SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [x]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2)).
[x] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Section 240.14a-12
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):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
NAVARRE CORPORATION
7400 49TH AVENUE NORTH
NEW HOPE, MINNESOTA 55428
-------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 5, 2002
------------------------------------------------
The Annual Meeting of the Shareholders of Navarre Corporation will be held
Thursday, September 5, 2002 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 and qualified;
2. 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 12, 2002 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. You may
also vote your shares by telephone or through the Internet by following the
instructions we have provided on the proxy form. 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, even if you have previously submitted a proxy in writing,
by telephone or through the Internet.
By Order of the Board of Directors
/s/ Charles E. Cheney
Charles E. Cheney
Secretary
July 29, 2002
NAVARRE CORPORATION
7400 49TH AVENUE NORTH
NEW HOPE, MINNESOTA 55428
(763) 535-8333
-----------------------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 5, 2002
-----------------------------------
SOLICITATION OF PROXIES
This Proxy Statement is being furnished to our shareholders in connection with
the solicitation of proxies by our Board of Directors for use at the Annual
Meeting of Shareholders to be held on Thursday, September 5, 2002 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 our shareholders on or about August 1, 2002.
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 us. We do not intend
to solicit proxies other than by use of the mail, but certain of our officers
and regular employees or our 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 12, 2002 will be
entitled to vote at the Annual Meeting. On that date, we had outstanding
21,616,187 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.
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 our Secretary 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 us, 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 any 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 us will be voted on any such matter in accordance with the judgment of the
proxy holders.
1
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, 2002 with
respect to the beneficial ownership of our common stock by (i) all persons who
are known by us to hold five percent or more of our common stock, (ii) each of
our directors and our current Named Executive Officers, and (iii) all our
directors and officers as a group.
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS
-----------------------------------------------------------------------------------------------
Eric H.Paulson (2) 2,585,558 11.8%
Charles E. Cheney 762,720 3.5%
James Gilbertson 22,000 *
James G. Sippl 35,600 *
Michael L. Snow 25,600 *
Alfred Teo 310,600 1.4%
Tom Weyl 30,000 *
Dickinson G. Wiltz 155,000 *
All directors and executive
officers as a group (8 persons) 3,927,078 17.7%
*Indicates ownership of less than one percent.
(1) Includes shares of common stock issuable upon exercise of outstanding
options exercisable within sixty days of July 1, 2002 in the following amounts:
Eric H. Paulson -- 205,000 shares; Charles E. Cheney -- 187,000 shares; James
Gilbertson -- 20,000 shares; James G. Sippl -- 25,600 shares; Michael L. Snow --
25,600 shares; Alfred Teo -- 20,800 shares; Tom Weyl -- no shares; Dickinson G.
Wiltz -- 24,400 shares; all directors and executive officers as a group --
508,400 shares.
(2) Mr. Paulson's address is 7400 -- 49th Avenue North, New Hope, Minnesota
55428.
2
ELECTION OF DIRECTORS
Pursuant to the terms of our Amended and Restated Articles of Incorporation,
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 2002, the terms of Messrs. Michael L. Snow and Alfred Teo
expire at the Annual Meeting of Shareholders following fiscal year 2003, and the
terms of Messrs. Charles E. Cheney, Tom Weyl, and Dickinson G. Wiltz expire at
the Annual Meeting of Shareholders following fiscal year 2004. Vacancies on the
Board of Directors and newly created directorship 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 2005 or until their successors are
elected and qualified. The Board of Directors has nominated for election the
persons named below. The nominees are both currently directors.
The Board is proposing that the shareholders elect the 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 the Company 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.
Name and Age Principal Occupation and Other Directorships
- ------------ --------------------------------------------
Nominees proposed for election for term expiring at the Annual Meeting following
fiscal year 2005
Eric H. Paulson (57)........ Mr. Paulson is our founder and has been our
President and Chief Executive Officer since
our inception in 1983. 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 since 1983
except for the period January 1990 through
October 1991 when Navarre was owned by Live
Entertainment, Inc.
James G. Sippl (54)...... Mr. Sippl has served as a director since July
1993. Mr. Sippl is President of Sippl &
Associates, a financial firm focusing on
mergers and acquisitions. Mr. Sippl was
General Manager and Chief Financial Officer of
Wealth Enhancement Group from December 1999 to
December 2000. He was Chief Operating Officer
of IntraNet Solutions, a software company,
from January 1997 to May 1998. Mr. Sippl
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. Prior to that, he
was a partner in a predecessor firm to
PricewaterhouseCoopers LLP.
3
Directors serving continuing terms:
Charles E. Cheney (59)..... Mr. Cheney has served as our Vice-Chairman
since November 1999. He served as our
Executive Vice President and Chief Financial
Officer from 1985 until December 2000 and our
Chief Strategic Officer from January 2001
until July 2002. A certified public
accountant, he has been a director since
October 1991. In September 2001, Mr. Cheney
began attending law school and began working
for the Company in a part-time capacity.
Beginning July 15, 2002, Mr. Cheney is on a
Leave of Absence until February 2004 when he
is expected to complete law school. Prior to
joining Navarre, Mr. Cheney was employed by
Control Data Corporation in various financial
capacities for twelve years, most recently as
Controller of Control Data Commerce
International.
Michael L. Snow (51)...... Mr. Snow has served as a director 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 including
Osmonics, Inc. and ValueVision International,
Inc.(now ValueVision Media, Inc.). He
currently serves as a director of New World
Pasta, the largest branded pasta company in
the United States, and Miller Milling Company,
the largest durum miller in the United States.
Mr. Snow is also a trustee of The Minneapolis
Institute of Arts.
Alfred Teo (56).................. 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. In
addition, Mr. Teo is the Chairman and Chief
Executive Officer of Alpha Technology, Inc.
Tom Weyl (59).............. Mr. Weyl has served as director of the Company
since July 26, 2001. Mr. Weyl is retired from
Martin/Williams Advertising, a national ad
agency. Prior to his retirement, Mr. Weyl
served as President and Chief Creative Officer
at Martin/Williams Advertising from 1973 to
October 2000. He currently is serving as a
director/organizer of the Royal Palm Bank of
Naples, Florida. Mr. Weyl also served as
director of Musicland Stores Corporation from
1992 until its acquisition by Best Buy Co.,
Inc. in February 2001.
Dickinson G. Wiltz (73)... Mr. Wiltz has served as a director of the
Company since October 1983. Mr. Wiltz has been
a self-employed business management consultant
since 1974. Prior to 1974, he served as
Corporate Vice President of Dayton Hudson
Corp. (now Target Corporation) and Vice
President of Campbell Mithun, an advertising
agency. As a board member/trustee, Mr. Wiltz
served on several not-for-profit organizations
including Twin City Public Television, Inc.
and The Childrens Theatre Company.
4
DIRECTOR COMPENSATION
The non-employee members of the Board of Directors each receive a $12,000 per
year retainer, paid monthly, plus $500 per board meeting attended. Under the
terms of our 1992 Stock Option Plan as approved by the Company's shareholders in
1996, each non-employee director is issued on April 1 of each year, a
non-qualified stock option to purchase 6,000 shares of our common stock at the
fair market value on the day of the grant. Pursuant to the Plan each of Messrs.
Sippl, Snow, Teo, and Wiltz received options to purchase 6,000 shares at a price
of $1.406 on April 2, 2001 and each of Messrs. Sippl, Snow, Teo, Weyl and Wiltz
received options to purchase 6,000 shares at a price of $1.11 per share on April
1, 2002. Options granted to non-employee director vest 20% per year beginning
one year from the date of grant and expire six years from the grant date.
BOARD ACTIONS AND COMMITTEES
During fiscal 2002, the Board of Directors held four 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 2002 to discuss various aspects of the business affairs
of the Company. The Board of Directors has established an Audit Committee,
Compensation Committee, Executive Committee, Governance Committee and
Acquisition Evaluation Committee. Additional information about the Audit
Committee and Compensation Committee are contained in the sections "Report of
the Audit Committee" and "Report of the Compensation Committee" in this Proxy
Statement.
The Executive Committee of the Board of Directors for fiscal 2002 was comprised
of Messrs. Cheney, Paulson, and Wiltz. The Executive Committee both monitors and
counsels management in the adherence to policy, progress against approved
corporate goals, strategic compliance, major capital expenditures and operating
budgets. It also provides immediate interface between the Board of Directors and
Senior Management. Membership includes the Board Chairman as a permanent member,
plus additional directors and officers as needed. The Executive Committee held
three meetings during the fiscal year ended March 31, 2002.
The Governance Committee consists of all of the outside directors. During fiscal
2002, they were Messrs. Sippl, Snow, Teo, Weyl and Wiltz. The Committee provides
a forum for outside directors to address issues of Corporate Governance. It also
monitors and recommends to the Board any modification of the principal elements
of the charter of the Corporate Governance Committee. The committee recommends
to the Board the selection and replacement, if necessary, of the CEO and
periodically evaluates the performance of the CEO and the Board as a whole. The
Governance Committee held two meetings during the fiscal year ended March 31,
2002.
In July 2002, the Board of Directors established the Acquisition Evaluation
Committee to evaluate acquisition opportunities. Mr. Cheney is the Chairman of
this Committee.
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.
5
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 57 Chairman of the Board, President and Chief Executive Officer
Charles E. Cheney 59 Vice-Chairman, Secretary, Treasurer and Director
James Gilbertson 40 Vice President and Chief Financial Officer
Brian Burke 32 Senior Vice President and General Manager, Navarre Distribution Services
Steve Pritchitt 54 Senior Vice President and General Manager, Navarre Entertainment Media
John Turner 48 Senior Vice President, Operations
Kathleen Conlin 58 Vice President, Corporate Controller
Joyce Fleck 50 Vice President, Marketing
Margot McManus 44 Vice President, Human Resources
Ian Warfield 54 Vice President, Business Development
James Colson 41 Vice President, Business Affairs, Navarre Entertainment Media
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 Gilbertson, has been Vice President and Chief Financial Officer
since joining the Company January 2001. Prior to joining Navarre, he held
positions of Co-President, Chief Operating Officer and Chief Financial Officer
at iNTELEFILM, formerly Children's Broadcasting Corporation from 1991 to 2001.
Prior to joining iNTELEFILM, Mr. Gilbertson served as the Chief Financial
Officer for Parker Communications, Inc., Minneapolis, MN from 1988 to 1991. Mr.
Gilbertson is a certified public accountant and originally began his career with
Ernst & Young LLP.
Brian Burke has been Senior Vice President and General Manager, Navarre
Distribution Services since April 2001. He previously served as General Manager,
Computer Products Division since July 2000 and Vice President, Computer Products
Division since October 1999. Prior to that, Mr. Burke held a series of positions
of increasing responsibility in Navarre Computer Products Division since joining
the Company in July 1995. Prior to joining the company, Mr. Burke held various
marketing, sales and account manager positions with Imtron and Blue Cross/Blue
Shield of Minnesota.
Steve Pritchitt has been Senior Vice President, Navarre Entertainment
Media since April 2001. Mr. Pritchitt worked for Navarre's eSplice subsidiary
from January 2000 to March 2001, where he served as Vice President, Content
Acquisition. Prior to joining Navarre, Mr. Pritchitt was Chief Operating Officer
and a founding partner of Safety First Systems LLC, a technology services
company from 1997 to 1999. He was Senior Vice President, International for
Atlantic Records from 1995 to 1997. Mr. Pritchitt's prior entertainment industry
experience includes various senior positions in marketing, product development,
and international and artist development for Polygram Records, Inc., CBS Records
International and CBS Records U.K.
John Turner has been Senior Vice President of Operations since December
2001. He previously served as 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.
6
Kathleen Conlin has been Vice President, Corporate Controller since
1995. Ms. Conlin has served in a series of positions of increasing
responsibility since joining the Company in April 1984.
Joyce Fleck has been Vice President, Marketing since January 2000. Ms.
Fleck also served as Director of Marketing since joining Navarre in May 1999.
Prior to joining Navarre she held divisional marketing and merchandising
positions at The Musicland Group from 1986 to 1997 and senior buying positions
at Grow Biz International, from 1997 to 1999.
Margot McManus has been Vice President, Human Resources since January
2000. Ms. McManus also served as Director of Human Resources since joining the
Company in August of 1995. Prior to joining Navarre she had fifteen years of
human resources and business experience including human resources management
roles with Access Management and Consul Restaurant Corporation.
Ian Warfield has been Vice President, Business Development since April
2001. Prior to that, Mr. Warfield had been President and Chief Operating Officer
of eSplice since January 2000. Before January 2000, Mr. Warfield was Vice
President and General Manager, Computer Products Division, of Navarre since
January 1998 when he joined the Company. Prior to joining Navarre, Mr.
Warfield's twenty five year industry career included senior management roles at
Microgistix, IMS Consulting, Software, Etc and Technology Marketing Group. His
consulting experience included strategic engagements with IBM, Compaq, Hewlett
Packard, Samsonite and American Airlines.
James Colson has been Vice President of Business Affairs, Navarre
Entertainment Services, since November 2001. From 1997 to 2001, he was General
Manager of Valley Media, Inc.'s profitable independent music distribution
division, DNA. From 1999 to 2001 he also assumed the title of Vice President of
Independent Distribution for Valley Media and from 1995 to 1997 as the
controller. Prior to that, Mr. Colson held senior finance and accounting
management positions with a number of companies in the retail, service, and
not-for-profit industries. Mr. Colson is a certified public accountant who began
his career with Grant Thornton and has an M.B.A. in finance.
7
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation and other components of
compensation for the fiscal years ending March 31, 2002, 2001, and 2000 for Eric
H. Paulson, our Chief Executive Officer, Charles E. Cheney, and James
Gilbertson, our only other executive officers whose total cash compensation
exceeded $100,000 (together, the "Named Executive Officers") during the fiscal
year ended March 31, 2002.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------- SECURITIES ALL OTHER
NAME AND FISCAL OTHER ANNUAL UNDERLYING COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS SATION
- -------------------------------------------------------------------------------------------------------------
Eric H. Paulson
Chairman of the Board, 2002 $335,193 $ 30,000 -- -- $ 62,477(2)
Chief Executive Officer 2001 $325,000 $130,000 -- 100,000 $103,564(3)
and President 2000 $325,950 -- -- 100,000 --
Charles E. Cheney 2002 $241,952 $ 10,000 $ 9,000(1) -- $ 39,388(2)
Vice-Chairman, 2001 $235,000 $ 94,000 $ 9,000(1) 100,000 $ 78,547(3)
Secretary and Treasurer 2000 $232,500 -- $ 9,346(1) 100,000 --
James Gilbertson 2002 $176,231 $ 8,750 $ 6,000(1) 100,000 --
Vice President, Chief
Financial Officer
(1) Represents car allowance.
(2) Amounts reflect life insurance premiums paid by us of $62,477 for Mr.
Paulson and $18,889 for Mr. Cheney plus tuition of $20,499 for Mr.
Cheney.
(3) Amounts reflect accommodation fees paid to Mr. Paulson of $40,000 and
to Mr. Cheney of $55,000 in connection with loans made to the Company
to facilitate the repurchase of shares from a preferred shareholder and
life insurance premiums paid by the Company of $63,564 for Mr. Paulson
and $23,547 for Mr. Cheney.
EMPLOYMENT AGREEMENTS
Eric H. Paulson Employment Agreement
We entered into an employment Agreement with Mr. Paulson effective November 1,
2001, providing for his employment as President and Chief Executive Officer. The
Agreement with Mr. Paulson terminates on March 31, 2007. The Agreement currently
provides for a Base Salary of $350,000 per year, subject to annual adjustments
by the Board of Directors, an annual Target Bonus of up to one hundred percent
(100%) of his Base Salary, upon his achievement of objectives established by the
Board of Directors, based upon net profits, net sales and specific goals. Mr.
Paulson also is entitled to reasonable business expenses, medical and disability
insurance, a $2.0 million life insurance policy, vacation, automobile expense
and is entitled to participate in other benefit plans of the Company on the same
basis as other officers.
8
The Agreement provides that Mr. Paulson is entitled to a loan of $1.0 million,
which will be forgiven, together with accrued interest, in equal installments of
$200,000 on each of March 31, 2003, 2004, 2005, 2006 and 2007, and will be
deemed paid and satisfied upon termination of Mr. Paulson's employment, except
termination by the Company for Company Cause or by Mr. Paulson without Executive
Cause. At March 31, 2002, $285,225 was outstanding on the loan. An additional
$714,755 was advanced to Mr. Paulson on April 1, 2002. The loan bears interest
at 5.5 percent per year.
The Agreement also establishes an incentive-based deferred compensation plan
under which Mr. Paulson is eligible to receive an award of $1,000,000 if the
Company's common stock closes above $4.00 for any consecutive 30 trading days
during the employment period, with an increase up to $4,000,000 if the common
stock trades over $10.00 per share for any 30 consecutive trading days during
the employment period. In addition, the amount of deferred compensation to Mr.
Paulson may be increased to $3,000,000 upon the occurrence of a change in
control effected through an asset sale, merger, tender offer, consolidation or
similar transaction in which shareholders of the Company receive consideration
with a fair market value of $6.00 or more per share.
If the employment of Mr. Paulson is terminated by the Company without Company
cause or by Mr. Paulson for Executive Cause, Mr. Paulson is entitled to receive
the greater of (i) his Base Salary and Target Bonuses through the end of the
Agreement or three years, whichever is greater; plus (ii) accrued but unpaid
benefits. Mr. Paulson would also be entitled to receive other employee benefits
for a period of the greater of three years or the end of the Agreement.
In the event that Mr. Paulson's employment is terminated by the Company without
Company cause or by Mr. Paulson for Executive Cause after a Change in Control,
then in addition to the payments otherwise due Mr. Paulson, the Company would be
obligated pay him an amount equal to his Average Annual Compensation multiplied
by 2.99, which at March 31, 2002, would have been equal to $1,247,315.
At the completion of Mr. Paulson's employment on March 31, 2007, Mr. Paulson
will be entitled to receive his Average Annual Compensation for a period of
three years, plus any accrued but unpaid benefits. The Company will also be
required to maintain Mr. Paulson's other employee benefits for three years.
Charles E. Cheney Leave of Absence Agreement
On July 15, 2002, we entered into an agreement with Mr. Cheney under which Mr.
Cheney will have a leave of absence until February 1, 2004 to enable him to
complete law school. Under the agreement, Mr. Cheney will be paid nominal
compensation, but will continue to receive health and dental insurance, life
insurance, disability insurance, payment of law school education expenses and
certain club memberships. Upon his return to work, Mr. Cheney will be entitled
to a salary of $240,000 per year. During the leave of absence period, Mr. Cheney
will be compensated for serving as a director by receiving the same retainer,
board attendance fees and stock options received by non-employee directors. See
"Director Compensation."
In the event Mr. Cheney's agreement is terminated by the Company without Company
cause or by Mr. Cheney for Executive Cause, Mr. Cheney is entitled to receive
$240,000 per year for two years in exchange for a non-compete agreement, plus
accrued but unpaid benefits.
In the event that Mr. Cheney's employment is terminated by the Company without
Company cause or by Mr. Cheney for Executive Cause after a Change in Control,
then in addition to the payments otherwise due Mr. Cheney, the Company will pay
him an amount equal to his Average Annual Compensation multiplied by 2.99, which
at March 31, 2002 would have been equal to $916,069.
9
We do not have a written employment agreement with Mr. Gilbertson.
STOCK OPTION PLAN
Our 1992 Stock Option Plan (the "1992 Plan") was approved by the Board of
Directors on September 1, 1992. A total of 4,224,000 shares of our authorized
common stock are reserved for issuance under the 1992 Plan. At July 1, 2002, we
had issued 1,174,046 shares under the Plan, 2,007,100 shares were subject to
outstanding options and warrants and 1,042,854 shares were for future grant. The
purpose of the 1992 Plan is to attract and retain talented employees,
non-employee directors, consultants and independent contractors, as well as
reward such persons who contribute to the achievement of our economic
objectives, by giving them a proprietary interest in us. The 1992 Plan provides
for both incentive stock options and non-statutory stock options. Incentive
stock options are granted at an exercise price based upon fair market value and
receive favorable tax treatment under the Internal Revenue Code. Non-statutory
stock options are granted at an exercise price determined by the Board of
Directors and do not qualify for favorable tax treatment.
The following table sets forth certain information regarding (i)stock options
granted to the Navarre's Executive Officers during our 2002 fiscal year and (ii)
the potential value of these options determined pursuant to SEC rules.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR
OPTIONS EMPLOYEES IN PRICE EXPIRATION OPTION TERM (1)
NAME GRANTED FISCAL YEAR ($/SH) DATE 5% 10%
- ----------------------------------------------------------------------------------------------------------------
Eric H. Paulson None ---- ---- ---- None None
Charles E. Cheney None ---- ---- ---- None None
James Gilbertson 50,000 10.1% $1.22 5/25/07 $77,853 $98,241
50,000 10.1% $1.07 1/25/08 $68,217 $86,082
(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.
10
The following table sets forth information with respect to Navarre Executive
Officers concerning the exercise of options during fiscal 2002 and unexercised
options held at March 31, 2002.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
SHARES VALUE OF UNEXERCISED
ACQUIRED NUMBER OF UNEXERCISED IN-THE-MONEY
ON VALUE OPTIONS AT YEAR END OPTIONS AT YEAR END
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------------------------------------------------------------------------------------------------------
Eric H. Paulson None None 185,000 165,000 None None
Charles E. Cheney None None 167,000 163,000 None None
James Gilbertson None None 20,000 130,000 None $1,550
The closing price on March 31, 2002, as reported on the Nasdaq Stock Market, was
$1.10 per share.
CERTAIN TRANSACTIONS
At March 31, 2002, Mr. Paulson was indebted to us in the principal amount of
$285,225. We accrue interest on the outstanding indebtedness at the rate of 5.25
percent per year. See "Employment Agreements" for a description of the loan.
On September 25, 2001, Mr. Cheney purchased 736,900 shares of Navarre common
stock from Mr. Teo at the market price of $.85 and on October 4, 2001 sold them
to Navarre for the same price. Mr. Cheney purchased the shares initially because
the Company was in the process of finalizing a new credit facility. Mr. Cheney
did not receive any additional direct or indirect compensation from the Company
for facilitating the ultimate repurchase by the Company.
11
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors is responsible for providing
independent, objective oversight of our financial reporting system by overseeing
and monitoring management's and the independent auditors' participation in the
financial reporting process. The Audit Committee is comprised of independent
directors, consisting of Mr. Sippl, Mr. Snow, and Mr. Teo. Each of the members
of the current Audit Committee is independent as defined by the Nasdaq listing
standards. This report is submitted by those individuals serving on the
Committee for fiscal 2002. A copy of the Company's audit charter was attached to
the Notice and Proxy Statement for the Navarre Annual Meeting of Shareholders
held on September 13, 2001.
The Audit Committee held four meetings during fiscal year 2002. The meetings
were designed to facilitate and encourage private communication between the
Audit Committee and our independent accountants, Ernst & Young LLP.
During the meetings, the Audit Committee reviewed and discussed the audited
financial statements with management and Ernst & Young LLP. Management
represented to the Audit Committee that our consolidated financial statements
were prepared in accordance with generally accepted accounting principles, and
the Audit Committee has reviewed and discussed the consolidated financial
statements with management and the independent accountants. The discussions with
Ernst & Young LLP also included the matters required by Statement on Auditing
Standards No. 61 (Communication with Audit Committees). In fulfilling its
oversight responsibilities, the Committee reviewed the audited financial
statements in the Form 10-K with management including a discussion of the
quality, not just the acceptability, of the accounting principles, the
reasonableness of significant judgments, and the clarity of disclosures in the
financial statements.
Ernst & Young LLP provided to the Audit Committee the written disclosures and
the letter regarding its independence as required by Independence Standards
Board Standard No. 1 (Independence Discussions with Audit Committees). This
information was discussed with Ernst & Young LLP.
Ernst & Young LLP have been the auditors for the Company since 1991 and have
been selected by the Board of Directors, upon recommendation of the Audit
Committee, to serve as such for the current fiscal year. A representative of
Ernst & Young LLP is expected to be present at the Annual Meeting of
Shareholders and will have an opportunity to make a statement and will be
available to respond to appropriate questions.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors (and the Board has approved) that the
audited consolidated financial statements be included in the Annual Report on
Form 10-K for the year ended March 31, 2002 for filing with the Securities and
Exchange Commission.
SUBMITTED BY THE AUDIT COMMITTEE OF
THE COMPANY'S BOARD OF DIRECTORS
James G. Sippl Michael L. Snow Alfred Teo
12
REPORT OF THE COMPENSATION COMMITTEE
Decisions on compensation of the Company's executives are generally made by the
Compensation Committee of the Board (the "Committee"). For fiscal 2002 the
members were Mr. Sippl, Mr. Weyl, and Mr. Wiltz. 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. The Compensation Committee
held five meetings during fiscal year 2002. Set forth below is a report
submitted by the Committee addressing the Company's compensation policies for
its executive officers, including Mr. Paulson, the Company's Chief Executive
Officer for fiscal 2002.
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 compensations.
ANNUAL INCENTIVE AWARDS
The Company pays bonuses to its executive officers based upon the performance of
the Company. Mr. Paulson was eligible to receive an amount up to eighty percent
of his base salary and Mr. Cheney to receive an amount up to sixty percent of
his base salary under their prior employment agreements. The Committee may award
executive officers either cash, common stock or a combination of cash and common
stock as incentive compensation. With respect to fiscal 2002, Mr. Paulson
received a bonus of $30,000 and Mr. Cheney received $10,000.
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 2002 was $335,000. The compensation package
for Mr. Paulson was set by the Board of Directors. Mr. Paulson's base salary was
established in connection with the execution of an employment agreement in
November 2001. During fiscal 2002, the Company made cost of living adjustments
to the base salary. Mr. Paulson received a bonus of $30,000 during fiscal 2002
based upon
13
Mr. Paulson's achievements during fiscal 2001, including record Company
revenues. Under the agreement, Mr. Paulson's future bonuses will depend upon the
Company's achievement of specific goals established by the Board of Directors
with respect to profits, sales and other specific goals established by the
Board. The terms of Mr. Paulson's employment agreement are set forth in the
section entitled "Employment Agreements."
SUBMITTED BY THE 2001 COMPENSATION COMMITTEE OF
THE COMPANY'S BOARD OF DIRECTORS
James G. Sippl Tom Weyl Dickinson Wiltz
14
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, 1997 to March 31, 2002 on $100 invested
on March 31, 1997 assumes reinvestment of all dividends and has been adjusted to
reflect stock splits.
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 2002: Handleman Co., Ingram Micro Inc., Merisel Inc.,
Platinum Entertainment, Inc. and Tech Data Corp. This group is comprised of
companies that, in fiscal 2002 had similar music or software distribution
operations.
[LINE GRAPH]
3/97 3/98 3/99 3/00 3/01 3/02
----------------------------------------------------------
Navarre Corporation 100.00 91.30 484.78 136.97 47.83 38.26
Nasdaq Stock Market 100.00 151.57 204.77 380.94 152.35 153.42
Self-Determined Peer Group 100.00 155.76 105.47 107.91 93.62 130.42
15
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,
2003. Ernst & Young LLP has audited the Company's financial statements since
1991. 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.
AUDIT FEES
The aggregate fees billed to the Company by Ernst & Young LLP for professional
services rendered for the audit of the Company's annual financial statements for
the 2002 fiscal year and review of quarterly financial statements and Securities
and Exchange Commission filings for that year were $90,500.
ALL OTHER FEES
Other than audit fees, the aggregate fees billed to the Company by Ernst & Young
LLP and other firms for the most recent fiscal year were $27,000, which
consisted of $17,500 for accounting consultation fees and $9,500 for tax
preparation and filing fees. The Company paid no financial information systems
design and implementation fees to Ernst & Young LLP. The Audit Committee of the
Board of Directors has determined that the services performed by Ernst & Young
LLP other than audit services are not incompatible with Ernst & Young LLP
maintaining its independence.
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 2002 were filed on a timely basis.
SHAREHOLDER PROPOSALS
Any shareholder desiring to submit a proposal for action at the 2003 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 March 30, 2003 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
16
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 2003 Annual Meeting, if the Company is not provided
notice of a shareholder proposal prior to June 15, 2003, the Company will be
allowed to use its voting authority as described above.
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 Company's Annual Report on Form 10-K for fiscal 2002 is enclosed herewith.
Shareholders may also view this Proxy Statement and Form 10-K on Navarre's
website www.navarre.com or receive a copy by writing to: Navarre Corporation,
7400 49th Avenue North, New Hope, Minnesota 55428, Attention: James Gilbertson,
or by calling the Company at (763) 535-8333
By Order of the Board of Directors
/s/ Charles E. Cheney
Charles E. Cheney
Secretary
Dated: July 29, 2002
17
NAVARRE CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
THURSDAY, SEPTEMBER 5, 2002
3:30 P.M.
NAVARRE CORPORATION
7400 - 49TH AVENUE NORTH
NEW HOPE, MN 55428 PROXY
- --------------------------------------------------------------------------------
PROXY SOLICITED BY BOARD OF DIRECTORS
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 12, 2002, at the Annual Meeting of Shareholders to be
held on Thursday, September 5, 2002, or at any adjournment thereof, upon the
following matters:
See reverse for voting instructions.
COMPANY #
CONTROL #
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
- - Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a week,
until 12:00 noon EST on September 4, 2002.
- - You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above.
- - Follow the simple instructions the Voice provides you.
VOTE BY INTERNET -- http://www.eproxy.com/navr/ -- QUICK *** EASY *** IMMEDIATE
- - Use the Internet to vote your proxy 24 hours a day, 7 days a week, until 12:00
noon CST on _____________.
- - 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(SM),
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 -
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM 1.
1. Election of directors: 01 Eric H. Paulson
02 James G. Sippl
[ ] Vote FOR [ ] Vote WITHHELD
all nominees from all nominees
except as indicated below
- ------------------------------------------------------
(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.)
2. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR THE ELECTION OF THE NOMINEES LISTED IN THE PROXY
STATEMENT.
Address Change? Mark Box [ ]
Indicate changes below:
Date
-----------------------------------
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.