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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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:
- --------------------------------------------------------------------------------
PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
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CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
NAVARRE CORPORATION
7400 49TH AVENUE NORTH
NEW HOPE, MINNESOTA 55428
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 10, 2003
The Annual Meeting of the Shareholders of Navarre Corporation will be held
Wednesday, September 10, 2003 at 3:30 p.m., local time, at the LeMeridien
Minneapolis Hotel, Ballroom IV, Fifth Floor, 601 First Avenue North,
Minneapolis, Minnesota, 55403, 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 approve an amendment to the 1992 Stock Option Plan to increase
the number of shares issuable thereunder: and
3. 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 18, 2003 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,
Charles E. Cheney
Secretary
July 29, 2003
NAVARRE CORPORATION
7400 49TH AVENUE NORTH
NEW HOPE, MINNESOTA 55428
(763) 535-8333
-----------------------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 10, 2003
-----------------------------------
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 Wednesday, September 10, 2003 at 3:30
p.m., local time, at the LeMeridien Minneapolis Hotel, Ballroom IV, Fifth Floor,
601 First Avenue North, Minneapolis, Minnesota, 55403, and at any adjournments
or postponements thereof. This Proxy Statement and accompanying proxy are first
being mailed to our shareholders on or about July 30, 2003.
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, 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 18, 2003 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, to approve the proposed amendment to
the 1992 Stock Option Plan 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, 2003 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 (1) Beneficial Ownership Percent of Class
- --------------------------------------------------------------------------------
Eric H. Paulson 2,560,558(2) 11.7%
Charles E. Cheney 810,120(2) 3.7%
James G. Sippl 40,800(2) *
Michael L. Snow 30,800(2) *
Alfred Teo 320,600(2) 1.5%
Tom Weyl 31,200(2) *
Dickinson G. Wiltz 161,400(2) *
James Gilbertson 52,000(2) *
Brian Burke 45,230(3) *
Steve Pritchitt 23,600(2) *
John Turner 33,285(4) *
All directors and executive
officers as a group (12 persons) 4,109,593 18.4%
*Indicates ownership of less than one percent.
(1) The address for each Named Individual is 7400 - 49th Avenue North, New Hope,
Minnesota 55428.
(2) Includes shares of common stock issuable upon exercise of outstanding
options exercisable within sixty days of July 1, 2003 in the following amounts:
Eric H. Paulson - 240,000 shares; Charles E. Cheney - 234,400 shares; James G.
Sippl - 30,800 shares; Michael L. Snow - 30,800 shares; Alfred Teo - 30,800
shares; Tom Weyl - 1,200 shares; Dickinson G. Wiltz - 30,800 shares; James
Gilbertson - 50,000 shares; Steve Pritchitt - 13,600 shares; all directors and
executive officers as a group - 735,200 shares.
(3) Includes 41,800 shares of common stock issuable upon exercise of outstanding
options exercisable within sixty days of July 1, 2003 owned by Brian Burke and
3,400 shares of common stock issuable upon exercise of outstanding options
exercisable within sixty days of July 1, 2003 and 15 shares of common stock
owned by Mr. Burke's spouse.
(4) Includes 27,600 shares of common stock issuable upon exercise of outstanding
options exercisable within sixty days of July 1, 2003 owned by John Turner and
5,670 shares of common stock owned by Mr. Turner's spouse.
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.
Michael L. Snow and Alfred Teo expire at the Annual Meeting of Shareholders
following fiscal year 2003, the terms of Messrs. Charles E. Cheney, Tom Weyl,
and Dickinson G. Wiltz expire at the Annual Meeting of Shareholders following
fiscal year 2004, and the terms of Messrs. Eric H. Paulson and James G. Sippl
expire at the Annual Meeting of Shareholders following fiscal year 2005.
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 2006 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 2006
Michael L. Snow
(52)................. 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 (57)...... 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.
3
Directors serving continuing terms:
Charles E. Cheney
(60)................. 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.
Eric H. Paulson
(58)................. 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
(55)................. Mr. Sippl has served as a director since July 1993.
Mr. Sippl is President of Sippl & Associates, a
financial consulting firm focusing on emerging
businesses. 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 Stellent, 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.
Tom Weyl (60)........ Mr. Weyl has served as director of the Company since
July 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 a director of
Musicland Stores Corporation from 1992 until its
acquisition by Best Buy Co., Inc. in February 2001.
Dickinson G. Wiltz
(74)................. 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 an $18,000 per
year retainer, paid monthly, $600 per board meeting attended and $400 per
committee. 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. 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. Pursuant to the Plan, Mr. Cheney
received options to purchase 6,000 shares at a price of $1.479 on July 18, 2002
and Messrs. Cheney, Sippl, Snow, Teo, Weyl and Wiltz received options to
purchase 6,000 shares at a price of $2.00 per share on May 6, 2003. In addition,
Messrs. Cheney, Sippl, Snow, Teo, Weyl, and Wiltz received options to purchases
50,000 shares at a price of $1.73 on February 6, 2003. The options to purchase
the 50,000 shares and the options to purchase 6,000 shares received by the
non-employee directors are subject to shareholder approval of the amendment to
increase the number of shares reserved for issuance under the 1992 Plan at the
Company's Annual Meeting on September 10, 2003. Upon shareholder approval, the
stock price at the date of approval will be compared to the price given on
February 6, 2003 and May 6, 2003 and compensation will be recorded as necessary.
See Proposal #2 - "Approval of Amendment to 1992 Stock Option Plan to Increase
Number of Shares Reserved for Issuance."
BOARD ACTIONS AND COMMITTEES
During fiscal 2003, the Board of Directors held six 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 2003 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
Extraordinary Transactions 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 2003 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
two meetings during the fiscal year ended March 31, 2003.
The Governance Committee of the Board of Directors, which consists of all of the
outside directors, included Messrs. Sippl, Snow, Teo, Weyl and Wiltz in fiscal
2003. 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, 2003.
During fiscal 2003, the Acquisition Evaluation Committee changed its name to the
Extraordinary Transactions Committee and is comprised of Messrs. Cheney, Sippl,
Snow, and Teo. The Committee was established to evaluate acquisition
opportunities. The Extraordinary Transactions Committee held no meetings during
the fiscal year ended March 31, 2003.
5
The Company does not have a nominating committee. The officers of the Company
are appointed by the Board of Directors and hold office until their successors
are chosen and qualified or until their earlier death, resignation or removal
from office.
EXECUTIVE OFFICERS OF THE COMPANY
The Company's executive officers and other key members of management are as
follows:
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
Eric H. Paulson 58 Chairman of the Board, President and Chief Executive
Officer
James Gilbertson 41 Vice President and Chief Financial Officer
Cary Deacon 51 Corporate Relations Officer
Michael Bell 38 Chief Executive Officer of Encore Software, Inc.
Brian Burke 33 Senior Vice President and General Manager, Navarre
Distribution Services
Steve Pritchitt 55 Senior Vice President and General Manager, Navarre
Entertainment Media
John Turner 49 Senior Vice President, Operations
Kathleen Conlin 59 Vice President, Corporate Controller
Joyce Fleck 51 Vice President, Marketing
Margot McManus 45 Vice President, Human Resources
James Colson 42 Vice President, Business Affairs, Navarre Entertainment
Media
Ryan Urness 31 Corporate Counsel
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 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.
Cary Deacon has been Corporate Relations Officer since joining the Company
in September, 2002. Prior to joining Navarre his career spans 30 years in senior
management positions in multi-billion dollar retail organizations both
domestically and internationally. He served as SVP, EVP and COO levels with the
Hudson's Bay Company, Montgomery Wards, Saffer Advertising and Macy's. His
public company experience as COO, CEO and Director include SkyMall, Inc.,
NetRadio Corporation, Raindance, Inc. and ValueVision (ShopNBC) International,
Inc.
Michael Bell co-founded the predecessor entity of Encore Software, Inc.
in October 1994 and has served as the company's CEO since August 2002 when a
subsidiary of the Company acquired the primary assets of its predecessor entity
from the United States Bankruptcy Court. Mr. Bell also owns a minority stock
equity position in Encore Software, Inc. Prior to starting the predecessor
entity of Encore Software, Inc. Mr. Bell served as Director of Sales for
Paramount from 1992 to 1994. Prior to joining Paramount, Mr. Bell served as
Sales Manager for NEC leading an entrepreneurial unit established to forge
strategic relationships that helped create the then nascent CD-ROM industry.
6
Brian Burke has been Senior Vice President and General Manager, Navarre
Distribution Services since April 2001. He previously served as Vice President
and 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 Navarre, 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.
Kathleen Conlin has been Vice President, Corporate Controller since
1995. Ms. Conlin has served in a series of positions of increasing
responsibility in Finance 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.
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. From 1995 to 1997, he was the
Controller for Distribution North America. 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.
Ryan Urness has been Corporate Counsel to the Company since January 2003.
Prior to joining Navarre, a significant portion of Mr. Urness' efforts were
engaged in various matters for the Company as outside legal counsel. In this
previous position as outside legal counsel to the Company, Mr. Urness served as
a Managing Associate at the legal firm of Winthrop & Weinstine, P.A. where his
practice was primarily focused on transactions and disputes involving
intellectual property and technology.
7
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation and other components of
compensation for the fiscal years ending March 31, 2003, 2002, and 2001 for Eric
H. Paulson, our Chief Executive Officer and the four highest paid executive
officers of the Company, James Gilbertson, Brian Burke, Steve Pritchett, and
John Turner, (the "Named Executive Officers") during the fiscal year ended March
31, 2003.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------- SECURITIES
NAME AND FISCAL OTHER ANNUAL UNDERLYING
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
- -------------------------------------------------------------------------------------------------
Eric H. Paulson
Chairman of the Board, 2003 $350,000 $134,400 $ 41,186(2) 150,000
Chief Executive Officer 2002 $335,193 $ 30,000 $ 62,477(2) --
and President 2001 $325,000 $130,000 $103,564(3) 100,000
James Gilbertson
Vice President, 2003 $185,616 $ 36,600 $ 6,000(1) 50,000
Chief Financial Officer 2002 $176,231 $ 8,750 $ 6,000(1) 100,000
2001(5) $ 26,923 -- $ 923 50,000
Brian Burke
Senior Vice President and 2003 $196,115 $ 40,000 -- 60,000(4)
General Manger, Navarre 2002 $179,592 $ 64,969 $ 3,115(1) 138,000(4)
Distribution Services 2001 $143,269 $ 25,000 $ 5,400(1) 14,000(4)
Steve Pritchitt
Senior Vice President and 2003 $190,000 $ 20,000 $ 4,800(1) 60,000
General Manger, Navarre 2002 $180,000 $ 11,731 $ 4,800(1) 28,000
Entertainment Media 2001 $150,000 -- $ 3,877(1) --
John Turner 2003 $170,000 $ 38,000 -- 60,000
Senior Vice President, 2002 $149,038 $ 56,000 -- 8,000
Operations 2001 $135,000 $ 52,000 -- 10,000
(1) Represents car allowance.
(2) Amounts reflect life insurance premiums paid by us of $41,186 in fiscal
2003 and $62,477 in fiscal 2002 for Mr. Paulson.
(3) Amounts reflect accommodation fees paid to Mr. Paulson of $40,000 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.
(4) Amounts do not reflect the indirectly owned options received by Mr.
Burke's spouse in the following amounts: 1,000 shares in fiscal 2003;
1,000 shares in fiscal 2002; and 2,000 shares in fiscal 2001.
(5) Mr. Gilbertson joined the Company in January 2001.
8
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.
The agreement, entered into April 2002, 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, 2003, the first $200,000 of
the loan was forgiven leaving $800,000 outstanding on the loan. The loan bears
interest at 5.25 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, 2003, would have been equal to $1,395,344.
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.
9
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. The purpose of the
1992 Plan is to advance interests in us and our shareholders by enabling us to
attract and retain persons of ability to perform services for us, by providing
an incentive to such persons through equity participation in us and by rewarding
such persons who contribute to the achievement by us of our economic objectives.
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.
At July 1, 2003, the Company had issued 1,174,046 shares under the 1992 Plan,
3,040,752 shares were subject to outstanding options and warrants and 9,202
shares were reserved for future grant. In addition, options to acquire 148,248
shares granted to Messrs. Cheny, Sippl, Snow, Teo, Weyl and Wiltz on February 6,
2003 and May 6, 2003 are subject to shareholder approval of the amendment to
increase the number of shares reserved for issuance under the 1992 Plan at the
Company's Annual Meeting on September 10, 2003. See Proposal #2 - "Approval of
Amendment to 1992 Stock Option Plan to Increase Number of Shares Reserved for
Issuance."
The following table sets forth certain information regarding (i) stock options
granted to Mr. Paulson and the Company's current Named Executive Officers during
our 2003 fiscal year and (ii) the potential value of these options determined
pursuant to SEC rules.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED FISCAL YEAR ($/SH) DATE 5% 10%
- ------------------------- --------------- ------------------ ------------ -------------- ---------- ---------------
Eric H. Paulson 150,000 11.6% $ 1.73 2/06/09 $331,195 $417,927
James Gilbertson 50,000 3.9% $ 1.73 2/06/09 $110,398 $139,309
Brian Burke 11,000(2) .9% $ 1.479 7/18/07 $ 20,764 $ 26,201
50,000 3.9% $ 1.73 2/06/09 $110,398 $139,309
Steve Pritchitt 10,000 .8% $ 1.479 7/18/07 $ 18,876 $ 23,819
50,000 3.9% $ 1.73 2/06/09 $110,398 $139,309
John Turner 10,000 .8% $ 1.479 7/18/07 $ 18,876 $ 23,819
50,000 3.9% $ 1.73 2/06/09 $110,398 $139,309
(1) Represents the potential realizable value of grant of options assuming that
the market price of the underlying common stock appreciates in value from
its fair market value on the date of the grant to the end of the option term
at the indicated annual rates.
(2) Includes 1,000 shares of common stock underlying an option granted to Mr.
Burke's spouse at the same price during fiscal 2003.
10
The following table sets forth information with respect to the Company's Chief
Executive Officer and its current Named Executive Officers concerning the
exercise of options during fiscal 2003 and unexercised options held at March 31,
2003.
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 220,000 250,000 None None
James Gilbertson None None 40,000 160,000 $13,850 $48,550
Brian Burke None None 33,800(1) 202,800(1) $ 3,528(2) $91,113(2)
Steve Pritchitt None None 7,600 80,400 $ 2,754 $11,016
John Turner None None 23,600 74,400 $ 1,578 $ 6,312
(1) Includes 2,800 exercisable options and 3,200 unexercisable options
owned by Mr. Burke's spouse.
(2) Includes $186 exercisable options in-the-money and $745 unexercisable
options in-the-money held by Mr. Burke's spouse.
The closing price on March 31, 2003, as reported on the Nasdaq National Market
System, was $1.70 per share.
CERTAIN TRANSACTIONS
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, 2003 would have been equal to $876,791.
11
MICHAEL BELL EMPLOYMENT AGREEMENT AND STOCK PURCHASE
Effective July 31, 2002, the Company's wholly-owned subsidiary, Encore
Acquisition Corporation, a Minnesota Corporation ("Encore") acquired
substantially all the assets of Encore Software, Inc. Effective August 24, 2002,
Encore entered into an employment agreement with Michael Bell providing for his
employment as Chief Executive Officer of Encore. Mr. Bell was the prior Chief
Executive Officer of Encore Software, Inc. The Agreement has a term of five
years, but may be terminated by either Encore or by Mr. Bell at any time for any
or for no reason. The Agreement currently provides for an Initial Base Salary of
$185,000 per year, subject to adjustments in future years to be determined
annually by Encore's Board of Directors. The Agreement further provides that Mr.
Bell shall be entitled to an annual performance bonus of up to forty percent
(40%) of his annual salary, with the bonus to be determined by Encore's Board of
Directors and based on Mr. Bell's and Encore's satisfaction of mutually
acceptable performance objectives. Mr. Bell was granted a signing bonus of
$5,500 upon execution of the Agreement and he is entitled to the usual and
customary benefits offered by Encore from time to time to its executives,
including health insurance. Mr. Bell is also entitled to receive vacation,
reimbursement for reasonable business expenses, and a vehicle allowance of $750
per month.
The Agreement includes confidentiality/non-disclosure obligations and other
restrictive conditions upon termination of the Agreement. If the Agreement is
terminated by the Company within two years after a Change of Control, the
Company must pay Mr. Bell an amount equal to the compensation which would have
been paid to Mr. Bell during the period from the date of termination to the end
of the Agreement term had the Agreement not been terminated upon a change of
control, provided however that the maximum amount payable cannot exceed the
maximum amount payable under Section 280G of the Internal Revenue Code of 1986
without the imposition of any excise tax or the denial of any deduction to the
Company with respect to such payment. In addition, if the Agreement is
terminated by Mr. Bell for Good Reason or by the Company for any reason other
than death, disability or cause, Mr. Bell will continue to receive base salary,
bonus and health benefits for the remainder of the Agreement term without any
obligation on the part of Mr. Bell to mitigate any such payments if he is not in
breach of any contractual obligations with the Company or the
confidentiality/restrictive provisions of the Agreement.
As an inducement for Mr. Bell to enter into the Agreement, the Company
guaranteed the collection of Mr. Bell's compensation payable by Encore during
the twelve-month period beginning on the effective date of this Agreement. The
guarantee includes any reasonable attorney fees and expenses incurred by Mr.
Bell in enforcing his rights under this Guaranty. The Company's exposure under
the Guaranty is limited to $250,000.
As an additional component to Mr. Bell's employment, Encore and Mr. Bell
entered into a stock purchase agreement, dated August 24, 2002, whereby
Encore agreed to issue to Mr. Bell 20,000 of the 100,000 outstanding shares
of capital stock of Encore. Mr. Bell paid Encore a total of $500 in cash for
these shares. Mr. Bell and Encore entered into a buy/sell agreement, which
imposes restrictions on the transfer of Mr. Bell's capital stock and provides
for the orderly future disposition of these shares.
OTHER ITEMS
At March 31, 2003, Mr. Paulson was indebted to us in the principal amount of
$800,000. 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.
As of July 1, 2003, we had 148,248 shares, which included 18,708 options granted
on February 6, 2002 and 6,000 options granted on May 6, 2002 to the Company's
six non-employee directors, being held pending shareholder approval of the
proposal to increase the number of shares issuable under the 1992 Plan. See
Proposal #2 - "Approval of Amendment to 1992 Stock Option Plan to Increase
Number of Shares Reserved for Issuance."
12
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. Teo, and Mr. Weyl. 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 2003. 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 five meetings during fiscal year 2003. 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. 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, 2003 for filing with the Securities and
Exchange Commission.
SUBMITTED BY THE AUDIT COMMITTEE OF
THE COMPANY'S BOARD OF DIRECTORS
James G. Sippl Alfred Teo Tom Weyl
13
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 2003 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 two meetings during fiscal year 2003. 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 2003.
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 contractual
arrangements, responsibilities, 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 is eligible to receive an amount up to 100% of his base
salary under his current employment agreement dated November 1, 2001. 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 2003, the following bonuses were awarded: Mr. Paulson - $134,400; Mr.
Gilbertson - $36,600; Mr. Burke - $40,000; Mr. Pritchett - $20,000; and Mr.
Turner - $38,000.
STOCK OPTIONS / STOCK GRANTS
In order to promote improved long-term performance by the Company, the Committee
awards stock options or restricted stock 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.
14
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Paulson's base pay for fiscal 2003 was $350,000. 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 2003, the Company made cost of living adjustments
to the base salary. Mr. Paulson received a bonus of $134,400 during fiscal 2003
based upon Mr. Paulson's achievements during fiscal 2002. 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 2003 COMPENSATION COMMITTEE OF
THE COMPANY'S BOARD OF DIRECTORS
James G.Sippl Tom Weyl Dickinson Wiltz
15
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, 1998 to March 31, 2003 on $100 invested
on March 31, 1998 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 2003: Handleman Co., Ingram Micro Inc., Merisel
Inc., Platinum Entertainment, Inc. and Tech Data Corp. This group is
comprised of companies that, in fiscal 2003 had similar music or software
distribution operations.
PERFORMANCE GRAPH
NAVARRE CORPORATION
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS
[LINE GRAPH]
3/98 3/99 3/00 3/01 3/02 3/03
-------------------------------------------------------
Navarre Corporation 100.00 530.95 150.02 52.38 41.90 64.76
NASDAQ Stock Market 100.00 135.08 250.99 100.60 101.32 74.37
Self-Determined Peer Group 100.00 67.50 69.62 60.82 84.73 54.08
16
PROPOSAL 2 - APPROVAL OF AMENDMENT TO 1992 STOCK OPTION PLAN TO INCREASE
NUMBER OF SHARES RESERVED FOR ISSUANCE
On February 5, 2003, the Board of Directors voted to increase the number
of shares reserved for issuance under the 1992 Stock Option Plan (the "1992
Plan") from 4,224,000 to 5,224,000 shares, subject to the approval of the
Company's shareholders. THE SHAREHOLDERS ARE BEING ASKED TO APPROVE THE
AMENDMENT TO THE 1992 PLAN TO INCREASE THE NUMBER OF SHARES RESERVED FOR
ISSUANCE THEREUNDER AT THE ANNUAL MEETING.
The purpose of the 1992 Plan is to advance the interests of the Company
and its shareholders by enabling the Company to attract and retain persons of
ability to perform services for the Company, by providing an incentive to such
persons through equity participation in the Company and by rewarding such
persons who contribute to the achievement of the Company of its economic
objectives. Management believes that the granting of stock options and other
awards will serve as partial consideration for and give well-qualified
employees, non-employee directors and others an additional inducement to remain
in the service of the Company and provide them with an increased incentive to
work for the Company's success. To enable the Company to continue to grant
stock-based awards in furtherance of the purposes and objectives of the 1992
Plan, the Board recommends that the shareholders approve the proposed increase
in the number of shares reserved for issuance under the 1992 Plan.
The 1992 Plan currently authorizes the issuance of 4,224,000 shares of
Common Stock pursuant to options granted, or shares of restricted stock awarded,
under the 1992 Plan. On February 6, 2003, options were granted to officers and
members of senior management of the Company totaling 730,000 shares at an
exercise price of $1.73 per share. At that date, only 637,754 shares were
available for grant under the 1992 Plan. 112,248 options of the grant were held
pending shareholder approval of the proposal to increase the number of shares
issuable under the 1992 Plan. The 112,248 options were originally priced on
February 6, 2003 at $1.73. In addition, the Company's six non-employee directors
were granted options to purchase 6,000 shares each at an exercise price of
$2.00 per share on May 6, 2003. The options to purchase 6,000 shares received
by the non-employee directors are also subject to shareholder approval of the
amendment to increase the number of shares reserved for issuance under the 1992
Plan. Upon shareholder approval of this proposal, the stock price at the date
of approval will be compared to the price given on February 6, 2003 and May 6,
2003 and compensation will be recorded as necessary. If the amendment to the
1992 Plan is approved, 851,752 shares will be available for future grants under
the 1992 plan. The 1992 Plan terminates on July 1, 2006.
SUMMARY OF 1992 PLAN
This summary is qualified in its entirety by the terms of the 1992 Plan, a
copy of which, in its amended form, may be obtained from the Secretary of the
Company.
GENERAL
The 1992 Plan provides for the granting (a) options to purchase common
stock that qualify as "incentive stock options" within the meaning of Section
422 of the Code ("Incentive Stock Options"), (b) options to purchase common
stock that do not qualify as incentive stock options ("Non-Qualified Options"),
and (c) restricted stock awards. The 1992 Plan is administered by the
Compensation Committee, which (other than with respect to automatic grants of
options to non-employee directors) selects the participants to be granted
options under the 1992 Plan, determines the amount of grants to participants,
and prescribes discretionary terms and conditions of each grant not otherwise
fixed under the 1992 Plan. All employees of the Company are eligible for
participation under the 1992 Plan. One hundred and six employees were
participants as of July 15, 2003.
17
STOCK OPTIONS
Incentive Stock Options must be granted with an exercise price equal to at
least the fair market value of the common stock on the date of grant (or, in the
case of participants owning more than 10% of the total combined voting power of
all classes of stock of the Company, at least equal to 110% of the fair market
value on the date of grant). Non-Qualified Options may be granted with an
exercise price less than 100% of the fair market value of the common stock on
the date of grant.
For Incentive Stock Options granted after December 31, 1986, the aggregate
fair market value (determined as of the time the Incentive Stock Option is
granted) of shares of common stock with respect to which Incentive Stock Options
become exercisable for the first time by a participant under the 1992 Plan
during any calendar year may not exceed $100,000. On July 15, 2003, the closing
price of a share of Company common stock as reported by the Nasdaq National
Market System was $2.28. Stock Options have a maximum term fixed by the
Compensation Committee, not to exceed 10 years from the date of grant (five
years in the case of an Incentive Stock Option granted to participants owning
more than 10% of the total combined voting power of all classes of stock of the
Company). Non-Qualified Options have a maximum term fixed by the Compensation
Committee, not to exceed 10 years from the date of grant. Stock options become
exercisable during their terms in the manner determined by the Compensation
Committee. Stock options may not be transferred other than by will or the laws
of descent and distribution, and during the lifetime of a participant they may
be exercised only by the participant.
FEDERAL INCOME TAX CONSEQUENCES
The following description of federal income tax consequences is based on
current statutes, regulations and interpretations. The description does not
include state or local income tax consequences. In addition, the description is
not intended to address specific tax consequences applicable to an individual
participant who receives an award.
Incentive Stock Options
There will not be any federal income tax consequences to either the
participant or the Company as a result of the grant to a participant of an
Incentive Stock Option under the 1992 Plan. The exercise by a participant of an
Incentive Stock Option also will not result in any federal income tax
consequences to the Company or the participant, except that (i) an amount equal
to the excess of the fair market value of the shares acquired upon exercise of
the Incentive Stock Option, determined at the time of exercise, over the
consideration paid for the shares by the participant will be a tax preference
item for purposes of the alternative minimum tax, and (ii) the participant may
be subject to an additional excise tax if any amounts are treated as "excess
parachute payments" within the meaning of the Code.
If a participant disposes of the shares acquired upon exercise of an
Incentive Stock Option, the federal income tax consequences will depend upon how
long the participant has held the shares. If the participant does not dispose of
the shares within two years after the Incentive Stock Option was granted, nor
within one year after the participant exercised the Incentive Stock Option and
the shares were transferred to the participant (the "Applicable Holding
Periods"), then the participant will recognize a long-term capital gain or loss.
If the Applicable Holding Periods are not satisfied, then any gain realized in
connection with the disposition of such stock will generally be taxable as
ordinary compensation income in the year in which the disposition occurred, to
the extent of the difference between the fair market value of such stock on the
date of exercise and the option exercise price. The Company is entitled to a tax
deduction to the extent, and at the time, the participant realizes compensation
income. The balance of any gain will be characterized as a capital gain.
18
Non-Qualified Options
An optionee will not realize taxable compensation income upon the grant of
a Non-Qualified Stock Option. As a general matter, when an optionee exercises a
Non-Qualified Stock Option, he or she will realize taxable compensation income
at that time equal to the difference between the aggregate option price and the
fair market value of the stock on the date of exercise. The Company is entitled
to a tax deduction to the extent, and at the time, the participant realizes
compensation income.
2001 AMENDMENTS TO 1992 PLAN
In 2001, the 1992 Plan was amended to provide that, upon a Change in
Control, any shares of restricted stock awarded under the 1992 Plan still
subject to restriction vest in full as of the date of such Change in Control.
In 2001, the shareholders also approved an amendment to the 1992 Plan to
extend the Plan's term until July 1, 2006 and to amend certain provisions in the
1992 Plan requiring a six-month holding period. The revised language conformed
the 1992 Plan to certain amendments to Section 16 adopted by the SEC in 1996
that removed the six-month holding period requirement as long as a particular
transaction was approved (i) by the board of directors of the issuer, (ii) by a
committee of the board of directors that is composed solely of two or more
non-employee directors, or (iii) ratified by the affirmative votes of a majority
of the securities of the Company present, or represented, and entitled to vote
at a meeting duly held in accordance with the laws of the State of Minnesota.
VOTE REQUIRED
The affirmative vote of the holders of the greater of (i) a majority of
the outstanding shares of common stock of the Company present and entitled to
vote or (ii) a majority of the voting power of the minimum number of shares
entitled to vote that would constitute a quorum for transaction of business at
the meeting, is required for approval of the amendment to the 1992 Plan
increasing the number of shares reserved for issuance thereunder from 4,224,000
to 5,224,000. A shareholder who abstains is considered to be present and
entitled to vote at the meeting, and is in effect casting a negative vote, but a
shareholder (including a broker) who does not give authority to a Proxy to vote
shall not be considered present and entitled to vote.
REGISTRATION WITH SEC
The Company intends to file a Registration Statement on Form S-8 covering
the issuance of the additional shares issuable under the 1992 Plan, as amended,
with the Securities and Exchange Commission pursuant to the Securities Act of
1933, as amended.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR ADOPTION OF THE
AMENDMENT TO THE 1992 PLAN.
19
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 AND NON-AUDIT FEES
The SEC has adopted rules that beginning next year will require the disclosure
of fees paid to the independent auditor in a new format and the disclosure of
pre-approval policies and procedures for all audit and non-audit services. We
are voluntarily providing the new disclosures before they are required. The
following table uses the new fee disclosure format to summarize the fees we paid
for audit and non-audit services rendered by Ernst & Young LLP during fiscal
years 2003 and 2002.
SERVICE TYPE FISCAL 2003 FISCAL 2002
Audit Fees (1) $130,050 $108,000
Tax Fees (2) 1,575 9,500
--------------------------
Total Fees Billed $131,625 $117,500
(1) Consists of fees for professional services rendered in connection with the
audit of our financial statements for the fiscal years ended March 31,
2003 and 2002; the reviews of the financials included in each of our
quarterly reports on Form 10-Q during those fiscal years and consultations
on accounting matters.
(2) Consists of fees for tax advisory services in connection with the
preparation of original and amended tax returns, claims for refunds, tax
payment and planning, tax audits and appeals, mergers and acquisitions,
employee benefit plans and requests for rulings and advice from taxing
authorities.
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 2003 were filed on a timely basis.
SHAREHOLDER PROPOSALS
Any shareholder desiring to submit a proposal for action at the 2004 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
20
addressed to Secretary, no later than March 30, 2004 in order to be considered
for inclusion in the Company's proxy statement relating to the meeting. Matters
pertaining to such proposals, including the number and length thereof,
eligibility of persons entitled to have such proposals included and other
aspects are regulated by the Securities Exchange Act of 1934, Rules and
Regulations of the Securities and Exchange Commission and other laws and
regulations to which interested persons should refer.
In addition, SEC Rule 14a-4 governs the Company's use of its discretionary proxy
voting authority with respect to a shareholder proposal that is not addressed in
the Company's proxy statement. The Rule provides that if a proponent of a
proposal fails to notify the Company at least 45 days prior to the month and day
of mailing of the prior year's proxy statement, then the Company will be allowed
to use its discretionary voting authority when the proposal is raised at the
meeting, without any discussion of the matter in the proxy statement. With
respect to the Company's 2004 Annual Meeting, if the Company is not provided
notice of a shareholder proposal prior to June 15, 2004, 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 2003 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
Charles E. Cheney
Secretary
Dated: July 29, 2003
21
NAVARRE CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, SEPTEMBER 10, 2003
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 18, 2003, at the Annual Meeting of Shareholders to be
held on Wednesday, September 10, 2003, 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 9, 2003.
- - You will be prompted to enter your 3-digit Company Number, your 7-digit
Control Number (these numbers are located on the proxy card) and the last
4-digits of the U.S. Social Security Number or Tax Identification Number
for this account. If you do not have a U.S. SSN or TIN please enter 4
zeros.
- - 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 noon (CT) on September 9, 2003.
- - You will be prompted to enter your 3-digit Company Number, your 7-digit
Control Number (these numbers are located on the proxy card) and the last
4-digits of the U.S. Social Security Number or Tax Identification Number
for this account to obtain your records and create an electronic ballot.
If you do not have a U.S. SSN or TIN please leave blank.
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 ITEMS 1 AND 2.
1. Election of directors:
01 Michael L. Snow [ ] Vote FOR [ ] Vote WITHHELD
02 Alfred Teo 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. Proposal to approve an amendment to increase For Against Abstain
the number of shares issuable under the [ ] [ ] [ ]
Company's 1992 Stock Option Plan.
3. 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.