NAVARRE CORPORATION
7400 49th Avenue North
New Hope, MN 55428
_________________________
NOTICE OF ANNUAL SHAREHOLDERS MEETING
September 5, 1996 at 3:30 p.m.
_______________________________________________
TO NAVARRE CORPORATION SHAREHOLDERS:
The Annual Meeting of the Shareholders (the "Meeting") of
Navarre Corporation (the "Company") will be held Thursday,
September 5, 1996 at 3:30 p.m., local time, at The Marquette
Hotel, Mississippi River Room, 3rd Floor, 710 Marquette Avenue,
Minneapolis, Minnesota, 55402, for the following purposes:
1. To elect five directors who will serve until the next annual
meeting of shareholders.
2. To ratify and approve an amendment to the Company's Articles
of Incorporation to authorize the creation of Preferred Stock.
3. To ratify and approve an amendment to the Company's Articles
of Incorporation to establish a classified board of directors.
4. To approve certain amendments to the 1992 Stock Option
Plan.
5. To transact such other business as may properly come before
the meeting or an adjournments thereof.
Shareholders of record at the close of business on July 12, 1996
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 22, 1996
NAVARRE CORPORATION
7400 49th Avenue South
New Hope, Minnesota 55428
612/535-8333
_____________________________
PROXY STATEMENT
Annual Meeting of Shareholders
September 5, 1996
_______________________________
SOLICITATION OF PROXIES
This Proxy Statement is being furnished to the shareholders of
Navarre Corporation (the "Company") in connection with the
solicitation of proxies by the Board of Directors of the Company
(the "Board of Directors") for use at the Annual Meeting of
Shareholders (the "Annual Meeting") to be held on Thursday,
September 5, 1996 at 3:30 p.m., local time, at The Marquette
Hotel, Mississippi River Room, 3rd Floor, 710 Marquette Avenue,
Minneapolis, Minnesota, 55402 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 22, 1996.
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 otherwise 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 holders of record of shares of the Company's no par value
common stock (the "Common Stock") at the close of business on
July 12, 1996, will be entitled to notice of and to vote at the
Annual Meeting and any adjournment thereof. The securities of
the Company outstanding as of July 12, 1996, the record date for
the Annual Meeting, and which are entitled to vote at the
meeting, consist of 6,617,428 shares of Common Stock, each share
being entitled to one vote. 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
Proposals Two, Three, and Four. 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 such 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, such 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,
1996 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 of the Company, (iii) the
executive officers named in the Summary Compensation Table below
and (iv) all directors and officers of the Company as a group.
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership (1) of Class
Eric H. Paulson 2,489,580 (2) 37.6%
7400 49th Avenue North
New Hope, MN 55428
Charles E. Cheney 737,280 11.1%
7400 49th Avenue North
New Hope, MN 55428
Dickinson G. Wiltz 264,396 4.0%
7141 Willow Creek Road
Eden Prairie, MN 55344
James G. Sippl 15,200 *
One Merrill Circle
St. Paul, MN 55108
Michael L. Snow 4,800 *
3300 Norwest Center
Minneapolis, MN 55402
All directors and 3,587,566 (2) 54.2%
officers as a group (10 persons)
* Indicates ownership of less than one percent.
(1) Includes shares of Common Stock issuable upon exercise of
outstanding options exercisable within 60 days of July 1, 1996
in the following amounts: Eric H. Paulson, 61,100 shares;
Charles E. Cheney, 70,550 shares; Dickinson G. Wiltz, 20,396
shares; James G. Sippl, 15,200 shares; Michael L. Snow, 4,800
shares; and all officers and directors as a group, 188,356
shares.
(2) Includes 35,279 shares of Common Stock beneficially owned by
members of Mr. Paulson's family. All of the shares beneficially
owned by Mr. Paulson are subject to voting trust agreements
through which he has sole voting discretion. The voting trust
agreements also grant Mr. Paulson a right of first refusal to
purchase the underlying shares.
(3) Does not include the options or restricted stock grants
subject to shareholder approval of an increase in the 1992 Stock
Option Plan.
PROPOSAL ONE - ELECTION OF DIRECTORS
The Board of Directors of the Company is currently composed of
the five members who are nominees for election at the Annual
Meeting. It is the recommendation of the Company's Board of
Directors that the five nominees named below be reelected as
directors to serve as directors until the next Annual Meeting of
the shareholders and until their successors shall be duly
elected and qualified as directors.
Unless otherwise directed, the proxies solicited by the Board of
Directors will be voted in favor of electing the five directors
at the Annual Meeting and will be voted in favor of such
nominees. However, in the event of the inability or
unwillingness of one or more of these nominees to serve as a
director at the time of the Annual Meeting on September 5, 1996
or any adjournments thereof, the shares represented by the
proxies will be voted in favor of the remainder of such nominees
and may also (at the discretion of the holders of said proxies)
be voted for other nominees not named herein, in lieu of those
unable or unwilling to serve. As of the date hereof, the Board
of Directors knows of no nominee who is unable or unwilling to
serve. In Proposal Three, the Company is requesting shareholder
approval of an amendment to the Company's Articles of
Incorporation to establish a classified board of directors. If
Proposal Three is approved by the Company's shareholders, then
the Company's directors will be elected for the terms specified
in Proposal Three.
The affirmative vote of holders of Common Stock representing a
majority of the voting power represented at the Annual Meeting
is required for the election of the nominees.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
THE ELECTION OF THE FIVE NOMINEES FOR THE BOARD OF DIRECTORS AS
SET FORTH IN PROPOSAL ONE.
Information Regarding the Five Nominees for Election as Directors
The following discussion sets forth certain information
regarding the nominees for the Board of Directors of the Company.
Eric H. 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 a director of Net Radio Corporation.
Charles E. Cheney has served as Chief Financial Officer and
Executive Vice President 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 12 years, most recently as Controller of Control
Data Commerce International. Mr. Cheney is also a Certified
Public Accountant. Mr. Cheney is also a director of Net Radio
Corporation.
James G. Sippl has been a director of the Company since July
1993. Since 1989, Mr. Sippl has been a Vice President, with
Merrill Corporation, a financial printer, most recently as Vice
President of Business Development. Prior to joining Merrill
Corporation, Mr. Sippl was employed at Chicago Cutlery, a
manufacturer of fine cutlery, from 1985 to 1989, most recently
as President. From 1970 to 1983, Mr. Sippl was employed at
Coopers & Lybrand, most recently as a partner.
Michael L. Snow was elected a director of the Company on April
1, 1995. Mr. Snow is of counsel with the Minnesota law firm of
Maslon Edelman Borman & Brand, 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.
Dickinson G. Wiltz has been 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. In addition, directors have been granted
options in the past. Subject to shareholder approval, each
non-employee director of the Company was granted an option to
purchase 20,000 shares on March 5, 1996 and will be granted, on
April 1st of each year beginning April, 1997, a non-qualified
stock option under the 1992 Stock Option Plan to purchase 6,000
shares of Company Common Stock at the fair market value on the
day of the grant. See Proposal Four - Approval of Amendments
to the Company's 1992 Stock Option Plan.
Board Actions and Committees
All directors hold office until the next Annual Meeting of
Shareholders and until their successors have been elected and
qualified or until their earlier death, resignation or removal
from office. 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.
During fiscal 1996, the Board of Directors held five formal
meetings and each Director attended 75% or more of the meetings
of the Board and of the committees on which the directors
served. Board members also met informally during fiscal 1996 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 1997 consists of Charles E. Cheney, James
G. Sippl and Michael L. Snow. While Mr. Cheney is an employee
of the Company, Mr. Sippl and Mr. Snow are non-employee
directors of the Company. During fiscal year ended March 31,
1996, the Audit Committee held two meetings. 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.
The Compensation Committee of the Board of Directors for fiscal
1997 consists of Mr. Sippl and Mr. Snow 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,
1996.
The Company does not have a nominating committee.
Executive Officers of the Company
The Company's directors, executive officers and other key
members of management are as follows:
<CAPTURE>
Name Age Position With the Company
Eric H. Paulson 51 Chairman of the Board , President and
Chief Executive Officer
Charles E. Cheney 53 Secretary, Treasurer and Director,
Executive Vice President and
Chief Financial Officer
James G. Sippl 48 Director
Michael L. Snow 45 Director
Dickinson G. Wiltz 67 Director
James A. Adams 42 Vice President, General Manager of Computer
Products Division
Kathleen A. Conlin 52 Vice President, Corporate Controller
Michael W. Gaffney 42 Vice President, General Manager of Music
Products Division
William L. Stocks 41 Vice President, General Manager of
Digital Entertainment
John Turner 42 Vice President, Operations
Biographical information on the Company's directors is provided
elsewhere in this Proxy Statement under "Election of Directors."
The following is a brief summary of the business experience of
each of the key members of management of the Company:
James A. Adams has been Vice President of the Company and
General Manager of the Computer Products Division since 1986
except for the period January 1990 to October 1991 when he
worked for the Computer Products Group within Lieberman. Prior
to joining Navarre, Mr. Adams worked as an independent sales
representative for several companies including Apple Computer
and Electronic Arts.
Kathleen A. Conlin has been Vice President, Corporate
Controller since 1995. She has served as Controller, Accounting
Manager, and Full Charge Bookkeeper since joining the Company in
1984.
Michael W. Gaffney has been Vice President of the Company and
General Manager of the Music Products Division since 1988. He
served as Director of Sales for the Music Products Division from
1987 to 1988, Mr. Gaffney also served as Senior Buyer for
Pickwick Distribution Companies and served in various capacities
with other companies in the music industry prior to joining the
Company.
William L. Stocks III has been Vice President and General
Manager of Digital Entertainment since 1995. He served as Vice
President of Marketing/New Business from 1991 to 1995. From
1988 to 1990, Mr. Stocks served as Vice President of New
Business for Lieberman. Prior to that time, Mr. Stocks held
various positions at AT&T and for Pickwick Distribution
Companies.
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. He has held various positions in Logistics in the
United States and in the United Kingdom.
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation and other
components of compensation for the fiscal years ending March 31,
1996 and 1995, the three month period ending March 31, 1994 and
fiscal year ending December 31, 1993 for Eric H. Paulson, the
Chief Executive Officer of the Company, and each of the executive
officers of the Company whose total cash compensation exceeded
$100,000 during the fiscal year ended March 31, 1996.
<CAPTURE>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
Name and Restricted Securities All Other
Principal Other Annual Stock Underlying Compen-
Position Year Salary Bonus Compensation Awards Option sation
Eric H. 1996 $210,000 $87,500 $18,000(1) $225,000(2) 300,000(2) ---
Paulson, 1995 203,077 79,000 18,000(1) --- --- $ 4,808(3)
Chairman 1994 45,866 --- 4,500(1) 78,000 --- 12,500(3)
of the, 1993 186,667 --- 16,800(1) --- 70,000 43,292(3)
Board, President and Chief Executive Officr
Charles 1996 $146,000 $43,800 $9,000(1) $112,500(2) 150,000(2) ---
E.Cheney 1995 140,923 41,050 9,000(1) --- --- $ 4,808(3)
Executive 1994 31,154 --- 2,250(1) 40,500 --- 12,500(3)
Vice 1993 126,667 --- 8,600(1) --- 40,000 43,292(3)
President, Chief Fiancial Officier, Secretary and Treasurer
(1) Represents car allowance.
(2) The restricted stock and the stock options granted to the
Company's executive officers were granted under the Company's
1992 Stock Option Plan. Some of these grants were contingent on
shareholders approval of amendments to the Plan. See Proposal
Four.
(3) Amounts reflect loan guarantee fees paid to both Mr. Paulson
and Mr. Cheney in consideration of their guarantees of the
Company's obligations.
Employment Agreements and Change of Control Provisions
The Company entered into employment agreements (the "Employment
Agreements") with Mr. Paulson and Mr. Cheney effective September
1, 1993. 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 August 31, 1996 and
is 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 80% of his base salary.
The agreement with Mr. Cheney also terminates on August 31, 1996
and is renewable for one year periods. The agreement currently
provides for a base salary of $146,000 per year, subject to
annual adjustments by the Board of Directors, and a year end
bonus of up to 60% of his base salary.
Under the terms of the Employment Agreements, if the employment
of either Mr. Paulson or Mr. Cheney is terminated without cause
by the Company or by the employee, with 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
$692,888 with respect to Mr. Paulson and $462,981 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.
Certain Relationships and Related Transactions
In connection with a number of the Company's transaction, the
Company's President, Eric H. Paulson, and its Executive Vice
President, Charles E. Cheney, have been required to guarantee
obligations of the Company. The Company's officers generally
have guaranteed the obligations without additional compensation.
In certain cases, however, these officers have received
additional compensation from the Company in consideration of
their 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."
In connection with the reacquisition of the Company from Live
Entertainment in October 1991, Messrs. Paulson and Cheney, and
Dickinson G. Wiltz, a director of the Company, loaned the
Company the amounts of $502,000, $50,000 and $48,500,
respectively, pursuant to demand notes with interest at the rate
of 12 percent. In addition, at March 31, 1995, Mr. Paulson was
indebted to the Company in the principal amount of $255,378.
The largest principal amount that was outstanding during fiscal
1995 was $255,378. Mr. Paulson paid the Company interest on the
outstanding indebtedness at 8.5 percent. In December 1993, the
Company repaid Mr. Cheney all amounts due him and Mr. Cheney
repaid the Company all amounts due from him to the Company. In
March 1995, the Company repaid Mr. Wiltz all amounts due him.
In May 1995, the Company repaid Mr. Paulson all amounts due him
and Mr. Paulson repaid the Company all amounts due from him to
the Company.
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 Partnership consisting of Eric H. Paulson and
Charles E. Cheney, the Company's President and Executive Vice
President, respectively, which Partnership acquired the
buildings.
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
building, which approximated the purchase option it had under
the old agreement. During the fiscal year ended March 31, 1996,
the Company made lease payments totaling $194,805 to the
partnership.
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 Partnership were on terms no less
favorable than could be obtained from independent third parties.
Stock Options
The Company's 1992 Stock Option Plan (the "Stock Plan") was
approved by the Board of Directors on September 1, 1992. A
total of 874,000 shares of the Company's authorized Common Stock
are reserved for issuance under the Stock Plan and an additional
1,300,000 shares awaiting 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. The Company may grant
incentive stock options only to employees of the Company.
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 1996
fiscal year.
All share amounts in the table have been adjusted to reflect the
Company's 2-for-1 stock split in the form of a 100% stock dividend
distributed on June 21, 1996.
<CAPTURE>
Option Grants in Last Fiscal Year
Individual Grants Potential Realizable
Percent of Value at Assumed
Total Options Annual Rates of Stock
Options Employees in Price Expiration Option Term (1)
Name Granted Fiscal Year ($/Sh) Date 5% ($) 10% ($)
Eric H. 100,000 47.3 $4.375 08/01/01 $120,873 $267,098
Paulson 200,000 36.9 $2.25 03/05/01 $124,327 $274,730
Charles E. 50,000 23.7 $4.375 08/01/01 $ 60,437 $133,549
Cheney 100,000 18.5 $2.25 03/05/01 $ 62,164 $137,365
(1) Represents the potential realizable value of each 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 grant to the end of the option term at the indicated
annual rates.
Stock Option Exercises and Holdings
The following table sets forth information with respect to the
Company's executive officers concerning the exercise of options
during fiscal 1996 and unexercised options held at March 31,
1996. All amounts in the table have been adjusted to reflect
the Company's 2-for-1 stock split in the form of a 100% stock
dividend distributed to shareholders on June 21, 1996.
Aggregated Option Exercises in Last Fiscal Year and Year-End
Option Values (1)
<CAPTURE>
Value of Unexercised
Number of Unexercised In-the-Money
Acquired on Value Options at Year-End Options at Year-End
Name Exercise Realized Exercisable/Unexer- Exercisable/Unexer-
cisable cisable
Eric H. 70,000 $155,400(2) 41,100 / 227,400 $132,856 / $476,171
Paulson
Charles 60,550 / 113.700 $190,128 / $238,085
E. Cheney
(1) Based on the difference between the March 31, 1996 closing
price of $4.188 per share as reported on the Nasdaq Stock Market
and the exercise price of the options.
(2) Based on the difference between the closing price of $3.313
per share on October 31, 1995, the date of exercise, as reported
on the Nasdaq Stock Market and the exercise price of the
options.
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 Michael
L. Snow 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 must be made solely by the Committee in order for
the grants or awards under such plan to satisfy Rule 16b-3 under
the Securities Exchange Act of 1934.
Pursuant to recently adopted rules designed to enhance
disclosure of Company's policies toward executive compensation,
set forth below is a report submitted by the Committee
addressing the Company's compensation policies for fiscal 1996
as they affected Mr. Paulson, the Company's Chief Executive
Officer, and Mr. Cheney, the other executive officer who, for
fiscal 1996, was the Company's other most highly paid executive
officer 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 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 80% of his base salary and Mr. Cheney may receive
an amount up to 60% of his base salary. 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.
Chief Executive Officer Compensation.
Mr. Paulson's base pay for fiscal 1996 was $210,000. The
compensation package for Mr. Paulson was set by the Board of
Directors. Mr. Paulson's base salary was established in
September 1993. During fiscal 1996, the Company made cost of
living adjustments to the base salary. During fiscal 1996, the
Company granted stock options of 300,000 shares to Mr. Paulson.
The Company paid a bonus of $87,500 to Mr. Paulson with respect
to services during the year ended March 31, 1996. During fiscal
1996, Mr. Paulson and Mr. Cheney also received restricted stock
grants in the amount of 100,000 and 50,000 shares, respectively.
As noted below, this amount is subject to shareholders approval
in connection with the amendment of the Company's 1992 Stock
Option Plan. 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. The bonus reflected, in
part, Mr. Paulson's efforts in increasing the Company's net
sales by 32% from $119.5 million to $158.3 million. The bonus
was equal to approximately 41.6% of Mr. Paulson's base salary.
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 1996 COMPENSATION COMMITTEE OF
THE COMPANY'S BOARD OF DIRECTORS
James G. Sippl Michael L. Snow
Stock Performance
In accordance with the rules of the Securities and Exchange
Commission, the following Performance Graph compares performance
of the Company's Common Stock on the Nasdaq National Market
System to the Nasdaq Stock Market (U.S. Companies) Index and a
Peer Group Index described below. The graph compares the
cumulative total return from December 16, 1993 to March 31, 1996
on $100 invested on December 16, 1993, the date of the Company's
initial public offering, assumes reinvestment of all dividends
and has been adjusted to reflect stock splits.
Index levels as of March 31, 1996 were 148.889 for Navarre
Corporation, 148.819 for the Nasdaq Stock Market and 45.487 for
the Self-Determined Peer Group.
<CAPTURE>
PERFORMANCE GRAPH
December 16, March 31,
1993 1994 1995 1996
Navarre Corporation $100.00 $66.67 $ 88.89 $148.89
Nasdaq Stock Market 100.00 98.54 109.65 148.82
Self-Determined Peer Group 100.00 93.61 61.42 45.49
(1) The stock price performance depicted on the graph is not
necessarily indicative of future price performance.
(2) The Peer Group Index includes the stock performance of the
following companies: Alliance Entertainment Corp., Merisel
Inc., Handleman Company, Kenfil Inc. (prior to September 16,
1994) and Ameriquest Technologies, Inc. (after its acquisition
of Kenfil, Inc. in September 1994). This group of companies is
comprised of companies with similar music or software
distribution operations.
PROPOSAL TWO - AMENDMENT TO ARTICLES OF INCORPORATION
TO AUTHORIZE PREFERRED STOCK
The Board of Directors has unanimously approved an amendment to
the Company's Articles of Incorporation and recommends that the
shareholders approve the amendment by voting in favor of
Proposal Two. Proposal Two would amend Article VI of the
Articles of Incorporation to authorize 5,000,000 shares of
preferred stock which would be available for future issuance by
the Board of Directors.
The Board of Directors will be authorized to determine, without
any further action by the holders of the Company's Common Stock,
the voting rights, dividend rights, dividend rate, redemption
rights or privileges, rights on liquidation or dissolution,
conversion rights and privileges, sinking or purchase fund
rights and other preferences, privileges and restrictions of any
series of preferred stock, the number of shares constituting any
such series, and the designation thereof. Should the Board of
Directors elect to exercise its authority, the rights,
preferences and privileges of holders of the Company's Common
Stock would be made subject to the rights, preferences and
privileges of the preferred stock.
In the course of discussing the Company's long-term strategic
plans, the Board has concluded that it would be appropriate to
have available preferred stock so that management would have
greater flexibility in acquisitions or other financing. If the
proposal to authorize preferred stock is approved, the Board of
Directors would be authorized to determine the conditions and
terms for the issuance of preferred stock. The Board has no
present plans to utilize any preferred stock.
Although the Board of Directors has no present plans to do so,
authorized and unissued common stock and preferred stock could
be issued in one or more transactions with terms, provisions and
rights which would make more difficult and, therefore, less
likely, a takeover of the Company. Any such issuance of
additional shares could have the effect of diluting the earnings
per share and book value per share of existing shares of Common
Stock, and such additional shares could be used to dilute the
share ownership of persons seeking to obtain control of the
Company. The Board and its financial and legal advisers are
aware that a number of corporations have adopted special
"shareholders' rights plans" or "poison pills" with a view
toward creating significant defensive mechanisms against the
possibilities of hostile takeover actions. Whether or not the
proposed amendment to the Articles of Incorporation is adopted
by shareholders, the Board could determine to implement a
shareholders' rights plan in the future. The Board has no
present intention to propose in the future any other amendments
to the Company's Articles or Bylaws which might be considered
anti-takeover devices.
As indicated above, the voting rights to be accorded to any
shares of preferred stock to be issued remain to be fixed by the
Board of Directors. Accordingly, if the Board of Directors so
authorizes, the holders of preferred stock may be entitled to
vote separately as a class in connection with the approval of
certain extraordinary corporate transactions in circumstances
where Minnesota law does not require such class vote, or might
be given a disproportionately large number of votes. Such
shares of preferred stock could also be convertible into a large
number of shares of Common Stock under certain circumstances or
have other terms which might make acquisition of a
controlling interest in the Company more difficult or more
costly. Potentially, the preferred stock could be used to
create voting impediments or to frustrate persons seeking to
effect a merger or otherwise gain control of the Company. Also,
the preferred stock could be privately placed with purchasers
who might side with the management of the Company in opposing a
hostile tender offer or other attempt to obtain control.
Issuance of preferred stock as an anti-takeover device might
preclude shareholders from taking advantage of a situation which
they may consider to be favorable to their interests.
In addition, if the proposals described herein are adopted, the
Board of Directors could, although it has no present intention
of doing so, authorize the issuance of Common Stock or preferred
stock to a holder who might thereby obtain sufficient voting
power to ensure that any proposal to remove directors, or to
alter, amend or repeal the Articles, would not receive the
requisite shareholder vote required to remove the directors or
amend the Articles.
The affirmative vote of the holders of a majority of the common
stock entitled to vote at the meeting is necessary to approve
Proposal Two. If not otherwise specified, properly executed
proxies will be voted in favor of Proposal Two.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING
RESOLUTION THAT WILL BE PRESENTED AT THE MEETING:
RESOLVED, that Article VI of the Articles of Incorporation
of the Company be, and it hereby is, amended to read as set
forth in Appendix A to the Proxy Statement distributed in
connection with the Annual Meeting of Shareholders of the
Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
THE APPROVAL OF THE AMENDMENT AS SET FORTH IN PROPOSAL TWO.
PROPOSAL THREE- AMENDMENT TO ARTICLES OF INCORPORATION TO CREATE
CLASSIFIED BOARD OF DIRECTORS
The Board of Directors has unanimously approved an amendment to
the Company's Articles of Incorporation to establish a
classified board of directors. Proposal Three would amend the
Company's Articles of Incorporation to provide that the
Company's Board of Directors shall be divided into three (3)
classes as nearly equal in number as the total number of
directors permits, with the terms of office of one class
expiring each year at the regular meeting of shareholders. The
Articles would provide that the number of directors shall be not
less than three (3) or more than nine (9). The Company is
proposing to elect five (5) directors at the Annual Meeting.
Each director would then hold office for a term of three (3)
consecutive years, except one of the initial classes will hold
office for a two year term and one of the initial classes will
hold office for a one year term. If the proposed amendment is
passed by the shareholders, the term of Mr. Michael L. Snow will
expire at the annual meeting in fiscal year 1998, the term of
Mr. Charles E. Cheney and Mr. Dickinson G. Wiltz would expire at
the annual meeting held in fiscal 1999, and the terms of Mr.
Eric H. Paulson and Mr. James G. Sippl would expire at the
annual meeting held in fiscal year 2000.
The Company believes that the classification of the Board of
Directors will help ensure the continuity and stability of the
Company's business strategies and policies as determined by the
Company's Board of Directors. Although the creation of the
classified board is not being adopted by the management of the
Company as a takeover advice, it may make it more difficult to
effect a change in control in the Company because it would be
necessary to wait for two annual meetings to elect a majority of
the Board of Directors.
The affirmative vote of the holders of a majority of common
stock entitled to vote at the meeting is necessary to approve
Proposal Three. If not otherwise specified, properly executed
Proxies will be voted in Proposal Three.
THE BOARD OF DIRECTORS RECOMMENDS THAT A VOTE FOR THE FOLLOWING
RESOLUTION THAT WILL BE PRESENTED AT THE MEETING.
RESOLVED, that Article VIII of the Articles of Incorporation of
the Company be, and it hereby is, amended to read as set forth
in Appendix B to the Proxy Statement distributed in connection
with the Annual Meeting of Shareholders of the Company.
PROPOSAL FOUR - APPROVAL OF AMENDMENTS TO THE COMPANY'S
1992 STOCK OPTION PLAN
General Information
On September 1, 1992, the Company's Board of Directors adopted
the Navarre Corporation 1992 Stock Option Plan (the "Stock
Plan"). 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 of the Company's economic
objectives, by giving them a proprietary interest in the
Company. The Stock Plan authorizes the granting of stock
options.
Amendments to the Stock Plan
The Company is submitting for shareholder approval amendments to
the Stock Plan (i) to increase the number of shares of common
stock reserved for issuance thereunder from 874,000 shares to
2,174,000 shares, (ii) to approve the granting of options to
purchase 20,000 shares to non-employee directors on in March
1996 and to provide for annual automatic stock option grants of
6,000 shares to non-employee directors of the Company beginning
in 1997, and (iii) to enable the Company to make restricted
stock grants under the Stock Plan.
The Stock Plan currently authorizes the issuance of 874,000
shares of Common Stock pursuant to options granted under the
Stock Plan. The Board of Directors has amended the Stock Plan,
subject to shareholder approval, to increase the total number of
shares available under the Stock Plan to 2,174,000 shares.
There were outstanding on July 1, 1996 options to purchase
1,287,000 shares under the Stock Plan (including options to
purchase 541,000 shares granted by the Board of Directors on
March 5, 1996 that are contingent on approval by the
shareholders of the proposed amendment to the Stock Plan) and
176,000 shares had been purchased through exercise of options
granted under the stock plan. The Board of Directors has deemed
it prudent to increase the shares available for grants under the
stock plan to facilitate the contingent grants and future
options grants.
The Board of Directors has also amended the Stock Plan, subject
to shareholder approval, to provide for the automatic grant of a
defined number of options to non-employee directors. The
purpose for granting options to non-employee directors is to
advance the interests of the Company and its shareholders by
enabling the Company to attract and retain the services of
experienced and knowledgeable non-employee directors and to
provide an incentive for such directors by increasing the
proprietary interest in the Company's long term success and
progress. The proposed amendment provides that each person who
is not an employee of the Company and who is serving as a
non-employee director of the Company shall, as of April 1 of
each year beginning April 1, 1997, receive an option to purchase
6,000 shares of Common Stock for an option price of not less
than 100% of the fair market value of the Company's Common Stock
on such date. All such options shall be designed as
non-qualified stock options. Options issued to directors will
be immediately exercisable. The term of such options shall be
equal to six years. In addition, the Plan has been amended
subject to shareholders approval to grant options to purchase
20,000 shares to each non-employee director on March 5, 1996 at
a price equal to fair market value on that date.
The Board has also amended the Stock Plan, subject to
shareholder approval, to enable the Company to grant restricted
stock awards that result in shares of Common Stock being issued
to a participant subject to restrictions against disposition
during a restricted period established by the Company. The
Company may condition the grant of restricted stock upon the
attainment of specified performance goals or service
requirements. The restricted stock will be held in custody by
the Company until the restrictions thereon have lapsed. During
the period of the restrictions, a participant has the right to
vote the shares of restricted stock and to receive dividends and
distributions unless the Board requires such dividends and
distributions to be held by the Company, subject to the same
restrictions as the restricted stock. In the event a
participant terminates employment during the period of the
restrictions, all shares still subject to restrictions will be
forfeited and returned to the Company, subject to the rights of
the Company to waive such restrictions in the event of a
participant's death, total disability, retirement or under
special circumstances approved by the Board.
The Company has also made other minor changes to the Stock Plan
in order to ensure that the Stock Plan complies with new
Securities and Exchange Commission Rule 16b-3. Non-employee
directors will not be eligible to receive any options from the
Company other than in compliance with SEC Rule 16b-3.
Federal Income Tax Consequences
An optionee will not realize taxable compensation income upon
the grant of a non-qualified stock option. When an optionee
exercises a non-qualified stock option, he or she realizes
taxable compensation income at the time equal to different
between the aggregate option price and the fair market value of
the stock on the date of exercise.
The grant of restricted stock will not result in immediate
income for the participant or a deduction for the Company for
federal income tax purposes, assuming the shares are not
transferable and subject to restrictions creating a "substantial
risk of forfeiture," as intended by the Company. If the shares
are transferable or there are no such restrictions, the
participant will realize compensation income upon receipt of the
award. Otherwise, any participant generally will realize
taxable compensation to income when any such restrictions lapse.
The amount of such income will be the value of the Common Stock
on that date, less any amount paid for the shares. The Company
will be entitled to a tax deduction to the extent, and at the
time, that the participant realizes compensation income. A
participant may elect, under Section 83(b) of the Code, to be
taxed on the value of the stock at the time of award. If this
election is made, the fair market value of the stock at the time
of the award is taxable to the participant as compensation
income and the Company is entitled to a corresponding deduction.
Registration with SEC
The Company intends to file a Registration Statement covering
the 1,300,000 additional shares available for issuance under the
Stock Plan with the Securities and Exchange Commission pursuant
to the Securities Act of 1933, as amended.
Vote Required
Shareholder approval of the amendments to the Stock Plan
requires the affirmative vote of 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
THE APPROVAL OF THE AMENDMENT AS SET FORTH IN PROPOSAL FOUR.
SHAREHOLDERS PROPOSALS
The proxy rules of the Securities and Exchange Commission permit
shareholders of a company, after timely notice to the company,
to present proposals for shareholder action in the Company's
proxy statement where such proposals are consistent with
applicable law, pertain to matters appropriate for shareholder
action and are not properly omitted by company action in
accordance with the proxy rules. The Navarre Corporation 1997
Annual Meeting of Shareholders is expected to be held in
September 1997, and proxy materials in connection with that
meeting are expected to be mailed on or about July 26, 1997.
Shareholder proposals prepared in accordance with the proxy
rules must be received by the Company on or before March 15,
1997.
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, 1997. 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.
Compliance with Section 16(a) of the Securities Exchange Act of
1934
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% 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 were filed on a
timely basis.
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 1996 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 22, 1996
APPENDIX A
Article VII of the Company's Articles of Incorporation is hereby
amended to read as follows:
ARTICLE VII
The aggregate number of shares that the Corporation has
authority to issue shall be 25,000,000 shares, no par value per
shares, which shall consist of 20,000,000 shares of common stock
and 5,000,000 shares of preferred stock. The Board of Directors
of the Corporation is authorized to establish from the preferred
shares, by resolution adopted and filed in the manner provided
by law, one or more classes or series of shares, to designate
each class or series, and to fix the relative powers,
qualifications, restrictions, rights and preferences of each
such class or series, including, without limitation, the right
to create voting, dividend and liquidation rights and
preferences greater than those of common stock. There shall be
no cumulative voting by the shareholders of the Corporation.
The shareholders of the Corporation shall not have preemptive
rights to subscribe for or acquire securities or rights to
purchase securities of any kind, class or series of the
Corporation.
Exhibit B
Article VII of the Company's Articles of Incorporation is
hereby amended to read as follows:
ARTICLE VII
Section 1. Number and Term. The business and affairs of this
Corporation shall be managed by or under the direction of a
Board of Directors consisting of not less than three (3) or more
than nine (9) directors, as may be designated by the Board of
Directors from time to time. The directors shall be divided
into three (3) classes, as nearly equal in number as the then
total number of directors constituting the whole Board permits,
with the term of office of one class expiring each year at the
annual meeting of shareholders. Except as otherwise provided in
this Article VII, each director shall be elected by the
shareholders to hold office for a term of three consecutive
years. Each director shall serve until a successor shall have
been duly elected and qualified, or until the earlier death,
resignation, removal, or disqualification of the director.
Section 2. Transitional Board. Upon the adoption of this new
Article VII to the Articles of Incorporation, one class of
directors shall hold office for a term expiring at the annual
meeting of shareholders to be held after the end of the
Corporation's 1997 fiscal year, another class shall hold office
for a term expiring at the annual meeting of shareholders to be
held after the end of the Corporation's 1998 fiscal year and
another class shall hold office for a term expiring at the annual
meeting of shareholders to be held after the end of the
Corporation's 1998 fiscal year. After the expiration of each
term, the provisions of Section 1 of this Article VII shall
control.
Section 3. Vacancies. Any vacancies occurring in the Board of
Directors for any reason, and any newly created directorships
resulting from an increase in the number of directors, may be
filled by a majority of the directors then in office. Any
directors so chosen shall hold office until the next election of
the class for which such directors shall have been chosen and
until their successors shall be elected and qualified subject,
however, to prior retirement, resignation, death or removal from
office. Any newly created directorships resulting from an
increase in the authorized number of directors shall be
apportioned by the Board of Directors among the three classes of
directors so as to maintain such classes as nearly equal in
number as possible.
Section 4. Quorum. A majority of the members of the Board of
Directors shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, but if less
than such a majority is present at a meeting, a majority of the
directors present may adjourn the meeting from time to time
without further notice. The directors present at a duly
organized meeting may continue to transact business until
adjournment notwithstanding that the withdrawal of enough
directors originally present leaves less than the number
otherwise required for a quorum.
Section 5. Nomination. Advance notice of nominations for the
election of directors, other than by the Board of Directors or a
committee thereof, shall be given within the time and in the
manner provided in the Bylaws.
Section 6. Written Action by Directors. Any action required or
permitted to be taken at a meeting of the Board of Directors, or
a committee thereof, may be taken by written action, or
counterparts of a written action, signed by all of the directors
or, in cases where the action need not be approved by the
shareholders, by written action, or counterparts of a written
action, signed by the number of directors that would be required
to take the same action at a meeting of the Board or a committee
thereof at which all directors were present.