretion, any cash or other property paid in lieu of a
fractional share shall be subject to restrictions similar to those applicable to
the restricted shares exchanged therefor.
If any such adjustment or substitution provided for in this Section 8
requires the approval of shareholders in order to enable the Corporation to
grant incentive stock options, then no such adjustment or substitution shall be
made without the required shareholder approval. Notwithstanding the foregoing,
in the case of incentive stock options, if the effect of any such adjustment or
substitution would be to cause the stock option to fail to continue to qualify
as an incentive stock option or to cause a modification, extension or renewal of
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such stock option within the meaning of Section 424 of the Code, the Committee
may elect that such adjustment or substitution not be made but rather shall use
reasonable efforts to effect such other adjustment of each then outstanding
stock option as the Committee, in its discretion, shall deem equitable and which
will not result in any disqualification, modification, extension or renewal
(within the meaning of Section 424 of the Code) of such incentive stock option.
9. ADDITIONAL RIGHTS IN CERTAIN EVENTS.
(a) Definitions. For purposes of this Section 9, the following terms shall
have the following meanings:
(i) The term "Person" shall be used as that term is used in Sections
13(d) and 14(d) of the 1934 Act.
(ii) Beneficial ownership shall be determined as provided in Rule
13d-3 under the 1934 Act as in effect on the effective date of the Plan.
(iii) "Voting Shares" shall mean all securities of a company entitling
the holders thereof to vote in an annual election of Directors (without
consideration of the rights of any class of stock other than the Common
Stock to elect Directors by a separate class vote); and a specified
percentage of "Voting Power" of a company shall mean such number of the
Voting Shares as shall enable the holders thereof to cast such percentage
of all the votes which could be cast in an annual election of directors
(without consideration of the rights of any class of stock other than the
Common Stock to elect Directors by a separate class vote).
(iv) "Tender Offer" shall mean a tender offer or exchange offer to
acquire securities of the Corporation (other than such an offer made by the
Corporation or any Subsidiary), whether or not such offer is approved or
opposed by the Board.
(v) "Section 9 Event" shall mean the date upon which any of the
following events occurs:
(A) The Corporation acquires actual knowledge that any Person has
acquired the Beneficial Ownership, directly or indirectly, of securities
of the Corporation entitling such Person to 20% or more of the Voting
Power of the Corporation, other than the Corporation, a Subsidiary or
any employee benefit plan(s) sponsored by the Corporation, or a Person
approved by the Board that has acquired 20% or more but less than 50% of
the Voting Power of the Corporation;
(B) A Tender Offer is made to acquire securities of the Corporation
entitling the holders thereof to 20% or more of the Voting Power of the
Corporation; or
(C) A solicitation subject to Rule 14a-11 under the 1934 Act (or
any successor Rule) relating to the election or removal of 50% or more
of the members of any class of the Board shall be made by any person
other than the Corporation; or
(D) The shareholders of the Corporation shall approve a merger,
consolidation, share exchange, division or sale or other disposition of
assets of the Corporation as a result of which the shareholders of the
Corporation immediately prior to such transaction shall not hold,
directly or indirectly, immediately following such transaction a
majority of the Voting Power of (i) in the case of a merger or
consolidation, the surviving or resulting corporation, (ii) in the case
of a share exchange, the acquiring corporation or (iii) in the case of a
division or a sale or other disposition of assets, each surviving,
resulting or acquiring corporation which, immediately following the
transaction, holds more than 20% of the consolidated assets of the
Corporation immediately prior to the transaction;
provided, however, that (i) if securities beneficially owned by a grantee are
included in determining the Beneficial Ownership of a Person referred to in
Section 9(a)(v)(A), (ii) a grantee is required to be named pursuant to Item 2 of
the Schedule 14D-1 (or any similar successor filing requirement) required to be
filed by the bidder making a Tender Offer referred to in Section 9(a)(v)(B), or
(iii) if a grantee is a "participant" as defined in 14a-11 under the 1934 Act
(or any successor Rule) in a solicitation (other than a solicitation by the
A-8
<PAGE> 29
Corporation) referred to in Section 9(a)(v)(C), then no Section 9 Event with
respect to such grantee shall be deemed to have occurred by reason of such
event.
(b) Acceleration of the Exercise Date of Stock Options. Unless the
agreement referred to in Section 6(g), or an amendment thereto, shall otherwise
provide, notwithstanding any other provision contained in the Plan, in case any
"Section 9 Event" occurs all outstanding stock options (other than those held by
a person referred to in the proviso to Section 9(a)(v)) shall become immediately
and fully exercisable whether or not otherwise exercisable by their terms.
(c) Extension of the Expiration Date of Stock Options. Unless the agreement
referred to in Section 6(g), or an amendment thereto, shall otherwise provide,
notwithstanding any other provision contained in the Plan, all stock options
held by a grantee (other than a grantee referred to in the proviso to Section
9(a)(v)) whose employment with the Corporation or a Subsidiary terminates within
one year of any Section 9 Event for any reason other than voluntary termination
with the consent of the Corporation or a Subsidiary, retirement under any
retirement plan of the Corporation or a Subsidiary or death shall be exercisable
for a period of three months from the date of such termination of employment,
but in no event after the expiration date of the stock option.
(d) Lapse of Restrictions on Restricted Share or Restricted Share Unit
Awards. If any "Section 9 Event" occurs prior to the scheduled lapse of all
restrictions applicable to restricted share or restricted share unit awards
under the Plan (other than those held by a person referred to in the proviso to
Section 9(a)(v)), all such restrictions shall lapse upon the occurrence of any
such "Section 9 Event" regardless of the scheduled lapse of such restrictions.
(e) Payment of Performance Units. If any "Section 9 Event" occurs prior to
the end of any Performance Period, all performance units awarded with respect to
such Performance Period (other than those held by a person referred to in the
proviso to Section 9(a)(v)) shall be deemed to have been fully earned as of the
date of such Section 9 Event, regardless of the attainment or nonattainment of
the Performance Target or any Minimum Target, and shall be paid to the awardees
thereof as promptly as practicable thereafter. If the performance unit is not
expressed as a fixed amount in dollars or shares, the Committee may provide in
the performance unit agreement for the amount to be paid in the case of a
Section 9 Event.
10. EFFECT OF THE PLAN ON THE RIGHTS OF EMPLOYEES AND EMPLOYER.
Neither the adoption of the Plan nor any action of the Board or the
Committee pursuant to the Plan shall be deemed to give any employee any right to
be granted a stock option or to be awarded restricted shares, restricted share
units, performance units or bonus shares under the Plan. Nothing in the Plan, in
any stock option, in any restricted share, restricted share unit, performance
unit or bonus share award under the Plan or in any agreement providing for any
of the foregoing shall confer any right to any employee to continue in the
employ of the Corporation or any Subsidiary or interfere in any way with the
rights of the Corporation or any Subsidiary to terminate the employment of any
employee at any time.
11. AMENDMENT.
The right to alter and amend the Plan at any time and from time to time and
the right to revoke or terminate the Plan are hereby specifically reserved to
the Board; provided that shareholder approval shall be required (a) to increase
the total number of shares which may be issued under the Plan, or (b) if such
approval is required to maintain the favorable tax treatment of incentive stock
options granted under the Plan. No alteration, amendment, revocation or
termination of the Plan shall, without the written consent of the holder of a
stock option, restricted shares, restricted share units, performance units or
bonus shares theretofore awarded under the Plan, adversely affect the rights of
such holder with respect thereto.
A-9
<PAGE> 30
12. EFFECTIVE DATE AND DURATION OF PLAN.
The effective date and date of adoption of the Plan shall be November 14,
1994, the date of adoption of the Plan by the Board. No stock option may be
granted, and no restricted shares, restricted share units, bonus shares or
performance units payable in performance shares may be awarded under the Plan
subsequent to November 13, 2004.
13. INDEMNIFICATION.
In addition to such other rights of indemnification as they may have as
directors, the members of the Committee administering the Plan shall be
indemnified by the Corporation against the reasonable expenses, including
attorneys' fees actually and necessarily incurred in connection with the defense
of any action, suit or proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any rights granted
thereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by independent legal counsel selected by the
Corporation) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding that such member is liable for negligence or misconduct in
the performance of such member's duties; provided that within 60 days after
institution of any such action, suit or proceeding, the member shall in writing
offer the Corporation the opportunity, at its own expense, to handle and defend
the same.
A-10
<PAGE> 31
PROXY
THE GOOD GUYS, INC.
PROXY/VOTING INSTRUCTIONS SOLICITED BY BOARD
OF DIRECTORS FOR ANNUAL MEETING OF SHAREHOLDERS
I appoint Robert A. Gunst and Dennis C. Carroll, and each of them, proxies
with full power of substitution, to vote all of my common stock of The Good
Guys, Inc. at the Annual Meeting of Shareholders to be held at the A.P.
Giannini Auditorium, Bank of America Building, 555 California Street, San
Francisco, California, on Friday, February 13, 1998, at 10:30 a.m. (Pacific
Time) and at any adjournment thereof, upon the matters set forth on the reverse
side and described in the accompanying Proxy Statement and upon such other
business as may properly come before the meeting or any adjournment thereof.
This card also provides voting instructions to the trustees of The Good
Guys! Deferred Pay Plan and The Good Guys! Profit-Sharing Plan (the Plans) for
participants with shares allocated to their accounts. Your directions to vote
shares held in the Plans will be kept confidential.
PLEASE MARK THIS PROXY AS INDICATED ON THE REVERSE SIDE TO VOTE ON ANY
ITEM. IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS'
RECOMMENDATIONS, PLEASE SIGN THE REVERSE SIDE; NO BOXES NEED TO BE CHECKED.
The Annual Meeting may be held as scheduled only if a majority of the
shares outstanding are represented at the meeting by attendance or proxy.
According, please complete this proxy and return it promptly in the enclosed
envelope.
ADDRESS CHANGE
(Continued and to be signed on the other side)
- -------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
INVESTOR INFORMATION
Additional Investor information on the Company can be found on The Good Guys!
Internet home page @http://www.thegoodguys.com.
Copies of recent quarterly financial press releases, along with all other press
releases, also can be obtained by fax through Company News On Call, a division
of PR Newswire, at 1-800-758-5804. The Good Guys! extension number is 108403.
Or contact: The Good Guys, Inc.
Investor Relations
7000 Marina Boulevard
Brisbane, CA 94005-1840
(415) 615-5000
<PAGE> 32
<TABLE>
<CAPTION>
<S> <C>
Please mark
your votes as
indicated in
this example [X]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL LISTED NOMINEES FOR DIRECTOR, FOR ITEM 2 AND FOR ITEM 3.
WITHHOLD
FOR FOR ALL FOR AGAINST ABSTAIN
1. ELECTION OF DIRECTORS [ ] [ ] 3. APPROVAL OF AUDITORS [ ] [ ] [ ]
Nominees: Stanley R. Baker, Robert A. Gunst, To ratify the selection of Deloitte & Touche LLP as
Russell M. Solomon, W. Howard Lester, independent Certified Public Accountants for the
John E. Martin, Horst H. Schulze. Company.
WITHHELD FOR: TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL I PLAN TO ATTEND THE MEETING. [ ]
NOMINEE, CROSS OUT THE NOMINEE'S NAME IN THE LIST ABOVE.
Receipt is hereby acknowledged of The Good Guys, Inc.
Notice of Annual Meeting of Shareholders and Proxy
Statement.
2. STOCK INCENTIVE PLAN FOR AGAINST ABSTAIN
To approve the Amended and Restated [ ] [ ] [ ]
1994 Stock Incentive Plan.
Signature(s)_________________________________________________________________________________ Dated:________________________________
NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such.
- ------------------------------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT TO THE COMPANY
PLEASE SIGN AND RETURN YOUR PROXY BY
TEARING OFF THE TOP PORTION OF THE SHEET
AND RETURNING IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE
</TABLE>
