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
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[ ] 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))
NAVARRE CORPORATION
- --------------------------------------------------------------------------------
(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):
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pursuant to Exchange Act Rule 0-11. (Set forth the amount on which the
filing fee is calculated and state how it was determined.)
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[ ] 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:
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(4) Date filed:
NAVARRE CORPORATION
7400 49TH AVENUE NORTH
NEW HOPE, MINNESOTA 55428
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 9, 1999
------------------------------------------------------------
The Annual Meeting of the Shareholders of Navarre Corporation (the "Company")
will be held Thursday, September 9, 1999 at 3:30 p.m., local time, at The
Marquette Hotel, St. Croix River Room, Third Floor, 710 Marquette Avenue,
Minneapolis, Minnesota, 55402, for the following purposes:
1. To elect two directors to hold office for a term of three
years or until their successors are elected;
2. To ratify and approve an amendment to the Company's Articles
of Incorporation to increase the number of authorized shares
of common stock;
3. To approve an amendment to the 1992 Stock Option Plan; and
4. To transact such other business as may properly come before
the meeting or any adjournments thereof;
Shareholders of record at the close of business on July 23, 1999 will be
entitled to vote at the meeting or any adjournments or postponements thereof.
All shareholders are cordially invited to attend the meeting.
If you do not expect to be present at the meeting, you are requested to fill in,
date and sign the enclosed proxy and to mail it promptly in the enclosed
envelope to make sure that your shares are represented at the meeting. In the
event you decide to attend the meeting in person, you may, if you desire, revoke
your proxy and vote your shares in person.
By Order of the Board of Directors
Charles E. Cheney
Secretary
July 30, 1999
NAVARRE CORPORATION
7400 49TH AVENUE NORTH
NEW HOPE, MINNESOTA 55428
(612) 535-8333
------------------------------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 9, 1999
------------------------------------------
SOLICITATION OF PROXIES
This Proxy Statement is being furnished to the shareholders of Navarre
Corporation in connection with the solicitation of proxies by the Board of
Directors of the Company for use at the Annual Meeting of Shareholders to be
held on Thursday, September 9, 1999 at 3:30 p.m., local time, at The Marquette
Hotel, St. Croix River Room, Third Floor, 710 Marquette Avenue, Minneapolis,
Minnesota, and at any adjournments or postponements thereof. This Proxy
Statement and accompanying proxy are first being mailed to the shareholders of
the Company on or about July 30, 1999.
The cost of preparing, assembling and mailing the proxy material and of
reimbursing brokers, nominees and fiduciaries for the out-of-pocket and clerical
expenses of transmitting copies of the proxy material to the beneficial owners
of shares held of record by such persons will be borne by the Company. The
Company does not intend to solicit proxies other than by use of the mail, but
certain officers and regular employees of the Company or its subsidiaries,
without additional compensation, may use their personal efforts, by telephone or
otherwise, to obtain proxies.
Only shareholders of record as of the close of business on July 23, 1999 will be
entitled to vote at the Annual Meeting. On that date, the Company had
outstanding 23,508,394 shares of common stock, no par value, each of which is
entitled to one vote per share on each matter to be voted upon at the Annual
Meeting. Shareholders do not have the right to accumulate votes for the election
of directors.
The enclosed proxy may be revoked at any time before it is voted by the
execution and delivery of a proxy bearing a later date or by notification in
writing given to the Secretary of the Company prior to the meeting. The enclosed
proxy may also be revoked by attending the meeting and electing to vote in
person. The enclosed Board of Directors' proxy, when properly signed and
returned to the Company, will be voted at the Annual Meeting as directed
therein. Proxies in which no direction is given with respect to the various
matters of business to be transacted at the meeting will be voted FOR the
election of the nominees for the Board of Directors named in this Proxy
Statement and for other matter presented by the Board of Directors. While the
Board of Directors knows of no matters to be presented at the Annual Meeting or
any adjournment thereof, all proxies returned to the Company will be voted on
any such matter in accordance with the judgment of the proxy holders.
A quorum, consisting of a majority of the shares of common stock entitled to
vote at the Annual Meeting, must be present in person or by proxy before action
may be taken at the Annual Meeting. If an executed proxy is returned and the
shareholder has abstained from voting on any matter, the shares represented by
the proxy will be considered present at the meeting for purposes of determining
a quorum and for purposes of calculating the vote, but will not be considered to
have been voted in favor of such matter. If an executed proxy is returned by a
broker holding shares in "street name" which indicates that the broker does not
have
discretionary authority as to certain shares to vote on one or more matters, the
shares will be considered present at the meeting for purposes of determining a
quorum, but will not be considered to be represented at the meeting for purposes
of calculating the vote with respect to such matters.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of July 1, 1999 with
respect to the beneficial ownership of the common stock of the Company by (i)
all persons who are known by the Company to hold five percent or more of the
common stock of the Company, (ii) each of the directors and current Named
Executive Officers of the Company, and (iii) all directors and officers of the
Company as a group.
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership (1) Percent of Class
---------------------------------------------- ------------------------------- --------------------
Eric H. Paulson (2) 2,350,669(3) 10.0%
Charles E. Cheney 591,720 2.5%
Dickinson G. Wiltz 115,888 *
James G. Sippl 7,200 *
Michael L. Snow 7,200 *
Alfred Teo 746,900 3.2%
All directors and executive officers
as a group (12 persons) 3,851,747 16.4%
* Indicates ownership of less than one percent.
(1) Includes shares of common stock issuable upon exercise of outstanding
options and warrants exercisable within sixty days of July 1, 1999 in the
following amounts: Eric H. Paulson - 70,000 shares; Charles E. Cheney - 16,000
shares; Dickinson G. Wiltz - 800 shares; James G. Sippl - 7,200 shares; Michael
L. Snow - 7,200 shares; and Alfred Teo - no shares and all directors and
executive officers as a group - 133,370 shares.
(2) Mr. Paulson's address is 7400 - 49th Avenue North, New Hope, Minnesota
55428.
(3) Includes 3,650 shares owned by Mr. Paulson's wife with respect to which he
disclaims beneficial ownership.
ELECTION OF DIRECTORS
Pursuant to the terms of the Amended and Restated Articles of Incorporation of
the Company, directors are divided into three classes, with the term of one
class expiring each year. As the term of each class expires, the successors to
the directors in that class will be elected for a term of three years. The terms
of Messrs. Eric H. Paulson and James G. Sippl expire at the Annual Meeting of
Shareholders following fiscal year 1999, the terms of Messrs. Michael L. Snow
and Alfred Teo expire at the Annual Meeting of Shareholders following fiscal
year 2000 and the terms of Messrs. Charles E. Cheney and Dickinson G. Wiltz
expire at the Annual Meeting of Shareholders following fiscal year 2001.
Vacancies on the Board of Directors and newly created directorships can be
filled by vote of a majority of the directors then in office.
Two directors will be elected at the Annual Meeting to serve until the Annual
Meeting of Shareholders following fiscal year 2002 or until their successors are
elected. The Board of Directors has nominated for election the persons named
below. Each nominee is currently a director and was elected by the shareholders.
2
The Board is proposing that the shareholders elect the two named nominees. It is
intended that proxies will be voted for the named nominees. Unless otherwise
indicated, each director has been engaged in his present occupation as set forth
below, or has been an officer with the organization indicated, for more than
five years. The Board of Directors believes that the nominees named below will
be able to serve, but should the nominees be unable to serve as directors, the
persons named in the proxies have advised that they will vote for the election
of such substitute nominees as the Board of Directors may propose. The names of
the nominees and other directors filling unexpired terms are set forth below,
based upon information furnished to the Company by the nominees and directors.
Name and Age Principal Occupation and Other Directorships
- ------------ --------------------------------------------
NOMINEES PROPOSED FOR ELECTION FOR TERM EXPIRING AT THE ANNUAL MEETING FOLLOWING FISCAL 2002
Eric H. Paulson(54).................. Mr. Paulson is the founder and has been president and chief executive officer
of the Company since its inception in 1983. Mr. Paulson also served as the
executive vice president and chief operating officer at Lieberman
Enterprises, Inc. during the period from January 1990 to October 1991 when
Live Entertainment, Inc., and Lieberman Enterprises, Inc. owned the Company.
Prior to 1983, Mr. Paulson served as senior vice president and general
manager of Pickwick Distribution Companies, a distributor of records and
tapes. Mr. Paulson has been a director of the Company since October 1991.
He was also a director from the time of the inception of the Company in 1983
until the Live Entertainment acquisition in 1990. Mr. Paulson is also
chairman of NetRadio Corporation.
James G. Sippl(51)................... Mr. Sippl has served as a director of the Company since July 1993. Mr. Sippl
has served as a financial consultant for Sippl & Associates since May 1998.
Prior to that Mr. Sippl was chief operating officer of IntraNet Solutions, a
software company from January 1997 to May 1998. Mr. Sippl has served as vice
president of business development, with Merrill Corporation, a financial
printer from November 1990 to January 1997. Prior to joining Merrill
Corporation, Mr. Sippl was president of Chicago Cutlery, a manufacturer of
fine cutlery, from 1985 to 1989. From 1970 to 1985, Mr. Sippl was employed
at Coopers & Lybrand, most recently as a partner.
DIRECTORS SERVING CONTINUING TERMS.
Charles E. Cheney(56)............. Mr. Cheney has served as executive vice president and chief financial officer
of the Company since 1985. Mr. Cheney has been a director of the Company
since October 1991. Mr. Cheney also served as senior vice president of
Lieberman Enterprises, Inc., and general manager of the Company during 1990
and 1991. Prior to joining the Company, Mr. Cheney was employed by Control
Data Corporation in various financial capacities for twelve years, most
recently as controller of Control Data Commerce International. Mr. Cheney is
a certified public accountant.
3
Michael L. Snow(48)............... Mr. Snow has served as a director of the Company since April 1995. Mr. Snow
is of counsel with the Minnesota law firm of Maslon Edelman Borman & Brand, a
Limited Liability Partnership, which he joined in 1976. He has served as a
director, officer or founder in numerous public and private corporations and
currently serves as a director of Osmonics, Inc. and Satellite Industries,
Inc.
Alfred Teo(53).................... Mr. Teo has served as a director of the Company since May 1998. Mr. Teo is
chairman and chief executive officer of The Sigma Plastics Group which he
started in 1979. He is a member of the board of directors of Fleet Bank NA,
American Bank Note and Cirrus Logic. Mr. Teo is also member of the board of
trustees of St. Joseph's Hospital and Medical Center and a trustee for
Stevens Institute of Technology. In addition, Mr. Teo is the chairman and
chief executive officer of Hillman Eye Center and Alpha Technology, Inc.
Dickinson G. Wiltz(70)............ Mr. Wiltz has served as a director of the Company since October 1991. He was
also a director from the time of inception of the Company in 1983 until the
Live Entertainment acquisition in 1990. Mr. Wiltz has been a self-employed
business management consultant since 1974.
DIRECTOR COMPENSATION
The non-employee members of the Board of Directors each receive $500 per
meeting. Under the terms of the Company's 1992 Stock Option Plan, each
non-employee director is to receive on April 1 of each year beginning April
1997, a non-qualified stock option to purchase 6,000 shares of Company common
stock at the fair market value on the day of the grant. Pursuant to the Plan,
each of Messrs. Sippl, Snow and Wiltz received options to purchase 6,000 shares
at a price of $2.5625 on April 1, 1998 and each of Messrs. Sippl, Snow, Wiltz
and Teo received options to purchase 6,000 shares at a price of $15.375 on April
1, 1999.
BOARD ACTIONS AND COMMITTEES
During fiscal 1999, the Board of Directors held eight formal meetings and each
director attended seventy-five percent or more of the meetings of the Board and
of the committees on which the directors served. Board members also met
informally during fiscal 1999 to discuss various aspects of the business affairs
of the Company.
The Board of Directors has established an Audit Committee and Compensation
Committee. The Audit Committee of the Board of Directors for fiscal 1999 was
comprised of James G. Sippl and Michael L. Snow who are non-employee directors
of the Company. The Audit Committee annually recommends independent accountants
for appointment by the Board of Directors, reviews the services to be performed
by the independent accountants, and receives and reviews the reports submitted
by them. During fiscal year ended March 31, 1999, the Audit Committee held two
meetings.
The Compensation Committee of the Board of Directors for fiscal 1999 was
comprised of Mr. Sippl and Mr. Teo who are non-employee directors of the
Company. The Compensation Committee has general responsibility for all employee
compensation, bonus and benefit matters, including recommendations to the full
Board on compensation arrangements of officers and directors, bonuses, benefit
plans and stock option grants. The Compensation Committee held two meetings
during fiscal year ended March 31, 1999.
4
The Company does not have a nominating committee. The officers of the Company
are appointed by the Board of Directors and hold office until their successors
are chosen and qualified or until their earlier death, resignation or removal
from office.
EXECUTIVE OFFICERS OF THE COMPANY
The Company's executive officers and other key members of management are as
follows:
Name Age Position with the Company
---- --- -------------------------
Eric H. Paulson 54 Chairman of the Board, President and Chief Executive Officer
Charles E. Cheney 56 Secretary, Treasurer and Director, Executive Vice President and
Chief Financial Officer
James S. Chiado 49 Vice President and General Manager, Independent Music Division
Kathleen A. Conlin 55 Vice President, Corporate Controller
Thomas J. Lenaghan 49 Vice President and General Manager, Alternative Retail Marketing
Edward A. Tomechko 50 Chief Executive Officer and Director, NetRadio Corporation
John Turner 45 Vice President, Operations
Ian R. Warfield 51 Vice President and General Manager, Computer Products Division
The following is a brief summary of the business experience of each of the key
members of management of the Company. Information with respect to Mr. Paulson
and Mr. Cheney is set forth above under "Election of Directors".
JAMES S. CHIADO has been vice president and general manager,
Independent Music Division since joining the Company in March 1998. Prior to
joining the Company, Mr. Chiado was senior vice president of sales at Simitar
Entertainment from 1997 to 1998, senior vice president of sales and marketing at
Essec Entertainment from 1994 to 1997 and senior vice president of sales at
Arista Records from 1991 to 1993. In addition, Mr. Chiado's twenty-five year
industry career included various management positions with CBS Records and Sony
Music Distribution for more than sixteen years.
KATHLEEN A. CONLIN has been vice president, corporate controller since
1995. Prior to that, she served as controller, accounting manager and full
charge bookkeeper since joining the Company in April of 1984.
THOMAS J. LENAGHAN has been vice president and general manager,
Alternative Retail Marketing since joining the Company in June 1997. Prior to
joining the Company, Mr. Lenaghan was employed by the Handleman Company for
twelve years, most recently as vice president of sales. In addition, Mr.
Lenaghan's career covers a total of twenty-five years in the music industry in
various management positions with both Handleman and Pickwick International.
EDWARD A. TOMECHKO has served as President, Chief Financial Officer and
director of NetRadio Corporation since January 1999 and served as Chief
Financial Officer from August 1998 until March 15, 1999. From April 1997 to
April 1998, Mr. Tomechko served as Senior Vice President and Chief Financial
Officer of David's Bridal, Inc. >From January 1996 to April 1997, Mr. Tomechko
was Senior Vice President and Chief Financial Officer of the County Seat Stores,
Inc., and from 1990 to 1996, Mr. Tomechko served as Vice President and Treasurer
of County Seat. In October 1996, County Seat filed a voluntary petition for
reorganization under Chapter 11 of Title 11 of the United States Code, In the
United States Bankruptcy Court for the District of Delaware. On October 29,
1997, the Plan of Reorganization was consummated.
5
JOHN TURNER has been vice president of operations since joining the
Company in September 1995. Prior to joining Navarre, Mr. Turner was senior
director of distribution for Nordic Track in Chaska, MN from July 1993 to
September 1995. Prior to that he held various positions in logistics in the
United States and in the United Kingdom.
IAN R. WARFIELD has been vice president and general manager, Computer
Products Division since joining the Company in January 1998. Prior to joining
Navarre, Mr. Warfield served as senior vice president of sales and marketing for
Point Group Corporation from November 1994 to January 1998, a provider of global
OEM software services. In addition, Mr. Warfield's twenty-year industry career
included senior management roles at Software, Etc. from March 1992 to February
1994 and Technology Marketing Group from March 1990 until February 1992. His
consulting experience as a former partner at the national consulting firm IMS
from April 1994 until November 1995 included the provision of strategic,
tactical and process consulting to IBM, Compaq, Hewlett Packard, Samsonite and
American Airlines.
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation and other components of
compensation for the fiscal years ending March 31, 1999, 1998, and 1997, for
Eric H. Paulson, the chief executive officer of the Company, Charles E.
Cheney, and Guy M. Marsala, the only other executive officers of the Company
whose total cash compensation exceeded $100,000 (together, the "Named Executive
Officers") during the fiscal year ended March 31, 1999.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ----------
---------------------------------------- SECURITIES
NAME AND FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- ------------------------------------------------------------------------------------------------------------------
Eric H. Paulson 1999 $293,082 $125,000 ---- 100,000 $77,500(2)
Chairman of the Board, 1998 $246,542 ---- ---- 75,000 $72,000(2)
Chief Executive Officer 1997 $249,246 $172,000(3) $11,769(1) ---- ----
and President
Charles E. Cheney 1999 $205,385 $ 75,000 $ 9,000(1) 100,000 $77,500(2)
Executive Vice President 1998 $180,769 ---- $ 9,000(1) 45,000 $72,000(2)
Chief Financial Officer 1997 $174,680 $ 87,600(3) $ 9,000(1) ---- ----
Secretary and Treasurer
Guy M. Marsala (4) 1999 $128,250 $100,000 $ 5,711(1) 80,000 ----
Chief Operating Officer 1998 $195,000 ---- $ 9,000(1) ---- ----
1997 $ 67,500 ---- $ 3,115(1) ---- ----
(1) Represents car allowance.
(2) Amounts reflect loan guarantee fees paid to both Mr. Paulson and Mr. Cheney
in consideration of their guarantees of the Company's obligations.
(3) Amounts reflect $86,000 for Eric H. Paulson and $43,800 for Charles E.
Cheney, which was accrued in fiscal 1996 but not paid until 1997.
(4) Mr. Marsala's employment ended on November 10, 1998.
6
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements (the "Employment Agreements")
with Mr. Paulson and Mr. Cheney effective October 1, 1996. The Employment
Agreements protect the proprietary rights of the Company to all material and
ideas developed by Mr. Paulson and Mr. Cheney during their employment and
prohibit the disclosure of any confidential matters by these employees during or
after their employment with the Company.
The agreement with Mr. Paulson terminates on September 30, 2001 and is
automatically renewable for one-year periods. The agreement currently provides
for a base salary of $300,000 per year, subject to annual adjustments by the
Board of Directors, and a year end bonus of up to eighty percent of his base
salary.
The agreement with Mr. Cheney terminates on September 30, 2001 and is
automatically renewable for one-year periods. The agreement currently provides
for a base salary of $210,000 per year, subject to annual adjustments by the
Board of Directors, and a year end bonus of up to sixty percent of his base
salary.
Under the terms of the Employment Agreements, if the employment of either
Messrs. Paulson or Cheney is terminated without cause by the Company or by the
employee, for the employee cause as defined in the Agreements, the Employment
Agreements require the payment to Messrs. Paulson and Cheney respectively of (i)
their base salaries through the end of the term of the Agreement or for two
years, whichever is more, in exchange for a properly executed non-compete
agreement between the employee and the Company and (ii) certain benefits to Mr.
Paulson for the greater of two years or the remaining term of the Agreement and
Mr. Cheney for the greater of one year or the remaining term of the Agreement.
In addition, if the termination by the Company without cause or by the employee
for employee cause occurs after the change of control or ownership of the
Company, the employee is entitled to receive benefits equal to the amount
determined by multiplying 2.99 by the average annual compensation and fringe
benefits paid to the employee over the five most recent fiscal years, an amount
currently equal to approximately $1,024,503 with respect to Mr. Paulson,
$681,844 with respect to Mr. Cheney. The Agreements further provide, however,
that in no event shall the amount due and payable be such that it would
constitute a "parachute payment" within the meaning of the Internal Revenue
Code, and that, in the event that any portion of the severance payment would be
deemed a parachute payment, then the amount of the severance payment would be
reduced to the extent necessary to eliminate such treatment or characterization.
STOCK OPTION PLAN
The Company's 1992 Stock Option Plan (the "Stock Plan") was approved by the
Board of Directors on September 1, 1992. A total of 2,174,000 shares of the
Company's authorized common stock are reserved for issuance under the Stock Plan
and an additional 1,300,000 shares have been authorized pending shareholder
approval at the Annual Shareholders Meeting. The purpose of the Stock Plan is to
attract and retain talented employees, non-employee directors, consultants and
independent contractors, as well as reward such persons who contribute to the
achievement to the Company's economic objectives, by giving them a proprietary
interest in the Company. The Stock Plan provides for both incentive stock
options and non-statutory stock options. Incentive stock options are granted at
an exercise price based upon fair market value and receive favorable tax
treatment under the Internal Revenue Code. Non-statutory stock options are
granted at an exercise price determined by the Board of Directors and do not
qualify for favorable tax treatment. A detailed description of the Plan is
contained in Proposal 3 of this Proxy Statement.
The following table provides required information concerning the year end value
of stock options under the Stock Plan to highly compensated executive officers
of the Company identified on the table below. The following table sets forth
certain information regarding stock options granted to the executive officers
named in the Summary Compensation Table during the Company's 1999 fiscal year.
7
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
------------------------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO EXERCISE PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES IN PRICE EXPIRATION OPTION TERM (1)
NAME OPTIONS GRANTED FISCAL YEAR ($/SH) DATE 5% 10%
- ------------------------- -------------------- ---------------- ----------- --------------- --------------------------
Eric H. Paulson 100,000 19.4 $2.9375 10/19/04 $81,172 $179,368
Charles E. Cheney 100,000 19.4 $2.9375 10/19/04 $81,172 $179,368
Guy M. Marsala (2) 80,000 15.6 $3.7500 11/10/98 $82,884 $183,153
(1) Represents the potential realizable value of grant of options assuming that
the market price of the underlying common stock appreciates in value from its
fair market value on the date of the grant to the end of the option term at the
indicated annual rates.
(2) Mr. Marsala's options expired after termination of his employment.
The following table sets forth information with respect to the Company's
executive officers concerning the exercise of options during fiscal 1999 and
unexercised options held at March 31, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES (1)
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY
ACQUIRED VALUE OPTIONS AT YEAR END OPTIONS AT YEAR END
NAME ON EXERCISE REALIZED EXERCISABLE / UNEXERCISABLE EXERCISABLE / UNEXERCISABLE
- --------------------------------------------------------------------------------------------------------------------------
Eric H. Paulson 205,000 2,258,888 40,000 230,000 467,500 2,135,500
Charles E. Cheney 40,000 513,700 125,000 170,000 1,391,458 1,865,780
Guy M. Marsala 112,000 1,103,750 ---- ---- ---- ----
(1) Based on the difference between the March 31, 1999 closing price of $13.9375
per share as reported on the Nasdaq Stock Market and the exercise price of the
options.
CERTAIN TRANSACTIONS
In connection with the Company's past borrowings, the Company's President, Eric
H. Paulson, and its Executive Vice President, Charles E. Cheney, have been
required to guarantee obligations of the Company. In certain cases, these
officers have received additional compensation from the Company in consideration
of their guarantees. In connection with the Company's negotiating a $3.0 million
overline in September 1997 with respect to the Company's $45 million credit
facility with Congress Financial Corporation, Mr. Paulson and Mr. Cheney were
required to personally guarantee the overline. As consideration for this
guarantee, the Company agreed to pay to both Mr. Paulson and Mr. Cheney an
amount equal to five percent of the total amount guaranteed, with payments to be
made over a twelve-month period. During fiscal 1999, a total of $77,000 was paid
to each of Mr. Paulson and Mr. Cheney pursuant to these guarantees. In the event
that officers of the Company are required to guarantee bank obligations of the
Company in the future, the Company anticipates paying them additional
compensation for these guarantees. See "Executive Compensation."
8
At March 31, 1999, Mr. Paulson was indebted to the Company in the principal
amount of $255,299. This indebtedness represents the largest principal amount
outstanding during fiscal 1999. Mr. Paulson pays the Company interest on the
outstanding indebtedness at the rate of 8.5 percent.
In January 1995, the Company decided to exercise its option to purchase the
property on which its principal facilities and adjoining land were located, in
part because of continuing disputes with its landlord with respect to matters in
connection with the construction and the operation of the building. In September
1995, the Company entered into a settlement agreement with the landlord under
which all matters with respect to the building were resolved and the Company
acquired the building. At the time of the acquisition of the building, the
Company was unable to arrange satisfactory permanent financing for the building.
Accordingly, the Company entered into a Lease Agreement with a limited liability
company the members of whom were Eric H. Paulson and Charles E. Cheney, the
Company's President and Executive Vice President, respectively, which limited
liability company acquired the building. Under the terms of the lease agreement,
the Company agreed to lease the building for approximately the same price as the
contract with the original landlord, provided, that the management fee to be
paid in connection with the leasing of the building was decreased from five
percent of the aggregate rent to three percent of the aggregate rent, and the
cost of living increases in the rent, rather than being effective at the end of
five years, were effective at the end of each year. In addition, the Company
received a purchase option, under which it had the right to purchase the
building for an amount equal to the net present value of future income payments
under the lease, which approximated the purchase option it had under the old
agreement. The proposed transaction was approved unanimously by the
disinterested directors of the Company's Board of Directors and the Company
believes that the terms under which the Company leased the building from the
limited liability company were on terms no less favorable than could be obtained
from independent third parties. In August 1998, the building was sold to a
non-related third party. During the fiscal year ended March 31, 1999, the
Company made lease payments through August 1, 1998 to the limited liability
company totaling $172,092.
REPORT OF THE COMPENSATION COMMITTEE
Decisions on compensation of the Company's executives are generally made by the
two member Compensation Committee of the Board (the "Committee") consisting of
James G. Sippl and Alfred Teo who are non-employee directors. All decisions by
the Committee relating to the compensation of the Company's executive officers
are reviewed by the full Board, except for decisions about awards under the
Company's 1992 Stock Option Plan, which are made solely by the Committee.
Set forth below is a report submitted by the Committee addressing the Company's
compensation policies for fiscal 1999 as they affected Mr. Paulson, the
Company's chief executive officer and Mr. Cheney, the other executive officer
who, for fiscal 1999, were the Company's most highly paid executive
officers whose compensation exceeded $100,000. The following report shall not be
deemed incorporated by reference by any general statement incorporating by
reference this Proxy Statement into any filing under the Securities and Exchange
Act of 1933 (the "1933 Act") or the Securities and Exchange Act of 1934 (the
"1934 Act"), except to the extent that the Company specifically incorporates
this information by reference, and shall not otherwise be deemed filed under the
1933 Act or the 1934 Act.
COMPENSATION PHILOSOPHY.
The Committee's executive compensation policies are designed to provide
competitive levels of compensation in order to attract and retain highly
qualified executives, establish compensation levels based upon a comparison of
job responsibility within the Company to similar positions in comparable
companies
9
and industries, and recognize individual performance based upon long-term
specific goals, as opposed to short-term or arbitrary measurements of
performance.
BASE SALARY.
The Committee annually reviews each executive officer's salary. In determining
appropriate base salary levels, the Committee considers levels of
responsibility, performance on behalf of the Company, the overall performance of
the Company and external pay practices. With respect to external pay practices,
the Committee uses various surveys of executive compensation for companies of
similar size and comparable industries as a basis for determining competitive
levels of cash compensation.
ANNUAL INCENTIVE AWARDS.
The Company pays bonuses to its executive officers based upon the performance of
the Company. Mr. Paulson may receive an amount up to eighty percent of his base
salary and Mr. Cheney may receive an amount up to sixty percent of his base. The
Committee may award executive officers either cash, common stock or a
combination of cash and common stock as incentive compensation.
STOCK OPTIONS.
In order to promote improved long-term performance by the Company, the Committee
awards stock options to the Company's executive officers. Stock options are
awarded in order to achieve competitive compensation levels and to reward
individual performance of executive officers. Stock options only have value for
the executive officers if the price of the Company's stock appreciates in value
from the date the stock options are granted. Shareholders also benefit from such
stock price appreciation. The Compensation Committee believes that the grant of
restricted stock grants provides additional compensation to the Company officers
by providing them with an additional equity interest in the Company's
securities.
CHIEF EXECUTIVE OFFICER COMPENSATION.
Mr. Paulson's base pay for fiscal 1999 was $300,000. The compensation package
for Mr. Paulson was set by the Board of Directors. Mr. Paulson's base salary was
established in connection with the executive of a new employment agreement in
October 1996. During fiscal 1999, the Company made cost of living adjustments to
the base salary. Mr. Paulson was paid a bonus of $125,000 during fiscal 1999 in
part for his achievements in successfully completely a private placement of
$20.0 million of preferred stock in May 1998. The terms of Mr. Paulson's
employment agreement are set forth in the section entitled "Employment
Agreements and Change of Control Provisions."
SUBMITTED BY THE 1999 COMPENSATION COMMITTEE OF
THE COMPANY'S BOARD OF DIRECTORS
James G. Sippl Alfred Teo
10
PERFORMANCE GRAPH
The following Performance Graph compares performance of the Company's Common
Stock on the Nasdaq National Market System to the Nasdaq Stock Market (US
Companies) Index and a Peer Group Index described below. The graph compares the
cumulative total return from March 31, 1994 to March 31, 1999 on $100 invested
on March 31, 1994 assumes reinvestment of all dividends and has been adjusted to
reflect stock splits.
Index levels as of March 31, 1999 were 743.3 for Navarre Corporation, 342.7
Nasdaq Stock Market and 79.4 for the Self-Determined Peer Group.
The Peer Group Index below includes the stock performance of the following
companies which were used in the Company's performance graph in the Company's
proxy statement for fiscal 1999: Handleman Co., Ingram Micro Inc., Merisel Inc.,
Platinum Entertainment, Inc. and Tech Data Corp. This group is comprised of
companies, that, in fiscal 1999 had similar music or software distribution
operations.
PERFORMANCE GRAPH
NAVARRE CORPORATION
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS
[PLOT POINT GRAPH]
3/31/95 3/31/96 3/31/97 3/31/98 3/31/99
Navarre Corporation 133.3 223.3 153.3 140.0 743.3
NASDAQ Stock Market 111.2 151.1 167.9 254.6 342.7
Self-Determined Peer Group 56.1 55.4 75.7 119.6 79.4
11
PROPOSAL 2 - AMENDMENT OF THE COMPANY'S ARTICLES OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK TO 100,000,000
In July 1999, the Board of Directors of the Company adopted a resolution,
subject to shareholder approval and ratification, approving an amendment to the
Company's Articles of Incorporation to increase the aggregate number of shares
of common stock authorized for issuance from 50,000,000 to 100,000,000. As of
July 15, 1999, of the 50,000,000 shares of stock currently authorized, the
Company had 23,508,394 shares of common stock outstanding, 949,448 shares
reserved for issuance pursuant to outstanding options and warrants, and 80,498
additional shares reserved for future issuance.
The proposed increase in the number of shares of stock authorized for issuance
by the Company is designed to ensure that shares of stock will be available, if
needed, for various corporate purposes including, but not limited to,
acquisitions, stock splits, stock dividends and other distributions. Although
the Company is actively exploring alternatives for additional capital, as of the
date of this proxy statement, it has not entered into any agreements with
respect to the issuance of any of the additional shares that would be authorized
by the proposed amendment. The Board, however, believes it is desirable to have
the authorized capital of the Company sufficiently flexible so that future
business needs and corporate opportunities may be dealt with by the Board of
Directors without undue delay or the necessity of holding a special
shareholders' meeting. The increased authorized shares could be used by the
Company to make a takeover attempt by a third party more difficult, such as by
using the shares to make a counter-offer for the shares of the bidder or by
selling shares to dilute the voting power of the bidder. As of the date of this
Proxy Statement, the Board is unaware of any effort to accumulate the Company's
shares of common stock or any hostile attempt to obtain control of the Company
by means of a merger, tender offer, solicitation in opposition to management or
otherwise.
If adopted by the shareholders, the proposed amendment will be accomplished by
the filing of Articles of Amendment with the Secretary of State of the State of
Minnesota, which would be expected to be accomplished promptly following
shareholder approval.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the common stock of the
Company, voting at the meeting in person or by proxy, is required for the
approval of the increase in authorized shares of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR ADOPTION OF
THIS PROPOSAL 2.
12
PROPOSAL 3 - APPROVAL OF AMENDMENT TO THE COMPANY'S
1992 STOCK OPTION PLAN
SUMMARY OF 1992 PLAN
A general description of the basic features of the 1992 Plan, assuming the
amendment described above is approved by the shareholders, is outlined below.
This summary is qualified in its entirety by the terms of the 1992 Plan, a copy
of which, in its amended form, may be obtained from the Secretary of the
Company.
GENERAL
The 1992 Plan provides for the granting to participating eligible employees of
the Company of (a) options to purchase common stock that qualify as "incentive
stock options" within the meaning of Section 422 of the Code ("Incentive Stock
Options") and (b) options to purchase common stock that do not qualify as
incentive stock options ("Non-Qualified Options"). The 1992 Plan is administered
by the Compensation Committee, which (other than with respect to automatic
grants of options to non-employee directors) selects the participants to be
granted options under the 1992 Plan, determines the amount of grants to
participants and prescribes discretionary terms and conditions of each grant not
otherwise fixed under the 1992 Plan. All employees of the Company are eligible
for participation under the 1992 Plan. Sixty-eight employees were participants
as of July 15, 1999. The maximum number of shares of Company Common stock that
may be issued under the 1992 Plan is currently 2,174,000. Of this amount,
1,144,054 shares have been issued under the Plan, 949,448 are subject to
currently outstanding options and warrants and 80,498 are reserved for future
issuance.
STOCK OPTIONS
Incentive Stock Options must be granted with an exercise price equal to at least
the fair market value of the common stock on the date of grant (or, in the case
of participants owning more than 10% of the total combined voting power of all
classes of stock of the Company, at least equal to 110% of the fair market value
on the date of grant) Non-Qualified Options may be granted with an exercise
price less than 100% of the fair market value of the common stock on the date of
grant.
For Incentive Stock Options granted after December 31, 1986, the aggregate fair
market value (determined as of the time the Incentive Stock Option is granted)
of shares of common stock with respect to which Incentive Stock Options become
exercisable for the first time by a participant under the 1992 Plan during any
calendar year may not exceed $100,000. On July 15, 1999, the closing price of a
share of Company common stock as reported by the Nasdaq Stock Market was $10.25.
Stock Options have a maximum term fixed by the Compensation Committee, not to
exceed 10 years from the date of grant (five years in the case of an Incentive
Stock Option granted to participants owning more than 10% of the total combined
voting power of all classes of stock of the Company). Non-Qualified Options have
a maximum term fixed by the Compensation Committee, not to exceed 10 years from
the date of grant. Stock options become exercisable during their terms in the
manner determined by the Compensation Committee. Stock options may not be
transferred other than by will or the laws of descent and distribution, and
during the lifetime of a participant they may be exercised only by the
participant.
13
FEDERAL INCOME TAX CONSEQUENCES
The following description of federal income tax consequences is based on current
statutes, regulations and interpretations. The description does not include
state or local income tax consequences. In addition, the description is not
intended to address specific tax consequences applicable to an individual
participant who receives an award.
INCENTIVE STOCK OPTIONS
There will not be any federal income tax consequences to either the participant
or the Company as a result of the grant to a participant of an Incentive Stock
Option under the 1992 Plan. The exercise by a participant of an Incentive Stock
Option also will not result in any federal income tax consequences to the
Company or the participant, except that (i) an amount equal to the excess of the
fair market value of the shares acquired upon exercise of the Incentive Stock
Option, determined at the time of exercise, over the consideration paid for the
shares by the participant will be a tax preference item for purposes of the
alternative minimum tax, and (ii) the participant may be subject to an
additional excise tax if any amounts are treated as "excess parachute payments"
within the meaning of the Code.
If a participant disposes of the shares acquired upon exercise of an Incentive
Stock Option, the federal income tax consequences will depend upon how long the
participant has held the shares. If the participant does not dispose of the
shares within two years after the Incentive Stock Option was granted, nor within
one year after the participant exercised the Incentive Stock Option and the
shares were transferred to the participant (the "Applicable Holding Periods"),
then the participant will recognize a long-term capital gain or loss. If the
Applicable Holding Periods are not satisfied, then any gain realized in
connection with the disposition of such stock will generally be taxable as
ordinary compensation income in the year in which the disposition occurred, to
the extent of the difference between the fair market value of such stock on the
date of exercise and the option exercise price. The Company is entitled to a tax
deduction to the extent, and at the time, the participant realizes compensation
income. The balance of any gain will be characterized as a capital gain.
VOTE REQUIRED
Shareholder approval of the amendment to the 1992 Plan requires the affirmative
vote by the holders of a majority of shares of common stock represented at the
Annual Meeting and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR ADOPTION OF
THIS PROPOSAL 3.
REGISTRATION WITH SEC
The Company intends to file a Registration Statement covering the issuance of
the additional shares issuable under the Stock Plan, as amended, with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended.
NON-QUALIFIED OPTIONS
An optionee will not realize taxable compensation income upon the grant of a
non-qualified stock option. As a general matter, when an optionee exercises a
non-qualified stock option, he or she will realize taxable compensation income
at that time equal to the difference between the aggregate option price and the
fair market value of the stock on the date of exercise. The Company is entitled
to a tax deduction to the extent, and at the time, the participant realizes
compensation income.
14
GENERAL
INDEPENDENT AUDITORS
The Board of Directors has selected the firm of Ernst & Young LLP, independent
public accountants, as auditors to the Company for the year ended March 31,
2000. Ernst & Young LLP has audited the Company's financial statements since
1988. A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting to make a statement if he or she so desires and to respond to
appropriate questions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10 percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. These
insiders are required by Securities and Exchange Commission regulations to
furnish the Company with copies of all Section 16(a) forms they file, including
Forms 3, 4 and 5. Based upon its review of Forms 3, 4 and 5 filed by the
Company's insiders, the Company believes all such forms with respect to
transactions occurring in fiscal 1999 were filed on a timely basis. During
fiscal 1999, Charles E. Cheney and Dickinson G. Wiltz each failed to report in a
timely manner one transaction. During fiscal 1999, Alfred Teo failed to report
in a timely manner two filings, which related to 28 transactions.
SHAREHOLDER PROPOSALS
Any shareholder desiring to submit a proposal for action at the 2000 Annual
Meeting of Shareholders and presentation in the Company's proxy statement with
respect to such meeting should arrange for such proposal to be delivered to the
Company's offices, 7400 49th Avenue North, New Hope Minnesota 55428 addressed to
Secretary, no later than April 1, 2000 in order to be considered for inclusion
in the Company's proxy statement relating to the meeting. Matters pertaining to
such proposals, including the number and length thereof, eligibility of persons
entitled to have such proposals included and other aspects are regulated by the
Securities Exchange Act of 1934, Rules and Regulations of the Securities and
Exchange Commission and other laws and regulations to which interested persons
should refer.
In addition, SEC Rule 14a-4 governs the Company's use of its discretionary proxy
voting authority with respect to a shareholder proposal that is not addressed in
the Company's proxy statement. The Rule provides that if a proponent of a
proposal fails to notify the Company at least 45 days prior to the month and day
of mailing of the prior year's proxy statement, then the Company will be allowed
to use its discretionary voting authority when the proposal is raised at the
meeting, without any discussion of the matter in the proxy statement. With
respect to the Company's 2000 Annual Meeting, if the Company is not provided
notice of a shareholder proposal prior to May 15, 2000 the Company will be
allowed to use its voting authority as described above.
15
OTHER BUSINESS
All items of business intended by the management to be brought before the
meeting are set forth in the Proxy Statement, and the management knows of no
other business to be presented. If other matters of business not presently known
to the Board of Directors shall be properly raised at the Annual Meeting, it is
the attention of the persons named in the proxy to vote on such matters in
accordance with their best judgment.
The Annual Report of the Company for fiscal 1999 is enclosed herewith.
Shareholders may receive without charge a copy of the Company's Annual Report
and Form 10-K, including financial statements and schedules thereto, as filed
with the Securities and Exchange Commission, by writing to: Navarre Corporation,
7400 49th Avenue North, New Hope, MN 55428, Attention: Charles E. Cheney, or by
calling the Company at (612) 535-8333.
By Order of the Board of Directors
Charles E. Cheney
Secretary
Dated: July 30, 1999
16
NAVARRE CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 9, 1999
3:30 P.M.
NAVARRE CORPORATION
7400 - 49TH AVE NO
NEW HOPE, MN 55428
NAVARRE CORPORATION
PROXY SOLICITED BY BOARD OF DIRECTORS PROXY
- --------------------------------------------------------------------------------
The undersigned, revoking all prior proxies, hereby appoints Charles E. Cheney
and Eric H. Paulson, and either of them, as proxy or proxies, with full power of
substitution and revocation, to vote all shares of common stock of Navarre
Corporation (the "Company") of record in the name of the undersigned at the
close of business on July 23, 1999, at the Annual Meeting of Shareholders to be
held on Thursday, September 9, 1999, or at any adjournment thereof, upon the
following matters:
(CONTINUED ON REVERSE SIDE)
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| COMPANY # |
| CONTROL # |
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THERE ARE THREE WAYS TO VOTE YOUR PROXY
YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR
SHARES IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY
CARD.
VOTE BY PHONE -- TOLL FREE -- 1-800-240-6326 -- QUICK *** EASY *** IMMEDIATE
o Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week.
o You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above.
o Follow the simple instructions the Voice provides you.
VOTE BY INTERNET -- http://www.eproxy.com/navr/ -- QUICK *** EASY *** IMMEDIATE
o Use the Internet to vote your proxy 24 hours a day, 7 days a week.
o You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above to obtain your records and create an
electronic ballot.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to NAVARRE CORPORATION c/o Shareowner Services-,
P.O. Box 64873, St. Paul, MN 55164-0873.
IF YOU VOTE BY PHONE OR INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD
PLEASE DETACH HERE
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
1. Election of directors: 01 Eric H. Paulson [ ] Vote FOR [ ] Vote WITHHELD
02 James G. Sippl all nominees from all nominees
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, ----------------------------------------------------
WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.) | |
| |
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2. Proposal to ratify and approve an amendment to the Company's Articles of
Incorporation to increase the number of authorized shares of Common Stock. [ ]For [ ] Against [ ] Abstain
3. Proposal to approve an amendment to the Company's 1992 Stock Option Plan. [ ]For [ ] Against [ ] Abstain
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
Address Change? Mark Box [ ]
Indicate changes below:
Date
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Signature(s) in Box
Please sign exactly as your name(s) appear on Proxy.
If held in joint tenancy, all persons must sign.
Trustees, administrators, etc., should include title
and authority. Corporations should provide full name
of corporation and title of authorized officer
signing the proxy.
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