<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
FOR ANNUAL AND TRANISITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
----------
EXCHANGE ACT OF 1934
For the fiscal year ended April 3, 1999.
OR
__________ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________
to________.
Commission file number 0-16930
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EGGHEAD.COM, INC.
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Washington 91-1296187
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
521 S.E. Chkalov Drive
Vancouver, Washington 98683
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (360) 883-3447
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Securities registered pursuant to Section 12(b) of the Act: None
-----
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value
----------------------------
(Title of Class)
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _____
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K _______
To the best of registrant's knowledge, the aggregate market value of the
voting stock held by non-affiliates of the registrant at May 28, 1999 was
approximately $313,000,000.
The number of shares of the registrants' common stock outstanding at May
28, 1999 was 30,733,602.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Executive Officers and Directors
The following table sets forth certain information with respect to our
executive officers and directors as of July 6, 1999.
<TABLE>
<CAPTION>
Name Age Position
- -------------------------- ---------- --------------------------------------------------
<S> <C> <C>
George P. Orban 53 Chairman of the Board, Chief Executive Officer and
Director
Brian W. Bender 50 Chief Financial Officer, Vice President and
Secretary
Tommy E. Collins 42 Vice President of Information Systems and Chief
Technology Officer
Norman F. Hullinger 39 Vice President of Sales and Operations
James F. Kalasky 49 Vice President of Merchandising and Advertising
Jonathan W. Brodeur 39 Director
C. Scott Gibson(1)(2) 47 Director
Eric P. Robison(2) 39 Director
Robert T. Wall(1) 54 Director
Karen White(1) 37 Director
Melvin A. Wilmore(2) 53 Director
</TABLE>
_______________
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
GEORGE P. ORBAN has been a director of Egghead.com since November 1985. Mr.
Orban has served as our Chairman of the Board since May 1996 and as our Chief
Executive Officer since January 1997. Mr. Orban is Managing Partner of Orban
Partners, a private investment company, and a director and co-founder of Ross
Stores, Inc. Mr. Orban is a former director of Surplus Software, Inc. ("Surplus
Direct").
BRIAN W. BENDER joined us in May 1995, and served as Chief Financial
Officer, Vice President of Finance and Secretary until May 1996. 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. Mr. Bender
rejoined Egghead.com in November 1996 and since that time has served as Chief
Financial Officer, Vice President and Secretary. Since August 1997, Mr. Bender
has also served as Secretary and Treasurer of Surplus Direct. From May 1993 to
May 1995, Mr. Bender served as Senior Vice President, Controller and Assistant
Treasurer of Younkers, Inc., a department store chain. From May 1990 to May
1993, Mr. Bender served as Chief Financial Officer of May D&F, a department
store chain that was consolidated into Foley's by its parent, the May Department
Stores Company. Mr. Bender spent 16 years with the May Department Stores
Company, during which time he held various senior executive and other positions.
TOMMY E. COLLINS joined us in July 1995. He has served as Vice President of
Information Systems since May 1996 and as Chief Technology Officer since April
1998. He served as Director of Information Systems from July 1995 to May 1996.
From August 1990 to July 1995, Mr. Collins served as Director of Corporate
Information Services and Material Requirements Planning at Key Tronic
Corporation, an independent computer peripheral manufacturing company.
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<PAGE>
NORMAN F. HULLINGER joined us in September 1996. Since April 1998, he has
served as Vice President of Sales and Operations. He served as Vice President of
Store Operations from September 1996 to April 1998. From December 1993 to
September 1996, he was Vice President of Store Operations, Distribution and Real
Estate at 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 joined us in July 1995. Since April 1998, he has served as
Vice President of Merchandising and Advertising. He served as Vice President of
Merchandising from May 1996 to April 1998, and as Merchandising Manager from
July 1995 to May 1996. 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.
JONATHAN W. BRODEUR has served as a director of Egghead.com since August
1997 and has served as Chief Marketing Officer since February 1998. He has
served as a director and President of 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.
C. SCOTT GIBSON has been a director of Egghead.com since September 1998.
Since March 1992, Mr. Gibson has served as a strategic advisor to several high
technology companies spanning computer hardware, enterprise software and the
Internet. From 1983 to March 1992, Mr. Gibson served as the President 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. and Inference Corporation.
ERIC P. ROBISON has been a director of Egghead.com 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 co-founded. He
also serves as a director of ARI Network Services, Inc., Mercata, Inc. and CNET,
Inc.
ROBERT T. WALL has been a director of Egghead.com since September 1998. Mr.
Wall serves as President of On Point Developments, LLC, a venture management
company which he founded in 1984. From June 1997 to November 1998, Mr. Wall
served as Chief Executive Officer and as a director of Clarity Wireless, Inc., a
broadband wireless data communications company. From April 1994 to August 1997,
Mr. Wall served as Chairman, President and Chief Executive Officer of Theatrix
Interactive, Inc., a consumer educational software publisher. Mr. Wall is a
director of Network Appliance, Inc., a network data server company.
KAREN WHITE has been a director of Egghead.com since September 1998. Since
May 1998, Ms. White has served as the Senior Vice President, World Wide Business
Development and Emerging Markets for Oracle Corporation, a leading supplier of
information management software & services. From June 1997 to May 1998, she
served as head of World Wide Marketing for Oracle. From February 1996 to June
1997, she served as head of Strategic Marketing & Business Development for
Oracle. From August 1994 to February 1996, she served as Senior Vice President
of Strategy & Planning for Oracle. Ms. White joined Oracle in July 1993, serving
as Vice President of Strategy until August 1994. Prior to July 1993, Ms. White
served as Chief Executive Officer for EGIS Corporation, an international high-
technology consulting company.
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<PAGE>
MELVIN A. WILMORE has served as a director of Egghead.com 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.
Compliance with Section 16(a) of the Exchange Act
Officers and directors of Egghead.com and persons who own more than ten
percent of our common stock are required to report to the Securities and
Exchange Commission ("SEC") ownership and changes in ownership of our common
stock. Regulations promulgated by the SEC require us to disclose to our
shareholders those filings that were not made on a timely basis. Based solely on
our review of copies of such reports received by us, or written representations
received from reporting persons that no such forms were required for those
persons, we believe that Norman F. Hullinger, Vice President of Operations,
filed one late Form 4 during fiscal year 1999; otherwise our officers and
directors complied with all applicable filing requirements on a timely basis.
ITEM 11. EXECUTIVE COMPENSATION
Annual and Long-Term Compensation
The following table sets forth compensation received for services rendered
during fiscal years 1999, 1998 and 1997 by George P. Orban, our Chief Executive
Officer, and our other four most highly compensated executive officers
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------------------------- -------------
Other Annual Securities All Other
Fiscal Salary Bonus Compensation Underlying Compensation
Name and Principal Position Year ($)(1) ($) ($) Options (#) ($)
- ---------------------------------- ------- ------- ---------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
George P. Orban(2)................ 1999 305,757 750,000 0 0 553,083
Chief Executive Officer 1998 300,000 0 0 -- 300
1997 35,766 0 0 1,022,500 220,000
Brian W. Bender(3)................ 1999 229,327 0 0 80,000 357
Chief Financial Officer, 1998 225,000 37,500(4) 0 80,000(5) 26,097
Vice President of Finance 1997 117,705 0 0 40,000 33,950
and Secretary
Tommy E. Collins(6)............... 1999 163,654 38,850 0 80,000 60,289
Vice President & Chief 1998 148,846 37,500(4) 0 80,000(7) 216
Technology Officer 1997 132,692 20,000 0 30,000 2,843
Norman F. Hullinger(8)............ 1999 157,981 0 0 80,000 7,086
Vice President, Sales and 1998 155,000 37,500(4) -- 80,000(5) 24,002
Operations 1997 86,442 0 0 40,000 11,588
James F. Kalasky(9)............... 1999 203,237 64,800 0 80,000 7,530
Vice President of 1998 170,000 37,500(4) 0 80,000(5) 200
Merchandising & Advertising 1997 150,769 5,000 0 30,000 3,088
</TABLE>
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<PAGE>
______________________
(1) Fiscal 1999 had 53 weeks. Fiscal 1998 and 1997 each had 52 weeks.
(2) Mr. Orban commenced employment as the Chief Executive Officer of
Egghead.com in January 1997. Salary shown for fiscal year 1997 is for a
partial fiscal year's employment. All Other Compensation for fiscal year
1999 represents $550,000 paid to Mr. Orban pursuant to his employment
agreement for continuing to provide services to Egghead.com from September
1, 1998 through March 31, 1999, $1,352 paid for Mr. Orban's relocation
costs associated with the reorganization of some of our offices to the
Portland, Oregon area and $1,731 in matching contributions to our 401(k)
plan. All Other Compensation for fiscal year 1998 represents amounts paid
for Mr. Orban's relocation costs associated with the reorganization of some
of our offices to Portland, Oregon and for fiscal year 1997 represents
consulting fees paid to Retail Enterprises, Inc., a firm wholly owned by
Mr. Orban. See "--Employment Arrangements and Change of Control
Arrangements--Chief Executive Officer's Employment Agreement."
(3) Mr. Bender joined Egghead.com initially in May 1995, resigning in May 1996
and rejoining in November 1996. The salary shown for fiscal year 1997 is
for a partial fiscal year's employment. All Other Compensation for fiscal
year 1999 represents amounts paid for Mr. Bender's premiums paid by
Egghead.com on a split dollar life insurance policy. All Other Compensation
for fiscal year 1998 represents amounts paid for Mr. Bender's relocation
costs associated with his re-employment with us and premiums paid by us on
a split dollar life insurance policy. All Other Compensation for fiscal
year 1997 represents amounts paid for Mr. Bender's relocation costs
associated with his re-employment with us.
(4) Represents the fair market value, on the date of grant, of 5,000 shares of
our common stock granted to this executive officer, effective June 5, 1998,
as a stock award under the Egghead.com, Inc. Amended and Restated 1993
Stock Incentive Compensation Plan.
(5) In fiscal year 1998 we initiated an option repricing program for our
executive officers and employees. 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.
(6) All Other Compensation for fiscal year 1999 represents premiums in the
amount of $234 that we paid on a split dollar life insurance policy,
$58,569 paid for Mr. Collins' relocation costs associated with the
reorganization of some of our offices to Portland, Oregon and $1,486 in
matching contributions to our 401(k) plan. All Other Compensation for
fiscal year 1998 represents premiums paid by us on a split dollar life
insurance policy. All Other Compensation for fiscal year 1997 represents
matching contributions by us under our 401(k) savings plan.
(7) Options granted in fiscal year 1998 represent options for 35,000 shares
granted in connection with the option repricing program in exchange for
options for 30,000 shares 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 options for an additional 45,000 shares granted in
fiscal year 1998.
(8) Mr. Hullinger's salary shown for fiscal year 1997 represents a partial
year's employment. All Other Compensation for fiscal year 1999 represents
premiums in the amount of $227 that we paid on a split dollar life
insurance policy, $5,965 paid for Mr. Hullinger's relocation costs
associated with the reorganization of some of our offices to the Portland,
Oregon area and $894 in matching contributions to our 401(k) plan. All
Other Compensation for fiscal year 1997 represents premiums that we paid on
a split dollar life insurance policy and Mr. Hullinger's relocation costs
associated with the reorganization of some of our offices to the Portland,
Oregon area. All Other Compensation for fiscal year 1997 represents amounts
paid for Mr. Hullinger's relocation costs associated with his initial
employment with us.
(9) All Other Compensation for fiscal year 1999 represents premiums in the
amount of $208 that we paid on a split dollar life insurance policy, $5,570
paid for Mr. Kalasky's relocation costs associated with the reorganization
of some of our offices to the Portland, Oregon area and $1,752 in matching
contributions to our 401(k) plan. All Other Compensation for fiscal year
1998 represents premiums paid by us on a split dollar life insurance
policy. All Other Compensation for fiscal year 1997 represents matching
contributions under our 401(k) savings plan.
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<PAGE>
Option Grants in Fiscal Year 1999
The following table sets forth stock option grants made during the fiscal
year ended April 3, 1999, to our Chief Executive Officer and the other Named
Executive Officers, pursuant to the Egghead.com, Inc. Amended and Restated 1993
Stock Incentive Compensation Plan.
OPTION GRANTS IN FISCAL YEAR 1999
<TABLE>
Percent of
Number of Total
Securities Options
Underlying Granted to Potential Realizable Value at
Options Vesting Employees Exercise Assumed Annual Rates of
Granted Reference in Fiscal Price Expiration Stock Price Appreciation for
Name (#) (1) Date Year ($/Share)(2) Date Option Term
- ---------------- --------------- ---------- ---------- ------------ ---------- -----------------------------
5% 10%
($) (3) ($) (3)
------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
George P. Orban(4) -0- -- -- -- -- -- --
Brian W. Bender 80,000 04/29/98 10.28% 9.6250 04/29/08 $484,249 $1,227,182
Tommy E. Collins 80,000 04/29/98 10.28% 9.6250 04/29/08 $484,249 $1,227,182
Norman Hullinger 80,000 04/29/98 10.28% 9.6250 04/29/08 $484,249 $1,227,182
James F. Kalasky 80,000 04/29/98 10.28% 9.6250 04/29/08 $484,249 $1,227,182
</TABLE>
__________________________________________
(1) The options shown are incentive stock options pursuant to Section 422 of
the U.S. Internal Revenue Code, have a 10-year term from the date of grant
and vest over a four-year period with the following vesting schedule: one-
fourth on the first anniversary of grant and 2.0833% per month thereafter.
The Vesting Reference Date is the date of grant. Upon the occurrence of
certain business combinations, the vesting of the options would be
accelerated or the options would be assumed by the surviving or acquiring
corporation. During fiscal year 1999, the vesting for some of these options
was accelerated for Messrs. Bender, Collins, Hullinger and Kalasky. See "-
Compensation Committee Report on Executive Compensation."
(2) The exercise price equals the fair market value on the date of grant based
on the closing price of the common stock on April 29, 1998 as quoted on the
Nasdaq National Market.
(3) 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 Securities and Exchange Commission and do not reflect our
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.
(4) Mr. Orban was not granted any new options during fiscal year 1999.
Option Exercises in Fiscal Year 1999 and Fiscal Year-End Option Values
The following table sets forth information with respect to stock option
grants made under our 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 1999; (ii) the net value
realized upon such exercise; (iii) the number of unexercised options outstanding
at April 3, 1999; and (iv) the value of unexercised in-the-money options at
April 3, 1999.
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<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1999
AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised
Acquired Value Underlying Unexercised In-The-Money Options at
on Exercise Realized Options Fiscal Year End(1)
---------------------- at Fiscal Year End(#) ------------------
---------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
George P. Orban................. -0- -0- 1,037,500 7,500 $12,799,679 $ 89,531
Brian W. Bender................. 60,000 453,299 60,000 40,000 587,500 327,500
Tommy E. Collins................ 30,000 397,500 90,000 40,000 979,687 327,500
Norman Hullinger................ 50,000 358,656 60,000 50,000 640,000 409,375
James F. Kalasky................ 80,000 712,813 40,000 40,000 327,500 327,500
</TABLE>
_______________________
(1) Values are based on the difference between the option exercise price and
the fair market value on April 3, 1999 ($17.8125 per share as quoted on the
Nasdaq Stock Market), multiplied by the respective number of shares
exercisable or unexercisable.
Compensation of Directors
Directors who are not also employees of Egghead.com are compensated at the
rate of $25,000 per year. 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
36,000 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. Any nonemployee director who is initially elected or
appointed other than at an annual shareholders meeting is granted an option to
purchase up to 12,000 shares of common stock, prorated for the number of months
between the date of grant and the next annual shareholders meeting, subject to
vesting in full on the date of such meeting. Nonemployee directors are eligible
to receive additional option grants to purchase up to 36,000 shares of common
stock upon their re-election to the Board of Directors.
Employment Arrangements and Change of Control Arrangements
Executive Employment Agreements. We have entered into executive employment
agreements with Brian W. Bender, Tommy E. Collins, James F. Kalasky and Norman
F. Hullinger.
These executive employment agreements provide certain benefits if, during
the three-year term of the agreement, the executive's employment is terminated
by us for any reason other than "cause," or by the executive for "Good Reason"
(as such terms are defined in the agreements). Such benefits include (1) payment
of an amount equal to the executive's annual base salary in one lump sum within
ten days of the termination date; (2) 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 executive has not commenced alternative
employment; (3) 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 (4) acceleration of the
executive's outstanding and unexercised stock options, on a pro rata basis
determined by the number of weeks the executive was employed by Egghead.com
during the stock option's entire vesting period, except in the case of a "change
of
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<PAGE>
control" of Egghead.com (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.
In fiscal year 1999, we amended the executive employment agreements with
three of our senior executive officers, Tommy E. Collins, James F. Kalasky and
Norman F. Hullinger. The amendments revised the definition of "Good Reason"
contained in the executive employee agreements to include the relocation of our
headquarters to a place more than 50 miles from the Portland, Oregon
metropolitan area.
In July 1999, we amended the executive employment agreement with Brian W.
Bender. The amendment changed the term of the agreement to provide that the
agreement will extend from its effective date to the earlier of the effective
date of a change of control of Egghead.com or October 31, 1999. The amendment
also provided that Egghead.com may modify Mr. Bender's status, duties and
responsibilities during the remaining term of his employment, and it revised the
definition of "Good Reason" for termination by Mr. Bender to include resignation
at the end of the term of the agreement.
Retention Bonus Agreements. In July 1999, we entered into retention bonus
agreements with Brian W. Bender, Jon Brodeur, Tommy E. Collins, James F. Kalasky
and Norman F. Hullinger. The agreements for Messrs. Brodeur, Collins, Kalasky
and Hullinger generally provide that we will pay such individuals a lump sum
bonus equal to his current 12-month salary, to be paid on January 31, 2000, if
the individual continues to be employed by us (or any successor, or parent of a
successor, to us) through this date, or if such individual is terminated without
cause by us, or by any successor, or parent of a successor, to us, prior to this
date. Mr. Bender's retention bonus agreement provides that we will pay him a
lump sum bonus equal to .222 multiplied by his current 12-month salary, to be
paid on October 31, 1999, if he continues to be employed by us (or any
successor, or parent of a successor, to us) through this date, or if he is
terminated without cause by us, or by any successor, or parent of a successor,
to us, prior to this date.
Chief Executive Officer's Employment Agreement. In January 1997, we entered
into an employment agreement with George P. Orban, setting forth the terms and
conditions of his employment as our Chairman of the Board and Chief Executive
Officer. The agreement provided 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 (1) 30 days after termination by
Egghead.com of his employment during the term of the agreement for any reason
other than "cause," as defined in the agreement, or (2) in the event of a sale
of substantially all of the assets of Egghead.com or a merger or business
combination of Egghead.com in which holders of our voting stock 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 continued his employment
through the completion of such transaction. In accordance with the terms of the
agreement, because Mr. Orban was employed by us as of August 31, 1998, he
received a retention incentive bonus of $750,000 (the "Bonus Obligation") in
1998. In addition, we paid Mr. Orban $550,000 pursuant to his employment
agreement for continuing to provide services to Egghead.com from September 1,
1998 through March 31, 1999. In addition, we agreed to 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 provided that Mr. Orban may not compete
with Egghead.com for two years after termination of his employment or until
August 31, 2000, whichever is later. The agreement has expired. Mr. Orban is
currently negotiating an employment agreement with Egghead.com. There can be no
assurance that an employment agreement will be entered into.
Option Plans. Our stock option plans provide that, upon the occurrence of
certain transactions, including certain mergers and other business combinations
involving Egghead.com,
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<PAGE>
outstanding options will fully vest, subject to termination upon consummation of
such transaction. In the alternative, at the discretion of Egghead.com and the
parties participating in such transactions, such options may be assumed by the
acquiring or surviving entity.
Director Plan. Our Restated Nonemployee Director Stock Option Plan provides
that upon the occurrence of certain transactions, including certain mergers and
business combinations involving Egghead.com, 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,
unless such options are assumed in such transaction.
Compensation Committee Interlocks and Insider Participation
Each of Karen White, Scott Gibson and Robert T. Wall served on the
Compensation Committee of the Board during fiscal year 1999. None of our
executive officers serves as a member of the compensation committee or board of
directors of any entity that has an executive officer serving as a member of our
Compensation Committee or Board of Directors.
Compensation Committee Report on Executive Compensation
Overview and Philosophy. The Compensation Committee of the Board is
responsible for reviewing and approving compensation recommendations made by the
Chief Executive Officer for the other executive officers. The Committee
recommends to the Board compensation for Egghead.com's highly compensated
executive officers, including Egghead.com's Chief Executive Officer and the
other four Named Executive Officers. The Committee is also responsible for
administering all of Egghead.com'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 a significant portion of their compensation
"at risk" in the form of incentive compensation that is tied to the performance
of Egghead.com and the value of Egghead.com's stock. Egghead.com's executive
compensation packages generally consist of base salary and long-term incentive
compensation in the form of stock options, and, from time to time, include
incentive compensation in the form of cash bonuses. The Committee also reviews
and administers employment agreements between Egghead.com and its executives.
Compensation payments in excess of $1 million annually to the Chief
Executive Officer or other Named Executive Officers are subject to a limitation
on deductibility for Egghead.com 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. Although compensation payments
to Mr. Orban for fiscal year 1999 did slightly exceed the 162(m) limit, the
Compensation Committee does not expect cash compensation in fiscal year 2000 to
its Chief Executive Officer or any other executive officer to materially exceed
$1 million. The Egghead.com, Inc. Amended and Restated 1993 Stock Incentive
Compensation 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 Egghead.com
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 measured in terms of overall performance of Egghead.com and a
subjective assessment of individual performance. The Committee also considers
the amount of compensation necessary to retain the executive, but does not have
a target range for base salaries for executive officers.
-9-
<PAGE>
The Committee considers what it believes to be the competitive factors in
the executive compensation market, but has not typically consulted outside
sources of compensation information in setting individual compensation levels.
In March 1999, however, the Committee retained an outside consultant to advise
it on compensation matters. The Committee plans to consider the information
provided by this consultant in making future compensation decisions.
Annual Incentive Compensation. In fiscal year 1999, cash bonuses for
certain executives were considered by the Committee in consultation with certain
members of management. The Committee sought to recognize the extraordinary
efforts of Mr. Collins and Mr. Kalasky with respect to the restructuring and
reorganization of Egghead.com by awarding them cash bonuses for their efforts.
In awarding Mr. Collin's bonus, the Committee considered his role in the
successful completion and launch of Egghead.com's new Web site and the
successful consolidation of Egghead.com's information technology department from
several locations. The Committee awarded Mr. Kalasky a bonus to reward his role
in the successful relocation and transition of Egghead.com's merchandising
department, as well as his efforts to seek to maintain Egghead.com's gross
margins in a highly competitive environment and the expansion of Egghead.com's
product mix.
Long-Term Incentive Compensation. The primary objective of Egghead.com's
stock option program is to provide incentives tied to the performance of
Egghead.com and shareholder value as measured by stock price appreciation. The
Committee believes that Egghead.com's stock option program aligns the interests
of Egghead.com's executives with those of its shareholders. The Committee
generally grants stock options with an exercise price equal to the fair market
value of the common stock on the date of grant and a four year vesting schedule.
In granting options, the Committee considers the amount and value of
options currently held, but does not have a standard award level for common
stock holdings for senior executives. The Committee also considers individual
and company performance in granting options. In fiscal year 1999, the Committee
granted options to purchase 666,100 shares of common stock to Egghead.com
employees, of which options to purchase 340,000 shares were granted to executive
officers, including options to purchase 320,000 shares granted to the Named
Executive Officers. Options for the remaining 326,100 shares 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 (80,000 per Named Executive Officer) was recommended
to the Committee by the Chief Executive Officer.
During fiscal year 1999, the Committee voted to accelerate the vesting of
certain options held by Messrs. Bender, Collins, Hullinger and Kalasky. The
acceleration was approved as part of an effort to encourage retention of key
executives during Egghead.com's transition into an Internet retailer and to
reward their efforts during a period of particularly challenging circumstances
for Egghead.com.
Chief Executive Officer Compensation. Mr. Orban was elected Chairman of the
Board in May 1996 and Chief Executive Officer of Egghead.com 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, Egghead.com
entered into an employment agreement with Mr. Orban which expired on August 31,
1998. Pursuant to this agreement, Mr. Orban received, among other things, an
annual base salary of $300,000, as well as a retention incentive bonus of
$750,000 because his employment with Egghead.com had not terminated prior to
August 31, 1998. He was also paid $550,000 pursuant to the agreement for
continuing to provide services to Egghead.com from September 1, 1998 to March
31, 1999, as well as monthly base salary payments during this period.
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<PAGE>
In approving Mr. Orban's employment agreement and his 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 to provide an
equity incentive that puts a substantial portion of Mr. Orban's compensation "at
risk" and rewards him for the successful performance of Egghead.com. The
Committee believes that Mr. Orban's participation in the Egghead.com's stock
price appreciation through his stock options aligns his interests with those of
the shareholders.
Compensation Committee
Karen White
C. Scott Gibson
Robert T. Wall, Chairman
Stock Performance Graph
The graph below shows a comparison of cumulative total shareholder returns
of Egghead.com 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 computer software retailers and consumer electronics (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 our common stock and in each of
the foregoing indices on April 1, 1994, and assumes reinvestment of dividends,
if any. We have 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]
<TABLE>
<CAPTION>
CRSP Total Returns Index for: 03/1994 03/1995 03/1996 03/1997 03/1998 04/1999
- ---------------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Egghead.com, Inc. 100.0 98.6 123.9 53.6 119.6 206.4
Nasdaq Stock Market (US Companies) 100.0 111.3 151.1 171.7 252.6 347.0
NASDAQ Stocks (SIC 5730-5739 US Companies) 100.0 75.7 54.9 36.4 52.2 46.4
Radio, Television, Consumer Electronics, and Music Stores
</TABLE>
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<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of July 6, 1999 by: (1) each of our Named
Executive Officers; (2) each of our directors; and (3) all of our executive
officers and directors as a group.
<TABLE>
<CAPTION>
Shares of
Egghead.com, Inc. Common Stock
--------------------------------------
Number of Shares Percent of
Beneficially Shares
Owned(1) Outstanding
------------------ -------------
<S> <C> <C>
Named Executive Officers
Brian W. Bender(2)...................................... 80,833 *
Tommy E. Collins(3)..................................... 125,600 *
Norman F. Hullinger(4).................................. 80,833 *
James F. Kalasky(5)..................................... 64,999 *
George P. Orban(6)...................................... 1,076,294 3.4%
Directors
Jonathan W. Brodeur(7).................................. 75,972 *
C. Scott Gibson(8)...................................... 450 *
Eric P. Robison(9)...................................... 17,750 *
Robert T. Wall(10)...................................... 10,000 *
Karen White............................................. -- *
Melvin A. Wilmore(11)................................... 25,250 *
Directors and executive officers as a group 1,557,981 5.0%
(11 persons)(12)........................................
</TABLE>
*Less than one percent.
______________________
[Footnotes to this table appear on the following page.]
-12-
<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) Represents shares subject to options that are exercisable currently or
within 60 days of July 6, 1999.
(3) Represents 12,684 shares held directly by Mr. Collins and 112,916 shares
subject to options that are exercisable currently or within 60 days of July
6, 1999.
(4) Represents shares subject to options that are exercisable currently or
within 60 days of July 6, 1999.
(5) Represents shares subject to options that are exercisable currently or
within 60 days of July 6, 1999.
(6) Represents 38,794 shares held by Orban Partners, a general partnership of
which Mr. Orban is Managing Partner, and 1,037,500 shares subject to
options that are exercisable currently or within 60 days of July 6, 1999.
Mr. Orban is a director in addition to being an executive officer.
(7) Represents 27,615 shares held directly by Mr. Brodeur, 3,358 shares held in
trusts for the benefit of Mr. Brodeur's children, and 44,999 shares subject
to options that are exercisable currently or within 60 days of July 6,
1999. Mr. Brodeur disclaims beneficial ownership of the 3,358 shares held
in such trusts.
(8) Represents 450 shares held directly by Mr. Gibson.
(9) Represents shares subject to options that are exercisable currently or
within 60 days of July 6, 1999.
(10) Represents 10,000 shares held directly by Mr. Wall.
(11) Represents shares subject to options that are exercisable currently or
within 60 days of July 6, 1999.
(12) Includes 1,465,080 shares subject to options held by such directors and
executive officers that are exercisable currently or within 60 days of July
6, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Karen White, a director of Egghead.com, currently serves as a Senior Vice
President for Oracle Corporation. In May 1998, we entered into a three-year
Network Licensing Agreement with Oracle, pursuant to which we purchased certain
hardware, software and related licenses and maintenance from Oracle which
permits us to use the Oracle data bases and applications in our Internet
business. In fiscal year 1999 we made payments to Oracle totaling $202,011. We
expect to make payments to Oracle of approximately $1,147,000 over the three-
year term of the Agreement. The contract was negotiated at arm's-length prior to
Ms. White's nomination by the Board's Nominating Committee for election at the
1998 Annual Meeting of Shareholders and subsequent election to the Board at the
1998 Annual Meeting of Shareholders.
Mr. Paul Allen is a shareholder and director of Microsoft Corporation and
the President and sole shareholder of Vulcan Ventures Inc., which owned more
than 5% of our outstanding shares during part of fiscal year 1999. Eric P.
Robison, a director of Egghead.com, is employed by Vulcan Ventures, Inc. In
fiscal year 1999, we made payments to Microsoft totaling $625,000, which
represent marketing and promotional expenses payable in accordance with a
merchant agreement between the parties. We purchase the Microsoft products
through third-party distributors at arm's length.
Eric P. Robison, a director of Egghead.com, is a member of the Board of
Directors of CNET, Inc., a company that operates a network of Web sites. In
fiscal year 1999, we paid CNET, Inc. approximately $785,000 in promotional and
advertising fees pursuant to a promotion agreement between the parties.
-13-
<PAGE>
We made a loan to James F. Kalasky, Vice President of Merchandising and
Advertising, in the principal amount of $88,000 (which represented the amount of
Mr. Kalasky's equity in his residence in Spokane, Washington) to purchase a home
in the Portland, Oregon area in connection with his relocation to our
headquarters in Vancouver, Washington. We subsequently hired a relocation firm
to purchase the Spokane residence for an amount equal to the outstanding
mortgage on the residence. Upon resale of the residence by the relocation firm,
we will receive any net proceeds for the sale in excess of the purchase price
paid by the relocation firm (net of transaction costs and fees). We have
forgiven the outstanding amount of the loan to Mr. Kalasky. The tax liability to
Mr. Kalasky for this transaction is currently anticipated to be approximately
$35,000, for which we currently intend to reimburse Mr. Kalasky.
In fiscal year 1999, we authorized a loan to Tommy E. Collins, Vice
President of Information Systems and Chief Technology Officer, in the principal
sum of $150,000, without interest, and a loan to James F. Kalasky in the
principal sum of $100,000, without interest, both of which loans may be
forgiveable on terms to be determined by the Chief Executive Officer. As of the
date of this amended report, neither loan has been made.
[Remainder of this page intentionally left blank.]
--------------------------------------------------
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this amendment
to the report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Vancouver, State of Washington, on July 29, 1999.
EGGHEAD.COM, INC.
By /s/ BRIAN W. BENDER
-------------------------------
Brian W. Bender
Chief Financial Officer, Vice
President of Finance and Secretary
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, this amendment to the report has been signed
by the following persons in the capacities indicated below on July 29, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
GEORGE P. ORBAN* Chairman of the Board and Chief Executive Officer (Principal
- --------------------------------------
George P. Orban Executive Officer)
/s/ BRIAN W. BENDER Chief Financial Officer, Vice President of Finance and
- --------------------------------------
Brian W. Bender Secretary (Principal Financial and Accounting Officer)
- --------------------------------------
C. Scott Gibson Director
JONATHAN W. BRODEUR*
- --------------------------------------
Jonathan W. Brodeur Director
- --------------------------------------
Eric P. Robison Director
MELVIN A. WILMORE*
- --------------------------------------
Melvin A. Wilmore Director
ROBERT T. WALL*
- --------------------------------------
Robert T. Wall Director
KAREN WHITE*
- --------------------------------------
Karen White Director
*By: /s/ BRIAN W. BENDER
- --------------------------------------
Brian W. Bender
Director and Attorney-in-Fact
</TABLE>
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