<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.com, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(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:
-------------------------------------------------------------------------
Notes:
<PAGE>
[LOGO OF EGGHEAD.COM, INC.]
22705 EAST MISSION AVE.
LIBERTY LAKE, WASHINGTON 99019
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, SEPTEMBER 2, 1998
----------------
Notice is hereby given that the Annual Meeting of Shareholders of
EGGHEAD.COM, INC. (the "Company") will be held at 10:00 a.m. local time on
Wednesday, September 2, 1998, in the Columbian A Room of the Sheraton Portland
Airport Hotel, 8235 N.E. Airport Way, Portland, Oregon. Free parking is
available 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 the Company's Board of Directors to
serve for three year terms; and
2. 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 7, 1998, will be entitled to notice of and to vote at the meeting.
By Order of the Board of Directors
/s/ Brian W. Bender
Brian W. Bender
Secretary
Liberty Lake, Washington
July 30, 1998
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.COM, INC.
22705 EAST MISSION AVE.
LIBERTY LAKE, WASHINGTON 99019
----------------
PROXY STATEMENT
----------------
INFORMATION REGARDING PROXIES
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Egghead.com, Inc. (the "Company") for use
at the 1998 Annual Meeting of Shareholders of the Company (the "1998 Annual
Meeting"), and any adjournment thereof, to be held on Wednesday, September 2,
1998, at 10:00 a.m. local time, in the Columbian A Room at the Sheraton
Portland Airport Hotel, 8235 N.E. Airport Way, Portland, Oregon. Only
shareholders of record on the books of the Company at the close of business on
July 7, 1998 (the "Record Date"), will be entitled to notice of and to vote at
the 1998 Annual Meeting.
It is anticipated that these proxy solicitation materials and a copy of the
Company's 1998 Annual Report to Shareholders will be sent to shareholders of
record on or about July 30, 1998.
Any shareholder giving a proxy has the power to revoke it at any time before
it is exercised by (i) delivering written notice of revocation or another
proxy dated as of a later date to Brian W. Bender, Secretary of the Company,
or (ii) voting in person at the 1998 Annual Meeting.
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 23,667,589
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 1998 Annual
Meeting.
Under Washington law and the Company's Articles of Incorporation, if a
quorum is present, the nominees for director at the 1998 Annual Meeting who
receive the greatest number of votes cast for the election of directors will
be elected directors at the 1998 Annual Meeting. Shareholders do not have the
right to cumulate their votes in the election of directors. In the election of
directors, abstentions and broker nonvotes will have the practical effect of a
vote withheld from that nominee.
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 after appointed, for a term ending at the annual meeting of
shareholders at which the term of the class to which the director was
appointed ends. Each director serves until his or her successor is elected and
qualified or until his or her earlier death, resignation, or removal.
Information is provided below with respect to the three nominees for Class I
director, as well as those other directors whose terms will continue after the
1998 Annual Meeting. Unless otherwise instructed, the persons named in the
accompanying proxy intend to vote shares represented by properly executed
proxies FOR the three nominees to the Board named below. Although the Board
anticipates that Mr. Gibson, Mr. Wall and Ms. White 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.
<PAGE>
NOMINEES FOR ELECTION
CLASS I DIRECTORS (TERMS TO EXPIRE IN 2001)
C. SCOTT GIBSON, age 46, has been nominated by the Board for election at the
1998 Annual Meeting as a Class I director of the Company. From March 1992 to
the present, Mr. Gibson has served as a strategic advisor to eight high
technology companies spanning computer hardware, enterprise software and the
Internet. From 1983 to March 1992, Mr. Gibson served as the President and
Chief Operating Officer of Sequent Computer Systems, a computer manufacturing
company which he co-founded. He is a member of the Board of Directors of
Radisys Corporation, Integrated Measurement Systems, Inc., TriQuint
Semiconductor, Inc., Inference Corporation, and Adaptive Solution Corporation.
ROBERT T. WALL, age 53, has been nominated by the Board for election at the
1998 Annual Meeting as a Class I director of the Company. Since June 1997 Mr.
Wall has served as Chief Executive Officer of Clarity Wireless, Inc., a high
speed wireless data communications company. From April 1994 until August 1997,
Mr. Wall served as Chairman, President and Chief Executive Officer of Theatrix
Interactive, Inc., a consumer educational software publisher. Mr. Wall also
serves as President of On Point Developments, Inc., a venture management
company which he founded in 1984. Mr. Wall is a director of Network Appliance,
Inc., a network data server company.
KAREN WHITE, age 36, has been nominated by the Board for election at the
1998 Annual Meeting as a Class I director. Since April 1998, Ms. White has
served as the Senior Vice President, World Wide Business Development and
Emerging Markets, for Oracle Corporation ("Oracle"), a software company that
is currently the largest supplier of software for information management. Ms.
White joined Oracle in July 1993 as Vice President of Strategy and in August
1994 she became Senior Vice President of Strategy & Planning. From February
1996 until June 1997, she also served as head of Strategic Marketing &
Business Development for Oracle. From June 1997 to April 1998, she was the
head of World Wide Marketing for Oracle. Prior to July 1993, Ms. White was
Chief Executive Officer for EGIS Corporation, an international high technology
consulting company.
CONTINUING BOARD MEMBERS
CONTINUING CLASS II DIRECTORS (TERMS TO EXPIRE IN 1999)
JONATHAN W. BRODEUR, age 38, has been a director of the Company since August
1997. Mr. Brodeur has served as a director and President of Surplus Software,
Inc. ("Surplus Direct") since July 1995. From June 1993 to June 1995, Mr.
Brodeur was the Chief Operating/Operations Improvement Officer for Connecticut
Spring and Stamping, a high-precision manufacturing company. Mr. Brodeur
served as Senior Manager at KPMG Peat Marwick LLP's National Consulting
Practice from August 1988 to June 1993.
MELVIN A. WILMORE, age 52, has been a director of the Company since July
1996. Mr. Wilmore has been a director and President since March 1993, and
Chief Operating Officer since December 1991, of Ross Stores, Inc., which
operates a nationwide chain of retail off-price apparel stores. From October
1989 to December 1991, Mr. Wilmore was President and Chief Executive Officer
of Live Specialty Retail, a division of LIVE Entertainment, Inc., which
operates a chain of prerecorded software home entertainment stores. He also
serves as a director of Hechinger Company.
CONTINUING CLASS III DIRECTORS (TERMS TO EXPIRE IN 2000)
GREGORY J. BOUDREAU, age 35, has been a director of the Company since August
1997. Mr. Brodeur is one of the founders of Surplus Direct and has served as
its Chief Executive Officer, Secretary, and a director since its inception in
June 1992. From October 1985 to June 1992, Mr. Boudreau owned and operated
Software Wholesalers, a liquidation oriented wholesaler of computer products.
GEORGE P. ORBAN, age 52, has been a director of the Company since November
1985. Mr. Orban has served as Chairman of the Board of the Company since May
1996 and as the Company's Chief Executive Officer
2
<PAGE>
since January 1997. Mr. Orban is Managing Partner of Orban Partners, a private
investment company, and a director and cofounder of Ross Stores, Inc. Mr.
Orban is a former director of Surplus Direct.
ERIC P. ROBISON, age 38, has been a director of the Company since July 1996.
Since January 1994, Mr. Robison has been a Business Development Associate for
Vulcan Ventures Inc., a venture capital firm wholly owned by Paul G. Allen,
where Mr. Robison is responsible for providing strategic business consultation
to the companies controlled by Mr. Allen. From January 1992 to December 1993,
Mr. Robison served as Vice President of The Stanton Robison Group, Inc., a
business development, marketing and advertising consulting firm which he
cofounded. He also serves as a director of ARI Network Services, Inc. and
C/NET, Inc.
CURRENT DIRECTORS WITH TERMS EXPIRING AT 1998 ANNUAL MEETING
RICHARD P. COOLEY, age 74, currently serves as a Class I director and will
be retiring from service on the Board on September 2, 1998, the date of the
1998 Annual Meeting, concurrent with the expiration of his three-year term.
Mr. Cooley has been a Director of the Company since September 1992 and served
as Chairman of the Board from February 1993 to June 1993. Mr. Cooley was
Chairman of Seattle-First National Bank ("Seafirst Bank") from January 1983 to
December 1990, was 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 Ackerly Communications,
Inc.
SAMUEL N. STROUM, age 77, currently serves as a Class I director and will be
retiring from service on the Board on September 2, 1998, the date of the 1998
Annual Meeting, concurrent with the expiration of his three-year term. Mr.
Stroum has been a Director of the Company since June 1984. He is the principal
of Samuel Stroum Enterprises, a private investment company, and Chairman of
the Board of MACS Air, Inc., an air charter company. From 1975 to April 1991,
Mr. Stroum served as a director of Seafirst Bank and Seafirst Corporation. Mr.
Stroum also served on the Executive Committee of Seafirst Corporation and was
Chairman of its Organization Committee. He is the senior Regent and a past
President of the Board of Regents of the University of Washington.
BOARD AND COMMITTEE MEETINGS
The Board held nine meetings during the Company's 1998 fiscal year, which
ended on March 28, 1998.
The Board's Audit Committee met once during fiscal year 1998. The Committee
consists of two non-employee directors who are currently Mr. Robison and Mr.
Cooley (Chairman). The Committee's function is to (i) recommend to the Board
the independent auditors to be retained by the Company; (ii) review the scope
of proposed audits and audit procedures with the independent auditors and
financial management of the Company; (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 three meetings during fiscal year
1998. The Committee consists of two non-employee directors who are currently
Messrs. Cooley and Stroum (Chairman). The function of the Compensation
Committee 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 met once during fiscal year 1998. The
Committee consists of the four non-employee directors who are currently
Messrs. Cooley, Stroum, Robison and Wilmore (Chairman). The Committee's
function is to recommend nominees for election as directors at annual meetings
of shareholders
3
<PAGE>
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 1999 Annual Meeting of Shareholders which are
submitted to the Secretary of the Company by April 8, 1999.
Each director attended at least 75% of all meetings of the Board and
committees of the Board to which he was assigned that were held during fiscal
year 1998.
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 $1,000 for each Board 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.
In addition, each nonemployee director is granted an option to purchase
22,500 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. Any non-employee director who is initially elected or
appointed other than at an annual shareholders meeting is granted an option to
purchase up to 7,500 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. All of the current
nonemployee directors were granted a new option to purchase an additional
22,500 shares of Common Stock on the day after the 1996 Annual Shareholders'
Meeting, two-thirds of which will be vested immediately after the 1998 Annual
Meeting.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
BRIAN W. BENDER, age 49, joined the Company initially in May 1995, and
served as Chief Financial Officer, Vice President and Secretary until his
resignation from the Company in May 1996. Mr. Bender rejoined the Company in
November 1996 and since that time has served as Chief Financial Officer, Vice
President and Secretary. From May 1996 to November 1996, Mr. Bender served as
Senior Vice President and Chief Financial Officer of Proffitts, Inc., an
operator of department stores. From May 1993 to May 1995, Mr. Bender served as
Senior Vice President, Controller and Assistant Treasurer of Younkers, Inc., a
department store chain.
TOMMY E. COLLINS, age 41, joined the Company in July 1995. He served as
Director of Management Information Systems ("MIS") until May 1996 when he was
promoted to Vice President of MIS. He currently serves as Vice President and,
subsequent to April 1998, also as Chief Technology Officer. From August 1990
to July 1995, Mr. Collins served as Director of Corporate Information Services
at Key Tronic Corporation, an independent computer peripheral manufacturing
company.
NORMAN F. HULLINGER, age 38, joined the Company in September 1996. He served
as Vice President of Store Operations from September 1996 to April 1998. Since
April 1998 he has served as Vice President of Sales and Operations. From
January 1993 to September 1996, he was Vice-President of Store Operations,
Distribution and Real Estate at California-based Aaron Brothers, Inc., a
retail art supply chain and wholly owned subsidiary of Michaels Stores Inc., a
crafts and art supply chain.
JAMES F. KALASKY, age 48, joined the Company in July 1995. He served as
Merchandising Manager from July 1995 to May 1996, and as Vice President of
Merchandising from May 1996 to April 1998. Since April 1998 he has served as
Vice President of Merchandising and Advertising. From November 1994 to July
1995, Mr. Kalasky was Director of Merchandising at Damark International, a
membership-driven consumer direct-marketing company, and from April 1992 to
November 1994, Vice President of Merchandising at Best Buy Co., Inc., a
consumer electronics retail chain.
4
<PAGE>
COMMON STOCK OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of July 7, 1998 by: (i) each person
known by the Company to own beneficially 5% or more of the Company's
outstanding Common Stock; (ii) each director and nominee for director, (iii)
each executive officer of the Company for whom information is given in the
Summary Compensation Table in this Proxy Statement; and (iv) all directors,
nominees, and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES OF
EGGHEAD.COM, INC. COMMON STOCK
---------------------------------------
NUMBER OF SHARES PERCENT OF SHARES
BENEFICIALLY OWNED(1) OUTSTANDING
--------------------- -----------------
<S> <C> <C>
GREATER THAN 5% SHAREHOLDERS
Morgan Stanley, Dean Witter, Discover &
Co.(2)(3)............................. 2,374,406 10.0%
1585 Broadway
New York NY 10036
Vulcan Ventures, Inc.(4)............... 1,368,934 5.8%
110 - 110th Ave. N.E., #550
Bellevue, Washington 98004
EXECUTIVE OFFICERS
Brian W. Bender(5)..................... 65,000 *
Tommy E. Collins(6).................... 67,222 *
James F. Kalasky(7).................... 65,000 *
George P. Orban(8)..................... 1,221,494 5.0%
22705 East Mission Ave.
Liberty Lake, WA 99019
Norman F. Hullinger(9)................. 45,000 *
DIRECTORS AND NOMINEES
Gregory J. Boudreau.................... 1,475,824 6.2%
489 N. 8th Street
Hood River, OR 97031
Jonathan W. Brodeur(10)................ 227,252 *
Richard P. Cooley(11).................. 45,000 *
C. Scott Gibson ....................... -- --
Eric P. Robison(12).................... 8,750 *
Samuel N. Stroum(13)................... 195,096 *
Robert T. Wall......................... -- --
Karen White............................ -- --
Melvin A. Wilmore(14).................. 16,250 *
Directors and executive officers as a
group (11 persons)(15)................ 3,431,888 14.3%
</TABLE>
- ---------------------
* Less than one percent.
[Footnotes to this table appear on the following page.]
5
<PAGE>
(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.
(2) Deemed beneficial owner of the shares of Common Stock by virtue of the
direct or indirect investment and/or voting discretion possessed by such
person pursuant to the provisions of investment advisory agreements with
clients or other fiduciary arrangements such as partnership agreements.
(3) Based on Schedule 13G filed February 12, 1998, with the Securities and
Exchange Commission (the "Commission"). Morgan Stanley Asset Management
Ltd. ("MSAM"), a wholly-owned subsidiary of Morgan Stanley, Dean Witter,
Discover & Co. ("MSDWD"), manages accounts that have the right to receive
or the power to direct the receipt of dividends from, or the proceeds
from the sale of such securities; no such account holds more than 5% of
the class. MSDWD has shared voting power for 2,264,406 shares and shared
dispositive power for 2,374,406 shares. MSAM has shared voting power for
2,115,823 shares and shared dispositive power for 2,225,823 shares
(4) Based on Amendment No. 3 to Schedule 13D dated February 4, 1998 as filed
with the Commission. Vulcan Ventures, Inc. is a private venture capital
firm of which Paul Allen, former director of the Company, is President
and sole shareholder.
(5) Represents 5,000 shares held directly by Mr. Bender and 60,000 shares
subject to options that are exercisable currently or within 60 days of
July 7, 1998.
(6) Represents 9,722 shares held directly by Mr. Collins and 57,500 shares
subject to options that are exercisable currently or within 60 days of
July 7, 1998.
(7) Represents 5,000 shares held directly by Mr. Kalasky and 60,000 shares
subject to options that are exercisable currently or within 60 days of
July 7, 1998.
(8) Represents 84,000 shares held by Orban Partners, a general partnership of
which Mr. Orban is Managing Partner, 107,494 shares held by Mr. Orban and
1,030,000 shares subject to options that are exercisable currently or
within 60 days of July 7, 1998. Mr. Orban is a director in addition to
being a named executive officer.
(9) Represents 5,000 shares held directly by Mr. Hullinger and 40,000 shares
subject to options that are exercisable currently or within 60 days of
July 7, 1998.
(10) Represents 208,614 shares held directly by Mr. Brodeur and 18,638 shares
held in trusts for the benefit of Mr. Brodeur's children. Mr. Brodeur
disclaims beneficial ownership of the 18,638 shares held in such trusts.
(11) Represents 45,000 shares subject to options held by Mr. Cooley that are
exercisable currently or within 60 days of July 7, 1998.
(12) Represents 8,750 shares subject to options held by Mr. Robison that are
exercisable currently or within 60 days of July 7, 1998.
(13) Represents 150,002 shares held directly by Mr. Stroum, 94 shares as to
which Mr. Stroum shares voting and investment power with his spouse and
45,000 shares subject to options held by Mr. Stroum that are exercisable
currently or within 60 days of July 7, 1998.
(14) Represents 16,250 shares subject to options held by Mr. Wilmore that are
exercisable currently or within 60 days of July 7, 1998.
(15) Includes 1,362,500 shares subject to options held by such directors and
executive officers that are exercisable currently or within 60 days of
July 7, 1998.
6
<PAGE>
EXECUTIVE COMPENSATION
ANNUAL AND LONG TERM COMPENSATION
The following table sets forth annual and long-term compensation for
services rendered during fiscal years 1998, 1997, and 1996, by George P.
Orban, the Company's Chief Executive Officer, and the other four most highly
compensated executive officers of the Company (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------ ------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
POSITION YEAR ($)(1) ($) ($) OPTIONS (#) ($)
- ------------------ ------ ------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
George P. Orban(2)...... 1998 300,000 0 0 0 300
Chief Executive Officer 1997 35,766 0 0 1,022,500 220,000
Brian W. Bender(3)...... 1998 225,000 37,500(4) 0 80,000(5) 26,097
Vice President, Chief 1997 117,705 0 0 40,000 33,950
Financial Officer 1996 196,442 30,080 0 45,000(6) 49,703
and Secretary
Norman F. Hullinger(7).. 1998 155,000 37,500(4) 0 80,000(5) 24,002
Vice President, Sales
and 1997 86,442 0 0 40,000 11,588
Operations
Tommy E. Collins(8)..... 1998 148,846 37,500(4) 0 80,000(9) 216
Chief Technology
Officer............... 1997 132,692 20,000 0 30,000 2,843
James F. Kalasky(10).... 1998 170,000 37,500(4) 0 80,000(5) 200
Vice President of 1997 150,769 5,000 0 30,000 3,088
Merchandising &
Advertising
</TABLE>
- ---------------------
(1) Fiscal 1998, 1997 and 1996 each had 52 weeks.
(2) Mr. Orban commenced employment as the Chief Executive Officer of the
Company in January 1997. Salary shown for fiscal year 1997 is for a
partial fiscal year's employment. All Other Compensation for fiscal year
1998 represents amounts paid for Mr. Orban's relocation costs associated
with the reorganization of some of the Company's offices to Portland,
Oregon and for fiscal year 1997 represents consulting fees paid to Retail
Enterprises, Inc., a firm wholly-owned by Mr. Orban.
(3) Mr. Bender joined the Company initially in May 1995, resigning in May
1996 and rejoining in November 1996. The salary shown for each of fiscal
years 1997 and 1996 is for a partial fiscal year's employment. All Other
Compensation for fiscal year 1998 represents amounts paid for Mr.
Bender's relocation costs associated with his re-employment with the
Company ($25,996) and premiums paid by the Company on a split dollar life
insurance policy ($101). All Other Compensation for fiscal year 1997 and
1996 represents amounts paid for Mr. Bender's relocation costs associated
with his re-employment and initial employment, respectively, with the
Company.
(4) Represents the fair market value, on the date of grant, of 5,000 shares
of the Company's Common Stock granted to this executive officer,
effective June 5, 1998. See "EXECUTIVE COMPENSATION--Board Compensation
Committee Report on Executive Compensation."
(5) Options granted in fiscal year 1998 represent an option for 40,000 shares
granted in connection with the repricing in exchange for an option for
40,000 shares originally granted in fiscal year 1997 that were canceled
in connection with the repricing, and an additional option for 40,000
shares granted in fiscal year 1998. See "EXECUTIVE COMPENSATION--Report
on Option Repricing."
7
<PAGE>
(6) These stock options expired pursuant to Mr. Bender's resignation from the
Company in May 1996.
(7) All Other Compensation for fiscal 1998 represents premiums in the amount
of $214 paid by the Company on a split dollar life insurance policy and
the amount of $23,788 paid for Mr. Hullinger's relocation costs
associated with the reorganization of some of the Company's offices to
Portland, Oregon. Mr. Hullinger's salary shown for fiscal year 1997
represents a partial year's employment. All Other Compensation for fiscal
year 1997 represents amounts paid for Mr. Hullinger's relocation costs
associated with his initial employment with the Company. Mr. Hullinger's
employment with the Company commenced in September 1996.
(8) All Other Compensation for fiscal 1998 represents premiums paid by the
Company on a split dollar life insurance policy. The bonus paid in fiscal
1997 relates to the completion of the sale of the Company's Corporate,
Government and Education ("CGE") Division. All Other Compensation for
fiscal 1997 represents Company matching contributions under the Company's
401(k) savings plan. Mr. Collins was not an executive officer in fiscal
1996.
(9) Options granted in fiscal year 1998 represent an option for 35,000 shares
granted in connection with the repricing in exchange for options for
30,000 shares originally granted in fiscal year 1997 and for 5,000 shares
originally granted in fiscal year 1996 that were canceled in connection
with the repricing, and an additional option for 45,000 shares granted in
fiscal year 1998. See "EXECUTIVE COMPENSATION--Report on
Option Repricing."
(10) All Other Compensation for fiscal 1998 represents premiums paid by the
Company on a split dollar life insurance policy. The bonus paid in fiscal
1997 relates to the completion of the sale of the Company's CGE Division.
All Other Compensation for fiscal 1997 represents Company matching
contributions under the Company's 401(k) savings plan. Mr. Kalasky was
not an executive officer in fiscal 1996.
OPTION GRANTS IN FISCAL YEAR 1998
The following table sets forth stock option grants made during the fiscal
year ended March 28, 1998, to the Company's Chief Executive Officer, and the
other Named Executive Officers, pursuant to the Company's Amended 1993
Employee Stock Option Plan.
OPTION GRANTS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE
--------------------------------------------------------------- AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL FAIR STOCK PRICE
SECURITIES OPTIONS MARKET APPRECIATION
UNDERLYING GRANTED TO VALUE ON FOR OPTION TERM
OPTIONS VESTING EMPLOYEES EXERCISE DATE OF ---------------
GRANTED REFERENCE IN FISCAL PRICE GRANT EXPIRATION 5% 10%
NAME: (#)(1) DATE YEAR ($/SHARE) ($/SHARE) DATE ($)(2) ($)(2)
- ----- ---------- --------- ---------- --------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
George P. Orban(3)...... -0- -- -- -- -- -- -- --
Brian W. Bender......... 40,000(4) 11/29/96 2.81% 4.3750 3.8750 11/29/06 77,480 227,030
40,000 05/01/97 2.81% 4.8125 4.8125 05/01/07 121,063 306,796
Tommy E. Collins........ 5,000(4) 06/07/95 0.35% 4.3750 3.8750 06/07/05 9,685 28,379
30,000(4) 05/03/96 2.11% 4.3750 3.8750 05/03/06 58,110 170,273
45,000 05/01/97 3.16% 4.8125 4.8125 05/01/07 136,195 345,145
Norman F. Hullinger..... 40,000(4) 09/03/96 2.81% 4.3750 3.8750 09/03/06 77,480 227,030
40,000 05/01/97 2.81% 4.8125 4.8125 05/01/07 121,063 306,796
James F. Kalasky........ 10,000(4) 08/07/95 0.70% 4.3750 3.8750 08/07/05 19,370 56,758
30,000(4) 05/03/96 2.11% 4.3750 3.8750 05/03/06 58,110 170,273
40,000 05/01/97 2.81% 4.8125 4.8125 05/01/07 121,062 306,796
</TABLE>
- ---------------------
[Footnotes to this table appear on the following page.]
8
<PAGE>
(1) Except as otherwise noted in footnote (4) below, the options shown in the
above table are nonqualified options, have a 10-year term from the date of
grant and vest over a three-year period with the following vesting
schedule: one-sixth on the first anniversary of grant; one-third on the
second anniversary of grant; and one-half on the third anniversary of
grant. The Vesting Reference Date is the date of grant, except that for a
repriced option the Vesting Reference Date is the date of grant of the
original, underwater option for which the repriced option was exchanged.
Upon the occurrence of certain business combinations, the exercisability
of the options would be accelerated unless the options are assumed by the
surviving or acquiring corporation.
(2) Represent amounts that may be realized upon exercise of the options
immediately prior to their expiration assuming the specified compounded
rates of appreciation on the base price (5% and 10%) of the Common Stock
over the option terms. The 5% and 10% amounts are calculated based on
rules required by the Commission and do not reflect the Company's estimate
of future stock price growth. Actual gains, if any, on stock option
exercises depend on the timing of such exercises, the future performance
of the Common Stock and overall stock market conditions. 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.
(3) Mr. Orban's options were not included in the repricing program and he was
not granted any new options during fiscal year 1998.
(4) These options were granted in fiscal year 1998 under the Company's
repricing program which allowed employees to exchange underwater options
for options with the exercise price shown under the column "Exercise
Price". Each of these new options has a term ending on the tenth
anniversary of the date of issuance of the option for which it was
exchanged, and vests in accordance with the vesting schedule applicable to
the option for which it was exchanged, except that the terms of the
repricing program required that each repriced option generally was not
permitted to be exercised during a one year "blackout" period following
April 23, 1997, irrespective of vesting. The repriced options vest
according to the following schedule: one-sixth on the first anniversary of
the Vesting Reference Date; one-third on the second anniversary of the
Vesting Reference Date; and one-half on the third anniversary of the
Vesting Reference Date.
OPTION EXERCISES IN FISCAL YEAR 1998 AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to stock option
grants made under the Company's stock option plans to the Chief Executive
Officer and the other Named Executive Officers, including (i) the number of
shares of Common Stock purchased upon exercise of options in fiscal year 1998;
(ii) the net value realized upon such exercise; (iii) the number of
unexercised options outstanding at March 28, 1998; and (iv) the value of
unexercised in-the-money options at March 28, 1998.
AGGREGATED OPTION EXERCISES IN FISCAL 1998
AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
ON VALUE YEAR END(#) FISCAL YEAR END(1)
EXERCISE REALIZED ------------------------- -------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George P. Orban......... -0- -0- 853,600 191,400 $4,120,079 $937,538
Brian W. Bender......... -0- -0- 20,000 60,000 118,750 338,750
Tommy E. Collins........ -0- -0- 7,501 72,499 44,538 410,776
Norman F. Hullinger..... -0- -0- 6,668 73,332 39,592 417,909
James F. Kalasky........ -0- -0- 10,001 69,999 59,381 398,120
</TABLE>
- ---------------------
(1) Values are based on the difference between the option exercise price and
the fair market value on March 28, 1998 ($7.50 per share as quoted on the
Nasdaq Stock Market), multiplied by the respective number of shares
exercisable or unexercisable.
9
<PAGE>
TEN-YEAR OPTION/SAR REPRICINGS
The following table provides information on repricing of options held by the
Named Executive Officers during fiscal year 1998. Other than pursuant to the
repricing program implemented in April 1997, the Company has not repriced any
stock options during the past ten years.
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
MARKET
NUMBER OF PRICE OF EXERCISE
SECURITIES STOCK AT PRICE AT LENGTH OF
UNDERLYING TIME OF TIME OF NEW EXERCISE ORIGINAL OPTION
OPTIONS/SAR'S REPRICING REPRICING PRICE TERM REMAINING AT
NAME DATE REPRICED (#) ($/SHARE) ($/SHARE) ($/SHARE)(1) DATE OF REPRICING
- ---- ------- ------------- --------- --------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
George Orban(2)......... -- -0- -0- -0- -0- --
Brian W. Bender......... 4/23/97 40,000 3.875 6.1875 4.375 9 years, 222 days
Tommy E. Collins........ 4/23/97 5,000 3.875 13.5000 4.375 8 years, 47 days
4/23/97 30,000 3.875 10.9375 4.375 9 years, 12 days
Norman F. Hullinger..... 4/23/97 40,000 3.875 5.8750 4.375 9 years, 135 days
James F. Kalasky........ 4/23/97 10,000 3.875 12.0000 4.375 8 years, 108 days
4/23/97 30,000 3.875 10.9375 4.375 9 years, 12 days
</TABLE>
- ---------------------
(1) The Compensation Committee approved an option repricing program for
employees of the Company other than executive officers and certain
individuals on April 4, 1997, pursuant to which such employees were
allowed to exchange options with exercise prices in excess of the then
current fair market value of the Common Stock for new options having
exercise prices equal to the then current fair market value of the Common
Stock, $4.375 per share. On April 23, 1997, the Compensation Committee
approved the option repricing program for executive officers and certain
other individuals (excluding Mr. Orban). The repriced options were granted
to the Named Executive Officers with an exercise price of $4.375 per
share, which exceeded the fair market value of the Common Stock on the
grant date, to cause the exercise price of the repriced options granted to
the Named Executive Officer to be equivalent to, and not more favorable
than, the exercise price of the repriced options granted to employees on
April 4, 1998.
(2) Mr. Orban's stock options were not repriced.
REPORT ON OPTION REPRICING
On April 4, 1997, the Compensation Committee of the Board of Directors
approved a plan pursuant to which employees (other than executive officers and
certain other individuals) were allowed to exchange options with exercise
prices in excess of the then current fair market value of the Common Stock for
new options having exercise prices equal to the then current fair market value
of the Common Stock, $4.375 per share. On April 23, 1997, the Compensation
Committee approved a similar plan for executive officers and certain other
individuals (other than the Chief Executive Officer) pursuant to which such
persons were allowed to exchange options with exercise prices in excess of the
then current fair market value per share of the Common Stock for new options
with an exercise price per share of $4.375, which exceeded the fair market
value per share of the Common Stock on the grant date and which was selected
in order to cause the exercise price of the repriced options granted to such
persons to be equivalent to, and not more favorable than, the exercise price
of the repriced options granted to employees on April 4, 1997.
The Compensation Committee believes that stock options are a significant
factor in the Company's ability to retain and provide incentives for employees
and executives. The Compensation Committee further believes that, at their
original exercise prices, the disparity between the exercise price of these
options and the market prices for the Common Stock at the time the repricing
plan was implemented did not provide meaningful incentives to the employees
and executives holding the options. The Compensation Committee also believes
that the repricing plan benefits the Company's shareholders by strengthening
the Company's ability to retain
10
<PAGE>
experienced and productive employees and executives, improving the morale of
employees and executives and creating greater incentives for employees and
executives to improve the Company's financial performance.
COMPENSATION COMMITTEE
Richard P. Cooley
Samuel N. Stroum, Chairman
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.
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 generally consist of base salary and
long-term incentive compensation in the form of stock options, and may, from
time to time, include incentive compensation in the form of bonuses. The
Committee also administers and reviews employment agreements between the
Company and its executives.
Compensation payments in excess of $1 million to the Chief Executive Officer
or other Named Executive Officers are subject to a limitation on deductibility
for the Company under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"). Certain performance-based compensation is not subject to
the limitation on deductibility. The Compensation Committee does not expect
cash compensation in 1998 to its Chief Executive Officer or any other
executive officer to materially exceed $1 million. The Company's Amended 1993
Stock Option Plan is designed to qualify for the performance-based exception
to the $1 million limitation on deductibility of compensation payments.
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,
the executive's level of responsibility, prior experience, breadth of
knowledge and job performance, and the amount of increase necessary to retain
the executive. The Company does not have a target range for base salaries for
executive officers.
Annual Incentive Compensation. In fiscal year 1998, cash bonuses for
executives were considered at the end of the fiscal year by the Committee in
consultation with certain members of Company management. Such consultation
took into consideration the Company's financial performance, including the
Company's earnings per share, and the Company's restructuring and
reorganization. The Committee recognized the extraordinary efforts of the
executives with respect to the restructuring and reorganization of the Company
but desired to conserve the Company's cash for the development and expansion
of its Internet business. Therefore, in order to facilitate retention of the
key executives, reward the key executives for their efforts in connection with
the transition to Internet retailing and motivate them to continue such
efforts, the Committee recommended that the Board grant, and the Board
granted, 5,000 shares of the Company's Common Stock to each of the four Named
Executive Officers, Brian W. Bender, Tommy E. Collins, James F. Kalasky,
Norman F. Hullinger, and to the President of Surplus Direct, Jonathan W.
Brodeur.
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
has granted stock options with an exercise
11
<PAGE>
price equal to the fair market value of the Common Stock on the date of grant
and a three year vesting schedule for options granted prior to October 1997,
and a four year vesting schedule for options granted subsequent to October
1997.
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 fiscal year 1998, the Committee granted options to
purchase 1,423,014 shares of Common Stock, of which options to purchase
380,000 shares were granted to executive officers, four of which are Named
Executive Officers, and the remaining 1,043,014 were granted to a broad range
of employees, generally fixed by salary grade. Within the group of executive
officers (other than the Chief Executive Officer), the exact number of shares
subject to options was recommended to the Committee by the Chief Executive
Officer. Of the total options granted in fiscal year 1998, options for a total
of 465,014 shares were granted in connection with the repricing. See
"EXECUTIVE COMPENSATION-- Report on Option Repricing".
Chief Executive Officer Compensation. Mr. Orban was elected Chairman of the
Company in May 1996 and Chief Executive Officer of the Company in January
1997. Upon commencement of his employment, the Committee granted Mr. Orban an
option to purchase 1,000,000 shares of Common Stock. In January 1997, the
Company entered into an employment agreement with Mr. Orban which expires on
August 31, 1998. Under the agreement, Mr. Orban receives, among other things,
an annual base salary of $300,000 and a retention incentive bonus of $750,000
if Mr. Orban's employment with the Company has not terminated prior to August
31, 1998. The agreement provides for a lump-sum payment of $1,600,000 payable
30 days after the termination by the Company of his employment during the term
of the agreement for any reason other than "cause" as defined in the
agreement, or payable in the event of a sale of substantially all of the
assets of the Company or a merger or business combination under certain
circumstances if Mr. Orban continues his employment through the completion of
such transaction. See "EXECUTIVE COMPENSATION--Employment Arrangements--Chief
Executive Officer's Employment Agreement; Change of Control Arrangement."
In approving Mr. Orban's employment and option arrangements, the Committee's
goal was to offer fair and competitive compensation that would attract and
retain Mr. Orban as the Chief Executive Officer and an equity incentive that
puts a substantial portion of Mr. Orban's compensation "at risk" and will
reward him for the successful performance of the Company. In addition, the
Committee believes that Mr. Orban's participation in the Company's stock price
appreciation through his stock option grant aligns his interests with those of
the shareholders.
COMPENSATION COMMITTEE
Richard P. Cooley
Samuel N. Stroum, Chairman
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
Each of Richard P. Cooley, Samuel N. Stroum, and Steven E. Lebow, served on
the Compensation Committee of the Board during fiscal year 1998.
On August 14, 1997, the Company merged with Surplus Software, Inc. dba
Surplus Direct, an Oregon corporation that became a wholly owned subsidiary of
the Company. Steven E. Lebow, a former director of the Company who served on
the Board of Directors during part of fiscal year 1998, is a Managing Director
of the Investment Banking Division of Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), an investment banking firm that assisted the Company with
the merger transaction. In that connection, DLJ was paid fees and expenses in
the aggregate amount of $546,860. This amount included out-of-pocket expenses,
including reasonable fees and expenses of its counsel, a fee of $300,000 in
respect of DLJ's opinion as to the fairness from a financial point of view of
the consideration payable by the Company in the Merger (without regard to the
conclusion reached in such opinion) and a stock performance-dependent
transaction fee. In addition, the Company agreed to indemnify DLJ in the event
of certain liabilities and expenses arising out of the Merger or
12
<PAGE>
the transactions in connection therewith, including liabilities under federal
securities laws. The terms of the fee arrangement with DLJ, which DLJ and the
Company believe are customary in transactions of this nature, were negotiated
at arm's length between the Company and DLJ, and the Board was aware of such
arrangements.
EMPLOYMENT ARRANGEMENTS
Employment Agreements. In fiscal 1998, the Company terminated Senior
Management Employment Agreements it had previously entered into with Brian W.
Bender, Norman F. Hullinger, Tommy E. Collins, and James F. Kalasky, which
agreements provided certain benefits if the employee's employment was
terminated by the Company for any reason other than "cause" or by the
executive for "good reason" (as both terms were defined in the agreements)
following a "change of control" of the Company. In lieu thereof, the Company
entered into new Executive Employment Agreements with its senior executive
officers, Brian W. Bender, Tommy E. Collins, James F. Kalasky and Norman F.
Hullinger.
The four Executive Employment Agreements provide certain benefits if, during
the three-year term of the agreement, the executive's employment is terminated
by the Company for any reason other than "cause", or by the executive for
"Good Reason" (as such terms are defined in the agreements). Such benefits
include (i) payment of the amount equal to the executive's annual base salary
in one lump sum within 10 days of the termination date; (ii) payment of the
executive's base salary for up to an additional six months after the end of
twelve months following the termination date for so long as the executive has
not commenced alternative employment; (iii) continuation of life insurance,
disability, medical and dental, and other similar employee benefits until the
earlier of eighteen months after the termination date or the date that the
executive commences alternative employment which provides comparable benefits;
and (iv) acceleration of the executive's outstanding and unexercised stock
options, on a pro rata basis determined based on the number of weeks the
executive was employed by the Company during the stock option's entire vesting
period, except in the case of a "change of control" of the Company (as such
term is defined in the agreement) in which case all options vest immediately
prior to such change of control. The Agreements also include non-solicitation
and non-competition restrictions which apply for a period of eighteen months
after the termination date, subject to limited exceptions.
Chief Executive Officer's Employment Agreement; Change of Control
Arrangement. In January 1997, the Company entered into an employment agreement
with George P. Orban, setting forth the terms and conditions of his employment
as Chairman of the Board and Chief Executive Officer (the "Agreement"). The
Agreement provides for an annual base salary of $300,000 through August 31,
1998, the end of the Agreement's term, and a lump-sum payment of $1,600,000
(the "Severance Obligation") payable (i) 30 days after termination by the
Company of his employment during the term of the Agreement for any reason
other than "cause," as defined in the Agreement, or (ii) in the event of a
sale of substantially all of the assets of the Company or a merger or business
combination of the Company in which holders of voting stock of the Company
before such a transaction own less than 50% of the voting stock of the
combined or surviving company following such a transaction, if Mr. Orban
continues his employment through the completion of such transaction. If Mr.
Orban is employed by the Company as of August 31, 1998, he would receive a
retention incentive bonus of $750,000 (the "Bonus Obligation"). Should Mr.
Orban choose to continue with the Company as a consultant from September 1,
1998 through March 31, 1999, he would receive $550,000 on April 1, 1999 (the
"Consulting Amount"). In addition, the Company will reimburse Mr. Orban in an
amount up to $3,000 per year in 1997, 1998 and 1999 for the cost of life
insurance premiums. The Agreement also provides that Mr. Orban may not compete
with the Company for two years after termination of his employment or until
August 31, 2000, whichever is later. The Company and Mr. Orban entered into a
Pledge Agreement, dated February 25, 1998, pursuant to which the Company
pledged cash assets in the amount of $1,600,000, and granted a security
interest in such assets to Mr. Orban, to secure performance of payment of the
Severance Obligation, Bonus Obligation and Consulting Amount under the
Agreement.
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
13
<PAGE>
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 Restated 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 so that all options would be
immediately exercisable. Any options not exercised would terminate upon
consummation of such a transaction.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
14
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The graph below shows a comparison of cumulative total shareholder returns
of the Company for the last five fiscal years ("Cumulative Shareholder
Returns") with (a) the cumulative total return of the University of Chicago's
Center for Research in Security Prices ("CRSP") Index for Nasdaq Stock Market
SIC Code 573--U.S., a retail trade line-of-business index of U.S. company
equities that includes, among others, consumer electronics retailers (the
"U.S. SIC 573 Index") and (b) the cumulative total return of the CRSP Index
for the Nasdaq Stock Market--U.S., a broad market equity index including U.S.
company equities ("Nasdaq U.S. Index").
The comparison assumes $100 was invested in the Company's Common Stock and
in each of the foregoing indices on April 2, 1993, and assumes reinvestment of
dividends, if any. The Company has not paid dividends. Dates on the horizontal
axis on the graph represent the last day of trading before the respective
fiscal year end. The stock performance shown on the graph below is not
necessarily indicative of future price performance.
[PERFORMANCE GRAPH APPEARS HERE]
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURNS
PERFORMANCE REPORT FOR
EGGHEAD.COM, INC.
COMPANY MARKET PEER
DATE INDEX INDEX INDEX
---- ------- ------ -----
04/02/93 100.000 100.000 100.000
04/30/93 101.563 98.700 95.835
05/28/93 107.813 104.592 100.507
06/30/93 101.563 105.074 92.749
07/30/93 89.063 105.199 94.334
08/31/93 90.625 110.636 98.438
09/30/93 87.500 113.931 108.726
10/29/93 92.188 116.491 110.091
11/30/93 107.813 113.019 107.311
12/31/93 112.500 116.170 101.624
01/31/94 118.750 119.696 95.977
02/28/94 118.750 118.579 91.489
03/31/94 107.813 111.286 81.768
04/29/94 106.250 109.842 76.172
05/31/94 98.438 110.110 71.921
06/30/94 90.625 106.082 66.613
07/29/94 82.813 108.258 67.377
08/31/94 85.938 115.160 69.878
09/30/94 89.063 114.865 73.044
10/31/94 106.250 117.123 72.791
11/30/94 128.125 113.237 75.334
12/30/94 146.875 113.554 70.541
01/31/95 134.375 114.192 69.530
02/28/95 131.250 120.230 65.252
03/31/95 106.250 123.796 61.892
04/28/95 118.750 127.694 59.653
05/31/95 128.125 130.988 61.943
06/30/95 167.188 141.604 70.677
07/31/95 164.063 152.013 72.020
08/31/95 150.000 155.095 71.531
09/29/95 101.563 158.662 64.990
10/31/95 85.938 157.752 56.334
11/30/95 100.000 161.456 51.943
12/29/95 80.469 160.595 42.652
01/31/96 76.563 161.387 41.084
02/29/96 72.656 167.529 39.907
03/29/96 133.594 168.085 44.872
04/30/96 121.875 182.030 49.169
05/31/96 148.438 190.388 55.579
06/28/96 139.063 181.806 53.192
07/31/96 115.625 165.617 41.962
08/30/96 103.125 174.896 40.448
09/30/96 75.000 188.274 34.991
10/31/96 64.063 186.194 31.735
11/29/96 77.344 197.704 32.408
12/31/96 65.625 197.526 28.756
01/31/97 67.188 211.566 29.332
02/28/97 64.063 199.864 32.350
03/27/97 57.813 191.145 29.797
04/30/97 57.813 192.656 27.289
05/30/97 58.594 214.488 31.655
06/30/97 49.219 221.056 31.261
07/31/97 79.688 244.391 35.236
08/29/97 81.250 244.019 37.549
09/30/97 112.500 258.457 38.899
10/31/97 120.313 245.068 34.803
11/28/97 90.625 246.297 35.914
12/31/97 81.250 242.362 33.997
01/30/98 98.438 249.969 38.413
02/27/98 120.313 273.438 40.097
03/27/98 128.906 281.510 42.768
The index level for all series was set to 100.0 on 04/02/93.
15
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1998, Steven E. Lebow, a former director of the Company, was a
party to certain transactions with the Company. See "EXECUTIVE COMPENSATION--
Compensation Committee Interlocks and Insider Participation."
Karen White, a nominee for election at the 1998 Annual Meeting as a Class I
director, currently serves as a Senior Vice President for Oracle Corporation
("Oracle"). See "ELECTION OF DIRECTORS--Nominees for Election." In May 1998,
the Company entered into a three-year Network Licensing Agreement with Oracle,
pursuant to which the Company purchased certain hardware, software and related
licenses and maintenance from Oracle which will permit the Company to use the
Oracle data bases and applications in the Company's Internet business. The
Company expects to make payments to Oracle of approximately $1,147,000 over
the three year term of the Agreement. The contract was negotiated at arms-
length prior to Ms. White's nomination by the Board's Nominating Committee for
election at the 1998 Annual Meeting.
Mr. Paul Allen is a shareholder and director of Microsoft Corporation and
the President and sole shareholder of Vulcan Ventures, Inc., a principal
shareholder of the Company. Eric P. Robison, director of the Company, is
employed by Vulcan Ventures, Inc. In fiscal year 1998, aggregate software
purchases by the Company directly from Microsoft were approximately $4,942,000
and were made on an arm's-length basis.
During fiscal year 1998, Gregory J. Boudreau, a director and principal
shareholder of the Company who is also employed by the Company, received a
salary of $118,500, part of which was paid by Surplus Direct prior to August
14, 1997 when the acquisition of Surplus Direct by the Company (the "Merger")
was consummated. In addition, after the Merger, Mr. Boudreau received a bonus
from Surplus Direct of $361,667 relating to his work associated with the
Merger, and $2,122 from Surplus Direct in matching payments to Surplus
Direct's 401(k) savings plan.
During fiscal year 1998, Jonathan W. Brodeur, a director of the Company and
President of Surplus Direct, was employed by the Company and received a salary
of $106,480, part of which was paid by Surplus Direct prior to the Merger date
of August 14, 1997. After the Merger, Mr. Brodeur was also paid a bonus by
Surplus Direct of $186,666 for his work associated with the Merger, and $2,257
by Surplus Direct in matching payments to its 401(k) savings plan.
Terence M. Strom, former Chief Executive Officer of the Company, was a
member of the Board until his resignation in January 1998. During fiscal year
1998, the Company paid Mr. Strom severance payments in the aggregate amount of
$300,000 in accordance with the Release and Termination Agreement dated
February 15, 1997 between Mr. Strom and the Company.
INDEPENDENT AUDITORS
The Company has selected Arthur Andersen LLP to continue as its independent
auditors for the fiscal year ending April 3, 1999. Representatives of Arthur
Andersen LLP are expected to attend the 1998 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 1998 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.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 Commission
ownership and changes in ownership of the Company's stock. Regulations
promulgated by the Commission 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
1998, its officers and directors complied with all applicable filing
requirements.
16
<PAGE>
SHAREHOLDER PROPOSALS FOR THE
1999 ANNUAL MEETING OF SHAREHOLDERS
Shareholder proposals to be presented at the 1999 Annual Meeting of
Shareholders must be received at the Company's executive offices by April 8,
1999, in order to be included in the Company's proxy statement and form of
proxy relating to that meeting.
AVAILABILITY OF ADDITIONAL INFORMATION
A copy of the Company's Annual Report on Form 10-K for the fiscal year ended
March 28, 1998 is available to shareholders without charge upon written
request to Brian W. Bender, Secretary of the Company, at 22705 East Mission
Avenue, Liberty Lake, Washington 99019.
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 $5,500, 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. The Company
will pay all the costs of solicitation of proxies.
By Order of the Board of Directors
/s/ Brian W. Bender
Brian W. Bender
Secretary
Liberty Lake, Washington
July 30, 1998
17
<PAGE>
PROXY
EGGHEAD.COM, INC.
ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF EGGHEAD.COM,
INC. (THE "BOARD"). The undersigned hereby appoints Brian W. Bender and George
P. Orban 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.com, Inc. that the undersigned would be entitled to vote
if personally present at the 1998 Annual Meeting of Shareholders (the "1998
Annual Meeting") to be held on September 2, 1998, or at any adjournment thereof.
The undesigned directs that this proxy be voted as follows.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED ON
THIS PROXY CARD. MANAGEMENT RECOMMENDS A VOTE FOR ALL NOMINEES DESIGNATED ON
THIS PROXY CARD. IF NO SPECIFICATIONS ARE MADE, A VOTE FOR ALL OF SAID NOMINEES
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.
(Continued and to be signed on the other side)
. FOLD AND DETACH HERE .
<PAGE>
Please mark
your votes X
as indicated
1. Election of Directors:
FOR all nominees WITHHOLD
(except as indicated to AUTHORITY to vote
the contrary below) for all nominees
[ ] [ ]
NOMINEES: C. SCOTT GIBSON, ROBERT T. WALL and KAREN WHITE
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, PRINT
THAT NOMINEE'S NAME IN THE FOLLOWING SPACE:
- --------------------------------------------------------------------------------
2. In their discretion, the holders of this proxy are authorized to vote upon
such other business as may properly come before the meeting.
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.
Date: , 1998
-----------------------------
-----------------------------------------
Signature
-----------------------------------------
Signature if held jointly
. FOLD AND DETACH HERE .
