<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Egghead, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
22011 S.E. 51ST STREET
P.O. BOX 7004
ISSAQUAH, WASHINGTON 98029
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
THURSDAY, AUGUST 31, 1995
------------------------
Notice is hereby given that the annual meeting of shareholders of EGGHEAD,
INC. (the "Company") will be held at 10:00 a.m. local time on Thursday, August
31, 1995, at the Meydenbauer Center, 11100 N.E. Sixth Street, Bellevue,
Washington. Parking will be validated by the Company, as there is no free
parking at the facility.
In addition to hearing a report about the Company and having an opportunity
to ask questions of general interest to shareholders, the meeting is called for
the following purposes:
1. To elect three Class I directors to serve for terms of three years each;
2. To consider and vote upon a proposal to amend the Egghead, Inc.
Nonemployee Director Stock Option Plan; and
3. To transact such other business as may properly come before the meeting.
Shareholders of record on the books of the Company at the close of business
on July 5, 1995, will be entitled to notice of and to vote at the meeting.
By Order of the Board of Directors
[BRIAN_W_BENDER_SIG]
Brian W. Bender,
Secretary
Issaquah, Washington
July 19, 1995
YOUR VOTE IS IMPORTANT
------------------------
Whether or not you plan to attend the meeting in person, please sign, date,
mark, and return the accompanying proxy in the enclosed stamped and
pre-addressed envelope. The giving of the proxy will not affect your right to
vote at the meeting if the proxy is revoked in the manner described in the
accompanying proxy statement.
<PAGE>
EGGHEAD, INC.
22011 S.E. 51ST STREET
P.O. BOX 7004
ISSAQUAH, WASHINGTON 98029
------------------------
PROXY STATEMENT
------------------------
INFORMATION REGARDING PROXIES
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Egghead, Inc. (the "Company") for use at
the 1995 Annual Meeting of Shareholders of the Company (the "1995 Annual
Meeting"), and any adjournment thereof, to be held on Thursday, August 31, 1995,
at 10:00 a.m. local time, at the Meydenbauer Center, 11100 N.E. Sixth Street,
Bellevue, Washington. Only shareholders of record on the books of the Company at
the close of business on July 5, 1995 (the "Record Date"), will be entitled to
notice of and to vote at the 1995 Annual Meeting.
It is anticipated that these proxy solicitation materials and a copy of the
Company's 1995 Annual Report to Shareholders will be sent to shareholders of
record on or about July 19, 1995.
If the accompanying form of proxy is properly executed and returned, it will
be voted in accordance with the instructions given, but may be revoked at any
time prior to voting by (i) delivering written notice to Brian W. Bender,
Secretary of the Company, (ii) executing another proxy dated as of a later date,
or (iii) voting in person at the 1995 Annual Meeting. Each proxy will be voted
FOR the election of the director nominees and proposal 2 if no contrary
instructions are indicated in the proxy.
VOTING SECURITIES
The only voting securities of the Company are shares of its common stock,
$0.01 par value per share (the "Common Stock"), each of which is entitled to one
vote. At the Record Date, there were issued and outstanding 17,278,531 shares of
Common Stock. The presence in person or by proxy of holders of record of a
majority of the outstanding shares of Common Stock is required to constitute a
quorum for the transaction of business at the 1995 Annual Meeting.
Under Washington law and the Company's Articles of Incorporation, if a
quorum is present, (i) the three director nominees who receive the greatest
number of votes cast for the election of directors will be elected directors and
(ii) proposal 2 will be approved if it receives affirmative votes of the holders
of a majority of the shares of Common Stock voting in person or represented by
proxy, and entitled to vote on the matter, at the 1995 Annual Meeting.
Shareholders do not have the right to cumulate their votes in the election of
directors. In the election of directors, any action other than a vote for a
nominee will have the practical effect of a vote withheld from that nominee.
Abstention from voting will have the practical effect of voting against proposal
2 because abstentions are treated as shares present and entitled to vote. Broker
nonvotes will have no effect on the outcome of proposal 2 other than to reduce
the number of "FOR" votes necessary to approve such matter.
ELECTION OF DIRECTORS
The Company's Board of Directors (the "Board") is divided into three
classes: Class I, Class II, and Class III. Each director serves for a term
ending at the third annual meeting of shareholders following the annual meeting
at which he or she was elected, except that any director appointed by the Board
serves, subject to election by the shareholders at the next annual meeting, for
a term ending at the annual meeting of shareholders for the class to which the
director was appointed. Each director serves until his or her successor is
elected and qualified or until his or her earlier death, resignation, or
removal.
<PAGE>
Information as to the three nominees and as to each other director whose
term will continue after the 1995 Annual Meeting is provided below. Unless
otherwise instructed, it is the intention of the persons named in the
accompanying proxy to vote shares represented by properly executed proxies for
the three nominees to the Board named below. Although the Board anticipates that
all of the nominees will be available to serve as directors of the Company,
should any of them not accept the nomination, or otherwise be unwilling or
unable to serve, it is intended that the proxies will be voted for the election
of a substitute nominee or nominees designated by the Board.
NOMINEES FOR ELECTION
CLASS I DIRECTORS (TERMS TO EXPIRE IN 1998)
RICHARD P. COOLEY, age 71, has been a director of the Company since
September 1992 and served as Chairman from February 1993 to June 1993. He was
Chairman of Seafirst Bank from January 1983 to December 1990, Chairman of the
Executive Committee of Seafirst Bank from January 1991 to March 1994, and was
named Honorary Director of Seafirst Bank in April 1994. Mr. Cooley also serves
as a director of Paccar, Inc.
TERENCE M. STROM, age 51, has been a director and the President of the
Company since June 1993, and the Chief Executive Officer of the Company since
September 1993. From January 1990 until joining the Company, he served as Senior
Vice President of Marketing, and from July 1989 until December 1989 as Vice
President of Merchandising, of Best Buy Co., Inc., a consumer electronics retail
chain. For seven years prior to that, Mr. Strom was a Vice President of Virginia
Merchandising Corp.
SAMUEL N. STROUM, age 74, has been a director of the Company since June
1984. He is the principal of Samuel Stroum Enterprises, a private investment
company, a director of SureFind Corp., a company providing electronic
interactive classified advertising and voice-response systems, and the chairman
of MACS Air, Inc., an air charter company. From 1975 to April 1991, Mr. Stroum
served as a director of both Seafirst Bank and Seafirst Corporation. At Seafirst
Corporation Mr. Stroum also served on the Executive Committee and was Chairman
of the Organization Committee. He is also a Regent and Past President of the
Board of Regents of the University of Washington.
CONTINUING CLASS II DIRECTORS (TERMS TO EXPIRE IN 1996)
STEVEN E. LEBOW, age 41, has been a director of the Company since November
1985. Mr. Lebow is a Managing Director of the Investment Banking Division of
Donaldson, Lufkin & Jenrette Securities Corporation, where he has been employed
since 1979.
LINDA FAYNE LEVINSON, age 53, has served as President of Fayne Levinson
Associates, Inc., a general management consulting firm to consumer and financial
service organizations, since 1982. From March 1993 to February 1994, Ms.
Levinson was an executive with Creative Artists Agency, Inc., a literary and
talent agency. From March 1989 until joining Creative Artists, she was a partner
of Wings Partners, a Los Angeles-based merchant bank whose holdings include
Northwest Airlines. Ms. Levinson was a Senior Vice President of American Express
Travel Related Services Co., Inc. from 1984 to 1987. She was at McKinsey &
Company from 1973 to 1981, where she was a partner from 1979. Ms. Levinson is
also a director of Genentech, Inc., a biotechnology company.
CONTINUING CLASS III DIRECTORS (TERMS TO EXPIRE IN 1997)
PAUL G. ALLEN, age 42, has been a director of the Company since June 1987.
Mr. Allen co-founded and is a director of Microsoft Corporation. He is also the
founder and Chairman of Asymetrix Corporation, a software development company,
the President and sole shareholder of Vulcan Ventures, Inc., a private
investment firm, and Chairman and owner of the Portland Trailblazers, a National
Basketball Association franchise.
GEORGE P. ORBAN, age 49, has been a director of the Company since November
1985. Mr. Orban is Managing Partner of Orban Partners, a private investment
company, Chairman of Aaron
2
<PAGE>
Brothers, Inc., a retail chain, and a director and founder of Ross Stores, Inc.,
a retail clothing chain. From 1987 to February 1992 he was President and Chief
Executive Officer, and from 1989 to February 1992, he was Chairman, of Office
Mart Holdings Corporation, a retail chain.
BOARD AND COMMITTEE MEETINGS
The Board held five meetings during fiscal year 1995, which ended on April
1, 1995.
The Board's Audit Committee held four meetings during fiscal year 1995. The
Committee consists of three nonemployee directors: currently Mr. Cooley, Ms.
Levinson, and Mr. Orban (Chairman). Its function is to (i) recommend to the
Board the independent auditors to be retained by the Company; (ii) meet with the
independent auditors and financial management of the Company to review the scope
of proposed audits and audit procedures; (iii) report to the Board the results
of audits and submit appropriate recommendations; (iv) review the adequacy of
the Company's internal accounting, financial, and operating controls; (v) review
the Company's reporting obligations and proposed audit plans; and (vi) review
the Company's financial statements and procedures to ensure compliance with
applicable financial reporting requirements.
The Board's Compensation Committee held two meetings during fiscal year
1995. The Committee consists of three directors: currently Messrs. Allen, Lebow,
and Stroum (Chairman). Its function is to (i) consider and make recommendations
to the Board on salaries, bonuses, and other forms of compensation for the
Company's five most highly compensated executive officers; (ii) establish
salaries, bonuses, and other forms of compensation for the Company's other
officers and employees; and (iii) administer the Company's stock option plans,
including granting stock options to employees thereunder, and reviewing
management recommendations for granting stock options and any proposed plans or
practices of the Company relating to compensation of its employees and
directors.
The Board's Nominating Committee held one meeting during fiscal year 1995.
The Committee consists of three directors: currently Messrs. Allen, Lebow
(Chairman), and Strom. The Committee's function is to recommend nominees for
election as directors at annual meetings of shareholders and to fill vacancies
on the Board between annual meetings. The Nominating Committee will consider
written proposals from shareholders for nominees for directors to be elected at
the 1996 annual meeting of shareholders which are submitted to the Secretary of
the Company by March 20, 1996.
Each director attended at least 75% of all meetings of the Board and
Committees to which he or she was assigned that were held during fiscal year
1995, except Mr. Cooley, who attended 67% of such meetings.
NONEMPLOYEE DIRECTORS' COMPENSATION
Directors who are not also employees of the Company are compensated at the
rate of $25,000 per annum. In addition, nonemployee directors receive $1,000 for
each Board meeting attended and $500 for each Committee meeting attended,
provided that such Committee meeting is not held in conjunction with a Board
meeting. Nonemployee directors are also reimbursed for actual travel and
out-of-pocket expenses incurred in connection with Board membership.
Pursuant to the Egghead, Inc. Nonemployee Director Stock Option Plan, each
nonemployee director is granted an option to purchase 9,000 shares of Common
Stock upon his or her initial election to the Board at an annual shareholders
meeting, subject to three-year vesting in annual increments of one-third. In
addition, pursuant to this plan, each nonemployee director who is initially
elected or appointed other than at an annual shareholders meeting is granted an
option to purchase up to 3,000 shares of Common Stock, prorated for the number
of months between the date of grant and the next annual shareholders meeting
thereafter, subject to vesting in full on the date of such meeting. Under the
plan, each nonemployee director who holds an option that becomes fully vested
thereafter automatically is granted an additional option to purchase 9,000
shares, subject to three-year vesting in annual increments of one-third. See
"Proposal to Approve Amendments to the Egghead, Inc. Nonemployee Director Stock
Option Plan."
3
<PAGE>
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
ELMER N. BALDWIN, age 35, joined the Company in June 1994 as Vice President
of Corporate, Government, and Education Sales, and resigned from the Company in
June 1995. From September 1990 until joining the Company, he was Vice President
of Business Development at York Associates, an information systems, consulting,
and integration services company. Prior to that time, Mr. Baldwin served as
Group Director at Oracle Corporation, a software development company.
BRIAN W. BENDER, age 46, joined the Company in May 1995 as Vice President
and Chief Financial Officer. In June 1995 he was also appointed to serve as
Secretary. From June 1993 to May 1995, he was Senior Vice President, Controller
and Assistant Treasurer of Younkers, Inc., a department store chain. Prior to
his employment at Younkers, Inc., Mr. Bender was employed from September 1987 to
June 1993 with the May Department Stores Company, most recently as its Senior
Vice President and Chief Financial Officer.
KURT S. CONKLIN, age 42, joined the Company in August 1994 as Vice President
of Human Resources. From June 1992 until joining the Company, Mr. Conklin was
employed as the Vice President of Human Resources and Purchasing at Key Tronic
Corporation, a computer peripheral manufacturing company. From August 1987 to
August 1991, he was the Vice President of Administration at Danzas Corporation,
a freight forwarding company.
DIANE E. COUSINEAU, age 45, was appointed Vice President of Store Operations
in June 1995. Ms. Cousineau joined the Company in September 1990 as Director of
Special Projects, and served as Director of Retail Operations from February 1991
to June 1995. Prior to joining the Company, Ms. Cousineau was employed by
Waldenbooks for ten years, where she held various management positions.
RONALD C. FOSTER, age 44, joined the Company in May 1995 as Vice President
of Operations. From May 1985 to May 1995, he was employed by Hewlett Packard
Corporation, most recently as Group Controller for Computer Manufacturing and
Distribution.
PETER F. GROSSMAN, age 41, joined the Company in September 1994 as Vice
President of Retail. Prior to joining the Company, he was employed by The
Sharper Image, a national retail and catalog sales company, where he served as
Executive Vice President of Merchandising from July 1993 to September 1994, and
as Senior Vice President of Merchandising from May 1990 to June 1993. From March
1988 to April 1990, he was Vice President of the Decorative Home and Housewares
Division of Rich's/Goldsmith's, a department store chain.
PETER A. JANSSEN, age 52, joined the Company in September 1993, and has
served as Vice President of Merchandising and Advertising since that date. From
October 1989 until joining the Company, Mr. Janssen was employed by Acer
America, a computer manufacturing company, as Vice President of Retail Marketing
and Sales. From July 1992 until joining the Company, Mr. Janssen was also the
Vice President of Marketing at Acer America. From September 1988 to September
1989, Mr. Janssen was the Vice President of Marketing at Nexgen Microsystems, a
semiconductor start-up company.
GLENN M. JOHNSON, age 43, joined the Company in August 1994 as Northwest
Regional Director. In May 1995 he was promoted to Vice President of Corporate
Sales. Prior to joining the Company, Mr. Johnson was employed as Business
Manager with Valtellina Automobile, an exotic car business, from June 1993 to
June 1994. From December 1990 to March 1993, Mr. Johnson was employed with ASG,
a software developer, most recently as Director of the Vertex Division.
KIRK W. LOCKHART, age 38, joined the Company in November 1994 as Vice
President of International. From August 1993 to October 1994, he was employed as
Director of Strategic Planning by Best Buy Co., Inc., a consumer electronics
retail chain. From June 1991 to August 1993,
4
<PAGE>
Mr. Lockhart was Senior Manager of Strategic Information Systems at Pioneer
North America, a manufacturing company. From August 1981 to June 1991, Mr.
Lockhart was employed by CCH Computax as Director of Marketing.
JUDITH G. MELELIAT, age 38, served as Vice President of Marketing and
Telemarketing of the Company from September 1993 to June 1994, when she became
Vice President of Direct Response. Ms. Meleliat has been employed by the Company
since September 1987 and has served in various capacities, including Vice
President of Marketing and Advertising, Director of Advertising, and Advertising
Manager.
RONALD J. SMITH, age 48, has served as Vice President of Distribution and
Real Estate of the Company since September 1993. From May 1992 until August
1993, he was Vice President of Distribution. From July 1988 until April 1992,
Mr. Smith was the Company's Director of Distribution, and from January 1988
until June 1988, he was General Manager of Distribution.
CAROLYN J. TOBIAS, age 45, served as Secretary of the Company from June
1991, and as Senior Vice President and Chief Financial Officer of the Company
from February 1989 until her resignation from the Company in May 1995.
5
<PAGE>
COMMON STOCK OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the Record Date, information relating
to the beneficial ownership of the Company's Common Stock by each person known
by the Company to be the beneficial owner of more than five percent of the
outstanding shares of Common Stock, by each director and nominee, by the Chief
Executive Officer of the Company, by the four other most highly paid executive
officers of the Company and the Company's former Vice Chairman (collectively,
with the Chief Executive Officer, the "Named Executive Officers"), and by all
directors, nominees, and executive officers of the Company as a group.
BENEFICIAL OWNERSHIP AS OF JULY 5, 1995
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------
AMOUNT AND
NATURE OF PERCENT OF
BENEFICIAL SHARES
OWNERSHIP (1) OUTSTANDING
------------- -------------
<S> <C> <C>
GREATER THAN 5% SHAREHOLDERS (2)
Cramer Rosenthal McGlynn, Inc. (3) .................................................. 1,380,900 8.0%
707 Westchester Avenue
White Plains, New York 10604
Morgan Stanley Asset Management Ltd. (4) ............................................ 1,518,100 8.8%
25 Cabot Square, Canary Wharf
London, E14 4QA, England
Wellington Management Company (5) ................................................... 1,302,700 7.5%
75 State Street
Boston, MA 02109
David A. Rocker (6) ................................................................. 1,034,000 6.0%
45 Rockefeller Plaza, Suite 1759
New York, New York 10111
DIRECTORS AND NOMINEES
Paul G. Allen (7) ................................................................... 1,659,434 9.6%
110 - 110th N.E. Ave., #550
Bellevue, WA 98004
Richard P. Cooley (8)................................................................ 15,500 *
Steven E. Lebow (9).................................................................. 20,210 *
Linda F. Levinson (10)............................................................... 10,500 *
George P. Orban (11)................................................................. 201,994 1.2%
Terence M. Strom (12)................................................................ 168,000 *
Samuel N. Stroum (13)................................................................ 625,596 3.6%
NAMED EXECUTIVE OFFICERS (14)
Elmer N. Baldwin (15)................................................................ 1,622 *
Peter A. Janssen (16)................................................................ 25,280 *
Ronald P. Erickson................................................................... -0- N/A
Ronald J. Smith (17)................................................................. 18,116 *
Carolyn J. Tobias (18)............................................................... 43,750 *
2,819,582 16.3%
All of the directors and nominees, the Named Executive Officers, and other executive
officers as a group (20 persons) (19)...............................................
<FN>
- ------------------------
* Percentage of beneficial ownership is less than one percent.
</TABLE>
6
<PAGE>
<TABLE>
<S> <S>
(1) The persons named in the above table have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by
them, except as otherwise described in these footnotes. As noted in these
footnotes, shares beneficially owned may include shares subject to options
that are exercisable within 60 days from July 5, 1995 (i.e., September 3,
1995).
(2) Deemed beneficial owners of the shares by virtue of the direct or indirect
investment and/or voting discretion possessed pursuant to the provisions
of investment advisory agreements with their clients.
(3) Based on Schedule 13G Statement filed with the Securities and Exchange
Commission (the "SEC"), dated February 24, 1995.
(4) Based on Schedule 13G Statement filed with the SEC, dated January 30,
1995.
(5) Based on Schedule 13G Statement filed with the SEC, dated January 24,
1995.
(6) Based on Schedule 13D Statement and Amendment No. 1 thereto, filed with
the SEC, dated November 9, 1994 and January 25, 1995, respectively .
(7) Includes 1,648,934 shares held by Vulcan Ventures, Inc., a private
investment firm of which Mr. Allen is President and sole shareholder, and
10,500 shares subject to options exercisable on or before September 3,
1995.
(8) Includes 5,000 shares held directly and 10,500 shares subject to options
exercisable on or before September 3, 1995.
(9) Includes 9,710 shares held directly and 10,500 shares subject to options
exercisable on or before September 3, 1995.
(10) Includes 10,500 shares subject to options exercisable on or before
September 3, 1995.
(11) Includes 84,000 shares held by Orban Partners, a general partnership of
which Mr. Orban is General Partner, 107,494 shares held directly, and
10,500 shares subject to options exercisable on or before September 3,
1995.
(12) Includes 68,000 shares held directly and 100,000 shares subject to an
option exercisable on or before September 3, 1995.
(13) Includes 15,000 shares, for which Mr. Stroum disclaims beneficial
ownership, held by The Stroum Foundation, a 501(c)(3) organization of
which Mr. Stroum is Chairman and President, 600,096 shares held directly,
and 10,500 shares subject to options exercisable on or before September 3,
1995.
(14) Elmer N. Baldwin, Peter A. Janssen, Ronald J. Smith and Carolyn J. Tobias
are included as Named Executive Officers of the Company because they were
the four most highly paid executive officers in fiscal year 1995, other
than the Chief Executive Officer, who were serving as executive officers
at the end of fiscal year 1995. Ronald P. Erickson is included as a Named
Executive Officer because he would have been one of the four most highly
paid executive officers other than the Chief Executive Officer if he had
been serving as an executive officer at the end of fiscal year 1995.
Terence M. Strom, the Chief Executive Officer, is also a Named Executive
Officer.
(15) Represents 1,622 shares held directly.
(16) Includes 1,947 shares held directly and 23,333 shares subject to options
exercisable on or before September 3, 1995.
(17) Includes 3,448 shares held directly and 14,668 shares subject to options
exercisable on or before September 3, 1995.
(18) Represents 43,750 shares subject to options exercisable on or before
September 3, 1995.
(19) Includes shares subject to options exercisable on or before September 3,
1995.
</TABLE>
7
<PAGE>
EXECUTIVE COMPENSATION
ANNUAL AND LONG-TERM COMPENSATION
The following table sets forth annual and long-term compensation for
services rendered during fiscal years 1995, 1994, and 1993, by the Company's
Named Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------------------- -------------
OTHER ANNUAL SECURITIES ALL OTHER
FISCAL BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR (1) SALARY ($) ($) ($) OPTIONS (#) ($)(2)
- -------------------------------- ----------- ----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Terence M. Strom (3) President 1995 $ 300,000 $ 300,000 $ 0 50,000 $ 0
and Chief Executive Officer 1994 230,769 852,500 31,075 200,000 0
1993 N/A N/A N/A N/A N/A
Peter A. Janssen (4) 1995 200,000 0 35,000 40,000 3,231
Vice President of Merchandising 1994 117,692 0 20,933 0 0
and Advertising 1993 N/A N/A N/A N/A N/A
Elmer N. Baldwin (5) 1995 198,564 0 0 30,000 0
Vice President of Corporate, 1994 N/A N/A N/A N/A N/A
Government, and Education Sales 1993 N/A N/A N/A N/A N/A
Carolyn J. Tobias (6) 1995 196,769 0 0 25,000 3,470
Sr. Vice President, Chief 1994 186,846 0 0 0 3,699
Financial Officer, and 1993 184,165 0 0 12,500 3,621
Secretary
Ronald J. Smith (7) 1995 147,308 0 0 25,000 1,247
Vice President of Distribution 1994 120,731 0 0 0 2,233
and Real Estate 1993 110,356 0 49,055 6,000 2,533
Ronald P. Erickson (8) 1995 67,884 116,667 0 0 100,962
Former Vice Chairman 1994 150,000 50,000 0 50,000 0
1993 63,461 0 0 0 0
<FN>
- ------------------------
(1) Fiscal years 1995 and 1994 each had 52 weeks. Fiscal year 1993 had 53
weeks.
(2) Amounts for Mr. Janssen, Ms. Tobias, and Mr. Smith represent contributions
by the Company to the Company's Nest Egg 401(k) savings plan on behalf of
participating Named Executive Officers. Amount for Mr. Erickson represents
severance pay from the date of his separation through the end of fiscal
year 1995. See footnote (8) below.
(3) Mr. Strom joined the Company in June 1993. The salary shown for fiscal year
1994 is for a partial fiscal year's employment. Mr. Strom's bonus for
fiscal year 1995 represents a guaranteed bonus based on his employment
agreement. His fiscal year 1994 bonus represents a grant of 68,000 shares
of Common Stock upon the commencement of his employment, valued at the
market price of such shares on the date of grant, and a $300,000 guaranteed
cash bonus. Other annual compensation in fiscal year 1994 includes costs
associated with the sale of Mr. Strom's prior residence upon commencement
of his employment with the Company. See "Executive Compensation --
Employment Contracts and Change in Control Arrangements."
(4) Mr. Janssen joined the Company in September 1993. The salary shown for
fiscal year 1994 is for a partial fiscal year's employment. Other annual
compensation includes the cost of temporary housing related to Mr.
Janssen's relocation to Washington upon commencement of his employment in
fiscal year 1994, and costs related to the sale of his prior residence in
fiscal year 1995.
(5) Mr. Baldwin joined the Company in June 1994. The salary shown for fiscal
year 1995 is for a partial fiscal year's employment. Mr. Baldwin resigned
from the Company in June 1995.
(6) Ms. Tobias resigned from the Company in May 1995.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
(7) Other annual compensation in fiscal year 1993 represents costs associated
with the sale of Mr. Smith's house in California upon his transfer from
Sacramento to Issaquah, Washington, and related taxes paid by the Company.
(8) Mr. Erickson was Chairman from September 1992, and acting President and
Chief Executive Officer from November 1992 to February 1993, when he
resigned from such positions and became Vice Chairman. He served as Vice
Chairman from February 1993 until July 1994. Mr. Erickson entered into a
separation agreement with the Company effective August 1, 1994. See
"Executive Compensation -- Employment Contracts and Change in Control
Arrangements." The salaries shown for fiscal years 1993 and 1995 are for
partial fiscal year's employment. The bonus shown for fiscal year 1995
represents payment for Mr. Erickson's efforts in the Company's settlement
of a shareholders' class action lawsuit and certain international projects.
</TABLE>
OPTION GRANTS IN FISCAL YEAR 1995
The following table sets forth stock option grants during the fiscal year
ended April 1, 1995, to the Named Executive Officers, pursuant to the Company's
1993 Stock Option Plan and the Company's 1986 Combined Incentive and
Non-Qualified Stock Option Plan.
OPTION GRANTS IN FISCAL YEAR 1995
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
INDIVIDUAL GRANTS PRICE APPRECIATION
- ------------------------------------------------------------------------------------------ FOR
% OF TOTAL OPTION TERM
OPTIONS OPTIONS GRANTED EXERCISE ------------------
GRANTED TO EMPLOYEES IN PRICE EXPIRATION 5% 10%
NAME (#) (1) FISCAL YEAR ($/SHARE) DATE ($) (2) ($) (2)
- ---------------------------------------- ------- --------------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Terence M. Strom 50,000 4.4% $ 10.2500 11/30/04 $322,309 $816,793
Peter A. Janssen 20,000 1.8% 6.1875 7/25/04 77,826 197,226
20,000 1.8% 6.1875 7/25/04 77,826 197,226
Elmer N. Baldwin 25,000 2.2% 6.1875 7/25/04 97,282 246,532
Carolyn J. Tobias 25,000 2.2% 6.1875 7/25/04 97,282 246,532
Ronald J. Smith 25,000 2.2% 6.1875 7/25/04 97,282 246,532
Ronald P. Erickson 0 0.0% N/A N/A 0 0
<FN>
- ------------------------
(1) Options granted are nonqualified options, have terms of ten years from the
date of grant and become exercisable over a three-year period in increments
of one-sixth, one-third and one-half of the total, respectively, except
with respect to one of Mr. Janssen's 20,000 share option grants which
became exercisable upon the date of grant. The options were granted at fair
market value on the date of grant. Upon the occurrence of certain business
combination transactions, the exercisability of the options would be
accelerated or assumed by the surviving or acquiring corporation. See
"Executive Compensation -- Employment Contracts and Change in Control
Arrangements."
(2) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to expiration of their terms
assuming the specified compounded rates of appreciation on the base price
(5% and 10%) of the Common Stock over the terms of the options. The 5% and
10% amounts are calculated based on rules required by the SEC and do not
reflect the Company's estimate of future stock price growth. Actual gains,
if any, on stock option exercises are dependent on the timing of such
exercises and the future performance of the Common Stock. There can be no
assurance that the rates of appreciation assumed in these columns can be
achieved or that the amounts reflected will be received by the individuals.
</TABLE>
9
<PAGE>
The following table sets forth information with respect to stock option
grants made under the Company's stock option plans to the Named Executive
Officers, including (i) the number of shares of Common Stock purchased upon
exercise of options in fiscal year 1995; (ii) the net value realized upon such
exercise; (iii) the number of unexercised options outstanding at April 1, 1995;
and (iv) the value of unexercised in-the-money options at April 1, 1995.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1995
AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
SHARES VALUE YEAR-END (#) AT FISCAL YEAR-END ($) (1)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ------------ --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Terence M. Strom 0 0 33,340 216,660 $12,503 $62,498
Peter A. Janssen 0 0 20,000 20,000 46,250 46,250
Elmer N. Baldwin 0 0 0 30,000 0 69,375
Carolyn J. Tobias 0 0 43,750 37,500 0 57,813
Ronald J. Smith 0 0 8,250 28,750 0 57,813
Ronald P. Erickson 0 0 0 0 0 0
<FN>
- ------------------------
(1) Values are based on the difference between the option exercise price and
the fair market value on April 1, 1995 ($8.50 per share as quoted in the
Nasdaq National Market), multiplied by the respective number of vested and
unvested shares underlying the option.
</TABLE>
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
MR. STROM'S EMPLOYMENT AGREEMENT. Mr. Strom has an employment agreement
with the Company that provides for (i) a term ending on June 28, 1996; (ii) an
annual base salary of $300,000; and (iii) an annual maximum bonus equal to 100%
of his base salary, depending upon his achieving performance goals to be
established for each fiscal year, with a minimum bonus of $300,000 for each of
fiscal years 1994 and 1995. In connection with Mr. Strom's entering into the
employment agreement and beginning employment with the Company, he received,
pursuant to the employment agreement's terms: (i) a stock grant of 68,000 shares
of Common Stock; and (ii) options to purchase 200,000 shares of Common Stock,
one-half of which have vested and the remainder of which will vest in 1996.
Under the employment agreement, if the Company terminates Mr. Strom's employment
without cause (as defined in the employment agreement), or Mr. Strom terminates
his employment for "Good Reason" (as defined in the employment agreement) at any
time, Mr. Strom will receive from the Company termination payments equal to his
base salary for the remainder of the agreement's term and the amount of the most
recent bonus paid to Mr. Strom.
The Company also loaned Mr. Strom $218,790, representing the amount of
federal income taxes payable by him as a result of the stock grant. The loan
bears interest at six percent (6%) per annum and is due June 28, 1996; one-third
of the proceeds received by Mr. Strom on any sales of such stock prior to June
28, 1996 are to be applied to the loan. As of the end of fiscal year 1995, the
outstanding balance on the loan was $28,647.
MR. ERICKSON'S SEPARATION AGREEMENT. Mr. Erickson and the Company entered
into a separation agreement effective August 1, 1994 in connection with the
termination of Mr. Erickson's employment with the Company. The separation
agreement provides for the payment by the Company to Mr. Erickson of (i) the
amount of unpaid base salary earned by Mr. Erickson through July 31, 1994 plus
unpaid bonus in the amount of $18,846; (ii) the amount of $150,000, paid in
installments over a one-year period; and (iii) a bonus of $116,667 related to
his efforts on special projects, including the Company's settlement of a
shareholders' class action lawsuit and international projects.
10
<PAGE>
MS. TOBIAS' TERMINATION OF EMPLOYMENT. On May 19, 1995, Ms. Tobias resigned
as an officer of the Company. Under the terms of her separation agreement, the
Company is paying Ms. Tobias the amount of her base salary through November 19,
1995. The agreement also provides that if Ms. Tobias fails to commence
alternative employment by November 19, 1995, the Company will continue to pay
her base salary for the period from November 19, 1995 through the earlier of
November 19, 1996 or the date that she commences alternative employment (the
"Extension Period"). Pursuant to the separation agreement, Ms. Tobias may
exercise any stock option vested in her name as of the date of her resignation
until 90 days from the date that her right to payments of the amount of her base
salary terminates as described above. In addition, Ms. Tobias may participate in
the Company's Nest Egg 401(k) savings plan until the earlier of the date she
obtains new employment or the end of the Extension Period.
OPTION PLANS. The Company's stock option plans provide that, upon the
occurrence of certain transactions, including certain mergers and other business
combinations involving the Company, outstanding options will fully vest, subject
to termination upon consummation of such transaction. In the alternative, at the
discretion of the Company and the corporation(s) participating in such
transactions, such options may be assumed by the acquiring or surviving
corporation.
DIRECTOR PLAN. The Company's Nonemployee Director Stock Option Plan
provides that, upon the occurrence of certain transactions, including certain
mergers and business combinations involving the Company, the vesting of
outstanding options will be accelerated and such options will terminate upon
consummation of such transactions if they are not exercised.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Allen, Lebow, and Stroum, shareholders and directors of the Company,
are members of the Compensation Committee of the Board.
Mr. Allen is also a shareholder and director of Microsoft Corporation, the
founder and Chairman of Asymetrix Corporation, and the President and sole
shareholder of Vulcan Ventures, Inc. In fiscal year 1995, aggregate software
purchases by the Company directly from Microsoft were approximately
$147,054,069. Additional Microsoft products were purchased by the Company
through third-party distributors. In fiscal year 1995, aggregate purchases
directly from the Company by Asymetrix were approximately $135,981 and by
Microsoft were approximately $990,670. All of such purchases were made in the
ordinary course of business through the Company's corporate, government, and
education sales program at prevailing rates for corporate customers. In a stock
purchase agreement among Vulcan Ventures, Inc. and certain shareholders of the
Company (including certain of the Company's directors) dated June 18, 1987, such
shareholders agreed to use their best efforts to encourage the Company and its
subsidiaries to do business with the above entities as well as with any other
affiliate of Mr. Allen or Vulcan Ventures, Inc., provided the transaction is on
an arm's-length basis.
Mr. Stroum and his daughter, Marsha Sloan Glazer, are directors and
shareholders of SureFind Corp. ("SureFind"), a company providing electronic
interactive products. Mr. Allen (through Vulcan Ventures, Inc.), Mr. Lebow, and
another of Mr. Stroum's daughters, Cynthia Stroum Meagher, are also shareholders
of SureFind. In July 1993, SureFind and the Company entered into an Interactive
Express-TM- Services Agreement ("Agreement"), having a term of approximately
three and one-half years, under which SureFind was contracted to develop and
license a telephonic information order system for the Company for approximately
$700,000, plus certain service fees, subject to certain credits. In May 1995,
SureFind and the Company agreed to modify the Agreement and settle obligations
incurred to date at $600,000. The modification, having a term of two years from
the original Agreement date, provides for payment to SureFind by the Company of
a minimum of $30,000 per month, plus certain service fees, subject to certain
credits, for ongoing project support and development of additional applications
for the Company. During fiscal year 1995, the Company paid SureFind an aggregate
amount of $605,000 for such services.
11
<PAGE>
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY. The Compensation Committee of the Board (the
"Committee") is responsible for recommending to the Board compensation for the
Company's five highest-compensated executive officers, including the Company's
Chief Executive Officer, and for reviewing and approving compensation
recommendations made by the Chief Executive Officer for the other executive
officers. The Committee is also responsible for administering all of the
Company's compensation programs. See "Election of Directors -- Board and
Committee Meetings."
The Committee's goal is to provide compensation that is fair and competitive
and that will reward sustained high performance. The Committee also believes
that executives should have the opportunity for a significant portion of their
compensation to be "at risk" in the form of incentive compensation. The
Company's executive compensation packages consist of base salary, annual
incentive compensation in the form of bonuses, and long-term incentive
compensation in the form of stock options. The Committee also administers and
reviews any employment agreements between the Company and its executives.
BASE SALARY. In determining the base salary for a particular executive
within the salary range for his or her position, the Committee initially takes
into account the salary necessary to encourage the executive to join the Company
in lieu of pursuing other employment opportunities. In later years, the
Committee considers the amount budgeted by the Board for salary increases and
the executive's success in achieving the performance objectives established
annually for such executive. The performance objectives established annually for
executives consist of both quantitative goals (such as increasing revenue,
margin or number of accounts, or decreasing returns) and qualitative goals (such
as training subordinates, managing special projects, and responding to changing
market conditions). There is generally no specific weighing of these factors.
The base salaries received by the Named Executive Officers (other than the Chief
Executive Officer) generally are above the median for base salaries of
executives in similar positions at companies in the comparison group (the
"Comparison Group"), which is composed of national retail companies with annual
revenues ranging from $500 million to $1 billion, none of which companies are
included in the CRSP Index for Nasdaq Stock Market (SIC 504, 573) used in the
Company's stock price performance graph which appears later in this proxy
statement. The Company does not have a target range for base salaries for
executive officers.
ANNUAL INCENTIVE COMPENSATION. In fiscal year 1995, cash bonuses for
executives were considered at the end of the fiscal year by the Committee in
consultation with the Chief Executive Officer. Such consultation took into
consideration the Company's financial performance, including the Company's
earnings per share. Based on the Company's financial performance, no executive
officer received a bonus for fiscal year 1995, except that Mr. Erickson,
pursuant to his separation agreement with the Company, received a special bonus
related to his contribution on special projects for the Company.
LONG-TERM INCENTIVE COMPENSATION. The primary objective of the Company's
stock option program is to provide incentives tied to the performance of the
Company as measured by stock price appreciation. The Committee believes that the
Company's stock option program better aligns the interests of the Company's
executives with those of its shareholders. The Committee generally grants
nonqualified stock options with an exercise price equal to the fair market value
of the Common Stock on the date of grant and a three-year vesting schedule.
In granting options, the Committee considers the amount and value of options
currently held, but does not have a target ownership level for Common Stock
holdings for executives. In July 1994, the Committee granted options to purchase
968,400 shares of Common Stock, of which options to purchase 195,000 shares were
granted to executive officers and the remaining options to purchase 773,400
shares were granted to a broad range of employees, generally fixed by salary
grade. Within the
12
<PAGE>
group of executive officers, the exact number of shares subject to options was
recommended to the Committee by the Chief Executive Officer based upon the
performance factors discussed under "Base Salary" above.
CHIEF EXECUTIVE OFFICER COMPENSATION. Mr. Strom joined the Company as its
President in June 1993. He became Chief Executive Officer in September 1993. Mr.
Strom's compensation is governed by the terms of his employment agreement, which
provides that he receive an annual base salary of $300,000 in fiscal year 1995,
and an annual bonus (up to a maximum of 100% of his annual base salary)
depending upon his achieving performance goals to be established for each fiscal
year, with a minimum bonus of $300,000 for each of fiscal years 1994 and 1995.
The employment agreement expires on June 28, 1996. Additionally, upon
commencement of employment, Mr. Strom received a stock grant of 68,000 shares of
Common Stock and options to purchase an additional 200,000 shares. On November
30, 1994, Mr. Strom was granted a second option to purchase 50,000 shares. Both
options vest over a three-year period in annual increments of one-sixth,
one-third, and one-half of the total shares. The base salary and annual bonus
received by the Chief Executive Officer results in compensation that is slightly
below the median for total annual compensation for executive officers in a
similar position at companies in the Comparison Group.
In approving Mr. Strom's employment agreement, the Committee's goals were to
encourage Mr. Strom to join the Company and to reward him for successful
performance at the Company. In addition, the Committee believes that Mr. Strom's
participation in the Company's stock price appreciation through his stock and
option grants will encourage him to remain with the Company and align his
interests with those of the shareholders.
COMPENSATION COMMITTEE
Paul G. Allen
Steven E. Lebow
Samuel N. Stroum, Chairman
For additional information regarding the employment agreements with Mr.
Strom, see "Executive Compensation -- Employment Contracts and Change in Control
Arrangements."
13
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total shareholder
returns for the Company for the last five fiscal years, with the cumulative
return of the University of Chicago's Center for Research in Security Prices
(CRSP) Index for the Nasdaq Stock Market (U.S. and Foreign), and the CRSP Index
for the Nasdaq Stock Market SIC 504, a Wholesale Trade SIC that includes
computers and computer peripherals and software, combined with SIC 573, a Retail
Trade SIC that includes computer and software stores. The comparison assumes
$100 was invested in Common Stock on March 30, 1990, in each of the foregoing
indices, and assumes reinvestment of dividends, if any. The Company has not paid
dividends. (Fiscal year ends are considered to be March 31 for comparison
purposes.) The stock performance shown on the graph below is not necessarily
indicative of future price performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
EGGHEAD NASDAQ STOCK MARKET NASDAQ STOCK MARKET, SIC 504/573
<S> <C> <C> <C>
1990 100.0 100.0 100.0
1991 109.1 113.8 103.5
1992 196.4 145.1 187.1
1993 57.3 166.5 175.3
1994 62.7 180.6 167.7
1995 61.8 198.4 142.4
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Paul G. Allen, Steven E. Lebow, and Samuel N. Stroum, shareholders and
directors of the Company, have entered into certain transactions with the
Company. See "Executive Compensation -- Compensation Committee Interlocks and
Insider Participation."
Richard P. Cooley, a shareholder and director of the Company, serves as an
Honorary Director of Seafirst Bank. Effective October 1, 1994, the Company
entered into a Revolving Loan Agreement with Seafirst Bank and U.S. Bank of
Washington, National Association, which provides for unsecured borrowings of up
to $50,000,000.
14
<PAGE>
PROPOSAL TO APPROVE AMENDMENTS TO THE EGGHEAD, INC.
NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
The Egghead, Inc. Nonemployee Director Stock Option Plan (the "Director
Plan") provides for automatic grants of options to purchase shares of Common
Stock to nonemployee directors of the Company. The purpose of the Director Plan
is to promote the interests of the Company and its shareholders by assisting the
Company in attracting and retaining the services of experienced and
knowledgeable nonemployee directors and to provide an incentive for such
directors by increasing their proprietary interests in the Company's long-term
success and progress. Only nonemployee directors of the Company are eligible to
participate in the Director Plan. A copy of the Director Plan as proposed to be
amended and restated is attached to this Proxy Statement as Appendix A. The
following description of the Director Plan is a summary and is not intended to
be fully descriptive. See Appendix A for more detailed information.
Currently, six of the Company's directors are nonemployee directors and are
eligible for participation in the Director Plan. Subject to adjustment required
in the event of any recapitalization of the Company, the aggregate number of
shares of Common Stock that currently may be issued upon exercise of options
granted under the Director Plan may not exceed 175,000. As of the date of this
proxy statement, 40,000 shares were available for grant under the Director Plan.
Options to purchase an aggregate of 54,000 shares were granted under the
Director Plan to nonemployee directors in 1993, the year in which the Director
Plan was initially adopted. No options were granted under the Director Plan in
1994.
On June 7, 1995, the Company's Board of Directors unanimously adopted
amendments to the Director Plan (the "Amendments") that, subject to shareholder
approval, would authorize an additional 275,000 shares to be available for
issuance upon exercise of options granted under the Director Plan. In addition,
the Amendments would increase the number of shares under the option granted to
each nonemployee director, upon his or her initial election to the Board of
Directors at an annual shareholders meeting, from 9,000 to 22,500. These options
would vest over a three-year period in annual increments of one-third. The
Amendments would also increase the maximum number of shares under any option
initially granted to a nonemployee director, upon his or her appointment or
election other than at an annual shareholders meeting, from 3,000 to 7,500, pro
rated for the number of months between the date of grant and the next annual
shareholders meeting thereafter. Any option of this type would vest in full on
the date of the next annual shareholders meeting after the date of grant.
Furthermore, pursuant to the Amendments, each of the six nonemployee directors
in office on June 7, 1995 would receive a one-time supplemental option to
purchase 13,500 shares, resulting in the receipt by the nonemployee directors,
as a group, of supplemental options to purchase an aggregate of 81,000 shares.
One-third of each supplemental option would be vested as of the June 7, 1995
date of grant, subject to shareholder approval, one-third would be vested as of
the date of the 1995 Annual Meeting and the remaining one-third would vest as of
the date of the next succeeding annual shareholders meeting. Under the current
Director Plan, each nonemployee director who holds an option that has become
fully vested thereafter automatically receives, if re-elected, a grant of an
additional option to purchase 9,000 shares, subject to three-year vesting in
annual increments of one-third. Pursuant to the Amendments, each nonemployee
director who holds an option granted on or after June 7, 1995 that becomes fully
vested would thereafter automatically receive, if re-elected, a grant of an
additional option to purchase 22,500 shares, subject to the same vesting
schedule.
Options granted under the Director Plan are nonqualified stock options
("NSOs"). They are exercisable at a price equal to the fair market value per
share of the Company's Common Stock on the date of grant. The closing price of
the Common Stock as reported by the Nasdaq National Market on July 5, 1995 was
$13.75 per share.
Options granted under the Director Plan are nontransferable other than by
will or the laws of descent and distribution. Options expire within ten years of
the date of grant or, if earlier, one year after a director's termination of
service as a director or a director's death. In the event of certain
15
<PAGE>
significant transactions involving the Company, including certain mergers and
business combinations, all outstanding unvested options under the Director Plan
will become fully exercisable during a twenty-day period prior to the effective
date of the triggering significant transaction. Shares of Common Stock obtained
upon the exercise of an option under the Director Plan may not be sold by
persons subject to Section 16 of the Securities Exchange Act of 1934, as
amended, until at least six months after the date of grant. The Director Plan
will remain in effect until it is terminated by either the Board of Directors or
the shareholders of the Company.
The federal income tax consequences to the Company and to directors granted
awards under the Director Plan are substantially as follows:
Under present law and regulations, no income will be recognized by a
participant upon the grant of stock options. Upon the exercise of an NSO, the
optionee will recognize taxable ordinary income in an amount equal to the excess
of the fair market value of the shares acquired over the option price. The
Company will be entitled to a deduction at the same time and in the same amount
as the optionee recognizes ordinary income. Upon a later sale of those shares,
the optionee will have short-term or long-term capital gain or loss, as the case
may be, in an amount equal to the difference between the amount realized on such
sale and the tax basis of the shares sold. If payment of the option price is
made entirely in cash, the tax basis of the shares will be equal to their fair
market value on the exercise date (but not less than the option price), and the
shares' holding period will begin on the day after the exercise date.
If the optionee uses already-owned shares to exercise an option in whole or
in part, the transaction will not be considered to be a taxable disposition of
the already-owned shares. The optionee's tax basis and holding period of the
already-owned shares will be carried over to the equivalent number of shares
received upon exercise. The tax basis of the additional shares received upon
exercise will be the fair market value of the shares on the exercise date (but
not less than the amount of cash, if any, used in payment), and the holding
period for such additional shares will begin on the day after the exercise date.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE
AMENDMENTS TO THE EGGHEAD, INC. NONEMPLOYEE DIRECTOR STOCK OPTION PLAN.
SELECTION OF INDEPENDENT AUDITORS
The Company has selected Arthur Andersen LLP to continue as its independent
auditors for the fiscal year ending March 30, 1996. Representatives of Arthur
Andersen LLP are expected to attend the 1995 Annual Meeting and to have the
opportunity to make a statement if they so desire and to respond to appropriate
questions.
OTHER BUSINESS
As of the date of this proxy statement, management knows of no other
business that will be presented for action at the 1995 Annual Meeting. If any
other business requiring a vote of the shareholders should come before the
meeting, the persons designated as your proxies will vote or refrain from voting
in accordance with their best judgment.
COMPLIANCE WITH SEC REPORTING REQUIREMENTS
Officers and directors of the Company and persons who own more than ten
percent of the Company's stock are required to report to the SEC ownership and
changes in ownership of the Company's stock. Regulations promulgated by the SEC
require the Company to disclose to its shareholders those filings that were not
made on a timely basis. Based solely on its review of copies of such reports
received by it, or written representations received from reporting persons that
no such forms were required for those persons, the Company believes that, during
fiscal year 1995, its officers and
16
<PAGE>
directors complied with all applicable filing requirements, except that Paul G.
Allen and Richard P. Cooley, directors, each filed late one report covering
disclosures of purchases of the Company's Common Stock, and Elmer N. Baldwin, a
former officer, filed late one report covering disclosure of a grant of an
option to purchase the Company's Common Stock.
SHAREHOLDER PROPOSALS FOR THE
1996 ANNUAL MEETING OF SHAREHOLDERS
Shareholder proposals to be presented at the 1996 annual meeting of
shareholders must be received at the Company's executive offices by March 20,
1996, in order to be included in the Company's proxy statement and form of proxy
relating to that meeting.
AVAILABILITY OF ADDITIONAL INFORMATION
The Annual Report of the Company to the SEC on Form 10K, which includes
consolidated financial statements of the Company and its subsidiaries, is
available (without exhibits) to shareholders without charge upon written request
to Brian W. Bender, Secretary of the Company, at 22011 S.E. 51st Street, P. O.
Box 7004, Issaquah, Washington 98029. There is a nominal charge for reproduction
of the exhibits to the Form 10-K.
SOLICITATION OF PROXIES
This solicitation is made on behalf of the Board of Directors of the
Company. Proxies may be solicited by officers, directors, and regular
supervisory and executive employees of the Company, none of whom will receive
any additional compensation for their services. In addition, Allen Nelson & Co.
will assist the Company in the solicitation of proxies by the Company for a fee
of approximately $5,000, plus reasonable expenses. Solicitations of proxies may
be made personally, or by mail, telephone, telegraph, facsimile, or messenger.
The Company will pay persons holding shares of Common Stock in their names
or in the names of nominees, but not owning such shares beneficially, such as
brokerage houses, banks, and other fiduciaries, for the expense of forwarding
soliciting materials to their principals. All the costs of solicitation of
proxies will be paid by the Company.
By Order of the Board of Directors
Brian W. Bender,
Secretary
Issaquah, Washington
July 19, 1995
17
<PAGE>
APPENDIX A
EGGHEAD, INC
RESTATED NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
ARTICLE I. PURPOSES
The purposes of the Egghead, Inc. Restated Nonemployee Director Stock Option
Plan (the "Plan") are to attract and retain the services of experienced and
knowledgeable nonemployee directors of Egghead, Inc. (the "Corporation") and to
provide an incentive for such directors to increase their proprietary interests
in the Corporation's long-term success and progress.
ARTICLE II. SHARES SUBJECT TO THE PLAN
Subject to adjustment in accordance with Article VI hereof, the total number
of shares of the Corporation's common stock (the "Common Stock") for which
options may be granted under the Plan is 450,000 (the "Shares"). The Shares
shall be shares presently authorized but unissued or subsequently acquired by
the Corporation and shall include shares representing the unexercised portion of
any option granted under the Plan that expires or terminates without being
exercised in full.
ARTICLE III. ADMINISTRATION OF THE PLAN
The administrator of the Plan (the "Plan Administrator") shall be the Board
of Directors of the Corporation (the "Board"). Subject to the terms of the Plan,
the Plan Administrator shall have the power to construe the provisions of the
Plan, to determine all questions arising thereunder, and to adopt and amend such
rules and regulations for the administration of the Plan as it may deem
desirable. No member of the Plan Administrator shall participate in any vote by
the Plan Administrator on any matter materially affecting the rights of any such
member under the Plan.
ARTICLE IV. PARTICIPATION IN THE PLAN
Each member of the Board elected or appointed who is not otherwise an
employee of the Corporation or any parent or subsidiary corporation (an
"Eligible Director") shall automatically receive the following options:
1. INITIAL GRANTS
(a) Each Eligible Director who is in office on the day the Plan is
adopted by the Board and who continues in office after the annual meeting of
shareholders to be held in 1993 (the "1993 Annual Meeting") shall
automatically receive a grant of an option to purchase 9,000 Shares on the
day this Plan is adopted by the Board.
(b) Each Eligible Director who is elected for the first time at the 1993
Annual Meeting or at any subsequent annual meeting of shareholders prior to
June 7, 1995 shall automatically receive a grant of an option to purchase
9,000 Shares on the day after such annual meeting.
(c) Each Eligible Director who is elected for the first time at an
annual meeting of shareholders after June 7, 1995 shall automatically
receive a grant of an option to purchase 22,500 Shares on the day after such
annual meeting.
(d) Each Eligible Director who is appointed or elected after June 7,
1995 other than at an annual meeting of shareholders shall, on the day of
such appointment or election, automatically receive a grant of an option to
purchase that number of Shares equal to 7,500 multiplied by a fraction, the
numerator of which is 12 minus the number of whole months which have elapsed
since the last annual meeting of shareholders and the denominator of which
is 12; provided, however, that such option shall vest in full on the day of
the first annual meeting of shareholders to occur after the grant.
A-1
<PAGE>
2. SUPPLEMENTAL INITIAL GRANTS
Each Eligible Director who is in office on June 7, 1995 shall automatically
receive a grant of an option to purchase 13,500 Shares on that date.
3. ADDITIONAL GRANTS
Each Eligible Director who holds an option granted on or after June 7, 1995
that has become fully vested shall automatically receive a grant of an option to
purchase 22,500 Shares on the day after the annual meeting of shareholders at
which such prior option has become fully vested.
If insufficient Shares remain available for issuance under the Plan to fully
fund one or more grants to be made under this Article IV on the same grant date,
then such grant or grants shall be made as follows: (i) a single Initial Grant
shall be made for the remaining number of Shares reserved under this Article IV
on that grant date; and (ii) multiple Initial and/or Additional Grants shall be
reduced ratably so that the aggregate number of Shares subject to all such
grants equals the remaining number of Shares available for issuance under this
Article IV on that grant date. If the Company's shareholders do not approve the
amendment to the Plan dated June 7, 1995, all grants made pursuant to paragraphs
1(c), 1(d), 2 and 3 above shall be deemed null and void.
ARTICLE V. OPTION TERMS
Each option granted to an Eligible Director under the Plan and the issuance
of Shares thereunder shall be subject to the following terms:
1. OPTION AGREEMENT
Each option granted under the Plan shall be evidenced by an option agreement
(an "Agreement") duly executed on behalf of the Corporation. Each Agreement
shall comply with and be subject to the terms and conditions of the Plan. Any
Agreement may contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Plan Administrator.
2. OPTION EXERCISE PRICE
The option exercise price for an option granted under the Plan shall be the
fair market value of the Shares covered by the option at the time the option is
granted. For purposes of the Plan, "fair market value" shall be the average of
the high and low sales prices at which the Common Stock was sold on such date as
reported by the Nasdaq National Market on such date or, if no Common Stock was
traded on such date, on the next preceding date on which Common Stock was so
traded.
3. VESTING AND EXERCISABILITY
Except as set forth in paragraph 1(d) of Article IV, Initial Grants (other
than Supplemental Initial Grants) and Additional Grants shall become exercisable
in accordance with the following schedule and vested portions may be exercised
in full at one time or in part from time to time:
<TABLE>
<CAPTION>
PERIOD OF OPTIONEE'S CONTINUOUS SERVICE AS A DIRECTOR PORTION OF GRANT
WITH THE COMPANY FROM THE DATE THE OPTION IS GRANTED THAT IS EXERCISABLE
- ----------------------------------------------------------------------------------------------- -------------------
<S> <C>
Until first subsequent annual meeting of shareholders after grant.............................. 0%
Until second subsequent annual meeting of shareholders after grant............................. 33 1/3%
Until third subsequent annual meeting of shareholders after grant.............................. 66 2/3%
Thereafter..................................................................................... 100%
</TABLE>
For purposes of options granted at the time this Plan is initially adopted
by the Board, the first subsequent annual meeting of shareholders shall be the
meeting held in 1994.
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<PAGE>
Supplemental Initial Grants shall become exercisable in accordance with the
following schedule and vested portions may be exercised in full at one time or
in part from time to time:
<TABLE>
<CAPTION>
PERIOD OF OPTIONEE'S CONTINUOUS SERVICE AS A DIRECTOR PORTION OF GRANT
WITH THE COMPANY FROM THE DATE THE OPTION IS GRANTED THAT IS EXERCISABLE
- ----------------------------------------------------------------------------------------------- -------------------
<S> <C>
Until first subsequent annual meeting of shareholders after grant.............................. 33 1/3%
Until second subsequent annual meeting of shareholders after grant............................. 66 2/3%
Thereafter..................................................................................... 100%
</TABLE>
4. TIME AND MANNER OF EXERCISE OF OPTION
Each option may be exercised in whole or in part at any time and from time
to time; provided, however, that no fewer than 100 Shares (or the remaining
Shares then purchasable under the option, if less than 100 Shares) may be
purchased upon any exercise of option rights hereunder and that only whole
Shares will be issued pursuant to the exercise of any option.
Any option may be exercised by given written notice, signed by the person
exercising the option, to the Corporation stating the number of Shares with
respect to which the option is being exercised, accompanied by payment in full
for such Shares, which payment may be in whole or in part (i) in cash or by
check or (ii) in shares of Common Stock already owned for at least six (6)
months by the person exercising the option, valued at fair market value at the
time of such exercise.
5. TERM OF OPTIONS
Each option shall expire ten (10) years from the date of the granting
thereof, but shall be subject to earlier termination as follows:
(a) In the event that an optionee ceases to be a director of the
Corporation for any reason other than the death of the optionee, the options
granted to such optionee may be exercised by him or her only within one (1)
year after the date such optionee ceases to be a director of the Corporation
and only as to that portion of the option that has become vested as of the
date of such cessation.
(b) In the event of the death of an optionee, whether during the
optionee's service as a director or during the one (1) year period referred
to in Section 5 (a), the options granted to such optionee shall be
exercisable, to the extent vested as provided in Section 5 (a) or as of the
date of death, as the case may be, and such options shall expire unless
exercised within one (1) year after the date of the optionee's death, by the
legal representatives or the estate of such optionee, by any person or
persons whom the optionee shall have designated in writing on forms
prescribed by and filed with the Corporation or, if no such designation has
been made, by the person or persons to whom the optionee's rights have
passed by will or the laws of descent and distribution.
6. TRANSFERABILITY
During an optionee's lifetime, an option may be exercised only by the
optionee. Options granted under the Plan and the rights and privileges conferred
thereby shall not be subject to execution, attachment or similar process and may
not be transferred, assigned, pledged or hypothecated in any manner (whether by
operation of law or otherwise) other than by will or by the applicable laws of
descent and distribution except that, to the extent permitted by applicable law
and Rule 16b-3 promulgated under Section 16(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the Plan Administrator may permit a
recipient of an option to designate in writing during the optionee's lifetime a
beneficiary to receive and exercise options in the event of the optionee's death
(as provided in Section 5 (b)). Any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of any option under the Plan or of any right or
privilege conferred thereby, contrary to the provisions of the Plan, or the sale
or levy or any attachment or similar process upon the rights and privileges
conferred hereby, shall be null and void.
A-3
<PAGE>
7. PARTICIPANT'S OR SUCCESSOR'S RIGHTS AS STOCKHOLDER
Neither the recipient of an option under the Plan nor the optionee's
successor(s) in interest shall have any rights as a stockholder of the
Corporation with respect to any Shares subject to an option granted to such
person until such person becomes a holder of record of such Shares.
8. LIMITATION AS TO DIRECTORSHIP
Neither the Plan nor the granting of an option nor any other action taken
pursuant to the Plan shall constitute or be evidence of any agreement or
understanding, express or implied, that an optionee has a right to continue as a
director for any period of time or at any particular rate of compensation.
9. REGULATORY APPROVAL AND COMPLIANCE
The Corporation shall not be required to issue any certificate or
certificates for Shares upon the exercise of an option granted under the Plan,
or record as a holder of record of Shares the name of the individual exercising
an option under the Plan, without obtaining to the complete satisfaction of the
Plan Administrator the approval of all regulatory bodies deemed necessary by the
Plan Administrator, and without complying, to the Plan Administrator's complete
satisfaction, with all rules and regulations under federal, state or local law
deemed applicable by the Plan Administrator.
ARTICLE VI. CAPITAL ADJUSTMENTS
The aggregate number and class of Shares for which options may be granted
under the Plan, the number and class of Shares covered by each automatic grant
and each outstanding option and the exercise price per Share thereof (but not
the total price) shall all be proportionately adjusted for any stock dividends,
stock splits, recapitalizations, combinations or exchanges of shares, split-ups,
split-offs, spinoffs, or other similar changes in capitalization. Upon the
effective date of a dissolution or liquidation of the Corporation, or of a
reorganization, merger or consolidation of the Corporation with one or more
corporations that results in more than 20% of the outstanding voting shares of
the Corporation being owned by one or more affiliated corporations or other
affiliated entities, or of a transfer of all or substantially all the assets or
more than 20% of the then outstanding shares of the Corporation to another
corporation or other entity, this Plan and all options granted hereunder shall
terminate. In the event of such dissolution, liquidation, reorganization,
merger, consolidation, transfer of assets or transfer of stock, each optionee
shall be entitled, for a period of twenty days prior to the effective date of
such transaction, to purchase the full number of shares under his or her option
which he or she otherwise would have been entitled to purchase during the
remaining term of such option.
Adjustments under this Article VI shall be made by the Plan Administrator,
whose determination shall be final. In the event of any adjustment in the number
of Shares covered by any option, any fractional Shares resulting from such
adjustment shall be disregarded and each such option shall cover only the number
of full Shares resulting from such adjustment.
ARTICLE VII. EXPENSES OF THE PLAN
All costs and expenses of the adoption and administration of the Plan shall
be borne by the Corporation; none of such expenses shall be charged to any
optionee.
ARTICLE VIII. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan became effective on June 16, 1993. The Plan shall continue in
effect until it is terminated by action of the Board or the Corporation's
shareholders, but such termination shall not affect the then outstanding terms
of any options.
ARTICLE IX. TERMINATION AND AMENDMENT OF THE PLAN
The Board may amend, terminate or suspend the Plan at any time, in its sole
and absolute discretion; provided, however, that if required to qualify the Plan
under Rule 16b-3 promulgated
A-4
<PAGE>
under Section 16(b) of the Exchange Act, no amendment may be made more than once
every six (6) months that would change the amount, price, timing or vesting of
the options, other than to comply with changes in the Internal Revenue Code of
1986, as amended, or the rules and regulations promulgated thereunder; and
provided, further, that if required to qualify the Plan under Rule 16b-3, no
amendment that would
(a) materially increase the number of Shares that may be issued under
the Plan,
(b) materially modify the requirements as to eligibility for
participation in the Plan, or
(c) otherwise materially increase the benefits accruing to participants
under the Plan shall be made without the approval of the Corporation's
shareholders.
ARTICLE X. COMPLIANCE WITH RULE 16b-3
It is the intention of the Corporation that the Plan comply in all respects
with Rule 16b-3 promulgated under Section 16(b) of the Exchange Act and that
Plan participants remain disinterested persons ("Disinterested Persons") for
purposes of administering other employee benefit plans of the Corporation and
having such other plans be exempt from Section 16(b) of the Exchange Act.
Therefore, if any Plan provision is later found not to be in compliance with
Rule 16b-3 or if any Plan provision would disqualify Plan participants from
remaining Disinterested Persons, that provision shall be deemed null and void,
and in all events the Plan shall be construed in favor of its meeting the
requirements of Rule 16b-3.
A-5
<PAGE>
1. Election of Directors NOMINEES: Richard P. Cooley, 3. In their discretion,
Terence M.Strom, and the holders of this
Samuel N. Stroum proxy are authorized to
vote upon such other
business as may
FOR all WITHHOLD properly come before
nominees AUTHORITY the meeting.
(except as to vote INSTRUCTIONS: To withhold
indicated for all authority to vote for any
to the nominees individual nominee, print
contrary in that nominee[cad 213]s name in the
the space following space:
to the right)
/ / / / _____________________________
This proxy, when properly executed,
2. Approval of Amendments to the will be voted in the manner directed
Egghead, Inc. Nonemployee Director on this proxy card. Management
Stock Option Plan (the "Amendments"): recommends a vote FOR all nominees
designated on this proxy card and a
vote FOR approval of the Amendments
FOR AGAINST ABSTAIN to the Egghead, Inc. Nonemployee
/ / / / / / Director Stock Option Plan. If no
specifications are made, a vote FOR
all of said nominees and FOR approval
of the Amendments will be entered.
The undersigned hereby revokes any
proxy or proxies heretofore given for
such shares and ratifies all that
said proxies or their substitutes may
lawfully do by virtue hereof. Please
sign exactly as name appears on this
proxy. If stock is held jointly, both
persons should sign. Persons signing
in a representative capacity should
give their title.
Dated: _________________________,1995
_____________________________________
Signature
"PLEASE MARK INSIDE BLUE BOXES SO
THAT DATA PROCESSING EQUIPMENT WILL _____________________________________
RECORD YOUR VOTES" Signature if held jointly
- --------------------------------------------------------------------------------
-FOLD AND DETACH HERE-
<PAGE>
PROXY CARD
EGGHEAD, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF EGGHEAD,
INC. The undersigned hereby appoints Terence M. Strom and Brian W. Bender and
each of them as proxies, each with full power of substitution, to represent
and vote for and on behalf of the undersigned, the number of shares of common
stock of Egghead, Inc. that the undersigned would be entitled to vote if
personally present at the 1995 Annual Meeting of Shareholders to be held on
August 31, 1995, or at any adjournment thereof. The undersigned directs that
this proxy be voted as set forth on the other side of this proxy card:
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
- --------------------------------------------------------------------------------
-FOLD AND DETACH HERE-
