SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
K-TEL INTERNATIONAL, 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):
[ ] 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 transactions 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:
K-TEL INTERNATIONAL, INC.
2605 FERNBROOK LANE NORTH
MINNEAPOLIS, MINNESOTA 55447
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To our shareholders:
The Annual Meeting of shareholders of K-tel International, Inc. (the
"Company") will be held on February 26, 1999, 11:00 a.m., central time at the
Ramada Plaza Hotel located at 12201 Ridgedale Drive in Minnetonka, Minnesota for
the following purposes:
(1) To elect directors.
(2) To approve an amendment to the Company's 1997 Stock Option
Plan to increase the number of shares of common stock reserved
for issuance under the plan from 600,000 shares to 2,000,000.
(3) To approve the appointment of Arthur Andersen LLP as
independent public accountants.
(4) To act upon any other business that may properly come before
the meeting.
Only shareholders of record at the close of business on January 14,
1999 will be entitled to vote at the meeting or any adjournment thereof.
You are cordially invited to attend the meeting. Whether or not you
plan to attend the meeting, please read the attached Proxy Statement and
complete, sign, date and return your Proxy in the reply envelope provided as
soon as possible.
By Order of the Board of Directors
/s/ Lawrence Kieves
Lawrence Kieves
President
Approximate Date of Mailing Proxy Material:
January 25, 1999
K-TEL INTERNATIONAL, INC.
-------------------
Proxy Statement
Annual Meeting of Shareholders
to be held on
February 26, 1999
-------------------
The Board of Directors of K-tel International, Inc. (the "Company")
solicits the enclosed Proxy for the Annual Meeting of Shareholders to be held at
the Ramada Plaza Hotel located at 12201 Ridgedale Drive in Minnetonka,
Minnesota on February 26, 1999 at 11:00 a.m., Central Time, and any adjournment
thereof. Shares represented by proxies in the form solicited will be voted.
Proxies may be revoked at any time before being exercised by filing with the
Company's Secretary a proxy dated at a later time or a written revocation dated
after the date of the proxy.
OUTSTANDING SHARES AND VOTING RIGHTS
Only shareholders of record at the close of business on January 14,
1999 will be entitled to vote at the meeting or any adjournment thereof. As of
December 31, 1998, the Company had outstanding 9,521,894 shares of common stock.
Each share of common stock has one vote.
SECURITY OWNERSHIP
The following table sets forth, as of December 31, 1998, all persons
known by the Company to be the owner, of record or beneficially, of as much as
approximately five percent of the outstanding common stock of the Company, and
such ownership by all officers and directors as a group. On April 21, 1998, the
board of directors declared a two for one stock split of the Company's common
stock in the form of a stock dividend paid to shareholders of record on May 1,
1998. All share amounts and exercise price per share reflect the two for one
stock split.
Number of Common Shares Percent of
Name and Address Owned Beneficially Class
- ---------------- ------------------ -----
Philip Kives 4,237,230 42.3%
220 Saulteaux Crescent
Winnipeg, Manitoba R3J 3W3
Canada
All officers and directors 4,264,430 42.5%
as a group (persons)
- --------------------------
2
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and any person who owns more than 10% of
the Company's common stock to file reports of ownership and changes in ownership
with the Securities and Exchange Commission ("SEC"). Specific due dates have
been established by the SEC for the filing of these reports and the Company is
required to disclose in this Proxy Statement any failure to file the reports by
these dates. Based upon the copies of the Section 16(a) reports that the Company
received from such persons for their 1998 fiscal year transactions, the Company
believes that there has been compliance with all Section 16(a) filing
requirements applicable to such directors, executive officers and beneficial
owners of 10% or more of the Company's outstanding common stock except a Form 4
report for a March 1998 sale by Mr. David Weiner on 7,000 shares, which was
filed two business days late.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the executive
officers of the Company at December 31, 1998.
Name of Officer Age Positions and Offices Held
- --------------- --- --------------------------
Philip Kives 69 Chairman of the Board,
Chief Executive Officer
Lawrence Kieves 50 President
Jeffrey Koblick 51 Executive Vice President,
Purchasing and Operations
Corey Fischer 41 Secretary, Vice President - Finance,
Chief Financial Officer/Treasurer
Messrs. Kives and Koblick have held various offices and/or managerial positions
with the Company for more than the past five years. Mr. Kives was re-appointed
Chief Executive Officer of the Company on October 16, 1995. In October 1997, Mr.
Fischer was elected as Vice President-Finance, Chief Financial Officer/Treasurer
of K-tel International, Inc. and in April 1998 was appointed Secretary of the
Company.
In October 1998 Lawrence Kieves was appointed to the position of President of
K-tel International, Inc. Prior to joining the Company Mr. Kieves was Managing
Director of EWK Associates, a private company engaged in real-estate
development.
3
PROPOSAL NUMBER ONE
ELECTION OF DIRECTORS
Six (6) directors are to be elected at the meeting, each for a term of
one year or until his successor is elected and qualified. All the persons listed
below are now serving as directors of the Company. The Board of Directors
proposes for election all of the nominees listed below:
Common Shares
Name and Age Principal Occupation during Director Beneficially Owned Percent
of Nominee The past five years. Since As of December 31, 1998 Of Class
- --------------------- ------------------------------------- -------- ----------------------- --------
Philip Kives Founder of the Company; 1968 4,237,230 42.3%
(69) Chairman of the Board of the Company,
Chief Executive Officer
Herbert Davis Attorney in private law practice 1999 ---- ----
(60)
Lawrence Kieves (1) President 1999 ---- ----
(50)
Jay William Smalley Chief Executive Officer of JWS, 1999 ---- ----
(64) Inc., a real estate development
and sales company specializing in
hotels, motel, industrial and
residential properties
Dennis W. Ward Controller of K-tel International, 1999 ---- ----
(52) Ltd., a Canadian company owned
by Philip Kives
David Wolinsky Partner - Monk Goodwin a 1999 ---- ----
(54) Canadian law firm in Winnipeg,
Manitoba
(1) Lawrence Kieves is the first cousin, once removed, of Philip Kives.
Philip Kives founded the Company in 1968 and has served as its Chairman
of the Board since the Company's inception. In addition, Mr. Kives was
re-appointed the Chief Executive Officer on October 16, 1995.
Herbert Davis was elected a director in January 1999. Mr. Davis is an
attorney engaged in the private practice of law with the Law Offices of Herbert
Davis, which he founded in 1984. Mr. Davis specializes in business litigation
and business transactions.
4
Lawrence Kieves joined the Company as President in October 1998 with
extensive experience in the entertainment industry and in public service. Most
recently he served as Managing Director of EWK Associates, a private company
engaged in real-estate development and from 1995 to 1997 he served as President
of Network Event Theater, a public company operating large screen broadcast
theaters on numerous college campuses. From 1993 to 1995 Mr. Kieves served as
Chief Operating Officer of RKO Warner Video. Prior to that, Mr. Kieves held
senior management positions in companies involved in the marketing, distribution
and wholesale and retail sales of video cassettes. During the 1970's and 1980's,
Mr. Kieves was involved in local and national government, most notably serving
as Commissioner of the City of New York's Office of Economic Development from
1982 to 1986 and as director of the U.S. Treasury Department's Office of New
York finance, overseeing the program authorizing $2.3 billion of Federally
guaranteed New York City debt.
Garry Kieves, Jeffrey Koblick and Corey Fischer have served as
directors, but will not be standing for election at the annual meeting of
shareholders.
Jay William Smalley was elected a director in January 1999. Since 1970
Mr. Smalley has been the Chief Executive Officer of JWS, Inc., a privately owned
real estate development and sales company specializing in hotel, motel,
industrial and residential properties.
Dennis W. Ward was elected a director in January 1999. Since 1990, Mr.
Ward has been the Controller of K-tel International, Ltd., a Canadian
corporation owned by Philip Kives and engaged in the marketing and distribution
of consumer products.
David Wolinsky was elected a director in January 1999. Mr. Wolinsky has
been a partner with the Winnipeg, Manitoba law firm of Monk Goodwin since 1991
and specializes in entertainment, corporate and commercial law.
During fiscal 1998 the Company's Board of Directors took action by way
of Unanimous Actions in writing and did not hold any meetings.
The Audit Committee consists of Messrs. Davis, Smalley, Ward and
Wolinsky. The principal functions of the Audit Committee are to (i) recommend to
the Board of Directors the independent public accountants to act as the
Company's independent auditors; (ii) discuss with representatives of management
and the independent auditors the scope and procedures used in auditing the
records of the Company; and (iii) review the financial statements of the
Company. The Audit Committee held no meeting in fiscal 1998.
The Stock Option Committee currently consists of Messrs. Davis, Smalley
and Wolinsky and administers the Company's 1997 Stock Option Plan, including
making grants and determining vesting of options. The Stock Option Committee
held no meeting in fiscal 1998 but took action by way of Unanimous Actions in
writing.
Compensation for outside directors of the Company will consist of (a)
an annual option on 5,000 shares of the Company's common stock granted following
the annual meeting of shareholders at which they are elected directors at an
exercise price equal to the average of the low and high sales price on the date
of the annual meeting of stockholders at which they are elected directors, (b)
$500 per meeting of the Board of Directors that they attend, and (c)
reimbursement of expenses for attending board or committee meetings. No
compensation was paid to outside directors in fiscal 1998.
Mr. Garry Kieves will not be standing for re-election as a director to
the board for fiscal 1999.
All shares represented by proxies will be voted for the election of the
foregoing nominees who have indicated a willingness to serve, if elected unless
otherwise provided on the proxy. If any such nominee should withdraw or
otherwise become unavailable for reasons not presently known, the Board of
Directors may designate substitute nominees, in which event the shares
represented by proxy cards returned to the Company will be voted for such
substitute nominees unless an instruction to the contrary is indicated on the
proxy card.
5
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee establishes the general compensation
policies of the Company and specific compensation for each executive officer of
the Company. The Compensation Committee attempts to make the compensation
packages of the executive officers of the Company sufficient to attract and
retain persons of exceptional quality while at the same time including effective
incentives to motivate Company executives to perform as necessary to continue
the success and growth of the Company. The Stock Option Committee administers
grants of stock options under the Company's 1997 Stock Option Plan (the "1997
Option Plan") which was adopted by the Board of Directors in February, 1997 and
approved by the shareholders in February, 1998.
Management Incentive Plan
The Company has a management incentive plan under which management,
including executive officers, and other key employees may be awarded annual
bonuses based upon the achievement of financial goals and objectives and an
assessment of personal performance during the year. Approximately 25 employees
currently participate in the plan. Payments made to the executive officers under
the management incentive plan are included in the Cash Compensation Table.
Pursuant to the plan, there were no bonuses during fiscal 1998; Mr. Koblick
received a bonus of $30,000 for fiscal 1997 and no bonus was earned by Mr.
Koblick for fiscal 1996.
Retirement Plan
Retirement benefits for full-time U.S. based employees of the Company
are provided under a retirement savings plan qualified under Section 401(k) of
the Internal Revenue Code. Participants may elect to contribute, through salary
reductions, up to 20% of their salary to the retirement plan up to a maximum of
$10,000 per year, and the Company may make matching contributions up to 50% of
the first 6% of the participants contributions. Employee contributions vest
immediately; employer contributions vest 50% after one year of service and 100%
after two years. Distributions upon death or termination of employment are
subject to certain restrictions in order that federal income tax regulations be
complied with and the amounts vested remain on a tax deferred basis until
retirement. Amounts contributed by the Company as matching contributions for the
executive officers under the 401(k) plan are included in the Cash Compensation
Table. The Company made matching contributions of $13,468 in fiscal 1998 for the
executive officers named in the Compensation Table.
Stock Options
In February, 1997, the Board of Directors adopted the K-tel
International, Inc. 1997 Stock Option Plan for officers and other key employees
of the Company. The shareholders approved the plan on February 4, 1998. The
stock incentives may take the form of incentive stock options and nonqualified
stock options. A total of 600,000 shares of the Company's common stock were
reserved for issuance upon exercise of the options. The Board of Directors has
sole authority to determine the employees to whom options and awards are
granted, the duration of the exercise period and any other matters arising under
the plan. The Stock Option Committee administers the 1997 Option Plan, including
determination of option grants. The Board of Directors has, from time to time,
granted options outside of the option plan.
As of December 31, 1998 there were 154,900 outstanding incentive stock
options granted under the 1997 Stock Option Plan with no options exercisable and
308,500 nonqualified stock options outstanding with no options exercisable. As
of December 31, 1998 there were 17,050 options available to be granted under the
plan.
In October 1997, the Board of Directors granted Mr. Kives a
non-qualified stock option on 231,000 shares at an exercise price of $3.063 per
share for his years of service as Chairman of the Board of Directors and Chief
Executive Officer. The options vested 100% on the date of the grant.
6
Chief Executive Officer Compensation
Mr. Kives was re-appointed as Chief Executive Officer October 16, 1995.
For fiscal 1998, Mr. Kives did not receive any cash compensation for his
services to the Company, but received an option on 231,000 shares of stock. The
option was granted to Mr. Kives in recognition of his prior services and because
he served as Chief Executive Officer without cash compensation during fiscal
1998.
Philip Kives Garry Kieves Louis Scheimer
Compensation Committee Compensation Committee Compensation Committee
Stock Option Committee Stock Option Committee
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth the cash and
non-cash compensation for each of the last three fiscal years awarded to or
earned by the Chief Executive Officer and each of the other highest paid
executive officers of the Company for services in all capacities to the Company
and its subsidiaries during the year ended June 30, 1998.
Long-Term
Annual Compensation Compensation
------------------- Awards
Name and ------------- All Other
Principal Position(s) Year Salary Bonus Stock Options Compensation(1)
- --------------------- ---- ------ ----- ------------- ---------------
Philip Kives 1998 $ ----- $ ----- 231,000 $ -----
Chief Executive Officer 1997 $ ----- $ ----- 400,000 $ -----
1996 $ ----- $ ----- ----- $ -----
David Weiner (2) 1998 $ 220,699 $ ----- ----- $ 6,058
President 1997 $ 173,979 $ 85,920 400,000 $ 2,495
1996 $ 146,250 $ ----- ----- $ 495
Jeffrey Koblick 1998 $ 207,231 $ ----- 56,500 $ 4,987
Executive Vice President 1997 $ 199,312 $ 30,000 ----- $ 3,894
Purchasing & Operations 1996 $ 195,000 $ ----- ----- $ 1,210
Corey Fischer 1998 $ 135,154 $ ----- 52,500 $ 2,423
Chief Financial Officer, 1997 $ ----- $ ----- ----- $ -----
Vice President-Finance 1996 $ ----- $ ----- ----- $ -----
And Treasurer
(1) Other compensation for the 1998, 1997 and 1996 fiscal years consists of
the Company contributions under the 401(k) plan.
(2) Mr. Weiner resigned as President of the Company on September 4, 1998.
7
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth, as to each executive officer named in
the Summary Compensation Table, certain information with respect to stock
options granted during the fiscal year ended June 30, 1998.
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term
- ------------------------------------------------------------------------------ -----------------------------
Percent of
Total Options
Granted to
Options Employees in Exercise Expiration
Name Granted Fiscal Year Price ($/sh) Date 5% 10%
- ------------------------------------------------------------------------------ -----------------------------
Philip Kives 231,000 24.03% $ 3.063 Oct/2007 $ 444,976 $ 1,127,657
David Weiner (1) 6,000 .62% $ 3.063 Oct/2007 $ 11,558 $ 29,290
140,000 14.57% $14.344 Apr/2008 $ 1,262,569 $ 3,199,597
Jeffrey Koblick 34,000 3.54% $ 3.063 Oct/2007 $ 65,494 $ 165,976
22,500 2.34% $ 6.00 Apr/2008 $ 84,901 $ 215,155
Corey Fischer 30,000 3.12% $ 3.063 Oct/2007 $ 57,789 $ 146,449
22,500 2.34% $ 6.00 Apr/2008 $ 84,901 $ 215,155
(1) Mr. Weiner resigned as President on September 4, 1998, his remaining stock
options have expired.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth, as to each executive officer named in
the Summary Compensation Table, certain information with respect to stock
options exercised during the last fiscal year and unexercised options held as of
June 30, 1998.
Number of Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options at
Year End(#) Fiscal Year End(1,2)
---------------------------- ----------------------------
Shares Acquired Value
Name on Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- --------------- --------------- ----------- ---------------------------- ----------------------------
Philip Kives 0 $ ---- 631,000 0 $7,602,510 $ ---
David Weiner 400,000 $11,194,306 1,200 140,000 $ 13,653 $ 68,262
Jeffrey Koblick 111,800 $ 1,887,663 27,200 22,500 $ 309,386 $ 189,844
Corey Fischer 6,000 $ 178,497 24,000 22,500 $ 272,988 $ 189,844
(1) Market value of underlying securities at year-end minus the exercise price.
(2) Mr. Weiner resigned as President on September 4, 1998, his remaining stock
options have expired.
8
Certain Transactions
During fiscal 1998, the Company purchased $334,000 of consumer
convenience product, including exercise equipment and health care and beauty
products, from K-5 Leisure Products, Inc., a company controlled by the Company's
Chairman of the Board and Chief Executive Officer. The purchase prices for these
products were at prices comparable to transactions with a third party. There was
an outstanding payable amount of $9,000 at June 30, 1998.
The Company sold approximately $39,000 of consumer convenience product
in fiscal 1998 to K-5 Leisure Products, Inc. a company controlled by the
Company's Chairman of the Board and Chief Executive Officer. The prices for
these products were comparable to prices in transactions with third parties.
There was an outstanding receivable balance of $4,000 owed to the Company at
June 30, 1998.
Payments totaling $150,000 were made during the fiscal year ended June
30,1998 to a company owned by Mr. Louis Scheimer, a director, for services
relating to the production of certain home video products. In addition,
reimbursements of $56,000 were made to this company during the fiscal year ended
June 30, 1998 for office and other expenses.
COMPANY STOCK PRICE PERFORMANCE
The following Stock Price Performance Graph compares the cumulative total return
* of the Company, the S&P 500 Stock Index and peer group Companies (Navarre
Corporation, Platinum Entertainment, CDNow and N2K, similar music distribution
companies and online music retailers) for a six year period. The Companies
listed in prior year peer group are no longer listed on NASDAQ.
*COMPARISON OF CUMULATIVE
[PLOT POINTS GRAPH]
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
K-TEL INTERNATI $100.00 $ 56.71 $ 43.27 $ 48.50 $ 91.02 $344.75
S & P 500 $100.00 $101.82 $128.36 $161.73 $217.85 $283.56
PEER GROUP $100.00 $ 66.68 $142.25 $344.05 $113.35 $102.01
*TOTAL RETURN BASED ON $100 INITIAL INVESTMENT & REINVESTMENT OF DIVIDENDS
*Cumulative total return assumes quarterly reinvestment of dividends.
9
PROPOSAL NUMBER TWO
Amendment to the 1997 Stock Option Plan
Increasing the Number of Shares Reserved for Issuance under the Plan
In February, 1997 the Board of Directors adopted the 1997 Stock Option
Plan, subject to approval by the Company's shareholders. The shareholders
approved the plan in February 1998. In December 1998, the Board of Directors
approved an amendment to the 1997 Option Plan to increase the number of shares
of Company Stock reserved for options granted under the 1997 Option Plan from
600,000 shares to 2,000,000 shares.
The purposes of the 1997 Option Plan is to provide incentives to key
employees of the Company and its subsidiaries who contribute and are expected to
contribute materially to the success of the Company, to provide a means of
rewarding performance and to enhance the interest of such key employees in the
Company's continued success and progress by providing them a proprietary
interest in the Company. An aggregate of 2,000,000 shares (which includes the
additional 1,400,000 shares which the Company's shareholders are being asked to
approve at the Annual Meeting of Shareholders) of the Company's Common Stock is
reserved for issuance upon the exercise of options granted under the 1997 Option
Plan, as amended. No options may be granted under the 1997 Option Plan after
February 17, 2007.
ADMINISTRATION
The Board of Directors or, if appointed by the Board, a Stock Option
Committee (the "Committee") is responsible for the administration of the 1997
Option Plan. The committee consists of two or more directors who are
"Non-Employee Directors" within the meaning of Rule 16b-3 of the Securities and
Exchange Commission. The Committee has general authority and discretion to
determine the employees to whom options will be granted, the exercise price, the
time or times at which the options may be exercised, and the number of shares to
be subject to each option. In addition, the committee may prescribe the terms
applicable to each grant of an option. The Committee is currently comprised of
the following three directors: Messrs. Davis, Smalley and Wolinsky.
TERMS AND CONDITIONS OF OPTIONS
Either incentive stock options ("ISO") within the meaning of Section
422A of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified options may be granted under the 1997 Option Plan. Options may be
granted only to key employees of the Company and its subsidiaries who have
contributed and are expected to contribute materially to the success of the
Company and its subsidiaries.
The purchase price of shares of Common Stock subject to options granted
under the 1997 Option Plan is determined by the Committee, but shall not be less
than 100% of the fair market value of the Company's Common Stock on the date the
option is granted for ISO's, and not less than 85% of the fair market value on
the date that the option is granted for non-qualified options. An option granted
under the 1997 Option Plan vests at such rate and upon such conditions as the
Committee may determine at the time the option is granted. No option granted
under the 1997 Option Plan is transferable by the optionee during his or her
lifetime. An option may be exercised only while the optionee is an employee to
the Company or any of its subsidiaries or, in the event of a termination of
employment other than by death or disability, within thirty days after
termination of employment (but no later than the expiration of the term of the
option). Upon the death or disability of an optionee, the optionee or his or her
legal or personal representative or beneficiaries may exercise an option to the
extent exercisable by the optionee within ninety days after the optionee's death
or disability (but not later than the expiration of the term of the option). In
the event any option expires or is cancelled, surrendered or terminated without
being exercised, the shares subject to such option (or the unexercised portion
thereof) will again be available for grant under the 1997 Option Plan.
10
PAYMENT
Payment for the shares of Common Stock purchased upon the exercise of
options under the 1997 Option Plan must be made in full at the time the option
is exercised. Payment may be made in cash, tender of shares of the Company's
Common Stock in payment of the exercise price or payment to be made by the
optionee's broker from the sale or loan proceeds for such shares or any other
securities the optionee may have in his or her account with the broker.
SURRENDER AND CANCELLATION OF OPTIONS
The committee is authorized to permit the surrender and cancellation of
a previously granted option under the 1997 Option Plan and the grant of a
replacement option. The previously granted option surrendered and canceled may
be exercised at prices substantially higher than the exercise price of the
shares of Common Stock on the date the replacement option is granted. Since the
inception of the 1997 Option Plan, the Committee has not repriced any stock
options granted under the 1997 Option Plan, except for options on an aggregate
of 827,000 shares granted in April 1998 at an exercise price of $14.344 per
share which were cancelled and replaced by options on an aggregate of 282,150
shares in September 1998 at an exercise price of $6.00 per share, the then fair
market value.
AMENDMENT
The 1997 Option Plan may be amended by the Board of Directors, except
that without the affirmative vote of the holders of a majority of the shares of
the Company's Common Stock present and entitled to vote at a meeting at which a
quorum is present, the Board of Directors may not amend the 1997 Option Plan to:
(i) increase the aggregate number of shares of Common Stock which may be issued
and sold under the 1997 Option Plan (except such number of shares may be
adjusted in the event of a recapitalization, stock dividend or similar event),
(ii) decrease the minimum exercise price at which options may be granted under
the 1997 Option Plan, (iii) extend the period during which the options may be
granted, or (iv) change the requirements as to the class of employees eligible
to receive options.
TAX CONSEQUENCES
INCENTIVE STOCK OPTIONS. Under the present federal tax regulations,
there will be no federal income tax consequences to either the Company or the
optionee upon the grant of an ISO, nor will an optionee's exercise of an ISO
result in federal income tax consequences to the Company. Although an optionee
will not realize ordinary income upon his or her exercise of an ISO, the excess
of the fair market value of the shares of Common Stock acquired at the time of
exercise over the exercise price will constitute an "item of tax preference"
within the meaning of Section 57 of the Code and, thus, may result in the
imposition of the "alternative minimum tax" pursuant to Section 55 of the Code
on the optionee. If an optionee does not dispose of the shares of Common Stock
acquired through the exercise of an ISO within two years from the date of the
disposition of such shares will constitute a long-term capital gain to the
optionee at a capital gain rate of 28%: the capital gain rate is reduced to 20%
if the shares are held for 18 months from the date of exercise or if the shares
are sold by an estate or trust. If an optionee disposes of the ISO, an amount
equal to the lesser of (i) the excess of the fair market value of such shares on
the date of the exercise over the exercise price, or (ii) the actual gain
realized upon such disposition will constitute ordinary income to the optionee
in the year of the disposition. Any additional gain upon such disposition will
be taxed as short-term capital gain. The Company will receive a deduction in an
amount equal to the amount constituting ordinary income to the optionee.
NON-QUALIFIED OPTIONS. Under the present federal income tax
regulations, there will be no federal income tax consequences to either the
Company or the optionee upon the grant of a non-qualified option. However, the
optionee will realize ordinary income upon the grant of a non-qualified option
in an amount equal to the excess of the fair market value of the shares of
Common Stock acquired upon exercise of such option over the exercise price, and
the Company will receive a corresponding tax deduction.
OUTSTANDING OPTIONS
As of December 31, 1998, the following options to acquire shares of the
Common Stock were outstanding under the 1997 Option Plan; (i) no options to the
executive officers of the Company named in the Compensation Table; (ii) options
for an aggregate of 154,700 shares at exercise prices ranging from $6.00 to
$6.50 per share to approximately ten
11
employees (excluding executive officers). The option vesting period is
determined by the Committee at the date of the grant. The vesting periods range
from zero to four years for options granted under the 1997 Option Plan, but may
be accelerated by the Committee.
PROPOSED AMENDMENT
The shareholders of the Company initially approved 600,000 shares of
Common Stock for issuance under the 1997 Option Plan in February 1998. The
purpose of the Amendment is to provide a sufficient number of shares under the
1997 Option Plan for existing grants and expected grants over the next several
years.
The Board of Directors unanimously recommends a vote FOR the proposal
to increase the number of shares reserved for issuance under the 1997 Option
Plan from 600,000 shares to 2,000,000 shares of Common Stock.
NEW PLAN BENEFITS; POSSIBLE GRANT OF NEW OPTION TO PHILIP KIVES
The grant of stock options under the 1997 Option Plan are made at the
discretion of the committee as discussed above. During the fiscal 1998, the
Committee granted options on an aggregate of 486,000 shares of Common Stock to
the executive officers named in the Compensation consisting of 231,000 shares to
Philip Kives, 146,000 shares to David Weiner, 56,500 shares to Jeffrey Koblick
and 52,500 shares to Corey Fischer.
To demonstrate the ability of the Company to meet the requirements for
the continued listing of the Company's Common Stock on Nasdaq national Market
and to meet the liquidity needs of the Company, Philip Kives, Chairman and Chief
Executive Officer of the Company, has offered to invest up to an additional
$2,000,000 through an option to be granted under the 1997 Option Plan following
the conclusion of the Company's annual meeting of shareholders if the
shareholders approved the proposed amendment to the 1997 Option Plan increasing
the number of authorized shares from 600,000 shares to 2,000,000 shares.
Currently, there are not sufficient number of shares available under the 1997
Option Plan for the proposed option grant to Philip Kives. The grant would be
made at the discretion of the Committee on February 26, 1999 at the average of
the high and low sales prices for the Company's Common Stock traded on the
Nasdaq National Market on February 26, 1999. If such option is granted, Mr.
Kives has agreed to exercise the option to the extent necessary to meet the
requirements for continued listing of the Company on the Nasdaq National Market
or to meet the liquidity requirements, in each case as determined by a majority
of the Company's independent directors. The Company is currently investigating
additional sources of equity financing. The obligation of Mr. Kives to exercise
the option in such events would terminate after the Company has received in the
aggregate $15 million in proceeds from the issuance of its capital stock.
12
PROPOSAL NUMBER THREE
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen & Co., independent public accountants for the Company
for fiscal 1998, have been selected by the Board of Directors for fiscal 1999. A
representative of Arthur Andersen LLP is expected to be present at the 1998
Annual meeting and will have an opportunity to make a statement, if such
representative desires to do so, and will be available to respond to appropriate
questions.
The Board of Directors recommends that shareholders vote "FOR" Arthur
Andersen LLP as independent public accountants. The affirmative vote of a
majority of the shares voting at the meeting is required for approval.
All shares represented by proxies will be voted for the appointment of
the foregoing unless otherwise provided on the proxy.
ADDITIONAL INFORMATION
General
As of the date of this Proxy Statement, management knows of no matters
that will be presented for determination at the meeting other than those
referred herein. If any other matters properly come before the meeting calling
for a vote of shareholders, it is intended that proxies in the enclosed form
will be voted in accordance with the judgment of the individual voting the
proxies.
Expenses in connection with the solicitation of proxies will be paid by
the Company. Proxies are being solicited principally by mail. In addition,
directors, officers and regular employees of the Company may solicit proxies
personally by telephone or by special letter. The Company may reimburse
brokerage firms and others for their expenses in forwarding proxy materials to
the beneficial owners of stock of the Company.
The Company's Annual Report for the year ended June 30, 1998
accompanies this proxy statement.
Shareholder Proposal
Any shareholders proposals for the Company's 1999 annual meeting must
be received by the Company's Secretary by September 15, 1999 in order to be
included in the proxy statement. The proposals must comply with all applicable
statutes and regulations.
By Order of the Board of Directors
/s/ Lawrence Kieves
Lawrence Kieves
President
Minneapolis, Minnesota
January 25, 1999
13
K-TEL INTERNATIONAL, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Philip Kives and Lawrence Kieves, or either of
them, as proxies, each with full power of substitution, to represent and to
vote, as designated below, all of the undersigned's shares of common stock of
K-tel International, Inc. which the undersigned would be entitled to vote at the
Annual Meeting of Stockholders to be held on February 26, 1999 at 11:00 a.m. and
at any adjournment thereof.
1. Election of Directors: For all nominees listed below [ ]
(except as marked on the contrary below)
WITHHOLD AUTHORITY to vote for [ ]
all nominees listed below
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THAT NOMINEE'S NAME IN THE LIST BELOW.)
Nominees: Philip Kives, Herbert Davis, Lawrence Kieves,
Jay William Smalley, Dennis Ward, David Wolinsky
2. To approve an amendment to the Company's 1997 Stock Option Plan increasing
the number of shares of common stock reserved for issuance under the plan
from 600,000 shares to 2,000,000 shares.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
- --------------------------------------------------------------------------------
3. To approve the appointment of Arthur Andersen LLP as independent
accountants:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
- --------------------------------------------------------------------------------
(Continued and to be signed on reverse side)
4. In their discretion on any other matter that may properly come before the
meeting or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THE PROXY WILL BE VOTED "FOR"
PROPOSALS 1, 2 AND 3.
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS.
Please sign exactly as your name or names appear below. If a partnership, sign
in Partnership name by authorized person. When shares are held by joint tenants,
both should sign. When signing as attorney, executor, administrator, trustee or
guardian give your full title as such. If a corporation, sign the full corporate
name by a duly authorized officer.
PLEASE SIGN, DATE AND RETURN YOUR PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
Date __________________________________
Signature(s):
_______________________________________
_______________________________________